Abbott Labs Defends Pricing Policy

"Although the NIH could set a precedent, the circumstances are pretty unique to Abbott," said Hamill, who focuses on medical equipment companies (including some like Abbott and Baxter International (BAX Quote - Cramer on BAX - Stock Picks) that also produce drugs) rather than the pure-play pharmaceutical companies.

Even the worst-case result would seem to have little impact on Abbott. Norvir had less than $100 million in sales last year. The drug's revenue is low enough so that Norvir doesn't show up in the quarterly list of top-selling drugs that Abbott publishes when it releases its earnings reports. For example, in 2003 Abbott identified its top 11 drugs in the United States and/or foreign markets, with the 11th ranked drug having $132 million in sales.

Abbott disputed attempts to apply a provision of a 1980 federal law, known as the Bayh-Dole Act, to Norvir, adding that the law "was never intended to be a tool for controlling pharmaceutical prices." The law was aimed at encouraging cooperation between private and public entities, the company said. The only time the government could revoke the license of a product under patent was if a company that benefited from public collaboration "has not successfully commercialized the invention as a product," Abbott said.

Asserting that its scientists "discovered, developed and funded Norvir," Abbott said that it had received only "a small discovery grant" from NIH totaling $3.47 million, primarily for preclinical work. Abbott spent more than $300 million to develop the drug.

Abbott said it raised its price of Norvir because the company discovered that the drug has an added attraction -- it can boost the activity of other HIV/AIDS drugs. That's why the company raised the price of Norvir to $8.57 a day from $1.71 a day in December. The price increase triggered the petition to the NIH, and critics have complained that Abbott was trying to squeeze more money out of an older drug.

Abbott also pointed out Monday that the new price for Norvir is still less than half of the company's newer HIV/AIDS drug Kaletra, and even cheaper than other drugs in Norvir's class made by Pfizer(PFE Quote - Cramer on PFE - Stock Picks), Bristol-Myers Squibb(BMY Quote - Cramer on BMY - Stock Picks) and GlaxoSmithKline(GSK Quote - Cramer on GSK - Stock Picks). Abbott added that it has taken steps "to enhance access and affordability" for patients who lack health insurance and patients whose insurance doesn't cover the full cost of treatment.