OTC e-commerce: China

The rise of e-commerce, especially in key markets like the USA and China, as well as certain European countries such as Germany and the UK, continues to alter the dynamics of the consumer healthcare market and this is a trend we plan to monitor ever more closely here at OTC DASHBOARD over the coming years.

In addition, regulators across the world are still getting to grips with the issue. The China Food & Drug Administration has said that it is welcoming comments until 12th March 2018 on a draft regulation entitled Provisions for Supervision & Administration of Online Drug Sales. This stipulates that online sellers of medicines must be licensed pharmaceutical manufacturers, wholesalers or retailers. Manufacturers and wholesalers must not sell medicines to individual consumers and retailers must not sell Rx or controlled medicines online (legalising the online sale of Rx drugs has previously been considered in China).

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The platforms through which online medicines are sold must also adhere to and assist with product recalls where there are safety or quality issues. The regulation also stipulates that the CFDA will develop a national online medicine surveillance system and supply details of violations to provincial authorities, which will investigate and enforce any follow-up action.

Given the popularity of smartphones in China, and the rise of mobile payments and online shopping sites like Tmall (Alibaba) and Taobao and social media platforms like WeChat, it has become ever more difficult for regulators to monitor the online sale of medicines. This also presents a challenge for those trying to gauge the true size of the OTC e-commerce sector in China, but all indications point to this being a fast-growing channel that can no longer be ignored.

Embark on The Evolving Consumer Journey at our 5th Asia-Pacific OTC Conference & OTC Academy Training Workshop! Held in Singapore on 17-18 October 2018, this meeting aims to help guide you through this complex and ever-changing landscape. The half-day workshop will take a look at Inspiring Self-Care. Book before 15 August to take advantage of our early bird rates! Please contact maricar.montero@NicholasHall.com to book your place today or for more information. 

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Chinese investment in Africa

One business book from my Christmas list that I’ve just finished reading is The Next Factory of the World: How Chinese Investment Is Reshaping Africa, by McKinsey consultant Irene Yuan Sun. This book highlights in great detail a trend that is noticeable across several industries, including pharmaceuticals – fast-growing investment in Africa by Asia-Pacific marketers. China is leading the way, especially in terms of expanding Africa’s manufacturing base, but there is a wider trend (encompassing OTCs) of companies across Asia-Pacific looking for growth opportunities in Africa.

Irene Yuan Sun’s book highlights two important economic fundamentals:

1) Over the past quarter century, China has gone from generating 2% of global GDP output to 25%
2) Over the next decade, 8 out of the 10 fastest-growing economies are projected to be on the African continent

The author makes the case that, from the start of the Industrial Revolution in Britain in the 18th century, economic prosperity has always followed where new factories are built. Citing the theory of the flying geese paradigm (see video below), the book examines how manufacturing shifts across countries and continents, as labour costs rise and competitiveness falls. Today, it is China that has reached this inflection point and it is Chinese entrepreneurs that are driving business investment in Africa.

Focusing on four countries (Nigeria, Lesotho, Kenya and Ethiopia), the book is structured in two main parts: the first about the reality of these factories being built, and the second about the economic, political and social possibilities. The author points to the irony that, despite high demand across the continent for certain drugs, notably antiretrovirals, Africa’s pharmaceutical firms are small and in some cases on the verge of collapse.

In Ethiopia (population: 100mn), there are just 9 pharmaceutical manufacturers, while Germany (population: 81mn) has nearly a 1,000 pharma manufacturers. With the exception of South Africa, Kenya and Nigeria, most African countries have no more than a handful of manufacturers. Kenya is the standard bearer in East Africa (40 factories, but generally of low quality), while Nigeria has about 40 too, the leading number in West Africa, but again few meet GMP standards.

