The global over-the-counter (OTC) medicines market has grown steadily in recent years, offering large potential for pharma and consumer goods companies to expand their reach.
IQVIA has gathered data on consumer health industry trends for more than 25 years, and we were honored to share our latest findings with industry leaders at Kisaco’s Consumer Health Investment USA conference in New Jersey in May; and at the Association of the European Self-Medication Industry annual meeting in Austria in June.
Since 2005, we’ve seen steady mid-single digit increases in OTC product sales which now represent more than 10 percent of total pharmaceutical industry revenues. The Cough and Cold category posted the highest annual global growth rate, though we are seeing growth and innovation across the spectrum.
M&A drives growth
Much of the category’s expansion is occurring in emerging markets, where rising prosperity, increased overall spending on healthcare, and new access to OTC products has both generated opportunities for growth in existing product lines and led to successful launches of newer, more advanced products to meet the needs of the aspirational emerging middle classes.
Largely due to their maturity, most developed markets have been less dynamic. Consumers are already familiar with existing OTC options, and have a finite need for products that address specific illness events. This is driving two key trends in the marketplace.
The first is M&A as a strategy to drive growth through scale. In the past decade, we have seen several major deals between industry giants, including Johnson and Johnson’s acquisition of Pfizer’s consumer healthcare division; Bayer’s acquisition of the consumer healthcare division of Merck & Co; the creation of the joint-venture combining the OTC businesses of GlaxoSmithKline Consumer Healthcare and Novartis OTC; and earlier this year Sanofi’s swap of its animal health business for Boehringer's consumer healthcare business. These M&A deals shuffled the top spots in the OTC market.
Currently, Sanofi is the market leader in OTC, followed by GSK CH and Bayer, with the three companies together accounting for roughly 15% of global sales. Meanwhile, mid-sized OTC companies are losing market share, leaving some to wonder if the M&A trend will continue, or if mid-sized companies will need to find new ways to win customers.
Still, M&A only gets you so far. To spur new growth, OTC companies are relying on innovation – creating new products, extending existing product lines, and seeking differentiating features that improve the quality, value or user experience. ‘Open innovation’ has become a key focus in this category, especially for large multinational companies, which are partnering with universities, research institutes and individual innovators to accelerate growth. Resulting innovations run the gamut from completely new products, to improved delivery mechanisms, packaging upgrades, and new flavors and textures to make existing products more appealing. We are also seeing continuing interest in Rx to OTC switches, giving consumers direct access to what were previously prescription-only drugs and companies new opportunities to innovate by bringing new products and sometimes entire new categories into the OTC arena.
Healthy living a boon for OTC
As consumers around the world seek to embrace heathier lifestyles, we are also seeing momentum in the preventive health and wellness categories. This trend further fuels category growth as many of these products can be used more frequently — i.e., daily vitamins, lotions, nutritional or beauty aids — as opposed to point-in-time response to a specific healthcare event.
Although these products aren’t pharmaceuticals, they do promise health benefits, which has resulted in new transversal market segments, such as “Nutraceuticals” and “Cosmeceuticals.” These emerging categories are blurring the boundaries between consumer and pharmaceutical products, forcing both sides to rethink their commercial and product development strategies to take advantage of these fast growing market segments.
While pharma companies may be adept at navigating the regulatory environment when making product health claims, they may be less agile in marketing products in direct-to-consumer environments. In these channels, ‘moms’ make most of the buying decisions, and they base their choices on information gathered from advertising, promotion, social media, and their peers, as well as from healthcare professionals. Pharma companies operating in the OTC market are also facing a much larger pool of competitors including highly savvy marketers such as consumer goods companies like Unilever, Danone and Proctor & Gamble in addition to their pharma peers.
To succeed in this space, pharma consumer health divisions need to develop superior marketing strategies that communicate aspirational product messages, using language and imagery that engages this buying group across multiple channels, reflecting their organic decision-making processes. Many pharma companies are now hiring experts from consumer goods industries to fill these knowledge gaps and to help craft strategies that will appeal to the wellness product shopper. As the category and competition continues to grow, we expect to see heightened innovation across the product development, supply chain, and marketing strategies they use to engage consumers, provide a better consumer experience, and maintain a competitive edge.