November 7, 2019
In 2018, the U.S. Department of Health and Human Services
(HHS) released a report detailing
Medicare Part D spending on brand-name drugs that were also available as
multi-source generics. At the top of that list was a popular medication known
as Nexium, for which Medicare spent $1.06 billion (pre-rebate) in 2016, despite
its manufacturer losing its patent exclusivity in early 2015.
When HHS released this report, we were fascinated by the
fact that the highly competitive Medicare Part D program collectively produced
such a perplexing outcome. Nexium not only had ample generic competition in
2016, but it had significant therapeutic competition from other inexpensive
medications prescribed to regulate and/or suppress gastric acid secretion.
Motivated to understand the root cause of the elevated
spending on this high-profile brand-name drug in 2016, we started to research
the story of Nexium, and the old drug from which it was derived, Prilosec. It
didn’t take long to figure out that Nexium has been a lightning-rod of a topic
for more than a decade. Numerous journalists have written about the myriad
tactics used by its manufacturer, AstraZenca, to block the generic market for
Prilosec from taking hold while it transitioned patients from Prilosec to
Nexium. But the press has not been completely negative. AstraZeneca was lauded
by business school strategists and national marketing agencies for its ability
to manifest a $35+ billion U.S. Nexium franchise out of the ashes of Prilosec –
a drug that had lost its exclusivity, and as a result, essentially all its
value for AstraZeneca in the U.S.
Despite ample media coverage over the past two decades, we
struggled to find a comprehensive overview of the entire Nexium story that was
supported by data and analytics needed to fully understand its many moving
parts. To fill this void, we received funding from Waxman
Strategies through a grant provided by Arnold
Ventures to complete and publish this work. Our goal was simply to
provide a full data-driven analysis of the Nexium story to help educate
lawmakers and the general public on how a drug commonly viewed as a line
extension first became a blockbuster drug for AstraZeneca and then exposed a
host of warped incentives across the U.S. drug supply chain that continue to be
exploited today. The information in this report can serve as the foundation for
a more constructive debate on what regulation is needed to help reduce waste in
the drug supply chain without sacrificing innovation.
This report is organized chronologically to build a
step-by-step narrative for the reader. It is divided into five sections that
correspond to different stages in Nexium’s lifecycle. Each section starts with
a summary of what we view to be the section’s key takeaways.
The sections are:
1.
Prilosec – the precursor to Nexium
2.
Nexium comes to market
3.
Nexium patent battles
4.
AstraZeneca prepares for Nexium’s patent
expiration
5.
Nexium goes generic – where are all the
savings?
In our view, the overall key takeaways from our “cradle-to-grave”
research on Nexium are:
·
The approval of new drugs within the U.S.
fails to adequately assess the value that new therapies provide to the
healthcare system. Approving drugs based on safety and efficacy alone provides
drug manufacturers with the incentive to bring to market line extensions that
may be slightly more beneficial than currently available treatments, but with
price tags that far exceed their incremental value. Meanwhile, in many
instances, PBMs and health plans not only lack the proper incentives to block
utilization on drugs like Nexium, but they have the financial incentive to
actually promote their usage (i.e. rebates). In our view, one of the primary
drivers of rising U.S. drug costs are the lack of proper incentives for 1) manufacturers
to exclusively focus their efforts on the development of innovative new
therapies with exceptional value propositions; and 2) PBMs, health plans, and
providers to discourage utilization of poor cost/benefit drugs.
·
The use of artificial prices allows the
supply chain to incentivize the use of one medication over another in ways not
necessarily commensurate with a drug’s relative value. Nexium offered a 75%
discount off its list price to incentivize its use over its U.S. competition
(brand and generic). Similarly, reliance on AWP-based payment models for
generic medications obscures the savings generic medications could otherwise
provide to both patients and payers. Such pricing distortions are very
concerning in our view. They provide a means for the drug supply chain to
disproportionately profit off the volume of drugs dispensed, creating the
incentive to dispense more drugs rather than to create better outcomes. In our
view, the current design of the U.S. drug supply chain is highly reliant on
sick people to generate rebates, price concessions, and pricing spreads that
can then be used to help subsidize premiums for healthy people and generate
excess profits for shareholders.
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