FTC Alleges Price Gouging, Monopoly For Baby Medicines

This was the title the Washington Post today gave the AP story.

This was the title of the FTC Press release:

Press Release: December 16, 2008
FTC Sues Ovation Pharmaceuticals for Illegally Acquiring Drug Used to Treat Premature Babies with Life-Threatening Heart Condition: Unlawful Acquisition Resulted in Nearly 1,300 Percent Price Hike; Agency Asks Court to Require Company to Give Up Unlawful Profits.

Here are a few paragraphs from the FTC press release:

Ovation, a privately owned corporation based in Deerfield, Illinois, sells pharmaceuticals in more than 85 countries, including the United States. In August 2005, Ovation purchased the rights to Indocin from Merck. At that time, NeoProfen was awaiting regulatory approval by the Food and Drug Administration. According to the FTC’s complaint, Ovation expected that NeoProfen, once approved, would take a substantial portion of sales from Indocin. To eliminate the threat that NeoProfen posed, the Commission charges, Ovation acquired the U.S. rights to NeoProfen from Abbott Laboratories in January 2006. The NeoProfen transaction fell below the regulatory threshold for reporting acquisitions to the federal antitrust authorities.

By acquiring NeoProfen, the complaint alleges, Ovation preserved its U.S. monopoly in drugs used to treat patent ductus arteriosus in premature babies. Following the acquisition, Ovation promptly raised the price of Indocin to nearly $500 per vial, and when it introduced NeoProfen, set the price at virtually the same level. Merck supplied Indocin to Ovation for a small fraction of the price Ovation charges. Nearly three years later, Ovation continues to charge artificially high prices for both Indocin and NeoProfen. The FDA approved a generic version of Indocin in July 2008, but to date it has not entered the market.

Because there are no other drugs available to treat patent ductus arteriosus, hospitals treating babies with this critical condition have no choice but to pay Ovation’s monopoly price. And ultimately, the artificially high prices paid by hospitals are passed on to families, government programs such as Medicaid, and other public and private purchasers.

The Commission vote approving the complaint was 4-0, with Commissioners Jon Leibowitz and J. Thomas Rosch issuing separate concurring statements. In his statement Commissioner Leibowitz wrote, “Ovation’s profiteering on the backs of critically ill premature babies is not only immoral, it is illegal. Ovation’s behavior is a stark reminder of why America desperately needs health care reform and why vigorous antitrust enforcement is as relevant today as it was when the agency was created almost one hundred years ago in 1914.”

Commissioner Rosch’s concurring statement explains that like Commissioner Leibowitz, he would have also voted to challenge Ovation’s earlier acquisition of Indocin. Commissioner Rosch wrote “. . . there is reason to believe that Merck’s sale of Indocin to Ovation had the effect of enabling Ovation to exercise monopoly power in its pricing of Indocin . . . [and] had the effect of substituting Ovation, a firm that had an incentive to protect its ability to engage in monopoly pricing, for Merck, which lacked the same incentive.” Commissioner Rosch added, “. . . it is hard to imagine a more compelling case for application of this legal theory.”