The European Commission has fined the pharmaceutical companies Teva and Cephalon €60.5 million for agreeing to delay for several years the market entry of a cheaper generic version of Cephalon's drug for sleep disorders, modafinil, after Cephalon's main patents had expired.
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The agreement was concluded well before Cephalon became a subsidiary of Teva. The agreement violated EU antitrust rules and caused substantial harm to EU patients and healthcare systems by keeping prices high for modafinil.
Modafinil is a medicine used for the treatment of excessive daytime sleepiness associated in particular with narcolepsy. It was Cephalon's best selling product under the brand name “Provigil†and for years accounted for more than 40% of Cephalon's worldwide turnover.
While the main patents protecting modafinil had expired in Europe by 2005, Cephalon still held some secondary patents related to the pharmaceutical composition of modafinil, which aimed at securing additional patent protection.
The decision concerns a patent settlement agreement whereby Cephalon induced Teva not to enter the market with a cheaper version of modafinil, in exchange for a package of commercial side deals that were beneficial to Teva and some cash payments.
Teva held its own patents relating to modafinil's production process, was ready to enter the modafinil market with its own generic version, and it had even started selling its generic in the UK. Then, it agreed with Cephalon to stop its market entry and not to challenge Cephalon's patents.
The Commission investigation has found that for several years, this “pay for delay†agreement eliminated Teva as a competitor and allowed Cephalon to continue charging high prices even if the main modafinil patent had long expired.
"While generally patent settlements can be legitimate, we believe that the settlement agreement between Teva and Cephalon was not. Teva committed to stay out of the modafinil markets, not because it was convinced of the strength of Cephalon's patents, but because of the substantial value transferred to it by Cephalon. The value transfer was mainly embedded in a number of commercial side deals, which Teva would not have achieved without committing to staying out of the market," the Commission says.
Generic entry brings price competition to markets that can lead to price drops of up to 90%. When Teva entered the UK market for a short period in 2005, it indeed offered a 50% lower price than the price of Cephalon's Provigil.
The fines imposed by the Commission on Teva and Cephalon are €30 million and €30.5 million, respectively, amounting in total to €60.5 million.
To defend itself against Teva's launch of modafinil in the UK, Cephalon brought legal actions alleging an infringement of its secondary modafinil patents, although it had doubts as to the strength of these patents. Teva also believed that Cephalon had a weak patent position.
Nonetheless, in 2005 the two companies concluded the patent settlement agreement. In exchange, Teva received certain cash payments and secured a package of commercial side deals.
These included a distribution agreement, the acquisition of a licence on certain Teva modafinil patents by Cephalon, purchases of raw materials from Teva, and granting by Cephalon of access to clinical data that were highly valuable to Teva for a different medicine.
"Our investigation found that none of these transactions would have been concluded in the absence of the patent settlement agreement, either not at all or at least not at the terms that the companies agreed to,"the Commission said.
By virtue of the settlement agreement, as of October 2012, Teva could have started selling generic modafinil on the basis of a licence granted by Cephalon, in exchange for significant royalty payments to Cephalon.
Teva's limited entry under the licence eventually did not happen, as, in October 2011, Teva acquired Cephalon. ■