February 14, 2008 / 12:17 AM / 11 years ago

UPDATE 2-U.S. FTC sues Cephalon over generic drug deals

(Recasts first paragraph; adds background on past FTC actions, European raids)

By Diane Bartz

WASHINGTON, Feb 13 (Reuters) - The U.S. Federal Trade Commission filed suit against Cephalon Inc CEPH.O on Wednesday, saying it broke the law by paying generic drug makers to keep copycat versions of its Provigil sleep disorder medicine off the market.

The FTC asked the U.S. District Court for the District of Columbia to void the agreements, clearing the way for the generic drug makers to bring their cheaper versions to market.

The agency has been battling similar agreements for years, arguing they violate antitrust law and keep drug prices high.

The agency charged that Cephalon’s agreements were worth $200 million and designed to prevent Teva Pharmaceutical Industries Ltd TEVA.O, Barr Pharmaceuticals Inc BRL.N, Ranbaxy Laboratories Ltd RANB.BO and Mylan Inc MYL.N — all major generic manufacturers — from selling versions of Provigil until 2012.

The FTC said Cephalon made the payments in “purportedly independent business transactions.”

Provigil, used to treat excessive sleepiness, is Cephalon’s biggest product by far, with sales of $852 million last year.

Cephalon said it believed the payments were legal. “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,” a company statement said.

The company’s stock was up more than 7 percent on Wednesday morning after a solid earnings report but finished nearly 2 percent lower after reports that FTC action was imminent.

In November, Cephalon announced it expected to pay $425 million to settle federal and state probes into its marketing practices under the Medicaid government insurance program.


Markus Meier, FTC assistant director of health care services, said the agency had settled several cases in which drug companies paid off generic makers.

But in June 2007, the Supreme Court sided with big drug companies when it refused to review a similar case brought by several individuals challenging a deal between Barr and AstraZeneca Plc (AZN.L) involving the cancer drug tamoxifen.

In 2005, a legal battle between Schering-Plough Corp SGP.N and the FTC over a settlement to protect the company’s K-Dur blood pressure drug ended with a win for the drug company in the 11th Circuit Court of Appeals.

The Supreme Court refused to take the case. “We’ve only had one that went all the way to trial, and we did lose that case,” said Meier.

FTC Commissioner Jon Leibowitz said that deals to keep generics off the market cost sick people, insurance companies and the federal government more than $1 billion a year.

“If we don’t successfully challenge this agreement — and take it to the Supreme Court if necessary — it will be the end to Hatch-Waxman, the landmark law that has brought all of us low-price generic drugs since its enactment more than 20 years ago,” Leibowitz said in a statement.

Sen. Herb Kohl, a Democrat from Wisconsin, has introduced legislation in the Senate to make the payments to generic companies illegal. Rep. Henry Waxman, a California Democrat, has introduced a similar bill in the U.S. House of Representatives.

The FTC’s suit comes a month after the European Commission raided pharmaceutical companies across Europe as part of an investigation into similar payments to generic companies there.

The European sweep involved Pfizer Inc (PFE.N), GlaxoSmithKline Plc (GSK.L), AstraZeneca, Johnson & Johnson (JNJ.N), Merck & Co Inc (MRK.N) and Sanofi-Aventis SA (SASY.PA). (Editing by Leslie Gevirtz and Tim Dobbyn)

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