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J&J increases Canadian OTC market dominance with Pfizer deal

US pharmaceutical company Johnson & Johnson's (J&J) acquisition of Pfizer's Consumer Healthcare unit in 2006 has given the company a dominant share of the Canadian non-prescription drug market

US pharmaceutical company Johnson & Johnson's (J&J) acquisition of Pfizer's Consumer Healthcare unit in 2006 has given the company a dominant share of the Canadian non-prescription drug market and has left other industry players wondering how to best compete with the drug giant in a slow-growth market.

As a result of the acquisition, J&J now has nearly CAD 450 million (EUR 293.3 million/ USD 381.3 million/ GBP 193.0 million) in OTC drug sales in Canada and controlled almost a quarter of the market in 2006.

A new study by US-based consultancy company, Kline & Company, gives marketers the insight necessary to carve out their own niche. Entitled Non-prescription Drugs Canada 2006, the study reveals only three per cent growth from 2005 for the overall Canadian OTC market, continuing a modest growth trend that has been prevalent since 1999. Coupled with the expansion of J&J's dominance, the lack of dynamic expansion in the market has created a considerable challenge for other competitors like Germany-based Bayer and US-based Wyeth.

Laura Mahecha, industry manager of the healthcare practice for Kline's research division said: "J&J's share of the Canadian OTC market essentially doubled with the Pfizer acquisition, widening its lead on its next closest competitor, Wyeth, by more than CAD 300 million (USD 254.2 million/ EUR 195.5 million/ GBP 128.7 million). That's a huge gap in a market that has seen little growth for the past five or six years. Not only did J&J add brands to categories in which they already competed, they also added whole new categories to their portfolio with the acquisition."

According to Kline's study, J&J now controls nearly 80 per cent of the sinus medications market in Canada, with the addition of Pfizer's Sudafed and Sinutab brands. The company also gained instant domination in the smoking cessation market with an 84 per cent share in this category. Prior to the Pfizer deal, which was finalised on 20 December 20 2006, J&J had no smoking cessation aids available for sale in Canada.

Non-prescription drug products with innovative claims and indications are ultimately those that attract consumers and will lead to more rapid growth. These products can come from minor or major companies. However, the economies of scale that the new, larger J&J will enjoy, as well as its increased influence with retailers, will be difficult for smaller companies to match. There could be additional mergers, acquisitions, divestitures or licensing agreements among smaller competitors as a result of the J&J/Pfizer merger.

Susan Babinsky, senior vice-president and head of Kline's consumer products consulting practice, said: "The huge lead J&J now has in the Canadian market means that other OTC players will need find creative ways to compete. For some marketers, that could mean focusing on a product innovation strategy or catchy advertising or promotional campaigns to spark sales. For others, cultivating better relationships with retailers and emphasising service may be the key to success."

For more information about this study, go to www.klinegroup.com/reports/y228.asp

24th January 2007

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