Update on Walgreens Boots Alliance deal

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Since the global financial crisis, mega dealmaking has gone out of fashion but could now be making a comeback with Stefano Pessina’s planned leveraged buyout of Walgreens Boots Alliance, described as potentially the “largest private equity deal on record”, according to the UK Financial Times. Days after it emerged that Walgreens Boots Alliance had held preliminary talks with private equity groups regarding a potential US$70bn deal to go private, shares in the US-based company rose again on reports that KKR had made a formal approach.

Pessina has a 16% stake in the company and already teamed up with KKR to take Alliance Boots private in 2007, though this time there is a far more challenging amount of debt to be raised in the high-yield bond market, which will be a test of market appetite for a deal of this magnitude. Nicholas Hall commented: “Last week I wrote about the possibility of WBA’s delisting from the stock market and going private: “The general view is that this deal is just too big; and yet, and yet!” Seems I was right to be cautious about writing off what might be Stefano Pessina’s magnificent swansong and the world’s largest private equity deal.”

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Walgreens Boots Alliance is the global leader in the retail pharmacy sector, operating just under 20,000 stores in 11 countries and recording revenues of US$136.9bn in the year to end-August 2019. WBA’s US retail pharmacy business accounts for 76% of this total, but operating income has declined by 20.5% owing to drug reimbursement pressures and increased competition from Walmart and Amazon. In addition, WBA’s international retail pharmacy business reported weak growth owing to a “challenging UK market”. According to a report in Forbes, the advantage of going private would be a chance to arrest the decline in WBA’s share price, down nearly 10% this year, as the deal would take the company away from the public eye and could make it easier to focus more on pharmacy point-of-care services.

Separately, under an agreement with Mitra Adiperkasa (MAP), a leading lifestyle retailer in Indonesia, WBA is to create a Boots branded pharmacy-led, health & beauty retail business in one of the world’s most populous countries. The first stores are expected to open in H2 2020. “Boots is a great addition to our diversified brand portfolio, which will help MAP further unleash the power of its 360° retailing strategy,” said Group CEO, VP Sharma. “We are confident that the combination of Boots cutting-edge products together with MAP’s solid competitive advantages will elevate the unique Boots experience to a whole new level in Indonesia.”

Announcing Nicholas Hall’s Reports End of Year SaleUp to 25% off – valid until 31 December. We are pleased to announce a special End of Year offer for our CHC Reports! Until 31 December, we are offering a 15% discount on the 2019 Reports Catalogue, plus an additional 10% discount on orders for multiple reports. If you would like additional information on any of our publications, or would like to place an order, please contact Melissa.Lee@NicholasHall.com

Ranitidine under regulatory spotlight

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Two weeks ago, the FDA put out a statement saying it had learned that some ranitidine medicines were found to contain a nitrosamine impurity called N-nitrosodimethylamine (NDMA) at low levels, which it classifies as a probable human carcinogen. In response, the FDA is conducting an ongoing investigation, working with international regulators and industry partners to determine the source of this impurity. Though the FDA made clear it is not calling for individuals to stop taking ranitidine, its advice to people taking OTC ranitidine was to consider using other OTC medicines approved for their condition.

Last week, the FDA alerted healthcare professionals and patients to a voluntary recall of OTC ranitidine tablets (75mg and 150mg) labelled by Walgreens, Walmart and Rite-Aid, and manufactured by Apotex. Sandoz (Novartis) also said it would no longer be distributing generic versions of ranitidine. This was followed by an announcement over the weekend that US retailer CVS is pulling the No.1 ranitidine-based OTC brand, Zantac (Sanofi), from its shelves over the possible links to cancer. CVS’ own generic ranitidine-based OTC products will also not be carried in the stores moving forward.

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Heartburn remedy Zantac is comfortably the No.1 ranitidine-based OTC brand, with global sales of around US$160mn (the vast majority of which are generated in North America). Chattem (Sanofi) markets Zantac in the USA in 75mg and 150mg OTC versions, while Aspen markets the brand in Australia and Perrigo is the UK marketer. In August 2018, Chattem extended its Zantac 150 line-up with two larger, value size 90-count SKUs, boosting sales significantly.

In a statement published in USA Today, Sanofi spokeswoman Ashleigh Koss said the company has no plans to halt shipments in the US market, adding: “The FDA reported that the levels of NDMA in ranitidine in preliminary tests barely exceed amounts found in common foods. We are working closely with the FDA and are conducting our own robust investigations to ensure we continue to meet the highest quality safety and quality standards.”

Take an in-depth exploration of the Lower GIs market in Nicholas Hall’s Lower GIs: Trends & Opportunities in Laxatives, Antidiarrhoeals, Probiotics, Antispasmodics & IBS remedies report. This key title includes dedicated case studies, NPD, innovative line extensions, coverage of 10 major markets, sales data and forecasts, plus much more! To find out more or to order your copy today, please contact melissa.lee@NicholasHall.com.

