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The Value of Me-Too's in the Context of OTC Switches

Executive Summary

At Windhover's annual Marketing Pharmaceutical Innovation (MPI) conference in November, industry executives wrestled with an emerging dilemma -- how to win managed care's support for drugs that exhibit only minor improvements to existing products, while new over-the-counter (OTC) options surface.

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Shaking Up the FDA

To improve regulatory predictability, Mark McClellan has plans to reduce multiple-cycle reviews. In addition, he is in the midst of adopting best review practices and developing clearer guidances in therapeutic areas where progress has been slow and in certain emerging areas. While such plans potentially offer good news for the brand-name drug companies--though the benefits will be slow to accrue since the regulatory efficiencies will take years to fully materialize--they won't lower overall system costs since lower development expenses won't necessarily lead to lower average prices. Thus the FDA is focusing on two areas in which it has direct influence on drug costs and reimbursement: speeding the approval of generics and forcing OTC switches. McClellan's desire to impose a cost-benefit mindset on the agency attempts to balance the needs of the drug industry with the needs of reimbursers, particularly the Federal government as it prepares to shoulder the new burden of Medicare outpatient drug costs.

Shaking Up the FDA

To improve regulatory predictability, Mark McClellan has plans to reduce multiple-cycle reviews. In addition, he is in the midst of adopting best review practices and developing clearer guidances in therapeutic areas where progress has been slow and in certain emerging areas. While such plans potentially offer good news for the brand-name drug companies--though the benefits will be slow to accrue since the regulatory efficiencies will take years to fully materialize--they won't lower overall system costs since lower development expenses won't necessarily lead to lower average prices. Thus the FDA is focusing on two areas in which it has direct influence on drug costs and reimbursement: speeding the approval of generics and forcing OTC switches. McClellan's desire to impose a cost-benefit mindset on the agency attempts to balance the needs of the drug industry with the needs of reimbursers, particularly the Federal government as it prepares to shoulder the new burden of Medicare outpatient drug costs.

WellPoint: Revitalizing Managed Care

WellPoint is on a mission to manage spiraling drug costs. Perhaps best known for its role in pushing Claritin over-the-counter, its OTC strategy provides real cost savings and also reveals the company's aggressive mindset for dealing with its critical cost drivers. Fresh from its Claritin OTC victory, WellPoint launched its latest expense-reduction program, GenericSelect, to promote generic substitution for all prescription drugs within certain therapeutic categories. And in a separate effort, WellPoint is exploring therapeutic substitution, the switch of one branded drug for another, when there is not a generic option in a class of drugs. If WellPoint demonstrates continued success with its strategies, managed care in general may begin to undertake the type of aggressive formulary management that was promised back in the early 1990s.

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