[Ip-health] Bruce Japsen: Abbott's Norvir receipts to climb

[James Love]

A few quick notes on the Bruce Japsen story.

*  Japen, like most other reporters, cites the daily cost as the drug
maker's price for a single 100 miligram tab.   The more typical dose is
twice that -- 200 miligrams.  Some HAART regimes will apparently require
  400 miligram.   And patients typically pay the higher prices that
reflect distrkibutor mark-ups.  For most patients, the prices increased
from $4.28 per day, to around $21.40 per day.

*  the $1 billion in Norvir revenue he cites was earned by 2001, three
years, ago, and does not include subsequent sales, or the new revenue
from Kaletra, which is huge.

*  the Abbott claim of $300 million spent on Norvir development is taken
at face value, without quoting the quantative evidence given by critics
that the cost for the trials on the drug were far lower (order of
magnatiude lower) for initial approval.

*  No mention of the other 618 NIH grants to study ritonavir, or the
large NIH (and Abbott competitor's) investment in trials involving
ritonavir, or the fact that the NIH pre-clinical investments were risky,
and therefore, have a higher economic value  (Tufts puts risk and
captial cost economic valuie of pre-clinical work are more than $300
million).


http://www.chicagotribune.com/business/chi-0406060009jun06,1,5179342.story

Abbott's Norvir receipts to climb
Result of sharp increase in AIDS drug price; firm says it remains a bargain

By Bruce Japsen
Tribune staff reporter
Published June 6, 2004

To hear Abbott Laboratories tell it, the company has underpriced Norvir,
its popular AIDS drug, for years.

Abbott says it has gone out of its way to provide access to Norvir by
providing free and reduced-cost drugs to AIDS patients worldwide. It
also has frozen the price it charges government programs and has given
the drug away to the uninsured.

But as consumer groups and government agencies contest Abbott's recent
decision to quadruple the price it charges everyone else for Norvir, a
close look at the economics of the drug reveals that Abbott, because of
the price increase, will collect an extra $70 million, nearly doubling
its sales of last year.

And if all goes according to plan, industry analysts project that the
North Chicago-based drugmaker will ultimately nearly double the more
than $1 billion in sales the drug has generated since its launch in 1996.

Abbott is expected to take in $2 billion in sales in the next 10 years
on Norvir--a tab being paid by insurers who will likely pass it on to
all who pay premiums.

"Abbott doesn't really see a downside in being aggressive," said James
Love, president of the Washington-based consumer group Essential
Inventions. "In other industries, if a company did what Abbott did, they
would go elsewhere for the product. But these consumers can't."

The Norvir controversy comes amid growing public concern about how drug
companies price their products and how insurance companies, employers
and government agencies pay for them.

The 400 percent price increase, which raised the cost of a daily dose
from $1.71 to $8.57, has drawn intense criticism and lawsuits from
consumer groups and AIDS activists, staining Abbott's once-stellar image
in the AIDS community.

Attorneys general in Illinois and New York are probing whether the
December increase violated antitrust laws.

The National Institutes of Health is weighing whether to take the
unprecedented step of allowing other companies to make generic copies of
Norvir, for which taxpayer funds were used in its early stages of
development.

Amid all the controversy the protease inhibitor--a key ingredient in
combination AIDS therapies known as "cocktails"-- remains a gold mine
for Abbott. Since coming on the market eight years ago the AIDS drug has
generated more than $1 billion in revenue, easily recouping the more
than $300 million the company says it spent to develop it.

Revenue from the drug had tailed off in recent years as Norvir descended
from the top tier of AIDS medicines because of side effects at a
commonly prescribed 1,200-milligram dose. But it remains a crucial part
of the drug regimen for many AIDS patients.

Prior to the price hike, doctors discovered that a 100-milligram dose
can work as a booster for several new HIV medicines made by other
companies. Abbott responded to the discovery by adjusting the price to
take advantage of anticipated new demand.

Dr. Jeffrey Leiden, president of Abbott's pharmaceutical products group,
says Norvir is still the cheapest protease inhibitor on the market and
was undervalued for its role in HIV treatment. He said the new price is
justified.

"The other protease inhibitors, at their most common doses, were priced
at between 500 percent and 1,800 percent higher than Norvir," Leiden says.

