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The pharmaceuticals industry has recently experienced massive transformations as the patents on blockbuster drugs reach expiration, forcing Big Pharma to rethink their respective business models.

While companies could previously rely solely on the successes of a few major patented prescriptions to generate the bulk of their revenue, they now need to adjust to the changing environment and restructure to a model that hedges this patent-loss risk.

Based on estimates by IMS Health, the over-the-counter (OTC) market is now a US$95 billion industry; one that continues to grow at an increasingly higher rate than Big Pharma. It wasn’t until recently that the OTC industry began to pick up its pace and surpass its counterpart in annual revenue growth. This is a pattern that is expected to continue well into the future.

This growth can be attributed to a number of factors, including: the growth of emerging markets and their impact on the global industry, the increasing access to information, innovations in both products and processes, decreases in government spending, and the “patent cliff ”.

Emerging MarketsOne of the most influential forces driving growth in the OTC industry are emerging markets and their positive impact on OTCs. We have heard so much about emerging economies, like Brazil, Russia, India, China, Mexico and Turkey, and how their growth is shaping the business landscape globally, but how is this affecting the OTC market?

Without proper healthcare systems, the majority of the population in these countries do not have adequate access to medical professionals or the insurance coverage necessary for prescription drugs. Pharmaceutical companies are recognizing

the need for affordable healthcare and are providing prescription-free alternatives at lower prices. With the subsequent expansion of their portfolios to meet the needs of these markets, pharmaceutical companies are seeing the value of a strong position in the OTC market.

The size and volume of rural populations located in countries like China and India are other key emerging markets. With little to no access to clinics or hospitals, these small communities rely heavily on OTC medicines distributed through pharmacies, supermarkets, and grocery stores to facilitate their primary healthcare needs.

How will this continue to impact the market in the coming years? The positive impact of these emerging economies on the OTC market will continue to surge as these populations grow at a faster rate than the population of the developed world. A recent piece from Reuters estimates that emerging markets will grow 14-17% through 2014, while major developed markets will see only a 3-6% growth rate in the same period .

Although this has a major impact on the OTC market at the moment, growth from this source will not be sustainable as rural populations of China are forecasted to drop by half in the next 30 years.

Increasing Access to InformationThe internet is a powerful tool for consumers to educate themselves on pharmaceuticals and gain a better understanding of the options for treating their conditions. As awareness of self-medicating grows, it encourages consumers to take health matters into their own hands.

OTC vs. Big Pharma

With online medical programs and resources, people are able to find OTC remedies that provide similar efficacy to the alternative prescription options.

As technology advances, consumers are given more convenient and accessible options for healthcare. In Mexico, there is a medical and triage phone service that costs $5/month which enables clients to call and receive medical assistance instead of going to hospitals and clinics.

InnovationsOTCs are constantly being introduced as new innovative products that can address the unique needs of the marketplace. Consumers are being provided with a safer route towards treatment with medical devices that are capable of giving pharmacological results without negative side effects. These innovations are not limited to the products themselves; the introduction of new technologies for developing these products allows for more efficient manufacturing and, in turn, more affordable prices for consumers.

So, where does this innovation come from? One would think that the developed nations of the world would have the resources available to foster the majority of innovations; however, it is often a lack of resources which spark some of the best innovations. For much of the

OTC market, innovation comes from the emerging markets. These countries are compelled to create new technologies and products that require fewer resources to develop. An entrepreneur in India has recently developed a high-quality maternity care service that is charged to the private providers of the country and only costs one-fifth the price of regular care. It is innovations like this that open the Western world up to new ways of thinking.

Government Spending CutsSince 2008, when national credit defaults put the world into a substantial recession, the global economy has been struggling to recover its losses. Balancing budgets has become a major concern for governments and they are addressing the issue through large spending cuts to programs like healthcare. As a result, consumers are

forced to find alternative sources for their medications in OTC drugs.

This is a major contributing factor in the increasing number of Rx-to-OTC switches that we see happening in the industry. By making prescriptions available over-the-counter, companies can limit their losses by capitalizing on the prescription-free versions of their old drugs. The OTC sector will see these switchovers continue into the foreseeable future as Big Pharma starts to see the value in having a strong OTC portfolio.

The Patent CliffIt is hard to talk about Big Pharma without discussing the impending “patent cliff ” that is changing the old model of business forever. Patents of numerous drugs will begin to expire between 2010 and 2017 and major players will be forced to find ways to supplement the loss of

revenue from these blockbuster products if they wish to maintain a strong position in the market.

Since Lipitor came off patent last November, Pfizer has been fighting to maintain market share. In response, they are offering discounted prices on the product and authorizing Watson to produce a generic version of the drug while taking a cut of the profits. This attempt to minimize the loss is only sustainable for a short period of time. Pfizer, along with other manufactures whose drugs are about to expire, will need to diversify their business into new categories and markets if they wish to counteract these lost sales.

Instead of relying on the risky blockbuster-centred strategy of the past, companies should be adapting a more diversified structure that can depend on the successes of numerous categories. We will start to see these large companies acquiring more OTC brands to focus their attention on this market as a security measure for patent-losses. This will contribute to a large portion of the OTC market’s growth over the next 10 years.

Big Pharma has reached the maturity stage of its lifecycle and growth is beginning to slow as the OTC segment makes an aggressive push for the number one spot. The OTC market, while still not on the level of Big Pharma, is well on its way with double-digit growth in an industry worth $95 billion. Supported by emerging nations, access to information, innovation, government spending cuts, and the looming patent cliff, we will continue to see the rise of OTC for years to come as it eventually catches up to Big Pharma.

Robert works as the Business Development professional for OTC’s at Generic Pharma 2.0. Representing a portfolio of products, he facilitates licensing and distribution agreements for a number of Asian, European and North American companies. He can be reached at rob.balmer@genericpharma20.com

Why the OTC Segment is Gaining Ground on Big Pharma

OTC vS. BiG Pharma - OTCOTC

by Robert Balmer

The OTC market is now a US$95 billion industry; one that continues to grow at an increasingly higher rate than Big Pharma.

Peer Reviewed By: Jose Piccolotto, Jonas Lichty, Jean-Baptiste Duval, Chetan Gandhi, Renaat

Janssen, Christopher Neuman