UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

ASTRAZENECA AB, ASTRAZENECA LP, 

KBI INC, and KBI-E INC.

Plaintiffs and 

Counterclaim Defendants, 

v.

HANMI USA, INC., HANMI

PHARMACEUTICAL CO., LTD., HANMI

FINE CHEMICAL CO., LTD, and HANMI

HOLDINGS CO., LTD.,

Defendants 

and Counterclaim Plaintiffs

Civil Action No. 3: 11-cv-00760-JAP-TJB

DECLARATION OF ROBERT P. NAVARRO, PHARM. D.

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I, Robert P. Navarro, declare as follows:

I. QUALIFICATIONS AND BACKGROUND 

1. I am currently a Clinical Professor in the Department of Pharmaceutical Outcomes 

& Policy at the University of Florida College of Pharmacy. In addition, I am President of 

Navarro Pharma, LLC, a managed care pharmacy consultancy serving the managed care and 

pharmaceutical industries.

2. I am an expert on managed care prescription drug programs. For over 30 years, I 

have been personally involved in developing and managing prescription drug programs for 

managed care organizations on behalf of employer group customers, and I have served on 

numerous Pharmacy & Therapeutics Committees for health plans and pharmacy benefit 

managers (PBMs). I also have consulted with health plans, PBMs, and the legal profession on 

managed care prescription drug programs. My curriculum vitae is attached as Exhibit A, which 

includes a listing of the proceedings in which I have testified as an expert or have presented an 

expert report.

3. I was educated and trained as a clinical pharmacist and was awarded a Doctor of 

Pharmacy degree from the University of Minnesota College of Pharmacy in 1977. I previously 

was awarded BS (biology) and BS (pharmacy) degrees from St. John's University (Minnesota) 

and the University of Minnesota College of Pharmacy, respectively. I was licensed to practice 

pharmacy in the State of Minnesota, but voluntarily surrendered my license in 1995, as it was 

unnecessary in the non-dispensing, pharmacy management positions that I held at health plans

and PBMs. 

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4. My professional career has included the following positions/roles:

• Community pharmacist and medical center pharmacy part-owner;

• Long term care consultant pharmacist;

• Hospital clinical pharmacist;

• Medical school pharmacology instructor;

• Managed care pharmacy director in two health plans;

• Associate Vice President of Provider Services in a health plan;

• Co-developer of two PBMs;

• Vice President of Pharmacy & Therapeutics in a PBM;

• Author and lecturer on managed care issues;

• Pharmaceutical industry consultant on managed care pharmacy issues; and

• Clinical Professor, Department of Pharmaceutical Outcomes & Policy, at the 

University of Florida College of Pharmacy, teaching managed care courses in the 

graduate program, the PharmD program, other graduate course and seminar 

development, and various committee and administrative responsibilities.

5. In 1982, I joined United HealthCare (UHC), now one of the largest national health 

insurance companies, to help build a pharmacy department and develop a program to offer 

pharmacy benefits. In 1983, I became Pharmacy Director at UHC, and at one of UHC's largest 

health plan clients, Physicians Health Plan of Minnesota (PHPM), which is now called Medical, 

then a million member health plan. My first involvement with managing pharmacy benefits came 

in 1983-84, when I wrote the first drug formulary for PHPM, which subsequently became the 

basis for the UHC and Diversified Pharmaceutical Services formularies. In that same period, I 

designed and implemented policies and procedures to enforce the formulary, and helped develop 

the managed care industry's first pharmaceutical rebate contract in 1984.

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6. In 1988, I became Director, and in 1990, Associate Vice President of Provider 

Services, at Health Net, then a one-million member health plan in California, and developed and 

managed the prescription drug benefit. My responsibilities included developing Health Net’s first 

comprehensive prescription drug benefit, developing and contracting with a pharmacy network, 

and developing and marketing customized prescription drug benefit programs.

7. From January 1993 through mid-1996, I began consulting with pharmaceutical 

companies, initially through a consultancy known as Emron, and then through my own company, 

Navarro Pharma LLC. During this period, I assisted the National Association of Chain Drug 

Stores (NACDS) in developing its own PBM, which was later purchased by American Drug 

Stores as part of its PBM, Rx America.

8. In 1996, I became Vice President of Pharmacy & Therapeutics at Express Scripts, 

Inc. ("ESI"), now the country’s largest PBM, and was responsible for the development of 

pharmacy point-of-service claims adjudication system edits and clinical pharmacy programs.

