[Ip-health] FTC Sues Cephalon for Cutting Deals with Potential Generic Competitors

[Mike Palmedo]

http://www.bizjournals.com/philadelphia/stories/2008/02/11/daily29.html

FTC sues Cephalon over deals with generic drug makers

Philadelphia Business Journal - by John George
Thursday, February 14, 2008 - 10:18 AM EST

The Federal Trade Commission sued Cephalon Inc. Wednesday alleging the
biotechnology company engaged in "anti-competitive conduct" to delay the
introduction of generic versions of Provigil, its flagship sleep
disorder drug.

Two years ago, Cephalon (NASDAQ:CEPH) reached agreements with four
generic drug companies -- Teva Pharmaceuticals (NASDAQ:TEVA), Mylan
Pharmaceuticals (NYSE:MYL), Barr Pharmaceuticals (NYSE:BRL) and Ranbaxy
Laboratories -- under which the companies agreed not to pursue selling
generic versions of Provigil until 2012.

According to the FTC, the agreement blocked access to lower-cost generic
drugs and forced consumers to pay "hundreds of millions of dollars" a
year for the brand-name product. As part of the deals, the FTC said,
Cephalon agreed to pay the generic drug companies a share of its
revenues from sales of Provigil -- which generated $852 million for the
company last year -- in return for delaying the introduction of generic
competition.

Cephalon of Frazer, Pa., issued a statement late Wednesday in which it
said, "Cephalon stands by the strength and validity of our Provigil
patents and the legal basis for these settlements. We are disappointed
that the FTC has determined to challenge these agreements as we believe
they fully comply with both the spirit and letter of the antitrust laws.
As importantly, our settlements confer a meaningful benefit to U.S.
consumers by providing for the entry of generic modafinil three years
early. Cephalon is prepared to vigorously defend itself in this matter
and expects to prevail."

In 2006 interviews with the Philadelphia Business Journal, Cephalon
Chairman and CEO Frank Baldino noted that in each of the agreements,
Cephalon entered into business relationships with the generic drug
companies -- such as supply deals and research partnerships -- that
turned potential rivals into allies.

"The drug business is all about patenting your products and selling your
products under patent protection," said Baldino, who is also Cephalon's
founder, in 2006. "You know when your patents are running out, or can be
threatened, so what you do is build your business so as to mitigate the
impact [of losing a patent battle]. We believe we have a very strong
patent position for Provigil, but we've seen pharmaceutical companies
with seemingly insurmountable patents lose. You can never guess what a
judge or jury will say."

--
Mike Palmedo
Research Coordinator
Program on Information Justice and Intellectual Property
American University, Washington College of Law
4910 Massachutsetts Ave., NW Washington, DC 20016
T - 202-274-4442 | F 202-274-0659
mpalmedo@wcl.american.edu