Haleon is the spin off of GSK’s OTC (over the counter medicine) business. This month it was reborn as a stand-alone company independently listed on the London stock exchange. Haleon has a market valuation of £30.5b (US$36.2b) and a portfolio of brands including Sensodyne (oral care) and Panadol (pain relief). The company makes 63% gross margin, typical for a CHC (consumer healthcare company) and less than £200m in debt.
Haleon’s rejuvenation is a not a new healthcare phenomenon, J&J is divesting its CHC business and last year Takeda divested its OTC business to private equity giant Blackstone.
Haleon’s management have been busy talking up its prospects to fund managers. Certainly there are a number of favourable tail winds including the self medication trend, Governments’ desire to reduce health costs by encouraging ‘prevention’; and the widening availability of CHC products in mass retail and online.
For all the fanfare behind Haleon, revenues in 2021 fell 3.5% and beneath the surface it seems there are several strategic challenges.
The first is the innovation and renovation pipeline. Traditionally CHC businesses gained traction with ‘switches’, moving an off patent Rx into OTC. From where Haleon will derive its future ‘switches’ is unclear.
Second, as much as Haleon has a global presence, the footprint is patchy. At one point, its substantial Chinese business would have been seen as a strength but with the current geo-political atmosphere that cannot be taken for granted.
Third there may be a need for mindset changes. Some who interacted with GSK say the company was slow and bureaucratic.
Finally, and perhaps most crucially, the competitive landscape has changed. Besides J&J, a company renowned for its strong marketing, P&G also has a substantial healthcare business as do Reckitt, Bayer and more recently Nestlé.
Earlier this year Unilever offered £50b for Haleon, an offer that was rebuffed. Note this offer is substantially above Haleon’s current stock market valuation. Deep-pocketed Nestlé or J&J may view Haleon’s presence in Oral & Pain care as a complimentary add-on plus there are substantial geographical growth upsides.
Is Haleon (a concocted name, Hale for ‘health’ and ‘Leon’ for Lion) immune from attack? When and how will the Haleon roar?
The FT reported that Haleon’s debut on the stock exchange was ‘lacklustre’. Its shares dropped 6% on opening.