THE WALL STREET JOURNAL. - Reprints

1 JANUARY 3, 2007 2007 Dow Jones & Company, Inc. All Rights Pill s Price Hike Helps Sales ofFlagship; A Probe in IllinoisByJOHNCARREYROUIn the fall of 2003, Abbott Laborato-ries grew worried about new competi-tion to its flagship AIDS drug, Kal-etra. Then it seized on an unusualweapon that helped Kaletra s globalsales top $1 billion a year, even as itexposed Abbott to criticism that it wasendangering weapon was an older AbbottAIDS drug called Norvir. It is a keypart of drug regimens that includerival companies pills. Previously un-disclosed documents and emailsreviewed by The Wall STREET Journalshow how Abbott executives discussedways to diminish the attraction ofNorvir, with the goal of forcing pa-tients to drop the rival drugs and turnto one point the executives debatedremoving Norvir pills from the and selling the medicine onlyin a liquid formulation that one execu-tive admitted tasted like vomit.

2 Thetaste would discourage use of Norvirand competitors drugs, the execu-tives reasoned, and Abbott couldclaim it needed Norvir pills for a hu-manitarian effort in Africa. Anotherproposal was to stop selling third proposal carried the day:quintupling the price of Norvir. Oneinternal document warned the movewould make Abbott look like a big,bad, greedy pharmaceutical com-pany. But the executives expected aNorvir price hike would help Kaletrasales, and they bet any controversywould eventually die were right. Kaletra sales inthe rose 10% over the next twoyears. Some objected that the pricehike made it harder for patients whoneeded drug combinations pairingNorvir with non-Abbott pills to gettheir medicine. After an initial burst,the criticism faded, partly becauseAbbott exempted government healthplans and AIDS drug-assistance pro-grams from the Norvir price debate at Abbott over Norvirprovides a rare inside look at a phar-maceutical company s efforts to maxi-mize profits and thwart industry has come under fire inrecent years for tactics such as heavymarketing of drugs that offer littleadvantage over older products andpaying generic-drugmakers to delay theintroduction ofcheap represents atwist in which acompany took ad-vantage of its mon-opoly over one drugto protect sales ofanother, more prof-itable Abbott spokes-woman, MelissaBrotz.

3 Says the com-pany neverseriouslyconsidered pullingNorvir from the glo-bal market or with-drawing the pill version in the denies raising Norvir s price toprotect Kaletra and says the increasedidn t hurt its competitors since theirdrugs continued to gain market shareand they later raised their own says the price increase wasintended to better reflect Norvir smedical value after years of Attorney General LisaMadigan has been investigatingAbbott s price hike for three years,saying it may be an example of unfairpricing that violates the state sconsumer-fraud law. A lawsuit filed district court in Oakland, Calif.,by two AIDS patients and the ServiceEmployees International Union Healthand Welfare Fund alleges that Abbottbroke antitrust law by using itsmarket power to boost Kaletra case is scheduled to go to trial inearly the 1990s, a new class of drugscalled protease inhibitors revolution-ized the treatment of AIDS.

4 Byimpeding the human immunodefi-ciency virus s ability to reproduceitself, these drugs turned the diseasefrom a death sentence into a chronic,manageable illness for many , which received Food andDrug Administration approval in 1996,is a protease inhibitor. Serious sideeffects prevented it from being usedas a stand-alone drug. But Abbottfound that at small doses Norvirboosted the effec-tiveness of otherprotease soonreceived wide use inthe drug combina-tions taken by 2000, Abbott in-troduced Kaletra,which combined anew Abbott-madeprotease inhibitorwith Norvir in asingle pill. Kaletra seffectiveness andconvenience quicklymade it the mostpopular AIDS drug,with 35% of the protease-inhibitormarket by 2003 and annual salesnearing $400 million.

5 By contrast,Norvir, when sold as a stand-alonedrug, was bringing in less than $50million a year in the , in June 2003, Bristol-MyersSquibb Co. introduced a new proteaseinhibitor called Reyataz. Bristol-My-ers presented a study it funded sug-gesting that Reyataz, boosted withNorvir, was as effective as Kaletra atholding HIV in check and had a bettereffect on cholesterol levels. Reyatazwas also more convenient because itrequired fewer pills a Reyataz began gaining marketshare, Abbott executives consideredways to protect Kaletra sales. OnSept. 6, 2003, Jeffrey Devlin, Abbott sHIV marketing director, emailed aslide presentation to a colleague thatdiscussed two options: quintuplingNorvir s price, or withdrawing NorvirNew Regimen: Inside Abbott s Tactics To Protect AIDS Drug THEPUBLISHER SSALEOFTHISREPRINTDOESNOTCONSTITUTEORIMP LYANYENDORSEMENTORSPONSORSHIPOFANYPRODUC T,SERVICE, Reprints (609)520-4328 Box 300 Princeton, 08543-0300.

