Pepcid AC Case Study free essay sample

Developed and commercialized by Merck, Pepcid is a prescription drug for treatment of heartburn. Different from regular antacids that just neutralize acids in the stomach, Pepcid belongs to a class of drugs known as H2 receptor antagonists, which reduce stomach acid secretion by blocking the histamine H2-receptor on the cells producing gastric acid. Third in the H2’s class to enter the prescription drugs market, Pepcid was never able to reverse course and take market leadership from competing products such as, Zantac from Glaxo and Tagamet from SmithKline. In recent years, the possibility of developing a lower dosage form of Pepcid for the OTC market became an attractive business proposition. Merck was not alone in this venture, all major competitors in the H2 receptor antagonists market entered in a race to get FDA approval for a lower dosage version of its original prescription drugs, including Glaxo and SimthKline. In order to gain regulatory approval, drug makers must prove safety and efficacy of the medication. Furthermore, the willingness of consumers to comply with directions specified on the product label is also an important consideration. Nine of the top-ten OTC brands introduced since 1975 were formerly prescription only drugs. A famous example of successful prescription to OTC switch was the pain killer Advil. Not experienced in bringing prescription drugs into the OTC market, Merck joined forces with Johnson Johnson, which had extensive experience in the consumer products market. The result was the creation of a mutually beneficial alliance known as JJM. Being the first entrant into a new OTC market would present JJM with a unique opportunity to potentially becoming the market leader in the H2 receptor antagonist OTC market. The challenge for JJM, was obtaining FDA approval for Pepcid AC, the OTC version of Pepcid, ahead of its competitors. Tagamet was running head-to-head with Pepcid, trailed by Axid and Zantac, which appeared not to have the same level of conviction to becoming first to market. In preparation for the filing with the FDA, JJM conducted clinical studies to support the claims of prevention and treatment of heartburn. Conversely, SmithKline adopted a different strategy, claiming only treatment efficacy. Shortly after recommending against approval of Tagamet’s OTC drug, the FDA advisory committee also recommended against Pepcid’s approval and stated that JJM, â€Å"failed to show Pepcid, in its low dosage form, either prevented or provided relief from heartburn. † 2- Problem Identification According to data provide by IMS America (Table A), in 1993 Pepcid ranked sixteenth among prescription drugs in the U. S. and third among H2 receptor antagonists. The market leader for prescription H2 receptor antagonists was Zantac, followed by Tagamet at a distant second place. Considering JJM’s relatively low proportion of market share,and the fact that it has never been able to challenge Zantac’s leadership, becoming the first in H2 class to enter the OTC market was critical for JJM’s ambitions of becoming the market leader in the highly lucrative heartburn treatment market. Another variable in this equation was the dual claim indication that JJM is planning to file. Being able to increase Pepcid AC’s customer perceived value by claiming prevention and treatment would allow JJM for product positioning within higher price range. Considering that JJM already has a presence in the antacid OTC market with Mylanta, having Pepcid AC in a higher price range would be a way to clearly distance the 2 drugs from each other and reduce the risk of cannibalization. Additionally, SmithKline’s Tagamet is claiming treatment only, which would represent a competitive point of differentiation for Pepcid AC. Furthermore, a higher price for Pepcid AC would also represent more revenue for JJM. The final factor to be considered in this study, is the FDA’s record against prevention claims for OTC drugs. Traditionally, the FDA prefers education over medication for purposes of prevention. The reason cited is the risk of overmedication that OTC drugs could pose if used for prevention of a disease. Three courses of action are possible for JJM at this point: (a) continue working with the FDA to make the case for the prevention and treatment claim with no delays; (b) drop the prevention claim and go with the treatment only claim, increasing the chances of approval; (c) conduct more clinical trials to support the prevention and treatment claims, but then delay the process and risk falling behind in the race to approval. 3- Situation Analysis Strengths: Weaknesses: Pepcid AC safer than Tagamet (side effects when used with other drugs) Strong brand name. Convenient 1 tablet dosage Last longer than traditional antacids Indicated for both treatment and prevention of heartburning versus treatment only claim of Tagamet. Priced higher than traditional antacids Takes longer than traditional antacids to start acting Higher cost than Tagamet ( due to license fees) Opportunities: Threats: Move from 3rd place in Rx H2-blockers to 1st place in OTC Gain market share from traditional antacids competitors Growing market for H2-blockers. Tagamet, Zantac and Axid are also in the Rx-OTC switch â€Å"race† Harder to reverse position after first year of market entrance Cannibalization of prescription version of Pepcid Cannibalization of JJM’s antacid Mylanta. Considering that Pepcid AC will enter the OTC market to compete against both H2 receptor antagonists and regular antacids the analysis of SWOT template above is broken down in 2 parts: Pepcid AC x Other H2’s: The two main competitors running to enter first in the OTC marketplace are Pepcid and Tagamet. Comparing the Strengths and Weaknesses of both, Pepcid is safer to use with less restrictions when combined with other drugs, and is planning to claim both treatment and prevention of heartburn, versus only the treatment claim of Tagamet. On the other hand, Tagamet has a slightly lower total cost due to fees that JJM pays on Pepcid. Tagamet also has the advantage