`
`Studies in Income and Wealth
`
`Volume 58
`
`National Bureau of Economic Research
`
`”BREW MATHEWWED. —
`pawn-mama", W/O l’ERMISSIBR, IS PRBHEEE’E; ‘
`
`
`The Economics of
`
`New Goods
`
`Edited by
`
`Timothy F. Bresnahan and
`Robert J. Gordon
`
`
`
`
`
`
`
`IMMUNOGEN 2277, pg. 1
`Phigenix v. Immunogen
`IPR2014-00676
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`

`

`——H——_w—_m_—_H_w—_—_w_
`
`
`
`TIMOTHY F. BRESNAHAN is professor of economics at Stanford University
`and a research associate of the National Bureau of Economic Research.
`ROBERT J. Gonoon is the Stanley (3. Harris Professor in the Social
`Sciences at Northwestern University and a research associate of the
`National Bureau of Economic Research.
`
`The University of Chicago Press. Chicago 60637
`The University of Chicago Press, Ltd., London
`© 1997 by the National Bureau of Economic Research
`All rights reserved. Published 1997
`Printed in the United States of America
`06050403020100999897 12345
`[SB N: 0-226-07415-3 (cloth)
`
`Copyright is not claimed for “Comment” on chap. 2 by Jack E. Triptett'.
`chap. 9 by Paul A. Armknecht, Walter F. Lane. and Kenneth]. Stewart;
`and chap. 10 by Marshall B. Reinsdorf and Brent R. Moulton.
`
`Library of Congress Cataloging—in-Publication Data
`
`The economics of new goods I edited by Timothy F. Bresnahan and
`Robert J. Gordon.
`
`cm.—(Studies in income and wealth : v. 58)
`p.
`Includes bibliographical references and index.
`ISBN 0-226-07415-3 (cloth : alk. paper)
`1. Consumer price indexes—Congresses. 2. New products—Com
`grosses. I. Bresnahan, Timothy F. II. Gordon, Robert J. (Robert James),
`1940—
`. 111. Series.
`HB225.E3 199':l
`
`338.85’28—dc20
`
`96-27822
`CIP
`
`The paper used in this publication meets the minimum requirements of
`the American National Standard for Information Sciences—Permanence
`
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`IMMUNOGEN 2277, pg. 2
`Phigenix v. Immunogen
`IPR2014-00676
`
`

