Rx-to-OTC Switch Data

Rx-to-OTC Switch Management Issues

Rx-to-OTC Switch Trends

Where to find more information on Rx-to-OTC Switches

SWITCH® Forecast (Part One):
Is There a Successful Strategic Defense Against Rx and OTC Generics?

Currently, the Number of ANDA's Is Growing Fast (+23%)
Dual Status Is the Best Alternative

The good news is that it takes less time now to get a new pharmaceutical product to the market. Improvements in clinical research planning and execution are the reason.

The bad news is that it costs more than before. On average right now, it costs $500 million and takes 10 years to get a new pharmaceutical product to the market.

There are few industries that require so much up-front investment and receive payback so much later. Not surprisingly, pharmaceutical companies are quite bitter when they talk of the generic competition.

Pharmaceutical company management gets apoplectic when discussing generic Rx competition or OTC generic competition (read as house brand, private label, etc.) They get red in the face and see red ink spreading over their balance sheets.

Their principal claim is that the generics have too easy a time stealing sales based on their lower price. Without expending much money for research and doing very little except wait for patents to expire, they enter the Rx or OTC markets and quickly capture sales and market share from the higher priced original products.

It is clear that todays cost conscious Rx healthcare environment (HMO's, etc.) and OTC consumers increasingly prefer generics over major branded products because of their lower prices.

Moreover, generic companies show no let down in their efforts. The number of Abbreviated New Drug Applications (ANDA's) is increasing dramatically each year. Most of the ANDA'a are aimed at those Rx drugs facing expiration.

The sole defensive solution we have found is for companies to seek market protection via a dual status approach to the Rx and OTC markets. We will discuss this later in this article. In this month's SWITCH Special Report we list the major products facing patent expiration up to the Year 2000. With the sole exception of Pepcid, they are strictly Rx products. With the growth of dual status, we predict that that mix will change

In most cases, generic products are bioequivalents to a branded Rx or OTC product, but at a much lower price. The reality is that it is quite easy to copy most pharmaceutical products. Once a patent expires, generics appear quickly. The generic companies are "picking the low apples off the tree." It is that simple.

As the table below indicates, generics have successfully penetrated all traditional OTC product categories.

US OTC Generics Penetration (Top 12 Categories)

Category*					Category Dollar Value (millions)				Private Label Dollar Share				Private Label Unit Share
Internal Analgesics					2500				23.5%				30.9%
Cough/Cold Products					1790				20.9%				29.7%
Fem. Hygiene					1740				8.3%				11.7%
Stomach Remedies					1570				5.0%				3.8%
Laxatives					631				23.6%				35.3%
Oral Antiseptics					621				20.3%				30.2%
Foot Medications					250				9.3%				10.7%
Acne Remedies					247				2.5%				3.5%
Nasal Preparations					240				24.0%				38.1%
External Analgesics					211				5.9%				7.1%
Lice Treatments					150				13.8%				23.0%
Diet Aids					147				7.6%				12.6%
*previous 12 months as of Oct. 1, 1997. Source: Chain Drug Review

Some Basics On Rx-to-OTC Switches
(For purposes of this article, we feel the need to provide a brief summary of certain switch basics. All of the following has been covered in much more detail in previous issues)

The Switch Decision

The decision to register a drug for OTC marketing is based on, amongst other factors:

• The incremental sales return of such a status change over time
• The cost to support such a change, including clinical studies to prepare for the submission to FDA, regulatory expenses, and packaging and promotional expenses.
• The perceived probability that the product will be approved as a non-prescription agent.

At minimum, a company should convert the product from Rx to OTC status about two years in advance of expiration of patent protection. During that two-year period, as the brand is building consumer awareness, it will not be compromised by a generically equivalent competitor. Thus the company has sufficient time to introduce the brand to consumers and to solidify its position in the marketplace.

Note: In many other previous SWITCH issues we have discussed Rx-to-OTC switch timing in detail. Generally speaking, we find that a switch takes from as little as 15 months to over 48 months to get to the market place once the process has begun.

To support the switch to OTC status, the originating company is required to prepare a New Drug Application (NDA) for review by the FDA.

Approval of an NDA is license to market that particular drug for its approved indications in the US. The NDA process requires the company to demonstrate safety and efficacy of the applicant drug for particular indications, including the identification of:

• Product Claims
• Adverse Effects
• Dosage
• Manufacturing Processes
• Warnings
• Contraindications

The process to pull all of the above together and gain approval from the FDA is quite time-consuming. In effect the time required for this procedure reduces the effective duration of patent protection, sometimes in excess of one half.

There are a few basic strategies with variations. The following details some of them.

US Patent Protection and Product "Exclusivity" Strategy Explained
To protect sales volume in the US, prescription drugs to a large degree rely on patent protection of the active ingredient. The conventional patent protection period is 17 years. However, since it takes 10 years to develop a drug, the commercial payback period is about 7 years.

