1.

What was the value proposition of the early antidepressants (the MAOIs and the
tricyclics)? Was the value proposition of Prozac similar to these early antidepressants, or
different? How was the value proposition of Paxil differentiated from that of Prozac?
The value proposition of the early antidepressants was to give patients suffering from severe
depression the much-needed relief. The MAOIs and the tricyclics were quite effective in treating
clinical depression 60-80% of the time. These were one of the first medicines to focus on and treat
depression effectively. Even though symptoms in patients varied from difficulty in sleeping and
eating to severe headaches, muscle pains, fear, anxiety etc., the early anti-depressants worked
towards moderating these symptoms. The value proposition of MAOIs and the tricyclics, thus,
highlighted the effectiveness of the medicine for people suffering from severest form of
depression, with its exclusive focus on depression.
The value proposition of Prozac differed significantly from the early antidepressants. Prozac’s
value proposition to its customers was to provide an easy to administer drug that treated depression
without any significant side effects.
The early antidepressants required an appropriate dosage for them to work, figuring which needed
a lot of trial and error. In addition, even after correct dosage amount was found, the drugs induced
numerous side effects such as constipation, blood pressure, extreme sluggishness etc. They could
also cause death and were found to be poisonous when mixed with common food items. Because
of the significant risks involved, not only patients but even psychiatrists were hesitant to prescribe
and administer these early antidepressants. Prozac was able to remedy these issues to a large extent
through its value proposition. Additionally, through its innovative marketing & sales efforts
(detailing, direct to customer), Lilly able to communicate the advantages of Prozac to customers
efficiently.
Unlike MAOIs and tricyclics that focused on severe depression that was still seen as a stigma,
Prozac worked towards removing this stigma by also focusing on the other milder aspects of
depression that were previously ignored. Prozac could now be prescribed by general practitioners,
since the maker of Prozac, Lilly, spent considerable sum on educational efforts directed towards
general practitioners. It also added value to its customers by removing the stigma that was attached
to mental disorders and its popularity because of its varied implications and uses, made it a cultural
currency. With Prozac, the anti-depressants prescription was democratized to a large extent and its
use and prescription was not in the exclusive domain of psychiatrists. It made people understand
the seriousness of depression and, with time, was also found to be able to treat other disorders such
as obsessive-compulsive disorder (OCD) and panic disorder and even for smoking, alcoholism,
bulimia and kleptomania.

Paxil came into the market to compete directly with Prozac by offering an effective treatment to
depression with less prominent and severe side effects (Paxil didn't stay in the body as long as
Prozac). It hence came as a cheaper and safer alternative to Prozac. However, since Prozac
continued to dominate the anti-depressant market, Prozac created offered value to the customers
by being the first patented drug to treat Social Anxiety Disorder (SAD) – a disease confused with
"shyness" but affecting 3.7% of the population (page 18, exhibit 5). SAD was a relatively unknown
disorder and had only entered the psychiatric dictionary in the 1980. The market was also not
covered at all since only 5% of those suffering from SAD ever sought treatment. Paxil’s value
proposition banked upon this first mover advantage. It made patients suffering from SAD realize
that it required specific attention through its public awareness campaigns. Paxil started a debate
and discussion around this relatively misunderstood and unknown disorder. It also started a
website to allow self-test and thus simplified the diagnosis to a large extent.

2. Why did the early antidepressants (the MAOIs and tricyclics) fail to achieve widespread
acceptance in the market? What factors accounted for the success of Prozac? What factors
accounted for the success of Paxil?
The MAOIs and trycyclics were in the antidepressants market before Prozac entered and were
believed to alleviate 60-80% of the depression symptoms. Despite both of them being reasonably
effective in clinical trials, the drugs failed to achieve widespread acceptance in the market.
This failure happened because of a variety of reasons. Firstly, Tricyclics didn’t show the desired
result in small quantities and proved its results in large quantities only. Additionally, Tricyclics
had many side effects associated with it such as weight gain, extreme sluggishness, constipation,
urinary retention, and disturbances in heart rhythm and blood pressure.
The MAOIs also had severe accompanying side effects. Common symptoms included headaches
and high blood pressure. In extreme cases, death from a brain hemorrhage was also observed.
Moreover, the MAOs could also prove to be lethal if mixed with common foods.
People with mild depression were suspicious of the medication due to difficulty in managing
dosage. Additionally, a listing of the side effects of the tricyclics had a deep psychological effect
on the patients. Since patients often accused the psychiatrist of hostility and attempt to poison
using such drugs, psychiatrists were also hesitant of prescribing the same.
Because of the difficulty in administration and severe side effects, both MAOIs and trycyclics
were not received well by the market and failed to achieve widespread acceptance.