9. In 1999, I left ESI to return to my independent health care consultancy, Navarro 

Pharma LLC, which I continue today in addition to my University of Florida position.

10. In 2011, I joined the University of Florida College of Pharmacy faculty as Clinical 

Professor in the Department of Pharmaceutical Outcomes & Policy, and I teach managed carerelated classes in the graduate and Doctor of Pharmacy programs.

11. In 2012, I became involved in the management of the pharmacy benefit of 

GatorCare, a self-funded health plan of the Shands Medical Center-University of Florida. In this 

capacity, I was involved in writing the PBM request for proposal (RPF), reviewing the PBM 

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RFP submissions, selecting the PBM, and continue to be involved in monitoring the performance 

of the pharmacy benefit and making recommendations for benefit change.

12. I served as a voting member of managed care Pharmacy & Therapeutics (P&T) 

Committees for 13 years at UHC, PHPM, Diversified Pharmaceutical Services, Health Net, and 

ESI. Since 1996, through my consultancy practice, I also have consulted with the pharmaceutical 

industry on evaluating Phase III and Phase IV clinical trials, developing new drug value 

propositions, and pricing and contracting strategies. I have also conducted numerous new drug 

market research projects using heath plan and PBM medical and pharmacy directors, and have 

conducted payer customer advisory boards. 

13. I have been on the Journal of Managed Care Pharmacy (JMCP) Editorial Advisory 

Board since 2006, and in 2012, served as interim editor of the JMCP. I also am editor of both 

editions of the textbook Managed Care Pharmacy Practice (Aspen Publications, 1999; Jones & 

Bartlett, 2009), and have recently agreed with this publisher to begin work on the third edition of 

this textbook. I have also been lead author of three chapters about prescription drug benefits in 

Institutional Pharmacy Practice (American Society of Health-System Pharmacists, 2005) and 

Essentials of Managed Care, 4th, 5th, and 6th editions (Aspen publications, 1999; Jones & 

Bartlett Publishers 2007, 2012). 

14. I was a co-founder and the first President of the Academy of Managed Care 

Pharmacy ("AMCP") and the Foundation for Managed Care Pharmacy ("FMCP"), which were 

formed in 1989. The AMCP now has over 7,000 members and is the only professional 

organization representing pharmacists practicing in managed care organizations, the 

pharmaceutical industry, and related organizations. 

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15. My areas of expertise — based on my training, experience, and research — include 

the following:

• Development and operation of managed prescription drug programs;

• Development of employer group and member prescription benefit contracts and 

pharmacy benefit design;

• Development of a pharmacy provider network, including pharmacy negotiations 

and development of a Participating Pharmacy Provider Manual;

• Evaluation of health plans' and PBMs' pharmacy benefit program financial and 

clinical performance;

• Development, management, and enforcement of drug formularies by health plans

and PBMs;

• Review and evaluation of drugs by health plans, PBMs, and their P&T Committees, 

including the use of clinical, economic, and humanistic data in drug formulary 

decisions;

• Development of new drug value propositions, new drug marketing, contracting, and 

pricing strategies on behalf of pharmaceutical manufacturers; and

• Writing and lecturing on managed care prescription drug benefit programs.

II. SUMMARY OF ANALYSIS 

16. I have been retained in this matter by plaintiffs AstraZeneca AB, Aktiebolaget 

Hassle, KBI-E Inc., KBI Inc. and AstraZeneca LP (collectively, “AstraZeneca”) to: a) provide a 

description of the mechanisms used by health plans, health insurance companies, and pharmacy 

benefit managers (PBMs) to control the cost of prescription drug benefits; b) analyze and provide 

an opinion on the impact of "esomeprazole strontium delayed-release capsules"1 by Hanmi and 

its U.S. marketing partner Amneal (“the Hanmi product”) on the immediate and long-term 

coverage and use of Nexium® in managed care prescription drug programs, if esomeprazole 

 1 This product has also been identified in some documents as esomeprazole strontium.

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strontium delayed-release capsules is allowed to enter and remain on the market; and c) the 

likely confusion that would result from entry of the Hanmi product into the market.

