Kenvue, the manufacturer of popular over-the-counter medications Sudafed and Tylenol, experienced a significant decrease in their stock value after a panel of experts convened by the Food and Drug Administration (FDA) questioned the effectiveness of a common ingredient found in oral decongestants.
However, it seems that the initial sell-off may have been an overreaction as the stocks have shown signs of recovery since the news broke.
In midday trading on Wednesday, Kenvue shares (ticker: KVUE) had risen by 3.3%, suggesting that investor concerns were starting to subside. Trading of Haleon’s American depositary receipt (HLN) remained unchanged.
Although it is anticipated that the FDA will likely remove the drug from the market, the financial impact on Kenvue and other companies is expected to be minimal. According to analysts, the ingredient in question, called phenylephrine, represents less than 2% of each company’s sales in the United States. In fact, the FDA states that phenylephrine accounted for $1.8 billion worth of products sold in U.S. retail stores in 2022.
Phenylephrine is a common element found in numerous over-the-counter remedies for flu, colds, and allergies. Some versions of Kenvue’s Sudafed and Tylenol as well as Haleon’s Advil include phenylephrine. In addition to Kenvue and Haleon, other companies such as Procter & Gamble (PG) and Reckitt Benckiser Group (RBGLY) also incorporate phenylephrine in their products.
Phenylephrine has been utilized by pharmaceutical manufacturers since the mid-2000s as an alternative to pseudoephedrine, which is more effective but carries a higher risk of abuse in methamphetamine production. However, recent evidence has cast doubt on the efficacy of phenylephrine when taken orally. Dr. William Figg, a senior investigator at the National Cancer Institute and a member of the FDA committee, expressed his amazement at the significant investment being made in a substance with little to no efficacy during the conclusion of Tuesday’s FDA hearing.
While the FDA has yet to take action in removing oral medications containing phenylephrine from the market, the announcement still had a negative impact on Kenvue’s shares with a 4.6% drop on Tuesday. Haleon’s American depositary receipt experienced a more modest 0.9% decline as well.
The Future of Phenylephrine: Implications for Kenvue and Haleon
Both Haleon and Kenvue declined to provide comments regarding the recent FDA committee’s meeting. However, the Consumer Health Products Association, an industry group that represents several over-the-counter drug makers, expressed disappointment with the outcome.
The industry group emphasized the importance of considering the extensive evidence supporting the use of phenylephrine as an over-the-counter ingredient. They also highlighted the potential negative consequences associated with any changes to its regulatory status.
While the FDA typically tends to follow the guidance of its advisory committees, it is highly likely that they will eventually remove phenylephrine from pharmacy shelves. However, the impact on Kenvue and Haleon may be somewhat limited.
According to J.P. Morgan analyst Andrea Teixeira, less than 1.5% of Kenvue’s U.S. sales and less than 3% of their global sales come from products containing phenylephrine. A similar story can be observed for Haleon, as estimated by J.P. Morgan analyst Celine Pannuti, with less than 2% of their U.S. sales and less than 4% globally stemming from phenylephrine products.
It is important to note that an FDA ban would solely apply to the U.S., and sales overseas would remain unaffected. Even if there is a decline in product sales within the U.S., they will not completely disappear.
To adapt to potential changes, both companies have a range of options. For instance, they could modify their formulations to include alternative ingredients like pseudoephedrine, which requires behind-the-counter access but does not necessitate a prescription. Another option would be to explore nasal spray formulations, as phenylephrine has proven to be effective when administered nasally.
Andrea Teixeira further points out that Kenvue’s sales and profits are not significantly reliant on oral phenylephrine products. Therefore, it is unlikely that sales tied to nasal decongestants would cease entirely.
It remains to be seen how the situation will unfold, but Kenvue and Haleon have various avenues to pursue in order to navigate these potential regulatory changes.