Novartis, GSK, Bayer and Merck Become Movers in the OTC MarketBy
The OTC market is full of activity, including two mega deals: the proposed consumer healthcare joint venture of GlaxoSmithKline and Novartis and Bayer’s pending $14.2 billion acquisition of the consumer care business of Merck & Co.
The over-the-counter (OTC) market is seeing major change with two leading players, GlaxoSmithKline and Novartis, joining their OTC businesses into a proposed joint venture company and Bayer’s proposed $14.2-billion move to acquire the consumer care business of Merck & Co. On a product level, one leading prescription drug received FDA approval for a prescription-to-OTC switch and one did not. Pfizer gained FDA approval for its prescription-to-OTC switch for Nexium 24HR (esomeprazole 20 mg) while an FDA advisory panel did not recommend Merck & Co.’s Singulair Allergy, an OTC version of Merck’s prescription drug Singulair (montelukast sodium). On a regulatory basis, FDA held a public hearing in late March 2014 to gain input on how to improve or alter the current regulatory review process for OTC drugs, which is based on a monograph system. FDA is seeking to improve the current process to address the large number of OTC products lacking final monographs, limitations of FDA to address emerging safety or effectiveness issues, and barriers to accommodate product innovation in the regulatory review process.
Evaluating the deals
In one significant deal, this week on May 6, 2014, Bayer agreed to acquire the consumer care business of Merck & Co., Inc. for $14.2 billion (1). The move follows Merck’s announcement in January 2014 that it was evaluating strategic options for its consumer care business, and an announcement by Reckitt Benckiser on April 30, 2014 that it had been in discussions with Merck for the business, but that those discussions ended (2, 3).
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 to be headquartered at the Bayer site in Whippany, New Jersey (1).
Bayer’s purchase price of $14.2 billion includes a payment associated with sales of Claritin and Afrin in certain countries where these products are still prescription-only. The acquisition will be primarily treated as an asset purchase, for which Bayer expects to receive tax savings from the first year after closing. Bayer also expects 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 and combining the businesses, primarily in 2014/2015.The transaction is subject to approval from the relevant antitrust authorities, with closing expected in the second half of 2014 (1). Merck expects after-tax proceeds from the sale of its consumer care business to be between $8 billion and $9 billion, according to a May 6, 2014 Merck press release.
The other large deal in the OTC market is the proposed joint venture combining the consumer healthcare businesses of Novartis and GSK. The deal is 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. The proposed OTC joint venture, which would have GSK Consumer Healthcare holding a majority control with an equity interest of 63.5%, and Novartis a 36.5% share, would create a combined entity with global sales of approximately $10 billion. The deal, which is expected to close in the first half of 2015, subject to customary and regulatory closings, would create critical mass for the companies globally and in the US market. The geographic footprint would have a commercial presence in the developed world as well as in emerging markets, such as Brazil, China, Mexico, and Russia. Emma Walmsley, currently president of GlaxoSmithKline Consumer Healthcare, has been appointed as chief executive officer designate of the new business and will be a member of its board. GSK CEO Andrew Witty will be chairman of the board. The board will be comprised of directors from both GSK and Novartis. Novartis will have four of eleven seats on the joint venture’s board. Furthermore, Novartis will have customary minority rights and exit rights at a pre-defined, market-based pricing mechanism.
In looking at the implications of the OTC joint venture for the US market, Laura A. Mahecha, industry manager, healthcare, for the consultancy and research firm Kline & Co., explains that the proposed joint venture of Novartis OTC and GSK Consumer Healthcare would move the combined company into the top five OTC companies in the United States. “The deal makes sense in that the combination would help to elevate the companies’ ranking in overall sales for the US market. Each company tends to have more mature brands, and in the case of GlaxoSmithKline, specialized product areas, such as smoking cessation and weight-loss, so the deal would raise the critical mass of the companies,” says Mahecha. Leading players in the US OTC drug market, based on Kline & Co.’s annual market study, Nonprescription Drugs USA 2013, include: Johnson & Johnson, Bayer Group, Pfizer, Procter & Gamble, Merck & Co., GlaxoSmithKline, Reckitt Benckiser, Sanofi, and Novartis.
The proposed joint venture would have almost half of its sales derived from brands with annual revenues larger than $300 million and be positioned in four categories based on GSK’s current 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) (4). 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) (5).
On a manufacturing level, the key issue for the proposed joint venture will be the continued 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 has 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 (4). In announcing the deal, Novartis said that production and re-supply of products from the Lincoln site is expected to increase and be phased in over the next 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 four years and cost up to $189 million. Basic design work for the project has been completed, and detailed design work is ongoing as of year-end 2013 (4).
| Table I: Novartis Consumer Healthcare (OTC) Facilities
|Location||Size of Site
|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|
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. Mahecha points out that an important strategy for growth in the OTC market is to gain prescription-to-OTC switches, particularly for blockbuster prescription drugs. “Prescription-to-OTC switches are an important way to add value and growth in the OTC market. The market typically grows at a moderate pace, and in the absence of acquisitions to build scale, prescription-to-OTC switches are a way to generate stronger growth,” she says. 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 (7). FDA approved an OTC version, Nexium 24HR (esomeprazole 20 mg) in late March 2014 (8). Pfizer is also recruiting patients for a clinical trial for an OTC version of atorvastatin calcium, the active ingredient in Pfizer’s formerly best-selling prescription product, the anticholesterol drug Lipitor, which continues to experience sales erosion due to generic competition (9).
