The Movers in the OTC Market

By Patricia Van Arnum - DCAT Editorial Director

August 26, 2015

The OTC market is coming off an active year in 2014 and 2015 to date, which included two mega deals: the formation of a consumer healthcare joint venture between GlaxoSmithKline and Novartis and Bayer's $14.2 billion acquisition of the consumer care business of Merck & Co.

The over-the-counter (OTC) market has seen major change with two leading players, GlaxoSmithKline and Novartis, joining their OTC businesses into a new joint venture company and Bayer's $14.2-billion acquisition of the consumer care business of Merck & Co. On a product level, key market entries include a prescription-to-OTC switch for Nexium (esomeprazole), one of AstraZeneca's top prescription drug, now offered as an OTC product by Pfizer. Also, regulatory reform is underway as the FDA seeks to improve the regulatory review process for OTC drugs.

Evaluating the deals
In one significant deal, Bayer acquired the consumer care business of Merck & Co., Inc. for $14.2 billion, in a deal completed in October 2014. Pro forma sales of the combined OTC businesses of Merck and Bayer in 2013 amounted to $7.4 billion. In 2013, Merck's consumer care business generated approximately 70% of its sales in the US. The business is primarily comprised of products in the cold, allergy, sinus & flu, dermatology (including sun care), foot health, and gastrointestinal categories. The most important brands are Claritin(allergy), Coppertone (sun care), Dr. Scholl's (foot health), MiraLAX (gastrointestinal), and Afrin (cold). Merck's  consumer care business has approximately 2,250 employees and is headquartered in New Jersey. Production is located in Cleveland, Tennessee; Chatsworth, Georgia; Pointe Claire, Quebec, Canada; and Shanghai, China. Sun care and foot health research as well as distribution are based in Memphis, Tennessee. The merged business is headquartered at the Bayer site in Whippany, New Jersey.

At the time of the announced deal, Bayer expected the integration of the businesses to generate cost synergies, for example, in marketing spend and cost of goods, of approximately $200 million per year by 2017. Revenue synergies from increased commercial presence and leveraging Bayer's global infrastructure in key growth regions to roll out the Merck brands ex-US are expected to amount to $400 million by 2017. Bayer anticipates one-time costs of approximately $500 million related to executing the transaction.

The other large deal in the OTC market is the newly formed joint venture that combined the consumer healthcare businesses of Novartis and GSK. The deal, which closed in March 2015, was part of a three-part transaction between the two companies, which further included Novartis acquiring GSK's oncology products and divesting its vaccine business (excluding flu) to GSK. In the joint venture, GSK holds a majority control with an equity interest of 63.5%, and Novartis a 36.5% share, with the combined entity having combined global sales of approximately $10 billion and creating critical mass for the companies globally and in the US market. Leading players in the US OTC drug market, based on Kline & Co.'s annual market study include: Johnson & Johnson, Bayer, Pfizer, Procter & Gamble, GlaxoSmithKline, Reckitt Benckiser, Sanofi, and Novartis.

The joint venture has almost half of its sales derived from brands with annual revenues larger than $300 million and is positioned in four categories based on GSK's OTC segmentation: wellness, oral health, nutrition, and skin health, according to the companies. On a global product basis, key areas for Novartis are treatments for cough/cold/respiratory ailments (e.g., Theraflu and Otrivin) and pain relief (e.g., Excedrin and Voltaren), as well as products for digestive health (e.g., Benefiber and Prevacid 24HR), dermatology (e.g., Lamisil and Fenistil), and smoking cessation (Nicotinell). GSK has several specialized product areas, such as smoking cessation (i.e., Nicorette, NiQuitin, NicoDerm, and Nicabate), weight-loss (e.g., alli) as well more established product areas, such as in digestive health (e.g., Tums), pain relief (e.g., Panadol), oral care (e.g., Sensodyne and Aquafresh), and nutrition (e.g, Horlick).

