Digestive Health OTC

# Executive Summary * The Digestive Health OTC market is being reshaped by a pronounced consumer shift to value and store brands, driven by persistent macroeconomic pressures on household budgets. * This shift is creating a clear divergence, benefiting value-focused players like Perrigo while challenging premium-branded incumbents like Haleon to defend market share. * Acute supply chain fragility remains a primary operational risk, capable of causing significant revenue shortfalls, as demonstrated by Prestige Consumer Healthcare, and is now driving strategic mergers and acquisitions to ensure manufacturing control. * In response to value pressures, leading branded companies are accelerating investment in science-backed innovation and premiumization, particularly in high-growth sub-segments like probiotics, to justify higher price points. * The overall market outlook is for mid-single-digit growth, though performance will vary widely based on a company's exposure to store brands versus premium brands and the resilience of its supply chain. ## Key Trends & Outlook The most significant force currently shaping the Digestive Health OTC industry is a structural shift in consumer preference towards value-oriented offerings and store brands, a direct consequence of waning consumer confidence and broad macroeconomic headwinds. Consumers are actively trading down to manage household budgets, directly impacting the sales mix. This trend directly benefits manufacturers with strong private-label portfolios while creating a challenging environment for premium-branded products. For example, Perrigo gained market share across five of its seven store-brand categories in Q3 2025, while Haleon cited the "shift to value channels" as a key headwind in North America in Q2 2025. This dynamic is expected to persist for the next 12-24 months, forcing a re-evaluation of pricing and brand strategy across the sector. Alongside demand-side pressures, supply chain stability has emerged as a critical performance differentiator. Manufacturing disruptions can lead to immediate and severe revenue declines and necessitate significant capital investment to correct. Prestige Consumer Healthcare's experience, where an extended production shutdown for a key product led to a 6.6% drop in quarterly revenue in Q1 FY26, exemplifies this risk. The company's subsequent approximately $100 million acquisition of a manufacturing partner underscores the strategic imperative of securing supply chains, even at a high cost. The primary opportunity for growth and margin defense lies in targeted innovation, particularly within the rapidly expanding supplements category, where probiotics and prebiotics are commanding consumer interest and premium pricing. The most significant near-term risk is continued margin compression for branded players who fail to innovate effectively, as the consumer shift to value offerings accelerates. ## Competitive Landscape The global OTC Digestive Health market was valued at around $40-45 billion in 2024 and is projected to grow at a compound annual growth rate (CAGR) of approximately 6-7% through 2030. This competitive landscape includes both global giants and specialized players, with North America representing the largest market share, accounting for approximately 45% of the total. One strategic approach in this industry involves companies focusing on leading the value segment through extensive store-brand operations. These firms capitalize on consumer price sensitivity by manufacturing and supplying private-label OTC products at competitive price points. Perrigo exemplifies this model, having gained dollar, unit, and volume share in five of its seven store-brand categories in Q3 2025, demonstrating the success of a value-driven strategy in the current economic climate. In contrast, other major firms compete by investing heavily in research and development to launch science-backed, premium-priced brands, thereby building strong consumer loyalty and higher margins. This science-backed branded premiumization strategy is evident in Haleon's approach, which includes an annual R&D budget of approximately £300 million, aimed at developing innovative solutions and differentiating its portfolio. A third approach involves dominating smaller, needs-based categories with highly trusted brands. This niche dominance strategy often leads to strong profitability but can carry potential concentration risk. Prestige Consumer Healthcare operates with this model, cultivating a portfolio of approximately 20 needs-based brands, such as Clear Eyes, which is the number one volume leader in redness relief. This strategy contributes to its notably high gross margin of 56.2% in Q1 FY26. ## Financial Performance Recent revenue performance in the Digestive Health OTC industry is bifurcating, with nearly all players facing top-line pressure from softer consumer demand, but the underlying causes differ. Laggards like Prestige Consumer Healthcare experienced a 6.6% year-over-year revenue decline in Q1 FY26, primarily due to an acute supply chain failure. Meanwhile, Perrigo's 4.1% net sales decline in Q3 2025 reflects broader softness in overall OTC consumption, even as its value model gained market share. In contrast, Haleon posted modest organic revenue growth of 3.5% in Q1 2025, highlighting the relative resilience of a well-supported, innovative branded portfolio. {{chart_0}} Gross margins show significant divergence based on business model, ranging from approximately 35% to over 56%. The margin gap is a direct reflection of competitive strategy, where niche brand leaders command significant pricing power, while value-focused players operate on scale. Prestige Consumer Healthcare's 56.2% gross margin in Q1 FY26 exemplifies the profitability of a portfolio of trusted, needs-based brands. This contrasts sharply with Perrigo's gross margin of 36.1% in Q3 2025, which is characteristic of a store-brand-centric model that competes more on price and volume. {{chart_1}} Capital allocation priorities are split between returning capital to shareholders and making strategic investments in either innovation or supply chain security. Companies are deploying capital to address their primary strategic challenges. Haleon, for instance, announced a £500 million share buyback program for 2025 and invests approximately £300 million annually in R&D, demonstrating a balanced approach of shareholder returns and investing in its premiumization strategy. In contrast, Prestige Consumer Healthcare's approximately $100 million acquisition of Pillar5 Pharma Inc. is a purely strategic move to de-risk its supply chain. Balance sheets across the industry generally appear healthy, with a clear industry-wide focus on deleveraging. Following a period of strategic activity, key players are now prioritizing balance sheet strength to increase financial flexibility. This prudent capital management provides a stable foundation for navigating the current uncertain macroeconomic environment. Prestige Consumer Healthcare is a prime example, having reduced its leverage ratio to a record-low 2.4x in Q1 FY26. {{chart_2}}