NBER WORKING PAPER SERIES
`
`THE ROLES OF MARKETING, PRODUCE
`QUAUTY AND PRICE COMPETITION
`IN THE GROWTH AND COMPOSmON
`OF ThE U.S. ANTI-ULCER
`DRUG INDUSTRY
`
`Ernst R. Berndt
`Linda Bui
`David Reiley
`Glen Urban
`
`Working Paper No. 4904
`
`NATIONAL BUREAU OF ECONOMIC RESEARCH
`1050 Massachusetts Avenue
`Cambridge, MA 0 38
`October 1994
`
`Financial support from the Alfred P. Sloan Foundation is gratefully acknowledged, as is the data
`support of Stephen C. Chappell, Nancy Duckwitz and Richard Fehring at IMS International, and
`Joan Curran, Maijorie Donnell/Phyllis Rausch, Ditas Riad and Paul Snyderman at Merck & Co.
`We have also benefited from the research assistance of Adi Alon, Amit Alon, Ittai Hare!, Michele
`Lombardi and Bonnie Scouler, and discussions with Tim Brenahan, Stan Fmkelstein, M.D.,
`Valerie Suslow and Stephen Wright, M.D. This paper is part of NBER's research programs in
`Industrial Organization and Productivity. Any opinions expressed are those of the authors and
`not those of the National Bureau of Economic Research.
`
`© 1994 by Ernst R. Berndt, Linda Bui, David Reiley, and Glen Urban. All rights reserved.
`Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission
`provided that full credit, including © notice, is given to the source.
`
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`

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`NBER Working Paper #4904
`October 1994
`
`THE ROLES OF MARKETING, PRODUCT
`QUALITY AND PRICE COMPETITION
`IN THE GROWFH AND COMPOSITION
`OF THE U.S. ANTI-ULCER
`DRUG INDUSTR
`
`ABSTRACT
`
`The introduction of Tagamet in the United States in 1977 represented both a revolution
`in ulcer therapy and the beginning of an important new industry. Today there are four
`prescription H2-antagonist drugs: Tagamet, Zantac, PeDcid and Axid, and they comprise a multi-
`billion dollar market for the treatment of ulcers and other gastric acid conditions. In this paper,
`we examine the determinants of sales in this market, using a carefully constructed data set made
`possible by IMS America. We concentrate particularly on the marketing of these drugs to
`physicians through detailing and medical journal advertising, and we make an innovative attempt
`to distinguish between "industry-expanding" and "rivairous" marketing efforts. We find that the
`impact of total marketing on the expansion of overall industry sales declines as the number of
`products on the market increases. In addition, we find that the stock of industry-expanding
`marketing depreciates at a near-zero rate, while the stock of marketing oriented towards rivairous
`
`market share competition depreciates at a 40% annual rate. We also find that the products' sales
`are affected significantly by price, quality attributes (such as number of FDA-approved
`indications and number of adverse drug interactions), and order of entry into the market.
`
`Ernst R. Berndt
`Sloan School of Management
`M.I.T.
`50 Memorial Drive, E52-452
`Cambridge, MA 02142
`and NBER
`
`David Reiley
`Department of Economics
`M.I.T.
`50 Memorial Drive
`Cambridge, MA 02142
`
`Linda Bui
`Department of Economics
`Boston University
`270 Bay State Road
`Boston, MA 02215
`
`Glen Urban
`Sloan School of Management
`M.I.T.
`50 Memorial Drive
`Cambridge, MA 02142
`
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`THE ROLES OF MARKETING, PRODUCT QUALITY AND PRICE COMPETITION
`
`IN THE GROWTH AND COMPOSITION OF THE U.S. ANTI-ULCER DRUG INDUSTRY
`
`by Ernst R. Berndt, Linda 1. Bui, David H. Reiley, and Glen L. Urban
`
`I. INTRODUCTION
`
`The introduction of Tagamet into the U.S. market in 1977 marked the beginning of a revolution-
`
`ary treatment for ulcers, and the emergence of a new industry. What distinguished the products of this
`
`new industry was their ability to heal ulcers and treat pre-ulcer conditions pharmacologically on an
`
`outpatient basis, thereby substituting for traditional, and costly, hospital admissions and surgeries.