III. MANAGED CARE FUNDAMENTAL CONCEPTS 

17. The concept of managed care began in the early 20th century in isolated areas of the 

U. S., including northern Minnesota, where iron mines provides group health coverage for mine 

workers, and Henry Kaiser provided health coverage for shipbuilders in southern California. A 

Minnesota physician, Paul Ellwood, MD, a healthcare policy consultant, is credited for creating 

the term “health maintenance organization” (HMO) in the 1970s. Dr. Ellwood’s vision for 

managed care was for an affordable group healthcare coverage program that provided and 

promoted preventive care, healthy lifestyle resources, and used specific management strategies to 

control costs and use of covered healthcare products and services. The HMO Act signed by 

President Nixon in 1973 provided substantial funding for developing HMOs that conformed to 

specific organizational and operational requirements (so called “federally funded HMOs”). 

18. Managed health care is a pre-paid, subscription health care financing and delivery 

system with defined contributions and defined benefits (inclusions and exclusions), along with 

financial incentives and penalties designed to influence physicians, hospitals, other providers, 

and patients to follow policies and procedures which promote the cost-effective use of resources. 

The primary healthcare benefits offered by health plans and health insurance companies are 

physician (outpatient physician, diagnostic, devices, and other services), hospital (inpatient 

services), and outpatient prescription drug benefits. Some plans and insurers offer dental and 

other optional benefits. PBMs only offer prescription drug benefits. Physician and hospital 

benefits, together, are referred to as “Medical Benefits”, that are distinct from Pharmacy Benefits 

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(often terms Prescription Drug Benefits).

19. In this report, I use the term “Managed Care Organizations” to refer to health plans, 

health insurance companies, and PBMs using the managed care concepts discussed above. 

Health plans and health insurance companies provide medical, hospital, device, pharmacy 

benefits, and possibly other related health benefits. In this report the term “Health Plans” 

includes health insurance companies. The term “PBM” refers to entities that primarily offer 

prescription drug benefits, and not medical or hospital benefits. The following three strategies 

are key characteristics of Managed Care Organizations.

20. First, all individual and entities that participate in a managed care system (e.g., 

medical groups, hospitals, pharmacies, employer groups, members, and others) share in the 

financial risk of the cost of the program (often termed a “shared risk” arrangement). Risk-sharing 

is designed to incentive all participants to provide and use resources wisely, according to the 

provisions of the purchased benefit. For example, providers (e.g., physicians, pharmacies, 

hospitals) share in the financial risk by accepting discounted reimbursement in exchange for the 

opportunity to participate with a Managed Care Organization. Members (e.g., patients) are 

individuals eligible for coverage. Members must often pay a cost share (e.g., copayment, 

coinsurance) when they access or obtain covered benefits.

21. Second, benefit contracts between benefit purchasers and Health Plans PBMs

(contracts are often termed the “Evidence of Coverage” or Certificate of Coverage”) define the 

benefits that are included in insurance coverage, define the excluded benefits, and also describe 

the process that must be followed to obtain covered benefits (for example, covered benefits may 

be limited only to services provided by contracted providers). Thus, only specifically defined 

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benefits are eligible for coverage under the insurance plan purchased by a Plan Sponsor. Benefits 

obtained by a patient outside of those specified are not eligible for coverage under the Certificate 

of Coverage may require the patient pay to cash outside of insurance coverage.

22. Third, Managed Care Organizations control the supply (identity) of the products 

and services eligible for reimbursement by providers, and also the demand (utilization rate) of 

benefits eligible for coverage. For example, Health Plans and PBMs specifically determine what 

drugs (including dosage forms and strengths) are eligible for coverage as well as the frequency 

and amount of a covered drug that may be obtained by Members within a specific time period. 

These control mechanisms are described further below.

23. Managed Care Organizations design a program of covered benefits specifically for 

each purchaser through a negotiated process to match the cost and benefit richness desired. The 

process of setting a price on a specific benefit plan is termed “Underwriting”. The purchaser of 

health insurance benefits is often termed “Plan Sponsor”, and may be an employer group, a state 

Medicaid program, an individual person, or a health and welfare benefit trust, or other entity). I 

shall use the term Plan Sponsor when referring to a purchaser of a medical or pharmacy benefit.

24. I use the term “Member” to refer to individual persons who obtain covered benefits. 

“Members” include Subscribers (who are the employees in employer-based programs), covered 

dependents, and Recipients or Beneficiaries who are participants in Medicaid or Medicare 

programs).

