Drug firms find a new elixir: The pharmaceutical industry is turning to direct sales, Heather Connon reports

THESE days drug companies are no longer content to rely on doctors to distribute their products; they are increasingly keen to target the consumer directly.

It is a trend seen in last week's decision by Glaxo, Europe's largest pharmaceuticals company, to ask a director, Arthur Pappas, to spearhead a push into the over- the-counter (OTC) drugs market.

That decision is only the latest in a series of joint ventures and acquisitions that have had the OTC market as their objective.

Last year SmithKline Beecham teamed up with Marion Merrell Dow in the US to build an OTC business that they hope will sell products like Tagamet, SmithKline Beecham's ulcer drug, and Seldane, Marion Merrell Dow's hay fever treatment, to the public.

Merck, the world's largest drugs company, has a similar agreement with Johnson & Johnson, the US consumer products giant, while Procter & Gamble has a marketing alliance with Syntex.

Ciba-Geigy, the Swiss drug company - which has just launched Nicotinell nicotine patches in pharmacies - recently bought part of Fisons' OTC business, adding to a portfolio already acquired from ICI.

Meanwhile Wellcome, which already has OTC products like Actifed cough medicine, Calpol, the children's painkiller, and Nix for head lice, has for more than a year been looking for a partner to expand the business.

None of this means pharmaceutical companies are turning their backs on 'ethical' products - those distributed through doctors and hospitals. The development of the OTC market has been prompted by two factors.

First, governments around the world are clamping down on health costs. In Britain, a blacklist has been proposed that would ban doctors from prescribing drugs in 10 therapeutic categories, ranging from appetite suppressants to contraceptives. The idea is to encourage people to take more responsibility for - and pay more towards - their healthcare.

In the US, Bill Clinton has made it clear that he intends to cut drug bills. In Italy, price cuts have been imposed and Germany has introduced tighter price controls.

Second, patents on a number of drugs are due to expire over the next decade. The resulting competition from generic manufacturers will hurt - ICI, for example, has lost more than half its US sales of Tenormin, its heart drug, since the patent expired a year ago. By creating a new market for the product, the company can limit the damage caused by patent expiry.

The OTC market, estimated at dollars 30bn ( pounds 20bn) worldwide, is only about a fifth of the size of the ethical drugs market, and margins are much lower - typically 17 per cent or less compared with 30 per cent-plus on prescription drugs.

But consumers can be far less price-conscious than governments, particularly if the product offers a powerful, novel, remedy.

Safety rules obviously constrain the companies. Glaxo, for example, is considering seeking approval to sell Zantac, its best-selling ulcer drug, OTC. But, initially at least, it is likely to be sold only for lesser conditions like heartburn or indigestion; ulcers are considered too serious, with symptoms that can mask conditions like stomach cancer, to allow sufferers to treat themselves.

There are other pitfalls. David Alcraft, pharmaceutical specialist with PA Consulting, has warned that OTC can be a high-risk strategy. He said that, in the consumer area, 'it is far more common for a product to fail than to succeed. A lot of companies think it is an easy option, but it is not.'

Selling direct also requires a different approach. Rather than conferences, symposia and visits to doctors, companies will have to mount advertising and promotion campaigns. 'With prescription drugs, the major cost is in research and development,' Rolf Stahel, marketing director of Wellcome, said. 'With an OTC product, you have to spend a major amount on marketing up front.'

Analysts estimate that it can cost more than pounds 2m to launch an innovative product such as Nicorettes, or more than pounds 5m in a crowded market like painkilling.

Wellcome has already embarked on a programme of transferring Zovirax, its herpes treatment, to the OTC market. It accounts for more than a third of Wellcome's sales and, analysts estimate, half its profits and can be used for all herpes infections, from cold sores to shingles. But its patent expires in Germany later this year, in Britain in 1995 and in the key US market two years later.

It already has approval to sell the drug through pharmacies to treat cold sores in Germany, New Zealand and Denmark and an application has been filed in Britain. In the US, it is discussing the possibility of OTC approval to treat genital herpes too.

As a cold sore treatment, Zovirax should be an ideal candidate for the OTC market. One person in five suffers from cold sores, yet few consult their doctors - and, if they do, they may not be given Zovirax because of its high cost. Yet it has been clinically proven to be the most effective.

Switches can be very successful - nine of the 10 top-selling OTC drugs launched in the US since 1975 started as prescription drugs. In Britain, switches have given us drugs like Nurofen painkillers, Arret diarrhoea treatment and Canesten for vaginal thrush.

But James Dudley, a consultant specialising in this area, suggests that it is vital to be the first product on the market. Nurofen, the painkiller developed by Crooks Healthcare, the Boots subsidiary, was one of the first drugs to make the switch in 1983. It now has more than 20 per cent of the pharmacy- purchased painkiller market.

But Inoven, a similar drug launched by Jansen in 1990, has less than 1 per cent of the market while other analgesics launched later have also made little impact.

The different skills needed to sell into the OTC market are behind the spate of link-ups in the industry. But the time taken by Wellcome to find a partner illustrates the difficulty of getting the right alliance. And Glaxo's shares have been under pressure for weeks because of fears that it will need a huge rights issue to buy its way in. Yet, whatever the difficulties, the OTC race is clearly on.

(Photograph omitted)