Procter & Gamble (
) recently announced a joint venture with Israel-based Teva
Pharmaceutical Industries, the world's largest generic drug maker,
in a deal that could significantly expand both companies' consumer
health care businesses. The venture combines the over-the-counter
drug businesses of both the companies outside North America.
PG is the largest consumer goods company in the world, and
traditionally competes with companies like Unilever Group (
), Revlon (
) across a wide product spectrum.
About the Joint Venture
: The venture to be based out of Geneva, Switzerland, will merge
P&G's healthcare brands (Vicks, Metamucil and Pepto-Bismol)
with Teva's portfolio of over 1,500 pharmaceutical products across
over-the-counter pain medicines, cold/cough drops and digestive
: The venture leverages P&G's branding and retail network and
combines it with Teva's expertise in drug manufacturing. The
partnership transfers P&G's manufacturing operations to Teva.
Teva will make the drugs and sell back to the venture earning a
profit on the sale. The venture, of which P&G owns 51% and Teva
owns 49%, will then market the drugs and distribute the profits
: P&G's consumer health care business draws almost 75% of its
revenues from the United States. P&G has excluded its existing
North American over-the-counter brands from the venture, noting
that the U.S. portfolio is already 'pretty well-developed'.
However, any business created in North America going forward would
be part of the venture.
Why the Joint Venture Makes Sense
- The joint venture positions P&G and Teva to leverage both
the aging baby boomers demographic (those born between 1945 and
1964) and, more importantly, the coming wave of cheaper generics
brought on by patent expiration for more than 10 mega drugs with
combined sales of $50 billion.
- The venture aims to sell these former patent-protected drugs
as branded over-the-counter drugs, something Teva could not have
managed to do on its own. P&G shall help in branding these
generics manufactured by Teva and enable their distribution
across the globe.
- The size of the over-the-counter market is about $200 billion
in sales. With an expanded product portfolio, both P&G and
Teva are poised to corner a significant share of the consumer
health care market.
How much could be the impact on P&G?
We currently estimate that consumer health care (Prilosec OTC
& Vicks) makes up 6% of
our $75.25 price estimate for Procter & Gamble's
Our base case estimates suggest that P&G's non-prescription
drug market share will decline slightly in the years ahead, off of
about 5% in 2010, due to competition from small generics
manufacturers. However, the joint venture shows P&G's continued
focus on consumer health care and positions the company for market
Combined sales of the venture's products total over $1 billion,
but could quadruple by the mid to late part of the decade. This
could translate into upside for P&G's market share in
over-the-counter drugs, implying potential upside to our current
$75.25 price estimates for P&G stock
. You can drag the trend line in the interactive chart above to see
how increases to P&G's non-prescription drug market share
affect the company's stock value.
See our complete analysis for P&G stock