The Battle for Consumer Health Supremacy Intensifies: A Look at the Road ahead for the Industry’s Top Players

With transformational deals seemingly falling in place one after the other, the competitive landscape in consumer health has undergone a substantial shift in the last three years. As publicly traded companies prepare to release their full year 2015 financial reports, the focus has already shifted to the fierce competition for the industry’s top spot in 2016. Comparing the top companies’ relative strengths and weaknesses, Euromonitor offers an early glimpse at what may be to come in the struggle for the coveted title of global sales leader.

In 2016, for the third year in-a-row, a transformational deal will reshape the top of the pyramid

Over the last 14 months, an ongoing string of major acquisitions has dramatically reshuffled the upper echelon of consumer health’s competitive landscape. On October 1 2014, Bayer announced it had completed its US$14 billion acquisition of Merck & Co’s consumer health division. In addition to major beauty and personal care brands like Coppertone (sun care) and the foot-care device brand Dr. Scholl’s, the acquisition transferred a consumer health portfolio that generated US$1.7 billion (RSP) in 2013. Anchored by the blockbuster antihistamine brand Claritin, the deal substantially boosted Bayer’s global sales (which increased by US$2 billion to US$7.4 billion from 2013 to 2014), while filling a major portfolio hole in allergy care.

Less than six months later, GlaxoSmithKline (GSK) announced the completion of its joint venture with Novartis, of which the British pharmaceutical giant controls a 63.5% stake. Though Novartis maintained control of its substantial eye care and generic product portfolios, the deal was nevertheless monumental for GSK. It accounted for nearly all of GSK’s growth in 2015 (up 70% to US$7.5 billion over 2014), and brought fast-growing and expansion-ready brands like Voltaren and Otrivin under its control. Though unfavourable exchange rates in 2015 hampered the company’s growth in constant, fixed 2015 US$ terms, the company still finished the year with the #3 spot in the global consumer health rankings by retail value sales, an impressive turnaround for a company who fell from #2 in 2010 to #6 in 2014 on the back of product divestments and slow organic growth.

Looking forward, 2016 is expected to go out with a bang, as Sanofi and Boehringer Ingelheim (BI) are expected to complete their asset swap in the fourth quarter of 2016. The deal involves Sanofi sending its Merial animal health unit to Boehringer Ingelheim in exchange for BI’s consumer health assets (excluding China) and a cash payment of over US$5 billion. Even excluding the China assets, BI’s portfolio represents an attractive target for the larger Sanofi. While BI lacks the global true blockbuster brand missing from Sanofi’s portfolio, the relatively low level of category overlap in major consumer health markets like the US, Brazil, Italy and Germany should assuage regulatory scrutiny. It will also substantially bolster Sanofi’s reach into important categories like digestive remedies and cough, cold and allergy (hay fever) remedies. Assuming both Sanofi and BI’s portfolios can achieve the global consumer health market’s expected 3% growth in 2016, the new Sanofi would finish the year with retail value sales upward of US$7.6 billion, placing it within striking distance of the global lead according to Euromonitor International's coverage of consumer health categories.

Consumer Health – Top 10 Companies by Retail Value Sales (2015)

Source: Euromonitor International

Note: Retail value sales in current, fixed 2015 US$ exchange rates

Who is positioned best for future growth?

The gap between first- and fourth-place in the global consumer health market could be less than US$250 million in 2016. As such, even slight differences in year-over-year growth for the industry’s leaders will have significant impacts on their relative rankings. Those high-stakes will lend extra importance to the industry leaders’ future category and country focus. Decisions in classic strategy tug-of-wars – such as spending time, energy and money bolstering brands in their major markets versus expanding them across international borders – not to mention incorporating the disparate pieces of massive acquisitions as seamlessly as possible could have more impact on total company growth in the near future than the underlying merits of a product portfolio.

Major Growth Markets by Absolute Sales Growth, Total Consumer Health Retail  Value 2015-2020

Source: Euromonitor International

Note: * Constant, fixed 2015 US$ exchange rates 

Major Growth Categories by Absolute Sales Growth, Total World Retail Value 2015-2020

Source: Euromonitor International

Note: *Constant, fixed 2015 US$ exchange rates 

Emerging markets are expected to contribute fully 60% of the industry’s expected US$ 34 billion in global retail value sales growth through 2020. As such, the company with the strongest foothold in the markets of tomorrow could very well come out ahead. According to Euromonitor International’s latest sales forecasts, Sanofi leads the four companies in contention, in terms of sales generated in emerging markets. In 2015, Sanofi generated an estimated 55% of its global retail value sales in emerging markets, compared to 38% for GSK, 33% for Bayer and just 25% for Johnson & Johnson. While the inclusion of BI’s brands will shift the split somewhat to developed markets, based on 2015 sales, roughly 50% of combined Sanofi-BI sales would be from emerging markets. The company is particularly strong in Brazil, which is still expected to grow by a healthy 3% through 2020, despite a recent loss of macroeconomic steam. The inclusion of the BI brands could drive its country sales past US$1 billion in 2016, easily dwarfing the other contenders (GSK is next with just US$334 million).