On a manufacturing level, the key issue for the joint venture is the remediation and supply from Novartis' Lincoln, Nebraska, manufacturing facility. In December 2011, Novartis suspended operations and shipments from the OTC Division facility located at Lincoln to accelerate maintenance and other improvement activities at the site. Subsequently, in 2012 and 2013, it recalled certain OTC products that were produced at the Lincoln facility. The company said it made significant progress in 2012 and 2013 in remediating quality issues at Lincoln and outsourced the production of certain Lincoln products while discontinuing others. In November 2013, it also resumed shipment of the OTC product Excedrin to the US market from Lincoln following the FDA's October 2013 inspection of the site which resulted in no Form 483 observations. When the GSK/Novartis deal was announced in 2014, Novartis said that production and re-supply of products from the Lincoln site was expected to increase and would be phased in over two years. Lincoln is one of Novartis' primary OTC production facilities. The others are in Nyon, Switzerland; Humacao, Puerto Rico; and Jamshoro, Pakistan (see Table I). In the second quarter of 2013, Novartis announced a long-term plan to update and increase the capacity of its Nyon, Switzerland plant. The project is expected to take several years and cost up to $189 million.

In June 2015, GSK reported that GSK Consumer Healthcare will locate its new US headquarters in Warren, New Jersey.This location will be home to the new consumer healthcare joint venture. GSK Consumer Healthcare announced earlier this year that its existing sites in Pittsburgh, Pennsylvania, and two offices in Parsippany, New Jersey would be consolidated into one new location. Employees will begin to transition into the new location in March 2016.

 Table I: Novartis Consumer Healthcare (OTC) Facilities

 Location Size of Site
(square meters)
 Major Activity
 Lincoln, Nebraska  48,000  Production of solids and powders, R&D
 Jamshoro, Pakistan  24,000  Production of solids, semi-solids, and liquids
 Nyon, Switzerland  15,000  Production of semi-solids and liquids, R&D
 Parsippany, New Jersey  14,000  Division headquarters
 Humacao, Puerto Rico  13,000  Production of solids
 Hyderabad, India  3,000  R&D

 Source: Novartis, Annual Filing, Form 20-F (US Securities and Exchange Commission).

 

In looking at other recent deals in the OTC market, Reckitt Benckiser, which bowed out of the bidding for Merck's consumer care business, made a large-scale acquisition in 2012: the $1.4-billion acquisition of Schiff Nutrition International, a provider of branded vitamins, nutrition supplements, and nutrition bars.  In 2013, Reckitt had two important deals: a $482-million, three-year collaboration with Bristol-Myers Squibb (BMS) for the exclusive rights to sell, distribute, and market specified BMS OTC brands in Latin America, with an option to buy at the end of the collaboration, and the acquisition of China's Guilong Pharmaceuticals to expand into the market for traditional medicines in China.

In late April 2014, Prestige Brands Holdings, whose portfolio includes Chloraseptic sore throat treatments, Clear Eyes eye care products, and Compound W wart treatments, agreed to acquire Insight Pharmaceuticals, the maker of Monistat, an OTC yeast infection treatment, for $750 million. The acquisition gives Prestige a platform in feminine care in the United States and Canada while also adding other OTC brands to its cough–cold, pain relief, eye and ear, and dermatological platforms.

There have been smaller, bolt-on acquisition deals in the OTC market among the large pharmaceutical companies over the past several years. In January 2013, Sanofi, through its Chattem subsidiary, acquired the Rolaids brand of products from the McNeil Consumer Healthcare Division of McNEIL-PPC, Inc, the OTC business of Johnson & Johnson. In December 2013, Pfizer acquired the rights to Polocard, a low-dose aspirin (acidum acetylsalicylicum) from Poland's ZF Polpharma SA. In 2012, Pfizer also acquired Alacer, a maker and distributor of Emergen-C products, and in 2011, it acquired Ferrosan's Consumer Healthcare business, which broadened its position in dietary supplements as well as its geographic footprint in the Nordics, Russia, and Central and Eastern Europe.

