Daybreak - How pharma companies are chasing newer, better, easier profits by going the FMCG way

Episode Date: March 20, 2025

Pharma is slow, complicated and tangled in regulatory approvals and compliances. But, consumer healthcare is fast moving, has far fewer rules and enjoys better margins. Under the umbrella of consumer healthcare you will find a plethora of categories and products – all of which claim to improve some aspect of health or well being. Think supplements, or over the counter medications like Crocin or Sanofi’s own Allegra, even things like protein bars. These are products that you can toss into your shopping cart and purchase without the hassle of a prescription. Last year, Sanofi India decided to demerge its consumer arm and list it as a separate entity – Sanofi Consumer Healthcare. Sanofi even gave it a shiny new label: FMCH, or fast-moving consumer healthcare. And this approach seems to be working out well for the French company. Sanofi Consumer Healthcare has been picking up some of the slack. By Q1 of 2024, it was already contributing 30 per cent of Sanofi SA’s total sales and -40 per cent of its operating profit. But Sanofi didn’t invent this move. Zydus Lifesciences figured it out back in 2008 when it created Zydus Wellness, the entity behind Sugarfree and Glucon-D. And after that, we saw giants like GSK and Johnson & Johnson follow suit. But here’s the thing about Sanofi. Unlike Zydus, which clearly separates its pharma and consumer-health businesses, Sanofi blurs the line. A lot of its pharmaceutical products are being recategorized and sold as consumer care. Tune in.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.The Ken is hosting its first live subscriber event! Join two long-term and contrarian CEOs, Nithin Kamath of Zerodha and Deepak Shenoy of Capitalmind, as they discuss the mental models, decision making frameworks, and potential outcomes related to a very real possibility: an extended stock market winter that lasts 24 months or more. Click here to buy your tickets. 

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Hi, this is Rohan Dharma Kumar, one of the co-hosts of the Ken's 2x2 podcast. And this is Praveen Gopal Krishna, the other host of 2x2 podcast. Are you excited, PGG? Actually, I'm more terrified than excited. I'm excited.

also. Well, I haven't heard you. Yeah, I haven't heard you being terrified since, what's it, like, six days. Live events are terrifying, Rowan. I have done live events. You've done stage. I actually, I mean, I just remembered I've done stage. Well, thank God there were no, there's no photographic or videographic evidence of that, but we're back on stage. We are back on stage. Context for listeners, the Ken, and we are doing our very first live subscriber event this coming Monday. That's 24th of March at the Bangalore International Center's auditorium. It's at 5pm or you'd want to be there. Why, Praveen? Because we have two fantastic guests. We have

Nathan Kamath, founder and CEO of Zero Da and we have Deepak Shanoi, founder and CEO of Capital Mind. And we are here to discuss something very interesting. Something that nobody wants to talk about or imagine as a possibility or think is actually going to come to pass. What is it? It's about India's falling stock markets. And what happens if this falling stock market continues for another 24 months? What are the effects of that? Interesting.

I know you must be wondering, okay, stock markets are. following what's a big deal, but where did this 24 months come from? Well, I think, think of it as a constraint. Praveen, how would you explain? I mean, why are we discussing what happens if stock markets continue to fall for 24 months? Yeah, because the thing with stock markets is they just say it's like a random walk. No, some days it's up, some days it's down. And we've never really seen this kind of. Not really. If you're an Indian investor, especially if you're a young Indian investor, most days they're up. They're up. And you've never seen. A downturn, really.

And I think now the possibility of a downturn... Just like salaries never go down. Correct. Salaries never go down. Company workforces never get cut. Correct. And for a long time, people were saying that invest in the stock market. It's never going to go down.

You're always going to make money. And, well, I don't think that's true anymore. I think the possibility is starting to get... The possibility of it going down for a significant period of time is actually quite interesting, scary and exciting. Just like how I'm feeling about the event. That's right. The event is called beyond the first order because we want to look at what happens beyond merely just the numbers, right?

