Lately, the pharma sector in India is focusing on OTC products besides working on its usual fare. A move that could be win-win for both businesses and consumers
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The world always thought selling soaps would be different from selling drugs. But what if drugmakers follow in the footsteps of fast-moving consumer goods (FMCG) companies?
Sounds strange? But it’s already happening.
“So what? The entire industry is afraid of government’s proposal to mandate prescription of generic drugs. The idea is to learn brand building technique from FMCG companies,” says Mankind Pharma CEO R. C. Juneja.
To put things in perspective, Juneja is referring to Prime Minister Narendra Modi’s proposal last year about a possible law mandating doctors to prescribe medicines with their generic names instead of brand names. So, instead of writing say Allegra, doctors would prescribe it with the molecule name, i.e, Fexofenadine.
So what pharma companies are trying to do, by toeing the FMCG line, is create greater recall value for their brands in the minds of retailers and consumers. “If a consumer asks for noodles at a departmental store, there is a high probability that the retailer would pick Nestle’s Maggi. We want to create that (kind of) connect before the law kicks in. This is where the future of pharma industry is going,” says the CEO of a listed drug firm requesting anonymity.
Juneja’s company is one of the few who went the FMCG way early on. It has now established a brand connect with consumer through its over-the-counter (OTC) portfolio, which though may not churn big revenues for the company — just around 10-13 per cent — but has a rub off effect. Appointing Sunny Leone as brand ambassador helped the company further in creating quick brand recall. Another pharma company, Lupin, recently appointed actor Anil Kapoor as brand ambassador for its OTC brand Softovac.
Industry veterans are quite sure that branding activities will get more aggressive and several new brand endorsers are likely to be announced before the announcement of the new pharmaceuticals policy.
In the coming years, pharma companies are likely to aggressively promote their corporate identities through advertisements. Recently American drugmaker Abbott released a campaign to strengthen its brand image. Mankind Pharma, too, uses Amitabh Bachchan as its face to promote company’s objective and history. “Companies may or may not take the OTC way to create customer connect, but their focus on promoting their identities through advertisement and campaigns is expected to go up,” says Sujay Shetty, partner and leader, pharmaceuticals and life sciences, PwC India.
Branding To Take Centrestage
Two years ago, a post on professional networking site LinkedIn by Sougat Chatterjee, who ranks among Asia’s top 50 brand leaders, talked about what the pharmaceutical market should learn from FMCG. The post did not hold much relevance back then.
Chatterjee, who is also the president of TFPL, a global consulting firm for knowledge, information and data management, had said that there is a learning to take (from the FMCG market) in terms of mind set, focus and process, which are highly relevant (for pharmaceuticals industry). “It is clear that the competitive environment is becoming harsher in healthcare and the necessity for health systems to adopt cheaper product options, primarily generics, will only accelerate the decline of branded sales post patent expiration…” he predicted.
Just a few months ago, when his article was more than a year old, Zydus Healthcare head Rajesh Kohli commented that “the post is more relevant in existing context when margins are under tremendous pressure both in domestic markets and abroad in view of stricter regulations, increased competition and buyers lobbying together to negotiate with pharma manufacturers.” Kohli further stated in his comment that the “government is also keen to promote generics over branded drugs.” Today, several other industry experts also agree with him.
In FMCG, brands are conceived at early stages and marketing teams work with research and development (R&D) teams from the very beginning. “Similarly, pharma companies are considering customer-focused innovation where R&D team will also focus on the areas of opportunities to meet customer needs,” Chatterjee had said in his post.
Is OTC The Answer To Drugmakers’ Branding Woes?
While OTC products’ profit margins tend to be lower, they bring other advantages. “OTC products tend to have lower margins than prescription drugs, but they?have more stable market share. Also, they are at less risk of generic competition due to better brand recognition. Hence, the demand for these assets is usually high,” says Sriram Shrinivasan, global generic pharmaceutical leader at EY.
The promising trends in consumer healthcare market are also emerging from increased interest in self-medication and a new generation of baby boomers who call themselves ‘health freaks’.
The government price regulation is another reason why pharmaceutical companies, specialists in selling prescription medicines, are increasing their focus on OTC drugs.
The pharma industry had suffered huge losses after the government introduced price ceilings on prescription drugs in 2013. To hedge the regulatory decision, about half a dozen OTC products are now being launched every month since the last two year. The drug price watchdog National Pharmaceuticals Pricing Authority (NPPA), however, has a different opinion over price ceilings. “Price controls by NPPA do not harm industry margins. It just removes additional layers from trade margins,” says Bhupendra Singh, Chairman, NPPA.
According to market research company Euromonitor, the global OTC market, comprising a wide range of sectors from vitamins and dietary supplements to painkillers and antacids, worth $107 billion has been growing at a compounded annual rate of 5 per cent for the past five years.
In India, however, the OTC drug market — worth $6,292 million in 2016 — is estimated to be growing at a CAGR of 14.6 per cent. It is likely to reach $12,440 million by 2021.
Earlier the OTC market in India was dominated by FMCG companies such as Dabur, Unilever, Henkel and Reckitt Benckiser among others. In the last few years though, drug companies such as Cipla, Dr. Reddys, Lupin, Sun Pharma have created separate divisions for OTC drug sales. Zydus Cadila even has a separate company in Zydus Wellness to tap this opportunity.
“Consumer firms such as Reckitt Benckiser and Procter & Gamble have a track record of selling OTC products better than pharma companies. However, we have been seeing FMCG and pharma coming together, where most of the companies will end up making separate consumer divisions,” adds Shrinivasan.
