Abbott Rebound Masks Norvir Suits Threatening Revenue
By Phil Milford and Cary O'Reilly
July 30 (Bloomberg) -- Abbott Laboratories' 13 percent stock rebound since April may end when a judge considers claims next month by California patients that the fourth-largest U.S. drugmaker overcharged for the HIV medicine Norvir.
The class-action suit is the first to come to trial of seven filed by individuals, competitors and retailers over Abbott's decision to lift prices for the pills by 400 percent. The company is accused of attempting to create a monopoly for Kaletra, its own version of an HIV treatment that includes Norvir.
``If I'm competing with other drug companies who use the same drug and am raising the price to drive rivals out of the market, that would make a strong argument for abusive conduct,'' said Professor Warren Grimes of Southwestern Law School in Los Angeles, co-author of ``The Law of Antitrust.'' ``And if e-mails suggest they increased the price to thwart competition,'' as is asserted by plaintiffs, ``I'd love to bring that claim.''
Losses might eventually make the company liable for $1.1 billion in damages, cost tens of millions a year in price rollbacks and lead to a reduced share of the $2.1 billion U.S. market for medicines that block the spread of HIV, or human immunodeficiency virus. The first trial begins Aug. 18.
``It would definitely have a short-term effect'' on the share price, said Jan David Wald, a Boston analyst for the financial-services company Stanford Group Co. ``It would have a larger impact than many people expect, larger than the revenue would suggest.''
Kaletra Revenue
Norvir is combined with other drugs called protease inhibitors to increase their efficacy. Kaletra is the drugmaker's third largest-selling pharmaceutical, generating annual revenue of $1.3 billion. U.S. sales of Norvir totaled $233 million last year, Abbott said.
A court-ordered 80 percent reduction in the U.S. price for Norvir -- the stiffest penalty the judge might impose -- may cut Abbott's annual revenue by as much as $186 million and fuel price competition against Kaletra, which logged $538 million in U.S. sales last year.
The Abbott Park, Illinois company had requested that the case be thrown out on the grounds that its Norvir patents, covering the drug and its use in combination with other medicines, allowed Abbott to set its own prices.
U.S. District Judge Claudia Wilkin in Oakland, California, ruled that the patents don't shield the company from an antitrust suit. She'll decide the case without a jury.
Market Share
Losing the patent claims is ``certainly not a positive development from the defendant's point of view,'' Grimes said.
The judge also found that the company ``failed to establish a lack of monopoly power, anticompetitive conduct or antitrust injury,'' making a trial necessary.
Abbott has denied any intent to use pricing to maintain a monopoly in court filings and statements. It disputes claims by a patients' expert that it controls 73 percent of the market, above the 65 percent share needed under antitrust law to show market power. Abbott's share fell to 47 percent from 77 percent after the price increase, the company said in court papers.
Norvir was ``repriced to capture its full value,'' after the drug moved from being a standalone medicine with an average dose of 600 milligrams twice a day to a daily 100- to 200-milligram booster in a protease-inhibitor cocktail, Abbott spokeswoman Melissa Brotz said.
The trial comes as Abbott's stock is approaching the $60 average price estimate from a Bloomberg survey of 15 analysts.
Share Prices
The shares rose 91 cents to $56.85 today in New York Stock Exchange composite trading, 13 percent higher than their low for the year of $50.44, reached on April 24.
The price may drop back to around $50, Matthew Dodds, a Citigroup Inc. analyst, said in a July 16 note to investors.
``We continue to believe that Abbott is overvalued,'' since 75 percent of its operating profit comes from drugs, Dodds said. The note didn't factor in the Norvir litigation. He pointed to a slowdown in the pharmaceutical business and the generic competition the company's Depakote epilepsy drug faces.
Dodds is the only analyst surveyed by Bloomberg with a ``sell'' rating on Abbott. Eleven rate the stock a ``buy'' on optimism about the company's top-selling Humira anti-inflammatory medicine and its Xience drug-coated stent.
The company's price-earnings ratio of 18.22 is 35 percent higher than the average for its peer group, according to data compiled by Bloomberg. The multiple may decline to 16.46 over the next 12 months, Bloomberg data show.
Companies That Sued
Besides the patients, 16 companies including GlaxoSmithKline Plc, Europe's largest drugmaker, and Rite Aid Corp., the third- biggest U.S. drugstore chain, sued over identical claims. The cases are combined in the Oakland court, with no trial date set.
Plaintiffs claim company documents prove Abbott raised the price to drive up the cost to competitors of combining Norvir with their protease inhibitors. E-mails show ``executives understood the illegal nature of their scheme,'' GlaxoSmithKline said in a complaint.
The nationwide overcharge is $370 million, according to Douglas Greer, an economics professor at San Jose State University in California, in a report prepared for the plaintiffs. The pharmacy and drug companies may seek that amount in damages, which can be tripled under antitrust law to $1.1 billion, when their case comes to trial.
The patients' case is In Re Abbott Laboratories, 04-cv-1511, U.S. District Court, Northern District of California (Oakland).
Last Updated: July 30, 2008 16:19 EDT