`
`Tagarnet, known medically as an H2-receptor antagonist, promoted the healing of ulcers by reducing the
`
`secretion of acid by the stomach.
`
`A striking feature of the anti-ulcer market is that it has sustained growth in sales (quantity, not
`
`just revenue) for over fifteen years, and still shows no sign of slowing. New prescribing habits have
`
`clearly diffused to an ever-increasing number of physicians. Today there are a total of four l-12-receptor
`
`antagonists: Tagamet, Zantac, Pepcid and Axid. Zantac is now the United States' (and the world's) larg-
`
`est selling prescription drug, having estimated worldwide sales in 1992 of about $3.5billion. Moreover,
`
`both Zantac and Tagamet are among the ten top selling prescription drugs in the U.S.'
`
`In this paper we attempt to explain the growth and changing composition of the anti-ulcer drug
`
`market. Although we examine the impacts of pricing and product quality, we devote particular attention
`
`to the role of firms' marketing efforts. We distingui .1 between two types of marketing: (i) that which
`
`concentrates on bringing new consumers into the market ("industry-expanding" advertising), and (ii) that
`
`which concentrates on competing for market shares from these consumers ("rivalrous" advertising). Note
`
`that of these two types, the 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 sur-
`
`plus until consumers have been informed about the new product and have been induced to experiment
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`Page 2 -
`
`with ii
`
`As others have done, we estimate the effects of industry-expanding advertising on saks. 1lo-
`
`ever, 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, by definition, all of the Tagamet advertising was market—enhancing. Second, the tim-
`
`ing of entry is largely exogenous in this industry, for patent protection ensures that firms cannot enter
`
`until their research laboratories develop a new molecule that has the desired impact and approval for use
`
`is given by the 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 Zan-
`
`tac, the second entrant, through costly but effective marketing efforts, especially efforts that interacted
`
`with the apparent existence of favorable adverse drug interaction profiles relative to Tagamet. Moreover,
`
`Zantac's relative price, although higher than Tagamet's, declined substantially overtime. 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 drug and hospital markets).
`
`marketing efforts (minutes of detailing by sales representatives to physicians, and professional medical
`
`journal advertising), as well as product quality information including side effect profiles, adverse drug
`
`interactions, efficacy, dosage forms, and indications for which the product had received approval from
`
`the U.S. Food and Drug Administration.
`
`We begin in Section II by providing background information on ulcers and ulcer treatments.
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`Then in Section III we present an overview of data trends. We describe the growth of the anti-ulcer
`
`market, as well as the pricing and marketing behavior of the various market participants. We move on
`
`in Section IV to develop an econometric framework for modeling the growth of the anti-ulcer industry'.
`
`In particular, we examine the effects of "informative" or market-expanding marketing efforts on industry
`
`sales. In Section V we report findings 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
`
`rivalrous marketing. product quality, order of entry and price competition. Finally, in Section VI we
`
`offer some concluding observations and suggestions for future research. The paper also includes a data
`
`appendix.
`
`H. BACKGROUND ON ULCER TREATMENTS2
`
`Peptic ulcer disease occurs in 10-15% of the U.S. population. Ulcers located in the stomach
`
`proper are termed gastric ulcers (GU), while those in the duodenum (the bulb connecting the stomach to
`
`the small intestine) are called duodenal ulcers (DU). A related non-ulcerous 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 gastric acid. GERD and duodenal ulcers have roughly the same rates of oc-
`
`currence in the U.S. population, whereas gastric ulcers are about one-fourth as likely. The incidence ot
`
`ulcers in adult males is about twice that in adult females, and appears to be most common in individuals
`
`twenty to fifty years old.