Unlike early antidepressants such as MAOIs and tricyclics, Prozac was a result of experiments that
focused on developing an antidepressant that could only increase the serotonin levels in the brain
without affecting anything else and this is one of the biggest reasons for its success. Because the
drug was so specifically targeted and only caused changes to the serotonin levels, the side effects
were not considered as serious. Prozac also showed up as an easily administrable drug since
patients just had to just take a defined amount of drug. This drug would also not cause an overdose
as easily as in early antidepressants, which meant it was safe in the hands of potential suicide
patients. It was also seen as an alternative to psychotherapy and a new option for people suffering
from mild depression who were earlier averse to trying "serious" medication.
Lilly's value propositions were reinforced in the minds of the consumers through it's marketing
efforts. To start with, they directed their sales efforts towards the psychiatrist and “opinion leaders”
in this field to gain credibility. They realized gaps in the market – difficulty in depression diagnosis
and limited involvement of general practitioners and saw this an opportunity. Therefore, they
focused on sponsored educational drives towards general practitioners to equip them with proper
tools to diagnose depression, which led to increase in Prozac's subscription by general
practitioners. Doctors published personal experiences of the people using the drug and positive
word of mouth led to huge media coverage about the positive effects of the drug and increased it's
popularity. By spreading so much awareness, facilitating diagnosis and easing the process of
availing treatment, Lilly was extremely successful in removing the stigma attached to depression.
This not only lead to increased sales because of more people admitting presence of the disease, but
also created a positive imagine of the brand in the market.
Lilly was also the first to take the advantage of the less stringent FDA guidelines that allowed
companies to air broadcast of the drugs and started DTC advertising which was rare in US; as most
of the pharmaceuticals were marketed directly to doctors and healthcare professionals. They
focused on directly reaching the consumers by first sensitizing them over how difficult the disease
and can be and then how Prozac can help.
The drug was also effective in treating other diseases such as Obsessive-compulsive disorder
(OCD) and panic disorder, and because of this, “off-label” prescribing became more common. It
hence became a much more talked about product, a familiar name in people's mind and continued
to gain popularity and credibility with positive word of mouth. It carried with it a social status yet
maintained an image of being a domestic, familiar product.

Paxil entered the market in 1993 as Prozac’s competitor. It was initially positioned just as Prozac
in terms of dosage and side effects and like Prozac also claimed to be effective in wide range of
disorders. However, clinically, unlike Prozac, which could last up to 384 hours in the body, Paxil’s
half-life was just 21 hours. Despite this, Paxil was unable to effectively compete to Prozac.
The year 1999 marked a landmark for Paxil as SmithKline (the firm manufacturing Paxil) received
approval from the FDA for a new disorder. This disorder was named SAD (Social Anxiety
Disorder). This term was first used in 1980 and has had various evolved definitions since then. In
1987, the widely accepted definition included people who “struggled through situations that made
them anxious”.
The National Institute of Mental Health data, January 2001 data highlighted that nearly 4 in 10 of
the adult population in USA suffered from SAD. Paxil was able to capitalize on this unidentified
market by effective segmentation and became synonymous to the treatment of SAD. Since, Paxil
was the first and only medication to win SAD’s approval in USA, SmithKline went full force to
make news.
Success of Paxil was a function of various actions. Firstly, SmithKline hired a public relations firm
to help steer their communication in the right direction. The marketing efforts were used to break
stereotypes surrounding SAD and how it was mostly perceived as a sign of shyness. Efforts were
made to educate and sensitise reporters, consumers and physicians about SAD. SmithKline tried
to make the whole campaign humane by putting a face to the disorder by partnering with the Social
Anxiety Disorder Coalition to reach out to SAD patients, who could share their experiences with
media.
The whole marketing campaign based on Social Anxiety Disorder proved to be a great success. In
the same month as its launch, the campaign garnered more than 400 million mentions of SAD in
the media and was featured in news publications such as U.S. News, World Report and the New
York Times. What set them apart was how they focused on advertising what SAD is and how it
can be diagnosed rather than promoting the product itself. They integrated unique ways to interact
with their customers by referring consumers to websites, where they could give a self-test to
determine if they suffered from SAD. They increased value in the mind's of the consumers by
increasing the benefit attached to the product (Value = Benefit – Price).
SmithKline merged with Glaxo Wellcome to become GlaxoSmithKline (GSK) in 2000. After the
merger, Paxil's DTC budget increased to nearly three times of the previous value. By 2000, Paxil
was the 4th most advertised prescription drug in the US with DTC spending of ~ $92 million (page
22, exhibit 12). This led to Paxil finally being on the same competition map as Prozac.
To summarize, Paxil was a huge success primarily because of its brand positioning of a drug that
specialized in the treatment of SAD. This was supplemented with aggressive public relations and
DTC advertisements that focused on generating awareness about SAD. The humane tint and the
customer interactive campaigns made the consumers connect with the drug better, leading to its
huge popularity.

