Diverting a Diet Drug

According to the US Food and Drug Administration, Americans spend $18 billion per year on nonprescription dietary supplements, approximately $2 billion of which is on diet products alone. That's larger than the gross domestic product of more than 20 countries.

Some would say that American consumers should spend even more: Nearly two-thirds of the US adult population is overweight or obese, according to the US Department of Health and Human Services. "All you have to do is look at the people walking around Disneyland, and you'll see why drug companies are interested in obesity," says Ira Loss, an executive vice president at Washington Analysis, a Wall Street research firm that specializes in healthcare.

© Bill Sanderson

In 2002, one such company was the pharmaceutical giant, GlaxoSmithKline (GSK). The company had recently licensed Nicorette gum and the NicoDerm patch, smoking-cessation products, from other drug makers and then shifted the two products from prescription-only to over-the-counter (OTC) status (no prescription needed). By 2001, the two products controlled 75% of the quit-smoking market, according to published comments at that time from GSK officials. (The company today will not discuss sales of individual OTC products.) That success made Steven Burton - then the company's vice president in charge of moving prescription drugs to OTC - want to do the same thing with an obesity drug. "Obesity has significant parallels with smoking," Burton says. "It involves behavior change and the importance of being appropriately motivated."

The nicotine products migrated well into OTC status partly because there were no nonprescription competitors. The same was true for anti-obesity drugs, which would face only a bevy of herbal, vitamin, and nutraceutical products.

But which drug? GSK had no prescription obesity product that it could convert. Burton's staff was scouting the terrain in May 2002 when one of his managers showed him a short article from The Wall Street Journal reporting that the Switzerland-based manufacturer, Roche, might be interested in switching its obesity drug, Xenical, to OTC status. "It was one of those 'Aha!' moments," Burton recalls.

Xenical was tempting for several reasons. Unlike most other diet drugs, it doesn't work on the central nervous system or appetite suppression pathways (see sidebar). That would improve the odds of FDA approval, because the drug poses none of the serious risks associated with targeting the brain. Its most common side effects (diarrhea, oily stools, gas), while somewhat unpalatable, are relatively mild. In addition, Joe McGovern, then GSK's director for switching drugs to OTC, had some personal connections at Roche.

Two weeks later, Burton, McGovern, GSK's director of marketing policy, two experts on marketing to physicians and pharmacists, and an expert on consumer marketing were sitting at a U-shaped table in a conference room at the Marriott hotel near Pittsburgh International Airport, facing four officials from Roche's consumer health subdivision.

The meeting lasted nearly four hours, as Burton recalls. (Roche, as a matter of policy, declined to comment on most aspects of the negotiations.) For half of the time, the GSK side talked about the strategies it had used to move Nicorette and NicoDerm to OTC. It aired some of its TV commercials and provided the Roche team with samples of the "commit to quit" brochures and questionnaires that it regularly gave to physicians. The team presented PowerPoint slides showing, for instance, that 5.7 million people had quit smoking by using the products after GSK moved them to OTC status.

The Roche group "had a lot of questions about scale," Burton says. "How many displays did it take to launch a major brand? What kind of requirements did retailers have? What kind of testing did we have to develop our ads?"

Roche officials talked about the history of Xenical and its prescription marketing. But the biggest concern for GSK was the science behind the drug. "We wanted to understand a lot more about how many studies they'd done. We also wanted to understand about the other [manufacturers'] prescription drugs," Burton explains. After all, it was a market that GSK wasn't in and knew very little about. Roche, like any company, would have researched the strengths, weaknesses, and market share of rival products.

The clincher was a soon-to-be-published Roche study of some 3,300 people, half of whom had used Xenical for four years. ¹ "That was another big Aha! moment, because we didn't know that study existed," Burton says.