`

`
`
` 7
`
`The ROles of Marketing, Product
`Quality, and Price Competition.
`'
`in the Growth and Composition
`of the U.S. Antiulcer
`
`Drug Industry
`
`Ernst R. Bemdt, Linda T. Bui, David H. Lucking-Reiley.
`and Glen L. Urban
`
`7.1
`
`Introduction
`
`
`
`
`'
`
`
`The introduction of Tagamet into the U.S. market in 1977 marked the be
`11ng of a revolutionary treatment for ulcers and the emergence of a new indus
`
`try. What distinguished the products of this new industry was their ability
`
`heal ulcers and treat preulcer conditions pharmacologically on an outp
`basis thereby substituting for traditional, and costly, hospital admissions at;
`
`surgeries. Tagarnet known medically as an H-receptor antagonist promo
`the healing of ulcers by reducing the secretion of acid by the stomach.
`
`A striking feature of the antiulcer marketIS that it has sustained growth
`sales (quantity, not just revenue) for over fifteen years and still shows nosi
`of slowing New prescribing habits have clearly diffused to an ever incre}
`
`number of physicians. Today there are a total of four Hz-receptor antago s
`Tagamet, Zantac, Pepcid, and Axid. Zantac is now the United States’ (an
`world’s) largest-selling prescription drug, having estimated worldwide _'s
`in 1992 of about $3.5 billion. Moreover, Tagamet is also among the tent is?
`selling prescription drugs in the United States.‘
`
`
`
`
`
`
`
`
`Emst R. Berndt is professor of applied economics at the Sloan School of Management-at-
`Massachusetts Institute of Technology. Linda T. Bui is assistant professor of economics at'Boii
`
`University. David H. Lucking-Reiley is assistant professor of economics at Vanderbilt Univ
`
`Glen L. Urban is professor of marketing and dean of the Sloan School of Manageme'
`
`Massachusetts Institute of Technology.
`
`Financial support from the Alfred P. Sloan Foundation is gratefiilly acknowledgei- as
`data support of Stephen C. Chappell. Nancy Duckwitz. and Richard Fehring at IMS Internati
`
`and Joan Curran, Marjorie DonneLly. Phyllis Rausch, Ditas Riad, Paul Snyderrnan, and la
`
`_
`‘
`lowe at Merck & Co. The authors have also benefited from the research assistance ofA 1
`Amit Alon. Ittai Hare! Michele Lombardi, and Bonnie Scouler. and from discussions with '-
`
`Bresnahan, Stan Finkelstein M.1)., Valerie Suslow, and Stephen Wright, M.D
`
`Robert C. Feenstra and Clinton R. Shiells
`
`(2) if price is mismeasured, so is the dependent variable, but then their formula
`for the coefficient becomes ( B + l)(o — 1 ), and the implied o = 1.2 is even
`less credible.
`
`‘Aging of lines”: Once popular restaurants lose customers over time. We
`could bring in new ones and make an adjustment for their superiority. But then,
`some time later, the chefs are hired away and the old restaurants regain their
`share. Will we come back to the same level? How?
`
`A major finding is that if one allows for the changing mix of impon goods
`this leads to lower estimates of their income elasticity. That makes sense, but
`how low “should” the import income elasticity be? Can one really explain
`rising world trade just by the reduction in transport costs and the rising quality
`of traded goods? I find the notion that traded goods have higher income elastic—
`ities quite plausible. The explicit “bias" adjustment to the price index that fol—
`lows is, however, more problematic. But the advice to collect more data is
`surely right!
`
`References
`
`Berry, S. T. 1994 Estimating discrete-choice models of product differentiation. Rand
`Journal ofEconomics 25, no. 2 (summer): 242—62
`Griliches Zvi, and Iain Cockburn. 1994 Generics and new goods in pharmaceutical
`price indexes. American Economic Review 84(5):1213—32.
`Hanoch, Giora. 1971. CRESI-l production functions. Econometrica 39 (5): 695—712
`Trajtenberg, Manuel.
`1990. Product
`innovation, price indices and the (mis-)
`measurement of economic performance. NBER Working Paper no. 3261. Cam-
`bridge Mass; National Bureau of Economic Research.
`
`
`
`IMMUNOGEN 2277, pg. 3
`Phigenix v. Immunogen
`IPR2014-00676
`
`

