Glaxo, Sanofi Look Far Afield For Consumer Health Growth
This article was originally published in The Pink Sheet
Executive Summary
Big pharmas' recent third-quarter results and commentaries point to sales drivers for consumer health divisions coming from markets outside their established primary markets of US and Europe. Consumer unit lines include oral care and topicals as well as nutritional products.
Fuel for GlaxoSmithKline PLC or Sanofi to climb among global consumer health competitors likely will come from emerging markets, rather than the firms' core markets in the US or Europe.
Both big pharmas' recent 2018 third-quarter results and commentaries point to countries and regions that each classifies as outside its established primary market as sales drivers for their consumer health divisions, which for both comprise OTC drugs including oral care and topicals in addition to nutritional products. (See tables below for each firm's regional consumer health results for the July-September period; see sidebars for the firms' overall earnings reports.)
Foreign exchange rates, however, currently are curbing the firms' actual revenue growth consumer health product sales in those regions, just as they drag down their overall net income.
"Emerging markets is quite a significant part of our portfolio," said Sanofi's consumer health chief, Executive Vice President Alan Main, during the French firm's Oct. 31 earnings briefing.
US, Europe Slow Sanofi Consumer Growth
Sanofi's 4.1% Q3 global consumer business growth, at constant currency rates, was led by 6.1% growth in its "rest of world" markets and 4.6% in its emerging markets (* figures in millions).
Sanofi 2018 Q3 Earnings Sttement
But revenues from consumer health sales in its emerging markets, including the €382m ($437.9m) it reported for the July-September period, add to the firm's foreign exchange hit, Main said. "That actually is why we're sometimes impacted a bit more on the [foreign exchange], which might impact a little bit some of the consensus readings," he said.
Still, "overall, we are very positive about the emerging market performance and it's continuing into the future," he said.
Sanofi's lead consumer health brands include the Allegra Allergy (fexofenadine) OTC drug line marketed in the US and its Buscopan (hyoscine butylbromide) indigestion remedy sold in European markets.
Glaxo, which markets consumer brands including Flonase Allergy Relief ( fluticasone) OTC intranasal corticosteroid in the US and Panadol (acetaminophen) analgesics in Australia and the UK, expects exchange rates to slow overall sales growth 3% and adjusted earnings per share growth 6% through the end of 2018.
The UK firm's consumer revenues also are taking a hit in India from the country's goods and services tax (GST) imposed since July 2017. Those revenues during the quarter also were slowed by divestment of some brands since the year-ago period. (Also see "GSK Invests In OTC Production, Prepares To Divest Horlicks Nutritional Business" - Pink Sheet, 21 Sep, 2018.)
"Sales grew 3% despite a drag of around 1 percentage point from the combined impact of the divestment of nonstrategic brands and the final quarter's impact of GST in India," said Chief Financial Officer Simon Dingemans during GSK's Oct. 31 earnings briefing.
Glaxo includes India among its "international" markets, which are countries and regions outside the US and Europe and are roughly comparable to Sanofi's emerging market and "rest of world" designations.
Sanofi once aimed leading the consumer sector, but its current leadership hasn't sustained the goal. Instead, the firm looks to its consumer business as a reliable revenue driver not subject to dramatic market shifts that sway pharma product sales. It remains open to adding strong brands and in 2017 completed integrating Boehringer Ingelheim GMBH's OTC drug and nutritional products business acquired in a business swap that closed the first day of the year. The business, which is a distinct operating segment, in 2017 had sales of $5.1bn on 1.4% growth in the US, 2% in Europe and 3% in its other markets. (Also see "GSK Rides Cold, Flu And Pain OTCs In Q4 While Allergy Carries Sanofi" - Pink Sheet, 8 Feb, 2018.)
Europe Sales Dip For GSK Consumer
Glaxo's 3% Q3 global consumer business growth, at constant currency rates, was led by 6% growth in the us and 4% in its international markets, which don't include Europe (* figures in millions)
GlaxoSmithKline 2018 Q3 Earnings Statement
Glaxo, on the other hand, positions its consumer business either as a competitor to lead the global market or as a potential divestment chip. The firm, now led by its former global consumer health chief, Emma Walmsley, greatly expanded its consumer footprint by marketing all of Novartis AG's OTC drug brands including Excedrin (acetaminophen; aspirin; caffeine) and nutritional products including in a joint venture launched in 2015 and again earlier in 2018 by buying out the Swiss firm's minority stake and becoming sole owner of those brands. (Also see "Glaxo Opts For Solo Navigation To Boost Control In Consumer Health Market" - Pink Sheet, 27 Mar, 2018.)
It also was interested in acquiring Pfizer Inc.'s consumer business. (Also see "GSK And Reckitt Opting Out Of Pfizer's Consumer Business Sale Speaks Volumes" - Pink Sheet, 25 Mar, 2018.) But Glaxo and other potential buyers withdrew from negotiating with Pfizer, which earlier in 2018 said it would retain the business. (Also see "Pfizer Deals Consumer Health Its Own Hand, Plays Waiting Game For Bids " - Pink Sheet, 11 Jul, 2018.)
"We remain confident in delivering low single-digit reported sales growth for consumer for the year, and we're on track with our margin objectives," Dingemans said.
The global consumer market leader, meanwhile, remains Johnson & Johnsonwith its equally broad portfolio and footprint. Bayer AG explicitly targeted overtaking J&J when it made a series of consumer sector acquisitions capped by adding US firm Merck & Co. Inc.'s entire OTC drug and nutritional product portfolio in 2014. Those moves haven't pushed Bayer to the top, though, and integrating Merck & Co.'s brands has been a drag on its consumer results.
(Also see "Bayer’s Consumer Health Sales Stay Cool During Summer Months" - Pink Sheet, 10 Sep, 2018.)
From the editors of the Tan Sheet.