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Executive Summary

Zantac (ranitidine) is maintaining a 51.6% dollar share in the U.S. mail-order market for anti-ulcer products and a commanding 2- 1/2 to 1 lead over second-place Tagamet (cimetidine) in the submarket, according to figures provided to securities analysts by Glaxo at a Nov. 10 meeting in New York. Estimating the mail-order anti-ulcer market at $358 mil., Glaxo claims its average monthly share through August was holding above half the total market. SmithKline Beecham's Tagamet (cimetidine) had a 20.1% monthly average share for the twelve months through August. Two Merck entries were third and fourth: Pepcid (famotidine) at 10.3% and Prilosec (omeprazole) at 7.9%. Combined, Merck's dollar position in the mail-order submarket was about two points behind SmithKline Beecham. Glaxo bases its market analysis on data from IMS. Glaxo is highlighting the performance of Zantac in the mail- order market to put into perspective the effect of Medco Cost Containment's preferred product program on the leading H[2] antagonist. Medco is understood to have selected Tagamet as its Prescriber's Choice product in the anti-ulcer class. Despite "programs that have tried to move market share away from Zantac in the mail order area," Glaxo VP-Managed Care Stephen Stefano told the analysts, "we have been able to maintain our market share." Stefano acknowledged that Zantac's mail-order market share has slipped in 1992 compared to the year before (when it was about 2 percentage points higher at 54%). He maintained that the share losses are attributable to the entry of newer agents, specifically mentioning Lilly's Axid (nizantidine) and Prilosec. Zantac's mail-order performance continues to be "above our market share" in the full anti-ulcer market, Stefano said. Glaxo's share of the full anti-ulcer market in August was just over 50%. "The point is that we continue to grow Zantac on the mail order side despite some control mechanisms which have been put into place," Stefano declared. Medco attempts to move the market to its chosen product by having its pharmacists contact prescribers and urge them to change prescriptions for other products to the Prescriber's Choice product. Medco purchases the selected product at a discounted rate in return for the potential of market share gains for the manufacturer. Medco has reported that the Prescriber's Choice project could represent as much as 20% of its mail-order drug revenue by the end of this year ("The Pink Sheet" May 11, p. 7). Stefano did not report on Zantac's specific share of the Medco anti-ulcer business but he inferred from the overall market share calculations that Glaxo has not been losing much ground due to the Prescriber's Choice plan. Noting Medco's dominance of the for- profit mail-order market, Stefano said: "You wouldn't be able to have a significantly lower market share with Medco and still maintain a 51% [total mail-order market share], unless [Glaxo's share of Medco's business] was up around 51%." Glaxo described the performance of its franchise product in the mail-order market in the context of the company's activities in the managed care market. The managed care business is becoming a significant part of Glaxo's total U.S. business. About 23% of Glaxo's total U.S. sales come from programs with some form of managed care controls over pharmaceutical use. Glaxo's major outpatient drugs are performing well in the managed care environment, Stefano reported. He claimed that the company's managed care performance is surpassing the rest of its business in terms of market share. Citing 1991 estimates by a New Jersey market research firm (Emron), Stefano told the analysts that Zantac held a 51.6% share of the $307 mil. anti-ulcer market among HMOs, slightly above the company's 50% share in the general market. Similarly, the oral antibiotic Ceftin (cefuroxime axetil) holds a 19.4% market share in the staff model HMO submarket for oral antibiotics. In the general antibiotic market, the Glaxo product holds roughly a 15% share, Stefano reported. The size of the staff model HMO submarket is relatively small ($25 mil. total for oral antibiotics, excluding Kaiser Permanente). Glaxo considers the market a good indicator of managed care performance because staff model HMOs tend to have the most restrictive prescribing/dispensing policies in the managed care business. The leading product in the oral antibiotic submarket, according to the Glaxo figures, is the Miles quinolone Cipro (ciprofloxin) with a 39% share. In two asthma markets, Glaxo's managed care business is similarly outperforming the company in the general market. Beconase (beclomethasone) holds 55.4% of the $12 mil. staff model HMO market for nasal inhalants. Beconase is under 40% in the full market. Ventolin holds about 50% of the $25 mil. inhaled bronchodilator market with staff model HMOs. In the general market, Ventolin's share is 15 points lower at 35%. Glaxo claims to be holding those strong HMO positions without offering major discounts. Pressed by analysts for information on discounting to the managed care market, Stefano maintained that "there is a misperception that there are incredibly deep discounts in managed care." He said that discounting is a lot "shallower than you might expect." Stefano debunked estimates of discounting of 50% in some competitive managed care markets. "I am suggesting that that is not the case," the Glaxo exec said. He maintained that buying market share through discount contracts is not part of Glaxo's strategic plan. "One of our strategies in managed care," Stefano explained, is to "never seek exclusivity for a product in a particular therapeutic class to try to get a particular market share." Glaxo will not contract for a specific percentage of a market; "our strategy is rather for inclusivity," Stefano said. Glaxo's image as a steep discounter is partially based on its large Medicaid rebate payments, which reached about $130 mil. in the twelve-months ended June 30 ("The Pink Sheet" Sept. 14, p. 8). Those rebates have been based on the difference between the average manufacturer's price for each product sold to Medicaid and the company's best price in the non-Medicaid market for those products. Stefano noted that the most restrictive pharmaceutical market is the hospital market. Stefano was asked to predict the effect of a generic version of cimetidine on Zantac's managed care business at mid-decade. Glaxo is defending a patent on Zantac that would take that product's exclusive marketing period through the year 2002 in the U.S. The Tagamet patent expires in May 1994. Stefano said that in other classes where generic versions of similar products compete against branded single-source products with a perceived advantage, the single-source products have continued to do well. "Zantac has always sold at a premium to cimetidine," Stefano observed. "It has been marketed, sold and accepted because of its superiority -- its superior safety and efficacy profile." Stefano noted that Glaxo has set up a special group of its Managed Health Care Department to begin contacting health benefit officers at large corporations to discuss pharmaceutical benefit programs. Calling the effort an "emerging markets program," Glaxo claims to be the first firm with a "defined mission" to establish relationships with that group. Stefano noted that the firm is trying to do the spadework with benefit managers about the potential overall health savings from Imitrex (sumatriptan), the company's pending migraine treatment. However, he also pointed out that the benefit managers are receptive to arguments about potential liability from product switching and therapeutic substitution. "There is still some concern among big corporations" about liability "if they implement a drug formulary -- especially if they have deep pockets -- and a patient has an adverse effect because they had a monetary inducement to take a different drug," Stefano commented. Focus groups run by Glaxo's emerging markets group indicate that employee benefit officers are concerned about product switching in the outpatient market.

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