[Ip-health] WSJ: Inside Abbott's Tactics to Protect AIDS Drug

[robert weissman]

/New Regimen/
  Inside Abbott's Tactics
  To Protect AIDS Drug

Older Pill's Price Hike
Helps Sales of Flagship;
A Probe in Illinois
By *JOHN CARREYROU*
January 3, 2007; Page A1

In the fall of 2003, Abbott Laboratories
<http://online.wsj.com/quotes/main.html?type=3Ddjn&symbol=3Dabt> grew
worried about new competition to its flagship AIDS drug, Kaletra. Then
it seized on an unusual weapon that helped Kaletra's global sales top $1
billion a year, even as it exposed Abbott to criticism that it was
endangering patients.

The weapon was an older Abbott AIDS drug called Norvir. It is a key part
of drug regimens that include rival companies' pills. Previously
undisclosed documents and emails
<http://online.wsj.com/article/SB116776479879065123.html?mod=3DLeader-US>
reviewed by The Wall Street Journal show how Abbott executives discussed
ways to diminish the attraction of Norvir, with the goal of forcing
patients to drop the rival drugs and turn to Kaletra.

At one point the executives debated removing Norvir pills from the U.S.
market and selling the medicine only in a liquid formulation that one
executive admitted tasted like vomit. The taste would discourage use of
Norvir and competitors' drugs, the executives reasoned, and Abbott could
claim it needed Norvir pills for a humanitarian effort in Africa.
Another proposal was to stop selling Norvir altogether.

[Chart]

A third proposal carried the day: quintupling the price of Norvir. One
internal document warned the move would make Abbott look like a "big,
bad, greedy pharmaceutical company." But the executives expected a
Norvir price hike would help Kaletra sales, and they bet any controversy
would eventually die down.

They were right. Kaletra sales in the U.S. rose 10% over the next two
years. Some objected that the price hike made it harder for patients who
needed drug combinations pairing Norvir with non-Abbott pills to get
their medicine. After an initial burst, the criticism faded, partly
because Abbott exempted government health plans and AIDS drug-assistance
programs from the Norvir price increase.

The debate at Abbott over Norvir provides a rare inside look at a
pharmaceutical company's efforts to maximize profits and thwart
competitors. The industry has come under fire in recent years for
tactics such as heavy marketing of drugs that offer little advantage
over older products and paying generic-drug makers to delay the
introduction of cheap copycats. Norvir represents a twist in which a
company took advantage of its monopoly over one drug to protect sales of
another, more profitable one.

An Abbott spokeswoman, Melissa Brotz, says the company never seriously
considered pulling Norvir from the global market or withdrawing the pill
version in the U.S. Abbott denies raising Norvir's price to protect
Kaletra and says the increase didn't hurt its competitors since their
drugs continued to gain market share and they later raised their own
prices. It says the price increase was intended to better reflect
Norvir's medical value after years of being underestimated.

Illinois Attorney General Lisa Madigan has been investigating Abbott's
price hike for three years, saying it may be an example of unfair
pricing that violates the state's consumer-fraud law. A lawsuit filed in
U.S. district court in Oakland, Calif., by two AIDS patients and the
Service Employees International Union Health and Welfare Fund alleges
that Abbott broke antitrust law by using its market power to boost
Kaletra sales. The case is scheduled to go to trial in early 2008.

*New Class of Drugs*

In the 1990s, a new class of drugs called protease inhibitors
revolutionized the treatment of AIDS. By impeding the human
immunodeficiency virus's ability to reproduce itself, these drugs turned
the disease from a death sentence into a chronic, manageable illness for
many patients.

Norvir, which received Food and Drug Administration approval in 1996, is
a protease inhibitor. Serious side effects prevented it from being used
as a stand-alone drug. But Abbott found that at small doses Norvir
boosted the effectiveness of other protease inhibitors. Norvir soon
received wide use in the drug combinations taken by AIDS patients.

In 2000, Abbott introduced Kaletra, which combined a new Abbott-made
protease inhibitor with Norvir in a single pill. Kaletra's effectiveness
and convenience quickly made it the most popular AIDS drug, with 35% of
the protease-inhibitor market by 2003 and annual U.S. sales nearing $400
million. By contrast, Norvir, when sold as a stand-alone drug, was
bringing in less than $50 million a year in the U.S.

EXTRAS
[Video] =95 Reporter John Carreyrou speaks with Allen Thornell
<http://online.wsj.com/public/page/8_0004.html>, a patient who is suing
Abbott Laboratories over its move to sharply raise the price of Norvir.

=95 Read the text of an email in which an Abbott vice president lays out
options for boosting Kaletra sales
<http://online.wsj.com/article/SB116776479879065123-5.html?mod=3DLeader-US>=
,
and see excerpts from an internal slide presentation that expresses
concern about Abbott being seen as "big, bad, greedy."

Then, in June 2003, Bristol-Myers Squibb
<http://online.wsj.com/quotes/main.html?type=3Ddjn&symbol=3Dbmy> Co.
introduced a new protease inhibitor called Reyataz. Bristol-Myers
presented a study it funded suggesting that Reyataz, boosted with
Norvir, was as effective as Kaletra at holding HIV in check and had a
better effect on cholesterol levels. Reyataz was also more convenient
because it required fewer pills a day.