`

`E. R. Berndt, L. T. Bui, D. H. Lacking-Reiley, and G. L. Urban
`
`279
`
`The US. Antiulcer Drug Industry
`
`In this paper we attempt to explain the growth and changing composition of
`the antiulcer drug market. Although we examine the impacts of pricing and
`product quality, we devote particular attention to the role of firms’ marketing
`efforts. We distinguish between two types of marketing: (1 ) that which concen-
`trates on bringing new consumers into the market (“industry-expanding” ad-
`vertising), and (2) that which concentrates on competing for market shares
`from these consumers (“rivalrous” advertising). Note that of these two types.
`market’expanding advertising has particular economic importance in a new
`market, because no matter how potentially beneficial is the new product, it can
`generate no consumer’s surplus until consumers have been informed about the
`new productand have been induced to experiment with it.
`As others have done, we estimate the effects of industry-expanding advertis-
`ing on sales. However, we also examine how the effectiveness of this socially
`beneficial type of advertising varies with market structure. We exploit two
`facts. First, in the earliest years of the market when Tagamet was a monopoly
`product all of the Tagamet advertising was, by definition, market-expanding.
`Second, the timing of entry is largely exogenous in this industry, for patent
`protection ensures that firms cannot enter until their research laboratories de-
`
`expanding marketing efforts on industry sales. In section 7.5 we report findings
`
`velop a new molecule that has the desired impact and until approval for use is
`given by the U.S. Food and Drug Administration (FDA).
`We also analyze factors affecting the market shares earned by the limited
`number of firms in this market. A principal theme is that the patent and pioneer
`advantages to Tagamet were overcome by Zantac, the second entrant, through
`costly but effective marketing efforts, especially efforts that interacted with
`the apparent existence of more favorable side-effect profiles than Tagamet’s.
`Moreover, Zantac's relative price, although higher than Tagamet’s, declined
`substantially over time. Thus, evidence from this industry suggests that while
`the barriers to entry from patent and first-mover advantages are considerable,
`they are not insurmountable.
`Our empirical analysis is based on an unusually rich and detailed data set.
`Beginning with the introduction of Tagamet in July 1977, we have obtained
`monthly data, for each of the products in this market, on quantity and average
`price of sales (separately for the retail drugstore and hospital markets); market—
`ing efforts (minutes of detailing by sales representatives to physicians, and
`professional medical journal advertising); and product-quality information, in-
`cluding side-effect profiles, efficacy, dosage forms, and indications for which
`the product had received approval from the FDA.
`We begin in section 7.2 by providing background information on ulcers and
`ulcer treatments. Then in section 7.3 we present an overview of data trends.
`We describe the growth of the antiulcer market, as well as the pricing and
`marketing behavior of the various market participants. We move on in section
`7.4 to develop an econometric framework for modeling the growth of the anti-
`
`from an analogous attempt to model factors affecting market shares earned by
`the various products in this industry. Here we examine in particular the roles
`of rivalrons marketing, product quality, order of entry, and price competition.
`Finally, in section 7.6 we offer some concluding observations and suggestions
`for future research. The paper also includes a data appendix.
`
`7.2 Background on Ulcer Theatments
`
`Peptic ulcer disease occurs in 10—15 percent of the U.S. population.2 Ulcers
`located in the stomach proper are termed gastric ulcers, while those in the
`duodenum (the bulb connecting the stomach to the small intestine) are called
`duodenal ulcers. A related nonulcerous condition is gastroesophageal reflux
`disease (GERD), which occurs in the esophagus. What the three conditions
`have in common is that they involve inflammation of tissue in the digestive
`tract that is exacerbated by the presence of the body’s naturally occurring gas-
`tric acid. GERD and duodenal ulcers have roughly the same rates of occurrence
`in the U. S. population whereas gastric ulcers are about one-fourth as likely
`The incidence of ulcersin adult malesis about twice thatin adult females and
`appears to be most common in individuals twenty to fifty years old.
`Ulcers have a long history of clinical treatment. ThereIS evidence that al-
`ready in the first century A.D., coral powder (calcium carbonate, an antacid)
`was used to relieve symptoms of dyspepsia (see Fine, Dannenberg, and Zakim
`1988). Early in the twentieth century, conventional medical wisdom con—
`formed to the notion “no acid, no ulcer.” As a result, until the 19705 recom-
`mended treatments sought to neutralize gastric acid and often consisted of-
`hourly feedings of milk and!or antacids, as well as a dietary reduction of acidic
`food and drink. If ulcers persisted, surgery was undertaken. It is worth noting
`that while antacids such as Maalox and Mylanta neutralize gastric acid, they
`do not decrease the rate of gastric secretions (they may in fact increase them).
`Moreover, the required dosages of antacids are typically quite large, side ef-
`fects can be considerable, and adverse interactions with other drugs are not
`uncommon. As a result, with antacids patient compliance can be'problematic.
`An alternative ulcer treatment involves acid suppression with anticholiner:
`gics, such as Pro-Banthine and atropine. Anticholinergic agents decrease acid
`secretion by inhibiting receptors for the hormone acetylcholine in the acid-
`producing cells of the stomach lining. However, these agents cause consider-
`ably unpleasant reactions, because acetylcholine is involved in a number of
`biochemical processes other than the secretion of gastric acid, and anticholin—
`ergics tend to be nonselective. The side effects of dry mouth, blurred-vision,
`urinary retention, abnormally rapid heartbeat, and drying of bronchialsecres—
`tions are particularly frequent.
`
`
`
`IMMUNOGEN 2277, pg. 4
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`

