Recent consolidations in the OTC industry have accounted for more than half of the total sales volume being realized by just 10 manufacturers, according to the Kline & Company's latest study, "NONPRESCRIPTION DRUGS USA 2005."
Although sales of nonprescription drugs in the U.S. grew by only 3% in 2005, some of the biggest manufacturers in the OTC market continued to increase their dominance.
"Drug manufacturers are seeking big consolidation deals and seem to be following in the footsteps of the major drug retailers like Rite Aid, which acquired Brooks and Eckerd last week," said Laura Mahecha, industry manager of the Healthcare practice for Kline's research division. "The drug companies are playing catch-up to the retailers by growing their portfolios in order to better serve the larger retailers."
If Johnson & Johnson's acquisition of Pfizer's OTC division comes to fruition, J&J's share of the market could approach 20%. But to get the approval of regulators, J&J will probably have to divest more than a few brands.
"For smaller and mid-sized companies, this is a great chance to add big-name brands to their product mix at fair prices as the major players divest brands in order to gain merger approval," Mahecha said.
A big market boost could come from Rx-to-OTC switches.
"Part of the J&J merger includes OTC rights to Zyrtec from Pfizer, and GlaxoSmithKline already has OTC rights to Roche's Xenical anti-obesity drug, which could be a real groundbreaking event if the switch is approved," explained Mahecha.
While the current consolidation trends could seem problematic for smaller manufacturers, it could actually help in the development of niche markets.
"Smaller and mid-sized companies will finally have a chance to acquire these divested brands, where they couldn't even touch them before," said Susan Babinsky, senior vice president and head of Kline's Consumer Products consulting practice. "These acquisitions can turn into great opportunities for smaller companies armed with compelling and focused strategic plans to grow these brands."