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

Dual Status
Dual status is defined as having the same molecule and the same brand name simultaneously in the Rx and OTC market-but with a different strength and/or indication from one another.

Dual status is not unfamiliar to those who have marketed in other markets, particularly European markets. However, this status is still not that well known or practiced by US domestic Rx marketers. (See our chart on page 2 for the few examples.)

As we all know, a simple Rx-to-OTC switch is anathema to the typical Rx marketer: A switch often means that the patent is close to expiration, which is bad news. Of course, OTC generally is a much lower product (40% Rx versus 20% OTC).

Dual status redefines the shape of the switch: It is a switch that also assumes the continuation of patent protection for the Rx product and perhaps the OTC product also. The correct alternative needs to be mapped out and sales and earnings established for the various scenarios.

US Simple Switch and Dual Status Comparison

Sample	Dual
Positives	Positives
Faster	Lower dose has better safety margin
Full Prescription Strength	Two businesses (Rx and OTC)
Credibility of Rx Strength	More Approvable by the FDA
Product satisfaction of a higher dose	Possible for Waxman-Hatch
No investment risk for new clinicals
Negatives	Negatives
No Waxman Hatch Exclusivity	Could lose Rx (MD) support
No effort to gain other advantages (differentiation)	Labeling is different
	Need for new clinicals
	Could take longer
	Higher cost

SWITCH has championed the growth of the concept of self-recognition for the last three years. The combination of self-recognition concept plus the relaxation on the advertising regulations to the public for prescription products has created a force that will fundamentally change the US pharmaceutical market.

The recent P & G / Astra Merck deal on omeprazole will represent a typical deal and strategy of the future.

Factors Contributing to the Inevitable Growth of Dual Status in the US

1) Starting the Consumer Franchise Via Direct to Consumer Advertising (DTC)

Phenomenal Growth and Influence: The US Food and Drug Administration (FDA) lifted its ban on direct to consumer advertising (DTC) in 1985, making the US the only country in the world to allow such advertising. From 1985 to 1994 spending levels grew quite respectably, from US$17 million to US$185 million, respectively. Virtually all of the advertising was in magazines.

Then in 1996 spending jumped to around $600 million as advertisers gained a deeper understanding of the power of this marketing tool. Basically, advertisers found that they could pressure doctors to write prescriptions if the consumer pointed out the advertising they had seen. This is not to say that the doctors wrote prescriptions incorrectly. Rather, the advertising called attention to products, because they were either new or in some way relevant to the patient, and the doctor had to listen to this interest. Also, managed care organizations at the same time were seeking to hold down prescriptions on many of these products so companies went around them via consumer pressure.

DTC advertising exploded this year with the relaxation of the rules for television advertising. Up until 1997, lots of cumbersome information on side effects and warnings was required. These requirements made television ads prohibitively expensive. As of this year, a television ad need only disclose the most important health risks in using the drug. We covered this aspect in our June/July 1997 issue in some detail.

This relaxation opens the way for a deluge of television advertising for prescription drugs and an inevitable large increase in advertising. Advertising has jumped to an estimated US$1.2 billion for 1997. We conservatively estimate that 1998 DTC spending will exceed US$2 billion. Not bad for the ad agencies, as can be seen below:

US Direct to Consumer Advertising
1985 - 1997 (in US$ millions)

1985	1994	1996	1997	1998
17	85	600	1200	2000*

* estimated

Today's prescription marketer has come to understand (read that as respect and fear) the power of consumer advertising. While there are as yet no conclusive public results on the efficacy of direct to consumer advertising, the explosive growth in these Rx advertising budgets has not been mandated by fools. The Rx business is deeply moved by profit margins and spending effectiveness.

Such die hard research-oriented pharmaceutical companies as Schering-Plough are spending fortunes for advertising their prescription products to the consumer. Claritin will show spending in excess of US$66 million in measurable DTC advertising alone during 1997.

Factors Contributing to the Inevitable Growth of Dual Status in the US

2) The Growing Importance of the Concept of Self-Recognition

The New Age of Self-Recognition: We need to define self-recognition and contrast it to self-diagnosis. The major distinction between self-recognition and self-diagnosis is that self-recognition a) requires an Initial Medical Diagnosis (IMD) by a doctor b) the health problem must be the same and c) be recognizable by an informed consumer.

Diagnosis, on the other hand, is a much broader area where superior medical knowledge is essential to make sound decisions and avoid costly mistakes. Diagnosis is defined as the act or process of identifying or determining the nature of a disease or malady through examination. Specifically to our OTC/healthcare concerns, a true diagnosis looks at signs and symptoms and leads to a conclusion or opinion.

Diagnosis is normally the territory for the doctor. However, this is becoming somewhat less true over time due to the increasing use of test kits and an enlightened public. Of course, the alternatives to a physician diagnosis will only increase over time as more kits become available and the public takes more responsibility for its own health problems.

With regard to self-treatment and self-medication we see the following hierarchy or decision-making process.



As can be seen above, we foresee a growing importance of the concept in the future. Some molecules will, in fact, be totally dependent on self-recognition while others will have partial dependence on the concept. Of course, there will be those that will not.

