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J&J-MERCK PEPCID SWITCH BY EARLY 1994: MORE OFF PATENT PRODUCTS TO FOLLOW; J&J SAYS P&G’s NAPROXEN SWITCH WILL "HIT" ASPIRIN, IBUPROFEN, NOT TYLENOL

Executive Summary

J&J-Merck's Rx-to-OTC switch for famotidine (Pepcid) remains on schedule to take place in late 1993 or early 1994, according to J&J public comments. While the traditionally close-mouthed J&J consumer products business does not make projections on upcoming products, Consumer Sector Chairman Peter Larson cited the one-year target introduction of OTC famotidine at an Oct. 20 session with securities analysts in NYC. Asked to comment on the potential for switches for famotidine and tretinoin (Retin-A/Renova), Larson noted that "the chairman of Merck has said that he expects Pepcid to go over sometime in late 1993 or early 1994." He added: "We think that is a very realistic view of that situation." Larson did not comment directly on tretinoin, but he pointed out that the famotidine switch "clearly...would signal other products that are in the pipeline that are going off patent with the same kind of dynamics." Patents on the three cream dosages of Retin-A (.1%, .05% and .025%) expired on Sept. 16, according to FDA. Two gel dosages (.01% and .025%) have patents through Jan. 27, 1998. J&J is seeking a separate NDA for .5% emollient cream to treat photodamage; the studies to support that application should lead to exclusivity for that use ("The Pink Sheet," April 13, p. 3). The H[2] antagonist joint venture project is in a tight development race against SmithKline Beecham and Glaxo to produce the first switch product from that class for the U.S. SmithKline Beecham told analysts at the beginning of this year that it hopes to have its first cimetidine OTC product in Europe in 1993, with the U.S. product to follow one year later ("The Pink Sheet" Jan. 13, p. 3). Switch products and the joint venture with Merck are important to the future of J&J's consumer business. Larson noted that two recent switches, Monistat-7 and Imodium-AD, "are widening their share leads over the number 2 products and effectively fighting some intense price competition." The first major J&J-Merck product, Mylanta "is gaining market share with improved flavors and the first swallowable tablet and is closing rapidly to within a couple of share points of the market leader," Larson reported. OTC drugs are now accounting for 50% of J&J's domestic consumer products business. Through nine months, that would indicate OTC sales of roughly $950 mil. The full domestic consumer products buisness was up 4.7% through nine months to $1.98 bil. The profitability of the consumer products business is being aided by a nascent turnaround by the sanitary products sector. Larson noted that the profitability of that business is "now turning positive" and should "be soundly positive in 1993." Part of the reason for that prediction is a recently announced price increase on J&J's sanitary protection line of about 9% (effective Jan. 18). The recent price increases bring the sanitary products up to a pricing level adequate for 1983, Larson maintained. He noted that leaves J&J another decade to make up in future increases. The price increases have been made possible by market share gains, he told analysts. The potential switch of naproxen by P&G does not worry J&J, Larson declared. J&J's Tylenol franchise will not be the probable first target for an OTC naproxen, he contended. J&J is "prepared for it when and if it happens. I think we have a very good defensive plan," Larson said. Naproxen is "not really per se pointed at us as much as it is pointed at the aspirin and the ibuprofen segments -- particularly in the case of aspirin where they are seeing some weakness in the marketplace." He predicted that the aspirin and ibuprofen segments "will take the bulk of the hit." Asked about the general characteristics of the OTC drug market, Larson said: "Our sense is that growth rates are going to stay at relatively low levels, absent the introduction of switch products into a particular sector." he indicated that the trade inventory reductions may be nearing an end.

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