The story of the modern pharmaceutical company that began with an enterprising pharmacist and the building of a business in over-the-counter (OTC) medicines is a common one. But in the case of Merck KGaA the firm has the distinction of being the world’s oldest pharmacy company, after Friedrich Jacob Merck acquired pharmacy privileges to Darmstadt’s second public pharmacy in 1668.
The Angel Pharmacy is still owned by the Merck family, now in its 11th generation at the company, though Darmstadt is now the base of operations for a global business spanning specialty chemicals, life science research tools and prescription medicines. Although consumer health is now the smallest of Merck’s four divisions it is, reflecting market trends, the fastest growing and the firm has its sights set on an ambitious platform of targeted growth for its OTC operations.
These marked a number of significant advances in the last century as the company expanded from a standard pharmacy to become a significant player in consumer health. Among them were the development of the first commercially available vitamin C product in 1934 and the NASA-assisted development of Nasavin (oxymetazoline), a nasal decongestant.
The decongestant was a vital part of kit for the astronauts of the 1969 moon landings thanks to the way weightlessness causes the nasal mucous membranes to swell – with serious consequences if not treated. In fact the crew of Apollo 7, the first US manned spaceflight, suffered from such severe blocked noses they could not close their spacesuit helmets during re-entry into the Earth’s atmosphere. All subsequent Apollo missions and lunar modules, and space shuttle flights included the decongestant Nasavin as an integral part of their medical kit.
Building the future
“I am proud to be part of 350 years of history,” says Uta Kemmerich-Keil, who took over as CEO and president of Merck’s Consumer Health business midway through last year, but she has her sights set on the future. Central to this is the company’s ‘3×3’ growth strategy, an ambition to have a 3% market share and at least three brands in the first 1-5 positions in their categories in 20 prioritised markets.
“It is a ‘pure growth’ strategy,” Kemmerich-Keil explains, “which makes a lot of sense because we are in a market that is globally growing, and has been nicely growing for many years in a row.”
“We are implementing that strategy very stringently, market by market, making sure that we focus in each market on the key brands, that we focus our innovation activities on those key brands and that we have most of our spending in these key 20 markets,” she adds.
OTC sales have been outpacing the prescription medicines market for a number of years
It is certainly an aspirational target for the company. A 3% market share being what the bigger players have within what remains a very fragmented market – so much so that its top 10 players can only claim between them a 26% share in the market.
“It is a longer term target,” Kemmerich-Keil acknowledges, “but it makes sense to have these aspirational goals because then you make bold moves. There are few markets where we can say we have ticked the box and we are already there with three brands and 3% market share. But we are fully on plan to get there.”
The market clearly offers much opportunity for further industry expansion, with growth of over 4%. In fact OTC sales have been outpacing the prescription medicines market for a number of years, its attractiveness further enhanced by a medium level of risk and social trends that see consumers becoming much more self-aware about their health.
Not only has the buoyant market allowed Consumer Health to be the fastest growing of Merck’s divisions last year, it also underpins a resurgence of OTC interest among some of pharma’s other big names, as last year saw billion dollar deals signed by the likes of Bayer, GlaxoSmithKline and Novartis.
Local wins
But, although Kemmerich-Keil wants Merck’s Consumer Health business, currently ranked number 11 in the OTC market, to compete with the bigger players, she stresses that – perhaps unlike pharma – in consumer health “sheer size is not the point”.
“What is important to us is that in the markets where we are, we want to win. You win locally, this is not about huge global presences, it is about being local and being at the forefront of your categories in the local markets,” she says.
Kemmerich-Keil at a recent Merck Consumer Health media briefing in London
Emerging markets, which account for a little more than 50% of Merck’s consumer sales, will be key and the company has a strong presence in countries like Brazil, Mexico, Indonesia and India. However, one market that is currently not on the list of priorities is China, which Merck exited after finding its business model in the country was not profitable. “It is of course an attractive market, but for now we are thinking about what is the right strategy to enter into that market. But it sounds bigger than it was – it was a small approach, it didn’t really work out the way that we did it, so we stepped back and will start again,” Kemmerich-Keil says.
“A strategic market can also be a market that has huge growth potential, but what is important for us is that in those markets we have the right ability to grow – so there is either a strong foothold already with our existing brands so that we can organically build on that, or look at where we want to bring our key strategic brands and we look at the competitive landscape and the growth potential and say ‘this is a market where we still want to launch’.”
Keeping its options open
Much of the growth strategy is focused on organic growth and rolling out existing products to new markets, but Kemmerich-Keil won’t rule out deals to acquire additional products – or even companies – if they are the right fit.
“At the end of the day what we want to do is to reach the strategy and there might be areas that we say ‘it won’t do organically’ and then we also look for inorganic growth. But I would call them more ‘bolt-ons’ – this is not a big strategic move across many countries, it is much more to make sure that we grow in the markets that we feel we need some additional muscle.
“So there are lots of different formats as to how you could do those types of transactions. But I am focusing very much on doing as much as we can organically, because we have so many promising brands and innovations in-house,” she says.
The company is always looking at its options but Kemmerich-Keil does not foresee “a ‘string of pearls’ of many deals”. “Any deal really needs to fit into all the categories where we are in and where you can see consumers like it, but it has more power than it is exploiting at the time, so it really needs to fit. And this is not a market where thousands of those opportunities are waiting for us to be picked up.”
There will be more consolidation, nevertheless you will always find local and regional players because it is such a huge market and so diverse
The M&A question is an apt one to put to Kemmerich-Keil. She joined Merck in 1999 as mergers and acquisitions controller and subsequently moved to head of corporate mergers and acquisitions. During her time in this role she led key transactions for the company like its acquisition of Serono in 2006, the divestment of Merck Generics in 2007 and the acquisition of Millipore in 2010.
She sees M&A activity on the rise across all different categories and industries at the moment and the OTC business is certainly an attractive target for companies. “It is natural that deals happen, because it is a fragmented industry with lots and lots of local and regional companies, so a consolidation trend is a normal thing in such an industry,” she says, but notes: “It can also be by coincidence that you see big deals happening at the same time.”
Looking forward she says: “There will be more consolidation, nevertheless you will always find local and regional players because it is such a huge market and so diverse – it will never become like the car industry, for example, because in the OTC space you can survive as a small player.”
Patient focus
Having led Merck’s global allergy business unit Allergopharma and now heading Consumer Health, she sees a commonality between them. “If you want to be successful you have to focus on the person who finally takes your medicine – your patient/consumer. That needs to be the focus! I love this job because the consumer really is at the heart of my business – we should understand what they want, innovate based on these insights and thereby develop products to meet their needs.
“This focus on the person that you want to cure, to make sure that they are feeling better, I think that is a great motivation to have as a heart for the business and that is what our OTC business is about.”
