As it turns out, the deal involved the worldwide rights to the Rolaids antacid brand and nothing more. J&J (JNJ) was silent, but Chattem issued an upbeat announcement. The acquisition "represents a rare opportunity to obtain an iconic brand," says Chattem ceo Zan Guerry, in a statement. Terms were not disclosed.
The sale comes after a period of prolonged turmoil at the McNeil Consumer Healthcare, which is what J&J calls its over-the-counter unit. Manufacturing problems led to countless product recalls; closure of a key plant; hundreds of job losses; a congressional probe; lost consumer confidence and shelf space; shareholder lawsuits; a managerial shake-up and a consent decree with the FDA (see this and this).
Not surprisingly, the Sanofi deal set off chatter that J&J may be listening to some investors who believe the healthcare giant would be better off shedding its consumer business. J&J, after all, is still struggling to bring its Fort Washington, Pennsylvania, plant on track and, meanwhile, has outsourced some production in hopes of rekindling revenue.
But a wholesale move is not expected. "I think it is merely portfolio pruning, and not indicative of a broader view (that J&J is less interested) in consumer," says Barbara Ryan, a consultant who tracks the pharmaceutical industry and was formerly a Wall Street analyst at Deutsche Bank.
Nonetheless, further pruning is likely, especially as J&J uses extended delays in retooling its consumer business to rethink its product line. And buyers obviously exist. Sanofi (SNY), for instance, agrees with the long-standing J&J strategy that running a consumer business smooths cash flow when the drug business gets bumpy. And the Sanofi drug business, as you know, has been bumpy, which prompted the Genzyme acquisition two years ago (back story).
"Divesting some of these brands may make great sense as a way of recouping some value, avoiding further losses and reducing risk," Donald Kay Riker, who runs OnPoint Advisors, a consumer healthcare products consulting firm, and editor of OTC Product News, writes us. He is also a former exec at Sanofi's Chattem division. "Renewed focus on the OTC business and new management should foster portfolio reevaluation leading to consolidation... I think the remaining issue for J&J is whether this is it, or whether the other, smaller recalled brands are up for sale, too. It’s not impossible to think that Chattem expressed no interest in the other brands."
Why Rolaids? Riker points out that Rolaids has been made "obsolete by newer technologies such as Prilosec, or Imodium (Kaopectate) making them niche brand." Chattem, by the way, has previously purchased over-the-counter products from J&J. In 2006, Riker notes, J&J sold ACT, Cortizone, Balmex, Unisom and Kaopectate to Chattem, which was purchased by Sanofi in 2008.
We asked Chattem for comment and will update you accordingly. We also asked a J&J spokesman to what extent, if any, the healthcare giant may be precluded from selling any additional brands as a result of the consent decree and will pass along any response that we receive.