A Different World

From home improvement and manufacture to film and print publishing, do-it-yourself is one of the world's most popular consumer trends. And pharma is no exception. Self-medication is on the rise, and in the last ten years, over-the-counter (OTC) pharmaceuticals have become increasingly important to industry portfolios. For the first time in 2008, OTC drug sales grew faster than the prescription drug market, and the future is even brighter, with lifestyle changes, therapeutic opportunities, and regulatory regimes all favorable to OTC.

With that (and the looming patent cliff) in mind, Big Pharmas are reassessing the value of consumer healthcare, and refocusing resources on the transition from prescription drugs to OTC in an effort to extend the life cycles of their most lucrative brands. Brent Saunders, senior vice president and president of Global Consumer Health Care at Schering-Plough, stands at the forefront of this strategic rethinking. As the grandson of a pharmacist and a frequent speaker on compliance and risk management issues, Saunders brings a unique perspective to the consumer healthcare unit, based on a sharp understanding of market innovations and brand awareness. He recently sat down with Pharm Exec to discuss the intricacies of consumer healthcare, including globalization, regulation, and what makes OTC a different world from prescription drugs.—Matthew Kalash

Pharm Exec: Tell us a bit about how pharma companies have historically looked at OTC.

Brent Saunders: Historically, OTC was viewed by the pharmaceutical industry as a place to put your assets after they no longer had Rx (prescription) patent life. Over the last 10 years, we've seen a nice evolution of consumer healthcare as a strategic asset for pharmaceutical companies.

We've seen CEOs talk about the strategic value of their consumer healthcare units. It's gone from an afterthought to now really being part of the core strategy of how to extend the life of pharmaceutical products.

PE: Has that been gradual? Because it seems that all of a sudden we're hearing more about this aspect of the business.

BS: For some companies it's been gradual. For some it's been a change in strategy. Some, like Schering-Plough, have historically recognized the value of having those assets and being able to commercialize and switch. And some of the companies are just now doubling down on consumer healthcare, or investing more heavily in consumer healthcare. They're doing it in part because they view the prolonged life of their assets or their brand as important. But they're also looking at two other factors: the constant value of a good brand, and the uncertainty of the regulatory environment.

Take Dr. Scholl's, for example. It's been around for 100 years. Pharmaceutical brand managers tend to think of their [brand] life span in chunks of about 10. To have a brand for 100 years is great—and if we do what we hope to with Claritin, it should be around for 100 years as a consumer brand, too.

The second factor is an increasing trend towards self-medication around the world. As budgets for healthcare continue to explode, governments are looking at how we can get the consumer more involved in the selection and cost of their healthcare treatment. Over-the-counter medicines and consumer healthcare tend to do both of those things effectively for governments.

PE: In the past, was OTC viewed only as a way to extend patents? Or is it the actual sales that have been important?

BS: Like any industry, the pharmaceutical industry tends to have cycles, and at one point it was in vogue to have high growth businesses only, so a lot of companies became pure play pharma companies. They sold off their non-Rx or non-core businesses to achieve high growth rates to satisfy Wall Street.

What you see now is a slowing in the Rx growth rates. In fact, OTCs grew faster than Rx last year. I'm fairly certain that was the first time the OTC market grew faster than the Rx market.

So instead of looking for growth, companies are looking for stability and consistent earnings. And even if you have some diversification like a consumer healthcare unit, you can create a base of stability and then ride the roller coaster of the Rx products.

PE: All over the industry, companies are diving into OTC. What doesn't the industry know about managing OTC products? How is it different than Rx pharma?

BS: OTCs are different because the way you market them and field brands is a lot different than in the Rx world. You always have to think about innovations. An innovation in the Rx world may be a new dosage or a new indication for treating a new ailment. In the OTC world, the innovation could be going from a pill to a liqui-gel; it could be going to an easier dosage spoon or a swab; it could be a packaging innovation; it could be a marketing innovation. The world in some sense moves a little faster in OTCs. In general, advertising tends to be addressed more by the FCC than the FDA. You still have boundaries, but you can move a lot faster and execute a lot quicker in the OTC world than you can in the Rx world.

That said, both worlds can learn a lot from each other, and there's a lot of synergy between the two. There's actually an opportunity for cross-learning because there are a lot of good things in both units that can be shared and leveraged.

PE: A couple of years ago, there was a lot of interest in Rx to OTC switches, and then Vioxx happened and everyone stopped talking about it. Where do people stand on that today?

BS: I think the FDA still remains, post Vioxx, a bit cautious on the safety side, even on the OTC switch. But we feel more encouraged. The switch of Xenical, which became Alli, was a good sign for the industry. FDA seems to be more open to the idea of switching drugs for chronic therapies, whereas in the past the agency was focused more on acute episodic conditions like headache. That's all ultimately positive, particularly when you look at some of the chronic medications that are coming close to patent expiration.

Lipitor, for example, which is the world's largest selling prescription drug—that could be a very interesting switch. That would require a long dialogue with FDA. Of course, J&J/Merck and GSK both tried to switch Mevacor and were not successful. When Andrew von Eschenbach was commissioner, he did speak about [creating] a third class of drugs: a behind-the-counter class. But in a sense Schering sells one of the largest behind-the-counter OTC products in Claritin-D, which is Claritin with pseudoephedrine.

