Three Generic-Drug Makers
To Create a Cheaper Prilosec

After Tangled Court Rulings,
Rivals Agree to Cooperate

By Gardiner Harris
 The Wall Street Journal, November 1, 2002

In a big boon for consumers, a consortium of generic-drug makers announced Friday that it will launch a copycat version of the huge-selling ulcer and heartburn drug Prilosec.

The three-way cooperative effort is unusual in the cutthroat world of pharmaceutical manufacturing, but a court decision last month made the companies realize that it wouldn't be in their -- or consumers' -- interests to try to go it alone.

The three drug makers -- Andrx Corp., Genpharm Inc. and Kudco -- have been in negotiations since a ruling on Oct. 11 by a federal judge that knockoff Prilosec pills made by Andrx and Genpharm both infringe on ancillary patents owned by AstraZeneca PLC, the maker of Prilosec.

However, Judge Barbara Jones, of U.S. District Court for the Southern District of New York, ruled that Kudco's pill didn't infringe on the patents. Kudco successfully argued that it coats omeprazole -- the generic version of Prilosec -- with a nonalkaline substance, and that it has its own patent on this method, valid until 2016.

That court win alone, though, wasn't enough to clear the way for Kudco to begin selling the prescription drug. Kudco, a subsidiary of Schwarz Pharma AG of Germany, couldn't launch first, because under a federal rule to encourage generic competition, Andrx and Genpharm had previously won exclusive rights to be first on the market with a generic Prilosec, which lost its main patent protection in October 2001.

Andrx and Genpharm are appealing Judge Jones's ruling. But in the meantime, they are pressing ahead in the consortium with Kudco. Had they not decided to team up with Kudco, the two other generics makers could have delayed a generic launch by months or years.

The six-month rights to exclusivity held by Andrx and Genpharm start ticking away only after an appeals court rules -- and that could be a year away. But each month of delay hurts all of the generics makers, because it reduces the size of the market for Prilosec.

AstraZeneca is feverishly trying to convert as many Prilosec users as possible to its new and very similar pill, Nexium. And AstraZeneca is working with Procter & Gamble Co. to come out by the middle of next year with an over-the-counter version of Prilosec, which is likely to cannibalize sales from its own prescription version.

"We believe that there's value in our [generic] Prilosec franchise, and we'll seek to maximize that value for our shareholders," said Elliot Hahn, Andrx's president. "And it's always Andrx's intention to ensure that consumers can benefit from a cost-effective generic product in as timely a fashion as possible."

Genpharm is the Canadian generic-drug subsidiary of German-based Merck KGaA, which isn't related to the U.S.'s Merck & Co.

Prilosec was once the biggest-selling drug in the world, with $6 billion in annual sales. Sales slumped somewhat in the past year to $5.7 billion, making it the world's third-biggest seller behind cholesterol pills Lipitor and Zocor, made respectively by Pfizer Inc. and Merck & Co.

Prilosec costs nearly $4 a pill. A generic version of the drug will probably cost $3.50 in the first six months, but the price is expected to drop to below $2 within a year of launch.

Prilosec has been at the center of the debate over legal and regulatory moves by some major drug makers to delay generic competition against big sellers. AstraZeneca's original patent protection on the purple pill ended a year ago, but the company sought additional protection from generic competition.

While a generic version of Prilosec has long been expected, AstraZeneca has benefited enormously from delays in the launch of generic competition. Merck & Co., which receives a third of the profit from Prilosec's sales in the U.S., will be affected, too.

For giant employers with high costs for providing medical benefits, a generic version of such a popular product is a godsend. Doris Powers, a spokeswoman for General Motors Corp., said her company is eager for the launch of a generic version of Prilosec. The car maker spent $55 million last year alone on Prilosec for its employees. GM has pushed in recent years for legislative changes that would make generics launches easier and quicker.