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Teva Agrees to Pay $1.2 Billion in FTC’s Pay-For-Delay Suit Against Cephalon

Yesterday, the FTC announced that it reached a settlement in its pay-for-delay lawsuit, FTC v. Cephalon Inc. in the U.S. District Court for the Eastern District of Pennsylvania, with Teva Pharmaceuticals Industries, Ltd., which acquired Cephalon in 2012.  This case is the first FTC case to be resolved since the Supreme Court’s 2013 decision in FTC v. Actavis, in which the Court announced that reverse-payment patent settlements could be subject to antitrust challenges.

The FTC filed suit in 2008 accusing Cephalon Inc. of unlawfully paying over $300 million to four generic drugmakers, including Teva, to drop their patent challenges and delay marketing their generic versions of Cephalon’s sleep-disorder drug Provigil for six years.  Under the settlement, Teva will pay $1.2 billion to compensate purchasers, including drug wholesalers, pharmacies, and insurers, who overpaid for Provigil.  The FTC will allow Teva to count its settlement with direct purchasers in related litigation as a credit towards the total disgorgement amount paid to the FTC.  Any remaining settlement funds not paid to purchasers will be paid to the federal treasury.

Perhaps more importantly, Teva, which is now the world’s largest generic drug manufacturer, also agreed not to enter into any similar patent settlements in its future U.S. operations.  Specifically, the stipulated order for permanent injunction prohibits Teva from entering into a business transaction with a competitor within 30 days of, or expressly conditioned on, a patent litigation settlement that restricts the competitor’s generic entry.  However, the permanent injunction will not prevent Teva from entering into truly independent business deals nor will it bar Teva from entering into other types of settlement agreements in which the value at stake is unlikely to raise antitrust concerns, e.g. payment for saved future litigation expenses of up to $7 million.  The stipulated order also does not cover certain forms of potentially anticompetitive reverse payments, such as exclusive licenses from brand manufacturers to generic drugmakers, which were not at issue in the case.

FTC Chairwoman Edith Ramirez announced in a press release, “Today’s landmark settlement is an important step in the FTC’s ongoing effort to protect consumers from anticompetitive pay for delay settlements, which burden patients, American businesses, and taxpayers with billions of dollars in higher prescription drug costs[.]  Requiring wrongdoers to give up their ill-gotten gains is an important deterrent.”  This case is still set for trial beginning June 1, but if the settlement is approved by the Court, it will resolve all of the FTC’s charges.