The researchers found that people who took orlistat (the generic name for Xenical) experienced a 37% lower risk of type 2 diabetes. According to the report, "the overall incidence of adverse events was similar" in the control group and the group on orlistat, although more people on orlistat experienced "mild to moderate" gastrointestinal events. (The incidence decreased as people stayed longer on the drug.) Along with the more common side effects, Xenical can interfere with the absorption of many drugs such as warfarin and cyclosporine, as well as fat-soluble vitamins. Rarely, it's been linked to acute kidney injury and liver problems. ²

The GSK team left the Marriott meeting eager to move ahead. But the ball was in Roche's court. And Roche wasn't sure it wanted to hand over the OTC rights to another company. If orlistat was so promising, why not keep the drug? Furthermore, according to Roche, GSK wasn't the only suitor. While Roche won't name the others, a likely candidate was Germany-based Bayer, which already had the US OTC rights to Aleve, Roche's painkiller.

Then Burton went for a routine medical check-up.

At six-feet, one-inch tall and 275 pounds, he learned to his shock that "I was technically on the borderline of being obese." He asked his doctor for a prescription for Xenical. "I wanted to try to understand the consumer experience," Burton says. He also began exercising three to four hours a week. He experienced some of the noxious gastrointestinal effects, but "learned quickly" that he could avoid them by staying away from fatty foods. "You don't have to experience the side effects if you make sound food choices," he says. Within six months, Burton says he lost about 60 pounds, and has gained back only 10 to 20 pounds of that in the four years since then. "So many people, including myself, have yo-yoed all their life," he says. "I believe orlistat is one of the prime reasons I've been able to keep the weight off." This experience made him want to license orlistat from Roche even more.

That process would take two years. Negotiations dragged largely because, as Burton tells it, Roche debated whether to license the OTC rights or handle the transition itself.

There were solid reasons why Roche would jump at the opportunity to farm out Xenical and make money on licensing fees. Despite the huge potential market, the drug had never lived up to expectations. In 2003, the last full year that Roche owned the exclusive rights, the product brought in only $122 million in US sales, a disappointment when industry aims for $1 billion per drug. Most analysts say customers were turned off by the potential side effects and the limited weight loss: never more than 10% of body weight, and often just five pounds. Moreover, the prescription version would soon lose its luster because orlistat's key patent would expire in 2007, which would mean an even bigger drop in sales as cheaper generic versions became available.

But there were also reasons to hold on to Xenical for the nonprescription market. For one, the bar for blockbuster status is lower for OTC drugs, which are considered a success if they bring in $100 million in sales per year, according to GSK. And certainly Xenical as an OTC would have little to no competition from the prescription market. The drug combination known as fen-phen - fenfluramine (or its cousin, dexfenfluramine) plus generic phentermine - was withdrawn in 1997 after it caused dangerous, and sometimes fatal, heart and lung malfunctions in thousands of people. Abbott Laboratories' Meridia is the only other prescription obesity product besides Xenical that is legally allowed for long-term use in the United States, but Meridia increases blood pressure. The FDA has refused to approve rimonabant from Sanofi-Aventis, although it has been approved in Europe, because of concerns that it leads to depression, seizures, and suicide. Other potential obesity drugs are even further away from the market.

The deciding issue for Roche, both sides agree, was GlaxoSmithKline's OTC prowess, including a staff of more than 600 employees who are dedicated to nonprescription products, and its success with the quit-smoking products. Roche, by contrast, had a consumer health staff of around a dozen people; it simply didn't have the marketing power and FDA experience that would be needed for an OTC launch. "It's easier to partner to get those skills than build from the ground up," Burton says. (Roche ended up shedding not only orlistat but also its entire OTC stable - Aleve, the multivitamin Supradyn, and the pain reliever Flanax - by selling the rest of the business to Bayer.) In addition, Terence J. Hurley, a Roche spokesperson, points out that "Roche and GSK have a longstanding history of collaboration," including comarketing the anti-ulcer drug, Zantac, in the 1980s. (Roche refused requests to interview any other officials.)

