P&G Targets OTC Drug Market Growth with Teva JV

Procter & Gamble (NYSE:PG) and Israeli drug maker, Teva Pharmaceutical Industries (TEVA), have recently wrapped up a deal to form a consumer health care joint venture, PGT Healthcare, which will focus on developing and selling branded over-the-counter (OTC) medicines. The deal was first announced in March 2011 and recently received approval from anti-trust regulators in North America and Europe. We believe this deal gives P&G a nice growth opportunity in a rapidly growing market. P&G competes with Unilever (NYSE:UL), Kimberly-Clark (NYSE:KMB) and Colgate-Palmolive (NYSE:CL).

See our complete analysis for Procter & Gamble’s stock.

Synergies Create Huge Market Opportunity

PGT Healthcare will kick off with $1.3 billion in annual sales from the companies’ existing products in the fast-growing $200 billion consumer healthcare industry. It expects to achieve double-digit annual growth rates to reach $4 billion in sales by 2020 by expanding into new markets and product categories. Headquartered in Switzerland, the JV will operate in all markets outside of North America to develop branded OTC drugs. It will also develop new brands for the North American market and will directly compete with Johnson & Johnson’s OTC products.

Looking at New OTC Categories and Markets

PGT Healthcare will help P&G and Teva expand into new OTC categories. Currently, P&G has a strong presence in OTC drugs for cough/cold, digestive wellness, and women’s diagnostics, with popular products like Vicks, Metamucil and Pepto-Bismol. Teva’s portfolio includes leading brands in vitamins, minerals, supplements, analgesics, and medicated skin products like Ratiopharm as well as prescription drugs that are likely to be sold OTC in coming years.

The JV will also enjoy a strong geographical footprint across the fastest growing OTC market in the world. While P&G has a strong presence in the U.S., Canada, Brazil, Mexico, India, Indonesia, Australia, Italy, France and the U.K., Teva is strong in Russia, Poland, Ukraine, Germany, Scandinavia, Venezuela, Chile, Peru, Japan, and Israel. It is also expected to launch into new large markets like China.

The JV will synergize P&G’s branding and merchandising strength with Teva’s leading products and technological expertise, along with its strength in pharmacy distribution and pharmacy relationships. It will add significant business momentum to P&G’s OTC drugs segment, which currently contributes to 6% of its stock value.

We value Procter & Gamble with a $71.56 Trefis price estimate of its stock, at almost a 10% premium to its current market price.

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