Pepcid Ac

Summary:

In March 1989 Merck and Johnson & Johnson joined hands to form the joint venture Johnson & Johnson/Merck Consumer Pharmaceuticals Company (JJM). JJM produces Pepcid which belongs to a class of drugs known as H2 - receptor antagonists. This class of drugs reduces stomach acid secretion and revolutionized the treatment for ulcers and heartburn. Pepcid is well known for its quick heartburn relief has a stable market position but is still behind the leading competitors Tagamet (from SmithKline Beecham) and Zantac (from Glaxo Wellcome).

The prescription ulcer drug market of H2 - receptor antagonists in United States was $3.3billion in 1994. Zantac was number one in the H2 - receptor antagonists market preceding Tagamet and Pepcid. Pharmaceutical companies have enjoyed significant financial growth when switching drugs from prescription to over-the-counter (OTC). Johnson & Johnson has enjoyed the success of a tremendous increase in sales after switching Imodium, an anti-diarrhea medication, to OTC. JJM used BASES methodology as a pre-test marketing research system which enabled them to conduct research for clinical trials and the OTC market. After thorough research, Pepcid was the first product which JJM sought to switch to OTC market but it required an FDA approval. In July 1994 FDA advisors recommended against allowing JJM to sell Pepcid AC, a reduced strength form of Pepcid, as an OTC drug.

Problems/Opportunities:

The major hurdle in launching Pepcid AC as an OTC drug was getting it approved by FDA. JJM pursued. Tagamet had an early lead in the FDA approval process. JJM was pursuing a strategy comprising of both a treatment and a prevention claim to launch Pepcid AC in the OTC market. However, FDA advisory committee rejected SmithKline Beecham's proposal for Tagamet in 1993 and in the following year also rejected JJM's proposal for Pepcid AC. FDA approval process for an OTC medication requires demonstrating the efficacy of the low dosage drug, and JJM's clinical trials failed to show that Pepcid, in its low dosage form, prevented or provided relief from heartburn. JJM can conduct more thorough clinical research and trials for Pepcid AC and return to the FDA advisory committee for approval.

The average annual growth since 1977 for the H2 - receptor antagonists market is an impressive 15%. Tight competition to gain market share and the race to the OTC market has forced pharmaceutical companies thinking on their toes. Zantac was able to gain most of the market share with the advantage of its convenient twice-a-day dosage (versus Tagamet's four times a day) and with fewer side effects. With Pepcid being number three in the market share and other companies racing to OTC market, JJM was facing tough competition before they could launch Pepcid AC. However, the market represented a large number of patients comprising roughly 20 million consumers in 1994 and even a small market share placed Pepcid sixteenth on the list of top selling drugs in 1993.

JJM's patent for Pepcid expires in the year 2000. Pharmaceutical companies are able enjoy great profits from their best selling drugs before the expiration of the patent. After the expiration of the patent many generic drugs of the same type can enter the market. When Tagamet lost its prescription patent protection its U.S. sales dropped from $648 million in 1993 to $468 million in 1994. Pepcid has a few years left to benefit from the patent protection against generics.

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