Merck may seek an OTC switch of its best-selling Singulair prescription medication, most likely asking for a nonprescription indication for allergic rhinitis.

Merck is not ready to declare any particular strategy for switching Singulair (montelukast), executive VP Ken Frazier said during the firm's fiscal 2009 second-quarter earnings call on July 21.

However, Frazier, who is also president of Merck's Global Human Health division, disclosed that the firm is examining seriously a potential switch as the 2012 patent expiry for the product looms nearer.

"We're not in a position today to declare where we see Singulair OTC being, but it's something we are looking at very carefully. It is a brand that's had broad acceptance for allergic rhinitis and asthma. We believe it is a safe, effective product," said Frazier.

"So that's something that we will evaluate along with the FDA and others to decide ... the best way to bring that forward in the context of OTC."

Morgan Stanley and other industry stakeholders predicted Singulair would be a strong potential switch candidate (¹ Also see "Morgan Stanley Analysts Handicap Potential Switches In Near Future" - Pink Sheet, 4 February, 2008.).

While Singulair has FDA approval for treating asthma as well as allergic rhinitis, Merck likely would seek a switch as an allergy product given the difficulty of gaining the agency's approval for a nonprescription asthma product.

The disclosure comes just as Merck is about to acquire Schering-Plough's consumer health unit as part of its $41 billion purchase of its New Jersey neighbor. The division includes the Claritin allergy product as well as such drugstore icons as Dr. Scholl's foot pads and Coppertone sunscreen and suntan lotion (see item p. 14).

Definitive plans for the division, which generated $1.3 billion in sales last year, are unclear. But Merck CEO Dick Clark told analysts the company may line up an outside partner and the drug maker is keen to expand the business.

"Certainly, there's going to have to be an investment in the consumer health business," said Clark. "Do we do it as a stand-alone? Do we do it with a partner? And how do we move that forward?"

"I can tell you there is a great deal of excitement around the consumer health business from a Merck standpoint. If you look at some of our products that have recently come off patent or will be coming off patent, they are excellent candidates from an Rx to OTC switch, to make it even more powerful in the future."

Merck went down this road before. In 1989, the drug maker formed a 50-50 joint venture with Johnson & Johnson to develop and sell OTC versions of some Merck drugs. The venture led to FDA's 1995 approval of an OTC version of the Pepcid (famotidine) heartburn drug (² Also see "Pepcid AC garners leading share of antacid market since June launch -- J&J/Merck." - Pink Sheet, 11 September, 1995.).

Obtaining OTC Switch Approval Can Be Tricky

As for Singulair, the drug generated $4.3 billion in sales in 2008 and accounted for 22 percent of Merck's overall revenue in the firm's second quarter. The firm said the product's sales increased 16 percent to $1.3 billion during the quarter.

However, the patent on this all-important product expires in August 2012, and already is challenged, which is one impetus for Merck to eye an OTC switch.

If switched, Singulair would be the first OTC product with montelukast as the active ingredient.

Merck's ideal scenario would be to win FDA approval for the switch before the expiration and garner revenue from both Rx and OTC versions.

Such a move, however, is not without barriers. A key question regulators will examine is the extent to which patients can safely and effectively medicate themselves, an issue that stopped other switch applications.

"It can be tricky with label changes," said Credit Suisse analyst Catherine Arnold.

Although Singulair's OTC switch application would likely be as an allergy treatment, a nonprescription montelukast product would have potential attraction to consumers for treating asthma. Singulair currently is prescribed in the same dosage for both asthma and allergy indications.

Current OTC treatments for asthma are limited to epinephrine sprays and ephedrine-containing drugs, but medical professionals commonly caution patients against using those products because of their comparatively weak efficacy and possible side effects.

Moreover, sales of nonprescription ephedrine products are limited under federal and state laws enacted to prevent illicit methamphetamine production and epinephrine inhalers must be removed from the market by the end of 2011 under a rule amending FDA's regulation on the use of ozone-depleting substances in self-pressurized containers (³ Also see "Senate Passes Mandate For Retailers’ Compliance With Combat Meth" - Pink Sheet, 15 June, 2009. and ⁴ Also see "Armstrong’s Primatene Mist Inhaler Has 2011 Deadline To Exit The Market" - Pink Sheet, 24 November, 2008.).

Seamus Fernandez, an analyst at Leerink Swann, adds, "Can you take an asthma drug and move it over the counter? I don't know. But they may be able to generate $500 million to $600 million in revenue annually (from an OTC version) while they still have exclusivity."

Merck explored an OTC switch before. The drug firm twice lost a bid to sell an OTC version of its Mevacor cholesterol drug, most recently in December 2007, when an FDA advisory committee voted against the idea (⁵ 'The Tan Sheet' Jan. 28, 2008).

The interest among drug makers in OTC operations has grown in recent years as patents on big sellers expire and product pipelines have gone dry (⁶ Also see "Sanofi-Aventis Acquisitions Could Double OTC Sales By 2014" - Pink Sheet, 16 February, 2009. and ⁷ Also see "Diversification Versus Focus Dilemma Spotlights OTC Business Value" - Pink Sheet, 13 October, 2008.).

Johnson & Johnson paid $16.6 billion in 2006 for Pfizer's consumer business, which included Sudafed , Zantac and Benadryl . While declining to publicly acknowledge it was a mistake to sell the unit, Pfizer more recently expressed its own level of excitement about acquiring OTC products as part of its $68 billion acquisition of Wyeth, which shareholders approved on July 20 (⁸ Also see "Pfizer’s Wyeth Buy Rebuilds OTC Switch Potential" - Pink Sheet, 2 February, 2009.).

The remarks by the Merck executive team "give more visibility into how they're thinking about that franchise," said Fernandez. "We'll see how they treat it once it's in-house, but I would think it's a mistake to treat it as an afterthought. Pfizer learned that it was a mistake to do so and then again by selling its unit."

-- Ed Silverman (e.silverman@elsevier.com)

Singulair Switch Among Merck's OTC Possibilities

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