As Reyataz began gaining market share, Abbott executives considered ways
to protect Kaletra sales. On Sept. 6, 2003, Jeffrey Devlin, Abbott's HIV
marketing director, emailed a slide presentation to a colleague that
discussed two options: quintupling Norvir's price, or withdrawing Norvir
pills from the U.S. market and leaving only the liquid version of the drug.

The pill withdrawal option would dramatically improve Kaletra's sales
and cripple Reyataz, the presentation predicted, because the drug
regimen that included Reyataz would suddenly become more expensive. It
forecast that U.S. sales of Kaletra would grow by 20% to 30% between
2004 and 2006, while U.S. prescriptions of Reyataz would fall by 28% to
54% over the same period under the scenario. Anticipating that people
would wonder why the Norvir pills were suddenly unavailable, the
document recommended telling the American public that they needed to be
sent "to the developing world (i.e. Africa)" as part of a humanitarian
effort.

But Mr. Devlin fretted that forcing Americans to swallow Norvir in
liquid form "will always be a tough sell." Abbott was keenly aware of
the liquid's unpleasant taste. In a deposition the following year with
investigators from the Illinois attorney general's office, John Leonard,
Abbott's vice president of global pharmaceutical research and
development, referred to liquid Norvir as "this fluid that has been --
I'll just say it -- characterized as tasting like someone else's vomit."

When Abbott briefly halted the production of Norvir pills in 1998
because of manufacturing problems, patients resorted to creative methods
to block the liquid's foul taste. These included using a straw to shoot
it to the back of their throats, coating their mouths with peanut butter
or chocolate, and numbing their taste buds with ice or popsicles.

*Backlash Foreseen*

Foreseeing a backlash over the taste, Mr. Devlin recommended the price
increase. But the liquid option stayed alive. On Sept. 12, 2003, Jesus
Leal, then vice president of Abbott's virology franchise, recommended it
in an email to a colleague. "Please don't be stunned by the outcome of
the thought process," Mr. Leal wrote to her.

Mr. Leal's concern: A price hike on Norvir would be hard to justify.
Abbott might claim it couldn't afford to produce the drug at the lower
price, but it would face exposure "if forced to open books," he wrote.
The liquid switch, on the other hand, would "minimize any federal
investigations regarding price increases" he argued. Mr. Leal, who has
since left the company, says today the email "was part of a long and
vigorous debate within Abbott, and should not be taken out of context."

A slide presentation titled "HIV Communications Plan" and dated Sept.
24, 2003, reviewed the two options and added a third: pulling all
formulations of Norvir from the global market. This radical step, the
presentation said, would remove "pricing from public debate" and render
moot any discussion of the liquid's taste. However, it noted that
Abbott's "corporate reputation" would suffer.

PRICE CHECK
/Key events surrounding Abbott Laboratories' increase in the price of
AIDS drug Norvir:/
=95 *1996:* Abbott introduces Norvir.

=95 *2000:* Abbott introduces AIDS drug Kaletra, which includes Norvir.

=95 *June 2003:* Bristol-Myers Squibb introduces Reyataz, a rival to
Kaletra that is taken with Norvir.

=95 *September 2003:* In internal documents, Abbott executives discuss
pulling Norvir from global market, quintupling the drug's price, or
withdrawing Norvir pills from the U.S. market and leaving only its
foul-tasting liquid form.

=95 *October 2003:* Company document warns Kaletra prescriptions will fall
if Norvir's price isn't raised.

=95 *December 2003:* Abbott quintuples Norvir's price.

=95 *February 2004:* Illinois attorney general opens investigation into
price increase.

As for the price-increase scenario, the document listed as a "Pro" that
health insurers might stop covering Norvir, which would hurt sales of
other protease inhibitors and force patients to use Kaletra. Among the
cons, it cautioned that the move would "tarnish" Abbott Chief Executive
Officer Miles White's debut as chairman of the Pharmaceutical Research
and Manufacturers of America, the industry's trade group, and "position"
Abbott as a "big, bad, greedy pharmaceutical company." Abbott says this
slide presentation was made by a public-relations firm working for the
company at the time.

In early October, as a second new protease inhibitor from
GlaxoSmithKline
<http://online.wsj.com/quotes/main.html?type=3Ddjn&symbol=3Dgsk> PLC neared
FDA approval, another internal document recommended the price increase.
It warned that if Norvir's price wasn't raised, "the Abbott franchise
will be severely threatened by the competitor's ability to 'piggy back'
on Norvir's uniqueness." If Abbott took no action, it predicted, Kaletra
prescriptions would fall 10% in 2004.

Abbott declined to make Messrs. Devlin, Leonard and White available for
comment. Ms. Brotz, the Abbott spokeswoman, says Mr. White, who remains
chief executive, didn't know that lower-ranking executives discussed
forcing Americans to take Norvir as a liquid or ending its sale
altogether. She says the executives were just brainstorming and quickly
discarded some of the options. These executives weren't decision makers,
she adds.