`E. R. Berndt, L. T. Bui, D. H. Lacking-Reiley, and G. L. Urban
`
`
`
`281 The US. Antiulcer Drug Industry
`
`In 1977 a revolutionary form of antiulcer drug was introduced to the United
`States, known as an Hz—receptor antagonist.3 Hz-receptor antagonists act by
`blocking the histamine-2 (H2) receptor on parietal cells in the lining of the
`stomach—cells that produce gastric acid. Histamine-2 is one of three “messen-
`ger molecules” (along with gastrine and acetylcholine) that can stimulate the
`production of acid by the parietal cells. By blocking the receptor for H2 (and,
`unlike the anhcholinergic drugs, avoiding any interference with other biochem-
`ical processes), an Pig-antagonist can decrease overall acid concentration in the
`stomach. Hz-antagonist healing rates are very high. A four— to six~week treat-
`ment period, for example, is associated with a healing rate of 70—80 percent
`for patients suffering from duodenal ulcers.
`SmithKline was the first pharmaceutical company to introduce an H,-
`antagonist in the U.S. market (in August 1977), and they dubbed it Tagamet
`(its chemical name is cimetidine). Thereafter three companies followed suit—w
`Glaxo with Zantac (ranitidine) in June 1983, Merck with Pepcid (famotidine)
`in October 1936, and Lilly with Axid (nizatidine) in April 1983. Each of these
`four Hz-antagonists is a slightly different chemical entity. Tagamet’s patent pro-
`tection could not prevent entry by such therapeutic substitutes.
`Zantac was marketed very aggressively by Glaxo,
`in partnership with
`Hoffmann—LaRoche, and was also priced at a premium over Tagamet. Detailers
`(sales representatives who call on physicians) emphasized that unlike Tagamet,
`whose original dosage required it to be taken four times daily, Zantac needed
`to be taken only twice per day. Moreover, Zantac detailers highlighted side-
`effect profiles that had accumulated with Tagamet—nausea, diarrhea, drOWSi~
`ness, decreased sperm count, gynecomastia (swelling of the breasts in males),
`and drug interactions.4 Within eighteen months Tagamet responded to Zantac
`by introducing a twice-per-day version of its drug, but it continued to find
`itself on the defensive in terms of alleged side-effect and adverse-interaction
`profiles. A prolonged rivalry then ensued, first between Tagamet and Zantac in
`the form of new versions whose dosages were but once per day (thereby facili-
`tating patient compliance even further), and later including additional competi—
`tion from the newly entered Pepcid and Axid, each available with a once-daily
`dosage regimen.
`In addition to side-effect profiles and frequency of dosage, another form
`of rivalry among the four HZ-antagonists involved FDA-approved treatments
`(indications). Since several distinct types of ulcerous conditions exist, similar
`drug products can compete on the basis of efficacy for different indications. In
`the United States, before a drug can be introduced into the market, the FDA
`must grant approval for at least one indication. When Tagamet was originally
`introduced into the U.S. market in August 1977, its approval was for duodenal
`
`3. Tagamet was introduced into the United Kingdom one year earlier, in 1976.
`
`
`
