OTC: Speed breaking growth
Racing alongside the booming economy is the Indian OTC business. But there are quite few hurdles ahead of the marathon, Katya Naidu finds out
Ringing the cash counters all the way, the Over-The-Counter (OTC) market in India is charging ahead reporting a y-o-y growth of 7.7 percent and has grown steadily at a CAGR of 8.3 percent in the period 2002-2006 (according to the Datamonitor). Valued at $2.5 billion in 2006, the market is expected to grow at a CAGR of 6.3 percent during 2006-2011 to touch $3.4 billion by 2011. Exhibiting a y-o-y growth which is higher than that of growth globally, Indian OTC performance could be stated as good. However, there are different views from the other side of the coin. “I believe that the Indian OTC market is in a very nascent stage and it is bound by a lot of regulatory constraints and the mindset is till not there for going into capturing a lot of consumer markets,” says P V N Raja Shekhar, Associate Director-Business Development, Indegene Pharmaceuticals.
|“To increase sales of an OTC product its distribution has to be increased for which even FMCG distributors should be brought in since their reach is far more wider”
– Sumita Nag Analyst
In spite of the dynamic nature of the segment and the potential that it exhibits, the regulatory side of the story has remained rather conservative. Moreover, there are no clear cut guidelines from the Government for OTC classification; in terms of the claims that can be used and the categories which qualify as OTC. This has led to open representation by the companies. “Right now what everybody is doing is trying to find some loopholes and getting their products marketed. The clear cut policy is not out from the government on these products,” laments Shekhar.
Changes suggested to the Schedule K of the Drugs and Cosmetic Act which stands to alter the current sales legislation regarding consumer healthcare products is yet pending. “Subject to approval, the legislation is expected to bolster sales for aspirin, acetaminophen, analgesic balms, antacids, oral dehydration solution, gripe water, cough and cold treatments including inhalers, tetracycline-based ophthalmic ointments and low-dose hormonal contraceptives through non-pharmacy channels,” says Sumita Nag, Analyst at IndusView. There are a lot of categories which are still unrepresented in India as compared to the Western markets like certain low-dose OTC statins, child specific vitamins, laxatives, eye care and ear care products, OTC obesity drugs. These lifestyle medications are still not present in the Indian OTC space. “Some smoking cessation drugs like the nicotine patches are OTC in the Western markets but here they are not,” says Shekhar. OPPI has put forward its recommendations for certain categories to be classified as OTC drugs which are considered relatively safer to allow self-medication.
As the consumers get smarter more educated and more self-reliant, comes in the self-medication which is the prime reason behind the boom in the OTC segment. “Indian consumers today are confident about sharing healthcare responsibility through self-medication, especially when treating common ailments,” opines Sumita Nag, Analyst at IndusView.
Increasing urbanisation has changed people’s lifestyles and has led to increases in lifestyle diseases. Hand in hand, improving literacy rates coupled with strong growth in income levels have led to rising health awareness among consumers. These are some of the reasons for the expansion of the OTC market. “This trend is expected to continue and companies will launch products targeting this category and the overall OTC segment is expected to register sustained growth in the near future,” says Gajaria. In addition, the tendency of self-medication is furthered by consumer deciding what he needs and having a better control over what he needs be it a grocery item or a medicine.
|“Creating a strong brand is very crucial for the successful launch of a product and requires aggressive marketing and heavy investment”
– Hitesh Gajaria
There are also some indirect hurdles which are stopping newer categories from making a mark. “There are some other hurdles for products like vitamins because of price control,” says Shekhar. It becomes unviable for the marketer to bring them into OTC although there is a huge market and the scope is tremendous. But still the volumes are not there and are controlled by the Government it becomes unattractive for any marketer to bring them to the market.
Moreover, price is a vital factor for OTC since the business is investment intensive. Brand building, advertising, marketing, logistics and distribution network are major costs requiring investments. “Creating a strong brand is very crucial for the successful launch of a product and requires aggressive marketing and heavy investment,” says Hitesh Gajaria, Chartered Accountant. Agrees Nag and adds, “It is investment intensive and the extent is variable depending upon the size of proposed operations.”
Thus the investment that OTC demands becomes yet another hurdle for any company, making it a play more suitable for bigger companies.
Top of the counter
The trend in the Indian OTC market also stands a testimonial to the ‘size matters’ theory as the top players (Zandu Pharmaceutical Works, Cipla, Dabur India, Nicholas Piramal India and Ranbaxy Laboratories) control nearly 51 percent of the total market. Zandu manufacturers about 300 Ayurvedic drugs and is a leader in the Indian balm and rub segment. Dabur India offers a wide range of products in the healthcare and personal care segments with exports to around 50 countries.
Other leading players include Proctor & Gamble, Pfizer, Himalaya Drug Company, Paras Pharmaceuticals, Novartis, Alembic and GlaxoSmithKline. The OTC both Indian and international has seen.
However, it is no general rule that big companies are the only ones that will make it in the market. “Consumers are continually seeking superior value and product delivery and any player than can deliver sustained and credible value to the consumer will survive and thrive,” says Deepa Soman, Managing Director, Lumiere Business Solutions. Agrees Gajaria and adds, “Ultimately the game will be won on the basis of brand awareness, cost-effective production, success on logistics and distribution and appropriate value for money pricing for the price sensitive Indian consumer.”
And as the gospel goes, the presence of extremely big players has never been a deterrent for small companies to come in. Being a flexible market unlike the prescription business, OTC offers companies to be innovative in terms of evolving and identifying niche and differentiated areas and introduce interesting brand extensions or the OTX segments with specialised offerings for the ethical target. “OTC products have closely patterned themselves with the FMCG industry, which has seen a growing trend in newer offerings, brands and variants, all of which have grown with requisite brand building and market creation/ expansion efforts,” says Soman.
Far and away
Apart from widening their product profile and offerings, companies should also increase the market reach of their products. “To increase sales of an OTC product its distribution has to be increased for which in addition to pharmaceutical distributors even FMCG distributors should be brought in since their reach is far more wider,” advises Nag. However, she herself warns that allowing FMCG distributors could cause conflicts as they could offer tough competition to pure pharma companies.
A trend which might help bolster OTC sales is the emergence of retail. It is a general prophecy that the advent of organised retail alone would create new shelf space in hitherto non-existent areas and companies are not looking at confining their products to just the chemist. “Out five million outlets that we see in the retail universe, almost are four percent are chemist outlets. So we should reach to retail outlets which are non-chemist then the OTC will pick up much faster,” observes Shekhar.
Even though retailing and sale in general stores are what companies are looking for OTC, this move is also held hosstage by regulation. “The Health Ministry is concerned about permitting neighbourhood kirana stores to stock over-the-counter sdrugs, even as multinational pharmaceutical companies are pushing for relaxation of norms,” informs Nag. Apart from investments, lobbying of chemists associations and many others, overcoming the regulatory hurdles is a crucial step ahead for OTC companies to bloom in all their splendour.