E-cigarettes under the spotlight in USA

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A few months ago, Nicholas Hall applauded the decision by US District Judge Paul Grimm (Maryland) to set a 10-month deadline (to 12th May 2020) for e-cigarette manufacturers to apply to the FDA and submit their products for public health review if they want to keep them on the market. The judge also imposed a one-year deadline for approval, as suggested by the FDA. Nicholas Hall said “there’s a chance that e-cigarettes will be regulated as drug products with all the opportunities and problems that brings” and predicted that “vaping could be a US$5bn OTC-registered industry by 2025, but at the moment that looks very unlikely.”

Since then, concerns in the USA about the safety of e-cigarettes have been growing. The Centers for Disease Control (CDC) recently indicated that, as of 6th September 2019, over 450 possible cases of lung illness associated with the use of e-cigarettes have been reported to CDC from 33 states and 1 US territory, while five deaths have been confirmed in California, Illinois, Indiana, Minnesota and Oregon.

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Map of reported US lung illness cases linked to e-cigarettes. Source: Office on Smoking & Health, National Center for Chronic Disease Prevention & Health Promotion

Meanwhile, the Federal Trade Commission is investigating Juul’s marketing practices and whether the company targeted minors, according to the WSJ. US House Energy & Commerce Chairman Frank Pallone recently wrote to Juul, which is 35% owned by tobacco group Altria, and the three other dominant players of the US e-cigarette market — Fontem Ventures, Japan Tobacco International and Reynolds American — requesting more information about their research into the public health impact of their products, their marketing practices and their role in e-cigarette use by adolescents. 

E-cigarettes are also under the regulatory spotlight at the US state level, with Michigan the first US state to ban flavoured nicotine vaping products. After Chief Medical Executive Dr Joneigh Khaldun found that youth vaping constitutes a public health emergency, Governor Gretchen Whitmer ordered the Michigan Department of Health & Human Services to issue emergency rules to ban the sale of flavoured nicotine vaping products in retail stores and online, and ban misleading marketing of vaping products, including use of terms like “clean”, “safe” and “healthy”. She also ordered the Michigan Department of Transportation to enforce an existing statute to prohibit advertising of vapour products on billboards.

American Heart Association CEO, Nancy Brown, commented: “Governor Whitmer has taken bold and appropriate action in response to the epidemic of youth e-cigarette use. In the absence of robust regulation by the FDA, we know shockingly little about the health impact of e-cigarettes being widely marketed to youth and adults. The recent outbreak of respiratory illnesses associated with e-cigarette use has only added to the uncertainty and increased the need for immediate action … We urge the FDA to move urgently to protect public health and exercise strict oversight over all e-cigarette products.”

Only two months to go until our OTC.NewDirections Executive Conference, taking place in London on 14 November 2019! Nicholas Hall will be joined by experts from companies including Bayer, Mundipharma and J&J to review key issues impacting our industry, including the status of Medical Cannabis in Europe, Embracing Tech, Growing Brands through Innovation alongside exploring the ultimate theme of ensuring that you are Keeping Consumers in the Spotlight. Save GB£100 when you book your seat before 13 September! To find out more, or to reserve your place, please contact jennifer.odonnell@NicholasHall.com without delay!

Alibaba and Walmart report strong Q2

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Our blog this week rounds up the latest retail news, including recent Q2 results from Walmart and Alibaba, and a focus on M&A activity in Asia-Pacific. China’s Alibaba trumped analysts’ expectations with a 42% year-on-year jump in quarterly revenues to Rmb114.92bn (US$16.3bn), contrasting with its rival Tencent which one day earlier disappointed the market by falling short with a more modest quarterly growth (though Tencent did report a 26% year-on-year increase in profit).

Alibaba’s CEO, Daniel Zhang, said the company “had a great quarter, expanding our user base to 674mn annual active consumers, and demonstrating our superior user experience. We will continue to expand our customer base, increase operating efficiency and deliver robust growth. With strong cashflow from our core e-commerce business, we will continue to invest in technology and bring digital transformation to millions of businesses globally.” 

Alibaba is also reportedly looking to acquire Kaola’s cross-border online shopping platform from rival NetEase, according to two people familiar with the matter, as China’s highly competitive US$2tn e-commerce market takes early steps towards consolidation.  