`
`Ulcers have a long history of clinical treatment. There is evidence that already in the first cen-
`
`wry A.D., coral powder (calcium carbonate, an antacid) was used to relieve symptoms of dyspep-
`
`sia.3 Early in the 20th century, conventional medical wisdom conformed to the notion "no acid, no
`
`ulcer." As a result, until the 1970's recommended treatments sought to neutralize gastric acid, and often
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`consisted of hourly feedings of milk and/or antacids, as well as a dietary reduction of acidic food and
`drink. Ifulcers 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 effects 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 anticholinergics, 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 have
`
`considerable unpleasant and adverse reactions, since acetylcholine is involved in a number of biochemical
`
`processes other than the secretion of gastric acid, and anticholinergics tend to be non-selective. The side
`
`effects of dry mouth, blurred vision, urinary retention, abnormally rapid heartbeat, and drying of bronc-
`
`hial secretions are particularly frequent.
`
`In 1977 a revolutionary form of anti-ulcer drugs was introduced in the U.S., known as an
`
`H-receptor antagonist.4 The H2-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
`
`'messenger molecules" (along with gastrine and acetyicholine) that can stimulate the production of acid
`
`by the parietal cells. By blocking the receptor for H2 (and, unlike the anticholinergic drugs, avoiding any
`
`interference with other biochemical processes), an H2-antagonist (henceforth referred to as an H2) can
`
`decrease overall acid concentration in the stomach. H2-antagonist healing rates are very high. A four-
`
`to six-week treatment period, for example, is associated with a healing rate of 70-80% for patients suffer-
`
`ing from a duodenal ulcer.
`
`SmithKline was the first pharmaceutical company to introduce an H2-antagonist into the U.S.
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`market (August 1977), and they dubbed it Tagamet (its chemical name is cimetidine). Thereafter three
`
`companies followed -- Glaxo with Zantac (ranitidine) in June 1983. Merck with Pepcid (famotidine) in
`
`October 1986, and Lilly with Axid (nizatidine) in April 1988. Each of these four H2-antagonists is a
`
`slightly different chemical entity; Tagamet's patent protection could not prevent entry by such therapeutic
`
`substitutes.
`
`Zantac was marketed very aggressively by Gla.xo, in partnership with Hoffman-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, drowsiness, decreased sperm count. gynecomastia
`
`(swelling of the breasts in males) and adverse drug interactions.5 Within eighteen months Tagamet
`
`responded to Zantac by introducing a twice per day version of its drug, but it continued to find itself oii
`
`the ,1.fensive 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 facilitating patient compliance even further), and later including additional competition 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
`
`H2-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 U.S., before a drug can be introduced into the market, the Food and Drug Administration 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 ulcers; Tagamet was also the first to be approved for duod-
`
`enal ulcer maintenance treatment (to prevent recurrence of a newly-healed duodenal ulcer, in April 1980)
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`and gastric ulcers (December 1982). However, Zantac was the first to obtain approval for the GERD
`
`indication (May l986), and it was not until March 1991 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 very similar clinical effects to Zantac, suggesting that it would probably be effective
`
`in the treatment of GERD, Tagamet promotions were not permitted to mention GERD until 1991. Al-
`
`though physicians often prescribe drugs for indications not approved by the FDA (called off-label pre-
`
`scribing), not having FDA approval for an indication which is held by a competitive product may consti-
`
`tute a significant disadvantage in the marketplace. Hence, even though Tagamet pioneered in the three
`
`anti-ulcer indications, that it lagged Zantac in the relatively populous GERD market was of considerable
`
`importance.
`
`Today the four H2-antagonist drugs are frecent1y viewed as being "...equally efficacious in their
`
`ability to suppress acid secretion,
`
`but different in their pharmacological profiles. McKenzie et al.
`
`[1990, p. 58) note that Tagamet is "the H2-antagonist implicated with the most side effects and drug inter-
`
`actions," and that such adverse impacts occur "to a lesser extent" with Zantac. The third and fourth
`
`entrants -- Pepcid and Axid -- appear to have even less drug interactions and side effects.S What is
`
`not yet clear, however, is the extent to which appan r; differences in side effect profiles simply reflect
`
`differential lengths of time over which the various drugs have been able to accumulate medical exper-
`
`ience.
`
`Modern ulcer medicines are not necessarily restricted to 112-antagonists. One alternative therapy
`
`is Carafate (sucralfate), introduced into the U.S. 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
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`it must be taken four times per day, always on an empty stomach (before meals), It also acts more slow-
`
`ly 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 anti-ulcer market is Cytotec (misoprostol), introduced in December 1988.
