Chapter 2: Why Switch? Evaluating the Value of Switch Candidates
22
Tylenol’s rapid release gelcaps with “laser drilled
holes,” are consumer-motivating, even though one
study found that this product did not dissolve as
quickly as regular acetaminophen tablets.40
OTC is a business of “repeat” because
the consumer must choose to buy the product
again and again. Accordingly, the attributes that
may have been tolerable when the product was
available by prescription (side effects, palatability,
dosage forms, onset, level of relief) may not be
acceptable for the consumer without a doctor’s
insistence that the medication be used or the
regimen be followed.
When Rx to OTC switches are launched,
particularly for products in a new category, they
can command a premium price, but there is a
limit to what consumers will pay for a newer/bet-
ter product. Table 2-9 demonstrates average price
increases for new waves of innovation based on
class of OTC chemical entity versus the previous
wave of innovation. Adjusting for number of
doses per package or number of days of therapy
provides similar results. The value that an OTC
product provides includes the opportunity cost to
the consumer, including the time (and time out
of work) to visit the doctor and various co-pays.
As the price of OTC drugs increases, however,
consumers are more willing to seek prescription
options or private label alternatives. Furthermore,
high-priced OTC drugs risk enactment of anti-
theft measures by retailers, including, but not
limited to, being placed behind-the-counter or in
lockboxes, thereby deterring access and trial.
Rx-to-OTC switches often command a
price premium. Despite this price premium, an
effort to drive awareness of a product that deliv-
ers against an unmet consumer need can generate
trial. Brands that do not deliver on their promise,
or that have unwanted side effects, may receive
trial but will not generate repeat sales. For this
reason, it is critical to use commercial input to
guide the Rx-to-OTC switch development plan,
including potential indications and motivating
claims and strategies for gaining exclusivity.
Assessing Rx-to-OTC Switch Value—
Does Order of Entry Matter?
Order of entry is not necessarily a strong deter-
minant of (long-term) Rx-to-OTC switch value
as evidenced in Table 2-10.
While Rx-to-OTC brands can take advan-
tage of a “head start” in the market, this lead
can be eroded when the brand cuts back on its
advertising or fails to innovate. Failure to inno-
vate (to be discussed further below) will result
in a loss of sales not only to competitors, but to
private label products as well. In well-developed
and/or expensive OTC categories, such as the
anti-smoking gum category, private label pene-
tration can exceed 50% of unit sales.41
Table 2-9. Pricing Premiums for new Waves of Innovation (Based on Class of OTC Chemical Entity)
Versus the Previous Wave of Innovation
Innovation
Wave
Class Average Retail
Price (Mass)a
Premium vs.
First Wave
Premium vs.
Second Wave
Heartburn Original Antacids $4.90
First H2 antagonists $11.86 +142%
Second PPIs $17.21 +251% +45%
Allergy Original Sedating antihistamines $6.94
First Non-sedating antihistamines $17.47 +152%
Second Intranasal steroids $18.72 +170% +7%
a. Research conducted by Susan B. Levy Consulting, LLC, July 2018.
22
Tylenol’s rapid release gelcaps with “laser drilled
holes,” are consumer-motivating, even though one
study found that this product did not dissolve as
quickly as regular acetaminophen tablets.40
OTC is a business of “repeat” because
the consumer must choose to buy the product
again and again. Accordingly, the attributes that
may have been tolerable when the product was
available by prescription (side effects, palatability,
dosage forms, onset, level of relief) may not be
acceptable for the consumer without a doctor’s
insistence that the medication be used or the
regimen be followed.
When Rx to OTC switches are launched,
particularly for products in a new category, they
can command a premium price, but there is a
limit to what consumers will pay for a newer/bet-
ter product. Table 2-9 demonstrates average price
increases for new waves of innovation based on
class of OTC chemical entity versus the previous
wave of innovation. Adjusting for number of
doses per package or number of days of therapy
provides similar results. The value that an OTC
product provides includes the opportunity cost to
the consumer, including the time (and time out
of work) to visit the doctor and various co-pays.
As the price of OTC drugs increases, however,
consumers are more willing to seek prescription
options or private label alternatives. Furthermore,
high-priced OTC drugs risk enactment of anti-
theft measures by retailers, including, but not
limited to, being placed behind-the-counter or in
lockboxes, thereby deterring access and trial.
Rx-to-OTC switches often command a
price premium. Despite this price premium, an
effort to drive awareness of a product that deliv-
ers against an unmet consumer need can generate
trial. Brands that do not deliver on their promise,
or that have unwanted side effects, may receive
trial but will not generate repeat sales. For this
reason, it is critical to use commercial input to
guide the Rx-to-OTC switch development plan,
including potential indications and motivating
claims and strategies for gaining exclusivity.
Assessing Rx-to-OTC Switch Value—
Does Order of Entry Matter?
Order of entry is not necessarily a strong deter-
minant of (long-term) Rx-to-OTC switch value
as evidenced in Table 2-10.
While Rx-to-OTC brands can take advan-
tage of a “head start” in the market, this lead
can be eroded when the brand cuts back on its
advertising or fails to innovate. Failure to inno-
vate (to be discussed further below) will result
in a loss of sales not only to competitors, but to
private label products as well. In well-developed
and/or expensive OTC categories, such as the
anti-smoking gum category, private label pene-
tration can exceed 50% of unit sales.41
Table 2-9. Pricing Premiums for new Waves of Innovation (Based on Class of OTC Chemical Entity)
Versus the Previous Wave of Innovation
Innovation
Wave
Class Average Retail
Price (Mass)a
Premium vs.
First Wave
Premium vs.
Second Wave
Heartburn Original Antacids $4.90
First H2 antagonists $11.86 +142%
Second PPIs $17.21 +251% +45%
Allergy Original Sedating antihistamines $6.94
First Non-sedating antihistamines $17.47 +152%
Second Intranasal steroids $18.72 +170% +7%
a. Research conducted by Susan B. Levy Consulting, LLC, July 2018.