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From Health Law Daily, May 28, 2015

FTC’s landmark pay-for-delay settlement would provide largest equitable monetary relief in history

By Sarah E. Baumann, J.D.

The Federal Trade Commission (FTC) has entered into its first pay-for-delay settlement agreement since the U.S. Supreme Court ruled in Federal Trade Commission v. Actavis that reverse settlements are subject to an antitrust rule of reason analysis (see Pay-for-delay settlements may violate antitrust laws, June 17, 2013). The proposed $1.2 billion settlement, entered into with Cephalon, Inc. and its parent company, Teva Pharmaceuticals, Ltd., is the largest equitable monetary relief settlement in FTC history. If approved by the U.S. District Court for the Eastern District of Pennsylvania, the agreement would prohibit Cephalon and Teva from entering into agreements in which a branded drug manufacturer pays or otherwise compensates a settling generic drug manufacturer and the compensation is either contingent on settlement of existing patent litigation or occurs within 30 days of a settlement. Proceeds will compensate purchasers who overpaid for Provigil®, the patented drug at issue, including drug wholesalers, pharmacies, and insurers.

Pay-for-delay settlement. Cephalon received a patent for Provigil, a drug used to treat sleep disorders, including sleep apnea and narcolepsy. On the earliest date possible, Teva, Ranbaxy Pharmaceuticals, Mylan Pharmaceuticals, and Barr Laboratories filed abbreviated new drug applications (ANDAs) for permission to market a generic version of the drug. Cephalon challenged the ANDAs and eventually paid the four companies more than $300 million through roughly 12 business transactions that occurred at the same time that it settled the its patent suits. Teva eventually acquired Cephalon.

Litigation. The FTC, along with various other entities, sued Cephalon and the generic drug manufacturers, alleging that they engaged in anticompetitive conduct by delaying the entry of generic drugs into the market for six years through a pay-for-delay agreement. Cephalon and the generic manufacturers were denied summary judgment when the district court ruled that, because the FTC’s evidence of a large reverse payment demonstrated anticompetitive effects, Cephalon, Teva, and the other manufacturers must justify the payment as procompetitive (see No ‘threshold burden’ in Provigil® reverse-payment allegations, January 30, 2015).

Settlement. The May 28, 2015, settlement would prevent Cephalon and Teva, the nation’s largest generic drug manufacturer, from entering into transactions in which a branded drug manufacturer compensates a generic manufacturer within 30 days of a patent settlement or that are otherwise contingent on the settlement, as they are intended to provide compensation for the generic manufacturer’s agreement to delay or refrain from competing with the brand drug manufacturer. This settlement is significant for the amount of equitable monetary relief it provides to purchasers of the brand drug. Although the FTC typically focuses on prohibiting conduct that could lead to future harm, it believes that the equitable relief is justified in pay-for-delay cases, where brand and generic companies have incentives to collude rather than to compete. The Commission believes the amount of relief is justified in this case because Cephalon “succeeded in exploiting the full six-years of protection for Provigil secured by its reverse payments,” telling investors that, “if it sued, the FTC would have no ‘practical remedy’ because an enforcement action would take too long to ‘limit or undo or negate’ the company’s financial gains. Furthermore, a district court in a related case determined that Cephalon secured the Provigil patent through fraud.

Commissioners’ concerns. Commissioners Maureen K. Olhausen and Joshua D. Wright issued a separate statement, agreeing with the FTC’s decision to grant equitable relief, but expressing concern that its “increased interest in seeking this extraordinary remedy” requires it to consider reinstating the previously existing Policy Statement on Monetary Equitable Remedies in Competition Cases, which was withdrawn in 2012. They opined that in cases involving less egregious conduct, they might be unwilling to grant such relief without formal guidance.

Companies: Cephalon, Inc.; Teva Pharmaceutical Industries, Ltd.; Ranbaxy Pharmaceuticals; Mylan Pharmaceuticals; Barr Laboratories

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