The trend of spinning off consumer healthcare companies is gaining momentum. These business divisions, known for their popular self-care brands and over-the-counter therapies, are now being liberated from their parent companies and transformed into independent entities ready to compete in a diverse market that extends far beyond the traditional boundaries of the pharmaceutical industry.
A notable example is GSK, which recently unyoked its $36 billion consumer healthcare business, giving rise to Haleon. The rationale behind this separation was GSK's desire to allocate more attention to its vaccine portfolio. Following a similar path, Johnson & Johnson successfully launched its consumer arm, Kenvue, through an IPO that achieved a valuation of $41 billion. Pushed by investor pressure, pharmaceutical giants like Sanofi and Bayer are also considering the spin-off route.
The rationale behind these spin-offs is robust: parent companies can restructure their financial foundations by redistributing debt and injecting fresh capital through IPOs and stock sell-offs. The extra cash combined with a simpler operating model lets them focus more on higher-margin ventures, such as other pharma products within their target therapeutic areas.
For the newly independent spin-off companies, the benefits are equally compelling. These autonomous entities can shape business models that deeply resonate with their markets and consumers and redirect resources to key products rather than competing for capital with pharma, which typically delivers more expansive gross margins. These factors combined give the newly formed companies a better chance at seizing more of a market set to top $322bn by 2028, with consensus estimates ranging from 5% to 7% CAGR.
However, reaching this operational utopia is no easy feat. Consumer health companies must develop strategies that preserve their inherited strengths from their pharmaceutical origins while harnessing newfound freedom to drive growth in a fiercely competitive market.
Rev up the sales engine
One key priority is to revitalise the sales and marketing engine. As Haleon has come into its own, for example, they have emphasised the importance of investing in their brand. They highlighted the contrast between the marketing demands of consumer-focused markets and traditional pharmaceuticals' more conservative and cost-conscious approach. While regulatory compliance and the financial security of patented products fuel more caution in pharmaceutical companies, the consumer space demands a bold and strategic marketing presence. Indeed, targeted brand and consumer-centric marketing is a critical pillar for growth, allowing brands to influence customer decisions at the right moment.
Achieving this goal necessitates embracing new technologies and attracting a different blend of talent. While pharmaceutical companies predominantly market and sell to healthcare providers, often facing limited competition due to their hyper-specialized products, consumer health companies compete for shelf space among a sea of similar products, vying for the attention of consumers with sometimes countless options.
To succeed, consumer health companies must understand customer journeys, develop precise signals identifying when consumers make purchasing decisions and the criteria they consider, all while accounting for regional sensibilities. This is a capability that requires an analytics engine that many spin-offs will need to scale up rapidly but which few pharmaceutical companies need to consider.
Marketing and sales styles also exhibit clear differences. In the case of pharmaceutical companies, their aim is to convince healthcare professionals (HCPs) of the superiority of their product through data and scientific evidence, requiring a product-led approach. In markets where there is little to no competition, such as when a particular vaccine represents the only marketable solution to a virus, markets form around the product itself, rather than biopharma companies pushing marketing materials to build awareness.
On the other hand, in the consumer health market, approaches must be narrative-led, with brands crafting convincing stories to capture consumers' attention and reinforce their buying decisions. Building these compelling stories is a challenging task. Companies must test products and messaging in markets, assessing their viability and developing parameters to guide a broader strategy, helping them narrow down the markets they want to focus on.
Take well-known brands—such as Calpol and Nurofen—which have developed such a strong marketing narrative that the brand names are now verbs in several geographies. A competitor looking to dislodge these incumbents will need to rigorously test product and go-to-market strategies to gauge the viability and parameters in which they can enter the market successfully. Or look for opportunities elsewhere.
The good news is that they are now under the governance of a different regulatory dynamic for several of their products (particularly non-medicinal), allowing them to swiftly evolve their digital capabilities to match those of established competitors.
However, this freedom comes at a cost, and it's essential to consider the potential trade-off of lost brand equity. Large pharmaceutical companies often enjoy a reputation for scientific rigor and quality products. Under this umbrella, self-care products enjoy something of an advantage—after all, a company recognized for delivering the most effective vaccines must also offer equally trustworthy self-care products. Balancing the preservation of brand equity during the honeymoon period with broader brand-building exercises necessary for launching new products is crucial.
Reassert themselves in partner ecosystems
Following a spin-off, consumer health companies undergo a transformation that impacts their value proposition and reshapes their role within the partner ecosystem. In most cases, they enter the market with a stronger foundation, offering retailers and partners a more focused strategy and commitment to the consumer health market. Positioning them to offer new and innovative products at compelling price points, which, combined with their existing supply chains, popular brands, and a new operating model lay a solid groundwork for growth for everyone in the ecosystem.
