OTC Industry Consolidation Opening Doors for Small Players.

LITTLE FALLS, N.J. -- Sales of nonprescription drugs in the U.S. grew by only 3 percent in 2005, but this did little to slow the increasing dominance of some of the biggest players in the OTC market. According a study released yesterday by market research firm Kline & Co., the recent flurry of mergers and acquisitions has put more than half of the total sales volume into the hands of just 10 manufacturers.

"Drug manufacturers are seeking big consolidation deals and seem to be following in the footsteps of the major drug retailers like Rite Aid, which acquired Brooks and Eckerd last week," said Laura Mahecha, industry manager of the Healthcare practice for Kline's research division. "The drug companies are playing catch-up to the retailers by growing their portfolios in order to better serve the larger retailers."

Johnson & Johnson is currently in the process of acquiring Pfizer's OTC division. If the deal goes through, J&J's share of the market could approach 20 percent, but J&J will likely have to divest more than a few brands in order to gain the approval of regulators. Mahecha said these divestitures could mean golden opportunities for smaller manufacturers.

"For smaller and mid-sized companies, this is a great chance to add big-name brands to their product mix at fair prices, as the major players divest brands in order to gain merger approval," Mahecha said.

Kline's study, Nonprescription Drugs USA 2005, tracks industry trends and provides manufacturers' sales data, company, and brand profiles, as well as advertising spending information. The study also provides forecasts for both market performance and expected Rx-to-OTC switches, another significant driver in the OTC market.

"The FDA's approval of Barr Pharmaceuticals' Plan B emergency contraception for OTC sale will likely have a significant impact on sales in the feminine products category, which has already seen some gains in the last year, but other, less controversial Rx-to-OTC switches could also boost the market," Mahecha said. "Part of the J&J merger includes OTC rights to Zyrtec from Pfizer, and GlaxoSmithKline already has OTC rights to Roche's Xenical anti-obesity drug, which could be a real groundbreaking event if the switch is approved."

The study analyzes 35 product categories and 14 leading suppliers of OTC medications to the U.S. market, and provides brand and segment sales data through all consumer outlets, including drug stores, food stores, mass merchandisers, convenience stores, health food stores, mail order, and the Internet.
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