Current Issues

Going Over-the-Counter
a report by

Faiz Kermani, PhD

Chiltern International

Introduction

different products, the four basic assumptions that back up this concept tend to be valid: products have a limited lifespan; product sales pass through distinct stages, each posing different challenges to the vendor; product profits rise and fall at different stages of the life-cycle; and products require different marketing, financial, manufacturing, purchasing, and personnel strategies in the different stages of their life-cycle. Following the introduction of a pharmaceutical product, sales of the product will typically climb slowly, then rise sharply as the product gains popularity and trust and becomes widely prescribed by physicians, reaching a plateau of peak sales dictated by market capacity and competition.3 Sales will generally start to decline soon after patent expiry, when low-priced generic competition enters the market.Typically, sales of a product will fall more sharply after the expiry of a patent than they originally rose. The duration and shape of the pharmaceutical product lifestyle curve varies considerably among products.3 Some products of a highly specialized nature are wellprotected from generic competition and may suffer only a minor drop in sales after patent expiry. Some products may show an extremely rapid sales growth, particularly if they are the first effective therapeutic agent for a life-threatening disease. Other agents may experience particular plateaux and extra sales growth if, for example, the results of a particular study show that they are more effective or safer than was previously thought.

Faiz Kermani, PhD, works in business development at the clinical research organization Chiltern International, where his role covers bids, proposals, and marketing. He previously worked in business development at CMR International, examining research and development (R&D) productivity issues for pharmaceutical industry clients. He has also worked as a research analyst for a Danish healthcare consultancy, Informedica A/S, focusing on global pharmaceutical pricing and parallel importation. He holds a PhD in immuno-pharmacology from St. Thomas Hospital, London, and a first class honours degree in pharmacology with toxicology from Kings College, London.

The US Food and Drug Administration (FDA) defines over-the-counter (OTC) products as drugs that are available to the consumer without a prescription. In the US there are currently 80 classes (therapeutic categories) of OTC drugs covering a wide range of health conditions.1 In total, there are 100,000 OTC drug products marketed in the US and, as an OTC effectively shifts the control of healthcare to consumers, the FDA has had to develop regulations to ensure that OTC products are properly labeled and that their benefits outweigh their risks.1 The FDAs Center for Drug Evaluation and Research (CDER) Division of Over-the-Counter Drug Products is the main point for the review of such products. The OTC market has become highly competitive for pharmaceutical manufacturers, particularly in the US, which is the largest consumer society in the world.2 There have been a number of consolidations and acquisitions in the pharmaceutical sector to help companies boost their presence in the OTC field. As OTCs are more readily visible to the consumer, there is a need to have a strong brand image and thus larger companies are in a more powerful position to market such products. Larger companies have the financial capability to launch nationwide advertising campaigns, which smaller players will find difficult to emulate in the image-conscious US market.
The Life-cycle of a Pharmaceutical

The concept of a life-cycle of a pharmaceutical product is based on the observation that there are distinguishable phases through which a product passes.3 Although there may be variations in the life-cycle of

12

1. Anon,Over-the-Counter Drug Products, FDA/Center for Drug Evaluation and Research, Division of Over-the-Counter Drug Products, (2003), http://www.fda.gov/cder/offices/otc/default.htm 2. Jessop N, Will US pharma prices remain free for much longer?, Inpharm Industry Intelligence, 8 September 2004. http://www.inpharm.com 3. Kermani F, Global Pharmaceutical Pricing: Strategic Issues and Practical Guidelines, (2003), Urch Publishing http://www.urchpublishing.com

BUSINESS BRIEFING: US PHARMACY REVIEW 2004

Current Issues

Table 1: Potential Audiences for OTC Promotion

Audience Details

Prescribers

Pharmacists Consumers

Traditionally, OTC medicines have not been promoted to prescribers, but in the case of switched drug, such promotion is essential. It is in the prescribers power to recommend a switched medicine for a patient to buy themselves even if they will not be involved in prescribing it. Pharmacists are frequently required to recommend switched products and can provide important product information to uninformed consumers. The consumers must be addressed directly, perhaps for the first time, regarding the switched product. The effort to inform consumers can drive a rise in general awareness about particular disorders.

In all major markets, the increased pressure on the pricing of ethical pharmaceuticals makes the OTC sector, where pricing is relatively free of government regulation, far more attractive to manufacturers. More than ever before, prescription drug pricing is a major political issue in the US.
Growth of the US OTC Sector

Rx-to-OTC Switching

The movement of pharmaceuticals from Rx (prescription-only) to OTC status, known as switching, is a key stage in the product life-cycle of a number of major pharmaceuticals. Switching a pharmaceutical product can extend its life-cycle, and must be accompanied by fresh pricing decisions relating to the new environment that the product is entering. 3 Unlike prescription pharmaceuticals, OTC products are not priceregulated, and their price is fully visible to, and completely paid by, the consumer. Since the early 1980s, this practice has developed into a major issue for ethical pharmaceutical companies as a succession of high-profile products have been switched. Throughout this time, the definition of what makes a drug an appropriate candidate for switching has been extended considerably.3 The following points can exemplify the current importance of the switching option to major ethical pharmaceutical manufacturers: Whereas in the past, switching would occur only when the ethical product had come off patent, companies are now switching products, in treating a different indication from the ethical indication, some years in advance of the patent expiry. Governments are placing greater emphasis on the responsibility of the consumer for the cost of healthcare. The encouragement to switch drugs is integral to this, as it means that conditions previously best treated with Rx drugs can now be treated entirely at home. This phenomenon is particularly apparent in the US.

