The "Suits" Win Again: How the "Big, Bad, Greedy Pharmaceutical Company" Used One Drug to Hike Another's Price

Here is a little more enlightenment about why the price of health care is so awfully high, from the Wall Street Journal, the example of how Abbott Laboratories elevated the price of Kaletra.

First, let me provide some background. Protease inhibitors revolutionized the treatment of HIV infection. Norvir (rinoavir), manufactured by Abbott, is a protease inhibitor that became popular as part of combination therapy with other drugs for HIV, but was not used alone. Kaletra was introduced by Abbott in 2000 as a single pill that combined Norvir with another protease inhibitor, lopinavir. But in 2003, Kaletra began losing sales to the combination of a new Bristol-Myers-Squibb drug, Reyataz (atazanavir), with Norvir.

In the fall of 2003, Abbott Laboratories 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 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.

Norvir represents a twist in which a company took advantage of its monopoly over one drug to protect sales of another, more profitable one.

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.'

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.

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.'

In early October, as a second new protease inhibitor from GlaxoSmithKline PLC neared FDA approval, another internal document recommended the price increase.

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.

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.

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.

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.

This would not be the first case in which a pharmaceutical company tried to leverage the price of one product on another. For example, see this post on how Pfizer meant to maintain the price of Lipitor once it went off patent, by combining it with its new drug to boost HDL (good) cholesterol, torcetaprib, a scheme that fell apart after the latter drug proved to have more adverse effects than expected. However, if nothing else, in my humble opinion, Abbott certainly did look like a "big, bad, greedy pharmaceutical company" in the current case.

The most remarkable aspect of this case was how little opposition Abbott's tactics inspired. First, where were the government agencies that are so quick to slash physician reimbursement every time the overall cost of health care goes up?

Actually, it appeared that Abbott cut the federal government a special deal.

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.

Of course, who ultimately ends up paying for health insurance? The people who have it (albeit often indirectly in the US, through foregoing salary that their employers then use to purchase their insurance). In any case, where were the managed care organizations who boast that their goal is to make health care accessible and affordable? And where were the federal enforcers of anti-trust law? Were they were too busy blaming physicians for rising health care costs to take any notice? And maybe the "suits" in managed care and the US government find it easier to go after individual, unorganized, individualistic physicians than the "suits" in pharmaceutical companies? [I salute the Illinois Attorney General for being willing to take action. Maybe she doesn't wear a suit.]

Of course, as long as the "suits" keep playing in their own sand-box together, individual physicians, and more importantly, individual patients will pay the price.