PE: Why is that "behind-the-counter"?

BS: It went behind-the-counter primarily because there was concern about people using pseudoephedrine as an ingredient for manufacturing meth. And so many states and the federal government passed legislation to put pseudoephedrine behind the counter. It's been a very effective program from our point of view. We feel very good about that program and Claritin-D users know where to find their medication. There's good checks and balances in place to manage that.

PE: It seems like you're really talking about giving the pharmacist, with these particular drugs, an increased role.

BS: Today there really is a de facto third class [of drugs]. You have pseudoephedrine behind the counter, you have Plan B behind the counter. So there is a precedent for behind-the-counter. Will the new FDA leadership push for a behind-the-counter class? It's too early to tell. But I think if the industry moves toward a third class of drugs, the pharmacists will play a more important role. My grandfather was a pharmacist, and he was very involved with the patients who came into the pharmacy; he knew them by first name, and helped them treat their conditions.

I'm not suggesting that we're going to go back all the way to compounding drugs behind the counter again, but I think that pharmacists have historically played a more active role than they do today—and there's probably a bigger role for them in the future.

PE: What are the success factors for companies that are going the OTC route, and where are the possible missteps you see?

BS: I think the key to being successful in consumer healthcare is first and foremost to have good products. Today's consumers are very savvy. If you have products that aren't effective, that's generally the first misstep. You might create a spike in sales through some good marketing and advertising for a year, maybe two, but consumers won't come back for repeat purchases. If you've gone to the drug store and bought something for an ailment and it didn't work, you're not likely to go back and do it again. So first and foremost, you want to have products that work, are safe, and have as few side effects as possible. That's number one.

Two, you have to manage your brand for the long haul and continually innovate around brands. One of the biggest challenges in consumer healthcare is [competing with] private label products. Take a drug like Claritin, in which the active ingredient is loratadine, which has been generic since we launched OTC Claritin. If you walk into a drugstore or a grocery store, you'll see a lot of promotion around the store's private label loratadine well before you get to Claritin on the shelf. And Claritin, as a brand, is certainly more expensive. So to continuously innovate around Claritin—to give consumers a better choice than the store brand—is the key to long term survival in the consumer healthcare world.

The same holds true with marketing. It's not just reaching out to consumers, it's also keeping doctors and pharmacists and professionals informed about your product's benefits and risks and the innovations you're creating.

PE: In terms of diversification, do you see any companies doing something totally wrong?

BS: I tend not to want to speak about competitors in that regard. I think most of the moves I've seen in the industry have been smart. I think the industry has been pretty good at OTC consumer healthcare. They tend to understand, or at least are now really focused on this notion that brands, if managed well, can last for a long time.

We've seen consumer healthcare companies that think that they can refresh a product simply by changing the packaging. Consumers are smart, it doesn't work like that. The world doesn't change overnight. People want to know what's in the box, and if it works for them. And we have a much more informed consumer base because of the Internet. People do a lot of research on health. In fact, the number one search for seniors is health information. So people have a lot of information at their disposal, and a packaging change in and of itself isn't going to change buying behavior. You have to offer additional benefits.

Also, people have to realize that innovation doesn't happen overnight. We deal with NDA products and monographed products for the most part. For our NDA products, innovations or changes take a long time. You have to go through a filing and an approval process with the FDA. So you're not going to just change the product overnight. For example, we just launched Claritin Liqui-Gels, which are the first non-drowsy liquid-filled capsule in the allergy space—and that required an NDA and a full approval through FDA. It wasn't like we just whipped up a batch and put it out there. It took many years in strategic planning, and many years in the making.

PE: What was it like for you to switch from the Rx unit to the OTC unit?

BS: I've enjoyed every minute of it. It's a fast-paced environment that allows for a lot of creativity. If you work in the Rx world, you're lucky if you get one or two new product launches in your professional life. This year alone [in the OTC unit], we'll launch a number of new products and line extensions. So it's an exciting world.

But I learned a lot from the Rx world, like the value of professionals. Data have suggested that when a physician, particularly a pediatrician, suggests an over-the-counter medicine, the follow-through of that suggestion is 90 percent. So having a physician recommend your product is important to us as well.

By the same token, we also have to build brand awareness and brand loyalty, and I think we've done a good job of that through mass communications and consumer activation, media, and print, and online and everything else.

When you look globally, where you see a lot of the growth, the line between OTC and Rx is blurred in many countries. Pharmacists can give out Rx drugs and they can give out OTC drugs. You can go into a pharmacy in Thailand and get really any medicine from the pharmacist. For that reason, I think the move toward self-medication around the world is also driving a lot of interest and growth in OTC and consumer healthcare. Then again, I think the idea of enduring brands is becoming more appealing. I think people recognize the value of Claritin. And if we do it right, Claritin sales could, over the next 50 to 60 years, reach $100 billion post–patent expiry. That's a pretty nice life cycle management program.

Pharma used to think of life cycle management ending at patent expiry. Now you can think of life cycle management never ending—if you have the right product.