Nexium Discounts Still Capturing “Value” For Brand, AstraZeneca Says

AstraZeneca's Nexium continues to gain share in the proton pump inhibitor category at prices that reflect the "value" of the brand, the company said during an April 29 earnings call.

First quarter sales of Nexium (esomeprazole) grew 7% worldwide to $935 mil. U.S. sales were "virtually unchanged" from a year ago, AstraZeneca reported, as a result of unfavorable inventory comparisons.

Total prescriptions in the U.S. grew 19%, "well above the 10% growth in the non-generic segment of the PPI market," the company said.

AstraZeneca acknowledged that it is offering discounts on Nexium, but "not necessarily" matching the lowest prices in the category.

"We are certainly not saying - unlike some of our competitors - that we are achieving valueless growth for additional volume," CFO Jonathan Symonds said. "We have a product with clinical differentiation and therefore continue to sell it on a value basis."

"That is not to deny that this isn't an increasingly competitive market," he continued. "We think very hard about every individual contract, and the value of it and the cost of it....We are far from being in a position of valueless volume growth."

Merck, which manufactures Nexium and Prilosec (omeprazole) for AstraZeneca, helped put a spotlight on Nexium pricing during its quarterly conference call April 22.

The company announced that it would change its method of accounting for supply sales to Astra because "we don't have a reasonable basis to estimate their net selling price going forward," Senior Director-Investor Relations Mark Stejbach said.

Merck previously recorded revenues at the time of shipment as "contingency sales," Stejbach explained. "We always carried the risk based on those sales, both in terms of any product returns or any change in pricing," he said. "We don't have great visibility on" AstraZeneca's pricing practices, he added.

In light of changes in the PPI market, Merck has decided to record revenues at the time of sales to end users.

The PPI category is undergoing a transition period with the introduction of the first generic versions of omeprazole and the launch of Prilosec OTC (¹ , p. 33).

During its conference call, AstraZeneca acknowledged the dynamic nature of the PPI market, but maintained that the generic impact has affected only the Prilosec brand (with sales dropping 68% in the U.S.). The OTC launch has also had only a small impact on prescription brands, AstraZeneca said.

For Merck, the accounting change will have a small but potentially significant impact; the company revised its forecast for the year down from a projected $1.9 bil. in revenues from AstraZeneca to $1.6 bil. to $1.8 bil.

However, Merck also raised its projection for the year for its share of profits from all its joint venture partners, based on expectations for the Schering-Plough partnership for Zetia and Vytorin (² (Also see "Schering/Merck Ready For Vytorin; Lipid Market Growth Returns" - Pink Sheet, 26 Apr, 2004.), p. 9).

The discussion of the accounting change allowed Merck to highlight an upcoming payment from Astra as the final step in unwinding a two-decades old joint venture between the firms.

AstraZeneca reported worldwide sales of $5.07 bil. during the quarter, a decrease of 1% in constant currency. Net income declined by 14% to $803 mil.

However, AstraZeneca is promising rosier results for the balance of the year as new inventory management agreements with wholesalers help even out year-over-year comparisons.

In addition to Nexium, the company expects Crestor and Seroquel to help drive growth. Crestor (rosuvastatin) sales totaled $129 mil. during the quarter, including $72 mil. in the U.S. The product now has a 6.2% share of new prescriptions in the lipid lowering market.

Seroquel (quetiapine) posted sales of $448 mil. for the quarter, down 2% as a result of inventory changes, but with scripts up 36%. The company maintains that Seroquel has now passed Lilly's Zyprexa (olanzapine) for the number two spot in new Rx share for antipsychotics in the U.S.