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SMITHKLINE BUILDING BRIDGES TO OVERSEAS MARKETS FOR OTC CIMETIDINE: WELLCOME CO-MARKETING AGREEMENT IN U.K., DISCUSSIONS IN JAPAN REPORTED TO ANALYSTS

Executive Summary

SmithKline's first publicly announced step toward OTC marketing of cimetidine is a recent joint development and marketing agreement with Wellcome PLC covering the U.K. market. "An important step forward was taken a few weeks ago with a preliminary agreement with Wellcome PLC for the joint development, registration and marketing of OTC cimetidine in the U.K.," SmithKline Beckman President and CEO Henry Wendt announced at the company's biennial analysts meeting in Philadelphia on Dec. 16. Calling OTC cimetidine a "high priority" item for SmithKline, Wendt said that the U.K. arrangement "complements ongoing work toward and OTC cimetidine in the U.S." The preliminary agreement was reached Oct. 27. In addition to the Wellcome agreement, Wendt said that SmithKline has "similar discussions underway" for an OTC cimetidine product with an undisclosed Japanese firm in that market. Ironically, the SmithKline/Wellcome agreement for OTC cimetidine has some similarities to Glaxo's co-marketing agreement with Roche in the U.S. covering Rx ranitidine (Zantac). Glaxo, a major European drug company looking for increased U.S. market penetration with Zantac, turned to Roche with its large and established Rx marketing arm in the U.S. With Wellcome, SmithKline is setting up a collaboration with an experienced OTC marketer in the U.K. that will give SmithKline the critical mass it needs for a major product launch as the company learns the U.K. OTC business. Although SmithKline is one of the largest Rx drug companies in the U.K., the company has virtually no consumer products business outside of the U.S. In Wellcome's prospectus covering its initial public offering last year, the company indicated a strong interest in expanding its OTC business. Wellcome explained that it liked the OTC area because it "reduces [the company's] vulnerability to generic substitution, parallel imports [a significant problem in Europe], and the attitude of regulatory bodies and major customers to the prescribability and pricing of products." In the U.K., Wellcome's major OTC brands are the analgesic Calpol and Actifed, recently moved from Rx. When asked by an analyst, Wendt declined to give a time frame for the development of OTC cimetidine. However, he noted that the company "is treating this as a new product and is therefore facing the regulatory barrier as a new product -- as an NDA product in the U.S. for example." A logical target date for U.S. introduction of OTC cimetidine would be near the time the cimetidine patent expires in 1994. Wendt added that the dose for OTC cimetidine "will be determined by clinical work that's now underway" and that the indication "will be similar to the antacid monograph." The company did not comment on the formulation for an OTC, but a change from the Rx tabs and liquid would be logical for convenience and differentiation. The company markets an Rx effervescent formulation in Europe. The Rx product Tagamet is currently moving over the $1 bil. mark in annual sales worldwide, SmithKline Chief Operating Officer George Ebright pointed out to analysts. Tagamet had worldwide sales of $932 mil. in 1985. The company reported that in several major markets, including the U.S., Tagamet in 1986 has begun to turn the tide on Zantac marketshare growth. In Japan this year, "we were able to increase our sales in the second six months at a rate that exceeded the first six months," Ebright said. "In 1986, we will increase sales [in the U.K] by 15-17% -- all of that without benefit of any price increase." In the top 15 markets outside the U.S., Tagamet unit sales in terms of daily doses over the 12 months ended Oct. 31 were up 1%, SK&F Labs-International President John Chappell stated. "And in the third quarter of 1986," he added, "daily doses were up 2%." Chappell credited new indications and dosage forms, including the French effervescent form, for Tagamet's growth overseas. U.S. unit volume, based on daily doses in order to take into account the impact of the 800 mg h.s. dosage form launched last spring, grew "about 1-2%" in the last quarter, SK&F Labs-U.S. President James Cavanaugh reported. Acknowledging that Tagamet total Rx data, as compiled by PDS, has steadily declined since April 1983 and shows a decline of 1% through nine months of 1986, Cavanaugh said that the declines in unit share have "relatively stabilized." Cavanaugh explained that "when you take that data and run it through our model where we looked at the relative impact of 300 mg q.i.d. versus our [400 mg] b.i.d. Rx and then our new 800 mg data and looked at the relative cost per patient day in looking at days of therapy, we have determined that, in fact, there is now about a 1-2% growth in units over the last quarter." SK&F-U.S. VP-Marketing Roger Ross pointed out that the initial Rx for Tagamet 300 mg q.i.d. had generally run about 23 days of therapy while the average 800 mg Rx is "closer to 30 days." Tagamet dollar sales in the U.S. will grow 13.5% to approximately $590 mil. in 1986, Cavanaugh predicted. Tagamet's estimated share of the H[2] antagonist market will be about 53% in dollar terms and 58% in Rxs in 1986. The company highlighted the 800 mg h.s. dosage introduction and its impact in reviving Tagamet sales in the U.S. "The early update of the dosage form has been dramatically encouraging -- more rapid than the b.i.d. introduction of Tagamet in 1984," Ross said. "According to our latest figures, 9% of new H[2] receptor antagonist Rxs is now over 50% despite the fact that Zantac came to market several months before we did." He noted that the 800 mg dose "is the core" of SmithKline's promotional strategy for Tagamet in the coming year and predicted that nocturnal dosage form Rxs will eventually represent half of the H[2] antagonist market. "In the hospital marketplace," Ross added, "we've maintained dollar share in the face of extremely aggressive Zantac competition and pricing competition as well." Commenting on the potential impact of Merck's Pepcid introduction on the H[2] market, Ross said: "In the final analysis, our assessment is that Merck's promotional efforts will no doubt cut into both Zantac and Tagamet's potential. However, he said that based on Merck's early promotional efforts, SmithKline expects the path that [Merck has] chosen . . . will expand the market somewhat for all the products in this category." Cavanaugh predicted that despite the appearance of Pepcid and the pending approval of Lilly's Axid (nizatidine), Tagamet will have "some unit growth" in 1987. He noted that SK&F management has built its Tagamet growth expections into the U.S. division's operating budget for 1987. "There will be some give up [to Pepcid and Axid], but we'd like to think that we're going to get some of those Rxs Glaxo's been getting the past couple of years," Cavanaugh said. "Also, I do think we'll see some market growth." Asked how Pepcid pricing might affect Tagamet's pricing flexibility, Cavanaugh noted that "Merck has come in about parallel to us . . . The bottom line is that we will not be able to use pricing of Tagamet as aggressively as we have in the past but pricing is still in our plans." In addition to the OTC form, SmithKline is working on at least three other new indications for cimetidine: concomitant use with nonsteroidal anti-inflammatory agents; treatment and prophylaxis of stress ulcer; and the treatment of dyspepsia. The company noted that Tagamet already has the dyspepsia claim in the U.K.
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