The Wall Street Journal-20080214-Lawsuit Claims Cephalon Delayed Sale of Generics
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Lawsuit Claims Cephalon Delayed Sale of Generics
Full Text (667 words)Antitrust enforcers filed a lawsuit against Cephalon Inc., alleging the company illegally delayed generic competition to its best-selling drug, narcolepsy medicine Provigil.
In a civil complaint filed in U.S. District Court in Washington, the Federal Trade Commission alleged that the Frazer, Pa., drug maker "bought off" four rivals to protect the sales of its $800 million-a- year drug.
The agency says Cephalon gave a combined $200 million in payments and other inducements to Teva Pharmaceutical Industries Ltd.'s Teva Pharmaceuticals USA unit, Ranbaxy Pharmaceuticals Inc., Barr Pharmaceuticals Inc. and Mylan Pharmaceuticals Inc. to push off their market entry until 2012.
Representatives for Teva, Ranbaxy and Mylan couldn't be reached for comment. A Barr spokeswoman said the company believes that it is legal to negotiate such settlements and that doing so serves the best interests of consumers.
The FTC suit comes after a $425 million settlement Cephalon reached last year with the Justice Department over its marketing practices. The maker of pain, sleep and neurology drugs has come under scrutiny for its large off-label sales of two powerful narcotic drugs, Actiq and Fentora. Provigil, which the FTC's complaint says accounts for 46% of Cephalon's sales, is also sold largely outside its approved indication, for uses such as calming hyperactive children. Doctors are allowed to prescribe drugs as they see fit, including for conditions that are not on the drug's label. However, off-label marketing by drug companies is illegal.
Provigil faced threats from four generic makers on an orphan-drug exclusivity valid through the end of 2006, but another patent protects the medicine until 2015, a Cephalon spokeswoman said. The company settled lawsuits with the generics makers by agreeing to let them come to market in 2012; in some cases, Cephalon purchased their supplies of generic Provigil.
"We think the settlement was proconsumer and procompetition because generic drugs will get onto the market three years earlier," said Sheryl Williams, the spokeswoman.
The FTC's complaint details an "anticompetitive scheme" that forced patients and other purchasers of the drug "to pay hundreds of millions of dollars more per year for Provigil." The complaint quotes Cephalon Chief Executive Frank Baldino, as saying on a conference call with analysts: "We were able to get six more years of patent protection. That's $4 billion in sales that no one expected." Mr. Baldino also said Provigil had "created the category of wakefulness products" and faced "no competition," the complaint says.
Reached by telephone yesterday, Mr. Baldino said: "The transactions we reached met the letter and spirit of the law in every way, and we will litigate this matter, and we will prevail."
The stakes were high for Cephalon. One internal company estimate projected that generic Provigil would be priced at up to a 90% discount to the branded drug and would cut $400 million a year off Provigil's sales in the first year on the market, according to the complaint. Teva estimated that generics would take over 90% of the market in a month, the complaint says.
Jeffrey Schmidt, the FTC's competition chief, said that Cephalon derailed competition "by agreeing to share its future monopoly profits with generic-drug makers poised to enter the market." A bipartisan majority of the five-member commission has fought such agreements since 2003, but lost two major cases on appeal in 2005. It has even stood against the Bush administration on the issue, when the Justice Department took a position before the Supreme Court that favored the branded drug makers and opposed the FTC position.
In a statement, Commissioner Jon Leibowitz said such "pay-for-delay settlements, if not stopped, will continue to grow exponentially -- costing consumers and the federal government . . . literally billions of dollars in excess charges. In this instance, they will cost patients taking Provigil -- a crucial drug for those who suffer from narcolepsy and for members of the armed services in Iraq -- more than a billion dollars through years of delayed competition." Mr. Leibowitz said he favored filing antitrust claims against the generic companies as well.
