a) Why does JJM want to switch Pepcid to OTC when the patent is good for another six years? What would be the optimal time to switch and factors that affect this decision? Would it be the same for all competitors?

Firstly, the OTC (over-the-counter) market growth is a huge attraction to pharmaceutical companies, great potential profit can be expected from OTC market. Fierce competition is not avoidable after the patent expires, which may drive down the profit margin. However, some examples, such as Listerine, indicated that OTC product can maintain in the market for a much longer time, because consumers have the tendency to self-diagnose their common ailments, and obtain a drug without prescription. Secondly, Pepcid is a safe drug, and its indication is a common chronic problem in public that is relatively easy to self-diagnose and self-treat. By making such a drug an OTC product, the company can gain access to a larger consumer base and thus gain more profit. Pepcid as a prescription drug has already gained its market as a brand name drug. This creates a demand for the general public for OTC version of Pepcid. Additionally, usually FDA takes several years to process the approval of a prescription-to-OTC switch. Before the patent expires, JJM can take the advantage of patent protection and enter the OTC without competition and thus occupy a larger consumer market earlier.

Factors include indication, drug safety, and brand awareness. The indication has to be a common and relatively less severe condition that many patients tend to self-diagnose and self-treat, to ensure the primary demand from the OTC market. There has to be sufficient data to show that the drug does not have serious safety issues even if not closely monitored by a physician. A company should also consider the brand awareness. JJM should allow sufficient time for the drug to be accepted as a prescription drug, and to maximize the time of patent protection while the drug is on OTC market.

However, brand name awareness may not be so crucial to determine the optimal time of prescription-to-OTC switch for different companies. For example, if a company has a reputation of producing quality medicine, the company’s reputation helps bring up the specific product’s reputation.

b) How will sales of Pepcid OTC affect the prescription version sales? How will cannibalization affect the sales of JJM’s Mylanta antacid?

Usually when a drug goes to the counter, the price of the prescription product would be driven down. According to the survey, about 30% of users intended to replace their prescription product with Pepcid AC, and 28%-34% would use it as a substitute for nonprescription antacids. Therefore, the OTC Pepcid AC would cannibalize both prescription sales of Merck’s Pepcid and the OTC sales of Mylanta antacid. Surprisingly, BASES II estimated that, in the first-year predication of the market, sales of Pepcid AC drawing from Mylanta only accounts for 11% of Pepcid AC’s dollar volume, and Pepcid AC drawing from prescription Pepcid only accounts for 8% (see Appendix A Figure 1). The effect of cannibalization is not significant, so the prescription Pepcid and Mylanta antacid still can keep their decent position in the market. However, as Pepcid AC has better performance in long-lasting relief and convenience than antacid in the OTC market, Pepcid AC can be expected to cannibalize JJM’s Mylanta antacid rapidly in the next a few years.

c) What are the relative merits of positioning Pepcid as a “treatment” as opposed to“prevention” for heartburn/indigestion? How is this viewed by the FDA, the consumer and JJM? How important is positioning in this market?

(Combined the answers of the first two questions)
Firstly, FDA has serious consideration about prevention studies. FDA mostly considers education as the means to prevention rather than medication, and does not have precedent case for prevention claims. From the perspective of medication, over-medication in pursuit of prevention might mask serious medical problems. To claim “treatment” only is likely to get the approval from FDA easier and faster. If JJM wants to enter the market early, dropping the “prevention” claim can reduce the risk of FDA’s disapproval and speed up the Pepcid OTC’s entry. Secondly, according to the BASES I’s test results, consumers tend to be more appealed by long-lasting relief than by prevention of digestive symptoms. OTC users, composed of the primary market, are mostly interested in the “treatment” concept, not “prevention” concept. Besides, the attribute of “prevention” is difficult to communicate to ordinary antacid users. Only prescription users expressed higher interest in “prevention” concept than “treatment” concept (64% versus 49%), whereas, prescription market is smaller than OTC market. Accordingly, based upon BASES I, the sales promotion on “treatment” could yield the best return on investment. Therefore, positioning Pepcid AC as “treatment” is relatively a better solution than as “prevention”. JJM regarded “prevention” as a differentiator which can target more consumers, who need special prevention care. As the first OTC market entrant, Pepcid AC probably would bring considerable profit with this unique attribute, whereas, in order to increase the chance of being the first entrant, JJM also considered dropping “prevention” claim.

Positioning is so important that it determines the marketing strategy and FDA’s approval procedure. If JJM cannot get FDA’s approval on both “treatment” and “prevention” claims, JJM would lose the best timing for Pepcid AC OTC sales. If the two claims’ return on investment is lower than one claim (treatment), JJM should consider “treatment” claim only.

d) How attractive is this market opportunity?

The OTC market, a primary market for most pharmaceutical companies, is growing dramatically. Pepcid can produce considerable gross margin (60% gross margin at the price of $2.95) over the counter. For example, heavy antacid users and antacid users have high intention to buy Pepcid AC, 82% and 76% respectively, and dual users had a high trial rate (29%). Compared with traditional antacid, Pepcid AC has a better performance in the OTC market. Because Pepcid AC has some unique attributes, such as long-lasting relief and convenience. Therefore, the OTC market has great potential for JJM to promote Pepcid AC. Appendix A Figures/Charts

Figure 1. Predicted Pepcid AC Cannibalization of Competing Brands

Figure 2 Appendix B

Reference

Klein, L. (2003). Pepcid AC: Racing to the OTC market. In M Mantrala (Ed.), Marketing 8050 (pp. 205-220). Columbia, MO: University Bookstore.