As Blockbuster Claritin Goes Generic, Schering-Plough Pushes a Close Sibling

As Blockbuster Claritin Goes Generic, Schering-Plough Pushes a Close Sibling

Schering-Plough Corp. became a drug-industry standout largely through a single product, the allergy drug Claritin. Spending more to advertise one pill than any other drug company, large or small, Schering-Plough rode Claritin's popularity to become one of the most successful companies of the 1990s.

But Claritin's extraordinary run was threatened by a looming patent expiration, and with it competition from low-price generic versions. Schering-Plough said in 1999 that it would survive that blow through three strategies: lobbying Congress for a Claritin patent extension, applying quickly to get a successor drug approved, and developing new products from its rich pipeline.

The reality has been sobering. There was no patent extension, despite millions spent on lobbying. The pipeline has proved not very rich. And approval of the successor drug was held up for more than a year when severe manufacturing problems at the company strained its relations with federal drug regulators. That has left it little time to win Claritin users over to the successor drug before Claritin's patent runs out this December.

Over-the-Counter

As if this weren't enough, the regulators, in a rare step, last year moved toward forcing Claritin onto the low-profit over-the-counter market. Rivals then made plans to sell a generic version of Claritin in that market, even if Schering-Plough didn't. Under this pressure, the company gave in two weeks ago and agreed to offer Claritin without prescription in the fall, a step that will further gut its profits from the drug.

There is even one more piece of Claritin misfortune for Schering-Plough. Because the company never offered the drug in different doses, it now won't be able to do what drug makers sometimes do -- offer a low-dose version over-the-counter but continue selling a stronger prescription-only version at a higher price. Come December, most of Claritin's $2.7 billion in high-margin revenue will vanish.

Such is the risk for a drug company when its success depends heavily on a single blockbuster, and one that was turned into a blockbuster largely by sales promotion. Despite billions of dollars in Claritin profits poured into Schering-Plough's research labs, they have struggled to produce new medicines to take up the slack when Claritin fades. As a successor to it, the best the company has been able to do is use a compound that is virtually the same. Now it's turning to aggressive promotion again to make the new drug stick.

Big Contributor

Schering-Plough, the 11th-largest drug company in the U.S., has many revenue sources besides antihistamine pills. Its Intron medicines for hepatitis and cancer bring in $1.45 billion of revenue a year and have a waiting list. A cholesterol drug it is developing could prove a big seller as well. And the company has steady-selling nondrug lines, such as Coppertone sunscreen and Dr. Scholl's foot-care products.

But replacing the Claritin franchise is its overarching challenge. In the U.S. alone, drugs such as Claritin serve a market of 45 million people who get runny noses or watery eyes from things like pollen. Of the company's $9.8 billion in 2001 sales, $5.08 billion was high-margin U.S. drug revenue, and Claritin provided more than half of that. The Kenilworth, N.J., company's gross profit margin on prescription medicines last year was 79%, which means Claritin, counting overseas business, brought in at least $2.5 billion in profits before overhead and research expenses.

The Claritin story began in the mid-1980s when the first antihistamine that didn't cause drowsiness, a rival company's Seldane, threatened Schering-Plough's Chlor-Trimeton. Schering-Plough researchers, grilled by executives on whether they had anything similar, revved up development of a compound the company had patented years before. It applied in 1986 to sell its own nonsedating antihistamine, to be called Claritin.

The application hit a series of roadblocks, including a fundamental one: A Food and Drug Administration scientist who reviewed it didn't think Claritin worked very well. At the proposed 10-milligram dose, "the drug was effective in only 25% of the patients, and I didn't think that was good enough," says the scientist, Sherwin Straus, who is now retired.

He recommended a much higher dosage, but that would have made users sleepy. The company also could have sought approval for more than one dose level, but 10 milligrams was the only one that it thought struck the right balance between efficacy and sedation. This dose is "safe and effective and without sedating effects," Schering-Plough says, seeing "no clinical need for an alternate dose."

