Corporate & Securities Law

No Ovation for FTC’s Latest Enforcement Theory

The Federal Trade Commission announced a puzzling complaint filed in a new consummated merger & monopolization case in the U.S. District Court for the District of Minnesota. Here’s the explanation of the case from the press release:

The Federal Trade Commission today filed a complaint in federal district court challenging Ovation Pharmaceuticals, Inc.?s January 2006 acquisition of the drug NeoProfen, which eliminated its only competitor for the treatment of a serious and potentially deadly congenital heart defect affecting more than 30,000 babies born prematurely each year in the United States. When it acquired NeoProfen, Ovation already held the rights to Indocin I.V., the only other drug used to treat this serious condition. After ensuring that it would not face competition from NeoProfen, Ovation promptly raised the price of Indocin nearly 1,300 percent, from $36 to nearly $500 a vial. When it launched NeoProfen in July 2006, Ovation set a similarly inflated price.

There are two transactions here.  In the first, Ovation purchased the rights to Indocin from Merck.  In the second transaction, Ovation purchased the rights to NeoProfen from Abbott while NeoProfen was awaiting FDA approval.  NeoProfen was apparently the only potential substitute for Indocin with respect to treatment of PDA in premature babies.  The press release emphasizes the apparent and remarkable 1300% price hike that occurred after the second transaction.

Here’s where things get interesting.  The Complaint challenges the second, Neoprofen transaction on the grounds that it violates both the Clayton Act Section 7 and Section 2 of the Sherman Act, though both Commissioners Rosch and Leibowitz indicate in their Concurring Statements that they would also challenge the consummated Indocin transaction with fell below the HSR reporting thresholds.  I don’t want to comment on the Section 7 case associated with the NeoProfen transaction.  The theory appears reasonable in that the FTC alleges that it is challenging a 2-1 merger in drugs for the treatment of PDA in premature babies.  This will ultimately be resolved on the facts.  But there is no reason to believe that the theory is flawed.  I don’t think the same can be said for the statements from Comissioners Rosch and Leibowitz that are largely dedicated to letting the world know that they would also challenge the Indocin/Merck transaction.

Commissioners Rosch’s Concurring Statement, in particular, has me puzzled on two fronts: (1) the proposed theory of harm that he would support in pursuing the Indocin transaction which amounted to a transfer of the drug from Merck to Ovation rather than a combination of horizontal competitors, and (2) why is this a monopolization case?

Full post as published by Truth on the Market on December 17, 2008 (boomark / email).