Bayer, GlaxoSmithKline find consumer health is not the sure safe haven they expected

Consumer health businesses were supposed to be the safe haven in an increasingly volatile pharma world, but in the last two days, two leaders in that realm, GlaxoSmithKline and Bayer, have shown that consumer health has some of the same pitfalls of pharmaceuticals.

Both companies reported that competition in the U.S., much like with generics, had taken a toll on their consumer operations with Bayer reporting falling sales as top brands came in short and GSK reporting weaker growth expected not only for the year, but over the next several.

“We are seeing a marked slowdown in consumer market growth and that's clear in our own Q2 numbers,” GSK CEO Emma Walmsley, said during a lengthy broadcast meeting with analysts Wednesday.

Walmsley, who ran GSK’s consumer health business before being elevated to CEO, said that a competition in the U.S., as well as some falloff in the rest of the world, kept consumer sales flat for the quarter. She promised GSK would control costs tightly in consumer, and still expects to dramatically improve margins over time. Still, given the slowdown, she said, the U.K. drugmaker is “not now expecting much growth of the top line from the Consumer business this year, also and unless the market backdrop improves we would not expect more than low single-digit growth in sales next year.”

The immediate fall off was worse for Bayer, which today, reported that while its pharmaceutical business posted a 4.4% increase to €4.3 billion, sales in the consumer biz were off 2.2% to €1.5 billion because of competition in the U.S. and a weak allergy season which sent sales of Claritin down 12.3%.

Bayer had prepared the market for the fall-off last month when it warned investors that a number of difficulties, including the surprising weakness from brands for which it had paid Merck & Co. $14 billion in a deal that made it the global OTC leader. It said then it would reduce its 2017 forecast, which it did today.

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Bernstein analyst Jeremy Redenius ferreted out the numbers, saying in a note to investors that the German company now expects 2017 sales of €49 billion, down from its previous forecast of €51 billion. It now expects EBITDA before special items, and earnings per share to come in lower that its initial predictions.

Neither company is putting up the white flag. Bayer, for its part, is already “reinvesting heavily” in turnarounds for brands Dr. Scholl’s and Coppertone, both of which it got from Merck.

For GSK, consumer is one of three key businesses and it is prepared to double down on consumer bet, much of which it got in a $25 billion asset swap with Novartis in 2015.

Walmsley said Wednesday that that one use of its capital will be to buy the put option for the rest of the consumer health operations from Novartis if it becomes available, which it  anticipates might happen next spring. To that end, it is managing its capital to be ready for that or other opportunities.

“We need to be ready for inorganic solutions to strengthen our pipeline or take advantage of other opportunities to strengthen our company such as the consumer put option,” Walmsley said.