There are reasons to be positive, however. South Africa, Kenya (national plan to encourage domestic production) and Ethiopia (similar plan) are all taking steps to revive pharma manufacturing in their countries. A few years ago, GSK showed showed interest in building a local manufacturing plant in Ethiopia, but after two years of deliberation the company decided not to go ahead. This is leaving a space that Chinese pharma companies appear more willing to fill. For example, in 2016 Humanwell decided to invest US$80mn in a manufacturing facility near Ethiopia’s capital, Addis Ababa.

Having seen rapid economic transformation in their own country with their own eyes, Chinese entrepreneurs are perhaps better placed to recognise the potential for similar change in Africa.

Next week on the blog, we’ll take a closer look at how several Asia-Pacific OTC marketers are looking to expand their operations across the African continent.

OTC DASHBOARD remains your best port of call for the latest consumer healthcare trends in the Middle East & Africa. In the coming months, we will be updating our reports on 11 countries across the region, including Nigeria and South Africa. 

Q3 2017: Global OTC growth stays at 4.7%

According to the latest figures published by Nicholas Hall’s global OTC sales database DB6, the OTC market maintained 4.6% growth in MAT Q3 2017. Commenting on the results, DB6 VP Celine Waller said: “Russia remained the fastest-growing leading market, though its growth slowed slightly compared to MAT Q2 2017 (+17.3%). Brazil and Turkey (+13.1%) also both achieved double-digit growth. Growth in the US increased marginally, with an improved performance in cough & cold offset by continued weakness in gastrointestinals and dermatologicals. France and Australia (-0.7%) remained in decline – France owing to the poor performance of the large OTx sector and reverse switch of some cough ingredients, and Australia driven by a slowdown in demand from Chinese consumers buying VMS products for resale in China (daigou or ‘suitcase entrepreneurs’).”

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Though OTC growth remains high in many of the Emerging Markets, the established markets of North America, Japan (+0.6%) and western Europe – notably Germany (+1.8%), France (-1.2%), Italy (+2.0) and UK (+1.7%) – remain relatively flat. Innovative Rx-to-OTC switches, such as the UK MHRA’s recent approval of the POM-to-P reclassification of Viagra Connect, or the emergence of new OTC categories, such as e-cigarettes or medical cannabis, offer the most promising route back to growth for many of these established OTC markets.

Nicholas Hall said: “Q3 data confirms 4.6% as the baseline for CHC growth, and frankly it’s not good enough!! Only the sleepiest or most risk-averse companies will accept competing in a market where growth is only modestly ahead of inflation + higher population. That is why the first serious step by Pfizer to switch Viagra is so important. Since we made our first detailed review of the ED category for a Big Pharma client exactly 5 years ago, we have been convinced that Viagra is potentially the world’s largest consumer health brand. Some might say that it already is, although that would be true only for the use of the Viagra brand name on the internet as most of the blue pills sold in that channel are not from Pfizer. As a legitimate CHC category, and with recreational use included — which Big Pharma companies dislike as they see ED brands as treatments — the overall CHC reproductive health category, including ED brands, condoms, oral contraceptives, EHC and conception products and diagnostics, could easily reach sales of US$20bn at MSP in all channels of distribution.”

Q3 Results Reveal USA Slowdown

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The Q3 2016 results are now available on Nicholas Hall’s DB6 database, and the trend information will soon be updated on the OTC DASHBOARD website. In this week’s blog, we take a closer look at the latest growth trends for the Top 20 OTC markets in the world.

Overall, the global OTC market performed steadily in Q3 2016 with a 4.3% rise, the same growth rate as we saw in Q2 2016. However, this performance can be seen as mediocre compared to the full-year 2015 period, when OTC sales were up by 5.5%.

The global No.1 market, USA, showed signs of deceleration in Q3, with sales up by only 2.2%. This is largely owing to the slowing down of sales for major switches, such as Flonase allergy remedy and Pfizer’s Nexium 24HR antacid. That said, the USA should enjoy an upturn in the new year with switches such as GSK’s Flonase Sensimist (allergy remedy) and Galderma’s Differin Gel (acne remedy) in the pipeline. Compared to other categories, Lifestyle OTCs in the USA showed continued dynamism in Q3 2016, with sales up by a steady 5.0%; this was owing in part to double-digit growth for obesity treatments (+43.4%).

