Over-the-counter trade offers firms a remedy for prescriptive ills

HAMLET said it all. Well, almost. As the big pharmaceutical companies grapple with healthcare reforms in Europe, upheaval in the US and competition from generic products, they must decide whether to concentrate exclusively on prescription drugs or expand into the 'over-the-counter' business. OTC or not OTC: that is the question.

Margins in the traditionally lucrative US market have been squeezed by the bulk healthcare providers, which have negotiated large discounts and turned to cheaper, unbranded rivals. Further cutbacks are likely when Hillary Clinton's task force reports. In Britain and Europe, pricing is also under pressure, with the trend to transfer part of the burden for medical care to the private sector.

One result of this hostile regulatory and economic climate is the growing importance of the over-the-counter (OTC) or non-prescription business. Currently worth about pounds 20bn worldwide, it is now the fastest-growing area of drug sales and expected to double its share of the market to 30 per cent by the end of the decade.

Ironically, many of the big drug companies spent most of the 1980s pulling out of OTC products, where volumes may be steady but margins are low. Glaxo did so and so did Zeneca, the drugs and agro-chemicals company that split off from ICI in May and is due to report its interims on Thursday. Over the past two or three years it has disposed of Savlon, its antiseptic cream, and Mylanta, its US indigestion remedy.

Medeva, the drugs company that expanded through a series of quickfire acquisitions, took the same tack, shedding the OTC interests it bought along with Evans Healthcare, for pounds 18.5m in 1990.

Only SmithKline Beecham, the Anglo-American healthcare group, has retained and developed its OTC business. At the time the two companies merged, in 1989, most people thought they were making a virtue of necessity. But last week, SKB defied the sceptics with an 18 per cent rise in profits for the three months to 30 June. Operating profits on its consumer brands, which include Tums antacid tablets and Contac for colds, rose 4 per cent, to pounds 36m, on turnover up 20 per cent to pounds 320m.

SKB has carefully built up its OTC brands with re-packaging and heavy promotions. It has, for example, repositioned Lucozade, one of its several drinks products, from an invalid pick-me-up to a booster for sports and fitness enthusiasts. At the start of July, it also won conditional approval to market its best-selling anti-ulcer drug, Tagamet, without a prescription, when the patent expires next May.

SKB's results were in stark contrast to the news from Merck, the US drugs giant, which announced the same day that it was taking a pre-tax dollars 775m ( pounds 516m) second-quarter charge to pay for redundancies and cost-cutting measures. Earlier this month, the company announced it would also be going the OTC route, joining up with Johnson & Johnson to move into the OTC market.

Medeva, by contrast, has chosen to concentrate on niche areas in prescription drugs, a strategy which, until last week, served it very well. However, news of problems at two US subsidiaries sent its share price plunging.

Medeva's share price halved by mid-week, after more than 60 million shares - nearly 23 per cent of its equity - had changed hands. A letter to shareholders from Bernard Taylor, the chairman, did little to assuage unease, despite the company's pledge that it would make no big acquisitions until investor confidence had been restored.

'Medeva is an unconventional stock. For years the detractors haven't been able to say anything, and now we've given it to them in spades,' said a rueful company spokesman. But Mr Taylor said the market reaction had surprised him.

(Photograph omitted)

Start your day with The Independent, sign up for daily news emails
people'Interview of the year' no letdown
Wayne Rooney
sportBut which sporting Brit beats him to top spot in Sunday Times Rich List?
Maxine Peake at home in front of a poster for Keeping Rosy
Arts and Entertainment
Boys in blue: Peter Firth and (right) Kit Harington in Spooks
filmHow well will Spooks make the leap from the small to the big screen?
ebooksA special investigation by Andy McSmith
Royal fans covered with Union Jacks and royal memorabilia wait for Kate, Duchess of Cambridge to go into the Lindo wing at St Mary's Hospital to give birth to her second child in London, Friday, April 24, 2015.
peopleLive updates in the wait for Duchess of Cambridge's second child
Arsène Wenger (left) and Jose Mourinho have to be separated by the fourth official, Jon Moss, during last October’s Premier League match at Stamford Bridge
Arts and Entertainment
Tate Modern chief Chris Dercon, who will be leaving to run a Berlin theatre company
arts + ents
Arts and Entertainment
Tasos: 'I rarely refuse an offer to be photographed'
arts + ents
Arts and Entertainment
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Recruitment Genius: Administrator - IFA Based

£22000 - £24000 per annum: Recruitment Genius: This is an opportunity to join ...