3. What are the different ways that Lilly and SmithKline Beecham/GlaxoSmithKline
(SKB/GSK) have captured value from their respective drugs? Have these companies done a
good job of maximizing their product’s revenue potential?

a. Creating value is no benefit to a business firm unless it can capture the value it creates. Eli
Lilly and SKB/GSK have captured value from their respective drugs in the following ways.
Eli Lilly:
Before capturing value, appropriate value creation needs to be done and so had been done by Eli
Lilly through its anti-depressant ‘Prozac’. Ever since Eli Lilly launched Prozac in 1988, it has
performed brilliantly in the market, growing exponentially till the end of an entire decade. A $600
million company in the late 1980s, Eli Lilly after getting average results during clinical trials,
expected Prozac to generate at most $70 million in sales annually. In 1988 alone, about 2.5 million
prescriptions of Prozac were filled and it generated global sales of $125 million. The results
showed to be otherwise. It employed several strategies to capture value from its drug ‘Prozac’:
  In the initial months, it employed ‘detailing’ as a strategy to sell to psychiatrists,
specifically those who were either major buyers or influencers in this domain. After
establishing base, Eli Lilly began targeting general practitioners also including efforts to
educate them. They were successful in removing social stigmas related to mental health
problems.
 Because of persistent efforts in the same direction, Prozac touched global sales of $350
million in the immediate next year registering a growth of 180% and by 1992, 10 million
prescriptions were being filled annually. Their strategy worked well in the market as visits
to general practitioners were resulting in more than 60% of prescriptions.
 Eli Lilly also used the unique and rare strategy of direct-to-consumer advertising to fight
new competitors that started entering the market from mid 1990s. It also increased sales
calls on doctors by 25% in 1999.
 As women are almost two times more likely to suffer from depression, it aired infomercials
targeting women on television stations during weekends and in the middle of the night,
considering that the more depressed would be active then.
 All these strategies led to an increase in sales and by the end of decade, with more than 24
million prescriptions being filled each year, Prozac became the most successful mental
health drug in history.
SKB/GSK:
 For its drug Paxil, SKB, early on, identified an unknown market. It successfully created its
monopoly and became an exclusive drug for the treatment of Social Anxiety
Disorder(SAD), being the only one to get an approval from US FDA. Approximately 5
million American adults were presumably suffering from SAD (3.7% of population) and
given the reports that only 5% of those sought treatment, it provided immense opportunity
to the firm. Capitalizing on this, it hired a PR agency to generate public awareness about
the disorder.
 Also, the merger of SKB with GSK provided deeper pockets to the new firm for increased
DTC advertising and thereby giving a major boost to sales. Paxil, among the top 10 most
advertised prescription drugs in US in 2000, experienced a sale of $1808 million with a
DTC spending of $92.1 million.
 The firm also got the benefit of inherent subjectivity in mental health diagnosis and used
catchy but misleading advertisements and headlines to generate demand for these drugs
convincing people who didn’t require them.
 Both the firms were successful in generating such a demand for their drugs that they were
being prescribed by general practitioners for numerous conditions.

b. Yes, till date it seems that the firms have done a good job to maximize the product’s
revenue potential. As of 2000, Prozac was the 5th most top selling drug while Paxil was the
11th (page 8, footnote 35). This data proves that both Prozac and Paxil did an incredible job
in marketing and selling their products since they operated in a market where mental
illnesses still lacked the awareness and emphasis that they deserved. However, there are
still aspects that need to be considered to come to a better judgement.

Eli Lilly registered a continuous growth in its sales from 1988 to 1998 after which it took
a hit. Factors that can account for this dip were competition from a new class of anti-
depressants and increasing negative perception about the drug in the market because of
improper prescription, usage and misleading advertising that failed to highlight the side
effects associated with SSRIs. This led to dilution of brand image. To add to this, it’s patent
was going to expire in August 2001.

As of 2002, Eli Lilly had the exclusive FDA approval status for Dysthymia (1990),
Geriatric Depression (1991), Bulimia (1996) and PMMD (2000). Paxil was also
undergoing Phase III clinical trials for PMMD, but it will take the drug on an average a
minimum of 4 more years to be launched. (Exhibit 13 and 15) Extrapolating from the fact
that these approvals are relatively old, and the revenue of Eli Lilly has still taken a dip, we
can assume that these segments might not be very profitable in the longer term.

