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WARNER-WELLCOME CONSUMER HEALTH PRODUCTS' $ 1.6 BIL. WORLDWIDE BUSINESS

This article was originally published in The Tan Sheet

Executive Summary

WARNER-WELLCOME CONSUMER HEALTH PRODUCTS' $ 1.6 BIL. WORLDWIDE BUSINESS melds all current and future over-the-counter products of Warner-Lambert and Burroughs Wellcome, including possible OTC versions of the prescription anti-viral Zovirax (acyclovir) (see story, p. 5). The letter-of-intent agreement, announced July 28, creates the third largest OTC drug business in the world, with a panoply of major brands including Benadryl, Benylin, Sinutab, Efferdent, e.p.t., Listerine, Cool Mint Listerine and Lubriderm from Warner-Lambert; and Burroughs Wellcome's Actifed, Sudafed, Neosporin and Nix. (See chart for a complete listing of products to be marketed by Warner-Wellcome Consumer Health Products). Warner-Wellcome also will sell an OTC version of Glaxo's Rx anti-ulcer remedy Zantac, if approved by FDA, under a separate joint venture agreement between Glaxo and Warner-Lambert that is at the letter-of-intent stage (see following story). At a July 28 presentation to securities analysts in New York City, Warner-Lambert Chairman Melvin Goodes said that "in terms of fiscal year 1992 pro-forma sales, the Warner-Wellcome joint venture would rank as a global leader with revenue of approximately $ 1.6 bil. This would place the joint venture in the top three OTC companies in world" after Johnson & Johnson and American Home Products. Warner-Lambert Consumer Products Sector President John Walsh added that "as this company takes shape, it will start its life as one of the world's largest providers of over-the-counter pharmaceuticals." A governing board comprised of three Wellcome representatives and four Warner-Lambert reps will oversee the new entity, which the two companies expect will be operational as an integrated business by January 1994. Warner-Lambert will manage day-to-day operations of Warner-Wellcome. Initial efforts for the new alliance will be concentrated in the U.S., Canada and Europe. A long-term goal is the "complete integration of [the firms'] worldwide OTC businesses," W-L said. Warner-Lambert will receive approximately 70% and Wellcome plc approximately 30% of the profit generated by Warner-Wellcome Consumer Health in the U.S. After start-up adjustments, the firms will share profits in the remainder of the world on "an approximately equal basis." Financial terms of the agreement were not disclosed. Explaining the structure of the new business entity, Goodes told the analysts that "it is not going to require any major capital expenditures" and will "not create a whole new extensive bureaucratic business outside our core business. We will take the Wellcome people into our consumer healthcare business." Walsh also noted that the OTC sales forces of the two companies would be merged under Warner-Wellcome Consumer Health. At present, W-L has over 600 sales reps in the U.S. while Burroughs Wellcome has 25 direct sales reps and a broker network of over 500. Walsh said that Warner-Wellcome may expand its sales force as new products are launched. For Rx-to-OTC switch products, the originator company will "retain the majority of the resulting profit" in the U.S. W-L emphasized that "the profit arrangements are such that the alliance will not be dilutive to either partner on an operating income basis." Wellcome's worldwide OTC sales in fiscal 1992 (ended Aug. 29) were about $ 430 mil. ((BRITISH POUND) 237). Presumably, 1992 sales of the Warner-Lambert OTCs covered in the joint venture agreement were over $ 1 bil. Warner-Lambert's 1992 annual report notes that its consumer products segment generated sales of $ 2.1 bil. worldwide and $ 1.1 bil. in the U.S. The segment sales figure also includes contributions from Halls, Schick shaving products and Tetra pet care products, which are not covered in the Wellcome pact. Warner-Lambert's OTC business accounts for 38% of the firm's total sales. Prescription drugs and confectioneries contribute 41% and 21% of W-L sales, respectively. Walsh observed at the analysts meeting that one of W-L's "bedrock strengths lies in the oral care category," which makes up "the largest segment of the combined OTC sales for the two companies." Warner-Lambert's Listerine and Cool Mint Listerine mouthwashes, for example, generated sales of $ 272 mil. in the U.S. in 1992. The "upper respiratory tract" category "comes in a close second," Walsh continued, with Burroughs Wellcome's Sudafed and Actifed and W-L's Benadryl and Sinutab. In 1992, Benadryl alone accounted for $ 112 mil. in U.S. sales. According to Burroughs Wellcome figures, Sudafed products brought in $ 149.2 mil. worldwide, while Actifed product sales amounted to $ 87.4 mil. globally. Skin care products also will be a significant category for Warner-Wellcome, Walsh predicted, with Warner-Lambert contributing Lubriderm skin moisturizer and Caladryl topical calamine- antihistamine, and Wellcome offering the Neosporin and Polysporin first aid products. Burroughs Wellcome tabulated that its topical antibacterials category, including Polysporin, Neosporin and a few other products sold only overseas, contributed about $ 75 mil. in worldwide sales. U.S. sales of Lubriderm in 1992 were $ 81 mil., W-L noted. Among other Burroughs Wellcome products, Nix head lice treatment provided $ 23.7 mil. in worldwide sales, and Calpol children's analgesic suspension sales were $ 25.5 mil. worldwide. Commenting generally on the proposed formation of Warner- Wellcome as well as the joint venture agreement with Glaxo, Goodes noted that both deals "in the aggregate . . . have the potential of adding hundreds of millions of dollars to our annual sales line." Warner-Lambert is "completely committed to a growth strategy that recognizes the value of alliance-formation as a vehicle for growth," Goodes declared. The W-L exec indicated that Warner- Lambert would be willing to strike similar alliances with other companies. Warner-Lambert has been aggressive in building its OTC and consumer products business over the past year. In recent months, the company acquired Fisons' consumer health products in Australia and New Zealand ("The TanSheet" July 5, In Brief), purchased Wilkinson Sword's worldwide wet shave business, formed a research- based alliance with French drug firm Jouveinal, and acquired the Italian confectionery company SME SpA. Goodes also pointed out that "beyond the bare bones of these joint ventures, today's announcements also tend to underline the basic strategies we enunciated for Warner-Lambert two years ago when I became CEO." The three "elemental goals" of Warner-Lambert, Goodes recapped, are to "sell our current product line with even greater intensity, particularly in markets where they're not yet represented"; to approach new product development "with a higher sense of urgency"; and adopt a "greater reliance on external growth opportunities" such as alliances with other firms. At a March meeting with securities analysts, Burroughs Wellcome President and CEO Philip Tracy stated that lagging sales in the firm's OTC business "again points to the desirability of exploring some sort of strategic alliance in order to get ourselves much greater critical mass in this important market" ("The Tan Sheet" March 29, p. 1). Chart omitted.
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