January 15, 2009

FTC FILES COMPLAINT AGAINST OVATION

CHALLENGE TO CONSUMMATED, NONREPORTABLE ACQUISITION OF ORPHAN DRUG FOLLOWED BY
PRICE INCREASE

The Federal Trade Commission has filed a complaint against Ovation Pharmaceuticals, Inc. in the United States District Court for the District of Minnesota, challenging Ovationís 2006 acquisition of the drug NeoProfen from Abbott Laboratories.

According to the complaint, filed in December 2008, at the time of the acquisition NeoProfen was awaiting Food and Drug Administration approval as a treatment for a potentially life-threatening congenital heart defect known as patent ductus arteriosus (PDA), an orphan disease for which some 30,000 infants are treated annually in the US. Ovation already owned the rights to Indocin I.V., the only PDA drug on the market at the time.

The complaint alleges that Ovationís acquisition of NeoProfen, while not reportable at the time under the HSR Act, unlawfully eliminated Indocinís only viable competitor, enabling Ovation to raise the price of Indocin by approximately 1,300 percent, from $36 to $500 per vial. Approved by the FTC by a vote of 4-0, the complaint seeks divestiture of NeoProfen and disgorgement of Ovationís profits.

Although still in the initial stages, the case appears significant in several ways. First, it is a reminder that the fact that an acquisition is not reportable under the HSR Act does not mean that it cannot be challenged under the antitrust laws. Second, it is a warning against aggressive pricing practices in the immediate aftermath of an acquisition. Third, it is a reminder that the acquisition of a potential competitor, as opposed to a current participant in the market, can raise antitrust concerns. Fourth, it is an example of the FTCís renewed efforts to extend the reach of the FTC Act to cover ďunfair methods of competitionĒ that may be beyond the reach of the federal antitrust laws.

For our readers, we have prepared an overview of the issues in this case. Please read it here.