J&J Increases Canadian OTC Market Dominance with Pfizer Deal

LITTLE FALLS, NJ, January 22, 2007 – Johnson & Johnson’s acquisition of Pfizer’s Consumer Healthcare unit last year has created a behemoth in the Canadian nonprescription drug market and has left other industry players wondering how to best compete with the drug giant in a slow-growth market. While it may seem daunting, given the percentage of the market now controlled by J&J, a new study soon to be released by Kline & Company may provide valuable insights that can give marketers a chance to carve out their own niche.

“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 CN$300 million,” says Laura Mahecha, industry manager of the Healthcare practice for Kline’s research division. “That’s a huge gap in a market that has seen little growth for the past five or six years.”

As a result of the acquisition, J&J now has nearly CN$450 million in OTC drug sales in Canada and controls almost a quarter of the market in 2006.

Kline’s study, NONPRESCRIPTION DRUGS CANADA 2006, reveals only 3% growth from 2005 for the overall OTC market, continuing a modest growth trend that has been prevalent since 1999. Sluggish growth, coupled with the expansion of J&J’s dominance, has created a considerable challenge for other competitors like Bayer and Wyeth.

“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,” Mahecha says.

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

“The huge lead J&J now has in the Canadian market means that other OTC players will need find creative ways to compete,” says Susan Babinsky, senior vice president and head of Kline’s consumer products consulting practice. “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 emphasizing service may be the key to success.”

Nonprescription 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 Johnson & Johnson will enjoy, as well as its increased influence with retailers, will be difficult for smaller companies to compete with. There could be additional mergers, acquisitions, divestitures, or licensing agreements among smaller competitors as a result of the J&J/Pfizer merger.

NONPRESCRIPTION DRUGS CANADA 2006, the eighth edition of Kline’s biennial study, analyzes 26 market categories for OTC medications and profiles several leading and minor suppliers to the Canadian market. It provides comprehensive brand and segment sales data through all consumer outlets. The study offers an extensive examination of the industry, including new product launches and line extensions, Rx-to-OTC conversions, advertising and promotional spending and strategies, and regulatory developments. The study will be published in early February.

For more information about this study, go to www.klinegroup.com/reports/y228.asp or contact Laura Mahecha at +1-973-435-3446. In Europe, contact Erin Durham at +39-0331-976969.

To learn more about Kline’s customized consulting capabilities for the consumer products industry, contact Susan Babinsky at +1-973-435-3365.

Established in 1959, Kline & Company (www.klinegroup.com) is an international management consulting and market research firm serving the consumer products, life sciences, specialty chemicals, and energy industries.

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