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A Huge Business Wrapped Up in Tiny Packages

Brian Orelli, Ph.D.
February 22, 2010

They're not as exciting as their friends that hang out with pharmacists; they hardly ever hit blockbuster status. But investors still shouldn't ignore over-the-counter products. There's good and bad aspects to pharmaceutical companies selling over-the-counter products and investors should keep a weather eye on both.

Let's start with the good
Combine all those tiny packages and there's some serious revenue adding to the bottom line.


Fourth-Quarter Revenue From Consumer Products (in Millions)

Percentage of Total Revenue

Year-Over-Year Increase

Johnson & Johnson (NYSE: JNJ  )




GlaxoSmithKline (NYSE: GSK  )




Novartis (NYSE: NVS  )




Pfizer (NYSE: PFE  )




Merck (NYSE: MRK  )




Source: Company transcripts. N/A = not applicable.
*Includes about 2.5 months of post-merger Wyeth sales.
**Includes about two months of post-merger Schering-Plough sales.

You'll note the irony that Pfizer sold its consumer health division to Johnson & Johnson and then picked one up again when it purchased Wyeth. Merck also diversified into consumer products when it purchased Schering-Plough, getting products like Coppertone sunscreen and Dr. Scholl's foot-care products. Sanofi-aventis also has joined the fun with its purchase of Chattem.

A little diversification is nice, but investors should be cautious of any drug company that says it plans to make a major push into over-the-counter products because the margins there aren't that great. Not every company is nice enough to break out margins by segment, but at least for Novartis, the consumer health division only manages a core operating profit margin -- excluding corporate expenses -- of 15.3%; pharmaceuticals manage a 28.5% operating profit margin.

But it's not without problems
Over-the-counter products aren't perfect though. Because many of them are regulated by the Food and Drug Administration, they're just a susceptib