Looking at other market forces
The OTC market is highly competitive and includes not only the consumer healthcare businesses of the pharmaceutical majors but also private labels and non-pharmaceutical companies. An important strategy for growth in the OTC market is to gain prescription-to-OTC switches, particularly for blockbuster prescription drugs. A recent active player in this area is Pfizer, which after divesting its consumer healthcare business to Johnson & Johnson for $16.6 billion in 2006, re-entered the OTC market in 2009 with its $68-billion acquisition of Wyeth in 2009. In that pharmaceutical mega-deal, Pfizer gained Wyeth's OTC business, which included several leading brands in key categories, such as pain management (e.g., Advil), vitamins/supplements (e.g., Centrum and Caltrate), and cold/cough remedies (e.g., Robitussin and Dimetapp). In 2012, Pfizer acquired exclusive global rights to market non-prescription Nexium from AstraZeneca; prescription Nexium had 2013 revenues of $3.82 billion (6, 7). In August 2013, the European Commission granted a marketing authorization for Nexium Control OTC for non-prescription status in all EU member states for the short-term treatment of reflux symptoms (including heartburn and acid regurgitation) in adults. FDA approved an OTC version, Nexium 24HR (esomeprazole 20 mg) in late March 2014.

Although highly desired in the OTC market, prescription-to-OTC switches are not that common. Since 2009, there have only been 10 prescription-to-OTC switches by the US Food and Drug Administration, according to FDA (see Table II). As of March 2015, there was one Rx-to OTC-switch in 2015: AstraZeneca's Rhinocort Allergy Spray (budesonide) for treating allergic rhinitis. In 2014, there were two: Pfizer's Nexium 24 HR (esomeprazole magnesium) for treating heartburn and GSK's Flonase Allergy Relief (fluticasone proprionate). In 2013, there were two: Merck & Co.'s Oxytrol for Women (oxybutynin transdermal system) to treat overactive bladder and Sanofi's Nasacort Allergy 24HR (triamcinolone acetonide), a nasal spray for treating nasal allergy symptoms. In 2012 and 2010, there were no FDA-approved prescription-to-OTC switches, and in 2011, Sanofi received approval for the antihistamine Allegra (fexofenadine) and the antihistamine/decongestant OTC drugs Allegra-D 24 Hour (fexofenadine HCl and pseudoephedrine HCl) and Allegra-D 12 Hour (fexofenadine HCl and pseudoephedrine HCl). For Novartis and GSK, the last prescription-to-OTC switch for Novartis was in 2009, when it received FDA approval of the proton pump inhibitor Prevacid 24HR  (lansoprazole), which it had licensed for OTC development and commercialization from Takeda Pharmaceuticals North America, Inc, and for GSK, it was the OTC weight-loss product alli (orlistat); GSK had acquired exclusive rights to orlistat for OTC use from Roche.

 

 Table II: FDA Approval of Prescription-to-Over-the-Counter (OTC) Switches, 2009–2015*
 Company

 Product (Active)  Purpose  Year  Approved
 AstraZeneca  Rhinocort Allergy Spray (budesonide)
 magnesium)
 Allergic rhinitis
             
 2015
 GlaxoSmithKline  Flonase Allergy Relief (fluticasone proprionate)
 magnesium)
 Allergic rhinitis  2014
 Pfizer  Nexium 24HR (esomeprazole
 magnesium)
 Acid reducer to reduce frequent
 heartburn
 2014
 Sanofi  Nasacort Allergy 24HR
 (triamcinolone  acetonide)
 Allergice rhinitis  2013
 Merck & Co.  Oxytrol for Women
 (oxybutynin)
 Overactive bladder  2013
 Sanofi  Allerga
 (fexofenadine HCl)
 Antihistamine  2011
 Sanofi  Allegra D 12-Hour  (fexofenadine HCl
 and pseudoephedrine HCl)
 Antihistamine/decongestant  2011
 Sanofi  Allegra D 24-Hour (fexofenadine HCl
 and Pseudoephedrine HCl)
 Antihistamine/decongestant  2011
 Novartis  Prevacid 24HR
 (lansoprazole)**
 Acid reducer; proton pump inhibitor  2009
 Merck & Co.  Zegerid (omeprazole and sodium
 bicarbonate)**
 Acid reducer; proton pump inhibitor  2009
 
 *Approvals are as of March 2015.

