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AZ loses Nexium contract

AstraZeneca received a minor blow to its share price after news that the Anglo-Swedish companyís top-selling heartburn and ulcer drug, Nexium, was being dropped from the US armyís drug formulary this summer.

AstraZeneca received a minor blow to its share price after news that the Anglo-Swedish companyís top-selling heartburn and ulcer drug, Nexium, was being dropped from the US armyís drug formulary this summer.

The US Defense Department seems set to buy one of four cheaper, generic versions of ulcer treatments in a bid to stay within its $5bn annual pharmaceutical budget.

AZ confirmed that it had decided not to bid in Department of Defense formulary renewal negotiations for ìpurple pillî Nexium, instead opting to bid for business in other medical areas, such as hypertension.

Despite the loss of the $70m (£37m) contract, AZ said it believed Nexium would continue to do well in the lucrative US marketplace.

ìAstraZeneca is confident that Nexium can maintain its recent progress in the US market, which in the first quarter of 2005 saw dispensed tablet volume grow by 15 per cent ñ nearly double the prescription market growth for the PPI class,î said an AZ spokesman. ìNexium is well positioned and enjoys favourable status in numerous formularies across the US.î

Industry analyst Navid Malik at Collins Stewart said it was ìinevitableî that AstraZeneca would let the contract lapse.

ìLarge organisations in the US are trying to cut their healthcare costs,î he said. ìAny big buyer out there that switches out of high-margin products starts to slow down the product growth rate.î

Nexium has come in for severe criticism from some quarters, which claim that despite its being four times more expensive, there is no significant difference between the drug and its predecessor Prilosec (Losec in the UK).

The company has also been criticised for spending heavily on promotion of Nexium in the US in a bid to fill the gap left by Prilosec going off-patent. Research firm Wood Mackenzie estimates the company spends $257m a year on marketing Nexium.

The campaign has come under fire in the US with some consumers who had made the switch from Prilosec to Nexium taking out lawsuits against the company, claiming that its advertising campaign was misleading and unnecessary.

AZ insists that Nexium is more effective at controlling acid and heals ulcers more quickly than Losec/Prilosec.

Public policy analyst, Diane Duston at Prudential Equity Group, said the Nexium rejection could influence the federal Medicare insurance programme, which next year will begin reimbursing the elderly for prescription drugs.

She said insurers could deter the use of so-called ìme-tooî drugs by asking patients to pay a higher co-payment for such medicines.

30th September 2008

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