While Baldino deserves to laugh all the way to the bank, he may not have the last laugh. In the year since Cephalon's triumph,
reverse-payment deals have come under increasing scrutiny from the FTC, which is seeking a test case, while Congress is eyeing
a bill to ban generic payoffs. Meantime, Bernard Sherman, the 64-year-old Canadian owner of Apotex who made his $4 billion
fortune challenging US drug patents, has filed suit alleging that Cephalon "paid the generic defendants to maintain its monopoly
Cephalon's general counsel, John Osborn, emphasizes that the company's agreements don't qualify as reverse payments because
they involve partnerships of one kind or another. As entertaining as it might be to witness a showdown between two tough-talking
scientist-entrepreneurs like Baldino and Sherman—whose legal machinations over Plavix resulted in the ouster of BMS CEO Peter
Dolan last year—most legal experts agree that Cephalon's deals were so creative (it even gave rights to Actiq, its narcotic
lozenge on a stick, to Barr) as to be sue-proof.
Off Label and in the Hot Seat
A second legal entanglement, long in the making, may rain on Cephalon's parade. Off-label prescriptions for Provigil and Actiq
have always been essential to the company, in some years accounting for 80 percent of annual revenues. As analysts like Tracy
have marveled, one reason Cephalon's deals can look so unexpected at first but so inevitable—not to mention lucrative—in retrospect
is that they manage to maximize market penetration of its entire portfolio.
This volume of off-label uptake was bound to attract suspicion. In 2004, the US attorney general in Philadelphia began looking
into Cephalon's marketing of Provigil. More recently, sales practices of Actiq also came under scrutiny. The state of Connecticut
is conducting an investigation triggered by the fatal overdose of a 20-year-old Connecticut woman who got the "perc-a-pop"
from a local drug dealer, and including data showing that less than 3 percent of all prescriptions for this cancer-pain treatment
are written by oncologists and pain specialists.
When asked about the investigations, Bob Roche, Cephalon's executive vice president of worldwide pharmaceutical operations,
said, "This will ultimately be resolved in our favor. I am 100 percent comfortable with our sales practices and in full agreement
with the attorney general that our sales reps cannot discuss off-label use of Actiq."
Off-label criminal investigations are almost routine in the industry, but something more than a business-as-usual response
may be required from the biotech. "This is serious stuff—a powerful narcotic that is very addicting with a narrow application
and very wide use," says Ross Pearlson, a former prosecutor now at Cummis Epstein & Gross. "It could lead to criminal charges,
a false-claims case, a corporate integrity agreement, substantial fines, even exclusion from Medicare programs." Prosecutors
appear to be probing patterns of prescribing and sales calls rather than direct evidence like marketing materials, he says.
"Given that the company's products have such a high level of off-label prescribing, I would recommend that Cephalon respond
preemptively, with a compliance program that has teeth in it," Pearlson says.
At press time, trashy TV newsmags dishing up round-the-clock coverage of Anna Nicole Smith's death were reporting "breaking
news": Two of the drugs found by the cops in the virtual pharmacy that was the celeb's hotel room were identified as Actiq
and Provigil. While this has no substantive bearing on the case, such name-in-the-mud headlines can make a prosecutor's week.