Claritin finally won approval in 1993 at that dose. It soon became the biggest-selling antihistamine in the world after safety concerns knocked off Seldane and another drug.

In 1997, the FDA made it easier to pitch drugs directly to consumers. It said an abbreviated list of side effects would be sufficient in consumer ads. More than any other drug maker, Schering-Plough jumped at this opportunity, revolutionizing pharmaceutical marketing in the process. "Schering-Plough had tremendous insight. ... They are the ones who started aggressive direct-to-consumer advertising," says Anne DeVereux, president of ad agency Merkley Newman Harty Healthworks.

The Claritin ads -- colorful and ubiquitous -- pushed allergy sufferers to ask their doctors for the pill. TV viewers plagued by pollen saw handsome folks frolicking outdoors accompanied by Irving Berlin's "Blue Skies." Dr. Straus contends that by reinforcing people's belief that the drug worked, the ads in fact contributed to Claritin's chief benefit -- a placebo effect. Asked about such an effect, Schering-Plough says "no amount of marketing can sustain a drug that is not effective." It notes that "regulatory authorities world-wide have approved Claritin 10 mg. as safe and effective."

Meanwhile, to prepare for the day Claritin's patent expired, Schering-Plough poured more money into its labs. It increased research spending 17% in 1997, 19% in 1998 and 18% in 1999.

But drug research is famously difficult, and in their search for a follow-on Claritin product, the labs largely came up dry. So Schering-Plough turned to one of the products that Claritin converts to in the body after it is swallowed. The one that inhibits allergy symptoms is called desloratadine. Schering-Plough decided to use this as the basis of its successor drug. That meant the successor, called Clarinex, would be essentially the same as Claritin -- not an ideal situation when it came time to promote it over Claritin.

Moreover, Clarinex's sales exclusivity would probably extend only through mid-2007. Although it's possible that patents on use or formulation of the medicine would extend this, the company could be mounting a huge and costly promotion for a drug destined to face generic competition of its own in a few years.

Manufacturing Problems

Schering-Plough applied in October 1999 for permission to sell this successor drug, expecting approval within a year. But its relations with the FDA frayed seriously, delaying approval. FDA inspectors determined that the company's manufacturing plants in New Jersey and Puerto Rico weren't following proper procedures. Among the most worrisome findings: Schering-Plough was sometimes shipping asthma inhalers -- a critical aid for asthmatics -- without any medicine inside. For years, Schering-Plough recalled suspect asthma inhalers; for years, the FDA warned the company to clean up its act; for years, executives promised reforms.

In January 2000, a top executive said Schering-Plough had resolved all the FDA's manufacturing issues. It hadn't. More than a year later, the company disclosed that regulators were refusing to approve Clarinex until it fixed its manufacturing problems.

The company promised to hire hundreds of quality-control employees and spend millions in manufacturing improvements. Three months ago, it simultaneously announced two things: The FDA was levying a fine over the manufacturing mishaps, which still hasn't been determined but might be as much as $500 million; and Clarinex at last had marketing approval. Sales began in January.

The delay left the company less than a year to persuade its legions of Claritin users to start using Clarinex instead. Drug companies usually need years to switch loyal users of a drug over to a follow-on product. When Bristol-Myers Squibb Co.'s Glucophage diabetes medicine faced generic competition, the maker had 15 months to try to switch patients to two successor versions. Even though these were more convenient, it managed to convert only about a third of the patients.

Switching Markets

The other blow to Schering-Plough's allergy franchise was totally unexpected. An FDA advisory committee began considering whether to switch Claritin and similar nonsedating antihistamines, such as Aventis SA's Allegra and Pfizer Inc.'s Zyrtec, to nonprescription status. Such switches normally result from requests by the drugs' makers. In this case, the makers were staunchly opposed to the switch. The impetus came from a managed-care group, Wellpoint Health Networks, which is out to curb the cost of treating allergies.

Schering-Plough fought the move at a hearing last May, contending that changing Claritin to over-the-counter status could create a "major health risk." It said that if patients didn't have to see a doctor for a prescription, they might confuse asthma symptoms for allergy and endanger their health. But the FDA advisory committee, whose views the full agency usually follows, voted overwhelmingly to recommend that the full agency approve the switches.