25. PBMs offer comprehensive and customized prescription drug programs for Health 

Plans as well as self-funded employer groups that may have “carved-out” the pharmacy benefit 

from a Health Plan. In this carve-out situation, employer groups contract directly with a PBM for 

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pharmacy benefits, and contract separately with a Health Plan for medical benefits. Health Plans 

often purchase specific services from PBMs, including a pharmacy distribution network, claims 

adjudication, and take advantage of discounts or rebates negotiated by PBMs from 

pharmaceutical manufacturers. Health Plans may purchase other PBM services, including

clinical and prescription adherence programs (including support of Medicare-specific quality 

programs), formulary management services, and customized drug utilization reporting, among 

other services. PBMs generally do not accept fiduciary risk on behalf of their Health Plan and 

self-insured employer group customers, but offer performance guarantees based upon achieving 

the cost and quality outcomes specified in customer contracts with PBMs.

IV. PHARMACY BENEFIT PROGRAM MANAGEMENT STRATEGIES 

26. Health Plans, insurers, and PBMs use various management strategies to control the 

cost and utilization rate of covered prescriptions drugs (and non-prescription drugs if covered). 

These strategies are applied in a customized approach to satisfy the specific cost and quality 

outcomes benefits that have are purchased for each Plan Sponsor. The primary management 

strategies are described below.

A. Cost and Quality Management Strategies

27. Evidence of Coverage. The contract between the plan, insurer, or PBM and the 

Plan Sponsor (also may be called the Certificate of Coverage) defines the covered and excluded 

benefits, as well as the requirements to obtain covered benefits (e.g., the Member must obtain 

prescriptions only from contracted network pharmacies). The benefits may be summarized in a 

document for Members written in lay terminology, perhaps in different languages. The term 

“Benefit Design” is often used to refer to the benefits and access rules for a specific benefit 

program.

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28. Member Cost Share. Members must often pay a portion of the cost of the covered 

benefits they use, such as a copayment or coinsurance for each prescription they obtain. The cost 

share accomplishes two objectives. First, program costs are reduced for Plan Sponsors 

(prescription cost share amounts for brand drugs are usually 25% - 50% of the cost of the 

prescription), and the cost share reduces moral hazard.

29. Claims Adjudication. Over 98% of managed care outpatient prescription drug 

claims are adjudicated (priced and confirmed as eligible for coverage) in a real-time, online 

pharmacy point-of-service (POS) claims adjudication system. The POS claims adjudication 

systems of all plans, insurers, and PBMs, and retail pharmacies use identical claims processing 

data standards. POS claims processing systems allow accurate enforcement of customized Benefit 

Designs of Plan Sponsors, including enforcement of Drug Formulary coverage rules.

30. Prescription Adjudication Edits. The pharmacy POS systems allows enforcement 

of Drug Formulary coverage limitations and restrictions. These limitations and restrictions, such 

as “generic first” step edits and prior authorization are customized for each Plan Sponsor, when 

necessary, and are important Drug Formulary enforcement mechanisms.

31. Step Edits. When lower cost generic alternatives exist for brand drugs (even with a 

different active molecule but in the same therapeutic class), Managed Care Organizations may 

impose an automated step edit that requires a Member to have tried a generic product in a specific 

therapeutic class (e.g., PPI) before the plan or PBM will reimburse for a brand drug within the 

same therapeutic class. An example of a PPI-class step edit is the requirement for a Member to 

receive a generic Formulary PPI before a brand PPI is eligible for reimbursement (termed a 

“generic first” step edit). The automatic step edits are enforced with the POS claims adjudication 

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system. If a pharmacist enters the drug identification code for a brand PPI that is subject to a 

generic first step edit into the POS system, the POS system automatically checks the Members 

drug use claim history for evidence that a generic PPI has been used. If the system finds a 

previous claim for a generic PPI, the system automatically approves the step edit, and the 

pharmacist may dispense and be reimbursed for the brand PPI. If the adjudication system does not 

find evidence of previous generic PPI use, the pharmacist receives an error message identifying 

the brand drug as ineligible for reimbursement.

32. Prior Authorization (PA). Brand drugs may be subject to a prior authorization 

(termed “precertification” by some plans), which requires the prescribing physician to provide 

specific information about the medical condition or intended medical use for a brand drug subject 

to a PA. Reasons for PA prescribing and dispensing restrictions include high cost, safety 

concerns, abuse or misuse potential, off-label use concerns, special handling, limited availability, 

or other reasons. 

33. Quantity and/or Duration Limits. Limits on quantity or duration of use may be 

placed on drugs with a potential for overuse, abuse, excessive dose or duration of use. For 

example, drugs that may have an abuse potential, such as a sedative-hypnotic, may be limited to a 

three month duration for each original prescription.