For its prize, GSK paid a $100 million up-front fee plus future milestone payments that the two companies have never disclosed. Eric Snyder, a stock analyst at Mehta Partners, a Manhattan-based money management firm specializing in pharmaceuticals and biotechs, considers it "a pretty good deal" financially for both sides. For Glaxo, he says, the up-front fee was lower than what might be expected under "standard metrics," which are two to three times the value of sales. "From Roche's perspective," he continues, "they had it on the shelf, so anything they got would be a good deal." (Neither company would discuss publicly how they decided on the final number or what figures they offered at the beginning of the negotiations.)

But the licensing rights would be useless without FDA approval, for which GSK was now entirely responsible.

When the FDA considers any OTC application, the key question is: Can the drug be used safely and effectively without medical supervision? For instance, the regulators want to be satisfied that laypeople can comprehend the label and the instructions. Moreover, without a physician to act as a buffer, there was a serious risk that diet-obsessed Americans who weren't really obese would chow down OTC Xenical like chips at a Super Bowl party. "It could certainly be taken by people that don't need it," says Snyder.

Another issue: Obesity isn't usually a stand-alone problem. It is often associated with diseases such as diabetes and hypertension, for which patients may need to see a doctor and take other medications. "The switch of orlistat to OTC status would be a serious, dangerous mistake," Sidney Wolfe, director of the Health Research Group of Public Citizen, a consumer advocacy organization founded by Ralph Nader, and a frequent industry critic, testified at an FDA hearing in January 2006.

One of the most important decisions GSK made, in terms of getting FDA approval, was to cut the dosage in half, from 120 milligrams for prescription Xenical to 60 mg for the OTC pill. Snyder, the Wall Street analyst, says that move was crucial because it further reduced the already-minor side effects. Sixty milligrams "seemed to be an appropriate dose to try OTC," says Charles Ganley, director of the FDA's Office of Nonprescription Products, in an E-mail interview.

The company didn't set out with any preconceived dosage goal; officials just tried to follow a general principal: "You try and get the lowest effective dose for OTC," says David Schifkovitz, GSK's director of regulatory affairs for weight control projects. GlaxoSmithKline spent months analyzing studies Roche had done, going back nearly a decade, before prescription Xenical was even approved in 1999. GSK found one study of 200 people showing that half-strength orlistat had 85% of the efficacy of the full dosage, with just two-thirds as many side effects. ³

However, by reducing the dosage, GSK risked cutting too deeply into the other half of the FDA's mandate for efficacy. Even 120-mg orlistat has never been proven to trim weight by more than 10%, which is hardly enough for someone clinically obese or overweight. Full-strength Xenical blocks one-third of the fat a person ingests; OTC orlistat, just one-fourth. Plus, neither version does anything about sugars or carbohydrates. "None of [the diet drugs] work," says Wolfe, the consumer activist. "There's nothing magic about losing weight. You lose weight only a) slowly, and b) by a slight increase per day in the amount of exercise you get and a slight decrease in the amount you eat."

Obesity medications generally tell users they should exercise and watch what they eat if they really want to lose weight. Drugs add a boost, says Vidhu Bansal, the director of medical affairs for GlaxoSmithKline's OTC division: "[Ten percent] may seem small, but it is associated with significant benefits. It improves blood pressure, it improves cholesterol." A recent review of clinical trials using orlistat revealed 15 in which orlistat was associated with a decrease in total cholesterol,⁴ and in March, an Archives of Internal Medicine review showed that orlistat reduced blood pressure in people with hypertension. ⁵ For orlistat-takers, a healthy diet is particularly important because of the way the drug works: The fat that it blocks is expelled as diarrhea or oily stools, so the more fat that's eaten, the worse the side effects.

But an OTC version of the drug would need to rely on its packaging, not a doctor's advice, to communicate all this information. GSK sells the OTC pills with a booklet called "Read Me First" that talks about a balanced diet, portion sizes, and menu planning. The package warns that the drug is only for the overweight and comes with a height/weight chart. There's also a Web site with exercise tips, more menu plans, a message board, and a way to create an individualized food schedule.

