Abstract
EXECUTIVE SUMMARY
OTC Sales Growth Remains Consistent
Sales of OTC products grew at a consistent pace in 2006, despite flat growth
in some sectors. The US market for OTC healthcare remains very mature, but
dynamic growth in fairly recently switched brands, like Prilosec OTC and
Mucinex, continues to drive overall sales. In the absence of new product
categories and formulations, many manufacturers turned to new delivery formats
in 2006, such as Tylenol Soft Chews, Sudafed Quick Dissolve Strips, and Gas-X
Thin Strips. Such innovations helped drive new consumer interest in
established brands.
Mergers and Acquisitions Continue To Change Competitive Landscape
As in previous years, 2006 was marked by continued merger activity among OTC
manufacturers. By far the largest deal was Johnson & Johnson' s purchase of
Pfizer Consumer Healthcare, combining the first and third ranked companies in
the market. As a corollary to that deal, Chattem Inc also picked up some
former Johnson & Johnson and Pfizer brands, including ACT mouthwash, Balmex
diaper rash treatment, Cortizone anti-itch treatment, Kaopectate
antidiarrhoeal, and Unisom sleep aids.
Pfizer' s exit from the US OTC market was just the latest in a series of recent
company exits in recent years, including Bristol-Myers Squibb selling its OTC
portfolio to Novartis in 2005, Boots International selling its US healthcare
division to Reckitt Benckiser in 2005, Roche going to Bayer in 2004, and
Pfizer acquiring Pharmacia in 2003. Such deals continue to be the primary
growth strategy for major OTC manufacturers as they deal with an increasingly
mature marketplace.
New Regulations
Two major regulations were passed by the Food and Drug Administration in 2006
and 2007. The first, in September 2006, directed that sales of products
containing pseudoephedrine be conducted behind the counter, in an effort to
control the illegal use of the ingredient in methamphetamine production.
Rather than force consumers to show identification to purchase their products,
most cough, cold and allergy remedies manufacturers reformulated their
products, and the temporary change in product mix led to a slight sales
decline for the sector in 2006.
The second new regulation, proposed in June 2007, overhauls the existing
guidelines for dietary supplement production, and would require the adoption
of current good manufacturing practices. This would force supplement
manufacturers to institute procedures guaranteeing ingredient quality,
dosages, correct labelling and other quality control procedures, and would
help to establish greater consumer confidence in dietary supplement products.
New Switches To Create New Markets
The review period saw very little OTC switching activity, but that changed in
2006 and 2007 with FDA approval of Plan B and Alli. The Plan B "morning after"
contraceptive was approved in late 2006 after several years of delays and a
final intervention from the US Senate. As a compromise, sale of the pill
without a prescription was only approved for women over the age of 18.
GlaxoSmithKline' s Alli orlistat pill was approved in February 2007 and
represents the first OTC obesity remedy in the US. Both of these products
create new categories for growth in the US OTC market and represent the most
significant OTC switches in many years.
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