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Sanjiv Shankaran

The industry is upbeat about OTC business. An ORG-Marg study suggests that the reasons for this is that profit potential for the OTC business is higher, indicating a trend towards self-medication and growing popularity of herb-based products.

OVER-THE-COUNTER (OTC) products present a challenge to pharmaceutical companies because they require a radically different promotion and distribution system. Therefore, success in the OTC segment may require significant reorientation within a company — a process fraught with difficulties.

Pharmaceutical companies are oriented towards promoting products through doctors, who prescribe medicines. Since doctors need to be convinced, a pharma firm deals with the savviest customer. Also, unlike a consumer good, claims about medicines have to be supported with clinical evidence. Their nature of evolution suggests that while the OTC business may look promising, success may not come so easily.

Legal issues: The legal framework governing the pharmaceutical industry has strict guidelines about the way drugs can be sold. The nature of the product rules out self-medication in most cases, and the regulations demarcate the drugs that can be sold only through a doctor's prescription.

Reality: Pharma companies have been reluctant to use the OTC route for most medications that fall outside the purview of prescription drugs. A recent ORG-Marg study indicated that 27 per cent of pharma sales in 2001 could have been sold without a prescription (through the OTC route). But the industry chose to market a mere 4 per cent through this route.

For all practical purposes, a number of prescription drugs are sold as OTC drugs. Visit any chemist's shop, and customers can be seen asking chemists to suggest an appropriate drug or buying prescription drugs without a prescription. Prescription drugs, therefore, provide stiff competition for OTC drugs.

Industry's optimism: The industry is upbeat about the prospect of the OTC business. The ORG-Marg study suggests that the reasons for this is that profit potential for the OTC business is higher, indicating a trend towards self-medication and growing popularity of herb-based products.

The ability to reach a potential customer directly appears to have excited the industry. Well-directed advertising can have a positive impact on the demand for a product, and medication that serves as an antidote to recurring ailments such as common cold and cough have rich potential.

Novartis' profitability in fiscal 2002 in its OTC business was far lower than the same in its prescription drug business. The high expenditure incurred in the early stage of promotion limits the potential profit in this business. But companies are confident that over time the profit here will be greater than in the prescription business.

Self-medication seems the inevitable fallout of increasing awareness. Arguably, awareness about ailments and medications is much higher now than it has ever been in the past. The numerous (and growing) channels of information have made it easier for people to get acquainted with problems and solutions.

A cursory glance at advertisements in the media suggests that companies are enthusiastic about the potential of herb-based products. Herbal products appear to certain advantages: Traditional healing systems are based on a through knowledge of herbs and they fall outside the purview of most regulations. It is not just pharmaceutical companies, but even consumer goods companies seem to have placed faith in the potential of herb-based products.

Growing ad-spend: The ORG-Marg study indicates that healthcare advertising expenditure in 2001 grew faster than the average growth in the industry. Admittedly, healthcare advertising is small compared to that for soaps and soft drinks. However, a 50 per cent growth in healthcare advertising in 2001 against the average growth of 25 per cent in advertising for all products suggests that companies are willing to back their beliefs about the OTC business with money.

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