Although highly desired in the OTC market, prescription-to-OTC switches are not that common. Since 2009, there have only been seven prescription-to-OTC switches, according to FDA (see Table II) (10). 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 (10).
|Table II: FDA Approval of Prescription-to-Over-the-Counter (OTC) Switches, 2009â€“2014*|
|Product (Active)||Purpose||Year Approved|
|Pfizer|| Nexium 24HR (esomeprazole
| Acid reducer to reduce frequent
|Sanofi|| Nasacort Allergy 24HR
|Merck & Co.|| Oxytrol for Women
|Sanofi|| Allegra D 12-Hour (fexofenadine HCl
and pseudoephedrine HCl)
|Sanofi|| Allegra D 24-Hour (fexofenadine HCl
and Pseudoephedrine HCl)
|Novartis|| Prevacid 24HR
|Acid reducer; proton pump inhibitor||2009|
|Merck & Co.|| Zegerid (omeprazole and sodium
|Acid reducer; proton pump inhibitor||2009|
*Approvals are as of April 30, 2014.
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.
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 (12). 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. Janet Woodcock, director of FDA’s Center for Drug Evaluation and Research, outlined the shortcomings in the process in a recent FDA blog. “Frankly, that process is outdated and does not work as quickly as FDA would like,” she said (13). “Some of these monographs are more than 40 years old, and many need to be updated. The current process involves rulemaking, and it is slow and cumbersome. For example, the rulemaking process doesn’t allow FDA to quickly require changes to OTC drugs or to require new warnings or other label changes to products when safety concerns arise. In addition, science is advancing quickly, and new ingredients have been developed that aren’t included in the monographs,” she said (13).
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)(12). 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 (12).
FDA held the hearing in late March to listen to ideas for changes to the existing OTC Monograph Process or replacing the process with an entirely new regulatory or statutory framework (12). 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 (12).
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) (12).
|Table III: FDA’s Preliminary Ideas for Modernizing FDA’s Over-the-Counter OTC Drug Review Process|
| 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 Systemâ€”Past, Present and Future Public Hearing,” Public Hearing Notice, Federal Register, Vol. 79, No. 36, Feb. 24, 2014, pp. 10168â€“10172.
Industry has weighed in on the debate. “This regulatory framework works well and is not in need of fundamental changes,” said the Consumer Healthcare Products Association (CHPA), which represents manufacturers and marketers of dietary supplements and OTC medicines, in a statement (14). “However, because the rulemaking has slowed in recent years, we join FDA in looking for solutions for improving access to safe and effective medicines.”
CHPA outlined three major recommendations at the March 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 (15).
FDA is considering the comments from the public hearing and is allowing written comment to be submitted until May 15, 2014 (12).
1. Bayer, “Bayer to Acquire Consumer Care Business of US-based Merck & Co., Inc. and to Engage in Strategic Pharma Cooperation in the Field of sGC Modulators,” Press Release, May 6, 2014.
2. Merck & Co., “Merck Provides Update on Accelerated Strategic Actions for Growth at 32nd Annual J.P. Morgan Healthcare Conference,” Press Release, January 18, 2014.
3. Reckitt Benckiser, “RB No Longer in Discussions with Merck,” Press Release, April, 30, 2014.
4. Novartis, Annual Report and Form 20-F (US Securities and Exchange Commission, 2013).
5. GlaxoSmithKline, Annual Report and Form 20-F (US Securities and Exchange Commission, 2013).
6 .AstraZeneca, Annual Report and Form 20-F (US Securities and Exchange Commission, 2013).
7. Pfizer, Annual Report and Form 10-K (US Securities and Exchange Commission, 2013).
8. Pfizer, “Pfizer Statement on U.S. FDA Approval of Over-the-Counter NexiumÂ® 24HR,” Press Release, March 28, 2014.
9. US National Institutes of Health, Clinicaltrials.gov, “Actual Use Trial of Atorvastatin Calcium 10 mg,” http://clinicaltrials.gov/ct2/show/study/NCT01964326?term=atorvastatin+and+over-the-counter&rank=1&show_locs=Y, accessed Apr. 30, 2014.
10. FDA, Prescription to Over-the-Counter (OTC) Switch List, http://www.fda.gov/AboutFDA/CentersOffices/OfficeofMedicalProductsandTobacco/CDER/ucm106378.htm, accessed April 30, 2014.
11. FDA, Nonprescription Drugs Advisory Committee Meeting Announcement, May 2, 2014, http://www.fda.gov/advisorycommittees/calendar/ucm393018.htm, accessed May 2, 2014.
12. FDA, “Over-the-Counter Monograph Systemâ€”Past, Present and Future Public Hearing,” Public Hearing Notice, Federal Register, Vol. 79, No. 36, Feb. 24, 2014, pp. 10168â€“10172.
13. J. Woodcock, “FDA Is Seeking Ideas for a “New and Improved” Process for Regulating OTC Drugs under the OTC Drug Review,” FDA Voice, Apr. 2, 2014, http://blogs.fda.gov/fdavoice/index.php/tag/otc-drugs/#sthash.OOG4pvZp.dpuf, accessed Apr. 30, 2014.
14. CHPA, “CHPA Statement on Part 15 Public Hearing on OTC Monograph System,” Press Release, March 25, 2014.
15. CHPA, “Testimony Overview: Over-the-Counter Monograph Systemâ€”Past, Present and Future Public Hearing,” March 25-26, 2014.