Private label and OTC switches drive digestive health category

October 22, 2008

Over-the-counter stomach remedies is one retail segment that has not been soured by skittish consumer spending.

Over-the-counter stomach remedies is one retail segment that has not been soured by skittish consumer spending. An annual survey conducted by Pharmacy Times indicates that pharmacists continue their strong pace of OTC recommendations, estimated at 80 million per month nationwide.

Many of those suggestions are for a growing roster of products that, in years past, were available only in more expensive prescription formulas. Retail margins average 28 percent for nationally branded OTC products. This number is far higher than the margins for many prescription drugs. While pharmacy customers typically comprise 70 percent of a drug chain's traffic 90 percent in the typical independent – front-end products generate the highest profits.

By 2008, the overall Rx-to-OTC market is expected to hit $5 billion; by 2010, it should increase by close to 40 percent, notes Drug Topics. Many retailers have also launched private label versions of popular OTC stomach remedies. Margins on these items are even higher. Much Rx-to-OTC “switch” activity occurred in 2006 and 2007 and focused on antacids and laxatives. Both segments attract frequent users.

In a BIGResearch survey of 8,135 adults, 16 percent of respondents said they purchase various antacids at least every other month; 10 percent purchase antacids monthly. In the fiber supplement and laxatives areas, 9.3 percent said they purchase products every other month; 5.8 percent purchase remedies monthly.

In laxatives, a monumental switch occurred in March 2007 when Schering-Plough’s constipation drug MiraLAX became available as an OTC product – earning Hamacher’s 3-star new item rating in the process. MiraLAX was the first laxative switch in 30 years. It brings a strong, proven brand to a category in which many consumers are not brand loyal-even though many OTC laxative brands have been household words for years. In the BIGResearch survey, 83.9 percent of respondents indicated no brand preference.

The biggest shares of the study’s fragmented brand loyalties went to users of Procter & Gamble’s Metamucil (3.1 percent), followed by private label (2.5 percent) and Novartis’ Ex-Lax (1.3 percent). The survey was released in December 2007. For 2009, TAP Pharmaceutical Products, Inc. already plans to license the rights to its heartburn drug Prevacid to Novartis for OTC distribution. Prescription Prevacid retails for about $4 per pill; the OTC version will cost about $1. Prevacid, like Prilosec OTC, is a proton pump inhibitor.

THE FDA EMBRACES SWITCHES

Drug makers’ emphasis on Rx-to-OTC stems from the Food & Drug Administration’s 2004 decision to take a proactive stance on switches by dedicating personnel and financial resources to the segment. The FDA’s 2004 decision was preceded by the launch of Prilosec OTC (Omeprazole) in 2002. This move opened the eyes of many health professionals to the benefits of switches. According to information compiled by Drug Topics and Information Resources, Prilosec OTC ranked number three in dollar volume on a list of the top 200 OTC/HBC brands for 2007. Prilosec OTC generated more than $388 million, up 5.51 percent over 2006.

The OTC version retails for about $1 a pill versus $4 for the Rx formula. Prior to the OTC switch, Prilosec was the world’s top selling prescription medication. Recently, private label formulas were launched and Prilosec’s sales began slipping.

PRIVATE LABEL OPPORTUNITIES

The expiration of some patents, retailers’ quest for margins and consumers’ interest in cost savings make the stomach remedy category lucrative for private label development. During 2007, private label antacids alone grew a whopping 8 percent, says the publication Private Label Buyer.

The wholesale price of private label OTC antacids to retailers is about $1.80; products are sold to consumers for about $3.59. Branded antacids wholesale for about $3.00; they retail for about $3.89. Private label antacids-along with store brand laxative tablets-ranked among the top 25 brands in Drug Topics’ Top 200 OTC/HBC Brands list. Some national brands lost dollar volume, including Pepcid AC Antacid tablets (down 17.1 percent) and Pepto Bismol (down 0.38 percent).

In March 2008, retailers gained a profitable marketing opportunity when Omeprazole became available for house brand marketing. At that time, Perrigo Co. became the exclusive marketer and distributor of the store brand version under an agreement with Dexcel Pharma Technologies. The launch was the largest in Perrigo’s 120 year history. Allegan, MI-based Perrigo estimates it will save consumers $100 million over Prilosec OTC.

Perrigo projects full-year sales of the drug will range from $150 to $200 million. For the 52 weeks ended July 13, Information Resources reports that Prilosec OTC experienced a 6 percent decline on sales of $362.4 million. Perrigo, however, is beating its overall revenue expectations.

In August 2008, Perrigo also began shipping Famotidine Complete, a private brand alternative to Johnson & Johnson’s Pepcid Complete. The product relieves heartburn associated with sour stomach and acid indigestion. Perrigo says the launch should save shoppers $1 billion annually over the national brand. The American Journal of Managed Care pegs Pepcid’s annual retail sales at around $95 million.

NATURAL STOMACH REMEDIES

Probiotics, which relieve diarrhea and other stomach ailments, are a growing part of the nutritional supplements market, though these products can be found cross-merchandised in the digestive health department. They are already big in the food segment and in health food stores. In the drug channel, probiotic supplements are gradually becoming mainstream.

 stems from consumers’ interest in natural and organic products and new types of supplements. Procter & Gamble joins a handful of companies that have made in-roads in drug stores. Amerifit, which makes Culturelle, has backed its products with aggressive promotions. Flora Q, marketed by Bradley Pharmaceuticals, has been on the market since 2004. The product is made by Danish company Chr. Hansen.

Other brands offered by drug chains include Florastor, Lactaid and Beano. The exact size of the probiotics market is difficult to determine. Information Resources, which tracks mass, drug and grocery, pegs retail volume at $29.4 million; annual growth rate is 28.4 percent. Other estimates, which may include food, small supplement manufacturers and specialty chains, are much higher. This article was provided by Hamacher Resource Group (HRG).

Pioneers in drugstore category management, the retailing experts at HRG combine the art of creative and strategic development with the science of market analytics to enhance the profitability of health, beauty and wellness manufacturers, distributors, retailers, and affiliated companies. This article was provided by Hamacher Resource Group (HRG).

Pioneers in drugstore category management, the retailing experts at HRG combine the art of creative and strategic development with the science of market analytics to enhance the profitability of health, beauty and wellness manufacturers, distributors, retailers, and affiliated companies.

This article was provided by Hamacher Resource Group (HRG). Pioneers in drugstore category management, the retailing experts at HRG combine the art of creative and strategic development with the science of market analytics to enhance the profitability of health, beauty and wellness manufacturers, distributors, retailers, and affiliated companies.