The over the counter medicine (OTC) market, whereby customers can buy drugs or medicines without a prescription is increasing in value and volume across the western world, with the potential for growth in emerging markets even more exciting.However there are a number of challenges that multinational companies will need to address if they are to maximise this potential
According to IMS, sales of OTC medicines currently account for approximately 11 per cent of the total global pharmaceutical market (or approximately €80 billion). Three regions account for 70 per cent of the global OTC market: Europe, comprising Western and Central Eastern Europe (CEE), accounts for the biggest share (33 per cent); North America 20 per cent; and South East Asia/China 17 per cent. Japan and Latin American command 12 and 10 per cent respectively, with other smaller regions making up the remainder. In 2008, for the first time, growth in sales of OTC medicines outstripped those of prescription-only medicines. This trend has continued year-on-year with global sales of OTC drugs growing at a higher rate than the growth exhibited by prescription-only medicines. Indeed between 2012 and 2013, while total global sales of prescription-only medicines grew by 3.3 per cent, sales of OTC drugs increased by 4.6 per cent.
In recent years, the decline in the growth of the prescription-only sector is due to a number of factors such as:
- lower value generics dominating large therapy areas (i.e. statins)
- demand-constrained payers needing to demonstrate better value for money
- disappointing growth from emerging markets
- life sciences research and development delivering fewer, high quality assets.
In contrast, the OTC market has experienced higher year-on-year growth as:
- payers shift the cost burden of relevant diseases onto patients by promoting self-medication and the use of OTC medicines
- pharmaceutical companies seek to exploit switch opportunities (the formal process of switching a prescription-only medicine to an OTC medicine) to protect revenues from branded drugs that are about to lose their patent protection
- new channels become available (e.g. supermarkets and the internet) increasing access to OTC medicines
- emerging markets add critical mass to the patient population available for self-medication.
Emerging markets are expected to continue to drive healthy growth for the global OTC industry largely as a result of an expansion in the middle classes. For example, by 2015 the Chinese middle class is forecast to reach 71 per cent of the population, or 280 million households, and as their disposable incomes increase so does their demand for better, timelier, access to healthcare.
Latin America is likely to be the fastest growth area for OTC medicine, with a predicted five year CAGR rate of 17 per cent to 2016. The South East Asian OTC market is expected to be the second fastest growing, with a forecast growth of 15 per cent over the same time frame. Closer to home, the OTC market in Western Europe is expected to grow at an only 1.6 per cent, while Central and Eastern Europe offers more potential, with a forecast growth rate of 8.8 per cent over the same five years.
There is no doubt that the OTC market, particularly in emerging markets, offers significant potential for the life science industry. But the customer is not the traditional customer of the life sciences industry and shifting focus from physicians and payers to consumers will be an important success factor for those companies wishing to compete effectively. While a number of global life science companies have increased their focus on developing their OTC or consumer arms, and are well-placed to realise the OTC potential offered by emerging markets, there are a number of challenges that all multinational corporations will need to address:
- emerging economies are typically saturated with local players who are well-embedded in the healthcare system, understand local market dynamics and are more nimble than large western corporations. Large multinationals, wishing to succeed in these markets will need to identify the optimal organisational structure for effectively competing with local players, possess a thorough understanding of local market dynamics and, understand and engage with local stakeholders across the OTC and health value chain
- Intellectual property (IP) regulations are typically weak or poorly enforced in emerging economies. Governments of emerging economies argue that this is driven by the need to provide wide access to basic medicines for large but low income populations. Multinationals seeking to launch branded or original OTC medicines in these markets need to consider the likely level of IP protection that is available and to what extent this will be enforced
- Western OTC markets have gone through a period of regulatory liberalisation, such as: direct-to-consumer advertising, relaxation of advertising regulations, and increased access to OTC medicines through new channels such as supermarkets, convenience stores and online pharmacies. This trend is likely to spread to emerging markets, some are already moving towards a Western structure, with retail channels driving growth
- OTC markets in emerging economies have traditionally been focussed on herbal remedies and preventative therapies. Indeed, over 50 per cent of Chinese and Indian consumers take supplements. Medicines which have previously been prescription-only drugs are predominantly for treating diseases not preventative therapies. There is uncertainty around whether the mind-set of OTC consumers in emerging markets can be broadened to accept prescription-only drugs as OTC medication.
There is no doubt that potential exists to generate significant OTC revenues from emerging economies. Evidence suggests that global pharmaceutical companies have struggled to realise the full potential of the prescription-only market in emerging economies due to local dynamics. Given the issues highlighted above, there is a real risk that the OTC market will play out in the same way and prove just as challenging for multinationals.
Senior Research Manager, Centre for Health Solutions (with input from Monitor Deloitte)