1 [maximum 14 days of treatment every four months], Nexium (A): Launch Pricing and dosage strengths). Critics, such as Marcia Angell, place “the blame” [for Nexium’s market dominance and success as a follow on to Prilosec] on AZ’s “audacious plan” to “spin out old products” rather than develop new entities. In contrast, New Yorker columnist and economist Malcolm Gladwell sees it differently. Nexium () was approved by the FDA in “AstraZeneca was able to do some chemical sleight February 2001 and launched in the US by Astra of hand, spend half a billion on advertising, and get (AZ) in June of that year. Esomeprazole is in away with the “reinvention” of its heartburn drug the proton pump inhibitor (PPI) class of drugs, which only because that consensus [what we want from our block the production of acid by the stomach. PPI’s medical system] hasn’t yet been reached. For sellers are primarily indicated for use as treatments of to behave responsibly, buyers must first behave stomach and duodenal ulcers and gastroesophageal intelligently. And if we want to create a system where reflux disease (GERD). AZ launched Nexium just as millions of working and elderly Americans don’t have the patent was expiring on AZ’s largest selling drug, to struggle to pay for prescription drugs that’s also the PPI market leader, Prilosec (). up to us. We could find it in our hearts to provide all Americans with adequate health insurance. It is only Nexium has been controversial. Since its launch, AZ by the most spectacular feat of cynicism that our has been accused of making “false and misleading” political system’s moral negligence has become the claims for Nexium’s effectiveness; Tom Scully, then fault of the pharmaceutical industry”. head of Centers for Medicaid and Medicare Services (CMMS), told American Medical Association Questions: Nexium Reference & Price members (April, 2003) they should be “ashamed” to prescribe the drug. Nexium is cited in several books Gregson, Sparrowhawk, Mauskopf, & Paul (“Pricing critical of the pharmaceutical industry ($800 Million Medicines: Theory and Practice, Challenges and Tablet, The Truth About the Drug Companies) as a Opportunities”) outline an approach to drug pricing striking example of “faux innovation.” that begins by selecting a reference drug. Pricing for the launch product is set at a premium, parity, or Faux innovation is when “me too” products (very discount to the reference drug's price. similar in chemical structure, method of action, and indications) are commercialized; in the opinion of Pricing decisions reflect advantages/disadvantages of critics, done so solely to maintain profits for the firm. the new product compared to the referent; Some critics will admit that “me too” products create competitive market characteristics in the therapeutic price competition: the products are somewhat inter- category; and the strategic objectives for the launch changeable enabling price competition among large brand. The potential referents at the time of purchasers thus driving down net prices (net of Nexium® launch were Aciphex®, Protonix®, rebates and discounts). Nexium has attracted more Prilosec®, and Prevacid®. frequent and vociferous criticism than other me-too’s. Consider the following questions, using the pricing Perhaps this is because of its high visibility direct-to- worksheet that comes with the case. consumer advertising and/or because the new product  Which drug would you select as the referent for quickly captured PPI market leadership in spite of the pricing Nexium? similarity between omeprazole and esomeprazole,  Relative to your selected referent drug, would two isomers (chiral “hands”) of the same molecule. you price Nexium at a premium, parity, or By 2003, global Nexium sales exceeded $3 billion. discount to the reference drug? Why? Nexium and Prilosec (marketed as Losec in some  What is your recommended launch price for 40 markets) maintained market dominance even after the mg Nexium (in $US, WAC price)? introduction of Prilosec as a generic and over the  At the time of Nexium launch, there were counter (there are some differences in labeled Prilosec 20mg and 40mg strengths. Do you indications, recommended duration of therapy recommend launching a 20 mg strength of Nexium in addition to 40 mg at launch? If so, at what price (in $US, WAC price)? Jeffrey L. Moe, Ph.D., Duke University (2006, 2010, 2012) & Will Mitchell, Duke University & University of Toronto (2012). Prepared for teaching and discussion purposes. 