Switch products drive dollar growth
There has been a lot of hope placed in the ability of recently switched products to drive significant growth within the OTC sector, and with good reason. Recently switched products Nexium and Flonase brought in a combined $520.4 million for the 52 weeks ended Oct. 4, according to IRI.
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Having first hit the market in 2014, Pfizer’s Nexium 24HR has become the best-selling heartburn remedy on the market with more than $292.5 million in annualized sales. And early in 2015, GlaxoSmithKline’s Flonase rocketed to the top of the best-selling lists across cough, cold, allergy and sinus with the introduction of its nasal corticosteroid, bringing $227.9 million in almost purely incremental dollars to the category.
But after Pfizer this summer pulled the plug on its Rx-to-OTC switch of Lipitor, the question has to be asked, is switch dead?
“[Lipitor] was a linchpin for a lot of these chronic conditions and more complicated switches,” said Laura Mahecha, industry manager health care at Kline Group. “A lot of people in the industry, even if they didn’t have a cholesterol-lowering drug, were waiting to see if [Pfizer] could get a statin approved.”
As a failed investment, that might stifle future switches, Mahecha suggested. “It makes companies really conservative in terms of investing resources.”
“There is still a lot of interest,” countered Robert Sanders, EVP healthcare practice leader at IRI. “[But] there has to be a different business model to get after switches. It’s going to require either diagnostics or some other mechanism for the Food and Drug Administration to feel more comfortable that people can self select.”
But switch is certainly not going to be the same growth driver in the near term, at least in 2016, as it has been in recent history. “Certainly nothing like we saw with Nexium and Flonase,” he said.
Longer term, switch will remain a viable growth engine. In 2012, the FDA established the Non-Prescription Drug Safe Use Regulatory Expansion Initiative, and since that time the FDA has created two new categories with its switch approvals. “Back in 2013, they switched Oxytrol, which actually created a new category for overactive bladder within the OTC marketplace,” noted David Montfort, director of insights for the Edgewood Consulting Group, during a recent GMDC Connect presentation on switch. “[And] in 2013, they also approved Nasacort, which is actually the first nasal steroid product approved to be sold OTC.”
Montfort outlined six factors that help drive every switch success story. From the manufacturer’s perspective, there is having a strong heritage as a prescription brand, speed to market and consumer marketing. A strong heritage is especially important — as much as half of year-one sales volume can be attributed to prior prescription patients, Montfort said.
And from a retailer’s perspective, key factors are preparing for launch beforehand, speed to shelf and in-store execution. “What Edgewood would recommend is a preemptive category management approach whereby a lot of this best practice analysis work is done prior to the product launching, such as shopper insights, speed to shelf and ensuring impactful retail execution,” he said.
“Speed to shelf really does effect trial and repeat rates for a switch product,” Montfort added. “Those retailers able to get the product to market quickly, actually have higher initial trial rates, and those higher trial rates ultimately result in higher repeat rates. Ultimately, they’re able to build a much bigger business more quickly based on getting the product to the shelf in an expedited fashion.”