of having started earlier in the OTC transition process. The greatest opportunity for Pepcid against Tagamet, is the potential for gaining market share in the heartburn treatment market. . Another aspect to be highlighted, is the pricing strategy. If priced too low, Pepcid AC could present a significant cannibalization risk to Pepcid. Pepcid AC x Traditional antacids: Similar to its competitors in the H2 receptor antagonists market, JJM has strong participation in the traditional antacid smarket. JJM’s Mylanta is second only to SmithKline’s Tums . The main strength of Pepcid AC versus Mylanta and other traditional antacids is the indication for both prevention and treatment (depending on the option chosen). Another import POD for Pepcid AC is its convenient one tablet a day dosage. The opportunity for Pepcid AC is gaining market share from the other companies in the regular antacid market. Contrary to the opportunity, the risk is that Pepcid AC may cannibalize JJM’s Mylanta more than the other antacid brands. To avoid such possibility, JJM can develop a coordinated price and marketing strategies for Pepcid AC and Mylanta together. 4- Alternative Courses of Action The FDA advisory committee concluded that JJM’s clinical trials did not show adequate efficacy of Pepcid AC in either preventing or treating heartburn. As a consequence, there is considerable risk of rejection if JJM (a) proceeds with filing for regulatory approval for prevention and treatment claims with only the available clinical data. Although not a necessary rule, the FDA typically follows the advice rendered by their advisory committee. An alternative course of action is (b) to conduct additional clinical trials, in order to conclusively prove efficacy of Pepcid AC, for both treatment and prevention of heartburn. The caveat is that conducting additional trials could take an additional 6-9 months and jeopardize JJM’s goal of being first-to-market with an over-the counter H2 antagonist. In the case of H2 antagonists, being first-to-market is perceived as an important competitive advantage, enabling the first entrant to capture and retain the bulk of market share. Furthermore, being first-to-market could facilitate establishment of long-term customer loyalty relationships.. The aforementioned strategy merits consideration because it increases the likelihood of regulatory approval, while also maintaining the critical prevention claim (along with treatment), which JJM views as the key point of differentiation between Pepcid AC and Smithkiline’s Tagamet. However, this approach could be viewed as overly conservative since JJM has already conducted extensive clinical trials to prove efficacy of Pepcid AC for both treatment and prevention claims. The most significant study was dubbed the â€Å"provocative meal study,† in which participants were given a dose of Pepcid AC or placebo, prior to consumption of meals certain to induce heartburn. JJM strongly believed that these trials already provided sufficient evidence in support of the prevention claim and that additional trials were unnecessary. Therefore, conducting additional trials is a course of action to be pursued only as a contingency plan; that is,iif regulatory approval is not achieved with the currently available clinical data. Alternatively, JJM could move forward with (c) filing for regulatory approval for the treatment claim only. This approach is believed to be the easier path to achieving approval, when compared to pushing for approval of both treatment and prevention claims. Typically, the FDA views education as preferable over medication for prevention. Therefore, the agency may have inherent resistance to approving prevention claims. As such, the potential for regulatory dismissal of prevention claims is a valid concern. Seeking approval for the treatment claim only may appear to be the easier path to regulatory approval, but this is not an option without downside risk. In pursuing this alternative course of action, JJM would be sacrificing their key point of difference and diminishing the value proposition of the product. Furthermore, the lack of the prevention label could result in a significant reduction of market share and loss of revenue. Although results from BASESII market research support that treatment only claim is the most important one for product positioning, concept tests and focus groups support the notion that prevention and treatment together are more important. Additionally, heavy heartburn drug users, which account for the greatest potential usage and customer loyalty of Pepcid AC, strongly favor the treatment and prevention claims. Therefore, pursuing treatment only approval may not necessarily be the best path forwards. 5-Recommendations and Implementations Despite the recommendations of the FDA advisory committee, JJM should still take the case directly to the FDA and request approval of Pepcid AC for both the treatment and prevention claims. JJM has already conducted sufficient clinical studies supporting both indications. The regulatory expertise from the Merck side of the JJM partnership should be able to make a compelling case in the regulatory submission seeking approval for both treatment and prevention. Moreover, if the agency were to reject the filing, JJM could then opt for the contingency plan discussed in the Alternative Courses of Action section (Option (b)). Seeking approval for both treatment and prevention is clearly the best course of action. The prevention claim will surely be an important point of differentiation that will enable JJM to retain leadership in the OTC market once the other H2 brands receive their own FDA approvals. JJM has performed extensive market research and has clearly segmented the market, targeted its customers and positioned their product well. Results from behavioral market research, reveal that most frequent antacid users are over the age of 50. Furthermore, descriptive market research concluded that users of both antacids and prescription H2 receptor antagonists and heavy antacid users comprised 62% of Pepcid AC’s predicted