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.
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,...