As of 2000, Eli Lilly’s sales composition comprised close to 50% revenues from the
Central Nervous System ‘Therapeutic Area’ which includes Prozac. (Exhibit 17) If as
suggested above, this main revenue generating segment doesn’t perform well, the company
might face flattened or declining revenues in the medium term.

SKB, on the other hand, grew at a very high rate after the launch of Paxil and its receiving
FDA approval for SAD in May 1999. The merger of SKB with GSK further strengthened
the position of Paxil in the market. Its global sales increased to $1.8 billion by 2000,
generating almost $1.6 billion in prescriptions from the US market alone. It also topped the
list of SSRIs for new retail prescriptions.

As of 2002, SKB/GSK had the exclusive FDA approval for SAD (1999) and GAD (2001)
from which 6.5% of the US Population suffered. These approvals are relatively recent, and
Paxil has been performing well in these segments. (Exhibit 13 and 5)

As the segments targeted by Paxil are exclusive and because it is doing well in those
segments, and because its patent is not going to expire in the medium term, we think that
GSK will still be generating growing revenues in this segment. As of 2000, GSK’s sales
composition comprised 21% revenues from the Central Nervous System ‘Therapeutic
Area’ which includes Paxil. (Exhibit 18) Also, because 79% revenues were generated from
other areas the company is going to be profitable in the medium term.

We can still suggest though that since both the companies had increased investments in
research and development in 2000-01, we could say that this will lead to benefits in the
long term.
Also, the total sales of GSK are greater than that of Eli Lilly by almost 2.5 times and the Net
Income approx. 2.17 times more.
Prozac’s core target segment is approximately 10.4% of the estimated US population size (Major
Depression & Dysthymic Disorder) of various disorders and the same for Paxil is 6.5% (SAD and
GAD) (Exhibit 5 and Exhibit) which equals to $X million and $Y million. However, as per their
annual reports, we see that total sales of Eli Lilly attributed to Prozac and that of GSK attributed
to Paxil are ~ $2200 and $1700 million respectively (Exhibit 3)

4. In anticipation of Prozac coming off patent, Lilly has adopted a multi-pronged strategy.
What do you think of the various elements of this strategy? In general, should the company
scale back on marketing Prozac, or should it ramp up its Prozac marketing efforts in
anticipation of generic competition? What should GSK’s marketing strategy be for Paxil,
now that Prozac is coming off patent? Should it be similar to, or different from, Lilly’s
strategy?
With Prozac’s patent expiring in 2001, Prozac adopted a multi-pronged strategy to keep up with
the changing market dynamics. As mentioned in the case, in the first 6 months of patent expiry,
only one generic was allowed in the market and generics were typically priced at 20-25% of the
branded patented drug. This implied that patients with health insurance who were not willing to
take up alternate generic drugs would have to pay additional premium to continue using Prozac
and that customers with elastic demand would switch to cheaper substitutes. This lead to an
increased need to change existing business strategies to keep up with the price competition that
was to follow. Below is our analysis of their strategy –
1. New Delivery Method – A weekly 90 mg version of Prozac would incentivize regular
patients to continue using Prozac due to the added convenience and attract people with free
samples that were looking to switch. However, this would still not help them overcome the
issue of price sensitivity since customers looking for cheaper substitutes would still not
prefer this.
However, in all the overall cost of consumption will go down. Initially, the consumers
would usually spend $75 on average ($50-$100) for a 30-day subscription (20 mg per day
consumption). By the introduction of the 90mg drug, the cost of consumption to the
consumers, would go considerably low since patients would only take four doses in a
month spending $45 ($30-$60).
Prozac could use this cost saving point to target the price sensitive customers. The price
sensitive customers could be demonstrated that the combination of value and price (V-P)
that Prozac brings to the table is unmatched. Moreover, after the introduction of the 90mg
Prozac, the bundle of value and price is enhanced, wherein the savings are transferred to
the customers. (V(90mg) -P(90MG) > V(20mg) -P(20MG))
 2. Repositioning of Prozac – Lilly should focus on marketing Prozac for other indications,
especially PMMD and Bulimia. Given that Lily is the only company with FDA approved
status for Bulimia and Elderly Depression as of 2001 [page 23, exhibit 13], Prozac could
capitalize on this market easily given it’s already established brand name. With FDA
approval for PMMD as well, a disorder that was a severe version of PMS but could be
converted to an important market given the widespread occurrence of PMS in women. Re-
packaging of Prozac as Sarafem would work well for Prozac since it would allow Prozac
to work in a similar manner as it did with depression – start with removing social stigmas
associated with PMS, spread awareness of PMS related disorders and normalize the issues
faced by women. Receiving FDA approval for PTSD and Panic Disorder, that represented
5.3% of the US population (page 18, exhibit 5) would also work well for Prozac. Even
though it would face competition from Paxil and Zoloft, with an already established
connection with general physicians and physiatrists, it would become easier to establish
the brand in this market.