China’s growth also continued to lose steam in Q3 2016, where sales were up by 6.0%. China’s OTC market continues to grow year-on-year, but in recent years growth has gradually slowed; this is considered to be owing to a weaker economy, new regulations and also the crackdown on MNCs and domestic companies. Weaker growth overall in Q3 came despite continued growth for analgesics, which were up by 8.4%, making it the most dynamic OTC category in China, thanks to high levels of innovation and advertising in this area.

In Q3, growth also weakened in Japan and Europe as a result of low levels of Rx-to-OTC switch activity and weak cough, cold & allergy growth in early 2016. Italy was an exception to sluggish growth in Europe, where sales of OTCs were up by 3.5%; this was thanks to strong growth for Lifestyle OTCs (+11.1%), with a particularly dynamic performance from emergency hormonal contraceptives, sales of which rose by 226%.

Latin America remains the strongest performing region, with growth up by 15%. This is thanks to significant growth from Venezuela, up by 39% in Q3, owing to high levels of inflation. Despite a tough economic climate in Brazil, the OTC market remains robust with sales up by 9.5%, as a result of increased awareness of health and wellbeing.

Elsewhere in Q3 2016, India’s growth accelerated with sales up by 9.5%, owing to a strong performance from gastrointestinals (+10.3%). Turkey also performed well with growth up by 6.8%, thanks to VMS sales and a strong upturn for Lifestyle OTCs.

Q1 2016 Review

OTC DASHBOARD offers users four main ways of analysing the global OTC market; by geographical area (Market Overview), by marketer (Company Watch), by product category (Category Watch) and by product itself (Brand Watch). In this week’s blog, Managing Editor Dave Redford takes a closer look at the latest Q1 2016 data from two of these perspectives to highlight some fresh insights.

Regions & countries

Together, the world’s two largest OTC markets, USA and China, account for 44.6% (US$53.2bn) of the global OTC market (US$119.4bn) by value, and were responsible for a slightly higher proportion of global OTC growth (US$2.3bn out of US$5.1bn, or 46.6%) in the 12 months to end-March 2016. The huge importance of these two markets is out of step with their relative population size, with China (1,372mn people) and USA (321mn people) accounting for a combined share of just 23% of the global population (7,336mn people), according to mid-2015 Population Reference Bureau figures.

Despite concerns about China’s slowing economy, it was still the biggest contributor to global OTC growth in the Q1 2016 data, ahead of the USA, Brazil and India, while the other BRIC market (Russia) contributed little more than zero in the 12 months to end-March 2016. Growth was also slower in Europe and North America, owing to the drop-off in cough & cold remedies growth, while Japan showed renewed vitality.

Top 10 Q1 2016 Countries

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As mentioned, cough & cold remedies growth in Europe and North America went from dynamic in early 2015 to flat in Q1 2016. This weakness was mainly linked to the drop-off in flu infection rates in early 2016 (there are indications that the flu season in some countries may have started a little later, in Q2 2016), but also the inherently cyclical nature of cough & cold sales, which have alternated between high growth and consolidation over recent flu seasons. Systemic cold & flu growth was flat or low in Europe (+0.1%), North America (+0.8%) and Asia-Pacific (+2.4%) in Q1 2016, while the more underdeveloped regions of Latin America (+6.7%) and Rest of World (+5.6%) performed better.

Unlike systemic cold & flu, allergy remedies (up 10.3% globally) have broken free from any seasonal dependency in recent years thanks to the power of Rx-to-OTC switch, with GSK’s Flonase the latest brand to drive self-medication growth. Despite growing competition for Flonase in the US market from brands (for example, Bayer’s new fluticasone-based ClariSpray) and generics, the outlook for US allergy remedies still looks strong, thanks to new switches like McNeil / J&J’s Rhinocort Allergy Spray (budesonide) and patented indications, such as the three-year exclusivity that GSK has secured for Flonase with its “itchy, watery eye relief” claim. See this month’s OTC INSIGHT North America for a full case study on Flonase.