34. Pharmacy Distribution Network. Health Plans and PBMs customize pharmacy 

distribution channels for each Plan Sponsor. The three primary prescription distribution channels 

include retail community, mail service, and specialty pharmacy (e.g., injectable and high-risk 

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drugs).2 Pharmacies participating in a pharmacy-provider network agree by contract to accept 

discounted reimbursement. Health Plans and PBMs construct customized pharmacy-distribution 

channels to accommodate specific Plan Sponsor cost and quality objectives. 

35. Drug Formulary. A Formulary (or Preferred Drug List) is a dynamic document 

that lists drugs eligible for reimbursement. Formularies are often categorized as “open” or 

“closed”, a term that reflects how tightly they are controlled. Formulary drugs are often organized 

by human organ system and/or therapeutic class, and sub-categorized in Tiers most commonly by 

one of four general types of drugs: Tier 1, for lowest cost drugs, often generic drugs; Tier 2, for 

preferred brand drugs; Tier 3 for non-preferred brand drugs; and, Tier 4 for specialty drugs3. Each 

Tier is associated with a specific Member cost-share amounts (such as a co-payment or 

coinsurance) designed to incentivize use of the least expensive drug that is clinically acceptable. 

For example, the lowest cost share is assigned to a Tier 1 generic drug, and higher cost shares are 

generally assigned to successively higher Tiers. Formularies are updated from time to time, as 

newly available drugs (and other drugs may be repositioned or removed). Formulary drug 

decisions are generally made by a group of physicians and pharmacies termed the Pharmacy & 

Therapeutics Committee (P & T Committees). Drug Formularies are highly individualized to 

meet the specific business and Member type needs.

36. Open Formularies often contain more drugs than closed Formularies. Open 

Formularies often provide coverage for most drugs, and exclude few drugs. Open Formularies 

use a Tier structure with cost-share incentives, step edits, and prior authorizations to enforce 

 2 Approximately 75% of outpatient drugs are dispensed through retail community pharmacies (pharmacy chains, 

independent, and other pharmacies), 20% of prescriptions are dispensed through mail services pharmacies, and, 5% 

of prescriptions are dispensed through specialty pharmacies.

3 Specialty drugs often include injectable drugs, biological, very expensive drugs, and drugs that may require 

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Formulary conformance. Open Formularies are common in most Blue Cross Blue Shield plans, 

many large insurers (e.g., United HealthCare, Aetna, Humana), and many other Health Plans and 

PBMs.

37. Closed Formularies often contain fewer drugs than Open Formularies, and are much 

more highly controlled. Closed Formularies, common in integrated, closed model Health Plans 

(e.g., Kaiser Permanente, and others) develop limited Formularies, and often exclude coverage 

for brand drugs with generic alternatives (e.g., having the same active ingredient). 

38. Each Health Plan and PBM generally has its own P & T Committee to make drug 

formulary decisions specific for each Plan Sponsor group type. Drugs included in Drug 

Formularies are subject to the reimbursement limitations and restrictions discussed above.

39. An example of a typical Formulary Tier structure and possible cost share levels is 

illustrated below:

Formulary Tiers Drugs Included in Tier and

Relative Cost Index Member Payment

Tier I - Generic

• lansoprazole

• omeprazole

• omeprazole/bicarbonate

• pantoprazole

$10.00

Tier II - Preferred Brand • Nexium®

• Dexilant® $25.00

Tier III - Non-Preferred 

Brand

• Aciphex®*

• Prevacid®*

• Prilosec®*

• Protonix®*

• Zegerid®*

$50.00

*-Signifies generic first-step edit (generic must be used before brand).

40. Pharmaceutical Manufacturer Rebates. Health Plans, insurers, and PBMs may 

 specialty handling. Specialty drugs are usually managed and dispensed by specialty pharmacies.

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contract with pharmaceutical manufacturers to obtain a discount or rebate on specific brand 

name drugs that may be repositioned in a preferred position on Drug Formularies (e.g., Tier 2 

rather than Tier 3). Drugs in a preferred position (or lower Drug Formulary Tier) are considered 

less expensive, and have a lower cost share compared to drugs in higher Drug Formulary Tiers. 

This improved Formulary position generally increases prescription utilization and drug sales.

41. Clinical and Quality Programs. Health Plans and PBMs offer a variety of clinical 

and quality improvement programs to improve the clinical performance or reduce safety risks of 

covered drug products. Examples of such programs include drug utilization review (to identify 

drug misuse or abuse), drug adherence programs (to improve Member drug compliance), or 

quality measurement programs (such as NCQA HEDIS measures that offer report on Health Plan

or PBM performance).

