Healthy Skepticism Library item: 17918

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Publication type: news

Japsen B
Abbott freezes salaries to pay for drug launch
Chicago Tribune 2003 Jan 14

Full text:

Abbott Laboratories will freeze the salaries of its 34,000 U.S. employees for six months, largely to pay for the expensive launch of its promising rheumatoid arthritis drug.

The giant North Chicago-based maker of drugs and medical products told its U.S. workers that salary increases would be delayed because of increased expenses for pharmaceutical research, marketing programs and manufacturing.

Most of the extra cost is related to the new drug, Humira.

The move is unusual for Abbott, which is known for consistently offering one of the Chicago area’s better wage and benefit packages. But Abbott also is known for prudent financial controls and for consistently meeting Wall Street’s expectations.

Abbott executives acknowledge that they were taken aback by an earlier-than-expected government approval of Humira. The U.S. Food and Drug Administration approved the drug for marketing on Dec. 31.

Abbott and many of the analysts who follow the company did not expect Humira to be approved until sometime late in the first quarter of this year.

Abbott had to quickly alter its budgeting process for a drug that is expected to be a strong contributor to the company’s bottom line, but also is the most expensive to launch in Abbott’s history.

Abbott would not disclose a specific breakdown of expenses to roll out Humira.

But additional costs will come in both marketing and manufacturing, the company said.

The Abbott sales force will be competing against two other drugmakers already selling rival rheumatoid arthritis treatments.

Further, Humira is made with complex and expensive biotechnology, triggering larger costs than do traditional manufacturing processes used to make pharmaceuticals such as tablets and capsules.

Humira is a treatment that patients can inject every other week on their own.

It is part of a new class of rheumatoid arthritis treatments hailed for their ability to slow or halt progression of the debilitating disease.

Analysts project that Humira eventually will be a blockbuster for Abbott, generating $1 billion in annual sales in the next five years.

Not surprisingly, the decision to delay raises was not popular among many employees. About half of Abbott’s worldwide workforce of 70,000 is in the U.S. Some U.S. workers reportedly were surprised because the company had strongly suspected that Humira would be approved. Also, Abbott has been profitable, generating a 14 percent increase in earnings in the company’s most recent reported period, the third quarter of last year.

But top management at Abbott defended the decision, saying employees would not be facing the same situation as other workers who have not received raises in recent years, mostly because of the poor economy.

“Abbott is delaying the raises to balance the investments in a slower global economy and to maintain desired growth. But we chose to delay raises rather than cutting the amount of the raises as a more favorable route for more longer-term employee compensation,” said Abbott spokeswoman Melissa Brotz.

Other companies locally and across the country have frozen wages for longer periods or even cut worker pay to cope with slowing sales and an overall economic downturn.

Abbott said it could not disclose specific expenses associated with the launch of Humira, but the firm recently said profits would be affected in 2003.

Analysts and sources close to Abbott indicated that the company may reveal more details and specifics about costs for launching Humira on Thursday, when its fourth-quarter earnings are scheduled to be released.