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Pharma is turning its attention to consumer healthcare

Pharma is no stranger to over-the-counter remedies but, as a number of recent deals show, consumer healthcare’s star is rising
GSK's $2.2bn sale of brands, including Luzozade, was part of a wider strategy to hone its consumer interests 

GSK's $2.2bn sale of brands, including Lucozade, was part of a wider strategy to hone its consumer interests

Dust your way through the archives of many pharmaceutical firms and you will find a rich heritage of consumer products.

GlaxoSmithKline's (GSK) history stretches back to Thomas Beecham, a former shepherd's boy who learnt about herbal medicine and concocted laxative pills from ginger, aloe and soap. His product range grew to include therapies called Female's Friend, Golden Tooth Tincture and Royal Toothpowder and he prospered so well as a travelling salesman that he could open his first factory in 1877.

Beecham's, of course, became part of the merger and acquisition trail on the road to the giant GSK, which is now at the forefront of pharma's renewed charge into consumer healthcare.

Consumer products have been an important sector for generations but shifting societal needs and balance sheet imperatives have made them a fresh, bustling marketplace.

The landscape changes that make this possible are not all devised in the strategic war-rooms of pharma but are, in part, created by a growing trend of self-care where individuals think and spend more on their personal health.

The shift has sparked rocketing levels of mergers and deals as some of the big players latch on to growth potential while others divest to concentrate on their disease area strengths.

Deal making
Rising from the foaming waters of the frantic deal-making is the new entity created by GSK Consumer Healthcare and Novartis OTC. The deal - which also includes Novartis' vaccines going to GSK and its oncology division travelling the other way - is a major step to establishing a world leading position in consumer healthcare.

It creates a $6.5bn consumer healthcare slugger, with GSK having a 63.5% majority holding, ideally placed to post significant scores in growth and profitability. The portfolio unites 19 brands with more than $100m sales worldwide and an over-the-counter (OTC) powerhouse generating $5.6bn sales a year.

global over-the-counter pharmaceuticals market  

GSK chief executive officer Sir Andrew Witty sees it as an extension of the pledge to concentrate the company's business interests made when he took over in 2008. Selling off its heritage drinks division, including Lucozade and Ribena, to the Japanese firm Suntory for $2.2bn last year was publically controversial but was all part of crafting a bigger consumer offering for GSK.

“The geographic fit of the two businesses is also very good,” he said. “The combined business will be an over-the-counter market leader in more than 35 countries, and have significant opportunities for further globalisation of brands from both companies.”

The transaction has a summer 2014 sign-off target but with some capital going back to shareholders and promised $1.6bn cost savings by year 5, the regulatory and shareholder hurdles should be low risk. No wonder it excites Witty, who added: “What this transaction does for GSK is it takes what is already one of the leading positions in consumer healthcare and truly would elevate us to a global leadership position. It would take us to number one in the over-the-counter marketplace and take us to a leadership position in dozens of countries across the world.”

But they are far from alone. Bayer, the German firm, has been busy acquiring consumer interests to extend its sales potential and geographical reach while Sanofi is pushing the genre even further with a relationship with Coca-Cola, which was invented by a pharmacist and originally sold as a health drink.

Delivering systems of care
The societal stars are perfectly aligned for pharma to get closer to consumers, says analyst Jonathan Anscombe, head of health practice EMEA at consultants A.T. Kearney.

Huge advances in social media have empowered the public to get more engaged in their health and switch from passive receivers to proactively looking to find their own routes to better health, he adds.

“This is quite recent - the modern world of smartphone apps have only existed since 2008 - but social media have really changed the way we communicate,” he says. “There is much more information available so consumers have been getting more engaged in their health and pharma has realised that this is a potential new market.”

A PWC report - Social Media 'likes' healthcare - found that 42% of US consumers used social media for health-related reviews, with 30% supporting a health cause, 25% posting about a personal health experience and 20% joining a health forum. This 'chip and app' energised generation - combined with the wildfire spread of mobile technology in the developing world - is a growing consumer body switched on to health as a daily duty rather than an episodic necessity.