`
`Cytotec has been targeted at ulcers associated with the use of non-steroidal anti-inflammatory drug
`
`(NSAID) therapy (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 complica-
`
`tions from peptic ulcers — particularly the elderly, those with previous ulcers, concomitant debilitating
`
`diseases, and/or patients who smoke. A common side effect of Cytotec, however, is diarrhea, although
`
`it can often be mitigated by adjusting dosage.
`
`The most recent treatment innovation to enter the anti-ulcer market is Prilosec (omeprazole),
`
`introduced into the US. by Merck, Sharp and Dohme in September 1989.
`
`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 treat-
`
`ment. Although it is considerably more potent than the H2-antagonists, there is some evidence from
`
`long-term studies on rats that Prilosec is associated with carcinoid tumors; hence it is approved only for
`
`short-term use. 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.
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`III. OVERVIEW OF THE DATA
`
`Most of the data used in this study originated with IMS America, a Philadelphia-based firm that
`
`independently collects data on the sales and marketing of pharmaceutical products. IMS sells its data to
`
`pharmaceutical manufacturers, among others, for their use in formulating marketing strategy)0 IMS
`
`sales data track prescription pharmaceutical purchases made by hospitals and by retailers; market
`
`segments not monitored by IMS include foodstores, dispensing physicians, UMO's, mail order, nursing
`
`homes, and clinics. IMS estimates that its drugstore audit covers 67% of the U.S. pharmaceutical
`
`market, and that its hospital audit encompasses an additional 16%."
`
`The level of aggregation of the IMS purchase data is at the presentational form, e.g., bottles of
`
`30 tablets of a 150mg pill. For each presentational form, we compute 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 transfor-
`
`mation factor. These monthly data series begin in August 1977 and continue through May 1993.
`
`In addition to price and quantity data on drug purchases, we employ IMS data on marketing ef-
`
`forts from their Personal Selling Audit, earlier called the IMS National Detailing Audit. Based on a panel
`
`of about 3500 physicians who report the number of visits and minutes spent with detailers discussing
`
`particular drug products, IMS computes monthly detailing efforts by drug)2 Using an estimated cnst
`
`per detailing visit, IMS also estimates total detailing expenditures. Medical journal advertising expendi-
`
`tures are estimated by IMS in their National Journal Audit. Based on the number of square inches and
`
`pages of advertisements in about 300 major medical journals, as well as features such as the number of
`
`colors of 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 BLS Producer Price Index for Advertising in Professional Journals.
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`Discussions with industry personnel suggest that while these detailing and journal advertising ex-
`
`pendnures 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 reasonably accurate. It is worth
`
`noting, incidentally, that according to one observer, in the early 1990's in the U.S. pharmaceutical indus-
`
`try, 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 other forms of media and communication amounted to approximately $300 million annually.'3
`
`Finally, data on recommended daily dosages and product-specific attribute information are taken
`
`from Physician's Desk Reference, annual issues from 1978 to 1993, and U,S. Pharmacopeia Convention.
`
`Dispensing Information. Further details regarding data sources and transformations are presented in the
`
`Data Appendix.
`
`With this as background regarding data sources, we now present an overview of data trcnds. In
`
`Figure 1 we plot the quantity of U.S. sales (number of patient days of therapy) over time, separately for
`
`the retail drugstore and hospital markets, disaggregated into the H2-antagonist (Tagamet, Zantac, Pepcid
`
`and Axid) and other anti-ulcer drugs (Carafate, Cytotec and Prilosec). Starting from zero in August
`
`1977, by May of 1993 total monthly sales were almost 130 million patient days; of this, approximately
`
`93% is sold via retail drug hospitals. Broken down by drug type, the H2-antagonist class accounts for
`
`approximately 84% of total sales, while the other anti-ulcer drugs make up the remaining 16%. Because
`
`of this market dominance, hereafter we confine our analysis to the H2-antagonist drugstore market.