Most importantly, in the coming years, companies will not limit their consumer connect through OTC division only. “Customer-focused innovation will enable scientists to focus on areas of opportunity, and clinical teams to build the evidence base that will meet customer needs and provide the opportunities to deliver market access and differentiation,” wrote Chatterjee in his LinkedIn post.
Launches, One After Another
The year opened up with India’s second largest drug company Lupin entering the OTC market. The Rs 17,119-crore revenue-making Lupin forayed into the segment with a new division called the Lupin Life Consumer Healthcare. It launched Softovac, a 34-year-old legacy brand in the treatment of constipation and irregular bowel habits, as an OTC product.
Several drug companies today are working on getting their prescription medicines converted to OTC products. They are investing in distribution channels to reach out to a greater number of consumers through traditional grocery retailers and online retail channels. Lupin, too, drafted the product’s shift from prescription to OTC and rolled out Softovac across India.
Before Lupin, Piramal Enterprises had announced acquisition of a gastro-intestinal product Digeplex and associated brands from Shreya Lifesciences to strengthen its OTC basket. Piramal’s consumer business, which acquired four OTC brands from Pfizer last year, now has revenues in excess of Rs 370 crore.
Mankind sells OTC products such as contraceptive brand Manforce.
There have been deals where consumer and healthcare companies such as Reckitt Benckiser acquired pharmaceutical companies with a large portfolio of OTC healthcare brands.
However, getting into OTC just for the purpose of brand creation has not always been successful. Several products from popular drug makers have failed to attract eye-balls on the shelves.
“OTC is all-together a different game. It is a B2C business where understanding consumer preferences requires a different skill set and investments,” says Shetty. “Companies can leverage their existing OTC portfolio to establish connect with the customer, but may not necessarily enter into the segment for this benefit.” If they enter, the reasons will be multiple. “There are not many molecules coming into the market. This is one of the primary reasons that will boost the focus of companies over consumer healthcare space,” says Hitesh Sharma, partner and national leader, Life Sciences, EY.
Why Pharma May Not Win The FMCG Race?
For global drugmakers, the dilemma is whether they can extract more value from FMCG products such as cosmetics, deodorants than the consumer goods companies or should they just focus on more traditional pharmaceutical markets.
For instance, German drugmaker Merck is considering selling its consumer healthcare business offering vitamins. The move has raised questions over the pharma company’s ability to survive the dynamics of the retail market.
Adding to the concerns of dealing directly with the consumer, Nestlé recently declared (after Merck’s report about selling its consumer healthcare platform) that it was in the market for such assets. A report by Financial Times states that this might “set off a new round of swaps between drug groups and their close cousins in the fast-moving consumer goods sector.”
However, a pertinent question is who handles OTC better, pharma or a consumer goods company?
Rakesh Kapoor, chief executive of UK-based Reckitt, which produces Durex condoms and Nurofen painkillers, had told the FT that the expertise of consumer companies is far better suited to the OTC market than that of pharma groups. “Consumer health is about mums, it’s not about molecules,” he told the FT two years ago, when contrasting the brand-building capabilities of consumer groups with pharma’s research-orientated approach.
“Undoubtedly, consumer goods company will handle OTC better,” echoed industry experts and consultants from EY and PwC.
Not Ignoring R&D
Country’s top drugmakers including Sun Pharma, Dr. Reddy’s, Glenmark, Zydus Cadila are aggressively investing to strengthen their image of building research-based products, over their brand image of selling copy-cat products or vanilla generics.
Focussing primarily on oncology, dermatology, ophthalmology, neurology and pain management, the R&D spends of drugmakers have gone up to create a future product pipeline in specialty and differentiated products.
For instance, India’s top drugmaker Sun Pharma is focusing on ophthalmology, cancer and dermatology products. The company has paid Rs 1,190 crore to Swiss pharmaceutical giant Novartis for rights over Odomzo, which helps in treating a form of advanced skin cancer. The brand was approved in 2015 by US Food and Drug Administration.
Hyderabad-based Dr. Reddy’s Labs has about 85 pending filings for Abbreviated New Drug Application (ANDA) and New Drug Application (NDA). Experts claim that almost two-thirds of these are complex generics or those with high demand. Mumbai-based Glenmark is also working on a new drug discovery.
Another company, Aurobindo Pharma, has recently informed analysts about its plans to develop complex products such as hormones, oncology, liposomal and microsphere depot injectables.
The country’s top five drugmakers together spent a record Rs 8,025 crore in research and development in FY17, as per Bloomberg data. The R&D expenses constituted 9 per cent of the cumulative revenues of the companies; research costs at their global generic peers, such as Teva, Mylan and Allergan, were similar in 2016.
The total R&D expenditure for the top five Indian companies has increased six-fold since FY10, bringing the expense-to-revenue ratio in kilter with those applicable to their global generic peers.
“The increased focus on consumer healthcare segment won’t mean that the companies will neglect investments into R&D and special drugs. OTC is just an added advantage,” adds Shrinivasan.
Win -Win For Patients
With drugmakers trying to imitate consumer goods firms, patients will win.
In the age of increasing requirements for effective drugs (with proven results on paper as well as satisfied users) and where compliance rates are still a major issue, this is just one area where developing a deeper understanding of patients’ mind-set, and using this to drive brand development can have a positive impact. “After all, if you have an effective active agent linked with a strong brand connection, this is likely to have a stronger influence on the behaviour, attitudes and efficacy perception of both patients and doctors,” Chatterjee, who was listed among 100 most influential marketing leaders in 2016, had said.