Teva, Procter & Gamble create OTC drug partnership

BOSTON/CHICAGO Thu Mar 24, 2011 12:56pm EDT

BOSTON/CHICAGO (Reuters) - Procter & Gamble Co (PG.N) and generic drugmaker Teva Pharmaceutical Industries Ltd TEVA.O are joining forces to sell over-the-counter medicines as both companies try to expand their reach, particularly in developing markets.

The joint venture unveiled on Thursday includes the companies' over-the-counter businesses in all markets outside North America, which combined, generated sales of more than $1 billion in 2010.

The deal gives P&G access to Teva's extensive product portfolio and gives Teva the benefit of P&G's marketing expertise. Teva has a strong presence selling drugs to pharmacies, while P&G has a strong presence in supermarkets and other retail outlets.

"Teva's goal is to use Procter's brand to increase Teva's revenue," said Gilad Alper, an analyst at Meitav Investment House. "Procter's interest is, they need Teva's manufacturing capabilities, Teva's products and Teva's international infrastructure. It's a smart way to use each other's strengths."

Teva's shares were up 2.8 percent at $50.51 on Thursday afternoon, while P&G stock was up 0.1 percent at $61.00.

The joint venture, which will be 51 percent owned by P&G and 49 percent owned by Teva, is expected eventually to generate sales of up to $4 billion, the companies said.

The venture's chief executive officer, Briain Debuitleir, and chief financial officer, Markus Xander, will come from P&G. Its chief operating officer, Eli Shani, will come from Teva.

Tom Finn, president of P&G's health care business, will serve as chairman of the partnership and joint venture.

In its first year, the joint venture should add $500 million to $600 million to P&G's sales, P&G Chief Financial Officer Jon Moeller said on a conference call.

Shlomo Yanai, Teva's chief executive, said the company generated $650 million in sales from over-the-counter products in 2010 and it expects that figure to rise 50 percent. Teva will take over manufacturing of all the products.

Sales generated by the venture could be further enhanced by the companies' plan to turn prescription medicines into over-the-counter products.

"This makes sense if governments are under pressure to reimburse drugs to shift the burden on to consumers," said Corey Davis, an analyst at Jefferies & Company.

Many of the current top-selling OTC medicines were created from such "switch-overs," including P&G's version of the heartburn drug Prilosec and versions of heartburn drug Pepcid, made by a joint venture of Johnson & Johnson (JNJ.N) and Merck & Co. (MRK.N)

The companies did not identify specific products that they could target for the over-the-counter market but said they might look at gastrointestinal, allergy and respiratory conditions.

The market for over-the-counter medicines is nearly $200 billion, the companies said, and is expected to increase as the global population continues to age and emerging markets spend more on healthcare.

P&G's best-known over-the-counter medicines include Vicks, Metamucil and Pepto-Bismol. Teva's over-the-counter products are sold mainly in local markets and have limited brand recognition. The deal will give P&G more products, and Teva's products a stronger brand.

"One of the biggest advantages we see is that this diversifies Teva's revenue stream away from dependence on traditional prescription drug reimbursement in markets like Western Europe, which are experiencing constant and frequently austere government pricing cuts," Davis said.

The deal comes as consumer healthcare company J&J struggles to fix quality-control problems that have forced it over the past 15 months to recall more than 300 million packages and bottles of its Tylenol and Motrin painkillers, Benadryl allergy drug, Rolaids antacid and other well-known brands.

The long list of recalls has dented J&J's reputation with consumers and sidelined a big company plant in Pennsylvania and dozens of consumer brands made there.

The Teva-P&G transaction is expected to close in the autumn, subject to regulatory approvals.

(Additional reporting by Ransdell Pierson in New York and Tova Cohen in Tel Aviv; Editing by Lisa Von Ahn, Maureen Bavdek and Matthew Lewis)

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