42. These primary pharmacy benefit management or cost management strategies 

commonly result in Health Plans and PBMs achieving over 95% conformance with their drug 

formulary, depending upon the Drug Formulary type. It is important to note that Health Plan or 

PBM strategies control or influence the reimbursement of over 90% of all outpatient 

prescriptions dispensed in the US. 

B. Practical Application of Cost Management Strategies

43. In practice, the process of prescribing and dispensing covered drug products in a 

managed care system is familiar.

44. First, a Health Plan Member consults a physician participating with the Health Plan. 

After considering the clinical condition of the Member, the physician consults the Health Plan’s 

Drug Formulary to select a reimbursable drug that will satisfy the Member’s medical needs. 

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Physicians generally prescribe the drug with the lowest Member cost share that is medically 

acceptable (Tier 1 if possible; Tier 2 if necessary; Tier 3 as last choice). Additional prescribing 

limitations and edits present further deterrents to higher cost drugs being prescribed.

45. Then, the Member takes the prescription to a participating network pharmacy to be 

filled. The pharmacist uses the POS claims adjudication system to determine Member eligibility 

and drug reimbursement status. Pharmacists are informed of the Drug Formulary Tier status, 

Member cost share (e.g., copayment), and of any other reimbursement limitations. If the 

prescribed drug is subject to reimbursement limitations (e.g., step edit, prior authorization), the 

pharmacist or Member have three options:

1. the Member may pay cash for the prescribed drug as written, outside of 

the Health Plan pharmacy benefit;

2. the Member may ask the pharmacist to contact the physician to change the 

prescription to lower cost drug (e.g., Tier 1 generic), or the pharmacist 

may recommend that the Member contact the physician; and

3. the Member may leave the pharmacy without a prescription.

V. IMPACT OF THE HANMI PRODUCT ON NEXIUM® 

46. The proton pump inhibitor (PPI) drug class is highly utilized within Health Plan and 

PBM pharmacy benefit programs. As illustrated in the Drug Formulary example above, generic 

lansoprazole, omeprazole, and pantoprazole are often included in Tier 1. PPIs with patent 

protection (Nexium® and Aciphex®) are generally included on a higher-cost-share Tier or not 

included on the Formulary, depending upon the decisions of Health Plan and PBM P & T 

Committees.

47. Health Plans and PBMs enforce physician prescribing, pharmacist dispensing, and 

patient utilization of covered drug products using a variety of Drug Formulary enforcement 

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strategies, described above. Mandatory substitution of generic drugs when available remains an 

important cost control mechanism. Over 80% of covered prescriptions of many Health Plans and 

PBMs are dispensed as Tier 1 (e.g., generic) drugs. Health Plans with highly controlled Drug 

Formularies may have 90% or more of outpatient drugs reimbursed as generic drugs. Health 

Plans and PBMs incentivize the use of generic drugs through lower-cost-share amounts for 

Members, and through network pharmacy POS adjudication edits (both described above). 

Physician prescription decisions depend on patient medical condition and cost considerations. 

Generally, Formulary cost share incentives influence physicians to prescribe and Members to

request a generic or preferred Tier 2 drug rather than a higher Formulary cost share Tier drug.

48. Nexium® is a highly utilized proton pump inhibitor (PPI) drug often found in 

Health Plan and PBM drug formularies as a preferred product, i.e., in Tier 2. It is currently the 

only esomeprazole PPI on the market. Accordingly, those Members and healthcare professionals

who want to use or prescribe an esomeprazole product have only one option, Nexium®. Despite 

the availability of generic substitutes for other PPIs, the prescription volume of Nexium®

remains high. If the Hanmi product were available, and if Health Plans or PBMs included it on 

Drug Formularies at a lower Tier, due to lower pricing by Hanmi, Hanmi’s product would likely 

negatively influence the use of Nexium® within managed care plans. This is due to the high 

influence of Health Plans and PBMs on outpatient prescriptions in the US, and their successful 

enforcement of compliance with Drug Formularies, as I have described above.

49. If the Hanmi product were available and considered a lower-priced generic 

alternative for Nexium®, the Hanmi product would likely be placed on Tier 1 of Drug 

Formularies. Consequently, Nexium® would likely be removed from coverage, or placed on 

non-preferred Tier 3. Placement on non-preferred Tier 3 would likely include step edits or prior 

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authorization. For example, a step edit would require Members to demonstrate use of the 

strontium version of esomeprazole (and/or the use of another generic PPI), before Nexium®

would be eligible for reimbursement. A prior authorization would require a physician to contact 

the Health Plan or PBM to request a patient-specific approval to use Nexium®.