 Pfizer acquired exclusive global rights to market OTC Nexium from AstraZeneca in 2012.

 **Novartis licensed Prevacid (lansoprazole) for OTC development and commercialization from Takeda Pharmaceuticals North America, Inc,

***FDA noted that these NDAs are not true switches since the conditions of use were not marketed as a prescription product under an approved NDA prior to being approved for marketing OTC.

Advil Congestion Relief (ibuprofren 200 mg/phenylephrine HCl 10 mg) was approved by FDA in 2010; it was classified as a new combination at Drugs@FDA. Ibuprofren and phenylephrine were previously available as individual OTC products.

In 2006, Plan B (levonorgestrel) was introduced as the first nonprescription morning-after (emergency) contraceptive. In 2009, Plan B One Step was introduced, and the original Plan B was discontinued.
         
Source: FDA


 


On May 2, 2014, FDA's Nonprescription Drugs Advisory Committee turned down an OTC version of Merck & Co.'s prescription drug Singulair, (montelukast sodium). The OTC version, Singulair Allergy, was indicated for temporary relief of symptoms (i.e., nasal congestion, runny nose, itchy, watery eyes, sneezing, and itching of the nose) due to hay fever or other upper respiratory allergies in adults 18 years or older (11). Efficacy and safety data, as well a results of consumer studies, were discussed. The committee was asked to consider whether the data supported an acceptable risk/benefit profile for the nonprescription use of montelukast tablets by OTC consumers.

Modernizing FDA's OTC drug review process
As the OTC market evolves, FDA's regulatory review process for OTC drugs (referred to as the OTC Monograph Process, OTC Monograph, or OTC Drug Review) is the subject of public and regulatory debate. More than 300,000 OTC drug products regulated under the OTC Drug Review process are on the market, but FDA wants to improve the process and held a public hearing in late March 2014 to gain input on how to improve or alter the current review process for OTC drugs. Under the current system, Section 21 CFR Part 330 describes the conditions for a drug to be considered generally recognized as safe and generally recognized as effective (GRAS/GRAE) and not misbranded. If a drug meets each of the conditions contained in Part 330, as well as each of the conditions contained in any applicable OTC drug monograph, and other applicable regulations, it is considered GRAS/GRAE and not misbranded, and the OTC drug is not required by FDA to obtain approval of a new drug application (NDA). The regulations require a three-part regulatory rulemaking process, including the publication of an Advanced Notice of Proposed Rulemaking, a Tentative Final Monograph (TFM) or Proposed Rule, and a Final Monograph or Final Rule to establish the conditions under which drugs under the OTC Drug Review are considered GRAS/GRAE and are not misbranded. FDA does not require OTC products conforming to the conditions of a final monograph and other applicable regulations to have approved NDAs prior to marketing. As a corollary, it has also generally been FDA's enforcement approach since the early days of the OTC Drug Review to not pursue regulatory action against OTC products marketed in conformance with the conditions proposed in a TFM .

FDA held a hearing in late March 2014 to listen to ideas for changes to the existing OTC Monograph Process or replacing the process with an entirely new regulatory or statutory framework. In opening up the issue to the public, FDA said a solution should encompass several key elements: adopting modern standards for safety and efficacy; implementing an efficient mechanism for finalizing the status of drug products that are currently marketed under pending TFMs; allowing for innovative changes to drug products; providing FDA with the ability to respond promptly to emerging safety or effectiveness concerns; allowing FDA to easily and quickly require additional information or data necessary to develop pediatric labeling where appropriate; and allowing FDA to obtain final formulation information about individual products or readily establish final formulation testing standards .

