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Consumer Health: An End-of-Year Review of 2015 Performance to Advance Market Strategy in 2016 and Beyond

December 9th, 2015

For the remainder of 2015 the market prospects for the consumer health industry reveal an optimistic outlook that will support future growth in spite of recent global economic turbulence due to the weakening of the darling economies of Brazil, China and Russia.

After all, people still need to take medicines when sick, or in any case, take supplements for preventive purposes no matter the state of the economy. Euromonitor International’s earliest market estimates for 2015 reveal that the industry is growing at a pace of 3% in constant/real terms, almost a 0.25 percentage point above from the previous year. This is very good news. The industry is expected to reach an estimated retail value of US$211 billion in 2015, with a potential cumulative average growth rate (CAGR) of 3.0% in the forecast period of 2015-2020.

When compared to other fast moving consumer goods (FMCG) industries, consumer health continues to perform very well. This trend confirms the importance of the industry as a key driver that is influencing consumer behaviour.

Chart – Retail Value Growth Comparison for Selected FMCG Industries: 2010-2015

retail-value-growth-fmcg-comparison

Source: Euromonitor International

Note:  2015 data for beauty and personal care, and tissue and hygiene is forecast only, not yet researched

Only seven consumer health categories are generating 80.0% of global retail value in 2015, where nutritional products such as sports protein products, dietary supplements and vitamins keep growing at the fastest rates of 8.3%, 3.8% and 2.7%, respectively.

Chart – Top Consumer Health Categories – Retail Value Performance: 2010-2015

top-consumer-health-categories-2015

Source: Euromonitor International

Note:  VDS stands for vitamins and dietary supplements

The new power of generics companies is reshaping the competitive landscape

Beginning 2014 the industry has been inundated with announcements of mergers, acquisitions, joint ventures and business alliances. Industry consolidation remains a strong trend, where generic pharmaceutical powerhouses aim to expand operations by acquiring or joining successful branded firms. In March 2015 generics drug company Actavis acquired branded player Allergan and adopted the Allergan name. In July 2015 Teva Pharmaceutical Industries, another giant in generics, announced the US$40 billion acquisition of Allergan’s generics business. Most of Allergan’s over-the-counter (OTC) generic drugs sold in international markets, except eye care, are to be transferred to Teva Pharmaceutical Industries in 2016. Teva owns 49% of PGT Healthcare, the ambitious joint venture between Teva and Procter & Gamble established in 2011. On top of all this activity, Pfizer announced the impressive US$160 billion acquisition of Allergan on 24 November 2015, and that has spurred plenty of controversy, especially since Pfizer is expected to benefit from a favourable tax base in Ireland also known as tax inversion. Although the transaction does not seem to have a major impact on Pfizer’s consumer health operations, it would be interesting to see if Pfizer decides to keep this business, or if it spins it off or sells it to an expansion-hungry competitor.

In another interesting corporate event, generics and private label producer Perrigo finalised the acquisition of Omega Pharma in March 2015 as a strategic move to expand rapidly in the branded European market. Perrigo moved its headquarters to Ireland in 2013 to benefit from tax inversion. The strategy of Perrigo can be summarised in three points: Quick access to a global platform, a competitive presence in Europe where OTC generics and private label may be primed to grow as branded and OTC pharmaceuticals get delisted from reimbursement programs, and lastly the opportunity to bring some of the newly-acquired Omega Pharma brands such XLS-Medical to the US. In July 2015 Perrigo announced the acquisition of German company Naturwohl Pharma GmbH, the producer of the popular Yokebe meal replacement slimming product. Expanding the sales of XLS-Medical and Yokebe in the very profitable US market may represent an interesting growth opportunity for Perrigo as the incidence and prevalence rates of overweight and obesity remain high in the population. Beginning April 2015 Perrigo became the subject of a hostile takeover by another generics pharmaceutical powerhouse, Mylan NV, but that did not materialise in November 2015. Mylan was the subject of a potential takeover bid by Teva, announced in April 2015, yet Teva dropped it in July 2015 and went for the Allergan generics business instead.

GlaxoSmithKline (GSK) and Novartis finalised their new joint venture transaction, GSK Consumer Healthcare, in March 2015. GSK owns 63.5% of the venture. In June 2015 Perrigo acquired some OTC brands from the new GSK Consumer Healthcare to solidify its presence in Europe and Brazil with key brands in nicotine replacement therapy and respiratory health.