`
`The growth of H2-antagonist sales over time has been remarkably steady. For example, if one
`
`runs a simple regression of log sales on a constant and a time counter, one obtains:
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`In(QH2) = 16.4
`
`0.012t,
`
`R2 = 0.82,
`
`implying an average annual growth rate (AAGR) of about 15%.
`
`In Figure 2 we plot market shares of H2-antagonist drugstore sales for the four l-!2-antagonist
`
`drugs. Although Tagamet is the pioneer, Zantac enters in July 1983, and within one year it already
`
`captures about 25% of the total Tagamet-Zantac market. Tagamet's share continues to decline when Pep-
`
`cid enters in October 1986, but Pepcid is less successful than Zantac; one year after entry, Pepcid has
`
`only approximately 8% market share. The sales of Zantac grow remarkably quickly and steadily, and
`
`by January 1988 Zanrac sales overtake those of Tagamet. At about the same time (April 1988), Axid
`
`enters the market: as fourth entrant, however, Axid faces considerable competition, and after one year,
`
`its sales account for about only a 4% market share. By the end of our sample in May 1993, Zantac has
`
`captured about 55% of the quantity market share, Tagamet 21 %, Pepcid 15%, and Axid 9%.
`
`Although the entry of Zantac into the H2-antagonist market increased total market sales, the sales
`
`of Tagamet fell. As seen in Figure 3, drugstore sales of Tagamet grew at a very rapid rate after entry
`
`in 1977, they began to level off a bit from 1981 to 1983, and although they peaked at about 46 million
`
`patient days in April 1984, after Zantac's entry in 1983 Tagamet's sales tended to decline. This general
`
`decline in sales continues to the end of our sample, when Tagamet monthly sales are less than half their
`
`peak -- about 21 million patient days. By contrast, sales of Zantac have generally increased over time,
`
`and by May 1993 Zantac accounted for about 54 million patient days per month. Although Zantac sales
`
`increase with time, as is seen in Figure 3, there is a modest decline in the growth slope beginning early
`
`1988, coinciding with a slight rebound in Tagamet sales and the effects of entry by the fourth entrant,
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`Axid. Although both Pepcid and Axid record considerable growth in sales, they clearly are dominated
`
`by the two earliest entrants, Tagamet and Zantac.
`
`An interesting phenomenon occurs in the pricing behavior of the four products over this tumult-
`
`uous time period. Price per day of duodenal therapy (based on recommended dosages, and adjusted for
`
`inflation using the overall Consumer Price index with 1982-84 = 1.00) is displayed for the four products
`
`in Figure 4. After original entry until it faced competition from Zantac, Tagamet gradually decreased it
`
`real price from about $1.00 to about $80 per day. When Zantac entered in late 1983, it charged a
`
`substantial premium ($1.25 per day, a 56% premium). Thereafter, prices ofth Zantac and Tagamet
`
`rose with time, although Tagamet's prices increased more rapidly. By the end of the sample, the Zaniac
`
`price premium had narrowed from about 56% to 25%.
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`The third and fourth entrants, Pepcid and Axid, followed price policies that fell generally some-
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`where between that of Tagamet and Zantac. At the end of the sample period covered by our data (May
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`1993), the price per day of therapy ranged from a low of about $1.41 per day for Pepcid, $1.44 for
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`Tagamet and $1.62 for Axid, to a high of $1.80 per day for Zantac. An interesting recent development
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`is that in November 1993 (after the end of our sample), Tagamet announced a major change in its pricing
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`policy, offering rebates directly to consumers.'4
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`Finally, as is seen in Figure 4, there does not appear to be any substantial competitive pricing
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`policy response by incumbents to the entry of new competitors in the H2-antagonist market. indeed, the
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`only price trend break that coincides with entry is that for Tagamet upon entry by Zantac, which resulted
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`in the incumbent Tagamet increasing rather than decreasing its price.'5 Note also that price trends
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`do not show breaks around the time of entry by Pepcid and Axid.
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`Pricing policy, however, is not the only instrument for competitive rivals. In the U.S. pharma-
`
`Opiant Exhibit 2166
`Nalox-1 Pharmaceuticals, LLC v. Opiant Pharmaceuticals, Inc.
