|Top News Stories of 2011|
|January 11, 2012 by Donald Riker, PhD|
The top stores for 2011 were easy to identify: 1) Quality control failures, particularly at J&J; 2) the P&G/Teva deal; 3) M&A; and 4) the entry of the last significant Rx switch Allegra (fexofenadine).
Quality control failures in plants that manufacture OTC drugs continued apace. These failures differed from many in the past in their sheer scope and egregiousness. They were also systemic, resulting in warning letters or a consent decree, plant shut downs, and multiproduct outages some lastly beyond one year. The root cause of these failures was a toxic mix of old plant & equipment, neglect, cost cutting and incompetence. J&J, the chief repeat offender and bell-wetter, now has a rap sheet unprecedented in length. At the end of 2011 Novartis appears on a path to duplicate J&J's behavior. The past year's record of these breeches in trust reveal the dirty truth that branded OTC manufacturer's product may not match the quality of store brands. These events also confirm the suspicion that large multi-nationals with more focus and profitability in prescription drugs, medical devices, etc may see the OTC business as unable to affect their balance sheets or P&L's, or reputations. The OTC brand trademarks themselves provide some cover for the corporate offenders.
The P&G/Teva deal, as reported here recently, is a master stroke of strategic thinking and acting. It is bold, forward-looking, and innovative. The synergies in cost control, outsourcing, product innovation, sales expansion, and international white space are brillant. The deal in some ways resembles P&G's 1985 acquisition of Richardson-Vicks, an acquisition that bought future billion dollar brands and opened up international sales across all its brands.
In addition to P&G M&A continued, mostly the acquisition of neglected brands by private equity or aquisitive brand holders. The latest brand acquisition by Prestige Brands of 17 brands previously owned by Glaxo represents an instructive case. This transaction represents a leveraged buy out at about 3.5x sales. It is instructive in that what was bought was only a part of what was offered. The remaining brand stash were either damaged brands such as ALLI, international brands, or brands judged to have little growth potential.
Lastly, the Sanofi/Chattem launch of Allegra, and the follow on launches of store brand competitors, represent the last and perhaps the last obvious, switch of an Rx product to consumer sale. The launch was successful as Sanofi took share from its establish competition. Time will tell as to the going share Allegra, as a branded product, will sustain after accounting for store brand erosion, pipelining, and Claritin and Xyrtec's efforts to restrain its claims and promotions. Rx switching will become ever harder as manufacturers are forced to switch indications and theories of disease self-management rather than ingredients in established OTC categories.
Events in 2011 suggest that manufacturers are seeking growth either through acquisitions of underinvested brands, or by switch of Rx technology. In the meantime Perrigo had a bang-up year as it further consolidated sales and rode the tide of product outages created by careless branded behavior.
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