However, in a court brief filed in the California case last year
opposing a plaintiffs' motion to unseal the documents, Abbott said they
"were prepared by and for some of the most senior officers at the
company as part of an enormously important strategic discussion about
Norvir."

In December 2003, Abbott implemented its final decision: a 400% price
increase. Norvir's U.S. wholesale price rose to $257.10 from $51.30 for
30 100-milligram capsules. The move made Kaletra a cheaper option for
American AIDS patients. It raised the cost of using a Reyataz/Norvir
regimen by $2,504 to $11,187 a year. In the case of regimens requiring
more than once-daily Norvir boosting, the cost rose by $5,000 or more a
year. Kaletra at the time cost about $7,000 a year.

*Protest at Headquarters*

As Abbott had foreseen, the price hike triggered an uproar. AIDS
activists protested in front of the company's suburban Chicago
headquarters and at its annual meeting of shareholders. Three hundred
doctors banded together to boycott Abbott products and barred company
sales representatives from entering their offices.

Abbott exempted Medicaid, Medicare and state AIDS drug-assistance
programs from the price increase. It also announced that it would expand
its own patient-assistance program. This enabled the company to argue
that the increase was being shouldered by private health insurers, not
patients.

Hollis Salzman, a partner with Labaton Sucharow & Rudoff, one of the law
firms that brought the California case, says the Norvir price hike still
made it harder for some patients to get drugs they needed. "Abbott
single-handedly turned back the clock on the treatment of AIDS," she says.

Allen Thornell, an AIDS patient and plaintiff in the California case,
says the 20% co-payment required by his insurance plan at the time
jumped to $1,000 a month from $400 when Abbott raised Norvir's price.
The new co-payment represented a third of his take-home salary. As a
result, Mr. Thornell, 36, says he had to quit his job as head of Georgia
Equality, a gay and lesbian organization. His current insurance has a
low fixed co-payment. (Video interview
<http://online.wsj.com/public/page/8_0004.html>)

Ms. Brotz of Abbott says Mr. Thornell is not typical because most
private health plans cap co-payments at a much lower level. She adds
that people in his position are eligible for Abbott's patient-assistance
program. "Our intention was that no patient be denied access to Norvir,"
she says.

The Norvir price increase also affected institutions that weren't
exempted, such as state prisons. The North Carolina Department of
Corrections, which counts about 800 HIV-infected inmates, saw its Norvir
costs rise to $95,000 in the first quarter of 2004 from $28,000 the
previous quarter.

Abbott's move "created a huge price discrepancy" between Kaletra and
rival drugs, says David Wohl, an associate professor at the University
of North Carolina who works part-time treating infected inmates. Dr.
Wohl resisted shifting patients to Kaletra unless he thought it was the
best drug for them. He says resulting budget difficulties forced prisons
to cut back on testing inmates for virus resistance.

In May 2004, the National Institutes of Health held a public hearing to
consider a request by a consumer advocacy group that it authorize
cheaper generic copies of Norvir to be made before the drug's patent
expired. The NIH has legal authority to do that in cases where it has
helped fund research into a drug, but it has never used this power.

John Erickson, a former Abbott scientist who did much of the research
work on Norvir, spoke in favor of the request. He testified that it was
unlikely Abbott would have funded Norvir's early development without a
$3.5 million grant it received from the NIH in 1988. Abbott doesn't
dispute the grant was important but says it also invested its own money
in HIV research, including $300 million on clinical trials of Norvir.
The NIH decided in Abbott's favor, saying it wasn't empowered to
determine whether a drug's price was too high.

To justify the price increase, Abbott posted a cost-comparison chart on
its Norvir Web site, showing that Norvir remained cheaper than other
protease inhibitors. However, the chart implied that Norvir could be
taken on its own at a 100-milligram dose when in fact it is approved at
that dose only in combination with other protease inhibitors. The FDA
ordered Abbott to remove the chart in June 2004, calling it "false and
misleading," and Abbott complied.

Over time, the outcry faded. Private health insurers took a bigger blow
but had little leverage, because they could hardly deny patients a
lifesaving drug. Insurer Aetna Inc. sued Abbott but dropped the suit
within days. Abbott also settled a suit brought by the AIDS Healthcare
Foundation. The company agreed to support programs at the foundation,
which provides free medicine to poor and uninsured AIDS patients.
Financial terms weren't disclosed.

Dr. Wohl says Abbott has been "winning back some community goodwill,
including from me" with new initiatives, such as a partnership with
basketball Hall of Famer Magic Johnson to fight AIDS among
African-Americans. Dr. Wohl says he has resumed making paid speaking
appearances on behalf of the company.

U.S. sales of Reyataz, the Bristol-Myers drug, have grown despite
Norvir's higher price. They reached $370 million in the first nine
months of last year, up 25% from the same period of 2005. Kaletra too
has been selling well, thanks in part to a new formulation that improves
convenience. U.S. sales of Kaletra grew 27% in the first three quarters
of 2006 and are on track to reach $500 million for the year.

*Write to *John Carreyrou at john.carreyrou@wsj.com
<mailto:john.carreyrou@wsj.com>