If, yeah, sure, the stock market goes down and most of us read about the effects of it, the first order effects of it in the newspapers or news websites each day. But we want to go beyond that. We want to see what are the second order effects. What are the third order effects? What happens if these markets continue to go down and stay down for the next two years, which companies, what sector? what careers are affected by it, and how should we as individuals and professionals prepare for it? Yeah, and so some of the things that come to mind are,

what happens to all of these tech startups that are waiting to go for an IPO? What happens to all of these employees who are holding on to ESOPs? What happens to the startups that are already public? And they're looking at this and wondering, okay, what can we do now? What happens to fintech? What happens to real estate? What happens to SIPs? what happens to all the ways that people have invested till now

and how that's going to change. It's fun. You're wondering, is this an event worth your time? I bet it is. It's going to be roughly a two-hour event. It's going to be me and Praveen on stage with Nathan and Deepak, asking them a bunch of questions which we've already researched and a lot of the Ken subscribers and people who have already registered for the event

have written into us. There will be an interactive Q&A. session at the end as well. We intend to make it a really interesting event. I mean, the Ken started in 2016. One of the longest running requests that we've got from our subscribers is why don't you do events and we've always held back from that because we didn't, we weren't sure really what kind of an event would we do where the event

itself would be worth your time and you don't just go there because, hey, there's what a food, networking, other things, right? So we're now doing it in our ninth year. Yeah. And if you're a subscriber of the Ken, tickets for the event are priced at rupees 999. And if you're a non-subscriber, this might be a good time for you to get a subscription

because tickets for you are going to be priced at one triple-nine. And this is going to be the first of hopefully many, many events that we plan to do over the next time. Not hopefully for sure. I can tell you. For sure. For sure, events that you're going to do over the next several months and years. Thank you for your time.

What do they say? Link is in the show notes. Link is in the show notes. You just have to register there. And then we'll send you the link for you to purchase tickets. And if you see us, come to Bangalos International Center, say hi to us. Wave to us from the audience. We'll probably ignore you, but you can try.

And it'll be a fun discussion. That's Praveen. That's Praveen. I'm always around to take your compliments. If you have any criticism, brickbats, you can please direct them at Praveen. That's the split between us at the Ken. and on two by two. There's a separate type form for that.

Over the last few years, French farmer-giant Sunofi Essay's core business here in India has steadily lost some steam. For a company that makes long-time medicine cabinet staples like Allegra and Combi Flam, that had to be a tough bill to swallow. So as its profits started to dip, Sunofi India realized that it needed to shake things up. So it took a page out of the FMCG playbook. Let me explain. Pharma is slow, complicated and tangled up in regulatory approvals and compliances. Meanwhile, consumer health care is fast-moving and it has far fewer rules and enjoys better margins. Under the umbrella of consumer health care, you will find a plethora of categories and products,

all of which claim to improve some aspect of health or well-being. Think supplements or over-the-counter medications like Crocin or Sinofy's own Allegra, or even things like protein bars. These are products that you can toss into your shopping cart and purchase without the hassle of a prescription. It sounds like a pretty sweet deal, right? Which explains why, just last year, Sunofi India decided to demurge its consumer arm

and list it as a separate entity, Sanofi Consumer Healthcare. Sanofi even gave it a shiny new label, FMCH, or fast-moving consumer healthcare. Think about it this way. It is your quintessential FMCG playbook applied to medicine cabinets. And this approach seems to be working out well for the French company. Sinoffi Consumer Healthcare has been picking up some of the slack.

By the first quarter of 2024, it was already contributing 30% of Sanofi SSA's total sales and 40% of its operating profit. And that is the point, really. Consumer healthcare is doing exactly what Sanofi wanted to do, which is offset the pharma slowdown with the fast, smoother world of over-the-counter products. Now, of course, Sunofi did not invent this move. Zidus Life Sciences figured it out way back in 2008 when it created Zidus wellness, the entity behind sugar-free and glucondi. And after that, we saw giants like J.SK and Johnson and Johnson

follow suit. But here's the thing about Sunofi. Unlike Zidis, which clearly separates its farmer and consumer health businesses, Sanofi kind of blurs the line. A lot of its pharmaceutical products are being recategorized and sold as consumer care. It also does not help that all of this is coming at a time when FMCG in India is really taking a beating. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Dar Sharma, and I don't chase the news cycle. Instead, every day of the week, my colleague Rahal Philipos and I will come to you with one business story that is worth understanding and worth your time. Today is Thursday, the 20th of March.

Earlier this month, Sanofi India roped in an advertising agency called FCB India for a very specific task. It wanted the agency to help it push Dulco Flex, which is its laxative brand, to more Indian households. Now, typically, a farmer company would not be able to splash celebrity endorsements across Instagram. But if it is a consumer healthcare product, suddenly the rules are different. So Sanofi India's managing director, Rudolfo Rose, said that going down, the consumer health care route was but natural. He pointed out how Rackett, Procter and Gamble and Unilever have been doing it forever. So now, even Sinoffi SES' global consumer division, Opella, is eyeing the big leap.

