PE: What are the success factors for companies that are going the OTC route, and where are the possible missteps you see?

BS: I think the key to being successful in consumer healthcare is first and foremost to have good products. Today's consumers are very savvy. If you have products that aren't effective, that's generally the first misstep. You might create a spike in sales through some good marketing and advertising for a year, maybe two, but consumers won't come back for repeat purchases. If you've gone to the drug store and bought something for an ailment and it didn't work, you're not likely to go back and do it again. So first and foremost, you want to have products that work, are safe, and have as few side effects as possible. That's number one.

Two, you have to manage your brand for the long haul and continually innovate around brands. One of the biggest challenges in consumer healthcare is [competing with] private label products. Take a drug like Claritin, in which the active ingredient is loratadine, which has been generic since we launched OTC Claritin. If you walk into a drugstore or a grocery store, you'll see a lot of promotion around the store's private label loratadine well before you get to Claritin on the shelf. And Claritin, as a brand, is certainly more expensive. So to continuously innovate around Claritin—to give consumers a better choice than the store brand—is the key to long term survival in the consumer healthcare world.

PE: In terms of diversification, do you see any companies doing something totally wrong?

BS: I tend not to want to speak about competitors in that regard. I think most of the moves I've seen in the industry have been smart. I think the industry has been pretty good at OTC consumer healthcare. They tend to understand, or at least are now really focused on this notion that brands, if managed well, can last for a long time.

We've seen consumer healthcare companies that think that they can refresh a product simply by changing the packaging. Consumers are smart, it doesn't work like that. The world doesn't change overnight. People want to know what's in the box, and if it works for them. And we have a much more informed consumer base because of the Internet. People do a lot of research on health. In fact, the number one search for seniors is health information. So people have a lot of information at their disposal, and a packaging change in and of itself isn't going to change buying behavior. You have to offer additional benefits.

Also, people have to realize that innovation doesn't happen overnight. We deal with NDA products and monographed products for the most part. For our NDA products, innovations or changes take a long time. You have to go through a filing and an approval process with the FDA. So you're not going to just change the product overnight. For example, we just launched Claritin Liqui-Gels, which are the first non-drowsy liquid-filled capsule in the allergy space—and that required an NDA and a full approval through FDA. It wasn't like we just whipped up a batch and put it out there. It took many years in strategic planning, and many years in the making.