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Executive Summary

Marion Merrell Dow is talking to "selected major pharmaceutical and consumer products companies" about "cooperative effort[s] or corporate arrangement[s]" for the OTC marketing of the nonsedating antihistamine, Seldane (terfenadine). MMD disclosed the ongoing negotiations for a Seldane OTC partner in a recent registration statement with the Securities & Exchange Commission for the sale of 16 mil. shares of common stock. MMD characterizes the discussions as being "in comparatively early stages." While the SEC statement is typically cautious in its description of the process, MMD may in fact be close to making a decision on a partner. MMD President Fred Lyons has predicted that a decision on a Seldane partner could be announced before mid-year. MMD is expediting its review of potential partners in view of the relatively short time until the loss of Seldane exclusivity. The patent for terfenadine expires in April 1994. Lyons explained to a recent MMD meeting with wholesalers that the company is taking a careful look at partners with more experience in the OTC market. MMD is "not in the OTC business with a strong position at this stage," he acknowledged. The company had U.S. OTC sales of $111 mil. in 1991. Lyons noted that MMD may opt to build its own OTC "infrastructure" to market the product by itself. However, he pointed out that if MMD undertakes to increase the OTC effort before the launch of OTC terfenadine, that effort will create a drain on current operations. If MMD waits until the time of approval to scale-up, it could retard the first years of growth of the new product. Each of the home-grown options has major drawbacks. With the pending patent expiration on Cardizem and Cardizem SR, MMD can ill-afford other major drains on current results. Seldane could be such a substantial OTC product that slowly rolling it out could be counterproductive. When Seldane switches to OTC, Lyons maintained, it is likely to quickly become the "largest product in the OTC marketplace in the U.S." Seldane sales in the U.S. alone last year were $496 mil. Worldwide, the full-line of Seldane products (including the decongestant combo) generated sales of $768 mil. One logical choice as an OTC partner for terfenadine is Schering-Plough. Schering and MMD already have experience working together on an Rx-to-OTC switch. The two companies are into the fourth year of a long-term codevelopment and marketing agreement for Carafate (sucralfate). The Schering-MMD agreement was initiated in mid-1988 with an original goal to have an OTC sucralfate on the market by 1991. MMD notes in the recent registration statement that the "proposed OTC Carafate formulations are scheduled to begin Phase III trials" this year. The new studies should earn the product exclusivity under the Waxman-Hatch. Schering's experience in the OTC cough/cold/allergy class also could be a plus, but at the same time, Schering's continued effort to clear a non-sedating antihistamine (Claritin) of its own might complicate its role as a potential partner. The regulatory outlook for the Seldane switch may have brightened during the last two years. FDA's recent favorable response to the Sandoz effort to switch Tavist-1 and Tavist-D may indicate that the agency is becoming more amenable to switches in the cough/cold/allergy area after several years of reticence ("The Pink Sheet" March 30, p. 4). After a delay in 1990 and 1991 occasioned by FDA's concern over a rare cardiovascular side-effect (torsade de pointes) associated with terfenadine's prescription use, MMD is nearing an NDA filing for OTC use of the 60 mg antihistamine. The company was hoping to file the NDA before the end of the first quarter of 1992 ("The Pink Sheet" Dec. 9, 1991, p. 13). The filing goal has been moved up to the current second quarter. Unlike the Carafate project, which has been described as a collaborative development effort, MMD is clearly taking the lead in the regulatory work on terfenadine. MMD has a new successful combo introduction to help cushion the transition period for Seldane. Seldane-D, introduced in mid- August 1991, generated $66 mil. in the six-and-a-half months from introduction through February. MMD points out that the combo product is helping to smooth out the trough periods for Seldane in terms of new prescriptions in the slow allergy months. MMD may also have an extended exclusive marketing life for Seldane-D based on some recent formulation filings. Like several of the companies introducing major products in the last few years, MMD appears to be hoping for a full 17 years of exclusivity for Seldane-D. MMD owns two patents on Seldane-D's formulation, which expire in 2007 and 2008. The company received one formulation patent (#4,996,061) on Feb. 26, 1991 for the "pharmaceutical compositions for piperidinoalkanol-decongestant combination." In the long-term, MMD is seeking to maintain its allergy business franchise through its investment in the epitope research firm Immulogic. MMD put $25 mil. into the firm in November through an initial research payment of $7 mil. and an equity investment of $18 mil. ("The Pink Sheet" Nov. 25, 1991, T&G-5). Lyons explained the rationale for the Immulogic investment to the wholesalers, predicting that the Immulogic line of products called Allervax could eventually be as large commercially as Seldane. "Just to give you some perspective," Lyons said, "we think that this line of products will rival Seldane in terms of volume when they get onto the market place." He noted that the products are currently in the early stages of research. The first product in the Allervax line, Catvax for allergies to cats, is scheduled to enter clinicals during the first half of this year. The March 18 preliminary prospectus registers 16 mil. shares controlled by Marion Labs founder Ewing Kauffman. The offering should raise about $550 mil. for charitable trusts controlled by Kauffman; the company will not receive any proceeds from the sale. The Kauffman trust will continue to control at least 1 mil. shares after the offering. Merrill Lynch, Goldman Sachs and Lehman Brothers are the underwriters.

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