It is planning to make Sealis, which is an erectile dysfunction drug available over the counter. If it is approved by the US's FDA, Americans may be able to pick up a box as easily as they do a pack of gums. But it is not that straightforward in India. The government only started reviewing which prescription drugs can go over the counter in May 2024. A panel is expected to submit its report any day now and until then, companies like Sanofi will have to keep recategorizing old medicines as consumer-friendly essentials. On a recent earnings call, Sanofi India's chief financial officer,

Weibhav Karandikar, explained how consumer health care has a consumer health care has a much better profit margin. Compared to the blended margins, he said that consumer health care margins would be at least 8 to 10% higher. And that is not all. The associated costs are significantly lower because A, there are fewer regulatory hoops to jump through, and B, when you sell directly to consumers, you skip the intermediaries. Pharma experts that the Ken reporter Sudetia spoke to explained how this gives farmer companies a leg up by allowing them to compete direct. with D2C brands without the burden of compliance. Now, why Sanofi may not directly rival D2C brands,

its consumer division attracts more investor interest thanks to fewer marketing restrictions compared to its former wing. And Sanofi is really leaning in on it. Just take Allegra, for example. Until 2011, you needed a prescription to purchase the allergy medication. But now it is an over-the-counter lifestyle brand with an 80% market share in the respect. category. Or another example is Combi Flam, Sanofi's painkiller. It currently holds 55% of the

analgggis market. These are the kind of brands that Himanchu Bakshi, Sunofi Consumer Healthcare India's managing director, calls Love Brands. These are products that consumers recognize and ask for by name. These consumer brands, Allegra, Combi Flam, Dalcoflex, and a handful of others, ended up outpacing its general medicine line in the first quarter of the last fiscal year. So now you understand why spinning them off into a separate consumer healthcare entity helps Sanofi India. It manufactures its general medicine using a combination of contract manufacturers and its own facility in Goa. But now it is able to fine-tune processes specifically for over-the-counter products,

which is also another cost advantage. So now, with the broader over-the-counter market in it, India booming, Sanofi wants a bigger piece of the pie. Stay tuned. Going down the FMCG or well FMCH path means unlocking a trove of consumer data. And this is data that a lot of pharma companies would not otherwise have access to. So naturally, they are rising to the occasion. Most pharma companies, Sanofi included, want to leverage this data to grow.

And e-commerce is the obvious play to make that happen. It allows you to sell straight to consumers and along the way you are able to learn exactly how, when and why they are buying. Zidas Wellness is already watching these shifts in consumer behavior quite closely. During an earnings call, the company's CEO highlighted how consumer behavior is shifting to one-time use packs for freshness and experience. The trade-off here is slimmer profit margins, but more opportunities to fine-tuning pricing and product strategy. In fact, now Zidus is approaching consumer health a little bit differently.

While Sunofi is betting big on its legacy brands, Zidus has been expanding through acquisitions. It bought Kraft Heinz India in 2018, which in turn had bought brands like Complan, Glucondi and Nysil into its Consumer Health fold. Then, in November 2024, it entered the protein snacks market by acquiring natural India. Sanofi, meanwhile, is choosing to transform existing pharma products into consumer-friendly goods. So its portfolio spans a broad range, allergy relief, pain management, digestive wellness, coffin cold remedies, vitamins and also personal care. Meanwhile, its parent company Sanofi India still holds on to specialized prescription drugs for severe conditions. Also, turns out, India is crucial to these companies. After all, it is home to the sixth largest consumer health care market

globally. So what is next for Sanofi's consumer health arm in India? Well, expanding distribution. Now, as more and more consumer health care brands are starting to occupy the shelves of grocery stores and e-commerce platforms, Sanofi cannot be left playing catch-up. Today, most of its over-the-counter products remain primarily in retail and e-pharmacies. But now it is pushing hard to close that gap. There is a lot at stake here. You see, investors are loving the consumer shift. Consumer health spinoffs tend to trade at higher valuations than their pharma parents.

So regulatory ease, better margins and happy investors, it is no wonder that pharma wants a piece of the FMCG playbook. And if India's over-the-counter rule, lose enough, expect Sunofi to take the charge. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-undi offerings.

A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. To subscribe, head to the Ken.com and click on the red subscribe button on top of the Ken website. Today's episode was hosted by Snigda Sharma and edited by Rajiv Siyah.