The full agency hasn't yet issued a decision, but another development soon forced Schering-Plough's hand. Johnson & Johnson and Wyeth told the FDA that as soon as Claritin's patent expires this December, they want to be allowed to sell over-the-counter versions of the drug. Their plans created a quandary for Claritin's maker. Even if it resisted the FDA push to make Claritin over-the-counter, it might well have found itself up against rival products that were both generic-priced and available without a prescription. So this month, it stopped resisting.

And now its years-ago decision to seek approval at only one dosage looms large. The FDA doesn't allow identical pills, in identical strength, to be sold both by prescription and over-the-counter. So Schering-Plough doesn't have the option of offering both a prescription and a nonprescription version of Claritin, as has been done with, for example, the heartburn remedies Tagamet, Pepcid and Zantac.

"This has been a ticking time bomb for 10 years," says Steve Francesco, a former Schering-Plough executive. He predicts that "the strategic flaw in not having a low and a high dose will cause in 2002 Schering-Plough to lose its independence." Schering-Plough says rumors that it might merge have been around for years, and it doesn't comment on rumors.

Price Gap

Over-the-counter drugs generally bring their manufacturers only about 10% as much revenue as the prescription drug did, says Philip George, a consultant with Accenture Consulting. A month's supply of Claritin currently costs $100 at C.O. Bigelow Chemists in New York City. Joel Eichel, a veteran pharmacist there, believes his elderly customers, many of whom lack insurance, will welcome Claritin's change to over-the-counter.

The shift might mean a month's supply of generic Claritin will cost only about $9, says Richard Evans, an analyst with Sanford C. Bernstein. Mr. Evans predicts that even many insured patients will buy over-the-counter Claritin or a generic, because choosing Clarinex will cost them two co-payments, one for a doctor's visit and one for the prescription drug itself.

In another worrisome turn for Schering-Plough, executives of several insurers say in interviews they might not reimburse patients seeking Clarinex prescriptions once Claritin goes over-the-counter. David Halbert, chief executive of pharmacy-benefit manager AdvancePCS, says, "I would predict that a significant number of our clients will not reimburse for Clarinex."

Schering-Plough is giving no ground. It has almost completely stopped promoting Claritin -- once the most heavily promoted drug in the world -- and launched a huge marketing campaign for Clarinex, aimed at both doctors and patients. Speaking to doctors, its sales representatives use words like "more potent," according to ImpactRx, a drug marketing research firm, even though there are no data showing that Clarinex is any better than Claritin. Schering-Plough has no comment.

Claritin's share of the prescription-antihistamine market has eased off from its peak, to 34%. Clarinex, treated to the same kind of heavy promotion that Claritin once enjoyed, has managed in two months to capture 8%.

Write to Gardiner Harris at gardiner.harris@wsj.com¹

Updated March 22, 2002

Schering-Plough Plans to Market Claritin as Over-the-Counter Drug

Schering-Plough Corp. said Friday that it plans to turn its huge-selling prescription antihistamine, Claritin, into an over-the-counter drug, available in just about any store.

Claritin last year had $2.7 billion in U.S. prescription sales -- about 28% of the company's total sales. All of the U.S. prescription sales will disappear when it goes over the counter because the company is forbidden from selling identical drugs in the prescription and OTC markets. Instead, Schering-Plough hopes to create an over-the-counter franchise that, if it is wildly successful, could have as much as $400 million in annual sales. The move also precludes generic companies from bringing their prescription versions to market when Claritin's patent expires in December. Schering-Plough executives wouldn't discuss the price of the new pill, but over-the-counter pill prices are usually 15% to 20% of those of prescription drugs.

While the company is putting a positive spin on the decision, Schering-Plough executives had no choice after recent announcements by the consumer health divisions of Johnson & Johnson and American Home Products Corp. that they would bring out over-the-counter versions of Claritin after Claritin's patent expires. And the move could undercut Schering-Plough's next-generation prescription allergy drug, Clarinex.