50. As described above, approximately 80-95% of prescriptions are dispensed as 

generics. The combination of Member incentives to use a generic and Drug Formulary 

enforcement of limitations and restrictions through the pharmacy POS adjudication system

makes it highly likely that Nexium® use would significantly decline.

51. Specifically, if the Hanmi product is allowed to enter the U. S. market, at least two 

Drug Formulary coverage scenarios for PPIs are possible. One scenario is illustrated below for a 

typical Open Formulary plan and another scenario is illustrated for a typical Closed Formulary 

plan. Both coverage scenarios would severely impact Nexium® use.

52. In an Open Formulary plan, Hanmi’s low-priced “generic” esomeprazole strontium 

would be preferred in Tier 1 and Nexium® would be transitioned to a non-preferred brand in 

Tier 3, possibly with limitations or restrictions (such as step edit), as illustrated in the table 

below:

PPI Coverage in Open Drug Formulary

Formulary Tiers Drugs Included in Tier and

Relative Cost Index Member Payment

Tier I - Generic

• esomeprazole strontium

• lansoprazole

• omeprazole

• omeprazole/bicarbonate

• pantoprazole

$10.00

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Formulary Tiers Drugs Included in Tier and

Relative Cost Index Member Payment

Tier II - Preferred Brand • Dexilant® $25.00

Tier III - Non-Preferred 

Brand

• Nexium®*

• Aciphex®*

• Prevacid®*

• Prilosec®*

• Protonix®*

• Zegerid®*

$50.00

*-Signifies generic first-step edit (generic must be used before brand).

53. In a Closed Formulary plan, Hanmi’s product would be preferred in Tier 1 with 

other generic PPIs. Nexium®, like other PPIs with generic equivalents, would be excluded from 

coverage altogether, as shown in the table below:

PPI Coverage in Closed Drug Formulary

Formulary Tiers Drugs Included in Tier and

Relative Cost Index Member Payment

Tier I - Generic

• esomeprazole strontium

• lansoprazole

• omeprazole

• omeprazole/bicarbonate

• pantoprazole

$10.00

Tier II - Preferred Brand $25.00

Tier III - Non-Preferred 

Brand

• Aciphex®*

• Dexilant®* $50.00

*-Signifies generic first-step edit (generic must be used before brand).

54. The negative impact on Nexium®, if a low-cost esomeprazole product such as the 

Hanmi product were available, is illustrated below for two cases. In one case, a Member is 

already taking and satisfied with Nexium®. In the second case, a Member is starting PPI therapy 

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and may have requested Nexium®.

55. Patients already on Nexium®. Nexium® is one of the most highly prescribed 

drugs on managed care Formularies. To minimize Member disruption, Health Plans and PBMs 

generally announce coverage changes for highly popular drugs such as Nexium®. After Hanmi’s 

product is introduced and added to the Formulary as a Tier 1 drug by the PBM, Members are 

normally informed that their cost for Nexium® will increase, but a less expensive alternative 

with the same active ingredient is available at a lower copayment. Members would be advised 

that they may call or visit their physician, or ask their pharmacist to contact their physician, to 

request a change to their prescription.

56. New Patients Who Request Nexium®. Members often request specific drugs in 

response to an advertisement, Internet information, or advice of a friend or relative who have had 

a positive experience with that drug. If a PPI is medically appropriate and Nexium® is requested 

by the Member, the physician may explain that Nexium® may be available at a higher cost (or 

may be excluded from coverage), but a drug with the same active ingredient (esomeprazole) is 

available at a lower cost. The physician may also discuss other low cost non-esomeprazole PPI 

options. However, if the Member desires the same active ingredient as Nexium® and does not 

want to pay the higher price, the physician would prescribe Hanmi’s esomeprazole strontium 

delayed-release capsules because that would be the only other esomeprazole drug available.

57. Based upon the above scenarios, if Members starting PPI therapy are not provided 

an opportunity to try Nexium®, and after Members are converted away from Nexium® to the 

Hanmi product, the use of Nexium® will decline and are not likely to return to current levels. If, 

for whatever reason, Members are dissatisfied after being started on or being converted to the 

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Hanmi product, or if the Hanmi product is later removed from the market by a court decision, it 

is highly unlikely that these Members would return to Nexium®.