`ulcers; Tagamet was also the first to be approved for duodenal ulcer mainte—
`nance treatment (to prevent recurrence of a newly healed duodenal ulcer) in
`April 1980, and gastric ulcers in December 1982. However, Zantac was the
`first to obtain approval for the GERD indication (May 1986),5 and it was not
`until March 199] that Tagamet obtained FDA approval for GERD. It is worth
`noting that once FDA approval for an indication is granted, the manufacturer
`is permitted to provide promotional and marketing material only for approved
`indications. Thus, even though Tagamet had clinical effects very similar to
`Zantac’s, suggesting that it would probably be effective in the treatment of
`GERD, Tagamet promotions were not permitted to mention GERD until 1991.
`Although physicians often prescribe drugs for indications not approved by the
`FDA (called off-label prescribing), not having FDA approval for an indication
`which is held by a competitive product may constitute a signficant disadvan-
`tage in the marketplace. Hence, even though Tagamet pioneered in the three
`antiulcer indications, the fact that it lagged behind Zantac in the relatively pop-
`ulous GERD market was of considerable importance.
`.
`.
`Today the four Hg-antagonist drugs are frequently viewed as being
`equally efficacious in their ability to suppress acid secretion” (McKenzie et a1.
`1990, 58), but different in their pharmacological profiles. McKenzie et a1. note
`that Tagamet is “the Hz—antagonist implicated with the most side effects and
`drug interactions,” and that such adverse impacts occur “to a lesser extent”
`with Zantac. The third and fourth entrantsWPepcid and Axid—appear to have
`even fewer drug interactions and side effects. What is not yet clear, however,
`is the extent to which apparent differences in side—effect profiles simply reflect
`differential lengths of time over which the various drugs have been able to
`accumulate medical experience.
`Modern ulcer medicines are not restricted to ill-antagonists. One alternative
`therapy is Carafate (sucralfate), introduced into the United States by Marion
`Labs in August 1981. Instead of inhibiting acid secretion, Carafate acts by
`forming a protective coating over the ulcer that in turn promotes healing. While
`it is relatively free from side effects, Carafate has problems of convenience
`and compliance, since it must be taken four times per day. always on an empty
`stomach (before meals). It also acts more slowly than the acid inhibitors in
`relieving pain. For these reasons, Carafate serves a market niche, being used
`predominantly for older patients and patients in intensive care.
`Another entrant in the antiulcer market is Cytotec (misoprostol), introduced
`in December 1988. Cytotec has been targeted at ulcers associated with the
`use of nonsteroidal anti-inflammatory drugs (NSAIDs—pain relievers such as
`Motrin). Its rather small market niche consists of patients who take NSAIDs
`chronically and are at greater risk for the development of peptic ulcer disease
`or complications from peptic ulcers—particularly the elderly, those with previ-
`
`
`
`IMMUNOGEN 2277, pg. 5
`Phigenix v. Immunogen
`IPR2014-00676
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`

