Why Abbott Is Allowed to Manipulate GSK and BMS's AIDS Drug Prices

(MoneyWatch)  If you read the news that a federal appeals court ruled in favor of Abbott Labs in a case where it was accused of rigging prices for the HIV drug Norvir, you probably came away scratching your head.

Here's an explanation of how Abbott, which has a monopoly on Norvir, is now allowed as a matter of law to continue to rig prices of GlaxoSmithKline's Lexiva and Bristol-Myers Squibb's Reyataz. (You can download the ruling in Doe v. Abbott here, it's nice and short, BTW.)

Abbott's Norvir monopoly Abbott's Norvir is a protease inhibitor that can be used alone to fight HIV. In small doses it also boosts the effectiveness of other inhibitors. Abbott has the usual patent granting it exclusive rights to make and sell Norvir. Abbott also sells Kaletra, a Norvir-boosted inhibitor.

GSK and BMS were allowed by the FDA to sell Norvir as a booster to their inhibitors, Lexiva, and Reyataz, respectively. As the ruling describes it:

Once this happened, Abbott increased the price of Norvir from $1.71 to $8.57 per 100 mg, but did not increase the price of Kaletra. The effect, [the plaintiffs] say, was to raise the total cost to the patient of boosted protease inhibitor therapies provided by Abbott's competitors ...

... the alleged vice is that Abbott is using its monopoly position in the booster market to raise the price of Norvir while selling its own boosted inhibitor at too low a price. ... this puts the squeeze on competing producers of protease inhibitors that depend on Norvir for their boosted effectiveness and consumer acceptance.

Why the ruling allows the Norvir monopoly Having found that Abbott does have a monopoly on Norvir and is using it to rig the prices of competing products that use Norvir as an ingredient, the court nonetheless said that was OK. First it noted that the monopoly comes not because Abbott conspired to create it but from the normal competitive superiority of a company that discovered the drug first.

But Abbott is not off the hook. If three things can be shown, Abbott may still be guilty of monopoly manipulation:

1. If Abbott is manipulating the market by selling Norvir in Kaletra at below-cost prices;
2. and if Abbott will recoup its investment on Kaletra by doing so;
3. and if consumers will be damaged.

The court found that the plaintiffs had not demonstrated that Abbott was pricing Kaletra below the cost of the Norvir ingredient, and thus the case fails:

... given Does' failure to allege the first prong of the test for a § 2 price-based claim (below-cost pricing), we have no need to reach the second (dangerous probability [of recouping the investment]) prong, or to address whether Does have also failed to show antitrust injury or monopoly power.

• Previously:
• Abbott Labs Q1: Has the Company Taken Its Eye Off the Sales Force Ball?
• Abbott Labs' Secret Weapon: Layoffs
• Abbott Labs' "Position of Strength" May Not Be as Strong as It Looks