But critics say Abbott's depiction of Norvir as a bargain is
disingenuous. Although Norvir is far cheaper than new drugs such as
Bristol-Myers Squibb Co.'s Reyataz, critics say Abbott has made its own
top-tier protease inhibitor Kaletra even less expensive than rivals at
$18.78 a day.

Kaletra, which was approved in 2000, already contains Norvir as an
ingredient, but Abbott did not raise the price of its newer and more
effective treatment.

Antitrust probe

Prosecutors are examining whether Abbott violated antitrust laws in an
attempt to push patients toward Kaletra, which generates $700 million in
sales annually.

Abbott's move not only could boost the sales of Kaletra but will allow
it to make even more money on Norvir.

But Abbott says its Kaletra sales have been flat since the price
increase while Norvir sales are tracking ahead on par with the newer drugs.

"Kaletra's market share has experienced no gain over the past two
quarters, and Kaletra has not benefited from the repricing of Norvir,"
Leiden said.

Abbott says it spent $300 million of its own funds to develop Norvir
while only $3.5 million came from an NIH grant for its early HIV
medicine research that included two drug failures.

Though drug pricing strategy is a closely held secret, industry experts
say gross margins are typically at least 80 percent, although they vary
widely.

Costs of goods and services involved in developing a drug typically
equal 20 percent of revenues. The rest is gross margin: 17 percent for
research, 33 percent for selling and general administrative expenses and
a 30 percent pretax profit.

But by boosting the price of Norvir now, Abbott is likely pulling down
even greater profit margins, some say.

"When you increase the price dramatically, you increase the margin
dramatically," said Duke University economics professor Henry Grabowski.
"The cost per unit to produce it is not going to change. That is
probably fairly fixed."

No leverage

The fact that Abbott can raise its price gets to the heart of the
controversy surrounding drug industry pricing.

Critics complain that drug companies raise prices because they can,
while health plans and employers have no leverage to stop them.

"When a drug is generally accepted as safe and effective, health plans
can't do anything other than pass the cost along," said Todd Swim, an
analyst with health benefits consulting firm Mercer Human Resources
Consulting. Since the Norvir price increase, health plan spending on it
has soared. Blue Cross and Blue Shield of Illinois said its costs for
Norvir more than quadrupled, to $309,248, during the first quarter of
2004 from $70,138 in the first quarter of 2003. Abbott and the
pharmaceutical industry say new drugs end up saving money in the long
run by keeping patients out of hospitals and helping them avoid costly
surgeries.

The pharmaceutical industry says drug companies have to be able to
charge high prices on their best-selling drugs if they are to continue
developing life-saving treatments.

Abbott, for example, spent $1.7 billion on research and development last
year and said it will use Norvir sales to fund research on drugs to
treat heart disease, diabetes and cancer.

The Pharmaceutical Research and Manufacturers of America and studies by
several groups say it costs $800 million or more on average to develop a
new prescription drug. Those costs typically include failures in the
laboratory.

Furthermore, the typically lengthy development and regulatory approval
process gives companies a commercial sales window of about 11 or 12 of
the drug's 20 years of patent protection before generic competition is
permitted, the pharmaceutical group said.

But Abbott's sales window for Norvir may be more than 50 percent longer
than what is typical because of an earlier-than-normal Food and Drug
Administration approval. By the time its patent expires, Norvir will
have been on the market for nearly 18 years.

Submitted to the FDA in December 1995, the drug was approved within 70 days.

As with most AIDS drugs that were approved in the mid-1990s, there were
few alternatives for patients who were dying from the disease, so the
government put HIV treatments on a fast track.

Critics say this short approval time saved Abbott tens of millions of
dollars on drug development compared with most drugs.

"No pivotal trials lasted more than 48 weeks," says Lynda Dee,
co-chairman of the drug development committee of the AIDS Treatment
Activist Coalition.

"Instead of losing its initial market edge like other HIV drugs," she
said, "Norvir continues to generate profits for Abbott."




--
James Love, Director, Consumer Project on Technology
http://www.cptech.org, mailto:james.love@cptech.org
tel. +1.202.387.8030, mobile +1.202.361.3040



--
James Love, Director, Consumer Project on Technology
http://www.cptech.org, mailto:james.love@cptech.org
tel. +1.202.387.8030, mobile +1.202.361.3040