dollar volume. Therefore, a marketing campaign primarily targeting these users is a natural course of action. Furthermore, heavy users are likely to be early adopters of the new offering and tend to be opinion leaders, which will set the tone for the customer perceived value of the product Behavioral market research also revealed that patients that used prescription H2 receptors antagonists learned that with regular use of the medication they could prevent the onset of heartburn. This is a very important point for JJM, because they only have 13% of the prescription market (Table B). Therefore, a marketing campaign emphasizing not only treatment, but also prevention, for a convenient OTC drug, could lure a significant portion of the remaining 87% of the prescription antacid market over to Pepcid AC. Research utilizing focus groups also concluded that prevention and treatment would be the most attractive form of product positioning. Table B Market Share of Prescription Antacids Firm Prescription Antacid 1993 U. S. Sales ($ millions) Market Share (%) Glaxo Zantac 1,694 56 SmithKline Tagamet 528 17 Merk Pepcid 387 13 Lilly Axid 271 9 All Others NA 150 5 Analysis of the traditional antacid market is also critical. In this case, JJM’s Mylanta has 16% market share of a $745 million market. Being first to market, with a superior product effective for a longer period of time than the competition and that also prevents heartburn, could be a significant catalyst for gaining market share from the traditional antacids. Results from BASES II tests established that 30% of prescription H2 receptor antagonists users and 28%-34% of antacid users would switch to Pepcid AC. An aggressive advertising campaign could certainly improve these numbers. In conclusion, considering JJM’s relative small market share in both OTC and prescription markets for heartburn the potential gains with the switch of Pepcid, even after discounting possible cannibalization are significant. For example, 30% of the $3,030 million prescription market equates to $909 million. Subtracting $118 million, for the 13% of the Pepcid market share, yields $791 million of potential revenue from cannibalization of the prescription drug market alone. Of course, the price of Pepcid AC will be significantly lower, but even a 75% price reduction equates to nearly $200 million in revenue. Similarly, assuming only 28% of the $745 million OTC antacid market switches to Pepcid Ac would equate to nearly $209 million in revenue. Subtracting approximately $33 million for Mylanta’s market share and we are left with potential revenues of $176 million. These examples also alleviate any concerns regarding sales cannibalization of prescription Pepcid and OTC Mylanta (Table E). Though cannibalization will certainly occur, it will be tremendously offset by cannibalization of competing brands. To further support the notion that product positioning should be centered on treatment and prevention claims, JJM carefully determined their competitive frame of reference. As such, JJM assumed that Tagamet, the other leading product in the race for OTC H2 receptor antagonists, would position itself primarily based on it’s effectiveness in controlling stomach acid (i. e. treatment only claim) and also leverage it’s heritage as the original H2 receptor antagonist. Treatment, the most important attribute of Tagamet, would therefore be the point of parity in product positioning of Pepcid AC, since both JJM’s Pepcid AC and Tagamet could be considered equivalently effective for the treatment of excess stomach acid. As previously discussed, the other key attribute for JJM’s Pepcid AC positioning is the prevention claim. This would be the critical point of difference to cement Pepcid AC as the superior product, able to garner greater customer perceived value. Prescription heritage of Tagamet is not deemed as important since it scored near the bottom of concept tests. With respect to pricing, the $2. 95 price tag for Pepcid AC would render it competitive with antacids. However, a $3. 29 price would be appropriate due to its improved efficacy and prevention claim. Conjoint analysis evaluating the $2. 95, $3. 29 and $3. 95 pricing should be performed prior to launch. 6- Conclusion In addition to all considerations in the recommendations section of this report, it’s important to emphasize that â€Å"the race† to be first in H2-receptor antagonists market doesn’t end with the FDA approval. The next phase, the product launch, is of equal importance. JJM will need to orchestrate a sequence of activities to make sure they are the first to hit the market with Pepcid AC. Ramping up production and shipments to distribution centers and retailers is a massive effort. In JJM’s factories, all necessary resources and materials will need to be available for the first batches of Pepcid AC to be produced. Logistics will need to be in-line to move the drug from the factories through the supply chain and fill the drugstores shelves ahead of any possible competitor. Additionally, a national advertising campaign will need to be standing by to go on-air immediately after FDA approval. Creating public awareness and having customers actually trying out the new product when it arrives will be key to obtaining leadership in this market. For that, JJM will also need to train and incentivize the pharmacists. Prior to the switch, Pepcid is still a prescription only drug, and as such, education and incentives goes towards doctors’ offices and hospitals. With the switch, pharmacists will be the first line of contact with the new customers; they will need to receive all necessary information to be able to explain to customers the advantages of OTC H2-receptor antagonist compared to traditional antacids on the market. Following the initial campaign, JJM will need to adjust the advertising strategy to focus on adoption and retention. According to the studies conducted by JJM, the fight for market share will be concentrated mainly in the first year after FDA approval. Therefore, marketing campaigns during this period will need to be massive.