On Thursday, 26 November, the European Commission decided to impose €60.5 million in fines on the pharmaceutical companies Teva (Israel) and Cephalon (United States) because these companies agreed to delay the market entry of a cheaper generic version of Cephalon’s medication for sleep disorders modafinil after the expiry of Cephalon’s main patents.
The agreement—concluded well before Cephalon became a subsidiary of Teva—“violated EU antitrust rules and caused substantial harm to EU patients and healthcare systems by keeping prices high for modafinil”, explained the European Commission.
According to Margrethe Vestager, the executive vice-president responsible for competition policy, “It is illegal if pharmaceutical companies agree to buy-off competition and keep cheaper medicines out of the market. Even when their agreements are in the form of patent settlements or other seemingly normal commercial transactions. Teva’s and Cephalon’s pay-for-delay agreement harmed patients and national health systems, depriving them of more affordable medicines”.
The European market for modafinil was worth about €50 million per year.
Mrs Vestager mentioned the initiatives regarding the pharmaceutical market (see EUROPE 12609/10) and intellectual property (see EUROPE 12609/11).
The fines imposed by the European Commission on Teva and Cephalon amount to €30 million and €30.5 million, respectively. For almost all of the countries concerned, the infringement lasted from December 2005 to October 2011, when Teva acquired Cephalon.
The European Commission discovered a patent settlement agreement whereby Cephalon induced Teva not to enter the market with a cheaper version of modafinil in exchange for cash payments and commercial side deals that benefited Teva.
Teva had its own patents pertaining to the process for producing modafinil, was ready to enter the modafinil market with its own generic version, and had even started to sell its generic in the United Kingdom. Then, it struck an agreement with Cephalon to halt its market entry and not to challenge Cephalon’s patents.
Sophisticated mechanisms. Mrs Vestager specified that Cephalon had paid €90 million for Teva’s intellectual property licences, without using them. There was a supply agreement: “Teva [earned] at least €5 million in profits”, even though Cephalon had a supplier that covered its needs. Moreover, in order to expedite the release of a treatment for Parkinson’s disease onto the market, “Teva paid US$1 million to unlock sales of up to €200 million”, Mrs Vestager added.
In the European Commission’s opinion, this ‘pay-for-delay’ agreement eliminated Teva as a competitor and enabled Cephalon to continue to charge high prices, even though the main patent on modafinil had expired a long time ago.
Patent settlements can be legitimate, but the 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 that the latter transferred to Teva.
Generic entry leads to price competition, which can generate price drops of up to 90%.
When Teva entered the UK market for a short period in 2005, it offered a price that was 50% lower than the price of Cephalon’s Provigil.
These pay-for-delay agreements have negative effects on patients and healthcare systems.
To date, the European Commission has fined companies in the context of three other investigations (perindopril, citalopram, and fentanyl).
Information on the Cephalon case: https://bit.ly/2V6CHHW (Original version in French by Lionel Changeur)