In the US, patent holders are granted a 20-year term of exclusivity on their inventions. In the pharmaceutical industry, long drug development timelines combined with the Hatch-Waxman act have whittled the effective patent life of new drugs to less than 12 years on average. When this period ends, generic drugs enter the market almost immediately, leading to drastic market share and sales losses by brand name drugs. Switching a drug from prescription-only to over-the-counter (OTC) status can help retain some of these sales long after a patent has expired.
Worldwide OTC sales were worth $95 billion in 2009, but the market varies widely by country. OTC medicines make up 8% of total US drug sales, compared to 30% in developing nations. Sales in this category are also estimated to grow at a double-digit rate in the fast growing BRIC (Brazil, Russia, India, China) economies in 2010, in contrast to considerably slower growth in the US, Europe, and Japan.
Some of the most commonly purchased OTC drugs are antacids, analgesics, allergy, and cough/cold medications. Top selling brand name OTC medicines include Prilosec, Claritin and Zyrtec, Even after its patent loss, Prilosec remains the top-selling antacid in the US, and the launch of Claritin has been so successful that eight years after its patent expiration, it still maintains sales of about $400 million in the US alone. Other stalwarts of the branded OTC market include Johnson & Johnson’s Tylenol, and Bayer’s Aspirin, both thriving amid generic competition based on the strength of their brand.
Several drivers are in place to put the OTC market on a solid growth trajectory. As blockbuster drugs go off patent, many companies attempt to extend their franchises by switching the drugs to OTC status toward the end of the drug’s patent life. The above examples show this can be a highly successful strategy. Pfizer is currently attempting to switch blockbuster Viagra to OTC and is mulling the change for Lipitor. A couple European nations have allowed the switch, but the FDA has been so far hesitant. This may be about to change.
Patients are becoming increasingly sophisticated consumers of healthcare, especially concerning the medicines they take; they want to have a larger role in their healthcare decisions. For good or bad, large numbers of websites now make medical information widely available to the masses with the click of a mouse. Along with this, a plethora of at-home diagnostic test kits further empower the consumer. OTC products allow consumers the ability to seek moderately priced FDA approved treatments for easily diagnosed ailments without the inconvenience and cost of physician visits.
In recent years, rising healthcare costs have led many insurers to formulate tiered drug co-pay systems. In a scheme not too removed from reality, the co-pay for a generic drugs start at $10, branded drugs require co-pays of $20-25, and at the top, branded drugs with generic alternatives will cost patients at least $40 out of pocket. This system is intended to contain the growth in spending on drugs by pushing patients toward the use of generics. As the high cost of drugs and co-pays alike have increased, both insurers and patients have found that money can be saved with OTC drugs. Physicians are increasingly willing to instruct their patients to purchase common OTC drugs rather than write prescriptions for drugs with the same active ingredient.
To take full advantage of the OTC market in the US, significant changes in consumer purchasing habits along with regulatory changes will be required. As it currently stands, only about 32% of OTC drugs are purchased through drug stores, a whopping 21% comes from warehouse stores, with most of the rest from supermarkets. While drugstores can carry a large variety of medicines, by their nature, supermarkets, and especially warehouses, carry a much smaller assortment. Warehouses and supermarkets, therefore, focus on selling the most popular medicines- ones consumers are most familiar and comfortable with. As the market is currently structured, growth will be incremental due to the maturity and saturation of the popular OTC medicines.
In deciding which Rx drugs are allowed to switch OTC, the FDA looks at the safety and effectiveness of the product, the benefit-to-risk ratio, and whether the labeling can be written in such a way that consumers can use the products safely without the intervention of a healthcare provider. To grow the market, the FDA must first allow that patients are educated enough to make more complex medical decisions on their own behalf. To an extent, this has been complicated by industry’s overuse of brand extensions- mixing and matching cold, cough, allergy, analgesics- until consumers have no idea what they’re taking. This is leading to fears that patients may use their medicines in an inappropriate manner.
Aside from improving drug labeling, pharmaceutical companies need to shift their OTC distribution channel toward the drugstores and away from warehouses and supermarkets. In Europe, where OTC drugs enjoy a considerable higher share of overall drug sales, pharmacies have an 88% share of the OTC market. By purchasing at a drug store, consumers will have the opportunity to consult with a pharmacist should any questions arise. The consumer can learn about the active ingredient, dosing information, side effects, drug-drug interactions, and much more. This should provide some relief to the FDA.
For some of today’s more challenging Rx to OTC switch candidates, the seldom-used Behind-the-Counter (BTC) designation may be appropriate. BTC medicines are prescription-free drugs that must be purchased directly from a pharmacist. The emergency contraceptive Plan B is a BTC drug, as are allergy medicines containing pseudoephedrine. This third status is widely used in Europe, where it has shown much success. Its use should be expanded here in the US.
Many of the novel drugs now nearing the end of their patent life require a bit more knowledge from users than the general cough drop. They would do well in a BTC category if allowed by the FDA. These include drugs for: erectile dysfunction, osteoporosis prevention, contraceptives, and cholesterol control, among others. Most patients can self-diagnose themselves for these treatments; what they need is a small amount of guidance from a healthcare professional, guidance that can be provided by a pharmacist.
It will require a combined effort on the part of the FDA, pharmaceutical companies, and even pharmacies to grow the OTC market through increased Rx switching. Done right, this is a win-win situation as consumers save and pharmaceutical companies extend the life of their drugs. I expect this will take a long time to play out due in large part to the extremely conservative environment inside the FDA.
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