FDA outlined some preliminary ideas on how to achieve those objectives: identifying a streamlined process that would allow prompt resolution of existing TFMs; issuing monographs by administrative order; issuing regulations to require product-specific information and expanding the use of guidances; and expanding the NDA deviation process (see Table III).

 

 Table III: FDA's Preliminary Ideas for Modernizing FDA's Over-the-Counter OTC Drug Review Process
 Idea  Description
 Promptly Resolve Existing Tentative Final
 Monographs (TFMs) Under a Streamlined  Process
FDA is considering ways to more efficiently bring TFMs to closure and is interested in ideas for developing streamlined processes under which it could promptly finalize the existing TFMs.
 Issue Monographs by Administrative Order This idea would involve establishing a process similar to that enacted by the Food and Drug Administration Safety and Innovation Act (FDASIA) for device reclassifications. FDASIA changed the process by which devices are reclassified from notice and comment rulemaking to an administrative order process. Under this model, monographs could be established by administrative order after issuance of a proposed order for comment.
 Issue Regulations To Require Product-Specific
 Information and Expand the Use of Guidances
FDA could issue new regulations that would require that manufacturers submit, prior to marketing, limited information about individual products that will be using active ingredients that have been determined to be GRAS/GRAE. The individual product information requested might be similar to, but less detailed than, what is required under an NDA and could include, for example, labeling, quality and pharmacokinetic information. FDA could then issue guidances recommending the types of information FDA would be seeking. FDA's use of guidances under this framework could increase the agency's flexibility to address specific product issues as they arise.
 Expand the NDA Deviation Process The OTC Drug Review regulations provide a process for approving a drug product that complies with the conditions of a final monograph except for a deviation. In this instance, a sponsor can apply for an NDA deviation by submitting an NDA showing that the product complies with the conditions of the monograph except for the deviation and provide the necessary data to demonstrate the safety and effectiveness of the product with the deviation. For example, an OTC monograph may not cover certain dosage forms of a monograph ingredient. The manufacturer of a proposed different dosage form could submit an NDA that relies on the final monograph to demonstrate the safety and efficacy for the drug except for the differences related to the change in dosage form. The NDA would also need to include the appropriate data to demonstrate the safety and effectiveness of the new dosage form. The approved NDA would be specific only to the NDA sponsor and would not amend the monograph. Industry has not used the NDA deviation process as a pathway to marketing very often. The agency is interested in learning why this is and whether there are changes that could be made to the existing NDA deviation process that would make it a more attractive alternative for industry and that could allow marketing of additional drug products without having to submit a full NDA.
 GRAS/GRAE is generally regarded as safe/generally regarded as effective.
 NDA is new drug application.

 Source: FDA, "Over-the-Counter Monograph System—Past, Present and Future Public Hearing," Public Hearing Notice, Federal Register, Vol. 79, No. 36, Feb. 24,  2014, pp. 10168–10172.

 

Industry has weighed in on the debate. The Consumer Healthcare Products Association (CHPA), which represents manufacturers and marketers of dietary supplements and OTC medicines, outlined three major recommendations at the March 2014 public hearing. First, it called on FDA to finalize within a reasonable time frame all monographs in tentative status, which it said was 20% of the monographs. To that end, it recommended that FDA designate a single point leader with accountability and establish reasonable timelines for completion and measurement of progress, and where FDA cannot finalize tentative monographs for an entire category of medicines, it should finalize subcategories. The second recommendation called for greater transparency in the rulemaking process. To achieve that, CHPA recommended a public hearing to explain the process for finalizing the remaining monographs in more detail and for FDA to provide publicly available information on the state of rulemaking. The third recommendation called for FDA to exercise its existing authority to update and improve the monograph process. To this end, CHPA made three specific suggestions:

  • FDA can issue guidance documents to explain what type of data are needed for innovation, such as new dose forms
  • FDA can shorten the Time and Extent Application Process from three steps to fewer steps to support the addition of new ingredients to monographs
  • FDA can exercise enforcement discretion to allow new/updated information to be added to product labels.