While Sanofi has invested in local partnerships and production capacity recently, it lacks substantial scale in the key Chinese market, which is expected to grow by US$10.8 billion through 2020. Despite a quartet-worst 25% of sales coming from emerging markets in 2015, Johnson & Johnson has by far the most substantial Chinese operations, generating US$678 million RSP in 2015. However, despite consolidating its local operations to streamline sales in 2013, the company’s market share sank continuously from 2010 to 2015, due in part to its lack of exposure to Traditional Chinese Medicine and herbal/traditional products, which accounted for 33% of total Chinese consumer health sales in 2015. Traditional Chinese Medicine is an investment area for competitors, like Bayer, which grew its sales in the country by 167% from 2010 to 2015. In January 2016, Bayer announced the completion of a manufacturing plant in Yunnan that could triple recent acquisition Dihon Pharmaceutical’s capacity for TCM products. While GSK was boosted substantially by Novartis’ portfolio in 2015, its own brands struggled mightily in the last several years, as increased pseudoephedrine restrictions and mandatory price cuts on ibuprofen gashed sales of its popular Contac and Fenbid brands, respectively.

While China may not prove GSK’s saving grace, it may have an ace up its sleeve in terms of category exposure. Among the four companies competing for the global sales lead, GSK is the only one with exposure to sports nutrition, a category expected to grow by nearly 8% annually to US$15.3 billion in 2020. While sales of its Maxinutrition brand (acquired in 2011) have slowed recently, the brand’s expansion away from hard-core athletes to more of an active nutrition positioning could pay long-term dividends. Additionally, the company has yet to actively launch the brand in the United States, which accounts for over 60% of global sales. As part of a stand-alone consumer business (an idea GSK Chief Executive Office Andrew Witty has publicly toyed with of late) is even greater, as the company could have more freedom to aggressively acquire other sports nutrition players, perhaps modelling itself off of Irish ingredients giant Glanbia, which has carved out US$1.5 billion in global sports nutrition sales through acquired brands.

While sports nutrition’s potential is undeniable, it remains largely on the periphery for most major consumer health companies. More likely to draw investment will be high-growth vitamins and dietary supplements (VDS) and bellwether OTC categories. Bayer is particularly invested in VDS, through which it generated US$1.8 billion in retail value sales in 2015. In addition to its multi-formulation brands One-A-Day and Supradyn, it has been expanding into more niche categories of late. The company launched TruBiotics (cobranded with One-A-Day) in the US in 2012 in an effort to crack into the US$3.8 billion (2015) category that is expected to grow by nearly 7% through 2020. It has also sought to capitalise on emerging consumer trends, such as greater demand for “healthy energy” by expanding its Berocca brand across borders and formats. While Sanofi generated nearly US$800 million in VDS in 2015, with the exception of its probiotic brand Enterogermina (which the company claims has seen recent success in India and Latin America), Sanofi’s VDS portfolio consists largely of smaller, regional brands without global aspirations, as are most of the BI VDS brands that will be joining it in late 2016.

OTC products, though growing slower than VDS, still accounted for 47% of all consumer health sales in 2015. For Johnson & Johnson and GlaxoSmithKline, two companies that have largely ignored the VDS category, future success will be heavily linked to their performance in analgesics and cough, cold and allergy (hay fever) remedies (CCA). Johnson & Johnson will be particularly keen to reclaim its lost footing in the US, where four years of production issues gashed its market share in those popular OTC categories. In both analgesics and CCA, the company’s 2015 market share (RSP) was roughly half its 2008 high-water mark. Based on Euromonitor’s latest forecasts for the categories, recapturing its former 26% share of analgesics and 22% share of CCA would result in combined 2020 category sales of US$3.3 billion, a US$1.6 billion increase over 2015. GlaxoSmithKline is even more over-indexed to analgesics and CCA, generating fully 55% of its global sales in those categories in 2015. Like Johnson & Johnson, GSK’s analgesics portfolio was recently heavily reliant on acetaminophen, which has been hit with packsize and extra warnings in markets like Australia and the US recently and is expected to underperform the overall analgesics category through 2020. Fortunately, the Novartis joint venture brought Voltaren under GSK’s roof. The brand is the global pacesetter in topical analgesics/anaesthetics, which grew twice as fast as the overall analgesics category from 2010 to 2015 and is expected to grow by another 3% annually through 2020. However, with global analgesics and CCA sales expected to grow by only 2% annually through 2020, diversification should be high on the priority list for both Johnson & Johnson and GSK.

Sales Outlook for Major Consumer Health Categories, 2015-2020

Source: Euromonitor International

Note: Retail value sales in constant, fixed 2015 US$ exchange rates