5C’s OF PRICING reduced significantly when H2’s were used as treatments for GERD and ulcers (see Figure 1). This section outlines five factors that influence drug pricing decisions: (1) Characteristics of the drug, (2) PPIs: A new drug target for gastric acid secretions, Company strategy, (3) Competitors, (4) Customer proton pump inhibitors (PPI), was in development needs, and (5) Conscience. shortly after the launch of Zantac. In addition to histamine, gastric acid secretion is stimulated by gastrin and the neurotransmitter, acetylcholine. These 1. Characteristics: Gastric disease, H2’s, 3 share a common pathway through the “proton and PPI’s pump”. Inhibiting the proton pump became a more Gastric disease: Gastric diseases and symptoms effective mechanism for gastric acid control. frequently afflict patients who seek over-the-counter Anecdotal accounts claim Glaxo had the opportunity medications (e.g., antacids) or consult with their to in-license a PPI and extend Glaxo’s dominance in physicians. Heartburn, gastroesophageal reflux the gastro-intestinal arena, but Sir Richard Sykes, disease (GERD), and peptic ulcers (gastric or then Chairman and formerly head of R&D, eschewed duodenal) are among the most common diagnoses. the PPI category. He urged caution about the use of ~18% of American adults experience heartburn at PPI’s because of what he described as “cell changes” least once a week (Szarka, et al 1999). in the gut lining from too much secretion suppression, Repeated exposure of the esophagus to stomach implying that PPI’s may pose a safety risk. Any risks “juices” results in inflammation and, in the most appear to have been over-stated as patients were serious cases, erosion of the esophageal tissue. safely using PPI’s in clinical trials and there were no Annually, 500,000 Americans are diagnosed with reports of underlying problems from gut cell changes. peptic ulcers (Graham, et al 1999) and over a lifetime A British business press cartoon characterized Dr. ~12% men and ~9% women (Americans) will be Sykes as an angry child throwing toys out of his pram diagnosed with the disease (Berardi, et al 1999). In after his accusations about PPI’s. The cartoon one managed care study, direct medical costs for implied that Dr. Syke’s tantrum was due to the GERD were $471/patient annually and the costs for impending demise of Zantac market leadership at the peptic ulcers were $1,183/patient including costs for introduction of the PPI class. Prilosec (then named inpatient care (Levin et al, 1997). Losec and later changed in the US and some other H2’s - Tagamet: SmithKline introduced Tagamet international markets (at FDA’s request) to eliminate (cimetidine) to the UK market in 1976. This was the confusion among pharmacists who might mistakenly first of many new medications focused on H2 read “Lasix”, a diuretic) was launched in 1991. Three receptors in the gut. Histamine, a protein involved in other PPI’s were introduced: Prevacid, Aciphex, and allergic reactions, acts as an agonist which triggers Protonix. The cumulative effect of H2’s and PPI’s on acid release when it binds to an H2 receptor. The H2 reducing gastric surgeries was dramatic over a 13 receptors are found on parietal cells which regulate year period (see the product timeline in Figure 1). gastric acid secretion. Cimetadine and other H2 products (e.g., Zantac, Pepcid, Axid) reduced the 2. Company strategy: AstraZeneca amount of stomach acid, its level of acidity as well as AZ background the gastric response to a variety of stimuli. These agents were effective in treating both symptoms of AstraZeneca is the result of a $35 billion merger of gastric disease, heartburn and inflammation, and also Astra AB of and Zeneca Group PLC of the facilitating healing. By 1981, Tagamet accounted for UK, completed in 1999. Figure 2 summarizes the $780 million of SmithKline’s sales. company’s financial trends. H2’s - Zantac: Zantac (ranitidine HCL), discovered, Astra: Founded in 1913 in Södertälje, Sweden, Astra marketed and manufactured by Glaxo, was was a global pharmaceutical research, manufacturing, introduced in 1983 at a price premium to cimetidine and marketing company; Astra also operated a (+7% at ex-factory in the US) and by 1986 had medical devices group, Astra Tech. overtaken cimetidine in global sales. Zantac became Astra brought four main product groups to the the first prescription medication to exceed $1 billion combined firm: , cardiovascular, in sales. After launches of similar products (Axid, respiratory, and gastrointestinal. Pepcid), Zantac was the dominant global leader with 42% of global H2 category sales by 1990. The H2’s  Anaesthesia - ylocaine (), the world's constituted a “miracle drug” as gastric