In the health-care product arena, almost everyone recognizes the names of major players like Procter & Gamble (NYSE:PG) and Bayer (NYSE:BAY). But there's a smaller contender out there whose products we all know, and who beats the big boys in terms of gross margins -- and it's anything but a household name.

Chattem (NASDAQ:CHTT) makes health-care products like Icy Hot, Aspercreme, and Flexall. It has strong business fundamentals and the potential to deliver long-term profits. Whether you're looking to knock out back pain, arthritis, or athlete's foot, Chattem has something to do the trick.

These products have earned more than 70% gross margins in each of the past three years. Chattem's Goliath-sized competitors, P&G and Bayer, have gross margins below 50%. In the battle of products, Chattem's Selsun Blue goes up against P&G's Head & Shoulders. Bayer's Muscle & Joint Cream is an alternative to Chattem's Aspercreme, and Pfizer's (NYSE:PFE) BenGay competes to win market share from the company's Icy Hot brand.

Chattem has performed well among these giants, and its products continue to be competitive and profitable. The company reported second-quarter results last week, and most of its brands showed healthy sales growth. Overall revenues were up 8% for the quarter, partially aided by the company's brand-leveraging new-product releases. The Icy Hot Sleeve helped boost the Icy Hot brand's overall sales by 23%, while a new back-and-body patch contributed to Aspercreme's 102% sales jump. Selsun Blue and Garlique (the company's garlic supplement) also saw sales increases of 7% and 27%, respectively.

On the downside, though, the company's BullFrog brand sales dropped 13%, while litigation-challenged Dexatrim showed a sales decline of 16%. Investors should keep an eye on these weaker brands, and on the company's debt levels and periodic acquisitions.

Chattem currently has $183 million in debt, mainly due to acquiring other over-the-counter brands, as it did in 2002 with Selsun Blue. If management can acquire a brand like this for a fair price, applaud them. And if it creates more products like the Icy Hot Sleeve to leverage current brands' pricing power, give them a standing ovation.

Pfizer is a Motley Fool Inside Value recommendation. Your 30-day free trial to Inside Value is only a click away.

Fool contributor Matt Thurmond has no financial interest in any company mentioned in this article.