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Meanwhile, Walmart has raised its outlook for the USA and said US consumers were in “solid” financial health as it shrugged off the Trump administration’s trade war with Beijing and turmoil elsewhere in bricks-and-mortar retail. Walmart revenues rose by 1.8% in fiscal Q2 2020 to US$130bn (+2.9% on a constant currency basis). USA sales were US$85.2bn (+2.9%) and the retailer noted that it is gaining market share in key categories, including health & wellness; e-commerce sales grew by 37%. International sales fell by 1.1% to US$29.1bn (+3.3% excluding currency impacts). Strength in Mexican subsidiary Walmex and China were offset by softness in UK and Canada. 

In Brazil, No.1 drugstore chain RaiaDrogasil (RD) reported better than expected results, seeing its national share rise to 13% in Q2 2019 (up 1.6% vs Q2 2018). Another drugstore chain quickly gaining share in Brazil is Farmarcas, which looks set to become the No.4 ranked chain by end-2019 after reporting even stronger results than RD, putting pressure on established players Drogaria DPSP and Pague Menos.

As for M&A activity:

• In Japan, drugstore operator Cocokara Fine is pursuing a merger with rival Matsumotokiyoshi in a deal that could create a market leader with sales of around ¥1tn (US$9.4bn)

• Amazon, which is looking to boost its bricks & mortar presence in the fast-growing Indian market, is reportedly in advanced talks to acquire up to 10% of Future Retail, the country’s No.2 retailer

• AS Watson (an affiliate of CK Hutchison Holdings) is in talks with potential partners in UAE with a view to introducing its health & beauty stores there

Take a look at the evolution of Pharmacy and Pharmacy Point-of-Care in the Distribution chapter in our new report, Nicholas Hall’s New Paradigms for CHC 2019: Over the Horizon, written by Nicholas himself! Other chapters will include Healthcare Trends, Regulation, Digital engagement amongst many others. Nicholas will also unveil the 15 “Infinity Zones” he has identified as being crucial to the future growth of the industry. You can upgrade your purchase to include a customised in-house presentation or webinar with Nicholas for an additional GB£10,000. To find out more or to pre-order your copy, please contact melissa.lee@NicholasHall.com.

Gottlieb calls for action on “CBD craze”

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In an opinion piece for the Washington Post entitled, “The CBD craze is getting out of hand. The FDA needs to act“, former FDA commissioner Scott Gottlieb described many of cannabidiol’s purported benefits, from cancer to depression treatment, as “fanciful” and said the FDA must act now to ensure “commercial interests don’t strip away any legitimate value the compound might have.”

Pointing to the potential risks of CBD use (i.e. damage to the liver at high doses), and the misperception that the 2018 US farm bill “legalised” CBD, Gottlieb suggests the best way forward is a legal pathway based on an “efficient regulatory process and sound science”. Recently, the FDA sent a warning letter to Curaleaf about “unsubstantiated” claims on its website and social media accounts linking CBD with cancer, Alzheimer’s, etc.

In response to Gottlieb’s opinion piece, Steve Mister, President & CEO of the Council for Responsible Nutrition (CRN), said his organisation aligned with the FDA on the need to establish a “clear and legal pathway forward”, but said that CBD’s status as a dietary supplement does not necessitate legislation, nor a “multiyear process requiring FDA to gather safety data on CBD”.

In an article for Whole Foods Magazine, Mister is quoted as saying that the “FDA has the authority to make cannabidiol a supplement under DSHEA [The Dietary Supplement Health and Education Act of 1994], even though it’s already been studied as a drug.” Mister envisages a future in which CBD can be sold as both a drug and a supplement, and that is certainly how Nicholas Hall also sees the market evolving in his newly published New Paradigms report.

CBD is one of the topics in our new report, Nicholas Hall’s New Paradigms for CHC 2019: Over the Horizon, personally written by Nicholas himself! Focusing on a wide range of major issues surrounding the CHC Market, including Innovation, Distribution, Digital Engagement, Competition and much more, this is an essential read for all players striving to compete in this evolving marketplace. In addition to this, you can upgrade your purchase to include a customised in-house presentation or webinar with Nicholas. To find out more or to place your order, please contact melissa.lee@NicholasHall.com.

Tamiflu to switch to OTC in USA?

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With 2018 a barren year for Rx-to-OTC switch, it is welcome news that Sanofi has signed a strategic deal with Roche for the exclusive OTC rights to Tamiflu (oseltamivir 75mg capsules, Genentech / Roche Group) for flu prevention and treatment in the USA. Under the terms of the agreement, Sanofi will be responsible for leading negotiations with the US FDA for the OTC switch and subsequent exclusive marketing, scientific engagement and distribution of Tamiflu OTC in the USA. Roche will continue to market Tamiflu in the rest of the world and Sanofi will retain the rights to first negotiations for switch rights in other selected markets. Sanofi’s Executive VP for Consumer Health, Alan Main, noted that: “A successful switch of Tamiflu to OTC would support our global cough and cold strategy by expanding into flu with a sustainable point of difference in the market.”