Day In a Page

Major medical journal Lancet under attack for 'extremist hate propaganda' over its coverage of the Israeli-Palestinian conflict

Lancet accused of 'anti-Israel hate propaganda' over coverage of Gaza conflict

Threat to free speech as publishers of renowned medical journal are accused of inciting hatred and violence
General Election 2015: Tories and Lib Dems throw their star names west to grab votes

All noisy on the Lib Dems' western front

The party has deployed its big guns in Cornwall to save its seats there. Simon Usborne heads to the heart of the battle
How Etsy became a crafty little earner: The online market has been floated for £1.2bn, but can craft and capitalism coexist?

How Etsy became a crafty little earner

The online market has been floated for £1.2bn, but can craft and capitalism coexist?
Guy Ritchie is the latest filmmaker to tackle King Arthur - one of our most versatile heroes

King Arthur is inspiring Guy Ritchie

Raluca Radulescu explains why his many permutations - from folk hero to chick-lit hunk - never cease to fascinate
Apple Watch: Will it live up to expectations for the man or woman on the street?

Apple Watch: Will it live up to expectations?

The Apple Watch has apparently sold millions even before its launch tomorrow
Don't fear the artichoke: it's a good cook's staple, with more choice than you'd think

Don't fear the artichoke

Artichokes are scary - they've got spikes and hairy bits, and British cooks tend to give them a wide berth. But they're an essential and delicious part of Italian cuisine
11 best men's socks

11 best men's socks

Make a statement with your accessories, starting from the bottom up
Paul Scholes column: Eden Hazard would be my Player of the Year – but I wonder if he has that appetite for goals of Messi or Ronaldo

Paul Scholes column

Hazard would be my Player of the Year – but I wonder if he has that appetite for goals of Messi or Ronaldo
Frank Warren: Tyson Fury will be closely watching Wladimir Klitschko... when he wins it'll be time to do a deal

Frank Warren's Ringside

Tyson Fury will be closely watching Wladimir Klitschko... when he wins it'll be time to do a deal
London Marathon 2015: Kenya's brothers in arms Wilson Kipsang and Dennis Kimetto ready to take on world

Kenya's brothers in arms take on world

Last year Wilson Kipsang had his marathon record taken off him by training partner and friend Dennis Kimetto. They talk about facing off in the London Marathon
Natalie Bennett interview: I've lost track of the last time I saw my Dad but it's not because I refuse to fly

Natalie Bennett interview: I've lost track of the last time I saw my Dad

Green leader prefers to stay clear of her 'painful' family memories but is more open about 'utterly unreasonable' personal attacks
Syria conflict: Khorasan return with a fresh influx of fighters awaiting the order to start 'shooting the birds'

Khorasan is back in Syria

America said these al-Qaeda militants were bombed out of the country last year - but Kim Sengupta hears a different story
General Election 2015: Is William Cash the man to woo Warwickshire North for Ukip?

On the campaign trail with Ukip

Is William Cash the man to woo Warwickshire North?
Four rival Robin Hood movies get Hollywood go-head - and Friar Tuck will become a superhero

Expect a rush on men's tights

Studios line up four Robin Hoods productions
Peter Kay's Car Share: BBC show is the comedian's first TV sitcom in a decade

In the driving seat: Peter Kay

Car Share is the comedian's first TV sitcom in a decade. The programme's co-creator Paul Coleman reveals the challenges of getting the show on the road