The consumer health market has been in flux for some time. While Big Pharma is gradually bidding farewell to the business of vitamin pills and cold remedies, major consumer goods conglomerates are establishing themselves in this space. Of the major pharmaceutical manufacturers that have dominated the over-the-counter (OTC) medication market for years, only Bayer and Sanofi remain.

And it appears that Bayer will soon be alone. Sanofi announced last October that it is splitting off the consumer health division. The transaction is expected to be completed no earlier than the fourth quarter of this year, with the most likely exit route being a separate listing for the division. Sanofi already began the transformation in 2019, after exchanging its animal health business for the over-the-counter medication and health preparations business of Boehringer Ingelheim.

Strategically, Sanofi's planned spin-off follows the approach of GlaxoSmithKline (GSK) and Johnson & Johnson, which demerged their respective consumer health businesses under the pseudonyms Haleon (2022) and Kenvue (2023). The idea was to channel all company energies and financial resources into the development of new drugs. While this entails enormous costs, success can lead to significantly higher margins. Bayer, on the other hand, clarified in March that it intends to maintain its corporate structure, with segments in Crop Science, Pharma, and Consumer Health for the foreseeable future. Going against the industry trend is a tradition in Leverkusen. Even the chemicals division was only fully separated in 2015.

The withdrawal of research-based pharmaceutical companies from the over-the-counter (OTC) medication market and similar sectors has a number of causes. In addition to the limited financial resources for which the various divisions in integrated healthcare conglomerates must compete, changing market conditions also play a role. Particularly in the consumer health business, marketing skills and the ability to build brands are in demand, representing the classic competencies of branded goods manufacturers.

Conversely, the pharmaceutical industry's increasing focus on specialty therapy areas is expected to lead over time to a thinning of the pipeline supplying the OTC portfolio. While there will continue to be transitions from prescription to over-the-counter medications, these do not necessarily have to come from a parent company.

The consumer health business remains attractive. Global sales in the OTC business alone amounted to 192 billion dollars last year. According to Statista, the global market volume is expected to increase to 256 billion dollars by 2029. In addition to demographic changes – older people buy health products more frequently – health consciousness among younger consumers has grown in recent years. At the same time, government healthcare systems in many places have reached their limits, reinforcing the trend towards self-medication.

In addition to relatively high growth rates of 4 to 5% annually, the market also offers considerable M&A potential. According to a study by J.P. Morgan, which includes OTC and vitamin/mineral segments under Consumer Health, the top ten companies in the industry accounted for only 25% of the market in 2021. Little has changed in market share distribution since then.

This may be surprising, given the numerous M&A transactions over the past two decades. But these transactions did not lead to major shifts in the overall market. Looking specifically at the OTC segment, however, there is a higher level of concentration. This is also due to the fact that the business is heavily regulated, and pharmacies, at least in Europe, are the most important distribution channel. Vitamins and dietary supplements, on the other hand, are sold through drugstores, supermarkets, and increasingly through e-commerce.

Although delineating the market is challenging, categories such as cold & flu, gastrointestinal, skin, and pain medications are considered classic OTC categories, with oral hygiene occasionally included. According to J.P. Morgan, Haleon, Bayer, Sanofi, and Reckitt have the widest product ranges. Market leader Haleon, which GSK took public in June 2022, has perhaps the most remarkable history of all. The starting point was a complex transaction between Novartis and GSK in 2015. The British sold their oncology business to the Swiss, who in turn brought their OTC business into a joint venture with GSK.

Three years later, Novartis withdrew from the joint venture, shortly before GSK welcomed Pfizer as its new venture partner. In the summer of 2022, the Americans used the IPO to sell their stake, while GSK distributed the bulk of its Haleon shares to its own shareholders. The Haleon history is also instructive in another respect. Instead of going public, GSK could have sold the division to Unilever, which bid 50 billion pounds. But it rejected the offer. Nestlé and Reckitt also briefly considered making a joint bid. Currently, Haleon has a market value of around 30 billion pounds.