Pepcid Case Analysis
1. Why does Merck want to switch Pepcid to OTC status when the patent is good for another six years? How attractive is this opportunity?
Over-the-counter market growth is attractive to pharmaceutical companies like P&G who successfully changed Aleve from prescription strength to OTC. Once the patent for Pepcid expires in six years there will inevitably be fierce competition. Since the FDA usually takes so long to process an approval for a prescription-to-OTC switch, JJM can go through the process while they still have patent protection for Pepcid and get a stronghold on the market. Also, Pepcid is a treatment for a common chronic problem that is relatively easy to self-diagnose and treat. An OTC Pepcid would be available to a larger group of consumers. Pepcid as a prescription drug has already gained its market as a brand name drug, and now they can capitalize in the OTC market. The OTC market seems to be calling for Pepcid. It had a strong performance in the OTC market compared to other antacids, and it has attractive qualities like long-lasting relief and convenience. Pepcid AC can produce considerable gross margin over the counter – around 60% at $2.95. Antacid users intend to buy Pepcid AC – 82% for heavy antacid users and 76% for other antacid users – and dual users also have a high trial rate. The OTC market appears to be very attractive for Pepcid AC.
2. How will sales of OTC Pepcid affect sales of the prescription version? How will cannibalization affect sales of JJM's Mylanta antacid?
Usually when a drug makes the switch to OTC, the prescription product suffers. About 30% of surveyed consumers intend to replace their prescription product with Pepcid AC, and between 28%-34% would use it as a substitute for nonprescription antacids. The OTC Pepcid AC would, therefore, cannibalize both prescription sales of Pepcid and the OTC sales of Mylanta. However, BASES II estimated that, in the first year, sales of...
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