The orlistat educational effort wins praise from Morgan Downey, executive director of the Obesity Society, an advocacy group for physicians. (The Obesity Society obtains about one-tenth of its $1.9 billion budget from GSK). "The advertising has been very responsible in terms of saying, 'It's a program, not a pill,'" he says. Bansal, the GSK medical affairs director, says that an "actual-use" study of 240 people taking orlistat OTC for three months showed that "more than 80% of the people actually did read the material and found it useful." ⁶ Not only that, adds Bansal, a coauthor on the study, but also more than 80% maintained a low-fat diet, and 50% exercised more.

Other observers are more skeptical. "The people who do the serious diet and exercise, they're not taking this stuff," says Robert Ehrlich, chief executive officer of DTC Perspectives, a New Jersey-based consulting firm that specializes in drug marketing. "Probably the people who are interested in this stuff are the quick-fix people."

Ultimately, the FDA sent back GSK's first submission with an "approvable" letter in April 2006, meaning that approval was likely if the label had more clear information about side effects, interactions with other drugs, and the need for taking multivitamins. With label changes, the agency approved the OTC application 10 months later.

Now, GSK had an even bigger job: It had to persuade obese and overweight Americans to buy a drug that could give them diarrhea, would demand that they follow a low-fat diet, and still wouldn't get rid of much weight - at a cost of around $50 a month. Why should they bother?

One of the company's most dramatic marketing decisions was to pick a new name.

In June 2004, Burton, a marketing staffer, and two people from GSK's outside ad agency, Doak Carrier and O'Donnell, stood around an easel in Burton's Philadelphia office brainstorming names for the OTC version of Xenical. They batted around a dozen ideas, including Emerge, Amerge, Aserta, Actella, and Linq. "We talked a lot about the fact that we wanted to be people's honest partner," Burton says.

As Burton tells the story, one person picked up the theme, saying, "We're the honest ally in weight loss." Another person went one step further: "Take 'ally' and change the Y to an I, and you can probably own that as a trademark."

Bingo! Xenical became alli, pronounced like the noun "ally," and a marketing campaign began. That's alli with a lower-case 'a.' "That was a graphic, creative decision, something that would be distinctive in terms of how it looked - approachable and contemporary," Burton explains.

But, why not keep the original Xenical name? Plenty of drugs that go over-the-counter don't switch names, such as Claritin, the allergy medication. Ehrlich, the marketing expert, supports the decision to change the name in this case, as a way to avoid reminding buyers of the original product's unpleasant side effects, limited impact on weight loss, and poor sales. Burton, however, insists that "Xenical had no bad connotation." Rather, he says the name was changed because the company made some key alterations to the drug. "And we wanted from the beginning for people to understand that this weight-loss program was going to be more than a pill - that it did require people to educate themselves about diet and exercise."

The company then turned the drug's side effects to its advantage, noting that eating a low-fat diet helps avoid the diarrhea and other unpleasantness. Adds Bansal, "Patients use [the side effects] as a positive feedback, as a way to realize that they cheated on their diet."

GSK will not disclose its marketing budget. The company will also not reveal sales, or even how many follow-up packages were bought, only saying that more than 2 million "starter kits" - 60 to 90 capsules, or enough for 20 to 30 days - were sold in the first five months. Approximately 300,000 people have signed up for the individualized online program offered on the myalli.com Web site. "In general, we are meeting our expectations in terms of sales," Burton asserts. Wall Street analysts like Snyder and Loss estimate sales at a healthy $500 million for last year (the company reported $150 million in sales from alli in one 2007 quarter alone). Snyder projects that the drug could ultimately do $1 billion annually.

Burton says that GSK is in the midst of analyzing its customer base, but he thinks the drug isn't competing with anything other than willpower. "In a world of 130 million [Americans] that are overweight and obese, we are clearly an additional tool."