International patents are wildly varying. In Japan and France extensions can be gained after expiration relatively easily. In contrast in countries like Thailand there is no patent protection at all. In between these two extremes are the balance of the countries.

To address the loss of protection of intellectual property resulting from these extended NDA reviews, the 1984 Waxman-Hatch bill gives some recourse to the submitting company. With the adoption of the1984 bill, the patent is essentially extended under specific circumstances and the extension period is a period of "market exclusivity." Performing special studies and/or new clinical trials to support a switch are examples.

However, the effort required to gain exclusivity status from the FDA must be considered "essential" to the switch. In the case of Rogaine 2% strength, despite Upjohn protestations the FDA decided that the additional work was, in fact, non-esential. A word of advice: When dealing with a regulatory body, pay extreme attention to the meting notes and seek approval to the notes from the reviewing body. Noting the use of words like "essential" in a meeting may be enough to support a legal claim to exclusivity.

With regard to generics, the concept of "market exclusivity" prohibits the approval of an Abbreviated New Drug Application (ANDA) by a generic manufacturer, for example, until the period of exclusivity ends.

The ANDA: A Generic Manufacturers Weapon
vs. the Pharmaceutical Companies
The ANDA is the shortened approach by which generically equivalent drugs can be approved for indications previously approved by the originator of the drug. The ANDA required proof that the manufacturer of the proposed generic drug can produce a product that delivers the same amount of active ingredient to the patient over the same time frame and that the manufacturing process is according to the Good Manufacturing Process (GMP) regulations of the FDA. Clinical trials are not required.

By cutting off this route of a quick approval, the originating company has been granted extended marketing exclusivity for the original drug. Should an NDA be approved for a new indication on a previously approved ingredient, the marketing exclusivity is usually three years. These extensions were a kind of compensation to correct for lost marketing time during which the product was under FDA review.

Rx and OTC Product-based Generic Defensive Initiatives:
Main Brand and Line Extension Improvements
Research based pharmaceutical companies have significant resources at their disposal if they choose to pursue either patent extension or some form of differentiating product improvement. Unfortunately, given the drive to discover new molecules, revisions to existing molecules tend to get lower priority.

The few reasons that the Rx companies will divert activity from new molecule research is if the product improvement

• Has a high chance of success
• Provides a high degree of differentiation
• Is certain to have an excellent return on investment

As can be seen below, there are numerous ways to improve the therapeutic benefit:

Patent Life Extenders: Major Rx Product Improvements

Company		Drug					Innovation
Merck		Procardia					Procardia XL long-acting delivery system
Schering-Plough		Intron-A					Self-administered 6 dose injection device. PEG-IntronA (in development) - cuts dosing
Schering-Plough		Vancenase					Vancenase AQ double strength once-daily delivery
American Home Products		Premarin					Prempro and Premphase product improvements
Hoechst Marion Roussel		Cardizem					Cardizem SR, Cardizem CD and Cardizem Lyoject improved delivery system
Glaxo-Wellcome		Beconase					Flonase once-daily delivery
Glaxo-Wellcome		Zovirax					Valtrex - improved efficacy and simpler dosing

Of course many of the above improvements continue to contribute to profit if the products move into the OTC area.

However, OTC improvements tend to be on the minor side from a therapeutic standpoint. This is because

• Research funds are quite limited
• Profit is less since OTC sales and profits tend to be much less than Rx
• To consumers minor variations can be enough to distinguish a product from a generic

The prevalence of generics is forcing companies with switches to realize that the brand's sales and profitability can diminish greatly after the three-year exclusivity period if they succeed in getting it.

Major resources and personnel also are required to undertake a switch program. The costs to simply file a registration for a switch are daunting: Somewhere between $8 and 12 million according to some estimates. Add on the packaging, development and actual launch costs and one can see that switching is a gamble that is substantial and getting more expensive every day.

The battle to stay ahead of generics must be well planned and in place before the exclusivity period ends. The defense plan should be composed of many different strategies.

Minor OTC Improvements:
Factors for Success in Marketing Line Extensions.
The marketing of novel dosage forms and technologies as line extensions is another pathway for consideration. They can also help the switch compete against any branded or generic entries that may be launched.

The decision to develop dosage forms and technologies involves many elements. Their success in defending against generics is dependent upon factors such as the novelty of the dosage form and its competitive advantage long term over generics. The financial impact and benefits of any new dosage form in protecting the brand are not clear cut or easy to assess.

The dosage form or technology should ideally have a unique or superior benefit that generics cannot replicate. It may be a real attribute or a perceived benefit by the consumer. A clinical advantage such as increased potency, longer relief or a new indication delivers the best shield against generics. The existence of a patent or proprietary process is extremely important in delaying generic copies.

The 8 Key Criteria for a Go/No Decision
On the Product Improvement Decision
Any assessment to develop potential dosage forms or technology should include the following questions:

1. Is there a unique and appealing benefit to keep current users and attract new users?
2. Will it be superior to any potential generic or branded competitors?
3. Where is the threat of generic competition?
4. Does it fit within the overall strategy and positioning of the brand?
5. What is the existence and status of the patent?
6. Can the dosage form be commercially scaled up?
7. Are the terms and costs in a business arrangement with another company acceptable?
8. What are the sales, cost and profit impact on the total brand by the new dosage form over several years?

