The OTC Pharmaceutical Market in Emerging Countries

Executive Summary

The global OTC pharmaceutical market

• Over-the-counter (OTC) pharmaceutical medicines refer to non-prescription medicines that are sold directly to consumers through pharmacies, drugstores, convenience stores, and grocery stores. The majority of countries follow the 'two-class system' of classification of medicines: prescription (Rx) and non-prescription (OTC).
• In 2009, the global pharmaceutical market was valued at $752bn while the global OTC pharmaceutical market reached $113bn witnessing a Y-o-Y growth of 4%. The growth for OTC pharmaceuticals was greater than that of prescription pharmaceuticals owing to the loss of patent protection and the subsequent generic erosion of sales in the latter.
• Although OTC market growth in recent years has been driven by emerging markets such as China, India, Brazil and Russia, the developed markets including US, Western Europe and Japan account for over 60% of global OTC sales.
• The growing economy, increased consumer awareness, patent expiry of blockbuster drugs, and relaxation in the regulatory procedures for Rx-to-OTC switches, have fuelled the growth of the global OTC market.
• The OTC market is extremely fragmented with the presence of numerous local players along with a few multinationals in almost all geographies.
• The pharmaceutical industry is facing a major patent cliff, where patents for most of its blockbuster drugs are nearing patent expiry, which in turn is resulting in more product switches to OTC driving sales and reducing the competition from generics.
• Although most Rx-to-OTC switches are driven by manufacturers, governments across the world increasingly view Rx-to-OTC switching as a means to reduce the healthcare burden on the government.

The OTC pharmaceutical market in emerging countries

• China, Brazil, Russia, India, Turkey and Mexico, the key emerging markets have always been attractive markets for pharmaceutical companies looking for low cost manufacturing. However, manufacturers have started to realize the growth potential of pharmaceutical including OTC products in these markets.
• Market entry strategies for emerging markets are dependent on multiple factors including a company's product portfolio, diversification objectives, and available opportunities.
• The OTC market in six key emerging countries (Brazil, Russia, India, China, Mexico and Turkey) reached around $28bn in 2009, exhibiting a Y-o-Y growth of 8%. The traditional medicine category led the market with a 19% market share, followed by cough, cold and allergy at 15% and analgesics at 13% market share respectively, in 2009.
• The drivers for OTC growth in the emerging markets include the ageing population, growing economies, increasing disposable income, increasing disease awareness, and government promotion of self-medication to reduce the cost of reimbursed drugs in national healthcare plans.
• The OTC market has become very dynamic due to the entry of almost all the large players in the pharmaceutical industry. The OTC market is characterized by increased M&A activity, increased marketing and advertising, and Rx-to-OTC switches.
• The rural markets of most of the emerging countries have untapped OTC growth potential. Manufacturers with an aim to penetrate the rural market are offering products at different price points to attract rural consumers.

The OTC pharmaceutical market in Brazil

• In 2009, Brazil's OTC pharmaceutical market, also known as Medicamentos Isentos de Prescrição (MIP), reached around $4.5bn, witnessing a Y-o-Y growth of around 8%. In spite of the economic recession, the market exhibited consistent growth due to the spread of the H1N1 epidemic, which led to an increase in the sales of cold, cough and analgesic OTC products. In January 2009, the H1N1 prevalence in Brazil was reported to be 22%, by WHO.
• ANVISA, the National Health Surveillance Agency responsible for formalizing the legislations, regulating the registration of drugs, cosmetics and medical devices in Brazil, introduced a new regulation that restricted the sales of OTC products only through pharmacies as BTC products. This has resulted in the growth of registered pharmacies with in the supermarket.
• Conselho Nacional de Autorregulamentacao Publicitaria (CONAR), the Brazilian advertising regulatory body, permits the direct-to-consumer advertising of OTC products, provided the advertisement complies with guidelines such as displaying trade name, ANVISA registration number, and active ingredients of the product.
• ANVISA has also banned children and celebrities from endorsing OTC brands to avoid potential in appropriate consumption of the product.
• As the insurance system is not very strong in Brazil, most of the healthcare expenditure is out-of-pocket. The lower prices of OTC medicines than prescription, is driving consumers to consume OTC for minor ailments such as cold, cough, headache, and fever.
• The Brazilian government has also increased its surveillance of pharmacists to regulate under-the-counter (UTC) sales of prescription medicines, which is expected to increase the sales of OTC products in Brazil.