In 2015 the top three consumer health giants – Johnson & Johnson, Bayer and GlaxoSmithKline – are in a tight and heated competition to be number one in the world. Euromonitor International’s estimates show their retail value shares at almost identical 3.7%, 3.6% and 3.5%, respectively in 2015.

Newcomers in biotech to further corporate strategy

Biotech is already influencing the next stage of growth for the industry. Benefited by big-cash venture capitalists, biotech companies are carrying out research and development not only in niche therapeutic categories or nutritionals, but also in the launch of new technologies for the benefit of corporations and the mass consumer market. From the perspective of product formulation, researchers in both academia and industry have accelerated their mutual collaboration than in previous years so as to develop and launch novel compounds, consumer health products, and packaging solutions. This is more evident as funding and grants from governmental institutions dry up to further research. While research institutions pursue funding for their discovery labs, companies seek a pay-off from their investment in research and development in the form of innovative OTC drugs and nutritional products backed with stronger science to reassure consumers on health benefits and appease regulators.

As an example, in August 2015 Procter & Gamble partnered with ClevelandLab, a spinoff operation of the prestigious Cleveland Clinic in the US, with the purpose to develop a new probiotic-based OTC drug for cardiovascular health. Similarly, in November 2015 the company signed a license agreement with Chromadex for a patented molecule of nicotinamide riboside (NR) known to have anti-ageing properties.

In other developments, start-up nutritional company Elysium Health gathered Nobel laureates, academia, health policy makers and innovative marketers to launch the supplement, Basis, which promises to optimise pathways for cell repair based on strong science. In 2015 biotech NeuroMatrix Inc, a spinoff from the Harvard-MIT Division of Health Sciences and Technology, announced the launch of Quell, an OTC wearable device that can be connected to a smartphone for safe chronic pain management via an intensive nerve stimulation technology. This is an interesting development since the long-term use of analgesics for chronic pain, even in the OTC space, has been put into question for safety. Alternatively, BiopharmX launched Violet Iodine in late 2014, a unique symptom reliever of fibrocystic breast condition (FBC) – or tenderness in breasts suffered by millions of women during the premenstrual stage.

All these innovations are a clear indication that the industry is moving toward niche therapies or targeted symptoms not yet exploited, and that could benefit millions of consumers.

The new profile of the consumer in health

A growing number of consumers suffering from metabolic syndrome are at an increased risk of developing non-communicable chronic diseases such as diabetes, cardiovascular problems and cancer. The global diabetes prevalence is expected to rise to 4% to account for 9% of the 20-79 years old population in 2020. The highest prevalence rates are expected in North America (11%), Australasia (10%) and Western Europe (10%) according to Euromonitor International. Deaths from cancer are anticipated to be the highest in Europe and Japan with an average of 267 per 100,000s population in 2020.

The global consumer expenditure on pharmaceuticals products, medical appliances and equipment is expected to increase 24% from 2015 to reach US$1.6 trillion in 2020 according to Euromonitor International. Asia Pacific, the Middle East and Africa will be the regions where consumers will generate the fastest growth on expenditure in the next five years as local populations gain wider access to pharmaceuticals and medical services.

Adults 65 years and older represent 8% of the total global population in 2015 and they will account for 13% in 2030. This demographic trend poses future socioeconomic challenges as older adults typically suffer from income loss, a higher risk of contracting diseases, and a deterioration in mental health leading to poor decisions. The number of households headed by people 60 years and older will grow an impressive 58% from 2015 to reach 321 million households in 2030. This prospect indicates that at-home self-care initiatives tailored to older adults will drive growth for the industry. For these consumers the loss of income due to limited job opportunities and the shrinking of their retirement savings will call for planned budgeting toward basic necessities, including healthcare. For the consumer health industry it means that older adults may seek savings through the use of prescription drugs covered by reimbursement programmes, or by the purchases of generic drugs, private label, or affordable brands.

The digital consumer in health

Consumer activism via social media is forcing companies to re-evaluate and change market strategies. Thanks to digital media, consumers more than ever have quick access to learn about health, review products, provide opinions, report product abuse, share experiences using the products, and spread the word about good products or deceptive marketing practices. A bad or uninformed post in social media may potentially destroy the reputation of a brand, product, or a firm. Yet more of a concern for firms is the regulatory compliance dealing with the timely reporting of adverse events. On a positive note, social media offers plenty of opportunities for building brand loyalty, product awareness, and consumer education that have helped many companies increase their visibility in recent years. This is especially the case for smaller firms with limited marketing resources. The number of internet users five years and older using a computer, smartphone, and/or tablet will reach an estimated 3.6 billion in 2020, up 24% from 2015 figures.

