Perrigo has entered a nascent growth channel by pursuing reimbursement for OTC drugs prescribed by doctors and dispensed by pharmacists.

Under its "ORx" program, the private labeler has registered OTC products for reimbursement through private and public health plans.

The program allows the company to better tap the sales potential of OTC switches, particularly in crossover categories where comparable therapies are available both Rx and OTC.

Perrigo reports ORx garnered about $25 million in sales during fiscal 2009, its first year, and the firm expects to see program revenues around $40 million in its fiscal 2010, ending in June.

"We felt there was an opportunity to come into this category based on the magnitude and the portfolio size we have of over-the-counter products," said Joseph Papa, president and CEO of the Allegan, Mich., firm.

Perrigo considers ORx "a channel innovation" through which it supplies OTCs to pharmacists, who continue to dispense them via prescription to certain patients, Papa explained during a Jan. 11 presentation at the J.P. Morgan Healthcare Conference in San Francisco.

Branded OTC switches such as Procter & Gamble's Prilosec OTC (omeprazole) and Johnson & Johnson's Zyrtec (cetirizine) have benefited from their sponsors' work with payers to cover the drugs or create incentives to choose them over Rx competitors.

Strength Through Portfolio

Perrigo did not invent the ORx concept and is not driving expansion of coverage for nonprescription drugs, Perrigo executive Ron Schutt explained. Instead, the firm is using its extensive generics portfolio to take advantage of the emerging trend of third-party payers willing to cover OTC drugs.

"We had some success last year and we're having incremental success this year, and a lot of that is simply having our products made available to our retailers that are set up for Rx reimbursement," said Schutt, VP of OTC marketing for Perrigo Consumer Healthcare, in an interview.

Prime candidates for ORx sale are equivalents to drugs that have been available OTC for several years - including Claritin (loratadine) and Prilosec OTC- but remain an advantageous purchase via prescription as long as the insurance co-pay is less than the OTC cost.

Generic omeprazole likely constitutes a substantial part of Perrigo's ORx sales. The company says it has registered its entire OTC portfolio for pharmacy reimbursement through certain plans.

Perrigo's portfolio and list of pharmacy customers give its products leverage in the ORx space, especially in scenarios where pharmacists have the discretion to substitute generic prescriptions, according to Enrique Seoane-Vazquez of Ohio State University College of Pharmacy.

The rules on substitution vary by state, "but in most of the cases, the pharmacy will substitute the generic ... instead of using the brand when this is available," said Seoane-Vazquez, an associate professor of pharmacy practice and administration.

Paradigm Shift

Pharmacy benefit managers and other plans also are coming to the conclusion that encouraging OTC use via co-payment structures and other incentives yields savings, Schutt said.

"In large part, it is a paradigm shift," he said, pointing to recent examples of plans offering OTC reimbursement.

Caremark announced an initiative in 2006 through which the PBM encouraged dispensing more generic drugs, including OTCs where appropriate, in place of branded Rx therapies (¹ Also see "Caremark Hopes OTC Alternatives To Rx Drugs Will Lead To Savings In 2006" - Pink Sheet, 16 January, 2006.).

Insurers in a patchwork of states also offer coverage of select OTC products; for instance, the Arkansas State Employee Benefits Division began covering Prilosec OTC in 2004 (² Also see "Arkansas Prilosec OTC Coverage Offers Savings Model For Plan Sponsors" - Pink Sheet, 23 January, 2006.).

As omeprazole and other proton pump inhibitors have moved over the counter at lower doses, payers are especially keen on incentivizing their use over more expensive Rx PPIs.

This would be a positive development, said David Kreling, professor of pharmacy policy at University of Wisconsin-Madison School of Pharmacy. That's because pharmacists often do not act with cost control in mind, he said.

Kreling pointed to the scenario of pharmacists filling prescriptions for AstraZeneca's Rx PPI Nexium (esomeprazole) even with its lower-dose predecessor Prilosec OTC available, comparably effective and much cheaper.

"I'm really surprised that the pharmacists didn't do a little better job" of having conversations with patients and prescribing physicians about the relative merits of Prilosec OTC versus Nexium, he said.

Blue Cross Blue Shield of Michigan estimated annual out-of-pocket savings of $9 million and employer savings of $20 million when it initiated an effort to convert Nexium users to Prilosec OTC in 2007 (³ Also see "Prilosec OTC Covered By Michigan Blues In Bid To Convert Nexium Patients" - Pink Sheet, 10 September, 2007.).

Prilosec OTC Opened Door Of PBM Interest

The switch of Prilosec OTC kicked off the trend of PBM interest in nonprescription drugs, though coverage still "varies widely by payer," according to the Pharmacy Benefit Management Institute, a Scottsdale, Ariz.-based consultancy.

A generic OTC option, such as through ORx, is an added bonus for payers, said Tim Watson, a PBMI principal.

"For payers who embrace an OTC coverage strategy, having a generic OTC option such as the one offered by Perrigo will be viewed very favorably because it accentuates the value proposition that is offered in some OTC categories," Watson said in an e-mail.

OTC Options In Medicare, Medicaid

Perrigo does not target specific plans with its ORx strategy, though the company has "put a lot of effort into making sure that we're fully compliant" for Medicare and Medicaid contract administration coverage, Schutt said.

Medicaid does not cover OTCs generally, but "under a state option, they can be covered when prescribed and can be a lower-cost alternative to prescription," according to a spokeswoman for the Centers for Medicare & Medicaid Services.

Under the Medicare Modernization Act of 2003, Medicare's Part D prescription drug benefit plan does not include OTCs under drug benefit or supplemental coverage, though Part D third-party sponsors have the option of allowing OTCs as part of their administrative cost structure.

Part D sponsors may offer OTCs as part of general drug utilization management or as part of a step- therapy protocol, in which patients are first treated with the lowest-cost drug in a therapeutic class, according to CMS' Medicare Prescription Drug Benefit Manual.

Additionally, under Medicare Part C, Medicare Advantage plans may opt to cover OTCs as a supplemental benefit.

P&G promoted Prilosec OTC as a cost-saving means of helping seniors avoid the Part D "coverage gap" that emerges when patients reach their initial drug coverage limit (⁴ Also see "Prilosec OTC “Coverage Gap” Pitch Spotlights Medicare Payment Question" - Pink Sheet, 29 January, 2007.).

- Dan Schiff ( ⁵ d.schiff@elsevier.com )

Perrigo Pursues OTC Reimbursement Opportunity In Emerging "ORx" Space

More from Archive

More from Pink Sheet