As a result, consumer health companies gain leverage in negotiations with retailers, bringing pledges for focused innovation on consumer product lines, and the opportunity to drive new products and services, enhance brand awareness, and deliver a more compelling market offering.
For instance, they might present a strategy centred on acquiring additional brands to dominate a growing market segment. Alternatively, they may develop an ecosystem of products that complement their areas of strength, such as introducing a series of dental products to enhance an already popular toothpaste brand. This focused approach provides a stream of new and popular products for their counterparts in the retail sector, presenting a highly profitable opportunity.
There is also an open question about their relationship with other pharma companies. While there are significant benefits to the independence of consumer health companies, there are also opportunities to explore a more robust partnership. Consumers increasingly seek a holistic healthcare experience, combining prescribed medications with self-care products. Collaborative research, product development and marketing efforts between pharma companies and spin-off companies can enable the creation of treatments that complement each other, such as over-the-counter pain medications supporting oncology treatments or vitamin supplements aiding recovery from specific viral conditions.
Right-size facilities and supply-chains
Efficiency-focused facilities and supply chains are critical in the consumer health market. High-precision manufacturing, essential for pharmaceuticals, may become less necessary and overly expensive for certain consumer health products. In addition, the separation from parent companies will likely see more limited access to manufacturing and R&D capacity, as well as any shared business services. This prospect will push spin-offs to rebuild or reinvest in their facilities and talent pool.
Recently-formed consumer health companies are already ramping up investments to compensate for these limitations and develop new capabilities that lead to a more compelling cost model. For example, Kenvue has secured a new global corporate headquarters spanning 290,000 square feet in Summit East, New Jersey. This location will house corporate offices and laboratory facilities, supporting Kenvue's operations.
In addition to physical facilities, significant investments in IT and digital technologies are necessary. The sales and marketing engine mentioned earlier requires robust data storage and processing capabilities, supported by analytics and AI, to transform consumer data into actionable intelligence for precision marketing activities. The rapid innovation necessary to maintain a strong position in key consumer categories calls for an equally potent mix of tech and talent. Similarly, companies will need new enterprise resource planning (ERP), customer relationship management (CRM) solutions, and supply chain planning tools to navigate complex partnerships and tailor engagement models.
Ramp up for growth
But crucially, building the right operating model allows businesses to embrace new opportunities. Consumer health divisions frequently face challenges securing investment compared to their higher-margin counterparts. The struggle lies in allocating resources between products with a modest 25% margin versus those that offer a more lucrative 75%. Escaping from these skewed economic calculations, consumer health companies can invest in products that align with market dynamics.
One approach is to build robust innovation platforms around already successful brands, complementing them with related products. For example, introducing mouthwash to complement a well-received toothpaste can expand the brand's reach and appeal. Or supplement existing products through digital health solutions, offering education and other services to enrich patient experiences and develop communities.
There are also opportunities to explore previously untapped avenues. For instance, researching CBD as a wellness product may have been considered too risky by conservative pharmaceutical firms keen to protect their brand and avoid regulatory attention. However, this avenue is open for new consumer health-focused companies for exploration and innovation—and one some companies are already keen to explore.
Exploring new geographies also heralds fresh opportunities. Large pharmaceutical companies typically concentrate on markets with the highest healthcare expenditures, such as Western Europe and the US. In contrast, consumer health companies can find exciting prospects in other regions—ramping up the operational footprint to bring products to underserved markets. Densely populated cities, for example, present opportunities to target large groups of consumers through a relatively small number of retailers—rather than wrestling for market share across more distributed populations.
Crucially, amid a fiercely competitive market, the prospect of market consolidation looms large as brands strive to secure their space. For agile companies with a robust operating and cost model, mergers and acquisitions (M&A) are another path to growth. For example, M&A offers companies the chance to acquire complementary brands and effectively cornering specific market segments, or to bolster the value proposition of existing brands, adding further strength to their offerings. While pharmaceutical investment models may have warped the flow of capital to consumer health divisions, free to invest, spin-offs can now strategically acquire to rapidly fuel growth.
Bottom line: Consumer Health companies face a tough market, but with the right operating model they can deliver the goods
When positioned correctly, spin-offs hold the key to claiming a substantial stake in a rapidly expanding industry within one of the world's most dynamic sectors. They possess the power to become masters of their own destiny, crafting compelling strategies that precisely target the ever-evolving needs of the market. However, seizing this opportunity requires deft navigation through the transition period, swiftly revitalizing their sales and marketing endeavours, redefining partner ecosystems, optimizing facilities and supply chains, and venturing into untapped avenues of growth.
With the right approach, these consumer health specialists can rapidly ascend to take significant market-share from global consumer goods companies. They can establish themselves as frontrunners, catering to the discerning demands and preferences of an increasingly health-conscious consumer market.