surgeries were largest selling local anaesthetic  Cardiovascular - Seloken (metoprolol), Plendil AZ received 6 months of extended patent life for (), Ramace (ramipril), Atacand Prilosec by testing the drug for use with children. It (candesartan cilexetil) also used its process patents to challenge generic  Respiratory - Pulmicort (), Bricanyl companies in court. Reports in 2000 suggested the (terbutaline), Rhinocort (budesonide) and magnitude of the challenge facing the company with Turbuhaler (inhalation flow-driven device) its own managers reporting, “It is not an easy time for  Gastrointestinal – Prilosec/Losec (omeprazole), the company.” (David Brennan, Sr. VP Sales and the world's largest selling pharmaceutical and Marketing, as reported in the Wall Street Journal, almost 50% of Astra’s sales. May 23, 2000). Zeneca: Zeneca was formed in 1993 from the “de- AZ established a special task force, Project Shark Fin, merger” of Imperial Chemical Industries (ICI, to look for options to extend the Prilosec franchise founded in 1926). Zeneca was engaged in the and to coordinate the patent expiry of the one drug research, development, manufacture, and marketing with the launch of its follow on PPI, Nexium. The of pharmaceuticals in multiple areas; it also had team put forward bold plans to cannibalize the sales agricultural and specialty chemicals capabilities. of Prilosec to Nexium, although the two products were virtually identical and difficult to differentiate. Zeneca provided five main therapeutic classes, three Chemically, they have identical structures with very of which complemented Astra’s core products. slight differences due to stereoisomerism (see below).  Anesthesia - Diprivan (), the world's In 2000, one clinical trial result showed ulcer healing largest selling injectable general anesthetic at 90% for Nexium compared with 87% for Prilosec  Cardiovascular - Zestril (lisinopril dihydrate), although Nexium worked slightly faster. Tenormin ()  Respiratory - Accolate (zafirlukast) AZ clinical trials strategy: Stereo-isomerism and  Central nervous system (migraine) - Zomig Nexium 40mg dosage () Molecules can be achiral or chiral. Chiral molecules  Oncology - Zoladex ( acetate), Casodex have “stereoisomerism” where they array 3 (), Nolvadex ( citrate), dimensionally rather than in a linear or 2 dimensional Arimidex () arrangement. Chirality comes from the Greek meaning “handed-ness”, where each of the molecules By both internal reports and external observations, is identified as left (from the Latin “sans” abbr. “s”) the merger of the two companies was smooth (In or right (“r” or “rectus” in Latin). Just as left and Vivo, Feb. 2001). The major challenges facing the right hands are “identical”, mirror images of each company were the patent expiries of Prilosec and two other; they are different and not interchangeable. other products, followed by the launches of statin Each identical isomer is called an “enantiomer”. The Crestor and follow-on PPI, Nexium. These events differences in these enantiomers matter as receptor would require global coordination and sharp sites are stereo-selective. Imagine opening a lock execution to realize the promise of the merger. with one of those molecular “hands.” The lock, a Prilosec was the crown jewel of the combined firm. receptor, will accept one or the other “hand” (in some Astra had developed Prilosec in Sweden during the cases both left and right hands “fit) but one of the 1980s, then marketed it in the U.S. in partnership hands fits into the lock more efficiently and with less with Merck and Co. through the AstraMerck Inc. associated, and usually unintended and undesireable (AMI) joint venture; Astra had purchased Merck’s effects. Each enantiomer has differing and frequently share of AMI shortly before the AstraZeneca merger. important differences in efficacy and safety. Based on the buy-out contract, Merck receives a Some chiral drugs are a mix of both enatiomers, continuing royalty payment of 32% for Prilosec and called racemates or a racemic mixture. Racemate 27% from Nexium sales. Shortly after the merger drugs can be safe and effective. For example, beta creating AZ, 40% of the combined company’s total blocker anti-hypertensives have been brought to sales came from Prilosec ($6 billion, 2000). market as racemic mixtures. Yet, the majority of the Prilosec was scheduled to go off US patent in April, therapeutic effect comes from one of the enantiomers 2001 followed by Zestril (lisinopril) in December in the mixture. For other molecules used in 2001 and Nolvadex (tamoxifen) in August 2002. prescription