Someone needs to slap Merck (MRK) CEO Kenneth Frazier for saying that he will consider "all the options," including a sale of the company's consumer health unit which markets Coppertone, Dr. Scholl's, Tinactin and a bunch of other unglamorous brands. A sale is the last thing he should do for four reasons:
- History has proven -- in the form of Pfizer (PFE)'s notoriously misjudged sale of its consumer brands to Johnson & Johnson (JNJ) -- that such steady-eddie earners stabilize a company's revenue stream over time and smooth off the rollercoaster highs and lows of the prescription drug business, which is beset by sudden product launches and equally sudden patent expiries.
- A consumer unit helps lower the company's average legal liability. Merck paid $4.9 billion to settle claims against its Vioxx painkiller. That sum may be high but drug litigation is common. No one sues Coppertone. It's easy money.
- Some of those brands, like Coppertone, Dr. Scholl's and Bain de Soleil, are ripe for brand extensions and reinventions that could command incremental revenues -- if Merck has enough imagination and ambition.
- Merck's prescription Clarinex anti-allergy drug faces generic competition in 2012 and thus becomes ripe for an eventual conversion to non-prescription, consumer drug status, just like Claritin. Handled properly, well-known brands that sit on the drugstore shelf can become household names that command generations of family loyalty despite the store's own brand sitting next to them.