3. Development of New Antidepressants – Investment in R&D would play a key role for any
pharmaceutical company, given the nature of patents and competition from generic
substitutes. Hence, Lilly should continue looking for the next big thing which would be
supplemented by their decision to increase their R&D budget by 30%. It should prepare
well for the future by having several products with the potential to have high demand to
not face a similar set back – that is, having 40-50% sales from one product nearing patent
expiry.
Hence, to summarize the above points, Lilly should focus on marketing Prozac with newer
implications and ramp up its marketing efforts. Having done extensive DTC marketing in the past
and connecting so well with the audience, Prozac has already established itself as a household
brand that changed the perception towards mental illnesses in the USA. Even then, brand name
created by Prozac will help it face the price competition only to an extent. However, with
increasing criticism towards SSRIs, there’s an ever increasing need to continue R&D. Also, Non-
SSRI antidepressant drugs in the pipeline like Duloxetine and Atomoxetine that are soon to receive
FDA approval (page 24, exhibit 14) should be marketed aggressively. With some brand loyalty in
the market already, selling these drugs would not be as difficult.

With Prozac coming off patent, Paxil would be affected as well. Given that Paxil was first created
as an alternative to Prozac, generic antidepressants competing with Prozac would also compete
with Paxil. However, since there are still 5 years to Paxil’s expected patent expiry (page 18, exhibit
6), Paxil’s strategy shouldn’t exactly be the same was Prozac’s.
Firstly, Paxil should focus on strengthening its brand further. In the past, it has already established
itself as a leader in SAD segment. However, price is a strong factor for customers and, hence, a
significant chunk of its depression base could shift to cheaper generics. For Paxil, the customer
segment which uses the drug for treatment of depression primarily is at risk. Hence the marketing
strategy must focus on this segment by highlighting quality, brand and value for money.
The three specific strategies are:
1. The development of new delivery methods for Paxil- The new controlled releases version of
Paxil (Paxil CR) has been approved for treatment of depression, this coincides with the market of
Prozac and other upcoming generic drugs, therefore GSK needs to ensure that it can counter the
price incentive of the generic drugs, by highlighting their product quality, using distribution
network effectively. Once the FDA approval for treating panic disorder for Paxil CR is received,
it can target new customer segment suffering from panic disorder.
2. The repositioning of Paxil for new indications- GSK has the potential to position itself in
completely new market of treating Generalized anxiety disorder (GAD), as it is the only firm to
have the approval from FDA for this disorder. According to exhibit 5 Page 18 in case study, 2.8%
of the population suffers from GAD. GSK should capture this market and follow the same path
that it took for SAD treatment. Combining Depression and GAD treatment will infer more value
to customers. Through its superior distribution and marketing channels, deep pockets, product
quality and strong brand, GSK could ward off generics. Since Paxil is already priced lower than
Prozac, price shouldn’t be a big concern. Even if Prozac reduces prices after patent expiry, Paxil
could differentiate itself on GAD treatment.
3. The development of new antidepressants- Innovation and research is necessary to survive in the
market and outrun competition. The research expenditure of GSK is already significant, and it has
a set of products in line up, either ready to be launched or in last stages of clinical trial. GSK
leveraged the SSRI market (with the SAD), to become a big name in the anti-depressants market.
Sale from the medication of central nervous disordered accounted for 21% (Exhibit 18) of its sales.
However, GSK has many atypical drugs in pipeline and very few SSRI drugs in the pipeline
(Exhibit 15). For GSK to find its next blockbuster Paxil and a new market for treatment (SAD),
GSK must continue to invest heavily in R&D for SSRI, as it has been a gamechanger, and drive
innovation forward.
Additionally, with increasing backlash against SSRIs, especially Paxil due to indulging in
misleading and excessive advertising, Paxil should re-define its marketing strategy. It should make
the definition of SAD clearer and educate physicians, doctors and the public to diagnose more
accurate. Currently Paxil comes across as a brand that’s making people believe that they are sick
to promote itself. This would work against Paxil and tarnish its image. Paxil should hence, take up
more social responsible marketing by clearly communicating the symptoms of SAD, the side
effects of Paxil and the possibility of misdiagnosis given the nature of the disease.