Shelf vs. Script: Why Merck’s offloading allergy pills
If you think a licensed pharmacist is the only real difference between NyQuil and Ambien, think again. The two are the product of completely different business models.
“Oh they’re very different,” says Les Funtleyder, author of Healthcare Investing. “One is bulk manufacturing, one is heavy-duty R&D.”
That heavy duty research and development? $5 billion. That’s how much it costs to get a single prescription drug to market these days.
Why would Merck want to focus on that business?
“The return on investment is much higher in the prescription market,” says JB Silvers, a professor of health finance at Case Western Reserve University’s Weatherhead School of Management. He says Merck is well positioned with a strong pipeline of cancer and diabetes drugs. “If you can do well there with patented drugs that have protection against competition, you can pretty much charge what you want.”
Not so in the world of allergy pills and arch support. The consumer drug market is all about competitive pricing and catchy advertising.
“It’s a volume market, it’s like most retail,” says Silvers. “You have a smaller margin, but if you sell a whole lot of it, you do really well.”
That’s what Bayer does best. “Bayer is going to be able to leverage their global reach to take these products to places where they haven’t been sold before,” says Dan Mendelson, CEO of Avalere Health.
Mendelson says when it comes to branding, marketing and selling things like sunscreen and nasal spray, Bayer simply has a better machine.
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