As Nina Stimson, OTC.NewDirections Consulting Editor, commented: “To some extent this was an unexpected development, but welcome insofar as (if approved), OTC Tamiflu will help expand the boundaries of consumer healthcare. Of course, in certain conditions (such as the swine flu pandemic in 2009-10) Tamiflu has sometimes been available from pharmacists without a prescription; New Zealand was one such country to permit OTC supply on a temporary basis.” 

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Tamiflu’s patent in the USA and some other markets expired in 2016 and, as the chart above indicates, this has led to a steady decline in sales over recent years, with US Tamiflu sales falling by 29% in 2018 to total CHF168mn (US$170mn). Generic competition intensified in the USA in 2017 and continues to grow, while Tamiflu brand sales are now also in decline in Japan and internationally. Roche is now focusing its efforts on Tamiflu’s successor, Xofluza, which was approved by the FDA in late 2018.

If Tamiflu can switch to OTC successfully in the USA, then similar reclassifications will likely follow elsewhere. In 2009, in the midst of the global swine flu pandemic, Australia’s State of Victoria issued a public health emergency order allowing pharmacists to supply Tamiflu (oseltamivir) without a prescription. There has also long been talk of Tamiflu switching to OTC in Europe – in 2008, at the AESGP meeting in Sweden, the EMA’s Executive Director Thomas Lonngren cited Tamiflu as a possible candidate for the EU’s then newly created centralised procedure for Rx-to-OTC switch.

Explore the latest CHC Innovations and Technologies at our OTC.NewDirections Executive Conferencetaking place in London on 14 November 2019. Nicholas Hall and Nina Stimson will be joined by experts from companies including Bayer, Mundipharma and J&J to review key issues impacting our industry and ensure that you are Keeping Consumers in the Spotlight. Book your place before 13 September to take advantage of our early bird booking discount and save GB£100! To find out more, or to reserve your place, please contact Elizabeth.Bernos@NicholasHall.com.

New technology and innovation to revive acne sales?

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For several years, the OTC acne remedies category has been in the doldrums. Global sales grew by just 1.9% in 2018, and the CAGR for the subcategory over the 2014-18 period is a lowly 1.6%. This poor performance is largely related to the US market, where sales of acne remedies fell by 1.4% to US$514mn in 2018.

That’s why the recent news that L’Oréal’s skin care brand, La Roche Posay, has introduced Effaclar Adapalene Gel 0.1% Acne Treatment, is very timely. Retailing for US$29.99 for a 45g tube, the topical retinoid once-daily medication is indicated for the treatment of acne in people aged 12+. The brand has also launched La Roche-Posay My Skin Track PoreScan, an AI-powered skin analysis tool (similar to Effaclar Spotscan, launched earlier in 2019) that can make personalised skincare recommendations for those concerned with clogged pores, raised imperfections and residual marks. 

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OTC.NewDirection‘s Consulting Editor, Nina Stimson, commented: “This is a major step for La Roche Posay and parent, L’Oréal, known worldwide primarily as a cosmetics player. Adapalene’s switch to OTC (at 0.1% Rx strength) as Differin Gel (Galderma / Nestlé) was approved in the USA in July 2016 as the first retinoid drug for the OTC treatment of acne, with adapalene acknowledged as the first new active ingredient for that OTC indication since the 1980s. This launch comes exactly three years later, as Differin’s exclusivity ends, and sees La Roche Posay / L’Oréal move right to the front line of registered OTC acne treatment. Differin Gel OTC sales have probably disappointed against expectations (although Nestlé’s Proactiv has also added an adapalene option to its DTC lineup) and other adapalene gels will undoubtedly also appear on US store shelves. Full marks to L’Oréal for prompt action.

There are also signs of renewed dynamism in Latin America thanks to strong investment in NPD from key marketers like Genomma. In June 2019, the company unveiled an innovative new acne remedy, Asepxia Maquiagem Liquida Autoajustavel, which features a unique technology that allows the product to adapt to various skin tones. Sold as a 30ml liquid, this latest addition to the Asepxia line is positioned to reduce acne and even skin tone, as well as mattify the skin and cover blemishes. New technology and innovation hold the key to unlocking future growth in this important OTC subcategory.

Birgit Schuhbauer, VP Global Franchise OTC and EMEA Region at J&J will take to the stage at Nicholas Hall’s OTC.NewDirections Executive Conference to explore how, with new consumer marketing opportunities with digital tools, we are Getting Closer to the Consumer than Ever. Taking place in London on 14 November 2019, the meeting will ultimately focus on the latest CHC Innovations and Technologies with presentations from companies also including Bayer, Prohibition Partners and Mundipharma. Save when you reserve your place now at the early bird booking rate. For more information, or to book your place, please contact elizabeth.bernos@NicholasHall.com.