The Growing Importance of "Self-Recognition"

	Recent Rx-to-OTC Switches		Future Rx-to-OTC Switches
	Indication	Active	Indication	Actives
Pure Self-Recognition	Vaginal Candidiasis	Imidazoles	Lipid Lowering	Cholestyramine HMG CoA's
	Perennial Rhinitis	Non-sedating Antihistamines1	Mild Asthma	Bronchodilators
Partial	Heartburn Prevention	H1 Antagonists	Heartburn Prevention	Omeprazole
	Male Baldness	Minoxidil	Hayfever	Beclomethasone
Minimal or No Self-Recognition	Nicotine Reduction	Nicotine (patches and gums)	Seborrheic Dermatitis (dandruff)	Ketoconazole Shampoo

In the pure self-recognition area of future switches it is clear that no one will purchase lipid-lowering products at their own expense unless they have a problem with hypocholestemia and cannot get the product on their own reimbursable health plan. Similarly, it is virtually impossible to self diagnose asthma.

We can add additional molecules to the list of pure self-recognition: Allopurinol for gout, mebeverine hydrochloride for irritable bowel and the list goes on. In each case, the sufferer will have had the problem diagnosed beforehand by a doctor (Initial Medical Diagnosis).

If one looks at the few recent US switches that have tried out dual status, many have failed. In part this is due to their inability to successfully create objective scenarios years beforehand that place their products in the competitive context. Quite literally, for every successful Pepcid, there have been at least two or more failures.

Recent Dual Status Results In the US

OTC Category	Success	Failures
Gastrointestinal	Pepcid 1995	Tagamet 1995 Zantac 1995
Antidiarrheal	Imodium 1988	None

There should be a number of future switches preparing for some form of dual status. Unfortunately, most will fail because they were unwilling to create scenarios that realistically and objectively put their product in a competitive context.**

Factors Contributing to the Inevitable Growth of Dual Status in the US

3) Rx Marketers Increased Confidence in Dealing with Situations That Are Not Pure Rx Challenges

Enter P & G on Omeprazole: Most pharmaceutical companies are two headed monsters. There is the Rx head and the Non-Rx head. These two heads seldom see eye to eye. When a decision requires both sides to consult and agree, the decision making process is often a long and twisted road leading to frustration from the field to headquarters.

The secret to overcoming this pharmaceutical industry-wide schizephrenia is to recognize the problem and address it constructively. Nothing embodies this problem more than an Rx-to-OTC switch. A switch is a multi-disciplinary, cross-divisional exercise that can become a living hell for the Rx and OTC participants. It can also become a serious career and profit shortfall if not managed well.

Now, we all recognize that a pure switch is a problem. However, at least in the US context, the idea of dual status could be double trouble. This would require continuous teamwork to maintain both Rx and OTC sales.

One of the first successful dual status marketers was Johnson & Johnson with their imodium brand. One of the most recent was J & J / Merck with the launch of Pepcid. In between there have been very few tries and far fewer successes (see chart at left).

There will undoubtedly be more tries to succeed at dual status for the reasons mentioned. This is because of a growing confidence that the challenges of dual status can be overcome if one really studies the issue and looks at the situation objectively.

This is one reason why more and more companies are organizing into "Switch Teams." Pravachol at BMS, Fluconazole at Pfizer are just two examples.

If any company wants dual status but does not have experience or an OTC division, then they can out-license the product. The classic business format for the future will be similar to the new arrangement between Procter & Gamble and Astra Merck on omeprazole. P & G started collaborating with them to assist on the Rx sales using the small P & G sales force. It fooled no one when the deal went further (announced just before Christmas) to provide P & G with the OTC marketing rights.

Quite importantly, both versions of Prilosec will likely have patent protection. While it is still unclear what the OTC strength will be it is relatively certain that the OTC indication will be for "occasional heartburn."

This is a major deal. Omeprazole's 1996 sales are estimated to be US$3.7 billion and 1997 sales will be about 35% above that level.

It is estimated to be the world's largest selling drug. It will be marketed by a strong consumer company on the OTC side. There are some side effect issues, but they appear to be able to be sorted out.

Summary:

Dual Status as a concept will be the first choice of manufacturers for the foreseeable future. From a consumer standpoint the line between Rx and OTC is becoming more blurred each day in the US. Manufacturers will seek to make the most of this structural change.

The dual status long-term trend places more responsibility for decisions on the consumer. In a sense this is a test in the US. As stated earlier, dual status has been around for a long time in places like Europe. However, in these other markets there is a pharmacist available for advice. Also, there is no direct to consumer advertising.

Of course, all of the above is written with the acknowledgement that the FDA is watching. Should there be any abuse of advertising to the consumer (DTC) or any evidence of adverse health outcomes, the advertising rules could change. Somehow, however, we believe that the current situation will remain and dual status will grow dramatically as a primary strategy to maximize the molecule.

**Publishers Footnote: Our "Max the Molecule" Program and our team of experts could have helped prevent such disastrous switch failures. Max is a software program that creates scenarios for both the Rx and OTC businesses using some of the most respected competitive analysts that you have studied. For more on this, visit out our Max the Molecule Web page.

Moreover, as respected outside consultants we have become quite accomplished in the creation of scenarios which help to decide

1. Whether a switch of any sort is feasible and
   
   
2. If so, what kind of switch maximizes the molecule for the maximum profit of the entire corporation and not just the division.
   

Please contact us if you would like to receive more information on our "Max the Molecule" program or if you have additional questions on switching and dual status.

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