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Is an Rx-to-OTC move the right prescription to protect pharma revenues and cut healthcare costs?

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The growing cost of developing novel drugs, combined with the fact that fewer such drugs are gaining regulatory approval from year-to-year, is leading the cost-conscious pharmaceutical industry to make increasing use of lifecycle management techniques. The introduction of a behind-the-counter classification in the US would increase the possibilities for switching Rx drugs to protect market share.

During 2002-06, the FDA approved three times as many reformulated products as novel entities and the pharmaceutical industry is set to increase its use of such lifecycle management (LCM) techniques. The advantages of LCM strategies are manifold, but they are ultimately employed to either increase or prolong the revenues of a given brand. With reformulated products taking less time and therefore less money to develop, due to clinical trials typically beginning in Phase III, LCM strategies have become an important tool for increasingly cost-conscious companies.

Prescription to over-the-counter (Rx-to-OTC) switching is one such strategy, employed to either enhance existing franchise revenues or protect branded revenues from generic competition. An Rx-to-OTC switch involves the reclassification of a prescription product as an OTC product by the relevant national regulatory authorizations.  

Volume of OTC market declining in majority of seven major markets
Several key factors need to be considered before the implementation of an Rx-to-OTC strategy. Manufacturers need to carefully identify which products are suitable for an Rx-to-OTC switch, at what point in the lifecycle of the Rx product the switch should be initiated, and how to differentiate, price and position the OTC product.

The declining sales volumes in the OTC market are attributed to the rising prices of OTC medicines, which have increased by an average of 9.7% year-on-year between 2003 and 2007 (US and 5EU markets). If the trend continues, not only will it impact the profits of OTC manufacturers, but also national cost-containment measures to reduce ever-mounting healthcare costs.

It is only in the UK that the volume of OTC products sold has increased year-on-year between 2003 and 2007. This is probably due to the fact that, on average, the mean prices of commonly used OTC medicines are cheaper than the co-pay (prescription charge) for similar prescription medicines. However, in the remaining markets it appears that strategies employed to improve the awareness of, confidence in, and uptake of OTC products, at least before the end of 2007, have been largely unsuccessful.

While Rx-to-OTC switching is a useful tool for pharmaceutical manufacturers to squeeze revenue out of a declining drug or franchise, switching patients from Rx-to-OTC products is also a practical cost-containment tool used by governments and payers to transfer the cost of a therapy to the patient. However, if this method of cost-containment is to be successful, more investment is needed in the promotion of OTC medicines, to healthcare professionals and the public alike. Unless the benefits of OTC medicines can be justified to these audiences their rising prices could conceivably become the single most important factor limiting the growth potential of the OTC market. 

Behind the counter: a future switching option in the US?
Two main classifications of medicine exist in the US: Rx and OTC. However, the FDA is considering the implementation of a third class; behind-the-counter (BTC) medicines, equivalent to the pharmacy-only status in the UK. As such, BTC drugs would be available without prescription, but only upon the authorization of the serving pharmacist.

There are many pros and cons to the introduction of a BTC product status in the US and it is unclear whether the FDA will actually introduce such a classification. To date, the agency has been cagey over its future intentions. The current discussion marks the fourth time the agency has broached this subject in more than 30 years, after first addressing it in 1974. Indeed, in a November 2007 press conference, FDA deputy commissioner for policy Randall Lutter inferred that there was no immediate plan to introduce a BTC classification.

The implementation of a BTC pilot scheme, giving patients and pharmacists a trial run in participating in the new classification scheme, would allow the FDA to test the water. This would enable the collection of a considerable volume of data and information on the effectiveness and suitability of the scheme, before committing to a nationwide roll-out. However, the FDA is unable to comment on the implementation of such a suggestion at present, as no prior consideration to this proposal has been made. Nevertheless, in the long term, Datamonitor believes that it is inevitable that a BTC classification will be introduced into the US market, as the benefits outweigh the resistors.

Schering-Plough leads the market in terms of switched products
For a product to be considered for an Rx-to-OTC switch, it must possess a number of specific qualities that allow it to be obtained without prescription and without pharmacist supervision. Several additional factors regarding the indication or symptoms at which a potential OTC drug is targeted must also be carefully considered by the manufacturer and the regulatory agencies. Consequently, the most frequently switched products from Rx-to-OTC in the US and UK markets between 2001 and 2007 include topical antifungals, antihistamines, antiulcerants, and certain pain medications.

The leading initiators of these Rx-to-OTC switches have been Schering-Plough (seven OTC products), GlaxoSmithKline (six), and Johnson and Johnson (four). Collectively, these account for half of the total Rx-to-OTC products launched between 2001 and 2007. The defining characteristics of these companies are: they are global market leaders; have broad drug portfolios consisting of numerous products targeted at the primary care market; have the capacity to assign sizable budgets to the marketing and promotional activities required to drive Rx-to-OTC switching; and have a strong history of brand LCM.

Going forward, Datamonitor estimates that if a BTC classification is introduced in the US, $1 billion in sales of branded Rx drugs falling into the aforementioned product categories could be switched to OTC/BTC products in the next five years, confirming the commercial potential of Rx-to-OTC switching.

Related Research:
Rx-to-OTC Strategies: Maximizing the Commercial Potential of an Rx-to-OTC Switch

Generic Series: Optimizing Brand Lifecycle Management Winning Strategies to Maximize Revenue in the Face of Growing Generic Competition

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