The OTC pharmaceutical market in Russia

• A low birth rate coupled with high death rate has resulted in a decline of population in Russia to 140 million in 2009.
• The OTC pharmaceutical market in Russia was valued at over $5.6bn in 2009, witnessing a Y-o-Y growth of approximately 8.5%. With around 25% market share the digestive remedies category led the market in Russia.
• The Federal Service on Surveillance in Healthcare and Social Development (Roszdravnadzor) is responsible for regulating the registration, licensing, pricing, advertising and marketing of both prescription and OTC medicines. However, presently there are no defined regulations on OTC products in Russia.
• As the distribution of OTC products is limited to pharmacies, it has resulted in an increase in alternate sales channels such as internet and direct sales of OTC products, particularly vitamin and mineral supplements.
• The key drivers of the OTC market in Russia include growing purchasing power resulting from the burgeoning economy and a changing lifestyle which has empowered consumers to spend on their health and appearance, thus accelerating the growth of the OTC market in Russia.

The OTC pharmaceutical market in India

• The OTC pharmaceutical market in India reached around $2.9bn in 2009, witnessing a Y-o-Y growth of around 7.1%. In 2009, the vitamins and minerals category led the OTC pharmaceutical market with a 25% market share by value, followed by cough, cold and allergy at 20% and analgesics at 18% market share.
• The leading OTC pharmaceutical players in India include GSK, P&G, Dabur, Novartis, Pfizer and Ranbaxy. The OTC market witnessed a flurry of product launches in the traditional medicine category in the recent years.
• The main pharmaceutical regulatory laws in India are "the Drugs and Cosmetics Act", 1940 (DCA) and "the Drugs and Cosmetics Rules", 1945 (DCR). OTC classification is not legally recognized in India and the drugs which are not a part of "prescription only" drug list are considered as OTC.
• Although, the distribution of OTC products is dominated by the pharmacy channel accounting for almost 70% of OTC sales, alternate sales channels such as retail and grocery stores are gaining ground due to their reach in rural are
• The key drivers for the growing attractiveness of the OTC market in India are changing consumer attitudes towards illness prevention and wellness. Other factors driving the market include the expansion of distribution networks, growing economy resulting in increased purchasing power and the high cost of medical treatment and prescription drugs.

The OTC pharmaceutical market in China

• The OTC pharmaceutical market in China reached around $11.3bn in 2009, at a Y-o-Y growth of 7.8%. In 2009, the traditional medicine category led the market with 30% market share.
• Leading players in the Chinese OTC pharmaceutical market include J&J, GSK, Novartis, Bayer, Chengdu Rosun and Huangshan Tianmu. The traditional medicine category was led by a local player Nin Jiom, with over a 14% market share in 2009 while multinational company, J&J led the analgesics and digestive remedies with an 8% and 6% market share respectively.
• The State Food and Drug Administration (SFDA), the regulatory body for formulating the guidelines for prescription and OTC medicines has created a prototype manual featuring the detailed content and the unique logo for OTC medicines for 4,610 identified types of OTC medicines category.
• The key drivers of China's OTC market include its booming economy, ageing population, growing population of smokers, increasing levels of obesity, and growing consumer awareness and confidence in self medication.
• China's economy has experienced strong growth over the years and the growth rate is reported to be higher than the growth experienced by the major world economies such as the US, EU5 and Japan. In 2009, the GDP growth rate for China was 8.7% and is expected to increase in 2010 to reach 9.5%.

