Amid Growth, Reckitt To Launch Mucinex In Emerging Markets Ahead of EU

Emerging markets, the key driver for Reckitt Benckiser's nearly 20 percent net income growth, will be crucial in the firm's launch of Mucinex decongestants outside the U.S.

Reporting fiscal 2010 third-quarter earnings Nov. 2, Reckitt executives said due to tighter European Union pharmaceutical product regulations the firm has pushed back the planned launch of the Mucinex (guaifenesin) line in EU markets until no earlier than 2013.

With launches in European markets on hold, emerging markets become more important to growing the line's sales.

According to a same-day earnings release, net revenues grew 7% under constant exchange rates to £2.11 billion ($3.38 billion under same-day exchange rates) and net income was up 19% to £426 million ($682 million) on actual exchange rates.

Net revenues in the company's North America and Australia divisions were up 2 percent, while revenue in the European sector was flat.

Health and personal care sales, up 8% to $956 million, continued to drive growth for the company.

Panmure Gordon analysts Graham Jones and Damian McNeela say the results are impressive, particularly since the July-September period is traditionally "Reckitt's most challenging quarter."

In a research note, Bryan Garnier analyst Deborah Aitken writes the results highlight Reckitt's "superior qualities across both health and OTC."

Like analysts from those two firms, UBS analysts rated the company's shares a buy.

On a year-to-date basis in health care, Gaviscon antacids and the analgesic Nurofen drove growth, partially offset by the impact on Mucinex and Strepsils throat lozenges due to a weaker cold and flu season in the first quarter.

In emerging markets, net revenue increased 19% to $2.63 billion. Dettol soaps, along with Strepsils, Gaviscon and Veet depilatories were particularly strong drivers in health and personal care, the company said. Emerging markets contributed 23% of net revenues.

All emerging or developing markets are doing "reasonably well," said Chief Financial Officer Colin Day. India and Latin America are particularly strong growth areas, added Day, who recently announced his resignation effective March 2011 ('Reckitt CFO Day departs,' 'The Tan Sheet' Oct. 25, 2010, In Brief).

EU Regulatory Challenges

The U.K. firm looked to extending the Mucinex brand outside the U.S. as a key component of its January 2008 acquisition of Adams Respiratory Therapeutics (Also see "Reckitt’s Revenues Soar On Strength Of Adams Brands, Product Innovations" - Pink Sheet, 16 Feb, 2009.).

But Reckitt has not gained EU regulatory clearance for the line, and CEO Bart Becht said a European launch will be in 2013 at the earliest.

"The regulatory attitude and approach has completely changed over the two years since we bought the business in Europe," Becht said during a same-day earnings call.

He explained that concerns about abuse of pseudoephedrine and pediatric cold/flu and analgesic products have tightened and slowed the regulatory process in the cold and flu area.

"That means that everything which was relatively easy to get approved before now takes many, many more years and many, many more studies in order to get it through," the CEO said.

"That's why you're going to see Mucinex roll out in a number of markets outside of Europe, before you'll see it in Europe," Becht added.

Reckitt did not identify where or when it expects to begin the Mucinex expansion.

Reckitt for several years has fought off threats of private-label guaifenesin in the U.S., including appealing a court ruling that would allow Perrigo to launch a Mucinex equivalent (Also see "Reckitt Extends Children's Mucinex Line In Widening Consumer Strategy" - Pink Sheet, 2 Aug, 2010.).

SSL Acquisition Complete

The company announced July 21 it would acquire London-based SSL for $3.9 billion. The move brought Durex condoms and Scholl footcare products into Reckitt's stable of 19 "power brands," and gave the company increased access to Asian markets (Also see "Reckitt Would Add Durex, Scholl Brands With SSL Acquisition" - Pink Sheet, 26 Jul, 2010.).

The deal was declared wholly unconditional Oct. 29 and Reckitt assumed ownership effective Nov. 1, Day said.

The acquisition of SSL gives Reckitt increased access to Asian markets, particularly Japan and China. In Japan, the company currently only sells six brands, Becht noted. "All these brands are relatively in their infancy stage, so we need more scale to do a full-fledged operation in Japan," he said.

Scholl is sold currently in Japan but Durex is not. The introduction of new power brands to the market should give the company the critical mass it needs to succeed there, he said.

In China, Reckitt's business is even smaller, Becht said, with only a few brands and limited sales. Scholl is not sold there, and Durex is sold in only limited distribution geographically.

"We still have a lot of room to grow in China, and we need to gradually close that bridge, both from a geographical spread point of view, as well as from a portfolio point of view," he added.

There had been rumors for years that Reckitt was looking at acquiring SSL. Becht and Day addressed those during the Nov. 2 call, pointing out that a few years ago SSL had several unrelated businesses that were unattractive to Reckitt and around 2003 new management began tightening up the company's holdings to make it more attractive to potential buyers.

- Carolyn B. Phenicie ([email protected])

[Editor's note: This article appeared in 'The Tan Sheet' - Nov. 8, 2010.]