Prilosec's Maker Switches To Nexium, Thwarting Generics

Prilosec's Maker Switches Users To Nexium, Thwarting Generics

The heartburn drug Prilosec is one of the best-selling prescription medicines in history. Sales in the past five years alone amount to $26 billion. The reason is not only its popularity but its steep price: about $4 per pill.

AstraZeneca PLC, Prilosec's maker, has been able to charge this much because it owned the drug's patent. But the patent's expiration date was April 2001. By now, cheap knockoffs should be flooding the market and saving millions for retirees, insurers, government health plans and corporations, such as General Motors Corp., which spends $55 million a year just to buy Prilosec for its employees and retirees.

SOARING DRUG PRICES   1 More than 35 states are exploring actions designed to attack soaring drug costs, including organizing a drug-pricing task force. Read the Journal's series of Page One stories2 on the embattled pharmaceutical industry.   How New Generic Medications Can Trim Your Drug Expenses3

Yet, no generics have been launched. The reason? Seven years of planning by a group of marketers, lawyers and scientists within the drug's maker. The group called itself the Shark Fin project after the dismal shape the sales chart would trace if they did nothing: an inverted-V.

Beginning its work in 1995, the team came up with a list of nearly 50 possible solutions to the patent-expiration disaster facing the company. Among the best would be finding a new heartburn drug that worked significantly better. Among the worst: launching a successor drug that was virtually no better but had several more years of patent exclusivity. The group also constructed an elaborate legal defense of Prilosec's patents.

Fifteen months after the patent expiration, the market shows how deftly the planners handled their crisis. Prilosec still has its exclusivity, having kept the generics at bay with a series of lawsuits and peripheral patent claims. Meanwhile, AstraZeneca has begun establishing a successor heartburn drug in the market. And, knowing it can't fend off Prilosec generics forever, it is spending half a billion dollars a year to convert Prilosec users to the new branded product, called Nexium, which like Prilosec carries a steep price of some $4 a pill.

All this despite a dim assessment from several executives who were part of the long Shark Fin planning process. They say Nexium was among the poorest of the many drug solutions they pondered back in 1995 -- a new medicine that isn't any better for ordinary heartburn than the one it will succeed.

The Prilosec pattern, repeated across the pharmaceutical industry, goes a long way to explain why the nation's prescription-drug bill is rising an estimated 17% a year even as general inflation is quiescent. Just a few dozen high-priced branded drugs are driving this increase. As the drugs near the end of their market exclusivity, the maker typically brings out a new branded drug for the same condition, then launches a huge promotional campaign to convert users to the new one. And as in the Prilosec case, the new drug often is little better, or even little different, owing to growing difficulties drug-company labs face in finding novel drugs.

At the same time, companies typically fight to block generic versions by filing patents on related matters such as how a drug is delivered and used, and then suing makers of generics. It's a tactic that is meeting increasing resistance, though. This week, 29 state attorneys general sued Bristol-Myers Squibb Co., accusing it of using frivolous patents to delay generic competition to the cancer drug Taxol. They say more such suits are in the offing.

Few patients who walk into the Mud Creek Clinic in Floyd County, Ky., can afford to pay for Prilosec. "So they stretch out a month's prescription for five or six months," says Jackie Bartley, a nurse at the clinic. "They'll go a week and not take it, and their stomachs will get so bad that they'll take it for three or four days until things get OK and then wait again until their stomachs get bad again. A generic would be a gift from God."

Prilosec was originally sold in the U.S. by Astra-Merck, a partnership of Merck & Co. and Astra AB of Sweden. Astra eventually bought out Merck's share and merged with another company to form AstraZeneca. Merck still collects 32% of Prilosec's U.S. sales and 27% of the successor drug's.

Lofty Goals

The Astra-Merck team that set out in 1995 to plan the Prilosec succession started with lofty goals. "It wasn't just about the money -- we wanted to do good things," says one of the members. Four agreed to speak about the planning for the Prilosec successor drug, which is called Nexium, if their names weren't used. This account describes only matters that all four, speaking independently, cited.

The planners subjected each drug option to four tests: Would it be better than Prilosec, patent-protected, technically feasible, and a drug that could be launched before generics hit the market? The first test was toughest, because Prilosec heals stomach sores from chronic heartburn in about 84% of patients who take it for two months, by curbing acid production in stomach cells. "We thought the likelihood of us finding [a better drug] was quite small," says Martin Nicklasson, chief of AstraZeneca's gastrointestinal business. He wasn't part of the planning team.

Launching a follow-on product is easier when the initial drug leaves many patients unsatisfied. Astra-Merck planners, expecting to find few unhappy Prilosec users, were astonished when surveys showed only half of those who used the drug were entirely pain-free and satisfied. This unhappiness was good news: The planners knew they'd be able to persuade some users to try a new pill.