The OTC pharmaceutical market in Mexico

• The OTC pharmaceutical market in Mexico reached around $2bn in 2009, witnessing a Y-o-Y growth of around 6%. In 2009, the cough, cold and allergy category was the leading category in the OTC pharmaceutical market with over 25% market share, followed by analgesics at 15% and vitamins and minerals with a 13% market share.
• The OTC market in Mexico has grown due to the increasing accessibility of OTC medicines which were previously available as prescription only. Neighboring cities in the US, also contributes to OTC sales in Mexico, as some OTC medicines in Mexico are prescription only in the US, and the prices of OTC products is lower in Mexico than in the US.
• The OTC market in Mexico is also characterized by large proportion under-the-counter (UTC) sales of prescription products. The UTC sales of antibiotics has resulted in a drug-resistant population, however the government is taking serious steps to eradicate the practice of selling antibiotics without a doctor's prescription. It is believed that the inappropriate consumption of antibiotics has led to the spread of spread of antibiotic resistant bacteria which resulted in increased H1N1 cases.
• The Federal Commission for Protection against Health Risks (COFEPRIS), the regulatory body operating under the Ministry of Health, is responsible for the control and monitoring of health facilities, drug registration, and framing the legal framework for drugs, food, pesticides, plant nutrients and medical devices.
• The key drivers of the OTC market in Mexico are intensified competition between companies as well as pharmacies. The economic recession has also resulted in driving the OTC market as consumers are reluctant to spend on physician visits for minor ailments.

The OTC pharmaceutical market in Turkey

• The global economic crisis has resulted in decline of real GDP rate growth to 5.6% which resulted in low consumer confidence and a decline in the spending power of people in Turkey. However, the Turkish government has started to implement several corrective measures to improve the economic situation of the country which included the introduction of free trade agreements (FTAs) in 2009.
• In 2009, the OTC pharmaceutical market in Turkey reached around $1.7bn witnessing a Y-o-Y growth of around 8%. Analgesics with 2009 sales of $242m and a market share of 25% led the market in Turkey.
• The growth of the OTC market in Turkey was stagnant, even though the H1N1 epidemic has resulted in increased sales of OTC products. Moreover, the new pricing regulation has also led to the decrease in prices of all OTC products in the country.
• The guidelines on OTC products are not very clear in Turkey but some OTC products are reimbursable. Turkey uses reference pricing system to regulate the prices of OTC products. In the new healthcare pricing method, the number of base countries was increased to ten from five, resulting in the decline of prices of the medicines.
• The Turkish government's initiative to ban smoking in enclosed public spaces resulted in an increased demand for smoking cessation products. Economic recession and intensified competition were other key drivers of the OTC market in Turkey.

Competitive landscape

• The OTC pharmaceutical market, in most of the emerging geographies, is characterized by the presence of multiple local players with multinational companies dominating the market. The local players are able to maintain a presence in these competitive markets is due to their strong distribution channels and low prices.
• Global pharmaceutical companies utilize the OTC market as a strategic platform for the lifecycle management of a product. To defer generic competition after patent expiry, manufacturers switch their product into the OTC category after conducting required clinical studies. However, the growth of the OTC market has changed the way it is perceived and manufacturers have started to consider OTC products as one of the key market segments to drive the growth of a company.
• The leading players in the OTC market in emerging countries include J&J, GSK, Bayer, Novartis and Sanofi-Aventis. The key to success in emerging countries is the right time of entry into the market, innovative products and efficient marketing and advertising.
• Companies have started to increase their focus on R&D activities for their OTC divisions with the aim of introducing innovative products to the global OTC market. For instance, the "innovation hub" of GSK in UK, where scientists and people from commercial and regulatory departments are working on the same product share a common workplace to develop innovative products. Moreover, GSK is also planning to implement the same structure in emerging countries such as China and India.
• M&As and partnerships are a key strategy deployed by multinational companies when entering new emerging markets. Although there are strong regulatory obligations in only a few countries, M&As and partnerships provide a better understanding of the market and access to their partner's distribution channels, local sales teams and manufacturing facilities.