`IPR2019-00685
`Page 13
`
`

`

`ANTI-ULCER DRUG INDUSTRY
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`- Page 12 -
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`ceutical industry, marketing plays a very significant role. In Figure 5 we plot monthly detailing minutes
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`for the two principal rivals, Tagamet and Zantac; cumulative detailing minutes since original product
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`launch are plotted for each H2-antagonist drug in Figure 6.
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`As seen in Figure 5, the launch of Tagamet coincided with a very substantial detailing effort --
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`about 180,000 minutes in September 1977, after which detailing efforts gradually diminished. High
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`levels of Tagamet detailing occurred in mid-1980 and early 1983, apparently in response to Tagamet
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`receiving FDA approval for the new indications of duodenal ulcer maintenance (April 1980) and gastric
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`ulcer therapy (December 1982). When Zantac entered iith a very aggressive detailing effort in July 1983
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`(over 350,000 minutes), Tagamet responded with about a 50% increase in its own detailing efforts. More
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`detailing peaks for both Tagamet and Zantac occurred in 1986, a year in which Pepcid entered and Zantac
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`obtained FDA approval for the treatment of GERD. Both Tagamec and Zantac appear to have anticipated
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`the entry of Axid in April 1988 by increasing their detailing in February 1988 (substantially for Tagarnet.
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`more modestly by Zantac), but both detailing levels declined again after Axid's entry.
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`Although month-to-month variations are apparent in Figure 5, there are definite trends in the in-
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`tense Zantac-Tagamet detailing rivalry. As is seen in Figure 6 where cumulative detailing minutes are
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`plotted for all four products, over its entire life Tagamet has out-detailed Zantac. However, in terms of
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`detailing minutes per year, Zantac has considerably outpaced Tagamet. In part, Zantac has been able to
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`do this because it has had two sales forces resulting from Glaxo's co-marketing agreement in the U.S.
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`witi' Hoffmann-LaRoche. In terms of cumulative minutes of detailing through the end of our sample,
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`the relative magnitudes are for every one minute of Axid detailing, there have been 3.21 minutes of
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`detailing for Tagamet, 2.60 minutes for Zantac, and 0.88 for Pepcid.
`
`Opiant Exhibit 2166
`Nalox-1 Pharmaceuticals, LLC v. Opiant Pharmaceuticals, Inc.
`IPR2019-00685
`Page 14
`
`

`

`ANTI-ULCER DRUG INDUSTRY
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`- Page 13 -
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`According to Bond and Lean [1977J, one way in which pioneering advantages occur in the phar-
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`niaceutical industry is in the effectiveness of advertising. Bond and Lean argue that to convince
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`physicians to switch from an existing drug to a new one and thereby to overcome advantages accruing
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`to early entrants, the later entrant may be expected to offer either a lower price and/or a heavier
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`promotion.'6 The Bond-Lean conjecture relates of course to the considerable theoretical and empirical
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`literature in marketing and economics dealing with first mover advantages.'7
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`It is therefore of inter-
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`est to examine whether this conjecture is consistent with the data from the H2-antagonist drug market.
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`Although we present econometric evidence on order of entry effects later in Section V. in Figure 7 we
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`display cumulative detailing/cumulative sales ratios as a function of order of entry after one year in the
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`marketplace (the leftmost set of bars), after two years (the middle set), and after three years (the right-
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`most set). The results are striking. Given any duration of time, cumulative detailing/sales ratios are
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`always lowest for the pioneer (Tagamet), are always larger for the second entrant (Zantac), always in-
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`crease further for the third entrant (Pepcid), and are always highest for the final entrant (Axid).
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`Moreover, since a disproportionate amount of detailing occurs immediately following product launch, for
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`all four H-antagonist products the cumulative detailing/sales ratios decrease as the time interval since
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`launch increases.
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`Detailing is not the only form of marketing rivalry, however. Another instrument for bringing
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`product information to the attention of prescribing physicians is via medical journal advertising. It is
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`worth mentioning that relative to detailing, estimated expenditures on journal advertising are rather mod-
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`est; as observed earlier, expenditures on detailing are approximately four to five times as great as expen-
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`ditures on journal advertising in the overall U.S.