Glaxo In Charge, And The World Is GSK/Novartis Consumer Product JV’s Oyster

GSK Consumer Healthcare not only is the name of Glaxo/Novartis JV, but also the brand being added to Novartis’ OTC products. The JV will access OTC switch opportunities across the Rx portfolios of both Glaxo and Novartis in addition to external partners, says Americas/Europe head Brian McNamara.

The operation of GlaxoSmithKline PLC and Novartis AG’s consumer health products joint venture leaves little doubt that Glaxo has the majority stake, with a chance to acquire full control, and leading in overall global sales is the JV’s goal.

Global headquarters for GSK Consumer Healthcare LP, the JV officially launched in May, are in the U.K., Glaxo’s corporate home, and its U.S. headquarters in 2016 will be consolidated from multiple locations to the Parsippany, N.J., area, Glaxo’s U.S. base.

GSK Consumer Healthcare not only is the name of the business, but also the brand replacing Novartis’ brand on its OTC products the JV is manufacturing and marketing. [See Deal]

“Our plan is to add the GSK Consumer Healthcare brand to legacy Novartis OTC product packaging,” says Brian McNamara, the JV’s OTC chief for the Americas and Europe.

“‘Innovation’ can’t only mean ‘switch.’ We also have to be careful as a manufacturer not to confuse ‘proliferation’ with ‘innovation’, and to stay committed to investing in big, breakthrough ideas that drive real value for consumers.” – GSK Consumer Healthcare Americas/Europe Regional Head Brian McNamara

OTC brands the JV markets include GSK’s Gaviscon (aluminum hydroxide; magnesium trisilicate) heartburn treatment, Nicorette (nicotine polacrilex) nicotine replacement therapy and Tums antacid; and Novartis’ Prevacid 24HR (lansoprazole) heartburn treatment, Triaminic (chlorpheniramine and phenylpropanolamine) allergy and cold relievers and Lamisil (terbinafine) antifungal cream.

The brands, not the JV name, will be the focus of advertising. “GSK Consumer Healthcare does not have any non-brand advertising currently planned,” McNamara said in an email answering questions submitted by “The Tan Sheet.”

McNamara moved from heading Novartis' global OTC operations to GSK Consumer Healthcare in October 2014 (Also see "Executive Decisions Roundup" - Pink Sheet, 14 Oct, 2014.).

The CEO is Emma Walmsley, who had been Glaxo’s global consumer chief since 2011 before taking the helm when the JV was announced in April 2014. Walmsley and Glaxo CEO Andrew Witty are two of the firm’s seven members on the JV’s 11-member board (Also see "Glaxo And Novartis Scratch Each Other’s Back With Consumer Product JV" - Pink Sheet, 23 Apr, 2014.).

Brian McNamara, GSK Consumer Healthcare LP region head for the Americas and Europe

Courtesy of GSK Consumer Healthcare

GSK has 63.5% control and Novartis 36.5% in a split that reflects each firm’s proportional contributions to the arrangement. Novartis has an exit strategy, if needed, as the minority partner. A 20-year put option allows it to sell its share after three years.

The Swiss firm’s recent history in the consumer product market before the JV agreement could be seen as foreshadowing it taking the minority role in the operation. Investors had suggested divesting the OTC business for several years as Novartis’ consumer business stumbled, with sales of Excedrin (acetaminophen) and other products slowing behind other brands and private label products.

The primary stumbling block was manufacturing problems at its Lincoln, Neb., facility that led to recalls of Excedrin and other brands and prompted Novartis to temporarily cease making OTCs at the site.

Glaxo, on the other hand, for several years had tinkered with its consumer business attempting to turn around slumping overall sales. It jettisoned numerous brands to focus on stronger lines, but could not find a buyer for its alli (orlistat) OTC weight loss product.

Combine To Conquer

The combination of the GSK’s and Novartis’ consumer businesses created a $10 billion global operation, including $2 billion sales in North America. It is “one of the world’s largest, and a leading player in over-the-counter medications and specialist oral care globally,” McNamara said.

Market analysts see the JV as No. 1 globally in OTC sales, but second in the wider consumer health category behind Johnson & Johnson. Analysts forecast that Glaxo products will account for 72%, or $7.4 billion, of the JV’s total annual sales.

GSK Consumer Healthcare sees a global market of opportunity to become the top consumer health product marketer, with products sold in more than 160 countries. McNamara said the JV is the top OTC seller in 36 markets and in the top three in nearly 60 others.

“The U.S. is a priority market … and we expect it to be a strong growth driver for the new company along with markets like Germany, Italy and the U.K. We also have strong presence in Central and Eastern Europe and in emerging priority markets like Russia and Brazil, which represent a little less than half of our sales,” he said.

Additionally, combining Glaxo’s and Novartis’ distribution footprints “enables GSK Consumer Healthcare to expand its presence in markets where we may not have had as strong a presence with the legacy companies,” he said.

‘Innovation’ More Than Switches

The JV launched with a focus on seven “power” brands to drive growth. Alli is not among them, but could be one of the 12 yet-to-be-announced “core” brands the JV will develop regionally.

Rx-to-OTC switches, which Walmsley said the JV targets to accomplish “every five years,” also are a pillar of the GSK Consumer Healthcare’s outlook (Also see "Glaxo/Novartis JV Wields ‘Power’ Brands, Switches To Spearhead Global Growth" - Pink Sheet, 11 May, 2015.).

McNamara noted Glaxo’s launch earlier in 2015 of the Flonase Allergy Relief (fluticasone ) nasal spray as an example of “a successful track record of Rx-to-OTC switches in the U.S. market” (Also see "Flonase Allergy Relief Exclusivity Sliced Up By Label Carve-Out" - Pink Sheet, 10 Feb, 2015.).

The JV will access switch opportunities across the Rx portfolios of both Glaxo and Novartis in addition to external partners, he said, but declined to identify potential candidate ingredients.

Switches, however, are not the JV’s only source for new products, McNamara said.

“There is clearly a consumer need for new, differentiated solutions for everyday health issues. And driving truly differentiated, consumer-focused innovation means going beyond Rx-to-OTC switches. ‘Innovation’ can’t only mean ‘switch.’ We also have to be careful as a manufacturer not to confuse ‘proliferation’ with ‘innovation’, and to stay committed to investing in big, breakthrough ideas that drive real value for consumers.”

The firms divested more than 10 brands to comply with European and U.S. regulators’ antitrust concerns in the JV. Glaxo and Novartis on June 2 sold brands including Glaxo’s NiQuitin nicotine replacement therapy and Panodil pain relief lines available in Europe and Novartis’ cold sore management products marketed in Europe and Turkey under brands including Vectavir and Pencivir (Also see "Perrigo Adds Planks To Brand Platform With GSK, Novartis International OTCs" - Pink Sheet, 3 Jun, 2015.),.

In November 2014, Novartis sold its Habitrol nicotine replacement therapy patch brand to Dr. Reddy's Laboratories Ltd. after the Federal Trade Commission pointed out the JV, also with Glaxo’s Nicoderm CQ, would own the only two branded nicotine patches available in the U.S. (Also see "Industry Roundup: FPLA changes; Nutroganics in soy market; spiked product, supplement-beverage warnings; Kamil chairs CRN" - Pink Sheet, 22 Jan, 2015.).