The adoption of wellness and preventive medicine is a strong trend in consumer behaviour. Although public health campaigns and mass media have increased the messages on healthy habits and wellness to modify consumer behaviour, it is actually the adoption of electronic health (eHealth) and mobile health (mHealth) in the form of electronic health records (EHRs) and personal health records (PHRs), respectively that is heavily influencing the most recent innovation in self-care initiatives. This trend will further the importance of the consumer health industry even more in the future. As healthcare costs are expected to increase, governments and health systems are setting up newer and more efficient healthcare delivery processes using digital platforms. This trend is happening all over the world, in both developed and emerging markets. The health of a consumer is being recorded digitally starting at the healthcare practitioner’s office via EHRs and ending at home with the use of medical devices, wearables or apps in smartphones that track and monitor the individual’s health markers as PHRs. All this data is moving to the cloud and becoming a wealth of knowledge that will help decision makers understand how health works at many different levels: Individual, genetics, delivery of care, monitoring, etc. Retail volume sales of passive wearables such as fitbit, Nike Fuel band, etc are expected to grow from 63 million units in 2015 to 108 million in 2020. Alternatively, sales of smartphones are anticipated to reach 1.2 billion units in 2015 and 1.6 billion by year-end 2020.

Consumers are becoming true owners of their health, and this is something that will cause a massive shift in the industry. Predictive analytics will help companies understand and shape behaviours in the self-care setting, thus benefiting the consumer health industry with a good potential of revenue generation via more targeted strategies, newer OTC switches candidates, and even perhaps the personalisation of products and therapies.

The empowered consumer

Concerns on the safety, quality and efficacy of products and ingredients are on the rise. Consumer education leads more people to pay attention to the formulation, labelling and marketing of products. Media celebrities, other popular personalities, and viral activists who question the origin of ingredients and the integrity of products are forcing some firms to reformulate their products so as to placate the consumer’s concern on safety and label transparency. The consumer health industry is seeing more products claiming to contain naturally-derived ingredients in their formulation so as to reduce the consumer’s concern about chemical toxicity. In fact, the research, development and application of wholesome ingredients derived from plants and other natural sources are on the rise, especially in nutritional supplements and excipients.

Non-store retailing channels help firms advance sales in a tough competitive environment

Internet retailing has catapulted since 2010 when it generated US$7 billion in retail value (current/nominal terms) and more than doubling to US$14 billion in 2015. Internet sales of vitamins and dietary supplements contributed US$3.5 billion outpacing sports nutrition, OTC drugs and weight management products by a significant margin. One of the reasons for this important growth is the fact that several smaller and niche companies are using the internet as their only platform of sales to compete against bigger players, who traditionally have a stronger presence at stores and pharmacies. Premium, domestic and niche brands are using social media, the healthcare practitioner channel and the sponsorships of local community events to create awareness of their products and to build an emotional connection while pushing consumers to order products via the internet.

Branded products, private label and OTC generics are fighting to attract consumers at the point of sales. Producers of branded products have been forced to reduce their prices and come up with very innovative promotional campaigns to effectively compete against private label and generics, whereas retailers look for additional sources of revenue by opening retail or walk-in clinics (WICs) within their premises. Although retail clinics have been available for decades in emerging markets such as India and Mexico, the rising costs in healthcare delivery are pushing developed markets in North America and Western Europe to invest in the launch of retail/walk-in clinics, or even telemedicine initiatives. Pharmacies and drugstores are becoming the extension of health systems. The retailing environment is being transformed as product innovation, the retailer’s investment in health delivery, and new digital monitoring technologies collide to create a new model of health services.

There is no doubt that 2016 is poised to become an exciting year, as the consumer health industry continues to rise as a star in self-care initiatives and the overall future of health management.

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Monica Feldman

A head of industry leader committed to delivering client focused business intelligence solutions with vast experience in corporate strategy, research, analysis, and consulting at Euromonitor and other multinational organizations. An analytical thinker who identifies market opportunities and crafts business solutions. Recent experience focused on global trends in consumer health.

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