`

`E. R. Berndt, L. T. Bui, D. H. Lucking-Reiley, and G. L. Urban
`
`
`
`283 The U.S. Antiulcer Drug Industry
`
`ous ulcers or concomitant debilitating diseases, and patients who smoke. A
`common side effect of Cytotec, however, is diarrhea, although it can often be
`mitigated by adjusting the dosage.
`The most recent treatment innovation to enter the antiulcer market is Prilo—
`
`sec (omeprazole), introduced into the United States by Merck Sharp & Dohme
`in September 1989.5 Prilosec is a powerful new drug known as a proton-pump
`inhibitor. It acts by directly blocking the action of the proton pump, which is
`the biochemical mechanism that actually produces the acid in the stomach.
`Initially approved for only the GERD indication, in June 1991 Prilosec was
`approved by the FDA for duodenal ulcer treatment. Originally approved only
`for short-term use, in 1995 the FDA gave approval for long-term maintenance
`usage. Dosing for Prilosec is unique in that it is supplied in a timed—release
`capsule, thus reducing dosage to once per day but yielding continuous levels
`of the drug within the body throughout the day.
`With this brief overview on ulcer drugs and ulcer treatments as background,
`we now move on to a discussion of the pricing and marketing behavior of the
`manufacturers, the sales and market shares they attained, and the data sources
`underlying these statistics.
`
`7.3 Overview of the Data
`
`Most of the data used in this study originated with IMS America, a Philadel—
`phia-based firm that independently collects data on the sales and marketing of
`pharmaceutical products. IMS sells its data to pharmaceutical manufacturers
`for their use in formulating marketing strategy.7 IMS sales data track prescrip-
`tion pharmaceutical purchases made by hospitals and by retailers; market seg~
`merits not monitored by IMS include food stores, dispensing physicians,
`HMOs, mail order, nursing homes, and clinics. IMS estimates that its drugstore
`audit covers 67 percent of the U.S. pharmaceutical market and that its hospital
`audit encompasses an additional 16 percent.8
`The level of aggregation of the IMS purchase data is the presentational form.
`for example, bottles of 30 tablets of 150 mg strength. For each presentational
`form, we compute the average price as dollar purchases divided by number of
`units. We also convert these price and quantity measures into patient-days and
`price per patient-day, using the recommended daily dosage for duodenal ulcer
`treatment as the transformation factor. These monthly data series begin in Au—
`gust 1977 and continue through May 1993.
`
`6. Merck obtained the rights to market Prilosec in the United States from AB Astra of Sweden.
`Prilosec was originally named Losec; however, its name was changed because of confusion sur-
`rounding the similarity of the name Losec to that of Lasix, a common diuretic.
`
`
`
`In addition to price and quantity data on drug purchases, we employ IMS
`data on marketing efforts from their Personal Selling Audit, earlier called the
`IMS National Detailing Audit. Based on a panel of about thirty-five hundred
`physicians who report the number of visits and minutes spent with detailers
`discussing particular drug products, IMS computes monthly detailing efforts
`by drug.9 Using an estimated cost per detailing visit, IMS also estimates total
`detailing expenditures. Medical journal advertising expenditures are estimated
`by IMS in their National Journal Audit. Based on the number of square inches
`and pages of advertisements in about three hundred major medical journals, as
`well as features such as the number of colors in each advertisement, IMS uses
`standard rate sheets to estimate total dollars of journal advertising, monthly,
`by product. We convert these current-dollar expenditures into constant-dollar
`magnitudes using the Bureau of Labor Statistics‘ (BLS’s) producer price index
`for “advertising in professional and institutional periodicals.”
`Discussions with industry personnel suggest that while these detailing and
`journal advertising expenditures likely understate total promotion costs
`(booths and promotions at conferences are not included, for example), there is
`no reason to suspect that the proportions differ across products, and thus we
`are led to believe that the relative expenditure data series are likely to be rea~
`sonably accurate. It is worth noting, incidentally, that according to one ob-
`server, in the early 1990s in the U.S. pharmaceutical industry, approximately
`$3.1 billion was spent on detailing, about $700 million was spent annually on
`journal advertising and direct-mail promotions, medical-education expenses
`accounted for about $400 million, and uses of other forms of media and
`communication amounted to approximately $300 million annually (Cearnal
`1992, 23).
`Finally, data on recommended daily dosages and product-specific attribute
`information are taken from Physicians’ Desk Reference, annual issues from
`1978 to 1993, and U.S. Pharmacoper'a Convention Dispensing Infomation.
`Further details regarding data sources and transformations are presented in the
`data appendix.
`'
`With this background regarding data sources, we now present an overview
`of data trends. In figure 7.1 we plot the quantity of U.S. sales (number of
`patient-days of duodenal ulcer therapy) over time, separately for the retail
`drugstore and hospital markets, disaggregated into the Hz-antagonists (Taga—
`met, Zantac, Pepcid, and Axid) and all seven antiulcer drugs (the H,-
`antagonists plus Carafate, Cytotec, and Prilosec). Starting from zero in August
`1977, by May 1993 total monthly sales were almost 130 million patient—days;
`of this, approximately 93 percent was sold via retail drugstores. Broken down
`by drug type, the HZ-antagonist class accounted for approximately 84 percent
`of total sales, while the other antiulcer drugs made up the remaining 16 per-
`
`
`
`IMMUNOGEN 2277, pg. 6
`Phigenix v. Immunogen
`IPR2014-00676
`
`

