Product and Service
Companies included in OTC& natural base drug sector primarily manufacture OTC drugs and natural base health products including supplements, personal care and cosmeceutical products.
Demand for Product and Service
Consumers’ demand for OTC drugs and natural health products (cold remedy products) seems to be very weak and the growth varies depending on products.
Sector’s current, trend, causes behind trend, and future
Current and Trend
- Consumers’ demand for OTC drugs and natural health products (cold remedy products) seems to be very weak. The growth in demand varies with different product categories.
- Declining demand and increasing spending on sales& marketing exert huge pressure on companies’ profitability.
- Companies in this sector have to terminate some of OTC and nature based drugs production and turned to manufacturing for third party to maintain cash flow.
Causes behind the trend
- It is very common in a growing market that companies need more capital spending and patience to educate consumers. However, the key may have to be to develop innovative products to meet the consumers’ immediate demand.
- It may be a long road to go for OTC drugs companies to find the right products that can meet consumers’ immediate demand, product that can be complete alternatives to prescribed drugs.
General Financial Performance of Companies In the Sector
Data indicates this sector has been growing slowly and demand for OTC drugs and natural drugs vary with product categories. There are certainly some temporary reasons behind this growth rate in the past several years. However, from what we see the radical reason may have to be traced to declining demand.
Products innovation seems to be helping companies in this sector. However, decreased gross margin seems to be the inevitable result when companies launch new products. A typical gross margin for this sector is around 46% with 56% SG&A spending as percentage of sales and 3% R&D as percentage of sales. They thus have negative operating margins of - (12-13) %.
According our analysis, a typical ratio of enterprise price/sales is 1.5.