Pepcid Ac: Racing to the Otc Market

Johnson & Johnson/Merck Consumer Pharmaceuticals Co. (JJM) was faced with a major strategic decision. There was a major rush to the over-the-counter (OTC) medication market. JJM developed a lower dose version of its prescription Pepcid traditionally used to treat ulcers and gastroesophageal reflux disease (GERD). The lower-dose version, Pepcid AC, was the third OTC medication developed. SmithKline was the first to the market with Tagamet in 1977 and Glaxo followed six years later with Zantac. Three years later, in 1986, Merck developed Pepcid and Eli-Lilly came out with Axid. These four drugs accounted for 95% of the prescription market for ulcer medications.

The strategic decision JJM was placed in was due to a decision made by the advisors to the FDA. All drugs had to go through an extensive review process with the FDA (approximately 8 years for the initial drug, however, a bit shorter when moving the established drug to OTC). JJM initially developed their strategy with rolling out Pepcid AC to the FDA as a "preventative" drug as well as for "treatment," accepting that Tagamet would likely be the first entrant. SmithKline Beecham's discussions with the FDA began in 1985 well before JJM, however, they presented their product as only for treatment purposes. As a result, Pepcid AC attempted to capitalize on that and tried to gain entry as the second-mover and requesting approval as a preventative medication as well.

However, both SmithKline and JJM were directed to go back to the market and conduct more research by the FDA advisors within one year of each other. Now, Pepcid AC had to determine if it wanted to capitalize on being the first entrant. In order to do so, JJM would have to eliminate its "preventative" campaign as this was unprecedented and would require a substantial amount of capital to research, knowing that the FDA typically does not like preventative medications because they could potentially mask other, serious symptoms.

After conducting a number of additional studies, including consumer usage behavior, concept testing (Bases I and II analysis), focus groups, and researching the roles of physicians and pharmacists, JJM concluded that while the treatment concept outperformed prevention in the BASES analyses, the results in the remaining studies favored both prevention and treatment. Additionally, JJM took the position that prevention could provide new benefits and opportunities for new usage occasions that would in turn drive growth.

Consequently, based on the research conducted, I believe that if JJM eliminated the prevention concept and achieved the first-mover advantage, that advantage would quickly dwindle as the rest of the products were approved, entered the market, patent protection expired and generic products increased (ex. Glaxo quickly pushed SmithKline aside with a more convenient dosage despite a higher price). JJM could continue to maintain its