`

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`285
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`The US. Antiulcer Drug Industry
`
`cent. Hospital sales accounted for only 7 percent of total Hz—antagonist sales.
`Because of this market dominance, here after we confine our analysis to the H2-
`antagonist drugstore market.
`The growth of HZ-antagonist sales over time has been remarkably steady.
`For example, if one runs a simple regression of log sales on a constant and a
`monthly time counter, one obtains
`
`1n(QH2) = 16.4 + 0012!,
`
`R2 = 0.82,
`
`implying an average annual growth rate (AAGR) of about 15 percent.
`In figure 7.2 we plot market shares of Hz-antagonist drugstore sales for the
`four Hz-antagonist drugs. Although Tagamet was the pioneer, Zantac entered
`in July 1983,7and within one year it had already captured about 25 percent of
`the total Tagamet-Zantac market. Tagarnet’s share continued to decline when
`Pepcid entered in October 1986, but Pepcid was less successful than Zantac;
`one year after entry, Pepcid had a market share of only approximately 8 per-
`cent. The sales of Zantac grew remarkably quickly and steadily, and by January
`1988 Zantac sales overtook those of Tagamet. At about the same time (April
`1988), Axid entered the market; as fourth entrant, however, Axid faced consid-
`erable competition, and after one year, its sales accounted for only about a 4
`percent market share. By the end of our sample in May 1993, Zantac had cap-
`tured about 55 percent of the quantity market share, Tagamet 21 percent, Pep-
`cid 15 percent, and Axid 9 percent.
`Although the entry of Zantac into the Hz—antagonist market increased total
`market sales, the sales of Tagamet fell. As shown in figure 7.3, drugstore sales
`of Tagamet grew at a very rapid rate after entry in 1977, then began to level off
`a bit from 1981 to 1983, and although they peaked at about 46 million patient-
`days in April 1984, Tagamet’s sales tended to decline after Zantac’s entry in
`1983. This general decline in sales continued until the end of our sample, when
`Tagamet’s monthly sales were less than half their peak—about 2] million
`patient-days. By contrast, sales of Zantac generally increased over time, and
`by May 1993 Zantac accounted for about 54 million patient-days per month.
`Although Zantac’s sales increased with time, as can be seen in figure 7.3, there
`was a modest decline in the growth slope beginning in early 1988, coinciding
`with a slight rebound in Tagamet sales and the effects of entry by the fourth
`entrant, Axid. Although both Pepcid and Axid recorded considerable growth
`in sales, they clearly were dominated by the two earliest entrants, Tagarnet
`and Zantac.
`
`An interesting phenomenon occurs in the pricing behavior of the four prod
`ucts over this tumultuous time period. Price per day of duodenal therapy (based
`on recommended dosages, and adjusted for inflation using the overall Con—
`sumer Price Index [CPU with 1982—84 = 1.00) is displayed for the four prod-
`ucts in figure 7.4. After original entry, until it faced competition from Zantac,
`
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`
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`
`DS('1drugs)
`
`
`
`
`
`Fig.7.1Drugstoreandhospitalsales
`
`IMMUNOGEN 2277, pg. 7
`Phigenix v. Immunogen
`IPR2014-00676
`
`

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`IMMUNOGEN 2277, pg. 8
`Phigenix v. Immunogen
`IPR2014-00676
`
`

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`Fig.7.4Realdrugstore
`
`289
`
`The US. Antiulcer Drug Industry
`
`per day, a 56 percent premium). Thereafter, prices of both Zantac and Tagamet
`rose with time, although Tagamet’s prices increased more rapidly. By the end
`of the sample, the Zantac price premium had narrowed from about 56 percent
`to 25 percent.
`The third and foarth entrants, Pepcid and Axid, followed price policies that
`fell generally somewhere between those of Tagamet and Zantac. At the end of
`the sample period covered by our data, the price per day of therapy ranged
`from a low of about $1.41 per day for Pepcid to a high of $1.80 per day for
`Zantac. Prices for Tagarnet and Axid fell between these amounts, at $1.44 and
`$1.62, respectively. An interesting recent development is that in November
`1993 (after the end of our sample), Tagamet announced a major change in its
`pricing policy, offering rebates directly to consumers (see Freudenheim 1993).
`Finally, as is seen in figure 7.4, there does not appear to be any substantial
`competitive pricing policy response by incumbents to the entry of new compet-
`itors into the Hl-antagonist market. Indeed, the only price—trend break that co~
`incides with a new entry is that for T