The cost of developing novel drugs grows annually, yet each year fewer such drugs are gaining regulatory approval. As a result, pharmaceutical companies are increasingly shifting prescription drugs to over-the-counter status to cut costs.
From 2002-06, the U.S. Food & Drug Administration approved three times as many reformulated products as novel drugs. With reformulated drug products taking less time and therefore less money to develop, lifecycle management strategies, or LCM, have become an important tool used by the pharmaceutical industry.
According to Alistair Sinclair, senior pharmaceutical strategy analyst at Datamonitor, the advantages of LCM strategies are manifold, but are ultimately employed by pharma companies to either increase or prolong the revenues of a given brand.
"Prescription to over-the-counter switching is one such strategy employed to either enhance existing franchise revenues or protect branded revenues from generic competition," said Sinclair. "An Rx-to-OTC switch involves the reclassification of a prescription product as an OTC product by the relevant national regulatory authorizations."
Several key factors need to be considered before the implementation of an Rx-to-OTC strategy, Sinclair said.
"Manufacturers need to carefully identify what products are suitable for an Rx-to-OTC switch, when in the lifecycle of the Rx product the switch should be initiated, and how to differentiate, price and position the OTC product," he noted.
The most frequently switched products from Rx-to-OTC in the U.S. and U.K. markets from 2001-07 included topical antifungals, antihistamines, antiulcerants and certain pain medications.
The sales volume of drugs in the OTC market is in decline, Sinclair said - a drop that can be attributed to the rising prices of OTC medicines, which have increased on average by 9.7 percent year-after-year between 2003 and 2007 (in the U.S. and five EU markets).
If this trend continues, it will impact the profits of OTC manufacturers and harm national cost-containment measures, Sinclair said. He said only in the U.K. has the volume of OTC products sold increased year-on-year between 2003 and 2007.
"This is likely driven by the fact that on average, the mean prices of commonly used OTC medicines are cheaper than the co-pay for similar prescription medicines," said Sinclair. "In the remaining markets it appears that strategies employed to improve the awareness of, confidence in and uptake of OTC products, at least before the end of 2007, have been largely unsuccessful."
Shifting the costs
While Rx-to-OTC switching is a useful tool for pharmaceutical manufacturers to squeeze revenue out of a declining drug or franchise, switching patients from Rx-to-OTC products is a practical cost-containment tool used by governments and payers to transfer the cost of a therapy to the patient.
But Sinclair says that if governments and payers are to reduce their growing national healthcare costs through the implementation of Rx-to-OTC, more investment is needed in the promotion of OTC medicines to healthcare professionals and the public alike.
"Unless the benefits of OTC medicines can be justified to these audiences, the rising prices of OTC medicines as compared to Rx products could conceivably become the single most important factor limiting the growth potential of the OTC market," Sinclair said. This "will counteract awareness campaigns to promote OTC usage as a cost-saving initiative."
Officially, two main classifications of medicine exist in the United States - prescription medicines and over-the-counter medicines. However, the FDA is giving consideration to a third class: behind-the-counter, or BTC, medicines, equivalent to "pharmacy-only" status in the UK. BTC drugs would be available without prescription, but only upon the authorization of the serving pharmacist.
The question remains as to whether the FDA will actually introduce a BTC classification, Sinclair said.
"This is already the fourth time the agency has broached this subject in more than 30 years, after first addressing it in 1974," he said. "In a November 2007 press conference, FDA Deputy Commissioner for Policy Randall Lutter inferred that there was no immediate plan to introduce a BTC classification."
Sinclair said one potential opportunity would be to implement a BTC pilot scheme, giving patients and pharmacists a "trial run" in participating in the new medicine classification scheme. This would enable the collection of data on the effectiveness and suitability of the scheme before committing to a nationwide rollout.
According to Sinclair, Datamonitor believes it is inevitable that a BTC classification will be introduced into the U.S. market, with the benefits outweighing the resistors.
"Going forward, Datamonitor estimates that if a BTC classification is introduced in the U.S., that $1 billion in sales of branded Rx drugs falling into the aforementioned product categories could be switched to OTC/BTC products in the next five years, confirming the commercial potential of Rx-to-OTC switching," he said.