6 DO NOT EDIT OR ALTER Reprints REPRODUCTIONS NOT PERMITTED2000 02 01 03 04 05 06*$5004003002001000 Prescription sales of Abbott Laboratories AIDS drug, Kaletra, in millions:Source: Abbott Laboratories *EstimateTHE WALL STREET from the market and leavingonly the liquid version of the pill withdrawal option woulddramatically improve Kaletra s salesand cripple Reyataz, the presentationpredicted, because the drug regimenthat included Reyataz would suddenlybecome more expensive. It forecast sales of Kaletra would grow by 20%to 30% between 2004 and 2006, while of Reyataz would fall by28% to 54% over the same period underthe scenario. Anticipating that peoplewould wonder why the Norvir pills weresuddenly unavailable, the documentrecommended telling the Americanpublic that they needed to be sent tothe developing world ( Africa) aspart of a humanitarian Mr.

7 Devlin fretted that forcingAmericans to swallow Norvir in liquidform will always be a tough sell. Abbott was keenly aware of the liquid sunpleasant taste. In a deposition thefollowing year with investigators fromthe Illinois attorney general s office,John Leonard, Abbott s vice presidentof global pharmaceutical research anddevelopment, referred to liquid Norviras this fluid that has been I ll just sayit characterized as tasting like some-one else s vomit. When Abbott briefly halted theproduction of Norvir pills in 1998 be-cause of manufacturing problems,patients resorted to creative methods toblock the liquid s foul taste. Theseincluded using a straw to shoot it to theback of their throats, coating theirmouths with peanut butter or chocolate,and numbing their taste buds with iceor a backlash over the taste,Mr.

8 Devlin recommended the priceincrease. But the liquid option stayedalive. On Sept. 12, 2003, Jesus Leal, thenvice president of Abbott s virology fran-chise, recommended it in an email to acolleague. Please don t be stunned bythe outcome of the thought process, Mr. Leal wrote to Leal s concern: A price hike onNorvir would be hard to justify. Abbottmight claim it couldn t afford to pro-duce the drug at the lower price, but itwould face exposure if forced to openbooks, he wrote. The liquid switch, onthe other hand, would minimize anyfederal investigations regarding priceincreases he argued. Mr. Leal, whohas since left the company, says todaythe email was part of a long andvigorous debate within Abbott, andshould not be taken out of context.

9 A slide presentation titled HIVC ommunications Plan and dated , 2003, reviewed the two options andadded a third: pulling all formulationsof Norvir from the global market. Thisradical step, the presentation said,would remove pricing from publicdebate and render moot any discussionof the liquid s taste. However, it notedthat Abbott s corporate reputation would for the price-increase scenario, thedocument listed as a Pro that healthinsurers might stop covering Norvir,which would hurt sales of other proteaseinhibitors and force patients to use Kal-etra. Among the cons, it cautioned thatthe move would tarnish Abbott ChiefExecutive Officer Miles White s debutas chairman of the PharmaceuticalResearch and Manufacturers of Am-erica, the industry s trade group, and position Abbott as a big, bad, greedypharmaceutical company.

10 Abbott saysthis slide presentation was made by apublic-relations firm working for thecompany at the early October, as a second newprotease inhibitor from GlaxoSmithK-line PLC neared FDA approval, anotherinternal document recommended theprice increase. It warned that if Nor-vir s price wasn t raised, the Abbottfranchise will be severely threatened bythe competitor s ability to piggy back on Norvir s uniqueness. If Abbott tookno action, it predicted, Kaletra prescrip-tions would fall 10% in declined to make , Leonard and White available forcomment. Ms. Brotz, the Abbott spokes-woman, says Mr. White, who remainschief executive, didn t know that lower-ranking executives discussed forcingAmericans to take Norvir as a liquid orending its sale altogether.