Published in Health Care
Perrigo Co. plc CEO John Hendrickson Perrigo Co. plc CEO John Hendrickson COURTESY PHOTO

Perrigo CEO: Amazon a “natural player” in OTC drug market

BY Monday, September 11, 2017 05:55am Inc.’s potential entry into the pharmacy business represents another way for Perrigo Co. plc to sell medications to consumers and grow the overall market, rather than a threat to the drugmaker’s existing retail sales network, executives say.

As the Seattle-based online retailer continues to alter the U.S. retail landscape, other retailers who sell the store-brand, over-the-counter (OTC) medications that Perrigo produces should not object if the company were to ever forge a deal with Amazon (Nasdaq: AMZN), CEO John Hendrickson told investors. He likened the scenario to how Walgreens, for example, doesn’t mind that Perrigo (Nasdaq: PRGO) also supplies store-brand medications to rival CVS Pharmacy.

“Our perspective is that we work with every retailer out there in the space. Everyone who has a path to the consumer, we work with them today,” Hendrickson said during a health-care investor conference hosted by Wells Fargo. Amazon, he told investors, is “a natural player on the OTC side.”

“You name any retailer, any way of getting to it, any current dot-com, we work with them,” he said. “Our view would be we’re going to work with Amazon just as if they were another distribution channel to get out there and help them, just like we work with Walgreens and CVS and Dollar General and Family Dollar today.”

Reports in May by CNBC and other national business media indicated that Amazon is exploring how to break into the health care and pharmacy business, beginning with the $560 billion prescription drug market. Such a move also would give Perrigo another sales vehicle for the online sale of the generic drugs it produces.

Amazon already sells some OTC medications online that carry the labels of national retailers, as well as Perrigo-branded products, Hendrickson said. If Amazon decides to get into the pharmacy business, Perrigo could produce Amazon-branded medications, just as it does for national retail chains, Hendrickson said. Perrigo products are also sold online through retailers such as Walmart, although those sales are “relatively low,” he said.

“We certainly would work with them, if they were interested, on a brand of their own and a portfolio” of products, he said.

In working with retailers, Perrigo also helps to develop marketing campaigns to pull consumers into using lower-cost, store-brand medications.

Perrigo could develop a marketing campaign with Amazon to push consumers to OTC medications, Acting Chief Financial Officer Ron Winowiecki said.

Amazon’s potential entry into the pharmacy business could drive further growth of the overall market for OTC medications, Winowiecki said.

“From a share standpoint, this could be an exciting opportunity for store brands to really build out the pie bigger,” he said. “We’re excited about this not dividing up the pie. There’s going to be some division, it’s not a question, but this is a mechanism that the pie can get bigger.”

Wells Fargo analyst David Maris noted during the investor conference that a “vast majority of American consumers” responding to a survey said they would use an online pharmacy. While younger consumers are more likely to do so, results of the Wells Fargo survey indicated that older consumers are also “very willing to use it,” Maris said.

“It’s not like it’s only Millennials,” Maris said.

Nationally, the sale of OTC medications generated retail sales of $34.0 billion in 2016, according to the Washington, DC.-based Consumer Healthcare Products Association. That’s up nearly 6 percent from 2015 and more than double the retail sales volume for OTC medications as recently as 2008.

U.S. consumers make 2.9 billion trips annually to a retailer to buy an OTC product, spending an average of $388, according to the association.

At Perrigo, consumer health-care products in the U.S. account for about half of annual net sales. In the second quarter, the division recorded sales of $605 million.

Selling Perrigo products through Amazon does have limits right now, Hendrickson said. A person, for example, with a migraine headache or a sore throat is surely going to go to a local retailer for what they need, not order it online for next-day delivery.

If Amazon can progress and get that delivery down to two hours, “it should be a good space for a retail brand,” he said at a subsequent Morgan Stanley health care investor conference.

Editor's Note: The story has been updated to reflect comments made at a subsequent investor conference. 

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