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Health and Beauty We examine the trends underlying the growth of the global marketplace in health, beauty and hygiene. Our analysts will point the way forward by highlighting critical innovations and behaviours that are driving industry evolution.

Further Industry Consolidation: Bayer Buys Merck & Co’s Consumer Health Unit

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Just two weeks after the announced joint venture between Novartis AG and GlaxoSmithKline Plc’s (GSK) consumer health units, another mega deal was made among industry leaders. Bayer AG has agreed to purchase Merck & Co’s (Merck Sharp & Dohme – MSD) consumer health unit for US$14.2 billion on 6 May 2014, with the takeover expected to be completed in the second half of the year. While this deal will push Bayer ahead of Johnson & Johnson in retail value sales based on provisional 2013 figures, which has been one of the company’s key priorities, it will have to contend with Novartis and GSK’s new partnership for the top consumer health position. This second major merger also puts significant pressure on other company’s vying to improve their spot on the consumer health leader board.

The purchase of Merck & Co’s consumer health division marks Bayer’s second largest health care acquisition in the history of the company. Bayer is willing to pay a premium for the Merck & Co’s unit to get its hands on key global allergy brand Claritin, which achieved retail sales of US$804 million in 2013. Bayer currently has negligible sales in this highly lucrative category that reached sales of US$5 billion in 2013 and of which the Claritin brand holds a 13% value share. Cough, cold and allergy (hay fever) remedies (CCA) will become Bayer’s second largest OTC category with Claritin and the nasal decongestant Afrin integrating with Bayer’s current portfolio in the respiratory space, which is led by Alka-Seltzer.

The acquisition also nicely complements Bayer’s offering within dermatologicals. It will add the brand Lotrimin, a leader in topical antifungals, to Bayer’s existing portfolio, including the world’s best-selling dermatological brand Canesten and number six globally Bepanthen.

Other top OTC brands that Bayer will receive from Merck & Co in the deal include the laxative Miralax, the CCA Coricidin and Dr Scholl’s topical antifungal in North America. These brands combined for sales of US$337 million in 2013. Outside of consumer health, a primary draw for the acquisition of Merck & Co’s consumer unit was the sun care brand Coppertone, which is tracked by Euromonitor International in beauty and personal care. Coppertone is the number four sun care brand globally in retail value sales at US$476 million. Another important consideration was geographical presence. The merger will significantly bolster Bayer’s position in the US, the world’s largest consumer health market, by adding over US$1 billion in retail sales in the country.

Combined Bayer and Merck & Co Retail Value Sales and Share by Consumer Health Category Based on 2013 Data

Source: Euromonitor International

Note:  VDS is vitamins and dietary supplements

Bayer has been outspoken in its quest to become the top global company in consumer health. In a statement about the high profile merger, Bayer’s chief executive officer Marijn Dekkers said that “this acquisition marks a major milestone on our path towards global leadership in the attractive non-prescription medicines business," and he is right. Bayer and Merck & Co’s consumer health retail sales combined for US$8.5 billion in 2013, accounting for 4.1% value share. This overcomes the current industry leader Johnson & Johnson’s retail sales of US$8.1 billion and value share of 3.9%. However, the combined sales of GlaxoSmithKline and Novartis may be a challenge to reach the number one spot. While Bayer’s purchase of Merck & Co’s consumer health unit is certainly a big step towards becoming number one, there is still work left to be done. Aside from acquisitions, Bayer will continue to prioritize organic growth of its iconic brands, including Bayer Aspirin, Aleve and Supradyn, as well as push its presence in emerging markets, especially China, supported by the company’s acquisition of Dihon Pharmaceuticals announced in February 2014, Eastern Europe and Latin America. OTC switches will also be part of Bayer’s agenda as it takes control of Merck & Co’s switch prospects Singulair (montelukast) and Clarinex (desloratadine).

Recent merger and acquisition activity has put real pressure on now second-tier consumer health companies netting less than US$8 billion in retail sales in 2013, especially Sanofi, Pfizer, Procter & Gamble and Reckitt Benckiser (RB). These companies are hungry for acquisitions, most notably Pfizer who continues to be denied by AstraZeneca and RB who was beat out by Bayer for the Merck & Co division. However, closing on acquisition prospects will be increasingly challenging as the competition grows. High prices though will not be a deterrent as further consolidation in the consumer health industry is likely to come in the near future.

Global Consumer Health Leaders by Retail Value Sales (With Combined Views of Bayer/Merck & Co and GlaxoSmithKline and Novartis) based on 2013 Data

Source: Euromonitor International

Note: According the Euromonitor International’s definition of consumer health, which includes OTC, vitamins and dietary supplements, weight management, and sports nutrition. Beauty and personal care, which may be included in the companies’ consumer health division reporting, is tracked separately.

As the corporate titans consolidate, the future of consumer health becomes a game of fewer players. What will this mean for consumers around the world. How will emerging regional companies, such as Prestige Brands Holdings, Omega Pharma, Aspen Pharmacare and Genomma Lab Internacional, compete tomorrow as the competitive landscape is reshaped today?

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