medications it is more critical that one These three products constituted 50% sales for the isomer be used as it has the safety and effectiveness new company. properties desired. In mixture with the other enantiomer, the less desirable side of the molecule can create problematic side effects or substantially reduce effectiveness. Drugs where a single isomer pharmacokinetic advantages to the enantiomer provides required safety and efficacy are timolol, mixture, common sense suggests that Nexium 40 mg. warfarin, thalidomide, and verapamil (Pang, 1989). would demonstrate superiority. On May 1, 1992 FDA released a statement regarding In facing criticism about this choice AZ responded. racemates and enantiomers: “FDA’S Policy “The dose of omeprazole used in the Nexium studies Statement For The Development Of New was chosen because omeprazole 20 mg once daily Stereoisomeric Drugs”. The agency recognized that was the ‘gold standard’ for the treatment of GERD at laboratory techniques had advanced to the state that the time. Clinical trials with all other PPI’s had used chirality could be separated for study and required omeprazole 20 mg once daily as the main that early in phased trials, enantiomers should be comparator. 90% of the patients in the trials received tested separately with labeling and testing a dose of 20 mg once daily following the advice given information made available. In effect, the agency by the regulatory authorities. The dose –response indicated its preference for single isomers except curve for omeprazole is relatively flat between 20 – where “both enantiomers are fortuitously found to 40 mg therefore increasing the dose to 40 mg is likely carry desirable but different properties, development to have smaller clinical effect than replacing with of a mixture of the two, not necessarily the racemate, Nexium, 40 mg.” (AZ Website, 2003/12) as a fixed combination might be reasonable.” At launch, the Nexium label read: In the search for a molecule with the right mix of safety and efficacy, there can be substantial costs and  Nexium™ 40mg demonstrates higher healing effort in finding an achiral compound, avoiding the rates in erosive esophagitis than Prilosec® 20mg extra work to test both enantiomers or problems in (the approved dose for this indication) synthesizing only one enantiomer of the molecule  Nexium™ 40mg consistently demonstrated that has the greatest medical benefits. Since the FDA higher healing rates than Prilosec® 20mg; ruling in 1992, the use of chiral raw materials, healing rates achieved for Nexium™ 20mg were intermediates and active ingredients has grown between those achieved with Nexium™ 40mg substantially (Chemical and Engineering News, June and Prilosec® 20mg. 10, 2002). Single enantiomer drugs are more  Sustained resolution of heartburn was achieved prevalent, especially in the CNS area, with market in 5 days for Nexium™ 40mg; 7-8 days for leaders such as Paxil (paroxetine) and Zoloft Nexium™ 20mg against 7-9 days for Prilosec® (sertraline). Singulaire (montelukast) for asthma and 20mg. After four weeks of 40mg Nexium™ seasonal rhinitis is also a single enantiomer. Both the treatment, a higher percentage of patients technology and regulatory change have led R&D achieved sustained resolution of heartburn than toward single enantiomers or achiral compounds. with Prilosec® 20mg. Nexium (esomeprazole) is the “s” enantiomer of AZ’s PPIs: Approved indications at Nexium launch Prilosec (omeprazole); Prilosec is a racemic mixture of both enantiomers. During the period when Prilosec was developed (1980’s), the FDA did not require chiral synthesis and the existing technology made testing more difficult and costly. A racemic mix was registered and commercialized as omeprazole. Once GERD GERD launched, the requirements for additional chiral Erosive esophagitis Erosive esophagitis testing and reporting requirements came into effect; Duodenal ulcer Duodenal ulcers omeprazole results were reported on the contribution Gastric ulcer of each enantiomer to the safety and efficacy of the Heartburn compound. Omeprazole is one of the “fortuitous” h. pylori compounds where both enantiomers are safe and Pathological effective. Yet there are measureable differences hypersecretory conditions where the left enantiomer, esomeprazole, has greater bioavailability, greater acid suppression with less 3. Competitors variability and achieves 70 to 90% higher steady- state serum concentrations than racemic omeprazole. At the Nexium launch, there were four other drugs in the PPI class: omeprazole (Prilosec), lansoprazole In the pivotal phase III trials, AZ compared 40 mg (Prevacid), rabeprazole (Aciphex), and pantoprazole esomeprazole with 20 mg omeprazole. Since (Protonix). The products are similar but with esomeprazole is more bioavailable and has other meaningful differences. There are no significant safety differences. Nexium has an advantage in alternative products. Characteristics of the disease efficacy when measured as duration and speed to state also may influence price (Gregson et al: 128). healing in erosive esophagitis (head to head trials had Higher Lower not occurred pitting all PPIs against Nexium at Patient needs: sensitivity sensitivity launch but subsequently have been tested). Nexium Disease & product (lower (higher has fewer drug/drug interactions and has increased characteristics immediacy of action measured as acid suppression prices) prices) and patient reported symptom relief. Only Protonix Disease characteristics offered an IV formulation. Chronic/acute Chronic Acute Prevalence High Low Prilosec Nexium Other PPI Perceived disease Low High Safety + + + severity ++ Unmet need Low High Efficacy + (duration, + Asymptomatic/sympto Asymptoma Symptoma speed) matic tic tic - Drug Patient severity Mild Severe -- + (Aciphex, Interactions Patient age Old Young Protonix) Product Characteristics ++ Product influence on Day 1 acid + Low High Onset of unmet need + supp & (Aciphex: IV/parente action Mode of administration Oral symptom ++) ral relief Formulation Chemical Biological Oral Offsetting cost savings Low High (IV Formulations Oral Oral Effect on patient’s life Enhancing Extending Protonix Differentiation from Small and Clear and 2001) competitors unclear large A post launch study (reported in October 2001) Considering Nexium against these criteria, the showed the following results against Prevacid based product has both chronic and acute indications, has on a multi-centre, randomized, double blind trial high prevalence (for its most common disease states involving 5,241 adult patients diagnosed by such as heartburn), and is symptomatic. The mode of endoscopy with erosive esophagitis administration is oral, a chemical formulation and its • Patients received either Nexium® 40mg or differentiation from competitors is “small and lansoprazole [Prevacid] 30mg, once daily, for unclear.” The launch team for Nexium had these eight weeks. Nexium® was more effective than criteria to refer to as they set a launch price and made lansoprazole for healing of erosive esophagitis marketing strategy choices that would contend with over the eight week treatment (p=<0.0001). the product, disease, and patient attributes. Their aim

• By the end of the trial, an additional 100 patients was to differentiate the product, cannibalize sales were healed with Nexium®, as compared to from Prilosec to Nexium, and grow the PPI category. lansoprazole. Nexium® also provided greater and faster resolution of heartburn, the primary Pricing for primary competitor products, June 2001 symptom of erosive esophagitis. (WAC=Weighted Average Cost, before discounts) Prilosec Prevacid Protonix Aciphex 4. Customer Needs Dose 20 mg 30 mg 40 mg 20 mg Gregson et al. (2005) argue that pricing drugs requires a market perspective, based on an analysis of WAC $3.44 $3.33 $2.50 $3.16 the product and its characteristics against a referent Sales product in the class or an appropriate comparator, $6.2b $2.7b ~$1b ~$500m 2000 leading to “value pricing” relative to customer needs. Other strengths of the drugs were available, but these Differentiated value are the most commonly prescribed dosages in oral The value of the product considers differentiating administration. Prilosec 40 mg was priced about 50% characteristics of the product, the value of those higher than Prilosec 20 mg (~$5.16). differentiators to various payers, and the price of Price discounting, rebates, and administrative fees the 25 years since the passage of the Hatch-Waxman legislation. The Hatch-Waxman legislation (passed There is significant price competition among PPIs 1983) created a regulatory pathway with an because the products are so similar. When products abbreviated new drug application (ANDA) opening are weakly differentiated it gives large purchasers the door to generic competition for branded, “small (pharmacy benefit managers or PBM’s, hospitals, molecule” pharmaceutical products. Berndt and government, managed care) more leverage to extract Aitken’s preliminary data shows the proton pump discounts. By contrast, market leading products that inhibitor category is a noticeable outlier with very have brand identity and high market shares in little impact on average daily