In March 2011, Teva and Proctor & Gamble announced a new OTC joint venture to be called PGT Healthcare. According to Teva CEO Shlomo Yanai, this partnership created one of the broadest product portfolios and geographic footprints in the OTC industry, and it represents a transformational new model that has the potential to reshape the entire global OTC market. So the question becomes, what is so potentially transformational about this new venture
On the face of it, the new joint venture will merge the respective OTC businesses of Teva and Procter & Gamble outside of North America to create a combined business that will start with about $1.3 billion in sales with plans to grow those sales to more than $4 billion towards the end of the decade. The joint venture will strengthen both companies positions in consumer healthcare markets and foster prescription drug-to-OTC switches both are market sectors that are important in emerging markets where many people cannot afford brand drugs.
But consolidating these two OTC businesses to create a mega-business does not make this deal transformational. Megamergers and consolidation within the pharmaceutical industry, for example, have not produced huge synergies or major improvements in pipeline productivity. So what is much more intriguing about the PTC Healthcare joint venture than its scale or geographic reach
The answer revolves around Teva and Proctor & Gamble's ability to maximally exploit each company's sales channels in emerging markets. In September 2011, CEO Yanai told investors that Proctor & Gamble was a leading player with strong brand recognition and loyalty in the fast growing emerging markets of Brazil and India but Teva had only a minimal presence in those two countries. Yanai explained that the joint venture would enable both companies to reach more customers in these markets: Teva will bring to the joint venture our very strong market reach with pharmacies. P&G will bring its strong relationships on retail and consumer side. We will be able to leverage P&G's channels and sell Teva's products in retail stores, and we will leverage Teva's channels by selling P&G's products in pharmacies.
If successful, this new sales channels strategy could indeed make the OTC-pharmaceutical partnership model a visionary one because as the partnership evolves, Teva will have the opportunity to push all of its products (brands, branded generics, generics, biosimilars, and OTC products) across multiple sales channels to more effectively penetrate emerging markets with its whole portfolio of products.
Exploiting OTC sales channels represents a complementary strategy to the branded generics strategy that many Big Pharma companies are now adopting to better access and penetrate emerging markets. These companies are inlicensing generics in order to create portfolios of branded generics for sale in emerging markets. The ability to be able to sell a portfolio of innovative brands and branded generics in emerging markets is expected to reach a greater number of patients because of their differing abilities to pay for drugs.
Teva seems to be leveraging this market access and expansion strategy to also include OTC products and OTC sales channels in emerging markets, which has the potential to reach even more patients. In emerging markets, product and company brand perception is keenly important and combining the brand and advertising strengths of an OTC company with a pharmaceutical company's pipeline does add another dimension to how to maximize market access in emerging markets and get your drugs into the hands of more patients.
So is there any other dealmaking activity in the industry that involves forming a partnership between an OTC company and a pharmaceutical company to further penetrate an emerging market. One such deal in 2011 comes to mind: the Aurospharma joint venture between Aurobindo Pharma of India and CJSC Ofifen (a Diod pharmaceutical company in Russia) that will manufacture and sell both non-penicillin and non-cephalosporin generics and OTC products in Belarus, Kazakhstan, and Russia. The question for many Big Pharma companies now becomes whether they have the ability (or interest) to further diversify along the OTC vector through a partnership or whether their resources are already too thinly spread in emerging markets along generics, biosimilars, or branded generics vectors to take advantage of this new strategy.