Rather than going to trial Monday, Teva Pharmaceutical Industries Ltd. agreed to pay at least $1.2 billion to settle a 2008 FTC lawsuit challenging pay-for-delay agreements Cephalon Inc. used to fend off generic competition to its blockbuster sleep-disorder drug Provigil.

The settlement, which has to be approved by the court, also includes a permanent injunction barring Teva, which acquired Cephalon in 2012, from engaging in specific types of pay-for-delay, or reverse-payment, agreements in the future. What it doesn't include is an admission of wrongdoing.

The landmark settlement should make other drugmakers think twice about using the "illegal agreements" to protect their products from competition, FTC Chairwoman Edith Ramirez said at a media briefing Thursday.

The $1.2 billion will be used to compensate drug wholesalers, pharmacies, insurers and others who overpaid for Provigil (modafinil) because of Cephalon's pay-for-delay deals with four generic drugmakers in 2005 and 2006. Under those agreements, Cephalon was to pay more than $200 million to Teva, Barr Pharmaceuticals Inc., Ranbaxy Laboratories Inc. and Mylan Inc. in exchange for keeping generic versions of Provigil off the market until 2012 – three years earlier than the drug's final patent expiration date. (See BioWorld Today, Feb. 15, 2008.)

According to the agreements, Cephalon would pay the generic companies for active pharmaceutical ingredients and intellectual property rights. The FTC challenged the deals, saying they "made no economic sense for Cephalon except as payments not to compete."

In its decade-long fight against pay-for-delay settlements, the FTC has held that, on their face, such agreements are anticompetitive and are set up only to protect the monopolies of brand drugs. However, the courts haven't always agreed with that view. Some appellate courts held that the settlements were legal – so long as they didn't delay market access to a generic beyond the patent expiration of the brand drug. Both approaches were based on a quick, rather than in-depth, look at the individual agreements.

In 2013, the Supreme Court tacked to the middle, ruling in FTC v. Actavis that the lower courts must dive into the details of the agreements, weighing the justification for the deals and their potential anticompetitive impact. "There may be justifications for reverse payment that are not the result of having sought or brought about anticompetitive consequences," Justice Stephen Breyer wrote in the court's majority opinion in Actavis. (See BioWorld Today, June 18, 2013.)

While the decision didn't recognize all pay-for-delay settlements as illegal, it did put court challenges to the deals on a par with other antitrust cases, which offer the potential for treble damages. As a result, the Supreme Court decision was expected to spur many more challenges to existing pay-for-delay agreements. But the Teva settlement is the first FTC case to be resolved since that decision was handed down.

Under this week's settlement, purchasers of Provigil will have 10 years to claim a share of the $1.2 billion fund, said Deborah Feinstein, director of the FTC's Office of Competition. At least two purchasers already settled related litigation with Teva. Any payments the Jerusalem-based drugmaker made in those settlements will be credited against the FTC fund. At the end of the 10 years, unclaimed money will be turned over to the U.S. Treasury.

While the FTC estimated that $1.2 billion should cover the potential claims, Ramirez noted that the amount isn't a ceiling. Teva will be on the hook for more should the claims exceed the fund.

The injunction that's part of the settlement will prevent Teva from using "so-called independent business deals" to continue a monopoly, Feinstein said. It specifically prohibits the drugmaker from entering into business deals with a competitor within 30 days of a patent litigation agreement restricting that competitor's generic entry.

It does not prevent truly independent business transactions, and "it preserves Teva's ability to enter other types of settlement agreements in which the value transferred is unlikely to present antitrust concerns, such as those providing payment for saved future litigation expenses (up to $7 million)," according to the FTC. The injunction also doesn't prohibit agreements involving authorized generics, even though they could raise antitrust concerns.

"We are pleased to have reached an agreement with the government," Teva spokeswoman Denise Bradley told BioWorld Today. "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."

In addition to brand drugmakers, the FTC has sued generic companies in the past that were party to anticompetitive pay-for-delay agreements. In this case, the commission chose only to go after Cephalon in an attempt to quickly resolve the litigation, Ramirez said. But even with just the one defendant, FTC v. Cephalon has taken more than seven years to resolve.

COURT OKS PEDIATRIC CARVE-OUTS

A federal judge this week upheld the FDA's right to allow generic carve-outs to get around brand exclusivities, even for pediatric orphan drug indications. But it's probably not the last word on the subject.

Otsuka Pharmaceutical Co. Ltd. is likely to appeal the decision that opens the door to generic competition for its blockbuster Abilify (aripiprazole). In its suit challenging the approval of four generic versions of the atypical antipsychotic, the Tokyo-based company claimed the FDA couldn't approve a generic until Abilify's pediatric orphan drug exclusivity for Tourette's disorder expires in December 2021.

"Otsuka has demonstrated that it intends to aggressively pursue various legal strategies in order to prevent generic competition," Chad Landmon, a partner with Axinn Veltrop & Harkrider, told BioWorld Today. Landmon was part of a team that represented Zydus Pharmaceuticals in various hearings in support of the FDA's position.

In his decision, Judge George Hazel, of the U.S. District Court for the District of Maryland, "reaffirms the FDA's longstanding position that generic companies can carve out indications protected by orphan drug exclusivity, even if such indications are only directed to pediatric populations," Landmon said.

An Abilify generic approved with the carve-out cannot include the pediatric Tourette's disorder indication on its label. But "there is nothing stopping a doctor from prescribing a generic product for any disease or condition," Landmon acknowledged.