cost of therapy post due prevalent disease states can somewhat counter-act to the introduction of multiple generic PPI products. this leverage because it can be valuable in terms of attracting or retaining patients for a large purchaser to By contrast, in the anti-nauseant category, 24 months have a highly visible drug on their formulary. after generic entry, average daily costs of therapy were reduced 75%. In the lipids category, where the Negotiation dynamics are often strong with PBM’s, two high potency products (Lipitor®, Crestor®) because as the “carve-out” provider of the drug remained on patent (lovastatin, pravastatin, and benefit, they look to pharmaceutical manufacturer simvastatin are available generic “statins”), the 24 discounts (rebates) as a significant income stream and month post patent expiry average daily cost of have no financial consequences if their drug benefit treatment was reduced by 26.2%. However, in the policies created higher costs for physician services or PPI category (where there are over-the-counter and 2 in-patient care. The PBM hopes to extract significant generic offerings), the 24 month post-generic launch discounts from the manufacturers, while controlling average daily reductions are 7.8%. medication costs for the employer or payer of the drug benefit. John Boris in the Bear Sterns “Bottle Among the top therapeutic categories with generic Report” has argued the “only clear differentiation competition (antinauseants, biophosphanates, proton between PPIs is pricing and rebating.” pump inhibitors, lipid regulators (“statins”), alpha- beta blockers, anti-depressants, ACE inhibitors, non- Rebates, discounts and administrative fees paid to barbituates, calcium channel blockers), there has PBM’s are not disclosed (although contract terms and been significantly less reduction in PPI’s average “unit rebate amount” reporting to government is daily cost of treatment compared to all the other required). Recently the claim by PBM’s that they are selected categories in the Berndt & Aitken in the business of “lowering drug costs” has come preliminary results. These effects are likely due to under criticism and greater scrutiny. The critics claim significant negotiated discounts on branded products that some of the rebates are illegal kickbacks, which (thus reducing the incentives by PBM’s and other combined with discounts, are used to protect the payers to switch patients to generic PPI’s) and OTC market position top selling drugs. PBM’s are offered options (Prilosec, Prevacid, and Zegerid). [Note: base discounts off ex-factory prices and can Zegerid is omeprazole with added sodium additionally enter into market share based contracts. bicarbonate to provide a delayed release form.] If a product increases its market share, the PBM earns additional % points in discounts. The Omnibus Budget Reconciliation Act of 1990 (OBRA 90) governs pharmaceutical benefits Additionally, PBMs receive other administrative requiring manufacturers to enter into rebate payments for activities such as gathering information, agreements with the Department of Health and market share analysis, and consolidating billing Human Services (HHS) so the companies can in turn information. These additional administrative fees sell their products to state Medicaid programs. A have garnered the most scrutiny by attorneys general basic rebate must be provided which is the greater of concerned about the rising state-paid health care costs. Average Manufacturer Price (AMP) minus the Additional payments for administrative services are manufacturer’s best price or 15.1% of the AMP [in not included in the best price calculations (see OBRA 2010, the Medicaid rebate increased to 23.1%] for 90 below). If they were, Medicaid best price penalties single source and innovator multiple source drugs. would increase: states would get as much of a [AMP can be roughly approximated as 98% of the discount as the private large purchasers just as the WAC price although its calculation is more complex “best price” requires in OBRA. and regulated by OBRA.] Professor Ernest Berndt of MIT and Murray Aitken, The act prohibits state Medicaid programs from using Sr. VP of Healthcare Insight at IMS Health presented some of the management techniques as PBMs, such preliminary data (September 9, 2010) regarding as restrictive formularies, but they may use “prior brand loyalty, generic entry, and price competition in authorization” and “drug utilization review”. States can also negotiate supplemental discounts beyond the antacid) that if he was frequently using these OTC required discount, but the