OTC Market

What is Supporting Strong Growth of the U.S. OTC Market?

Driven by the market return of popular OTC brands from Johnson & Johnson and GlaxoSmithKline, as well as the success of several Rx-to-OTC switch brands, the U.S. OTC market increases by a solid 4% in 2015, reveals our recently published Nonprescription Drugs USA report.

In October 2015, Johnson & Johnson announced that the FDA approved the reopening of the Fort Washington, PA, plant that had been shuttered since May  2010. Johnson & Johnson’s key brands, including Tylenol Arthritis Pain and Tylenol 8 Hour, are re-launched in 2015, supporting overall sales growth of the OTC drugs market. Steady distribution of Zyrtec and other key brands from the market leader, Johnson & Johnson, help propel sales in the OTC market.

Novartis Consumer Health also faced similar issues prior to the creation of the joint venture with GlaxoSmithKline. After three years of working under FDA oversight for making remedial improvements to production and quality control systems in its closed Lincoln, NE, plant, in 2015, GlaxoSmithKline makes significant progress, completes inspection applications, and restored its full plant capacity with FDA approval in mid-2015. Major brands, such as Excedrin and Benefiber, now back to the market with full predictable supply, also contribute to the industry’s overall sales gains. GlaxoSmithKline also relaunches Alli in early 2015, after the company had voluntarily recalled the brand in early 2014 due to tampering issues.

Furthermore, Rx-to-OTC switches also continue to be a major driver of OTC sales, as they increasingly involve large, widely used products, bringing former prescription users to the OTC market. Switches significantly affect category sales growth, as well as the overall OTC market’s growth. The mid-2014 launch of the Rx-to-OTC switch proton pump inhibitor (PPI), Nexium 24HR by Pfizer, has delivered the anticipated major growth impact on OTC antacids market. Its switch approval and launch is the latest in a long twenty-year history of the antacid tablet segment’s steady stream of market expanding Rx-to-OTC switches since 1995. Sanofi’s Nasacort Allergy 24 Hour was the first intranasal steroid (INS) brand to make the Rx-to-OTC switch in 2014, which also created the new INS segment of the already large OTC allergy category. Likewise, GlaxoSmithKline’s Flonase Allergy Relief, the second switch in the INS class, also drives the market’s overall growth.

Additional switches enter the market with Johnson & Johnson’s Rhinocort Allergy Spray launch in February 2016, which is licensed from AstraZeneca, the prescription drug’s developer. The maker of Claritin (Bayer) launches another fluticasone brand (Flonase Allergy Relief’s active ingredient) in the spring of 2016 under the trade name ClariSpray. These new brands will increase competition in the INS segment of the allergy category, but should also help the category grow with merchandising, promotions, advertising, and increased media attention.

Switches and the relaunch of major brands are events that drive sales growth for the market; however, they also can have an impact on manufacturers’ bottom lines. Kline’s recently published 10th edition of its OTC Drugs: U.S. Competitor Cost Structures study finds that trade promotion costs are trending up over the past several years due to the increased competition to gain consumers’ attention at retail. Raw material and packaging costs have stabilized due to the leveling of petroleum costs for the past two years.

Advertising expenditures continue to decline as marketers become more selective on where they spend advertising dollars and focus efforts only against brands where they have a competitive edge. Categories such as allergy relief and digestive products have higher advertising expenses due to growth from Rx-to-OTC switches, such as Nasacort Allergy 24HR (Sanofi), Flonase Allergy Relief (GlaxoSmithKline), Rhinocort Allergy Spray (Johnson & Johnson) in the allergy market, and Nexium 24 Hour (Pfizer) in digestive products. Overhead and administrative costs have increased over the short term due to industry consolidation, such as the Bayer/Merck purchase and the GlaxoSmithKline/Novartis joint venture. In the long term, these costs will come down as businesses are integrated and consolidation of plants takes place.

Our just-published OTC Drugs: U.S. Competitor Cost Structures report will help you stay ahead of these challenges by deeply analyzing the profitability of 11 leading OTC companies and their top three OTC product classes. This study provides solid insights on how the market and its competitive changes affect the industry’s costs and profitability. Moreover, the 43rd edition of our well-regarded Nonprescription Drugs USA report continues to curate the latest market trends and developments shaping this industry’s path to success.

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