Indian OTC drugs market growing at a rate of 23%

The growth of the Indian over-the-counter or OTC market (that is advertised non-prescription medicines) has outperformed globally. It has been observed that the global OTC market over the past eight years has grown rapidly and is expected to continue. Globally, the Indian pharmaceutical industry ranks third in terms of volume and 14th in terms of value. Currently, India ranks 11th in terms of the OTC market size globally.

As of now, the Indian OTC market is estimated to be worth $1,793 million with an annual growth rate of 23%. As per industry research, the Indian pharma industry was estimated to be $19 billion in FY09.

It is expected to grow at a CAGR of approximately 18% till 2013- 14. The Indian pharma industry has emerged as one of the most attractive markets globally as its growth continues to outperform the growth of the global industry and particularly markets such as USA and European Union (EU).

This sustainable growth is driven by strong socio-economic drivers luring several companies, many of which have been predominantly export market-focused, to expand their presence and build a stronger foothold in the Indian market. The primary drivers of growth have been the historically low per capita spend on OTC, the widespread prevalence of untreated common ailments, greater penetration of OTC drugs in rural areas, increasing medical costs, rising consumer confidence in the ability of OTC drugs to control common ailments and increased advertising by manufacturers. OTC or non-prescription medicines in India continue to grow faster than the global average of approximately 5% despite being perceived as less effective than prescription drugs.

As in any other industry, branding is an extremely important marketing strategy. However, this is especially important for the Indian pharma market, which is a branded generics market and reportedly has over 70,000 brands competing for the customer’s wallet. It is important to build an emotional bonding and a relationship of trust and comfort with the customer to ensure loyalty and hence consistent sales. There is a need to differentiate a product from competition and establish a positive image of the drug and the company in the eyes of the customer. Therefore, companies are spending more money and effort on brand building.

Another factor is that the Indian market is large and highly fragmented. Hence, a distinct brand image is the best security a company is likely to have against competition. Brands like Revital, Smyle, Glycodin and Crocin among others have succeeded in establishing customer loyalty and positive brand images. The importance of branding in the pharma industry is also evident from several brand acquisitions in the recent past.

Recently, Piramal Healthcare Ltd acquired ‘i-pill’ brand of Cipla Ltd for an aggregate sum of Rs 950 million.

‘i-pill’ features in the list of top 300 pharma products and had sales of Rs 309.2 million (30.92 Crores) as per ORG IMS for the last 12 months. The acquisition of ‘i-pill’ strengthens Piramal’s OTC portfolio, which has strong consumer brands such as Lacto Calamine skin care range, Supractiv Complete, Saridon and Polycrol antacid.

‘i-pill’ is an emergency contraceptive pill (ECP) used to prevent unplanned pregnancy. Commenting on the sale of ‘i-pill’, Amar Lulla, Joint Managing Director, Cipla Ltd said, “In 2007, we created ‘i-pill’ which is currently India’s No 1 OTC emergency contraceptive brand. Our decision to divest the brand is driven by our current domestic product portfolio focused on prescription drugs. We are pleased that Piramal Healthcare, another Indian healthcare company, with a strong OTC portfolio has bought the brand and are confident that they will successfully accelerate the future growth of this brand.”

If we see such activities in the global pharma market then in December ’09, Sanofi-Aventis expanded its OTC portfolio, giving it access to a US distribution channel through its acquisition of consumer health company Chattem for $1.9 billion. This is a strategic move as it switches its now expired blockbuster antihistamine Allegra (fexofenadine) into an OTC product, as well as pushing the company to the fifth position in the global consumer health market.

Other pharma players with prominent OTC franchises include Johnson & Johnson and GlaxoSmithKline, while Bristol-Myers-Squibb, Novartis and Roche have sold their respective consumer health units within the last 5 years. Pfizer, which divested its consumer health business to Johnson & Johnson in 2007, re-entered the market through its merger with Wyeth, while Merck & Co gained access to the sector through Schering-Plough.

Pharma companies are drawn to the consumer health/OTC market as it is the third most lucrative healthcare sector after pharma and medical devices/diagnostics, with an average operating margin of 20.2% for leading companies between 2005 and 2008 and a market size of $450 billion in 2008.

Indeed, while a majority of consumers in India believe that prescription drugs are more effective than OTC drugs and that OTC drugs are dangerous if not taken correctly, they report that they are just as likely to use OTC drugs to treat common ailments when compared to their reported likeliness to use prescription drugs.

There are various features that need to be addressed by pharma companies during branding. An industry expert who analyzes successful branding says, “A brand can be termed successful in the pharma sector, if doctors are motivated to prescribe it. It may be important to link a desired emotion with the brand because it is often observed that the best way to grab attention is by evoking an emotional response. Most importantly, it is vital that the product be efficacious and able to deliver. No amount of marketing can yield profits for a failed product.”

Attractive graphics and design and good packaging also play a big role in prescription medication as there are a large number of products that a physician is exposed to on a daily basis. In case of OTCs, the consumer and the buyer is the same. So there is a need to raise awareness regarding the rational use of the drug, the concept of and possible abuses of self-medication, the information required to diagnose and manage therapeutic indication.

Regarding the product patent regime and its impact on the respective company’s branded product, effective brand building of a drug enjoys a monopoly due to patent legislations, which increases the commercial life of the product. This is especially true in a market where numerous generic brands exist for the same molecule. In addition, well-branded prescription drugs find it easy to switch to the OTC status.

Further, a strong brand also ensures customer loyalty and better sales. For example the brand image of Crocin is so strong in the market that paracetamol (generic name) has totally lost significance. A customer may not even think of a second alternative in the case of a fever or minor ache. The choice of an OTC drug remains with the consumer/patient instead of the physician.

Hence, to establish the image of a drug in the eye of a person who may not be technically aware of the pharma worth of the product is therefore, an important factor.

Successful OTC branding would constitute many factors such as product quality and efficacy, brand image of the company and marketing initiatives by the company to increase awareness about the formulation. Hence, the role and importance of branding in the pharmaceutical industry cannot be underestimated.

Lastly, since the product enjoys shelf visibility to a certain extent, it may be important to use appealing graphics and packaging.