supplements are not medications he should consider seeing his doctor. included in the “best price” calculations. Zantac was the #1 global selling prescription product “Best price” for Medicaid through OBRA ’90 in 1997. The drug would likely not have achieved requires that if a discount negotiated to a private this leadership position if its patent, along with the entity (e.g. PBM, MCO) exceeded the Medicaid patents on all prescription medicines, had not been discount, that same discount must be extended to the extended to 1997 when the NAFTA (North American states. Thus there is a linkage between the private and Free Trade Agreement) was approved in Congress. public, Medicaid, discounts. When negotiating NAFTA legislation included new patent start and end discounts with a private entity the manufacturer must dates to harmonize patent regimes across the North consider the Medicaid discount implications, American continent. Many industry insiders credit sometimes referred to as the “best price” penalty. GlaxoWellcome US Chairman Bob Ingram for his skillful lobbying in Washington, DC which created Customers: Physician Reaction this boon to Glaxo by patent extension for Zantac. At the launch of Nexium, physicians were asked Beginning in August 1997 TV ads with specific about their reactions to the new product. Their product mentions began. There were approximately comments reflect the range of sentiments about the 25 ads for prescription, animal, or human drug product and about AZ. products during that first year. In 2005, ~150  “I know the drug Prilosec. I use it a lot. This prescription products will be promoted via DTCA seems to be the same but better.” with a total industry investment of $4.78B. In August  “I understand the loss of patent and I feel 1999 FDA issued a Final Guidance which has been confident [about the new drug].” reviewed and revised in 2005. The PhRMA  “The literature on acid time exposure they have (Pharmaceutical Research Manufacturers been bringing around for a few weeks now. And I Association) has also issued voluntary agreements have no reason to disbelieve their statement on from its members where the 15 second reminder ad is price either.” no longer in use along with a few other minor  “It’s just a bigger dose of Prilosec so of course commitments. The Institute of Medicine has been patients will do better in trials.” suggesting a moratorium on DTCA and special  “This is not a huge improvement over Prilosec.” product labeling for launch products. A Kaiser  “I believe this is more of a marketing gimmick.” Family Foundation study (June 2003) correlates total Customers: Marketing Messages to Patients & MDs Rx spending in the US with increased direct to consumer advertising, suggesting DTCA is driving Direct to consumer advertising, so ubiquitous on greater use and in some cases overuse of prescription American media today, did not begin until the 1980’s medicines. in popular media. Previously promotion had been limited to physicians using journal advertising. AZ had continued to invest in Prilosec promotion Beginning in the 1980s, print promotion began to since its launch in the 1990’s. Approaching patent appear in consumer magazines. As this promotion expiry the company spent significantly in direct-to- increased, pharma manufacturers began to see the consumer (DTCA) product advertising using television, radio, print, and internet as the primary power and pitfalls of attempting to urge patients to th consult with their physician. Manufacturers quickly media. In 2000 AZ was the 5 ranked pharma learned that if an ad influenced patients to seek care, company in DTCA spend with $132.8 M followed by they had to also have adequate “detailing” (sales $148.2 M in 2001. During this period the top brands representatives calling on physicians in their offices being promoted were launch COX 2’s Vioxx and and leaving free samples) and sampling if the Celebrex and the new erectile dysfunction product, consultation was to become a prescription for their Viagra. Prilosec DTCA was $107.9 M in 2000, ~ advertised product. 