Technologies that have been utilized by companies so launch Rx-to-OTC switches or monograph brands include the following:

Switched US OTC Product/Benefit Improvements

Brand			Dosage Form					Benefit
Tylenol			Gelcaps					Capsule heritage and ethical positioning
Advil			Gel Caplets					Perceived as an advanced and strong pain reliever
Pepcid AC*			Chewable Tablet					Convenient to take
NyQuil, Robitussin			Softgel					Convenience vs Liquid. Preceived speed of relief
Mylanta			Lozenge					Perceived soothing action; convenient to take anytime
Dimetapp			Rapid Dissolve Tablet					Easy to give children; Perceived speed of relief
Dramamine			Chewable Tablet					Convenient to take anytime
Lotramin AF Antifungal			Powder, Spray Liquid					Easier Application
Benadryl Itch Relief			Gel Stick					Easier Application

* Launched in United Kingdom

The Importance of Developing These Line Extensions
Before FDA Exclusivity Ends
These new dosage forms should ideally be launched during the three-year exclusivity or just prior to generics entering the market. This timing also depends on the number and type of new dosage forms that the company has planned. As a result, their development should begin early on since the commercial scale-up and clinical studies for approval will take time. Optimally, the plan for these line extensions should be in place even before the initial switch takes place.

Many companies with switches are competing for novel dosage forms and technologies. They are being developed internally or secured from other sources, including companies that specialize in delivery systems or technologies.

Unique dosage forms and technologies are becoming difficult to find as more companies lock them up for development. Conducting an international search increases the outcome of securing unique dosage forms from other sources or generating ideas for those internally developed. A focused and consistent effort by the company is most productive in discovering and developing dosage forms and technologies.

Next month we will develop further the importance of the use of dual status in defending Rx and OTC business from generic penetration. There is no doubt in our minds that dual status is the only truly viable means to protect a pharmaceutical business franchise. In October we will go deeper into the financial issues and the need for longer term planning. We will also analyze some Rx products' chances of gaining OTC status, what it might cost and deciding whether it would be worth the effort

Having said that, the generics industry has certain specific advantages. If a generic company is sufficiently determined and technologically equipped, there is virtually nothing to prevent them from producing an equivalent to the Rx or OTC product once it is off patent. Pharmaceutical companies may make it more difficult over time, but they can still do it. In our relatively competitive major world markets where cost constraints are being scrutinized, generics will always be looked on by some as a solution to reduce healthcare expenditure while maintaining efficacy.

Future Generics?
Major US Rx Drugs Coming Off Patent (1998-2000)

Drug Name

Generic Name

Company

US Patent Expiration

96 US Sales in Millions

Cardizem CD

Diltiazem (1 x daily)

Hoechst Marion Roussel

1998

$735

Imdur

Isosobide monoitrate

Schering-Plough

1998

131

Hismanal

Astemizole

Johnson & Johnson

1998

91

Normodyne

Lavetalol

Schering-Plough

1998

53

Tornalate

Bitolterol

Sanofi Winthrop

1998

25

Trandate

Labetalol HCl

Glaxo

1998

20

Permax

Pergolide mesylate

Eli Lilly

1998

14

Flumadine

Rimantidine

Forest

1998

15

Total 1998:

1,084

Vancenase

Beclomethasone

Schering-Plough

1999

214

Nizoral

Ketaconazole

Johnson & Johnson

1999

132

Vanceril

Beclomethasone

Scherin-Plough

1999

96

Beclovent

Beclomethasone

Glaxo

1999

54

Beconase

Beclomethasone

Glaxo

1999

33

Total 1999:

529

Vasotec

Enalapril

Merck

2000

1,080

Procardia XL

Nifedipine (Alza)

Pfizer

2000

1,005

Pepcid

Famotidine

Merck

2000

855

Humulin

Human insulin

Eli Lilly

2000

564

Glucophage

Metformin

Bristol-Myers Squibb

2000

331

BuSpar

Buspirone

Bristol-Myers Squibb

2000

231

Sporanox

Itraconazole

Johnson Johnson

2000

280

Lotrisone

Clotrimazole

Schering-Plough

2000

107

Neurontin

Gabapentin

Warner-Lambert

2000

196

Wellbutrin

Bupropion

Glaxo

2000

127

Ziac

Bisoprolol hydrochlorothiazide

American Home Products

2000

91

Estraderm

Estradiol patch

Novartis

2000

90

Plendil

Felodipine

Merck

2000

75

Cytotec

Misoprostol

Searle

2000

68

Terazol

Terconozole

Johnson & Johnson

2000

57

Tri-Norinyl

norethindrone

Hoffman-LaRoche

2000

10

Total 2000:

5,257

Grand Total: 1998 - 2000

6,870

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