Provigil is approved for the treatment of excessive sleepiness in patients with sleep apnea, narcolepsy and shift-work sleep disorder.  The drug posted more than $1 billion in sales in the U.S. before going generic.

As part of the settlement, Teva has agreed to pay $1.2 billion to reimburse purchasers, including drug wholesalers, pharmacies and insurers, who were forced to overpay for the drug because of Cephalon’s illegal act. However, Teva will be credited for settlements it reached with private purchasers who made the same accusation. These payments will be credited against the FTC fund as per the stipulated order for equitable monetary relief terms. The balance will go to the U.S. Treasury.

The FTC lawsuit, which dates back to 2008, accused Cephalon of illegally protecting Provigil’s monopoly through a series of agreements with four generic drug manufacturers including Teva, Barr, Mylan and Ranbaxy in late 2005 and early 2006. The FTC charged that Cephalon sued the generic drug makers for patent infringement of Provigil. However, Cephalon later went on to pay these companies more than $300 million in exchange of dropping their patent challenges for Provigil and agreeing not to sell generics until Apr 2012.

Under the stipulated order for permanent injunction, Teva is barred from entering into similar types of anti-competitive patent settlements as used by Cephalon. Incidentally, Teva had acquired Cephalon in 2012.

The settlement reached by Cephalon with the companies, which is termed as reverse-payment patent settlement, forms the legal basis of this pay-for-delay case. Once the settlement agreement is approved by the Court, the FTC’s allegations will be resolved.

Though a huge blow to Teva, the FTC settlement is in the best interest of consumers who had to bear the burden of huge prescription drug costs. Moreover, the lofty settlement fee will make drug makers think several times before entering into similar kinds of deals that would block generic entry and flout antitrust laws.

Teva currently carries a Zacks Rank #3 (Hold).