“we can price these almost anywhere we want given the product profiles.”
Those are the charming words of a vice president at Lundbeck, Inc., which claims to be "committed to providing innovative therapies that fulfill unmet medical needs of people with severe, and often rare, diseases for which few, if any, effective treatments are available."
By "these," he was, by way of an email to others at the company, referring to a small group of pharmaceutical drugs the rights to which Lundbeck was in the process of acquiring from Merck, including Indocin IV. Indocin IV was, at that time, the primary pharmaceutical treatment for patent ductus arteriosus, in which the shunt that connects a baby’s pulmonary artery to his or her aortic arch fails to close after birth. PDA is mostly found in very premature babies.
Ever seen a two pound preemie that can’t get enough oxygen hold out for a better deal? The vice president at Lundbeck hadn’t either, so Lundbeck came up with a plan: once they had the rights to Indocin IV, they would increase the price of each treatment course from $78 to $1,500.
Lundbeck didn’t actually do anything to earn themselves a twenty-fold raise, they just bought themselves a monopoly on the unmet medical need of certain people with a severe disease for which few other effective treatments were available. That’s their "commitment."
It gets better.
Lundbeck learned that two other companies, Farmacon-IL and Abbott Laboratories, had developed a competitor to Indocin IV, called NeoProfen, which could also treat PDA. Abbott Laboratories forecast NeoProfen could be sold for $450-500 per treatment course.
So Lundbeck bought the rights to NeoProfen, too. Once the FDA approved it, Lundbeck sold NeoProfen for $1450 per treatment course.
Despite preening over "innovation," Lundbeck invented nothing at all to treat the "severe disease" of PDA. Instead, Lundbeck bought the primary treatment and made it twenty times more expensive, then bought the drug’s new competitor and made the new drug three times more expensive than even its inventors thought it could be.
One would think there should be a law against that. In fact, there is such a law — really, more than one of them, like Section 5 of the FTC Act, Section 2 of the Sherman Act, Section 7 of the Clayton Act, and many state’s antitrust laws — but those laws do not always work the way they should:
The case looked like a slam-dunk for the Federal Trade Commission.
A drug company allegedly cornered the market on a medicine — not just any medicine, but one used to treat premature babies with life-threatening heart defects — then raised prices 1,300 percent.
The FTC sued the company, Ovation Pharmaceuticals, now Lundbeck Inc., in Minneapolis federal court in December 2008, seeking the strongest civil antitrust penalties possible — divestiture and disgorgement of $105 million in profits. The state of Minnesota joined in as a plaintiff as well.
All the elements seemed to be in place: the most sympathetic victims one could ask for, clear-cut evidence of an astronomical price hike, no other drugs available to treat the condition. And yet, after a two-week bench trial, the government lost the case — lost across the board, on every claim.
For Ericksen, the case boiled down to one basic question: Are Indocin and NeoProfen in the same product market? Although both treat the same condition and have "functional substitutability," Ericksen found they are not in the same market.
It was Ericksen’s first antitrust trial decision, according to a review of court records by The National Law Journal, although during her eight years on the federal bench, she has presided over private antitrust cases that were dismissed, transferred or otherwise resolved before trial.
The finding destroyed the FTC’s case. It meant there was no monopoly, no substantially lessened competition and indeed no antitrust wrongdoing at all.
The opinion is here.
In many ways, it’s surprising that the Federal Trade Commission and the State of Minnesota were able to pursue the lawsuit in the first place, given the efforts undertaken by the Supreme Court to dismantle the century-old antitrust laws in this country. For example, just because several products or services are being sold in a manner that demonstrates collusion among the suppliers doesn’t make it "plausible" there is such collusion, said the Supreme Court in Twombly v. Bell Atlantic. Once you say that judges can deem every case they don’t like as "implausible" by arbitrarily re-classifying factual allegations as "legal conclusions," there’s no telling how many meritorious cases won’t even be allowed into the courthouse.
But pursue they did, all the way through trial, just to have a judge rule that two drugs used to treat the same condition are somehow not in the same market, but are rather in some undefined, theoretical other market in which the massive price increases by a holding company which neither invented nor manufactured the drug were the result of a free, fair and competitive market.
I would bet that the FTC will appeal the ruling and it will be reversed and remanded. Even if that happens, however, the point is been made: our antitrust laws are so weak that they cannot be reliably enforced against a company that cornered the market for treatments of a severe condition and then used its monopoly position to raise the price of both to "anywhere they wanted."