By early 1996, they had narrowed their options to 18. Among the ideas was to search hard for a drug that inhibited the same acid-producing cells as Prilosec but worked faster and better -- a so-called reversible proton-pump inhibitor. Other ideas included liquid and extended-release versions of Prilosec -- which could be newly patented -- or combinations of Prilosec with various other heartburn remedies. But options kept failing. For instance, a combination of Prilosec and Pepcid, an older ulcer drug, didn't work. By early 1998, what would eventually become Nexium was just about the last option.

Nexium is one-half of the Prilosec molecule -- an isomer of it. Tweaking a tried-and-true medicine by cutting the molecule in half is a common strategy. Sometimes the drug that results has fewer side effects or is more effective. Often it works just the same. But even if that's the case, it will be chemically different enough to win its own patent.

Astra found that this half-of-Prilosec molecule seemed to get into the bloodstream more efficiently than the whole Prilosec. While executives doubted it would work any better against heartburn, they thought it might be better against something called erosive esophagitis, where burped-up stomach acid injures the esophagus. They commissioned four studies comparing the proposed new pill with Prilosec in patients with this condition.

It was a huge gamble. If the product turned out to be worse than Prilosec for the condition, the label would probably have to say so. "You spend $120 million studying the thing and it could have come out worse. You're scared as hell," one member of the planning team says.

The four studies all compared 20 mg. of Prilosec against 40 mg. of what was to become Nexium. The company says the dosage difference was justified because it planned to seek approval for a 40 mg. dose of Nexium against erosive esophagitis, a condition for which Prilosec's dose is 20 mg. Two of the studies found that even this big dose didn't provide faster healing with Nexium than with Prilosec. But the other two studies did show better healing with 40 mg. of Nexium.

Only one study compared the drugs at equal 20 mg. doses. It found no difference in healing rates after four weeks, but after eight weeks, Nexium eked out a victory -- a 90% healing rate versus 87%. AstraZeneca published the two positive studies but won't release detailed descriptions of the two negative ones.

The gamble had paid off. The company now had at least one study it could show doctors concluding that Nexium was in some cases better, if only slightly, than Prilosec when the heartburn was so bad it eroded the esophagus. AstraZeneca got regulatory approval for Nexium in late February 2001 and started selling it in March.

Prilosec's patent was due to expire in April. Getting many Prilosec users to switch to Nexium would be impossible if low-cost generic copies of Prilosec hit the market that month. But AstraZeneca won six extra months of exclusive Prilosec sales, thanks to a federal law that gives such extensions if companies test their drugs in children.

That took the company to October. GM and everybody else had to keep paying for Prilosec, not a low-cost generic form of it.

Even the extension to October might not have given AstraZeneca enough time to establish Nexium and start winning Prilosec users over to it. But the maker's legal team had been preparing for this moment for more than 15 years.

Drug companies patent everything they can think of about their medicines, setting up "patent estates" that serve as legal minefields for competitors. Astra had started applying for these incidental patents in 1985, four years before it launched the drug in the U.S. Even if such patents ultimately fail legal challenges, they often delay generic launches.

Moreover, these legal fights ensure that there's just one generic competitor at first. That's because a 1984 federal law said generic-drug makers that got into litigation with brand-name drug makers could have six months of generic exclusivity once they finally got to the market. That exclusivity is welcome to a maker of a branded drug, because it means sales don't erode as fast. The idea is, "if you're going to lose, you lose to one generic," says a former Astra-Merck executive. "Because if four or five come in, it gets really ugly."

Patenting Everything

Astra's attorneys were constantly alert to chances to file patents on Prilosec. For instance, when outside scientists figured out that ulcers are often the result of bacterial infection, Astra obtained patents on the idea of combining Prilosec with antibiotics. The company then argued that generic competitors couldn't launch copycat versions of Prilosec because doctors might prescribe them with antibiotics, in violation of its patent on the combination.

Astra also patented a substance that briefly forms in the human body when Prilosec is swallowed. Then it claimed that patients who took generic versions of Prilosec would violate this patent, so that generics themselves were illegal.

The company also patented the way it manufactured the drug and claimed generic competitors were illegally using identical techniques. And it patented the idea of putting two coatings on the drug's active ingredient.

Prilosec's active ingredient can survive only about eight minutes in stomach acid -- not enough time for it to get through to the intestine for absorption. So it needs a so-called enteric coating that resists stomach acid. Unfortunately, most such coatings are also slightly acidic. So Astra's scientists decided to add a thin middle coat to keep the enteric coating from damaging the drug. This problem is so common that standard industry textbooks describe it and chemical companies sell middle coatings to solve it.

Yet Astra's lawyers persuaded patent clerks in Europe and the U.S. that its scientists had made a novel discovery when they came up with this triple-layering. It was like patenting the discovery that hamburgers are best served with the tomato slice sandwiched between the lettuce and the meat so the bread doesn't get soggy.

