December 17, 2008

The Federal Trade Commission (FTC) has sued an Illinois pharmaceutical company for alleged price-gouging after it cornered the market on two life-saving drugs for premature babies and then jacked up the price by 1,300 percent.

The suit, filed Tuesday in U.S. District Court in Minnesota, followed complaints raised earlier this year by Children's Hospitals and Clinics of Minnesota and U.S. Sen. Amy Klobuchar, D-Minn. The FTC has taken the unusual step of asking the court to force Ovation Pharmaceuticals Inc. to forfeit its "unlawfully obtained profits."

"Ovation's profiteering on the backs of critically ill premature babies is not only immoral, it is illegal," said Jon Leibowitz, FTC commissioner.

While many rarely used drugs have seen dramatic price increases in recent years, the hikes are not often challenged. The Minnesota attorney general's office also filed a companion lawsuit in federal court.

Ovation said in a prepared statement that it disputes the allegations and welcomes the opportunity to rebut them in court. It declined to comment further. Previously it has said that it's providing treatments that otherwise wouldn't be available.

According to the FTC complaint, Ovation acquired the drug Indocin from Merck in 2005. For decades, it's been the treatment of choice for about 30,000 premature babies a year born with potentially fatal heart problems. At the time, a competing drug called NeoProfen was poised to enter the market. In January 2006, Ovation bought the rights to that drug as well and promptly increased the price of Indocin from $26 to $500 per vial. When it launched NeoProfen in July 2006, it charged a similar price.

That change cost Minnesota's Children's Hospital an extra $150,000 in one year before health plans began paying for the increase, said Alan Goldbloom, the hospital's president and CEO.

Children's cares for about 110 newborns each year who need the drugs. Nationally, the price increase cost millions, he said. Although the drug is typically covered by health insurance, the higher costs are passed along to consumers and businesses, he said.

Shining a spotlight

David Hoff, a pharmacist at Children's Hospital, said the staff "immediately recognized this was a ripoff" when the price jumped. The drug repairs a heart blood vessel defect that occurs in some preterm infants that can lead to congestive heart failure.

"We felt kind of powerless," he said. That's when one of his colleagues wrote to Klobuchar for help, he said.

On Tuesday, Goldbloom thanked Klobuchar "for shining a national light" on the problem at a news conference held to announce the lawsuit.

"A company like Ovation knows that when it comes to saving a baby's life, price is no object,'' Klobuchar said. "They banked on that, literally."

Klobuchar said she was impressed with how quickly the FTC responded to her complaint. Those familiar with the FTC said that her influence was critical.

"It's to her credit that she got the FTC to act so quickly," said David Balto, former public policy director at the FTC and now an antitrust attorney in private practice in Washington, D.C. "From the time she complained to the filing of the lawsuit, that's like greased lightning."

The FTC action was unusual, officials say, in seeking to recoup excess profits. The agency has made such a demand in only a handful of cases. In 2000 the FTC won a $100 million settlement from a drug company in a similar case.

University of Minnesota Prof. Stephen Schondelmeyer, who studies drug pricing, said that the number of such extraordinary price increases has grown astronomically in recent years. Ovation also bought three other children's drugs and raised their prices by 864 to 3,437 percent.

Schondelmeyer said that dramatic price hikes are often imposed on rarely used drugs.

"These are not usually noticed drugs so it's easier to get away with price hikes," he said. "But now they are being challenged."