The Value of Me-Too's in the Context of OTC Switches

At Windhover's annual Marketing Pharmaceutical Innovation (MPI) conference in November, industry executives wrestled with an emerging dilemma -- how to win managed care's support for drugs that exhibit only minor improvements to existing products, while new over-the-counter (OTC) options surface.

Given the extraordinary profits of prescription drugs, over-the-counter (OTC) strategies typically receive little attention. All that's changing. The upcoming OTC launches of loratidine (Claritin) and omeprazole (Prilosec) are bringing into sharp relief the strategic collision of insurers and drug companies, sparking a national debate on drug affordability and clinical value, noted speakers at Windhover's Marketing Pharmaceutical Innovation (MPI) conference, held in Philadelphia in November.

Faced with double-digit increases in drug spending, managed care companies are looking aggressively for opportunities to trim the use of higher-cost drugs. WellPoint Health Networks Inc. made the first move in this direction back in 1998 when it filed a citizen's petition with the FDA suggesting that prescription non-sedating antihistamines (NSAs) be moved OTC—and thus off its reimbursement plate.

And while the decision about whether to transfer a drug OTC currently rests with the manufacturer, WellPoint's precedent-setting tactic worked. Hitherto reluctant to endanger its prescription franchise, particularly before switching patients to its follow-on product, desloratadine (Clarinex), Schering-Plough Corp. acceded, pressured as well by threats from Johnson & Johnson and Wyeth , to market generic OTC loratidines. (See "Schering-Plough's About-Face on OTC Claritin," IN VIVO, April 2002 (Also see "Schering-Plough's About-Face On OTC Claritin" - In Vivo, 1 Apr, 2002.).) Because Schering-Plough was forced into this quick decision and had little time for switching studies, it will likely not receive three years of exclusive marketing rights for OTC Claritin. (See "Pharma Future: Is the Glass Half-Empty or Half-Full?" IN VIVO, April 2002 (Also see "Pharma Future: Is the Glass Half-Empty or Half-Full" - In Vivo, 1 Apr, 2002.).)

But an OTC Claritin is only step one of WellPoint's strategy of using OTCs to sharply limit sales of follow-on prescription products. At a separate Investment Health Care Policy conference back in April, WellPoint's VP & Chief Pharmacy Officer, Robert Seidman, defined his cost-cutting mission: "I don't mind spending more if I can say that I am providing greater value to my members. But in today's environment, we're spending more, and we're not sure what we're getting in return."

With Clarinex, Seidman doesn't see the added value: its unique approval for both indoor and outdoor allergies, Seidman estimates, is meaningful for only 1% of his group's 12 million members. Thus WellPoint and other managed care firms will counteract the barrage of DTC advertising for Clarinex by implementing what Seidman refers to as "benefit design modifications." Such modifications will limit access to the entire NSA prescription family (including cetirizine [Zyrtec] and fexofenadine [Allegra]) by moving prescription NSAs to the highest co-pay levels or instituting other similar disincentives to minimize utilization.

Seidman predicts that with "heavy couponing" a month's supply of OTC Claritin could be as low as $9, far less than the prescription and physician visit co-pays for Clarinex, and thus far more appealing to patients. (Schering did not develop Claritin in an alternative prescription-strength dosage, so the opportunity for dual-status was missed, noted Steve Francesco, founder of the OTC consultancy Francesco International, speaking at MPI.)

Next up on managed care's OTC agenda: proton pump inhibitors like patent-expiring Prilosec and its look-alike follow-on esomeprazole (Nexium). AstraZeneca PLC sold the US OTC marketing rights for Prilosec to Procter & Gamble Co. [See Deal], and according to Greg Allgood, PhD, associate director of P&G's Health Sciences Institute, the FDA will likely approve an OTC Prilosec by the fall of 2003.

With this scheduled OTC transition on the horizon, AstraZeneca certainly recognized the reimbursement threat to its most important franchise. Unlike Claritin, Prilosec's OTC version will have a different dosage and indication than the prescription product.

And the company is carefully trying to distinguish the three drugs to managed care organizations. AstraZeneca's Mark Mallon, VP, gastrointestinal therapeutics area, a presenter at MPI, indicated that there was "very intensive involvement from headquarters and all the people on his leadership team" to hold multiple meetings with top managed care organizations and present the available options to them--OTC Prilosec, prescription-strength Prilosec, and Nexium. "If you have these three tools as a managed care organization, you would be able to both optimize your costs as well as optimize your care because you have the most potent agent," he argued.

Despite AstraZeneca's efforts, however, it faces the same OTC-versus-prescription hurdles S-P did. AstraZeneca published results of head-to-head trials between Prilosec and Nexium, which seem to indicate that Nexium "outdistances Prilosec significantly in the ability to heal patients," says AstraZeneca's executive director for gastrointestinal clinical research, Doug Levine, MD. But the four AstraZeneca-sponsored studies, conducted only in patients with erosive esophagitis, raise questions as well since only two of them produced statistically significant differences between the drugs. Managed care will have to decide if this story is compelling enough to warrant coverage for sufferers of the more common episodic heartburn--or possibly even for the small subset of its patients who suffer from erosive esophagitis.

Findings from a recent meeting of the American Gastroenterological Association (AGA) could provide more ammunition for WellPoint on this matter. A November press release noted that the majority of the 61 million Americans who suffer from episodic heartburn can be treated effectively using currently available OTC products, but Levine felt this statement oversimplified the panel's findings. "My concern from a medical standpoint is that what's portrayed in the press release is appropriate for a subset of the very broad range of reflux patients, either episodic heartburn users or people more on the mild end," he remarked. "This kind of information, if shared with the entire spectrum of reflux disease patients and all the payers, insurers, and physicians who manage these patients, would [have them] come away with the idea that all such patients should be treated with these agents and I don't think that's true."

All this raises the issue of whether pharmaceutical manufacturers should expend resources to launch and heavily market new follow-on drugs that only provide marginal improvements over existing offerings, while satisfying what amounts to only small subsets of an affected patient population. Drug companies used to think the safest development route was minor improvements to existing products that had big established franchises--development risks are minimal, important indications are known, and target markets are obvious.

An empowered managed care, however, has thrown a monkey wrench into this accepted practice. Even a well-structured OTC strategy, which cleverly sets up different indications and dosages for OTC products, may not work well if reimbursers put up very high barriers to the use of their prescription precursors.

Increasingly it looks like companies will have to create follow-ons that do far more than the original product. And in an environment of burgeoning health care costs and an economy in recession, managed care organizations will play an active role in deciding what exactly qualifies as a product enhancement worthy of the extra expense.