A British judge later invalidated this patent because of "obviousness." But in the U.S., the trial on the patent's validity has been grinding on since December in New York. Every day the trial continues, AstraZeneca collects another $10 million in Prilosec sales, on average. Equally important, it gains more precious time to switch Prilosec users over to Nexium.

AstraZeneca attorneys and executives say the patents involved in these cases are important discoveries that must be defended. "We've been attacked," says Dr. Nicklasson. "We're simply protecting ourselves in saying that we have patents that are valid."

Deep Purple

Prilosec is one of the most recognizable drugs, thanks to a distinctive purple color and hundreds of millions of dollars spent on consumer ads -- some telling people to "ask your doctor about Prilosec, the purple pill." In planning its successor, Nexium, the Shark Fin team considered lots of colors, but "we decided on a purple pill to leverage the brand -- and racing stripes to distinguish it," says a team member. Ads say that "today's purple pill is Nexium. From the makers of Prilosec." They also talk about "damaging erosions of the esophagus," the one area where Nexium may have a slight advantage.

The company is pouring huge money into this. It spent $478 million promoting Nexium in the U.S. last year, according to research firm IMS Health. Nexium is currently the most heavily advertised drug in the U.S.

Grover Cleveland Young, a retired paper-mill worker in Red Fox, Ky., says he took Prilosec until two weeks ago when his doctor switched him to Nexium. Neither his Medicaid nor Medicare benefit pays for either drug. "I decided if I had to pay for it myself, I might as well buy the best," says Mr. Young, who was released last week from Hazard ARH Regional Medical Center for treatment of bleeding ulcers. "My doctor said Nexium was the only thing that would help my ulcers."

Mr. Young, 74, gets $2,100 in monthly Social Security and pension benefits, which has to stretch for both him and his wife. He doesn't own a car. Money spent on Nexium is money that won't go to pay credit-card bills. "We let one bill go to buy the medicine one month and then let another go to buy it the next," he says. "I don't know what we'll give up.... It's hard, but if I don't take my medicine, my stomach about kills me."

AstraZeneca is flooding doctors' offices with sales representatives and free samples. Peter Halper, an internist at a large group practice in Manhattan, has a computer given him by a drug-marketing firm on condition he chat with drug-company marketers via the Internet from time to time. Recently, he checked in with AstraZeneca. The face of a salesman popped onto his screen, asking him how he was and then launching into a pitch for Nexium.

Dr. Halper asked the salesman why Nexium was better.

"The proof's in the healing rates," said the live salesman, who cited data comparing 40 mg. of Nexium to 20 mg. of Prilosec. "We're safer, with no drug-to-drug interactions. We're also the No. 1 proton-pump inhibitor among gastrointestinal specialists." While he spoke, several graphs flashed on the screen.

"So have I shown you how we differ from the other drugs?" the salesman asked. Dr. Halper said he had. "Do you need any more samples delivered?" No, Dr. Halper said, he had plenty.

Minutes later, two salesmen from AstraZeneca arrived to talk to Dr. Halper about Nexium. They made sure to restock his cabinet with free Nexium. Since many physicians view Prilosec and Nexium as virtually identical, they often prescribe whichever one is in their free-sample closet. Patients who begin with free samples often continue with paid prescriptions, so the freebies are effective marketing tools.

Rising Share

AstraZeneca's 6,000 salespeople, who have nine products they sell to U.S. primary-care physicians, talk about Nexium during a third of their sales calls, according to ImpactRx, a research firm in Mt. Laurel, N.J. Its numbers show doctors get more pitches for Nexium than for any other heartburn drug. Trying to switch doctors to the new drug with years of patent protection ahead, the salespeople now bring up Prilosec only to compare it unfavorably to Nexium.

Prilosec's share of new heartburn prescriptions dropped to 25% in April from 49% in 2000, says IMS Health, while Nexium -- on the market only a little over a year -- was already up to 19%. Most of Nexium's growth is coming at the expense of Prilosec, as the Shark Fin team had expected. When patients are switched away from Prilosec, 60% of the time it's to Nexium, ImpactRx data show.

The retail price of Prilosec at the Soho Pharmacy in New York is $4.47 a pill, while Nexium's is $4.30. A generic Prilosec is expected initially to cost about 15% less than the brand and eventually, as more competitors jump in, to drop by two-thirds or more.

Another way AstraZeneca is getting Nexium established is by cutting deals with managed-care companies to sell the new drug for less than Prilosec, at least for now. Although the strategy does nothing for people like Mr. Young in Kentucky, Nexium is now Empire Blue Cross and Blue Shield's preferred heartburn drug because of its price. AstraZeneca won't disclose how much it charges managed-care firms for Nexium.

Kaiser Permanente, the largest managed-care group, is nonetheless discouraging its physicians from prescribing Nexium. The reason, says David Campen, a Kaiser physician and pharmacy executive: "Nexium clearly is no value-added drug."

-- Gautam Naik contributed to this article.

Write to Gardiner Harris at gardiner.harris@wsj.com⁴

Updated June 6, 2002