The new Claritin pill could affect the entire prescription antihistamine market, including sales of Aventis SA's Allegra and Pfizer Inc.'s Zyrtec. Claritin, Allegra and Zyrtec were the subject of an extraordinary hearing of an advisory board of the U.S. Food and Drug Administration last May which explored -- over the objections of the drugs' manufacturers -- whether the three drugs should be sold over the counter.

In 2001, Zyrtec had $990 million in sales and represented 3% of New York-based Pfizer's total sales that year; Allegra had $1.55 billion in sales and represented 10% of the French company's sales.

"This is an opportunity for Schering-Plough to establish leadership in two important categories," Richard W. Zahn, president of Schering Laboratories, said in an interview. "With the launch of Clarinex, we have the opportunity to establish a new molecule in the prescription market again, and we now have an opportunity leadership in the OTC market."

Mr. Zahn said Schering-Plough has filed a supplemental new-drug application with the Food and Drug Administration to switch all of Claritin's formulations to over-the-counter status. The company expects the agency to act on its application by Nov. 28. An FDA advisory board will discuss the switch on April 22 and 23, the company said.

Schering-Plough, based in Kenilworth, N.J., has about 10 months and two allergy seasons in which to switch as many Claritin users as possible to their new prescription-allergy drug, Clarinex, which is much more expensive and profitable than a Claritin over-the-counter pill is likely to be. In its first weeks on the market, Clarinex has racked up impressive sales. There is no evidence that Clarinex works any better or is any safer that Claritin, however.

And some managed-care providers have vowed to refuse to reimburse Clarinex once an over-the-counter version of Claritin becomes available.

"There's no room for prescription drugs that provide no value over OTC versions," said Robert Seidman, chief pharmacy officer of Wellpoint Health Networks before the Claritin announcement

Older antihistamines such Benadryl, which are more effective but cause greater sedation, are already sold over the counter. So the antihistamine market is ruled by the strange fact that the prescription drugs, those requiring physician oversight, are actually safer than those patients can buy on their own.

The FDA would like to change that. Although Schering-Plough vigorously opposed such a change to over-the-counter status, the company realized that this change would occur whether it agreed to it or not once the company lost its patent on Claritin.

Write to Gardiner Harris at gardiner.harris@wsj.com¹

Updated March 8, 2002 2:29 a.m. EST

Clarinex Wins New FDA Approval, Boosting Schering-Plough Prospects

In a move that boosts the prospects of a key drug, Schering-Plough Corp. said that it won approval from the U.S. Food and Drug Administration to tell patients that its new allergy drug, Clarinex, helps cure year-round indoor allergies.

Clarinex was already approved to treat seasonal, outdoor allergies. The new indication is something that neither Claritin, Clarinex's predecessor, was approved for, nor an indication that Aventis SA's competing drug, Allegra, has won. Pfizer Inc.'s allergy product, Zyrtec, is approved to treat both indoor and outdoor allergies, but Zyrtec isn't approved as a nonsedating antihistamine so isn't comparable.

The new indication is important for Schering-Plough because it gives the company a difference it can point to between the new version and Claritin. Now, Schering-Plough can, with some justification, suggest that Clarinex is an improved version of the old drug. Schering-Plough, based in Kenilworth, N.J., must convert as many of its Claritin sales as possible to Clarinex by December, when cheap generic versions of Claritin could be launched.

The stock of Schering-Plough rose $1.83, or 5.7%, to close at $34.10 as of 4 p.m. in New York Stock Exchange composite trading.

The FDA's approval of Clarinex had been delayed for nearly a year because of manufacturing problems at Schering-Plough's plants in New Jersey and Puerto Rico. Schering-Plough announced on Dec. 21 that it had received approval to sell the drug but would likely have to pay a fine to the FDA of as much as $500 million due to the manufacturing woes.

The company announced Clarinex's launch on Jan. 14.

Write to Gardiner Harris at gardiner.harris@wsj.com⁵

Updated February 12, 2002