58. If the Hanmi product is the first esomeprazole drug that the Member has tried and 

the Member has become dissatisfied with its effect, or if the Hanmi product is removed from the 

market, the physician would likely recommend that the Member try a drug with a different active 

ingredient such as one of three other low cost, Tier 1 generic PPI drugs (lansoprazole, 

omeprazole, or pantoprozole), before recommending a preferred brand product. Only after these 

options prove unsatisfactory would a physician recommend a higher cost brand PPI option. 

Even in this case, the physician may recommend other brand PPIs without generic equivalents, 

such as Aciphex®.

59. If a Member had previously switched from Nexium® to the Hanmi product and 

desired for some reason to switch back, the Member would still face significant barriers. Once 

Nexium® has been transitioned to a higher Tier as a result of the introduction of Hanmi’s lowercost drug, the Member would be required to pay a much higher copayment to switch to 

Nexium®. Or, if Nexium® has been excluded from coverage altogether, the Member would 

have to pay the entire cost of the product. In addition, Nexium® may be subject to a prior 

authorization or step edit requirement. Thus, for many Members, switching back to Nexium® is 

unlikely, and the use of Nexium® is not likely to recover to its previous levels. 

VI. INTRODUCTION OF THE HANMI PRODUCT TO THE MARKET IS 

LIKELY TO CAUSE CONFUSION 

60. The name “Esomeprazole Strontium delayed-release capsules” used in connection 

with the Hanmi product may be confusing to Members, pharmacists, physicians, or even 

managed care pharmacists. The use of Tier 1 drugs is encouraged and incentivized through use 

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of a lower Member cost share. Even though the Hanmi product is not directly substitutable

(because it contains a different salt than Nexium®), physicians, prescribing nurse practitioners, 

pharmacists, and other health care professionals are likely to consider the Hanmi product to be a 

therapeutic alternative to Nexium® because both contain esomeprazole as the active ingredient.

This fact is clearly evident from the product label and associated literature. Prescribers and 

pharmacists are aware that different salts exist for many drugs with the identical active 

ingredient. Therefore, these health care professionals may conclude that the particular salt form 

has no impact on the therapeutic use of the drug.

61. The potential confusion is made more likely because the prescribing information of 

the Hanmi product is almost identical to that of Nexium®. Exhibits B and C to this declaration 

are the Hanmi product label4 and the Nexium® label5, respectively. Many of the statements and 

claims made in the label of the Hanmi product (esomeprazole strontium) refer to, or rely upon, 

the Nexium® (esomeprazole magnesium) data and prescribing information. Both the Hanmi 

product and Nexium® have virtually identical labeled indications and usage, dosage and 

administration, dosage forms and strengths, contraindications, warnings and precautions, adverse 

reactions and drug interactions. This similarity provides further market and prescriber confusion, 

and is likely to contribute to the belief that the Hanmi product is a therapeutic alternative to

Nexium®.

62. Marketing by Hanmi is also likely to confuse Members who may request 

prescriptions for the Hanmi product because they may believe it has been approved by the FDA 

as a generic substitute for Nexium®. In fact a press release that the esomeprazole strontium 

 4 Esomeprazole strontium prescribing information. Hanmi Pharm. Co. Ltd., Seoul, Korea.

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delayed-release capsule version is an “....improved version of Nexium® of AstraZeneca...” (See 

Exh. D).

6 Members may be exposed to this material and be prompted to request physicians to 

prescribe the Hanmi esomeprazole strontium delayed-release capsule version. Members often 

request and receive specific drugs from their physicians in response to marketing and 

advertisements or other public information. Member-initiated conversions to the Hanmi product,

based upon the belief that the Hanmi product is equivalent to or better than Nexium®, are 

therefore likely to further erode Nexium® use.

63. I declare under penalty of perjury under the laws of the United States that the 

foregoing is true and correct and that this Declaration was executed this 19th day of August

2013, at Washington, District of Columbia.

_______________________________________

ROBERT P. NAVARRO, PHARM D.

 5 Nexium® (esomeprazole magnesium) delayed-release capsules. Astra Zeneca Pharmaceuticals LP, Wilmington, 

DE. (Exh. B)

6 “U.S. FDA OKs sale of S. Korean’s improved version of Nexium®”, Globalpost Web Site, available at 

http://www.globalpost.com/dispatch/news/yonhap-news-agency/130807/us-fda-oks-sale-s-koreas-improved-versionNexium®

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