Dynamics of Rx to O-T-C switches

Chain Drug Review, June 30, 2008 by Dennis Callahan

Over the last 25 years the health care arena has been abuzz about the potential of Rx to O-T-C switches to become one of the key spokes in the wheel of rolling change in health care delivery. While high-profile and hugely successful switches, such as Prilosec OTC and Claritin OTC, have hinted at a paradigm shift, the reality is that the number of switches per year has actually declined significantly since the very active three-year period of 1995 to 1997, which saw 20 brands--including Pepcid, Tagamet, Zantac, Rogaine, Nicorette and Monistat--go over the counter.

Anticipation of a resurgence in switch activity surfaced in the late 1990s after Wellpoint petitioned the FDA to make Claritin, Allegra and Zyrtec available over the counter. The launch of Claritin OTC in late 2002 created expectations that many other drugs would follow and that we were embarking on a new era of switches.

The prediction was only half correct. In fact, since Claritin OTC's launch in late 2002, only 10 additional switches have occurred. There are some very good reasons:

* Fewer drugs available for switch under our current health care delivery model. Many prescription products on the market now are more complex than predecessors that switched in the 1980s and '90s. Drugs appearing to be great O-T-C candidates, such as statins and intranasal steroids, carry potentially insidious side effects that require the management of a physician. As a result, many prescription drugs are not always appropriate for self-medication.

* Marketing exclusivity and "me too" drugs. While Rx to O-T-C is a viable strategy for companies and marketers looking to preserve brand revenue, the potential for market saturation in certain categories may exist. For example, an Rx to O-T-C launch of a product nearing or beyond its patent expiration is sure to face immediate competition from private label generics. While products with strong brand equity can mitigate the damage with precise planning, some lesser or later me-too brands may decide the reward is not worth the effort.

* FDA rules and regulations. Whereas other countries have much more liberal Rx to O-T-C regulations, the FDA is constrained by strict rules. For example, a product is considered for O-T-C when it has the following characteristics: The benefits outweigh the risks, the potential for misuse and abuse is low, consumers can use it for a self-diagnosed condition, it can be adequately labeled, and health practitioners are not needed for the safe and effective use of the product.

The FDA has resisted switches for drugs that treat symptom-less chronic conditions, such as high cholesterol. The concern is that consumers cannot correctly decide on their own whether they need medication to lower their cholesterol. As a result, the FDA has limited switches mostly to conditions where symptoms are apparent to the consumer, such as allergy and heartburn.

Despite the challenges, the era of switches has ushered in a new set of market dynamics that stakeholders considering or embarking on a switch must address. These include:

* Managed care influence. Not only have managed care organizations encouraged switches, but they have also played a major role in the success of a few leading O-T-C brands. By offering low co-pays for O-T-Cs dispensed, for insurance purposes, with a prescription and by raising co-pays for branded prescription products, managed care organizations have influenced both physicians and patients to try an O-T-C before moving to a prescription medication. It is imperative that companies embarking on a switch formulate an effective managed care strategy.

* Professional promotion. Manufacturers have focused on professional promotion for a few of the more successful switches since 2002. Considering that some of the prescription products switching carried strong brand equity with physicians, this was an efficient way to gain quick market share.

* In-store clinics and the role of the pharmacist. In-store clinics and more activist pharmacists could help open the door to more Rx to O-T-C switches for new classes of medications. Consumers may increasingly be screened and followed for a condition such as high cholesterol by someone other than a physician. It will be critical for manufacturers to work closely with retail partners to ensure that the in-store health care delivery experience is one of quality.

* Product differentiation in an expanded competitive set. More than ever, the line between the prescription and O-T-C segments has blurred in a number of key switch categories. This makes it more important than ever to fully comprehend where brand differentiation is possible.

[ILLUSTRATION OMITTED]

The dynamics dictating success or failure for a switch have changed over the last five years. As the U.S. struggles with the future of its health care delivery model, manufacturers and retailers will need to execute against a different set of strategies to realize success.

Dennis Callahan is a director at Nielsen Co.