Major mergers and acquisitions in the U.S. OTC market have a way of shifting OTC cost structures both in the near- and long-term. For example, when major businesses are merged, such as Bayer Group’s acquisition of Merck’s U.S. OTC business or when GlaxoSmithKline and Novartis formed a consumer healthcare joint venture, the costs of goods for these organizations often rises initially. This is largely because of duplication of plants and employees. As the new venture sheds duplicate resources, the organization realizes increased profits over the long-term as a result of consolidated resources being used more efficiently.
Other shifts in the costs of OTC components can have widespread impacts on cost structures across the industry. For example, as petroleum costs continue to decline, the costs associated with many aspects of manufacturing and selling OTC medications have also declined. For example, transportation costs are lower as are the costs to secure petroleum-based ingredients such as packaging components. The cost of aluminum has also decreased and this allows for lower costs for manufacturers who use blister packages that contain aluminum or packaging safety seals that are aluminum based.
The costs associated with marketing, sales, and promotions of OTC brands tend to be more volatile and have wider swings from year to year. Advertising budgets, price-based promotions, and sales force costs may increase or decline dramatically based on competitive and market forces. Administrative and R&D costs tend to be more stable over time.
The most nimble marketers that can efficiently manage cost fluctuations can increase profitability of their OTC portfolios and use those profits to develop innovations, new products, line extensions, or increase marketing spending to drive sales and market share.
We are currently compiling the 10th edition of our highly regarded series, OTC Drugs: U.S. Competitor Cost Structures, where the cost structures of the leading 10 OTC suppliers are analyzed and benchmarked against one another. In addition to the overall OTC unit cost structures of each company, the profitability of the three largest product classes is also estimated for each company profiled. This one-of-a-kind report is due out this summer and is a crucial tool used by the major players in this market to benchmark their business against their competitors.