Jan 8, 2013|
Pharma OTC - A step beyond Generic Drugs
As patents expire and generic drugs becoming available, pharma companies are looking forward to penetrate in the Over the Counter (OTC) market. As per the USFDA website, OTC drugs are defined as "drugs that are safe and effective for use by the general public without seeking treatment by a health professional". This means an OTC drug will not require prescription to buy and can be bought as any other consumer products.
Standalone financial snapshot
OTC drugs are mainly available for commonly occurring conditions like common cold, tobacco smoking dependence, dental care, allergies, heartburn, obesity, dermatitis etc. There are more than 80 therapeutic categories of OTC drugs available for categories like acne to weight control products.
Why OTC drugs?
For Governments - The rising budgets for healthcare are forcing governments to find ways to control the costs. As per IMS, - Every dollar spent, by consumers on OTC medicines saves US$ 6-7 for US healthcare. The OTC medicines provide value through significantly expanded access to treatment for the most frequent and common illness.
For Patients - As these medicines help to save time of making Physician visits, even patients tend to opt for OTC medicines.
For Companies - Both innovator and generic companies have reasons to promote the OTC drugs. The innovator companies introduce the OTC drug, to extend the life of their product which is nearing patent expiry or has already witnessed high competition. On the other hand, the generic companies too enter the market depending on the various circumstances; one of the biggest reasons being, the acceptability of generic drugs decreases when the OTC version is available.
Which Companies Are Present?
The company's task remains undone, if the OTC drug is not marketed properly. While pharma companies have to prove to the drug regulators that the said drug fits for the OTC segment and the company has fulfilled all the requirements. The companies also have to go for aggressive marketing in order to reach the customers. Various acquisitions have taken place in order to tap this segment.
Global drug companies like Johnson and Johnson, Sanofi, Pfizer, GSK focus on OTC segment. In light of the same, Sanofi has been making various acquisitions viz Kernpharm in the Netherlands, Laboratories Gramon in Argentina, Oenobiol in France, BMP Sunstone in China and Chattem in the United States.
On the other hand there are companies like Perrigo, which derive large part of its revenues from the sale of OTC drugs.
Among the Indian players, Dr Reddy's generates approx US$ 100 m of revenues from the sales of OTC drugs in various geographies; largely from Russia and US. Sun Pharma's subsidiary Taro too is present in OTC segment for dermatology products. The other players being Ranbaxy, Wockhardt, and Cadista (Subsidiary of Jubilant Lifescience). These generate some part of their revenues from OTC drugs like Cetrizine.
It is pertinent to note that the Indian companies are not very active in the OTC market as compared to various global generic companies, like Perrigo. Thus, the Indian companies will have to compete with not only the Innovator companies but also companies like Perrigo in order to penetrate in this segment.
Perrigo - A classic example of OTC focused company
Perrigo a US based company, is one of the strong players in the OTC market. Perrigo expects future opportunity of ~ US$ 41.7 bn opportunity for OTC market
Source: Perrigo Presentation
|Potential Switch - Products/Categories
||Brand Sales (US$ Billion)
|Cox- 2 Inhibitors
|Omega-3 Fish Oils
|Opthalmic- Allergy/Dry Eye
Perrigo has laid down future pipeline of multi-billion drugs of ~US$ 17.4 bn to bring under OTC segment. The company is targeting drugs like Nexium, Protonix, Prevacid etc. Further, even Pfizer is targeting to make OTC version of Lipitor brand.
Indian companies are either selling these drugs or hold exclusivity, thus OTC version will impede the generic sales of Indian companies.
Global pharma companies are making huge acquisitions and pushing the OTC brands. Innovators are making higher expenditures on advertisements and sales force to promote their brands. This is bound to hamper the sales of the generics given the OTC version of the same drug is available. On the other hand in some countries like Russia, the government is pushing OTC drugs. Eventually, these events will prove to be added challenges for the generic companies especially, pure generic players.
While generic companies too have entered this segment they have to compete with the parent companies' brand. It should be noted that, in the OTC segment the consumers tend to opt for the innovator's brand than generic company's brand at a given price differential.
Thus the OTC model will tend to be successful for those companies which are active to market their drugs. As most of the Indian companies are pure generic companies, very few companies will be able to penetrate well in the OTC market.
||Bhavita Nagrani (Research Analyst) is a Chartered Financial Analyst (ICFAI) with nearly six years of experience in the field of equity research. She has a deep understanding of the global as well as the domestic Healthcare industry and keenly tracks the developments therein. When it comes to stock investing, she is a strong advocate of the bottom-up approach to stock picking and has a remarkable ability to discern nuances in the business models of companies belonging to the same industry. Bhavita is the contributor to our large cap franchise, StockSelect.
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