Sector News

Bayer hires new blood to stem 'Amazon effect' in consumer health

November 16, 2017
Life sciences

German drugmaker Bayer has hired the head of Nestle’s baby food business to help it reverse a drop in revenue from consumer health brands, which often fail to appeal to buyers on Amazon and other online platforms.

Bayer has appointed Nestle’s Heiko Schipper, 48, to run the Consumer Health division as a group board member from March 1 next year, replacing Erica Mann, Bayer said in a statement on Wednesday.

Bayer was caught off guard by the speed of U.S. consumers switching to online stores at the expense of established drugstores. Major over-the-counter (OTC) drug rival GlaxoSmithKline has also struggled with the transition.

The shake-up in the segment is a harbinger of what could be in store for the much larger prescription drug sector when Amazon moves into that market and uses its purchasing power to squeeze prices, as is widely anticipated.

Moves such as drug distributor McKesson’s purchase of a CVS Health Corp unit that provides services to pharma firms as well as CVS Health’s planned push into next-day delivery are seen as pre-empting Amazon’s potential entry into prescription drug sales.

Bernstein analysts said in a note earlier this month they expect Amazon to “cause long-term margin compression through the drug supply chain”.

In the market for non-prescription treatments, consumers are more easily comparing prices on the Internet, with Bayer’s premium brands such as sunscreen Coppertone or allergy remedy Claritin often falling by the wayside.

“The U.S. is the market that is facing tremendous structural changes,” outgoing executive Erica Mann said in an analyst call discussing third-quarter results this month.

“We also noted in the U.S. market significant channel shifts, such as an acceleration towards e-commerce and, in particular, I can call it the Amazon effect… Consumer behaviors are shifting and they’re really moving towards e-commerce channels as well as searching for value.”

Both Pfizer and Germany’s Merck KGaA are making preparations to sell their respective OTC businesses.

Bayer’s OTC drugs unit, boosted by a $14 billion acquisition of brands from U.S. rival Merck & Co in 2014, reported a 7.4 percent fall in third-quarter sales, down 2.9 percent adjusted for currency fluctuations and portfolio changes.

U.S. drugstore chains have merged in response to the online threat, wielding increased purchasing power to squeeze procurement prices.

Nestle on Wednesday confirmed Schipper’s departure, announcing an overhaul in its infant nutrition business, managing it no longer globally but regionally. ($1 = 0.8455 euros)

By Ludwig Burger

Source: Reuters

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