FTC Alleges Price Gouging, Monopoly For Baby Medicines

Federal regulators alleged yesterday that an Illinois-based company bought the only two medicines approved to treat premature babies born with a potentially life-threatening congenital heart defect and then increased prices nearly 1,300 percent.

The Federal Trade Commission said in a civil lawsuit that Ovation Pharmaceuticals illegally maintained a monopoly in drug treatments for the heart defect. The commission seeks to prevent Ovation from maintaining simultaneous interest in the two drugs -- NeoProfen and Indocin. Also, it seeks forfeiture of all unlawfully obtained profits.

The commission said Ovation bought the rights to Indocin in August 2005 and then acquired the rights to NeoProfen five months later. It set the price for the two medicines at about $500. Before the second acquisition, Indocin was priced at $36.

An estimated 30,000 babies are treated with the drugs each year.

"Ovation's profiteering on the backs of critically ill premature babies is not only immoral, it is illegal," FTC Commissioner Jon Leibowitz said in a statement issued separately from the lawsuit.

Ovation Pharmaceuticals, based in Deerfield, Ill., rejected the commission's allegations. It said NeoProfen is superior to Indocin and is not interchangeable for most premature infants with the heart defect.

The company "welcomes the opportunity to demonstrate in court in Minneapolis that the FTC's allegations and claims are without merit," Ovation said in a prepared statement.

The FTC said the only alternative to treating the heart defect, known as patent ductus arteriosus, is surgery, but that option carries a risk of serious complications and costs far more than treatment with drugs.

"As a result, hospitals have little choice but to pay Ovation's monopoly price," the commission said in the lawsuit. "The artificially high prices that hospitals are forced to pay ultimately raise costs for families, tax-supported programs such as Medicaid, and other public and private purchasers."

Indocin was approved by the Food and Drug Administration to treat the heart defect in infants in 1985. Ovation bought the rights to Indocin from Merck. Merck agreed to manufacture the drug and supply it to Ovation. After the deal, the drug's price increased to $36.

The commission said Ovation knew it faced the threat of imminent entry from a new drug to treat the heart defect. It bought the U.S. rights to that competitor in January 2006 from Abbott Laboratories. The size of the transaction fell below the threshold for reporting to federal antitrust agencies.

Once Ovation acquired the rights to the competing drug, it promptly raised its price for Indocin from $36 to $500 per vial. When NeoProfen was launched in July 2006, Ovation set a price of about $483 a vial.

The lawsuit was filed in the U.S. District Court in Minnesota.