After a period of unsteady performance, the OTC market has shown strong growth in the US during the last two years. A study by Euromonitor International found that in 2003, OTC sales in the US increased by 3.2% compared with the previous year, and that the growth of the sector was bolstered by improvements in the US economy.4 Kline and Company carry out annual analyses of the US OTC sector and its figures suggest that between 2002 and 2003 the market grew by 5.2%.5 They estimated OTC sales at the manufacturer level to have been US$16.7 billion in 2002 and US$17.5 billion in 2003.5 They concluded that the growth of the US OTC market between 2002 and 2003 was more than double the growth rate experienced by the sector during the 2001 to 2002 period.5 Both studies highlighted that not all OTC segments had shown growth, particularly the analgesics segment, which faced competition from prescription products and private label products.4,5 One of the most promising segments was that for cough and cold remedies, which grew at 7.5% during the 2002 to 2003 period.5 The success of Schering-Ploughs Claritin (loratadine) product family highlights the growing importance of the OTC sector to pharmaceutical companies. In 2002, the FDA approved Claritin as an OTC product; it had previously only been available on a prescription basis for seasonal allergic rhinitis, a condition that is estimated to affect between 10% and 30% of adults in the US.6 The decision was an important one, as the FDA indicated that the drug had met criteria that deemed the drug was sufficiently safe for use by consumers without direct prescriber supervision, and that its labeling contained clear and understandable instructions. As a result of the switch, in 2003 the Claritin family brand had retail sales of over US$460

14

4. Anon, US OTC market continues to show signs of rekindled growth, (2004), Euromonitor International, http://www.euromonitor.com/OTC_Healthcare_in_USA 5. Anon, U.S. OTC Market Showed Healthy Rebound in 2003, Reports Kline & Company, PR Newswire, 7 April 2004, http://prnewswire.com 6. Anon, FDA Approves OTC Claritin, November 27 2002, FDA Office of Public Affairs. http://www.fda.gov/bbs/topics/NEWS/2002/NEW00855.html

BUSINESS BRIEFING: US PHARMACY REVIEW 2004

Going Over-the-Counter
million and this helped propel a 90% growth in Schering-Ploughs OTC sales during 2003.4,5 Procter & Gambles heartburn medication Prilosec has been a similar OTC switch success story.7 The company markets the product under an agreement with AstraZeneca. In its first year on the US market, sales exceeded the companys own projections of US$200 million to US$400 million.7 The US market has also evolved because of changing consumer attitudes. For example, one survey commissioned by the Consumer Healthcare Products Association (CHPA) in 2002 suggested that 75% of Americans would prefer self-diagnosis and treatment rather than seeing a physician for an appointment.8 Nevertheless, many consumers are influenced by their doctors on their choice of OTC product (see Figure 1). According to a survey by Ipsos, nearly half of consumers who purchased Claritin OTC in its first six months on the market did so because of a doctors recommendation.9 The CHPA is a member-based association representing the leading manufacturers and distributors of non-prescription, OTC medicines and nutritional sup-plements and promotes the use of OTCs in healthcare. It has funded research to identify strategies that would optimize the use of OTC products as part of daily healthcare. It also wishes to promote a better environment for Rx-to-OTC switching and work with regulators on riskmanagement issues.8 The popularity of OTCs and self-medication has also led to regulators launching frequent education campaigns to provide consumers with better advice regarding OTCs. For example, in January 2004, the FDA launched a national education campaign focusing on OTC pain and fever remedies.10 It highlighted the importance of reading labels, and consumers were warned against taking multiple medications containing the same ingredient at the same time as this could lead to the risk of an accidental overdose.10 The campaign led to an OTC pain reliever brochure being distributed in pharmacies and healthcare settings, a newspaper article being distributed to
Figure 1: Share of Category/brand Buyers that Purchase Product Because of a Doctors Recommendation
Osteoporosis Cardiovascular health/Asprin therapy OTC H2 Antagonists Arthritis Allergy Claritin OTC 0 10 20 30 40 50 60 70 80 90 100

Percent of Buyers
Source: Ipsos PharmaTrends.

10,000 community publications across the country, a reprint of an FDA consumer magazine article on the subject being circulated to healthcare conferences, and an advertisement in 100 major magazines.10
Outlook

As the importance of the OTC market has grown, the question of the pricing of OTC drugs has become a key issue for many major pharmaceutical products. When pricing OTC drugs, although the pharmaceutical companies have far more regulatory freedom than for prescription products, they must consider a number of other factors not least the exposure of the consumer to the full price of the product. This is particularly crucial in the US market as companies are having to work harder than ever before to justify their prices to consumers. US consumers are looking at other markets such as Canada and Europe and are querying the high product prices in their country.2,3 Therefore, although the OTC sector will grow in the US, its performance may be affected by consumer concerns over the pharmaceutical industrys role in healthcare. Those pharmaceutical companies that can justify the commercialization of their OTC products in line with social health objectives will the most successful in the market.

7. Anon, Prilosec OTC Exceeds P&Gs First Year Sales Expectations, CNN/Money, October 12 2004, http://money.cnn.com 8. Johnsen M,Optimizing OTC market potential View from the Top03: CHPA Consumer Healthcare Products Associations priorities for 2003, Drug Store News, January 20 2003. 9. Anon, Doctors Play Key Role in Sales of Non-Prescription Drugs, September 17 2003, Ipsos-Insight, http:// www.ipsosinsight.com 10. Anon, FDA launches consumer campaign on safe use of OTC pain products, January 22 2004, http://www.fda.gov/bbs/topics/NEWS/2004/NEW01008.html

15

BUSINESS BRIEFING: US PHARMACY REVIEW 2004