Lopping three years off a patent to settle litigation doesn’t seem like the kind of strategy investors would applaud. But in December 2005, when Cephalon Inc. announced that as part of an agreement with four generic drugmakers it would shorten the lifespan of its best-selling drug Provigil, the pharmaceutical company’s stock price soared more than 70 percent. The move meant that Cephalon would forgo potential sales of $1 billion to $2 billion. In return, the company gained assurance that it could market Provigil, a sleep disorder drug, for six more years — without litigation.

Cephalon could not afford to lose its monopoly on Provigil. In 2002, when the generic companies first challenged the patent on the drug’s main ingredient, Provigil accounted for close to two-thirds of Cephalon’s sales. In 2005 the drug brought in nearly half of Cephalon’s $1.2 billion in revenue. Cephalon is teeing up a next-generation drug called Nuvigil as a replacement, but that drug hasn’t received FDA approval, and would hit the markets this summer, at the earliest. The settlement gives the Frazer, Pa.-based company breathing room: Nuvigil should be on the market well before 2011, when Provigil’s patent protection expires. (Protection was originally set to end in 2014.)

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