“Pay-For-Delay”: the EC fines Teva and Cephalon for delaying the market entry of a generic version of Modafinil

In November 2020, the European Commission (EC) fined Teva and Cephalon 60.5 million euros for reaching an agreement to delay the market entry of the cheaper, generic version of a neurostimulant used to treat excessive daytime sleepiness. The summary of the EC Decision (case AT.39686 Cephalon) is available here. This is the fourth decision adopted by the EC in relation to pay-for-delay agreements (the other three cases are AT. 39612 Servier, AT. 39226 Lundbeck, AT. 39685 Fentanyl).

Background

Cephalon held the patent for modafinil, medicine used to treat sleep disorders and particularly associated with narcolepsy, a neurological condition. The medicine was sold under the name Provigil and for years its sales accounted for over 40% of Cephalon’s global turnover. After the expiry of its primary patent in Europe in 2005, Cephalon continued to hold secondary patents related to the pharmaceutical composition of the drug.

In June 2005, Teva launched its generic modafinil product in the United Kingdom at a price 50% lower than that of Cephalon’s product. In response, Cephalon filed a lawsuit against Teva alleging patent infringement, which was concluded with an out-of-court settlement agreement under which Cephalon agreed to make payments to Teva in exchange for non-compete and non-challenge commitments for the next six years. The agreement was mainly materialized through a package of commercial transactions and, to a lesser extent, payments in cash. Teva bought Cephalon in 2011, making the companies part of the same group at the time of the present Decision.

The EC Decision

The EC Decision ended a nine-year investigation (initiated in April 2011). The Decision concludes that the pay-for-delay agreement eliminated Teva as a competitor in the modafinil market for several years, delaying the entry of a cheaper, generic version, and allowed Cephalon to maintain an artificial monopoly on the sale of the drug at high prices, despite the fact that its primary patent had long expired.

The EC considers that the reason Teva agreed not to enter the modafinil market was the substantial value transferred to it by Cephalon, 5 million euros. Furthermore, the licensing agreement in favor of Cephalon of certain secondary patents held by Teva was not an economically justified investment as these patents were never used by Cephalon. Therefore, the EC concludes that the agreements had no other objective than to delay the launch and sale of the generic version of modafinil. As a result, a competing medicine was prevented from entering the market at considerably cheaper prices, thereby causing substantial harm to the budgets of the health care system and its patients.

In this case, the EC clarified that, when analyzing the legality of this type of agreements, what matters is not the form of payment, but rather the transfer of value from the patent holder to a potential generic competitor with the aim of delaying its entry into the market. This transfer can be constructed via a sophisticated payment scheme such as, for example, the apparently standard package of commercial agreements entered into between Teva and Cephalon.

Teva filed an appeal against the EC Decision before the General Court of the European Union, which is being processed under the reference T-74/21.

Other pay-for-delay investigations

The Cephalon Decision is the latest of the investigations launched by the European Commission following the sector enquiry into the pharmaceutical sector investigation initiated in 2008. To date, the EC has fined pharmaceutical companies in three other investigations for pay-for-delay agreements: one concerning perindopril, a cardiovascular medicine (Servier case), one concerning citalopram, an anti-depressant (Lundbeck case) and one concerning fentanyl, a painkiller (Fentanyl case).

In fact, the agreement between Teva and Cephalon was also under investigation in the United States. The Federal Trade Commission (FTC) brought an action against Cephalon in 2008 and, in 2015, it ordered Cephalon to pay out and return to buyers 1.2 billion dollars in profit it had earned thanks to pay-for-delay agreements with four manufacturers of the generic version of Provigil.