But, although he cautions that significant profits had yet to be mobilised, Anscombe sees muscular potential in companies being able to match their consumer products to therapeutic treatments and drive better health.

“It is not just delivering the molecule but systems of care which include consumer products,” he says: “Pharma typically starts a new consumer division on its own while never really looking at how those products can interact and increase the value of their core therapies.

“I would not be zooming just into consumer-lead products where they may be up against a Unilever but would move to those more closely related to their therapy areas - be they consumer or a technology - which will help them treat disease which is, after all, what pharma companies do.”

Pursuing consumer healthcare
The notion of product synergy and a public eager to take health into its own hands is driving the new pursuit of consumer healthcare.

Bayer agreed to buy Merck & Co's consumer unit for $14.2bn earlier this year. It was the German company's second biggest deal and trampolined them to the top tier of consumer health which is headed by Johnson & Johnson. It gave Merck the Claritin allergy range, Coppertone and Dr Scholl.

The company also bought Chinese based Dihon Pharmaceuticals, which specialises in OTC medicines and traditional herbal remedies, to increase its offering and presence in Asia.

“The rationale behind the transaction is logical for both parties. Merck continues to streamline business to focus on high-growth areas, and will use the proceeds from the deal to strengthen the company's pipeline,” says Ali Al-Bazergan, analyst at Datamonitor Healthcare.

“Bayer has set its strategy to bolster its position at the forefront in consumer healthcare and this deal, therefore, provides a significant step towards increasing sales and profits with the added products and geographic reach.

“Merck's consumer care business had sales of $1.9bn in 2013, so the deal comes in at about 7 times sales - erring on the side of being quite costly. That being said, cost synergies of about $200m anticipated in annual savings by 2017 for Bayer, and potential payments for the collaboration with guanylate cyclase modulators, will further sweeten the deal.”

He adds that consolidation within consumer health can drive improvements in costs, geographic reach, supply chain logistics, and product portfolios, while also increasing bargaining leverage with major drugstore chains.

The scope for experimental collaborations is established as Paris-based Sanofi proved by joining forces with Coca Cola on a health drinks range.

The Beautific range, formulated by the soft-drinks maker, and distributed by Sanofi, initially through French pharmacies, is aimed at health conscious metropolitan women aged 25 to 45 with claims of increased vitality and weight loss.

The joint venture gave Sanofi an opportunity to increase its consumer reach - it also purchased Chattem Inc to give it Gold Bond skin cream and Selsun Blue shampoo - while giving Coca Cola a profile away from the mounting concern about sugary drinks.

The boundaries between health and consumer products are becoming ever more blurred

Jonathan Anscombe

GSK sees its deal with Novartis as a natural acceleration of  Witty's drive to broaden the portfolio and align the different areas of the business.

“It is a long term plan and we have had a long heritage of consumer healthcare so this is a continuation,” says Kalpesh Joshi, GSK communications and government affairs Manager. “This will bolster our portfolio and also increase the proportion of overall groups sales that come from that part of the business.”

GSK's four consumer pillars are oral health, skin health, nutrition and wellness and Joshi adds that the company recognises that “there is an element of people taking control of their health more”.

The economic drivers are powerful, particularly as consumer products normally have swifter and less troublesome routes to market compared to compounds.

But the greatest prize may not sit just in an immediate revenue stream but in the ability for consumer products to support behavioural change and to link with treatments so that their efficacy and patient compliance improves.

Nutritional supplements can improve the outcome of chemotherapy treatments and any combination of consumer products that can help halt or reverse the obesity epidemic and its ruinous association with diabetes, will benefit society and pharma.

“Every day more evidence emerges on how poor lifestyle is driving a raft of health problems from heart disease and diabetes through to cancer and dementia. And compliance to medication is still a huge issue,” notes Anscombe.

“The boundaries between health and consumer products are becoming ever more blurred. Pharma will have little choice but to get into the business of consumer behaviour change.”

Article by
Danny Buckland

Danny is a health journalist

17th September 2014

From: Sales, Healthcare

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