The burgeoning $300 billion worth world pharmaceutical market is now assiduously changing strategies to extend the product life cycle (PLC) of their molecules. Most of the pharma majors are charging at the $49.8 billion OTC market which is growing at an average rate of 3per cent, to increase the life of their molecules by getting the Food and Drug Administration (FDA) to convert their patented prescription drugs to over-the-counter just prior to the patent expiry.
The main reason why most of the pharma biggies are doing this is to give tough competition to small companies entering the market with generics. In addition to which they have an already installed base with - on an average -- a good distribution network, an established brand image. So its like they will be building their stars if they switched from ethical marketing to OTC marketing thus entering the free markets. Further, this move coerces the other players in the market to work in the same direction, which requires huge investments.
Establishing an OTC brand, in addition to huge investments also requires an extensive distribution network, which fetters entry of new entrants and small pharma companies. The figure shows how the product life cycle of a product extends when it shifts from a prescription to OTC.
Indian pharmaceutical industry, which is highly fragmented, has so many drugs going off-patent but to switch them to OTC is difficult.
Switching of prescription to OTC has two sides. On one hand while it can bring about a win-win situation for all, it also has some drawbacks for the manufacturers. It is a win-win situation for all because; firstly, FDA favours the switch as a drug becomes available at a comparatively lower price thus reducing cost of treatment. Secondly, in countries like the US where most of the medical expenses are covered by health insurance schemes, OTC drugs are out of their purview. Thirdly, a beneficial situation for the consumer too as good quality drugs are available at lowest possible cost due to competition. Lastly, good for the producer as it protects their molecule even after patent expiry.
Nevertheless this shift has also brought in various challenges like huge investments which could go up to about $50 billion, which includes the cost from the high registration fees (taken by FDA) to building the brand. In addition to which pharmaceutical products being important for life require FDA's approbation by complying with its stringent standards, as OTC products are taken without consulting a doctor. This is of utmost importance in a country like India with an overall low literacy level; The FDA has to critically examine the safety profile and side effects of potential OTC drugs.
Hence, only preparations like those for cough and cold, antiallergic (some classes), balms, or a low dosage of some safe Non Steroidal Anti-inflammatory Drug (NSAID) etc. could be made OTC, e.g. paracetamol 500mg. The present scenario is, the biggest OTC market is about for ointments & balms (16%), analgesics & cold preparations (9%), antiseptic creams (8%), cough products (4%) etc.
In addition to above if the potential OTC product is made with a slightly different formulation then additional clinical trial data is required along with bioequivalence studies data for such a product which could amount to anything up to $300 billion. Distribution of OTC could be another reason why companies have to strategically formulate this switch.
In India, companies like Ranbaxy, DRL, etc. with a strong distribution may not face a major problem as compared to companies without a good network. While the scenario abroad for Indian companies is a paradigm shift, where parent MNCs already have an established distribution network with the leading chain stores, which could mean an exorbitant investment for the Indian MNCs.
In India too the situation is not all that favourable. To increase sales of an OTC product its distribution has to be increased for which in addition to pharmaceutical distributors even FMCG distributors should be brought in since their reach is far more wider.
However, this could be a cause of conflicts between the two types of distributors. This is the reason why if FMCG companies like HLL entered the OTC market they could offer a tough competition to pure pharma companies.
India being a country with a highly diverse population, each one having their own language, adds on to the challenges faced by the Indian pharma companies, in terms of communication process, which has to be done so many languages for a wider reach.
Roping in the major competition offered by alternative medicines and a subdued OTC activity, which is only about five per cent unlike in the US, where it is about 17 per cent. Considering the Indian market also faces a problem because of the deemed OTC market wherein ethical drugs are also sold without a prescription due to poor controls and rampant self-medication.
Around Rs 3,500-crore worth products can still take the OTC route by companies developing distinct skills sets for their marketing and sales teams, not alienating doctors and taking a calculated risk of incurring higher promotional & distribution costs. Knowing proper OTC guidelines companies can also harvest the direct-to-consumer route for OTC drugs starting from the educated population first. As far as distribution is concerned the chemists reach is about 4% while that of a general store is 14%, a grocer is 52% and others 22%, if the reach of OTC drugs is increased to these then it can increase sales exorbitantly.
In spite of all the above challenges, the rewards are worth risk taking as a branded generic demands upto 50% premium over a generic product. To add on rise in self-medication due to lack of time, expensive doctors and increasing awareness of alternative medicine as seen in the field of Nutraceuticals as done by Himalaya Drugs, Dabur Pharma, further gives a strong platform for entry into this market.
-- The author is pursuing her management studies at NMIMS, Mumbai