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L'OREAL, REVLON COULD EMERGE AMONG TOP OTC FIRMS WORLDWIDE BY 1995, EUROPEAN OBSERVER TELLS NDMA; P&G EXPECTED TO GROW TO 15% SHARE OF OTC MARKET

Executive Summary

Cosmetic firms L'Oreal and Revlon could emerge among the top OTC firms worldwide by 1995, Nicholas Hall & Company Publisher Nicholas Hall told the Nonprescription Drug Manufacturers Association annual meeting May 5-9. "I think you're going to see a lot more of L'Oreal both by acquisition and also by organic growth," Hall said. "It's a great company on that cuspal area between OTC and cosmetics." Revlon will be a big player "because they can't go very much further in the cosmetics field. They've got to diversify, and OTC is the next logical field," Hall added. Revlon previously participated in the OTC business through its Norcliff-Thayer subsidiary (Tums, Oxy-5, etc.). That OTC business was sold to Beecham in 1985 to help pay off the debt from Ronald Perelman's leveraged purchase of the business. Norcliff Thayer had been a strong, smaller part of Revlon prior to the sale. The current Revlon management may have a good taste for the segment from its previous experience. Recent consolidations are creating a large pool of execs with substantial experience in the OTC business who could be recruited by firms seeking to move into the business. The outgoing head of SmithKline Beecham's U.S. business, Charles Pergola, is an example of that talent pool. Pergola headed Norcliff Thayer under Revlon, took it into Beecham and then was put in charge of merging the SmithKline consumer franchise into the Beecham U.S. operations. Procter & Gamble will have the largest worldwide OTC market share in five years, Hall predicted. "I think Procter will have a 15% share of [the worldwide OTC market] by 1995," he said, adding that revenues generated by its OTC sales will reach $6 bil. He estimated that the firm will allot a $2 bil. advertising and promotional budget exclusively for OTC products. Going further out on a limb, he predicted: "OTCs will be Procter's biggest business class by 1995." He said: "I think [Procter] has OTCs marked as the next market that it's going to take over." In a discussion of the $22 bil. worldwide OTC market, Hall said that eight companies combined now hold a 25% share: American Home Products, Bayer, Bristol-Myers Squibb, Johnson & Johnson, Procter & Gamble, SmithKline Beecham, Sterling and Warner-Lambert. By 1995, he predicted these firms will comprise 50% of a $40 bil. global OTC market. Unilever is perched on the fringe, Hall maintained. Unilever "has set up a business development group to monitor the OTC industry. It is now only a question of when, not if, that company launches into OTCs." The company has "a war chest of about $5 bil. just waiting to make some acquisition," he said. Henkel is another company with a large acquisition pot which could be directed to OTCs, according to Hall. Colgate Palmolive has already begun developing a promising OTC business, Hall remarked, refering to the company's test marketing program in Peoria and Dallas of a line of OTCs under the Colgate label. The company also has purchased the Vipont oral care business and is expanding that franchise into smoking deterrents. Hall also saw a logical step for Nestle from dietary supplements "into cough-cold, analgesics" and other OTC products. Commenting on the future role of Shiseido in the worldwide OTC market, Hall predicted that when the company "really muscles into the international market, they'll become possibly number one in cosmetics, and then they'll go beyond that" to other markets such as OTCs. The firm is now third or fourth in the world cosmetics market, Hall said, even though 95% of sales is domestic in Japan. Hall expects that OTC sales in Europe will double from $4.2 bil. in 1989 to $9.5 bil. in 1995. One force driving this growth is "delisting," in which a drug is not covered under a country's socialized medical plan. Delisting "shifts the burden of medical care from the taxpayer to the consumer" and encourages OTC growth, he noted. Deregulation will also encourage sales as more OTC switches are approved; however, when hydrocortisone went OTC in the UK, Hall pointed out, 45 brands were launched, generating a total of $3 mil. in sales. The following year, 43 of those brands came off the market. On the other hand, Hall predicted that if Upjohn's Rogaine goes OTC, the product will generate $500 mil. in annual sales internationally.(ITEM 150)EDITORS' NOTE: On May 10, P&G announced a restructuring of the management of its OTC operations. See story p. 16.
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