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GSK executive: Consumer healthcare marks 'sweet spot' in consumer goods

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GSK executive: Consumer healthcare marks 'sweet spot' in consumer goods

➤ The joint venture GlaxoSmithKline PLC and Pfizer Inc. are forming will aim to take advantage of the growing middle class in emerging markets and graying populations in the developed countries, GSK Consumer Healthcare CEO Brian McNamara said in an interview.

➤ The venture, which will eventually become a freestanding company, will look to expand penetration of its brands, such as Sensodyne toothpaste for sensitive teeth, in emerging markets.

➤ GSK is not yet disclosing details about its divestiture plans for brands that will overlap in its combined portfolio with Pfizer, such as that between pain relievers Advil and Calpol, though McNamara indicated that further divestments will happen.

Consumer healthcare, a category that includes over-the-counter treatments for pain, allergies and other conditions, has long had a place in the portfolios of major consumer goods makers and pharmaceutical companies. A joint venture between U.K.-based GlaxoSmithKline, or GSK, and U.S.-based Pfizer is aiming to create a company focused entirely on the space. Brian McNamara, CEO of GSK Consumer Healthcare, spoke to S&P Global Market Intelligence about his plans for the joint venture at the Consumer Goods Forum's annual summit in Vancouver, Canada, on June 12. The following is an edited transcript of that conversation.

S&P Global Market Intelligence: Currently, GSK's consumer business generates revenue that in part funds research and development for the company's other products, such as prescription drugs. What is your pitch to investors on making that business, alone and with Pfizer's, a stand-alone company?

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GSK Consumer Healthcare
CEO Brian McNamara

When I do talk to investors, what they react extremely positively to is the idea of a pure-play, stand-alone consumer healthcare company, because right now, there is none. Most consumer healthcare is either within a [pharmaceutical] company, like we are, or a Reckitt Benckiser Group PLC, which has another side of their portfolio, or within a The Procter & Gamble Co., which is a massive conglomerate.

The reason, I think, that they're excited about this idea of a pure-play consumer healthcare company is that this is a business with pretty good margins and a good future outlook for growth ... [thanks to] the emerging middle class, the aging population. Seventy-seven percent of consumers around the world want to take more control of their health, so the role that we can play in that in consumer health is a sweet spot.

Are there any product areas where you see particularly compelling growth potential?

I do see vitamins, minerals and supplements as being a huge opportunity and a great, complementary part of the Pfizer portfolio. ... It's really about consumers more proactively managing their health. I believe there's opportunities for us to bring innovation there in a big way and really capitalize on that market. Centrum is the No. 1 multivitamin in China, and Caltrate is the No. 2 calcium supplement, so it gives us a big footprint there, too.

Then, I would say pain relief. GSK today is the No. 1 over-the-counter pain relief company in the world, and we're going to add the largest OTC brand in the world in Advil in the U.S., which is where we have Excedrin but we don't have quite the footprint. ... We know that this is just a huge opportunity. Seven billion consumers experience pain every year. It's 97% of all the people in the world.

And then our respiratory portfolio, which is really cough, cold and allergy, is another place.

Which geographies do you see as most promising from a growth perspective? I'm particularly curious about your views on China and other emerging markets.

What this deal does for us is it gives us incredible scale in the U.S. and China, so we'll become the No. 1 player in the U.S. In China, we'll be the No. 2 consumer health player, but the No. 1 multinational. China has a huge calcium deficiency problem, so that's a sweet spot.

It's all about penetration in those markets, because there are so many consumers. Sensodyne, for instance, is our largest brand. One-third of people around the world suffer from sensitive teeth, but probably a third of them use a sensitive toothpaste. It's all about getting new users in and having products with benefits that are meaningful to consumers and bringing them into the franchise.

Many consumer goods companies are still figuring out how to meet the expectations of consumers in emerging markets and compete with local brands. What are you doing to compete with Chinese brands?

As we move into the [joint venture], we'll have local manufacturing in China. We'll also have local R&D in China. Our Chinese organization is primarily Chinese nationals, and we'll have the capability on the ground to make sure that we really understand the consumer and consumer preferences, but also have the ability to do innovation for China in China.

In a market like China, you have to be very close to the consumer, and it's an amazingly sophisticated consumer from an e-commerce and digital perspective. So our plan is to make sure that as we build the new structure and bring the two [businesses] together, we have the right resources on the ground.

What are your latest plans to divest or otherwise address product overlap (e.g., Advil and Calpol) in the company's combined portfolio?

We've announced that we'll divest brands that will deliver us $1 billion in proceeds because that will help cover the one-off cost of actually doing the integration, so [it's] cash-flow neutral. It will also give us the opportunity to clean up the portfolio a bit, where maybe we have some declining assets or things that aren't as strategic in the business. We just announced the divestment of six brands in the U.K. to STADA Arzneimittel Aktiengesellschaft and that's part of that process. There's also an antitrust [process] that we have to go through.

We haven't made any public comments on exactly what we're going to divest, but we are absolutely going to as we go through the process.