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SMITHKLINE BEECHAM's OTC DRUG BUSINESS IS A "BET ON THE FUTURE"

This article was originally published in The Tan Sheet

Executive Summary

SMITHKLINE BEECHAM's OTC DRUG BUSINESS IS A "BET ON THE FUTURE" based on cost-containment trends that are occurring around the world, SmithKline Beecham CEO Robert Bauman explained to securities analysts at Alex. Brown's annual health care investment conference in Baltimore on May 11. However, Bauman conceded, "the [business] trends right now do not support our extreme optimism." The SmithKline Beecham chief exec was asked during Q&A why prescription drug firms continue "to think that OTCs are a great idea" when nonprescription sales growth and profits margins lag behind those of prescription drugs. "If you look [at the] desire everywhere in the world to contain health care costs," Bauman explained, "one of the ways to do that is to take medicines out of prescription" status "and move them over-the-counter." Observing that a trend of Rx-to-OTC switches "is going on now in Europe," the SmithKline CEO declared: "We think that trend is going to happen [worldwide] and we think we are on the verge of health care's big story." Bauman also predicted that OTC businesses will "be an important and successful vision," basically because "people like to self-medicate." Illustrating this point, Bauman noted that "of the 10 top [selling] OTC medicines in the U.S. today, nine of them came from switches from Rx-to-OTC." Of those nine, he continued, "every one of them has more sales . . . as an OTC medicine than [it] had as an Rx prescription medicine." Bauman concluded: "Yes, we are betting on some of that optimism" that the OTC market will grow, but "it's not going to happen overnight." SmithKline Beecham recently announced management changes in anticipation of the retirement of Bauman ("The Tan Sheet" May 3, In Brief). Along with SmithKline Beecham Chairman Henry Wendt, Bauman is expected to leave the firm in April 1994.
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