81% of AZ’s total investment. At Nexium launch in 2001, AZ spent $126.1 M (~85% of the total) on the In August 1997, FDA released its Draft Guidance on product with a small investment in Prilosec reminder Consumer-Directed Broadcast Advertisements. ads. As recently as 2006, Nexium was the 4th ranked Quickly there followed a Glaxo-purchased broadcast Rx in DTCA spending with $179 million invested in which made no product reference but encouraged DTCA. Only Lunesta, Ambrien CR and Crestor spent patients to consult with physician if taking a lot of more in 2006 on DTCA. OTC antacids. The ad portrayed the pharmacist offering the advice to the customer (purchasing an At launch, AZ’s Nexium product messages sought to differentiate while linking Nexium to Prilosec. Nexium AZ and other companies argue that PPI’s have  From the makers of Prilosec advanced the gastric disease innovation begun by the  The new purple pill H2’s, providing outpatient therapy that can bring  Not only relieves heartburn but heals esophageal symptom relief and, for serious gastric illness, erosion healing and reduced or avoided hospitalization and surgery. In this view, use of a safe and effective out Prilosec patient drug helps avoid expensive inpatient care and  It’s Prilosec time. keeps workers at their jobs and at home with their  24 hours of complete heartburn relief is possible families. AZ expects Nexium to have patent with the purple pill they call Prilosec protection through 2014 – and expects the drug to garner scrutiny, criticism, and perhaps reluctant 5. Conscience respect throughout its patent life and beyond. Many stakeholders believe that drugs should be widely available, independent of a patient’s ability to References pay. At the same time, even among those who AstraZeneca website, “Responses to Nexium Ad promote widespread access, there are widely Objections”, December 2003 differing views on how to achieve this goal: whether “AstraZeneca: Bridging the Prilosec Earnings Gap”, through overall low prices, differential pricing, public In Vivo, The Business & Medicine Report, and/or private insurance, reduced patent life and/or February 2001, p. 15 generic substitution, or other means. Bear Sterns “Bottle Report”, October 2005 Berardi. “Peptic Ulcer Disease”. In Pharmacotherapy: AstraZeneca largely viewed availability to patients in A Pathophysiologic Approach, 1999. different income categories as a feature of the Graham, Rake, Fendrick. “Scope and consequences policies and practices of the individual countries in of peptic ulcer disease: how important is which it operated. Like many other companies, asyptomatic Helicobacter pylori ? though, AstraZeneca offered some of its products in Postgrad Medicine.1999 “patient assistance programs” for low income Gregson, Sparrowhawk, Mauskopf and Paul, Pricing patients. The company planned to include Nexium in Medicines: “Theory and Practice, such programs. Challenges and Opportunities,” Nature ONGOING REACTIONS TO NEXIUM Reviews, Vol. 4, February 2005 MedAd News, “Annual Summary of Pharmaceutical Tom Scully’s comments to the AMA (referenced in DTCA Expenditures”, 2001, 2002, 2007 the opening paragraph) are among the most negative Pang, “Stereoisomerism in drug molecules”, by a public official regarding Nexium or perhaps any Austrialian Prescriber vol. 12, #1, 1989 prescription product. The product seems to carry “Problems facing AZ”, Wall Street Journal, May 23, symbolic meaning to critics and even to dispassionate 2000 observers; emblematic perhaps of the low public Rouhi, “Chiral Roundup”, Chemical and Engineering opinion of the pharmaceutical industry. Even within News, June 10, 2002 the industry some quietly joke that manufacturers Szarka, Locke. “Practical pointers for grappling with should band together to buy the product and remove GERD: heartburn gnaws at quality of life for it from the market just to reduce industry criticism. many patients”. Postgrad Medicine ,1999 Nonetheless, others defend Nexium.  “Mr. Scully is wrong in saying Nexium and Prilosec are identical. Nexium is superior for some patients, particularly those with more severe forms of disease.” Dr. Joel Richter, Cleveland Clinic.  “Advanced PPI’s, Aciphex, and Nexium are superior to the ‘standard PPI’s’ because they offer day 1 acid suppression and symptom relief. Price per pill is irrelevant. These drugs offer ‘on- demand’ therapy for many patients.” Dr. Russell D. Yang, MD, Ph.D. Chief of Endoscopy and GI, Los Angeles Veterans Administration.

Figure 1. Product Timeline of H2 Blockers and PPIs

155,000/year 16,000/year GI surgeries GI surgeries

77 83 86 88 89 95 99 00 01

H-2 Receptor Antagonists Proton Pump Inhibitors (PPIs)

Figure 2. AstraZeneca Financial Trends: 1998-2001 Return Selling, on Revenue Net General, & SGA RD AstraZeneca Sales Employees R&D ($ mln) Income Admin (%) (%) (ROS; (SGA) %) 2001 (AZ) 16,480 18% 2,967 54,600 5,509 2,773 33% 17% 2000 (AZ) 15,804 16% 2,538 55,000 5,091 2,893 32% 18% 1999 (AZ) 17,791 6% 1,143 58,000 6,585 2,923 37% 16%

1998 (Zeneca) 9,144 13% 1,185 34,000 1997 (Zeneca) 8,579 14% 1,205 31,500

1998 (Astra) 7,057 1997 (Astra) 5,680 23% 1,290 22,000