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P&G and Teva Pharma formed a strategic healthcare joint venture on Nov 3, 2011.  In one masterstroke P&G has created synergies in multiple dimensions and has forged a new business model that should be the envy of the consumer healthcare industry.  We recount P&G's long journey to this game-changing moment.

 

In 1981 chemical engineers and marketers made the trip to an obscure village in upstate New York to investigate the Rx and OTC brands of Norwich-Eaton.  Twenty six years before Crest toothpaste had been its first and only foray into the fringes of the "healthcare" business.  Now real drugs were on its radar screen.  The acquisition of Norwich (Pepto-Bismol) marked the start of the "Procterization" of successive bolt-on health and beauty care acquisitions, including all or a part of RVI, Searle, Syntex, Noxell, Max Factor, Tampex, Blendax, Clairol, Wella, Astra, to name a few.  The next major play was Richardson-Vicks in late 1985 marking P&G's global expansion into health and beauty care (Pantene, Olay, Vicks).  While this strategy played well to its consumer branded business the inclusion of drug discovery in Cincinnati was ill-fated and a force fit.  Ultimately what started in that upstate village in 1982 was finally abandoned in 2009, a 27-year experiment.  P&G has a history of succeeding in new sectors in which it had no right to succeed through dogged persistence and a belief in its marketing and R&D --- but only after several decades of experimentation, missteps and lengthy integration.  It would not be so in prescription drugs.  Yet P&G has become a titan in consumer healthcare through its product and brand development prowess. 

 

Up until now this P&G history of growing share of the consumer healthcare business through innovation, acquisitions and alliances recalls recent events, most recently Sanofi's CEO's global vision of diversifying sales across a patchwork of global non-prescription businesses that together have less intrinsic volatility than Rx drugs.  However, the P&G/Teva deal has a deeper vision then simple portfolio diversification.  It is far more visionary in its scope and frankly goes beyond anything P&G, Sanofi or others have done before.  It is less about impressing Wall Street and more about excellence and growth.

Rooted deep in P&G's consciousness is a core belief in its brand management and the chemical engineers who make up most of its R&D.  The core belief is in fungibility of competency not a specialized work force.  That's why Rx's failed while OTC's succeeded.  This has allowed P&G to shed various food and beverage businesses while expanding in the direction of high-growth health and beauty care.   If you can do one brand why not do another?  From candles to soap to detergents to orange juice to Olay.  But regulated businesses, such as drug products, required other talents, Ph.D.'s, regulatory hurdles, claims support, etc.  P&G tried various internal reconfigurations of its healthcare structure --- some failed.  Starting in the 1990's the hand writing was on the wall as P&G quietly began outsourcing its back office functions and off-loading employees to vendors and downsizing.  Ultimately its massive airport-styled research center in Mason, Ohio outside of Cincinnati was renamed the Mason Business Center as business folks moved in.

Persistence is P&G's middle name.  But this new alliance transcends the past.  Rather than force fitting the operational, quality, and development functions into P&G it turns them over the a proven partner.  Cost synergy abounds.  Teva is a virtual warehouse of generic prescription drug dossiers making access to Rx/OTC switch properties easier.  Global white space diminishes by combining and sharing global sales and marketing.  Teva can take advantage of P&G branding.  P&G now has pharmaceutical competence in a single stroke.  Likewise it shores up its product quality and liability by manufacturing its OTC's at Teva-controlled facilities such as the Swing Road plant in North Carolina it sold to them.  And the list of synergies goes on and on.  This strategic vision of complementary global competencies far outdistances the piecework roll up model and the serial one-off acquisitions we are so use to seeing.  This deal is unlike any deal in consumer healthcare before it.  Hats off P&G!

 

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