On December 16, 2008, the Federal Trade Commission (FTC) filed a complaint in the U.S. District Court for the District of Minnesota challenging Ovation Pharmaceuticals’ acquisition of NeoProfen, a drug used to treat a potentially deadly congenital heart defect affecting more than 30,000 babies born prematurely in the U.S. each year. The same day, the Minnesota Attorney General filed a nearly identical lawsuit against Ovation in the same court. Each complaint seeks to undo Ovation’s acquisition of NeoProfen which, according to the allegations of the complaints, gave the company a monopoly and allowed it to raise prices by almost 1,300 percent for more than two years. NeoProfen and Indocin are the only two pharmaceutical treatments sold in the U.S. for patent ductus arteriosus (PDA), a disorder that primarily affects very low-birth-weight premature infants. The only other treatment is surgery, which is more expensive and entails more risk of serious complications than treatment with either NeoProfen or Indocin. Ovation purchased Indocin from Merck in August 2005. At that time, NeoProfen was awaiting FDA approval. Ovation then purchased NeoProfen from Abbott Laboratories in January 2006. The NeoProfen acquisition fell below the Hart-Scott-Rodino (HSR) thresholds for reporting acquisitions to federal antitrust authorities.
According to the complaints, Ovation acquired Neoprofen while the drug was in development in order to eliminate the competitive threat that it posed to Indocin. Once Ovation owned both drugs, Ovation raised the price of Indocin almost 1,300 percent, from $36 a vial to nearly $500 a vial. Once NeoProfen was launched in July 2006, Ovation set a similarly high price of $483 a vial for the drug. Because there are no other drugs available to treat PDA, the complaints allege that hospitals and consumers have had no choice but to pay Ovation’s alleged monopoly price. The FDA approved Bedford Laboratories’ generic version of Indocin in July 2008, but it has not yet entered the market.
The FTC’s complaint is significant for a number of reasons. First, the case signals the FTC’s increased willingness to seek disgorgement as an appropriate remedy. Both the FTC and the Minnesota Attorney General seek to force Ovation to divest Neoprofen and to disgorge the illegally obtained monopoly profits from the sale of both drugs. Although this is an unusual remedy with relatively little precedent, see, e.g., FTC v. The Hearst Trust / The Hearst Corp., then Commissioner and now Chairman Jon Leibowitz stated in his concurring opinion that “Recent literature on the subject makes a persuasive case for seeking disgorgement more frequently. I strongly agree: the Commission should use disgorgement in antitrust cases more often.”
Second, the case may signal an expansive reading of Section 7 of the Clayton Act and an increased willingness on the part of the FTC to consider novel theories of competitive harm. Commissioner J. Thomas Rosch’s concurring opinion, with which Leibowitz agreed, states that he would have also challenged Ovation’s initial acquisition of Indocin from Merck because the acquisition took the product away from Merck, which faced certain pricing constraints that Ovation did not face, allowing Ovation to unlawfully exercise monopoly power in the pricing of the drug. Specifically, Commissioner Rosch asserts that Merck lacked the incentive to sell Indocin at a monopoly price because of the potential for reputational harm that could impair the demand for Merck’s other products. However, “[t]here is reason to believe that the sale of Indocin to Ovation had the effect of eliminating the reputational constraints on Merck that had existed prior to the sale” because Ovation had a smaller product portfolio, and therefore the transaction “tend[ed] to create a monopoly” just like Ovation’s acquisition of NeoProfen.
Third, the case serves as an important cautionary tale for companies engaging in mergers in acquisitions that are not HSR-reportable. Perhaps most importantly, just because a transaction is not HSR-reportable does not mean that it cannot (and will not) be challenged under the antitrust laws; rather, the case demonstrates the FTC’s increased willingness to challenge consummated transactions. See, e.g., In re Polypore Int’l, Inc.; In re Hologic, Inc. Finally, the case serves as a warning against aggressive pricing practices in the immediate aftermath of an acquisition.