While the U.S. OTC market is not highly dynamic in terms of growth, its competitive landscape has changed significantly over the past five years, with the top 10 rankings shifting in 2015.
Market leaders Johnson & Johnson and Bayer have remained the #1 and #2 OTC marketers, respectively, for many years. Bayer’s bolt-on acquisition of Merck’s Consumer Health business in 2014 helped solidify its spot as the second-largest OTC marketer. However, the OTC companies ranked 3-10 have been affected by consolidation, mergers, and acquisitions. In 2015, GlaxoSmithKline rises to the third largest position after forming a joint venture with Novartis Consumer Health. Back in 2010, when these businesses were separate, Novartis ranked fifth and GlaxoSmithKline was the sixth largest competitor. Despite the acquisition of Emergen-C immune boosting supplement and the successful launch of Rx-to-OTC switch Nexium 24HR, Pfizer was pushed down to the fourth ranked position from third as a result of the GSK/Novartis joint venture.
Reckitt Benckiser ranked tenth in OTC sales in 2010, but has risen to be the sixth largest competitor in 2015 after acquiring the large nutritional and digestive Schiff business and the Airborne immune boosting brand. Solid gains for Mucinex cold medication and Delsym cough syrup brands also helped improve Reckitt Benckiser’s ranking over the five-year period.
Prestige Brands and Church & Dwight, neither of which appeared in the top 10 five years ago, are now ranked ninth and tenth, respectively, in the OTC industry. Prestige Brands has grown via acquisitions, adding 17 various OTC brands from GlaxoSmithKline in 2012 and the 2014 acquisition of Insight Pharmaceuticals, which added several brands, namely the Monistat feminine product franchise. Church & Dwight acquired the Vitafusion line of vitamins, which has helped expand its size on the OTC market. A detailed analysis of brand sales performance for the leading 12 marketers is found in Kline’s annual comprehensive analysis of the market, Nonprescription Drugs USA.
Download industry consolidation impacts table here.
Some of the crucial factors that often propel sales and market share gains can actually have a negative impact on short-term profitability for OTC companies. For instance, the large scale market launch of Nexium 24HR (Pfizer) in 2014 involved a multi-faceted advertising, promotional, and retail marketing campaign to educate consumers, build awareness, and carve out retail shelf space. Despite adding sales over $200 million for Nexium 24HR in its first year on the market, Pfizer’s OTC unit’s margin after marketing expenses and operating margin actually declined from 2013 to 2015, according to Kline’s soon-to-be-published OTC Drugs: U.S. Competitor Cost Structures study. “Often the rewards of large sales gains do not drop to the bottom line until year 2 or 3 post-launch once advertising and other marketing expenses normalize somewhat,” remarks Laura Mahecha, Kline’s Healthcare Industry Manager.
Mergers and consolidation also have similar short-term negative impacts on profitability as evidenced by the larger than usual administrative expenses incurred by GlaxoSmithKline as a result of the joint venture with Novartis. The July 2014 launch of Flonase Allergy Relief also had a negative impact on the company’s short-term marketing expenses, driving margins downward. The profitability of the 11 leading OTC companies’ OTC units and the top three OTC product classes for each are provided in Kline’s one-of-a kind profitability study, OTC Drugs: U.S. Competitor Cost Structures, to be published in August 2016.
