RX-to-OTC Switches Affect Pharmaceutical Industry

Kline & Company is gearing up to issue their most recent report on prescription-to-over-the-counter switches, for calendar year 1997. According to the study, the pharmaceutical industry continues to be reshaped by increasing waves of such switches.

"The wave of patent expirations at the end of the century is creating upheaval in the market," according to study author C. Gwyneth Munn, who estimates that approximately half of the OTC drugs sold today were, at one time, available only by prescription. "As industry consolidation results in fewer, but more competitive and dominant marketers, these companies, which now control an even greater market share, have had to restructure, reorganize, and search for creative ways to grow."

According to Munn, the 1980s was a decade of great stability in the pharmaceutical industry, "But that stability was swept away in the 1990s as the health care industry was forced to reinvent itself in order to contain escalating costs," she adds. "The advent of managed care and health maintenance organizations, along with the increased clout of newly merged and consolidated hospital groups, put pharmaceutical companies under increasing pressure to keep prices competitive."

As many marketers have discovered, the Rx-to-OTC switch is an important strategy to extend patent protection and profits. Major Rx-to-OTC switches since 1976 comprise 25 percent of overall OTC sales (excluding contact lens solutions, vitamins and nutritional supplements, home diagnostic test kits, and miscellaneous products). The importance of Rx-to-OTC switch products is a result of a number of factors, including:

• intensifying price regulation and competition from generics as prescription products go off-patent
• increased efficacy from OTC products, which can result in the obsolescence of certain prescription drugs
  
• the economic benefits of nonprescription products in helping to reduce overall health care costs
• the Food and Drug Administration's (FDA) heightened receptivity to switches

Rx-to-OTC benefits include less stringent price regulation for OTC products; extension of product life cycle; and extended patent protection (a period of exclusivity is often granted to OTC switch brands by the FDA). To realize these benefits, major marketers have formed alliances based on potential switch candidates, often seeking a partner with greater OTC marketing experience.

Recent Rx-to-OTC switches that will be examined in detail in the study include Johnson & Johnson's Nasalcrom, Bristol-Myers Squibb's Vagistat 1, and Roche/Bayer's Femstat 1. The study will also include market size and brand share data, retail sales, channel breakdowns, trends and forecasts for 42 major product categories, detailed profiles of more than 20 leading marketers, analysis of media spending, and timely bulletins covering new products, as well as corporate and regulatory developments. A five-year forecast is also included.

Nonprescription Drugs USA 1997 organizes products into eight groups: allergy, asthma, and sinus products; cough and cold preparations; digestive products; feminine products; internal analgesics; nutritional products; topical products; and other products (including antifatigue products, home diagnostic kits, sleeping aids, and smoking cessation aids).

Those product categories that are expected to grow at the fastest rate include hair regrowth treatments; smoking cessation aids; home diagnostic kits; antacids and anti-gas remedies; and, especially, vitamins and nutritional supplements, which is the second largest category in terms of sales (following pain relievers). Total industry sales are projected to top $25 billion at the retail level by 2001.

These trends and issues are analyzed in Kline's latest update of its annual service, Nonprescription Drugs USA 1997. The study will be issued to subscribers as each section is completed, beginning in March; individual chapters may be purchased separately.

For more information on this report, contact: C. Gwyneth Munn, Kline & Company, Inc., 165 Passaic Ave., Fairfield, NJ 07004. Phone: 973-808-3368.