Bayer Aims For Global OTC Lead With Bolt-On Acquisition Plans
This article was originally published in The Tan Sheet
Executive Summary
Chairman Marijn Dekkers says the German company believes strong organic growth and consumer health pick-ups will help Bayer become the world leader in OTCs.
Bayer AGneeds to acquire consumer health properties and grow its existing businesses to fulfill the expectation the firm announced Feb. 28 of becoming the world’s largest OTC products franchise.
Sales in the Bayer Consumer Care business – comprising OTC drugs, dietary supplements and dermatology products – grew a reported 11.6% to $1.38 billion in the German firm’s fiscal 2012 fourth quarter, or 9.5% operationally, under the same-day euro-to-dollar exchange rate. For the full year, the division expanded 9%, or 5.6% operationally, to $5.04 billion.
“The success of our Consumer Care business is driven by our highly recognized brands and our ability to further develop them through their lifecycle,” Bayer Chairman Marijn Dekkers said in a call with analysts. “We believe that we can continue to develop that business both organically as well as through selective bolt-on acquisitions, and are aspiring to become the market leader in the OTC segment.”
Marijn Dekkers
Photo courtesy of Bayer
Jörg Reinhardt, chairman of the board of management of Bayer HealthCare AG, added that during 2012 Bayer made significant investments in its OTC portfolio in Brazil, China, Russia and other rapidly expanding markets. He acknowledged that becoming the global leader in the space will require acquiring additional consumer health care product properties as well.
Wide World Of OTCs
During its fourth-quarter financials presentation in early February, Sanofi cited Nicholas Hall & Co. data from September 2012 showing Johnson & Johnson atop the OTC field with 4.5% of the market, followed by Bayer’s 3.3% and Sanofi with 3.2% (Also see "Sales & Earnings In Brief" - Pink Sheet, 11 Feb, 2013.).
J&J, which calls itself the world’s sixth-largest consumer health products company, reported 2012 OTC/nutritionals sales of $4.35 billion and overall consumer business sales of $14.45 billion. Sanofi’s full-year consumer health sales were $4.08 billion.
Reckitt Benckiser Group PLC outbid Bayer to acquire U.S. supplement firm Schiff Nutrition International Inc. in late 2012 and has its own plans to move up in the fragmented consumer health space. CEO Rakesh Kapoor said recently Reckitt, which traditionally focused on household care and personal hygiene products, is better positioned to build OTC brands than big pharma players (Also see "Reckitt Deals Feed OTC Domination Plan" - Pink Sheet, 18 Feb, 2013.).
Losing out to Reckitt on the Schiff pickup was a setback for Bayer’s hopes of dramatic consumer business growth. Bayer’s $1.2 billion offer, which Reckitt ratcheted up to $1.4 billion, was to have brought Bayer a number of supplement brands it viewed as complementary to its existing offerings (Also see "Reckitt’s Schiff Buy Reflects Nutritional Industry “On Fire”" - Pink Sheet, 3 Dec, 2012.).
Top OTC Players In Market Share
- Johnson & Johnson – 4.5%
- Bayer AG – 3.3%
- Sanofi – 3.2%
- Novartis AG – 3.0%
- Pfizer Inc. – 2.8%
- GlaxoSmithKline PLC – 2.8%
- Reckitt Benckiser Group PLC – 2.0%
- Boehringer Ingelheim GMBH – 1.6%
- Taisho Pharmaceutical Co. Ltd. – 1.6%
- Takeda Pharmaceutical Co. Ltd. – 1.4%
Source: Nicholas Hall & Co.
Also active in the OTC arena, though currently out of the top 10, is Valeant Pharmaceuticals International Inc., an aggressive purchaser of consumer health and other pharma assets. The Montreal-based firm announced on its Feb. 28 earnings call that it acquired three OTC products in Poland, representing more than $20 million in sales, from Polish company Lek-Am.
Opportunities to acquire established-market consumer health brands with attractive growth potential may be dwindling, and Bayer likely will look to emerging markets for bolt-ons, as its competitors are doing. Bayer’s most recent significant consumer health care deal was the purchase of Citracal calcium supplements from Mission Pharmacal Co. in 2007.
Aspirin, Aleve Strong In 2012
Bayer’s full-year financial statement reported sales of $10.2 billion for Consumer Health, which comprises Consumer Care, the Medical Care devices and diagnostics business, and Animal Health. The figure was up 8.2%, or 4.2% operationally, and is expected to climb mid-single digits to around $10.32 billion in 2013.
For 2015, Bayer aspires to record Consumer Health sales in the neighborhood of $11.8 billion, at the current exchange rate.
The company broke out numbers for top-selling Consumer Care products in its annual report. Bayer Aspirin tallied sales of $180.5 million in the fourth quarter, up 9.9% operationally, and $646.3 million in 2012, up 1.3% operationally. Aleve (naproxen) and One A Day multivitamins likewise had strong fourth quarters, growing 10.6% and 7.3% operationally.
Other Consumer Care highlights were the Bepanthen/Bepanthol skin care line’s performance in Brazil and Russia, and the Canesten antifungal brand’s strong showing in Germany.
In the U.S., consumers picked up higher volumes of Aleve, while Aspirin sales experienced a slight increase thanks to line extensions, Bayer said. The company in September launched Bayer Migraine Formula (acetaminophen/aspirin/caffeine) to take advantage of Novartis AG’s Excedrin recall (Also see "Bayer Migraine Formula Seeks Market Share Before Excedrin Returns" - Pink Sheet, 10 Sep, 2012.).
Bayer’s company-wide net sales reached $12.9 billion in the fourth quarter, up 5.5% operationally, and $52.02 billion in 2012, up 5.3% operationally.
Net income in the quarter was $489.3 million, down a reported 5.8%, and in the full year was $3.20 billion, down 1%, as Bayer HealthCare absorbed several one-time costs. Notable among these costs were $1.57 billion in legal expenses related to product liability claims for its Yasmin and Yaz birth control drugs (Also see "Charting The Course Of Product Liability: From Yasmin/Yaz To Actos" - Pink Sheet, 20 Feb, 2012.).
The Feb. 28 earnings call marked Reinhardt’s last day at Bayer, as he leaves to stand for election as chairman of Novartis (Also see "People In Brief" - Pink Sheet, 28 Jan, 2013.). Wolfgang Plischke, a member of Bayer’s board of management since 2006 and the head of technology, innovation and sustainability for the Asia/Pacific region, is leading Bayer HealthCare on an interim basis.