Ovation Pharmaceuticals obtained the rights to a drug developed by
Merck, Indocin IV. It is used as a medical treatment for href="http://www.nhlbi.nih.gov/health/dci/Diseases/pda/pda_what.html">patent
ductus arteriosus. PDA is a type of birth defect in
the heart. It is serious.
It is helpful to have a medication that is an alternative to surgery.
The following year, they obtained the rights to Neoprofen, a similar
drug used for the same purpose.
Then, they raised the price. Instead of $108 for a course of
treatment, it now costs $1,500. I suppose that you could say
that it still is a bargain, to pay only $1,500 to avoid highly invasive
surgery. But some people were upset.
Privately-held Ovation declined to disclose sales or
profits from the two drugs. Ovation focuses on niche products that
roughly generate between $5 million and $100 million in annual sales
that it buys from large drugmakers.
The say that Ovation roughly generates profits. That is one
way to put it. In fact, the Federal Trade commission thinks
that Ovation is too rough. They are
bringing Ovation to court, claiming that Ovation illegally monopolized
“Ovation’s profiteering on the backs of critically
ill premature babies is not only immoral, it is illegal.”
It does make sense for small companies to go after these niche markets.
Sometimes they serve an essential function by doing that, by
bringing to market some products that the big guys decide are not
worthwhile. I have no objection to the little guys making a
profit in this way.
But what does it take to constitute “profiteering?” Who
decides how much profit is too much?
In fact, nobody decides. In practice, it is not the price
that makes the case; rather, it is the means by which the
price is established. If it is established by
monopoly, then it is suspect.
The FTC must think they have a case. Perhaps it helps that
the patients are critically ill premature babies. While I
generally don’t approve of selecting cases based upon their potential
for courtroom drama (assuming that was a factor), I must say that
Ovation really set themselves up for this one.