By Ben Hirschler and Martinne Geller
LONDON (Reuters) - Consumers from New York to New Delhi are digging deeper in their pockets for over-the-counter remedies and health products, a trend GlaxoSmithKline is banking on to help shape the next chapter in its evolution.
Emma Walmsley, head of the British drugmaker's enlarged consumer healthcare business, says its market-leading position in areas such as pain relief and oral health will bolster the division's margins and make it a partner of choice for retailers.
GSK predicted on Wednesday its consumer health sales would grow at a mid-single-digit compound annual rate over the next five years, slightly ahead of overall company sales.
It is also targeting an operating profit margin of at least 20 percent for the business by 2020. That compares to a target margin of at least 30 percent for its vaccines business, which it expects to grow at a mid-to-high single digit rate.
In the biggest shake-up in its 15-year history, GSK has just sold its cancer drugs to Novartis , while buying the Swiss group's vaccine business and creating a consumer health joint venture in which GSK holds a 63.5 percent stake.
"Acquiring scale, particularly in specific segments, is important because it allows us to benefit from global brand platforms, innovation and partner of choice relationships," Walmsley told Reuters. "That's why the Novartis transaction makes so much sense."
So far, the strategy has got a lukewarm reception from investors, since the move cuts GSK's exposure to prescription drugs just when enthusiasm for new medicines is riding high.
Oncology, in particular, is red hot, thanks to recent scientific advances. Global sales of cancer drugs topped $100 billion (£65.6 billion) for the first time last year.
Walmsley, who spent 17 years at L'Oreal before joining GSK in 2010, says sceptics are ignoring the upside from becoming global No. 2 behind Johnson & Johnson (J&J) in consumer health, an industry where size matters.
The GSK-Novartis venture combined Novartis's headache tablets Excedrin and Lamisil anti-fungal cream with GSK's Aquafresh toothpaste, Nicorette nicotine gum and Panadol painkillers.
Consumer health brands have smaller profit margins than prescription drugs, but offer a reliable revenue stream that does not dry up once patent expiries open the door to cheaper generics.
The global consumer health industry is expected to be worth nearly $279 billion at the retail level in 2019, up from $216 billion last year, according to Euromonitor International.
Growth is outpacing that of other packaged consumer goods, fueled by a greater interest in health and wellness, aging populations in developed markets, and rising incomes and urbanisation in emerging markets.
The phenomenal success of GSK's malted drink and foods brand Horlicks in India shows how rising economies can move the dial.
Walmsley said her priorities for "laser sharp focus" included over-the-counter treatments for pain, breathing and gastrointestinal problems, together with oral health and nutrition.
"At the moment, we think we should be focused on accelerating these areas but of course we will always keep an eye out for opportunities," she said.
The past year has brought a wave of consolidation. Aside from the asset swap that formed GSK's arm, Perrigo bought Omega Pharma, Bayer bought the over-the-counter business of Merck & Co and Reckitt Benckiser bought K-Y jelly from J&J.
Consumer health accounts for a quarter of sales within the new-look GSK, promising not only increased financial stability but also opening up the option of a possible spin-off down the road.
Chief Executive Andrew Witty is open to alternative structures, telling Reuters in January the idea of a standalone consumer company was "much more tenable" after the Novartis deal.
(Editing by David Clarke)