Nexium: How Patent Shenanigans Cost Payers Billions

In 2002 the Wall Street Journal reported on Astra-Zeneca’s efforts to patent Nexium and bring it to market. Most stories of expensive pharmaceuticals often begin with glowing descriptions like “pharmaceutical company invents a new miracle drug.” That was the way Prilosec was introduced in 1989. Astra AB, as it was known, had a new and powerful way of eliminating acid in the stomach and relieving sufferers of acid reflux from uncomfortable symptoms and invasive surgical procedures. Nexium’s story was different, it was born a Frankenstein; the result of cynical maneuvers that ensured the extension of Astra-Zeneca’s patents and profitability for a very long time.

Prilosec was introduced to the market when the pharmaceutical industry was heating up for a couple of reasons. The first was the aging of the population as the Baby Boomers were hitting middle age. The second was a gift from congress in 1997 that relaxed the rules on prescription advertising, and Prilosec was advertised perfectly. When a patient went into a doctor’s office, they didn’t have to remember the name because Prilosec was advertised as “The Purple Pill.” The results were profound.

Sales of Prilosec totaled $26 billion from 1997 to 2002.

Even critics of the drug’s price admitted it was a very effective treatment. Nexium’s origin story was different. It was not an enormous improvement over Prilosec, but the needs of Astra-Zeneca had changed. In the mid 90s the company began a 7 year process to determine how to maintain market share as it faced patent expiration.

The company organized a team of lawyers, scientists and marketers into a group known as the Shark Fin project to protect the company’s profits.

“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 company failed to find the best case scenario and ultimately resorted to its worst, which became Nexium. Prilosec was made up of two ingredients, an active ingredient and an inactive ingredient. Nexium was only the active ingredient, but twice as much of it. Even though one of their studies was the same drug being compared to a higher dose of itself, Nexium struggled to show improvement. Ultimately they were able to manipulate the data by tweaking the results window.

This study “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 study and the FDA approved the drug. The next trick was transitioning patients from Prilosec to Nexium without letting them switch to a cheaper generic alternative. This was where the lawyers and the marketing team earned their incomes. The patent machinations were fierce and creative. One of the most egregious patent filings was for Prilosec’s layered coating, as a middle layer is used to protect the drug from the external coating.

“This problem is so common that standard industry textbooks describe it and chemical companies sell middle coatings to solve it.”

Not all of the patents needed to be upheld. The company just needed excuses to delay a generic while the advertising for Nexium could begin to imprint itself on the healthcare industry.

Nexium needed to become the “next” Purple Pill so they spent $478 million on US advertising in 2001. At the same time the company unleashed it sales forces and managed deals with payers that initially sold Nexium for less than Prilosec. Astra-Zeneca managed an incredibly successful transition, and Nexium became one of the worst examples of pharmaceutical industry patent manipulations and one of its greatest successes. In 2013 the last full year before Nexium’s patent expired, Medicare paid out $2.5 billion for the drug. All for a drug that should never have been approved. The Shark Fin project succeeded and the company got 12 more years of drug exclusivity and secured billions in what many people consider to be ill-gotten gains.