The US Federal Trade Commission has reached a $1.2 billion settlement with Teva Pharmaceuticals regarding the prescription drug Provigil, produced by Teva subsidiary Cephalon, it announced on Thursday.
Charges were brought against Cephalon Inc. in 2008, which was acquired by Teva in 2012. The FTC alleged that Cephalon paid generic drug manufacturers more than $300 million in order to keep them from issuing lower-cost equivalents of Provigil, a wakefulness drug, thus illegally protecting its monopoly.
Teva, the parent company, has agreed to pay $1.2 billion to refund buyers who overpaid for Provigil - when they could have purchased generic versions had they existed - including pharmacies, wholesalers and insurance companies. It has also agreed to avoid making similar reverse settlement deals in the future.
Teva has already settled in two other cases, one for $512 million and the other for an unspecified sum. The $1.2 billion settlement with the FTC includes these amounts.
The FTC has long fought against the common drug industry practice of “pay-for-delay” deals, also known as reverse settlements, where the brand-name drug manufacturers pay generic drugmakers fees to keep the cheaper versions off market for a certain period of time.
After 20 years, a patent on a brand-name drug - benefiting from a monopoly and thus high prices - can be challenged by a generic drugmaker in court whose generic product enjoys a six-month window of prices only slightly lower than the original if the court rules in its favor. After the six month period, other players enter the market and the price of the drug often drops sharply.
The drug companies claim pay-for-delay deals are to avoid lengthy and costly court battles. The FTC disagrees. According to the FTC, such deals reduce competition, keep prices high and are detrimental to consumers and the US health care system.
The Supreme Court gave the FCC leverage in 2013 when it ruled that pay-for-delay drug cases may be in illegal in light of federal antitrust laws and therefore be challenged in court.
Michael A. Carrier, a professor at Rutgers School of Law who specialises in antitrust and patent law, said “Teva realized there was a significant chance it would have been found guilty of violating the antitrust laws.”
He speculated that Teva may have decided to settle in order not to surrender profits made from Provigil between 2007 and 2012 if they lost in the trial that was to begin on Monday. A judge had ruled in April that the FTC could seek disgorgement of Cephalon’s profits.
Teva “could have been looking at billions,” had the trial gone forward, Carrier told the New York Times.
FTC Chairwoman Edith Ramirez said the settlement was the largest of its kind to target reverse settlements and that it would send “a very strong signal to any company that is considering entering into a deal that is anticompetitive.”
Calling it a “landmark settlement.” she called it “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.”
Teva issued a statement in which they noted the agreements that were the subject of the FTC investigations made in 2005 and 2006, before its purchase of Cephalon.
“We are pleased to have reached an agreement with the government. In relation to the consent decree, Teva believes it is the right path for our company, for the industry, and for the patients we serve,” Teva said.
A consent decree is a settlement between two parties that does not require an admission of liability.