Abbott Labs Stirs Up Criticism

No one can accuse Abbott Laboratories (NYSE: ABT) of being overly sensitive to the political environment.

Let's see. At the moment, federal and state officials of both parties are considering measures that would allow reimportation of drugs from Canada and Europe because many people can't afford the prices pharma companies charge in the U.S. At the same time, lawmakers and citizens groups are assailing the new Medicare drug law for its high cost, with more than a few complaining that the benefit is simply a giveaway to the pharmaceuticals industry.

Under these circumstances, Abbott's decision last December to raise the price of its HIV drug Norvir by 400% looks particularly bad. In its defense, the company has responded effectively to the protests that arose after the price hike. Specifically, the firm noted that it froze the prices it charges to government programs for Norvir, it offers the drug for free to the uninsured, and no insurers have dropped coverage of Norvir as a result of the higher price.

None of that matters in an era in which drug makers' reputations with the public have arguably sunk to an all-time low. A group of senators have responded to the Norvir protests by calling for a Federal Trade Commission investigation. In addition, the National Institutes of Health will meet on Tuesday to consider a request to invalidate Abbott's Norvir patent, which is not set to expire for another 10 years.

Abbott probably won't lose the patent, but under this kind of pressure, it may want to rethink its pricing strategy. The company has a lot going for it, and it doesn't need prolonged uncertainty over Norvir and potential government interference. Ultimately, a tactical retreat could be in the best interest of its shareholders and the drug industry in general.

What do you think Abbott should do? Stick to its guns on the price increase for Norvir, or think about changing its consumer costs? Share your opinion on our Abbott Laboratories discussion board.

Fool contributor Brian Gorman is a freelance writer living in Chicago, Ill. He does not own shares of any companies mentioned here.