On May 28, the Federal Trade Commission (“FTC”) announced it had reached a $1.2 billion settlement with Teva Pharmaceuticals,[1] which acquired Cephalon in 2012, over reverse payment for its narcolepsy drug, Provigil.  The Cephalon settlement also has non-monetary terms that bar Cephalon from entering agreements that include (i) payments to a generic filer and (ii) an agreement by a generic filer not to develop or market a drug within 30 days of a patent settlement that impedes generic entry.[2]  The FTC has lauded the outcome of Cephalon—its first settlement post-Actavis[3]—with FTC Chairwoman Edith Ramirez hailing it as a “landmark settlement” and “an important step in the FTC’s ongoing effort to protect consumers from anticompetitive pay for delay settlements.”[4]

Facts

As set forth in one of several district court opinions,[5] Cephalon purported to own U.S. Reissue Patent No. 37,516 (“RE ‘516”) issued in 2002, which covered Cephalon’s “flagship drug,” Provigil and obtained an extension on the patent by receiving an additional six months of pediatric exclusivity on Provigil, extending the exclusivity period through April 2015.  In December 2002, when generic manufacturers Teva, Ranbaxy, Mylan and Barr sought permission from the FDA pursuant to the Hatch-Waxman Act to market a generic version of Provigil, Cephalon sued the four companies for patent infringement.

Between 2005 and 2006, Cephalon paid $300 million and entered “business arrangements” with the four generic companies.   In exchange, the four generic manufacturers agreed to not challenge the validity of Cephalon’s patent and to delay marketing the generic version of Provigil for six years.  However, in 2011 the court ruled that RE ‘516 was obtained by fraud on the patent office because Cephalon did not disclose that another company had invented the underlying drug formulation, thus invaliding the protection that would otherwise be accorded to RE ‘516.  Cephalon argued that its settlement with the generic manufacturers reflected “the uncertainty and risk” of the patent litigation to both sides.  The court rejected Cephalon’s contention, reasoning that “Cephalon should not be allowed to justify a reverse payment on the grounds that it resolved ‘uncertainty and risk’ that existed because of its own affirmative misconduct.”[6]  However, the court ruling that may have tipped the balance toward settlement came on April 15, 2015, when the court ruled that the FTC could seek disgorgement of Cephalon’s profits between 2007 and 2012.[7]

Implications

Armed with the precedent of Actavis and the Cephalon settlement, the FTC will pursue its agenda to reform the pharma market boldly.  Markus H. Meier, Assistant Director of the FTC’s Health Care Division, stated that the Cephalon settlement should send a “strong and important” message to the pharmaceutical industry and cause companies to “adjust their behavior accordingly.”[8]

There is a chance that Congress may ride the wave of the Cephalon settlement to revive a bill pending since the last Congressional session.  The “Preserve Access to Affordable Generics Act,” S.214 would amend the FTC Act to “initiate a proceeding against parties to any agreement resolving or settling [a] patent infringement claim, in connection with the sale of a drug.”  If enacted, S.214 would go beyond the holding of Actavis and “establish[ ] a presumption that any such agreement has anticompetitive effects and is unlawful if the filer of a [generic] application receives anything of value” and delays entry into the market.[9]  U.S. Senator Chuck Grassley (R-IA), Chairman of the Senate Judiciary Committee, who introduced the bill with Judiciary Antitrust Subcommittee Ranking Member Senator Amy Klobuchar (D-MN), stated that the Cephalon settlement demonstrates “a need for further action to preserve generic drug competition and protect consumers from illegal conduct that delays their ability to purchase less expensive drugs.  Legislation can be a strong deterrent to . . . practices that hurt consumers and taxpayers.”[10]