Overall, out of the global OTC market’s six major categories, only one (Lifestyle OTCs) showed improved growth in Q1 2016, while the other five (analgesics, CCA, gastrointestinals, dermatologicals and VMS) all decelerated. Some of the main factors in faster Lifestyle OTCs growth were higher levels of innovation and switch activity, as well as the resumption of supply for brands in key subcategories, like smoking control and obesity treatments. Growth for Lifestyle OTCs is likely to accelerate further in Q2 2016.

OTCs in Action Episode 48: Will increased Chinese OTC demand boost sales in Japan?

OTCinActionheaderThis week, OTCs are in Action in China, where the termination of the one-child limit will slightly increase demand for children’s OTCs. However, this will not only impact the Chinese OTC market, but neighbouring countries as well. Many younger, affluent Chinese consumers prefer fast-acting Western medicines to locally-manufactured OTCs and Traditional Chinese Medicine, but the lengthy, complex and expensive registration process deters many companies from entering the market.

Because of this, many Chinese tourists are buying OTCs in Japan, Hong Kong and other countries, according to the October issue of Nicholas Hall’s OTC INSIGHT Asia-Pacific. Neighbouring countries are welcoming these consumers with a variety of incentives:

Japan’s National Tourism Organisation reported that relaxed regulations for travel, depreciation of the yen and the MERS outbreak in South Korea were among the factors increasing the number of Chinese visitors to the country by 134% in the year to May 2015.

This increase in travel, coupled with last October’s consumption tax exemption for foreign visitors buying OTC medicines, has led several drugstore chains to adapt their stores in tourist hotspot areas to attract overseas consumers. In particular, leading chain Matsumotokiyoshi announced in late 2014 that it was planning to open 20 duty-free drugstores aimed at foreign shoppers, with all expected to be operational by March 2016.

Additionally, industry sources estimate that purchases by consumers from China account for 50-70% of OTC sales in Hong Kong. Planograms in chain drugstores appeal to them — large SKUs of infant milk powder and other products are shelved in high profile areas.

To see samples from OTC INSIGHT Asia-Pacific, click here.

With nearly 1.4bn residents, China is the world’s most populous country, albeit with a scarcity of children. To learn more about this emerging market, join us in Shanghai as Lynn Xu – Senior VP, Greater China Practice Leader at Nielsen, Jeff Crowther, Executive Director at US-China Health Products Association, and the Nicholas Hall team host the OTC Action Workshop. Click the link for more details: OTC Action Workshop Shanghai

OTCs in Action Episode 41: Eyes on India

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Last week, OTC.Newsflash reported that Bal Pharma is dilating its portfolio with the launch of Eye Spa lubricating eye drops, zoning in on two OTC sweet spots: India and eye care. The Indian OTC market grew by 41% to $2.4bn from 2010 to 2014; Nicholas Hall’s DB6 Global OTC database projects growth of more than 50% over the next five years – and very optimistically, we could see a 10-year trend of 150% growth. The eye care category in India has just about doubled in the past five years to $41.4mn.

The growth of OTCs, especially lifestyle categories, are closely linked to higher income levels. For a Swedish bird’s eye view of the demographic trend that will drive this growth in India, visit statistician Hans Rosling’s Gapminder website for an entertaining historical perspective, and learn the date he predicts that income per person in India and China will match that of the US:

 

That said, in a 2009 interview in India’s Economic Times, Rosling qualifies his growth predictions:

“What I am most worried about is the reaction of the western world when they see India and China become bigger, what really worries me is a possible war. I also see new, subtle trade barriers emerge. For instance, they are calling products manufactured by India and China as contaminated, and are getting experts and researchers to prove that. These trade barriers are very subtle.”