On this partial of Industry Focus: Consumer Goods, Vincent Shen welcomes Motley Fool researcher Kristine Harjes to discusssome of a many ways medical and sell can overlap, including product personalization, branding efforts, and calls for cost transparency.
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This podcast was available on Nov. 15, 2016.
Vincent Shen: Welcome to Industry Focus, a podcast that dives into a opposite zone of a batch marketplace any day. It is Tuesday,Nov. 15, and I’m your host, Vincent Shen.I’m unequivocally propitious this week becausethis is my second week now that I’ve indeed had somebody in a studio with me, which,in my opinion, is a most some-more beguiling experience. we had Dan final week, and now, for crossover thesis week on Industry Focus, we have Kristine Harjes from Healthcare. She’s going to betalking to us now about some of a trends we’ve seen inconsumer retail, andhow they have been means to together themselves, in terms ofhealthcare and pharmacy.
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Kristine Harjes: I’m vehement to be here, Vince! Thank we for carrying me.
Shen: We came into this thesis weektrying to figure out some of a opposite combinations we could have with a sectors. Previously, we had donesomething on a consumer side with financials, with industrials, articulate aboutdriverless cars, bank cards, or branded credit cards during stores. ButI suspicion it would be kind of tough to find things that would span adult good in terms of consumer products and healthcare, since your side can bevery technical, and I’m privately not unequivocally informed with that space. Butwhen we common some of your records with meand we talked about it more, we indeed satisfied that there’s a ton of things that’s a same.
Harjes: There’s a lot, absolutely.
Shen: Jumpingright into it, one of a initial things wasincreased personalization. On a medical and drug side,you guys take that to another level, in my opinion. We had a prior uncover where we spoke to Asit aboutNike‘sNIKEiD, where we can take a bottom shoe, pattern it with a colors we want,essentially put your possess decals on a heels. WithStarbucks, we can reallymake your splash accurately a approach we want. But in terms of a medical world,how are they viewingpersonalization, and how has that altered their industry?
Harjes: This is a outrageous trend,both in a consumer products zone and medical as well. People are pulling for some-more and moreindividualized treatments and some-more effective drugs. One of a ways in whichyou can do that is make them tailored to your body’schemical composition. You get these companies likeIlluminathat are profiling people’s genes, and they can tellevery tiny shade of how your genetic makeup works. With that,you can see if somebody is compliant to a certain form of disease, andmaybe there are surety stairs that they can take. On a Healthcare show,we’ve formerly lonesome Illumina, that is your go-to stockif we wish to have bearing to this geneprofiling market.
But there are alsoso many drug makers that can play in here. For example, we have talked aboutRoche on a Healthcare show. They havea drug called Kadcyla. This is a drug that treatsHER2-positive breast cancer. What that means is, your cells have been shown tooverexpress a HER2 gene, that is about one-quarter of all breast cancers. How this drug works is,it’s a multiple drug. It has chemotherapyand Herceptin in there. That second one, Herceptin,attaches to a HER2 protein on a cell,and it prevents it from receiving expansion signals. Meanwhile, this drugalso carries a chemotherapy in it,but it delivers it in this unequivocally targeted way, becauseHerceptin knows to go after these HER2-positive cells and thendrop a chemotherapy. So it’s not as poisonous to healthy cells. This isonly authorized to a tiny segmentof patients with breast cancer. That,of course, is something we see opposite personalized medicine –it’s not ubiquitous. You can’t justgive it to any singular studious anymore. But that’s a good thing, it means thatit’s even some-more effective.
Shen: So,with some of thetherapies and drugs that we mentioned, generally in a medical space, are life-saving, can assistance reanimate and provide a lot of people, unequivocally important. But, on a consumer side,maybe not utterly as impactful. But,something that we beheld that’s unequivocally matching to that is,if we cruise about a association likeUnder Armour,they have taken their footwear, for example,and given it a concentration of perplexing toinnovate and urge a performancethat it can give any person. So,it competence not now be during a turn where they canpersonalize any singular person. We’re articulate about millions of pairs of shoes. But,the intensity is there in that market. If we go to a specialty regulating store,for example, they will put we on a treadmill, have a camera to demeanour atexactly what your step is likeand try to figure out a right shoe for you.
Harjes: we cruise it plays into,we’re all a tiny bit narcissistic. People arestarting to expect, “Hey,I am an sold snowflake and we wish theshoe that is best for me.”
Shen: Exactly. So, they’reexperimenting right now with things like 3D printing, potentially, to open adult thatpossibility on a some-more mass scale. Going beyondpersonalization as one of a large trends,something else we wanted to speak about is marketing, be it withtraditional media like radio and television, yet also digital media and amicable media. Retail andpackaged consumer products,some of a large brands that everybodyis informed with, they spend a ton of income on marketing. At a same time, some of a large drug companies are following fit unequivocally much.
I found that, in terms of ad spending, in a news fromSTATNews,the curative attention spent over $5 billion in 2015. That’s adult about60% in a final 4 years. That is customarily on normal media, liketelevision and print, that is substantially losing a share in terms of altogether ad spending, since digital ad spending isgrowing so most in popularity. What are your thoughts on that?
Harjes: It isincredible to me that we’re still doing this. This isnot something that we see in flattering most any other nation in a world. New Zealand is a customarily nation that comes to mind as a vital determined nation whereyou can have drugmakers directly promotion toconsumers. There’s a flattering clever run opposite it. TheAmerican Medical Association has called for a anathema on these DTC,direct-to-consumer ads, inNovember 2015. There has been legislationintroduced. There are a lot of lawmakers that don’t cruise we should be means to do this. If we cruise about it,I can sympathize with that argument. On a one hand, it’s good for patients to know about thesechronic conditions they competence have and not even comprehend it. It’s good that itencourages people to go see doctors and askquestions and know their diagnosis options. On a other hand,you have doctors stating that patients come in and are like, “I sawthis specific drug on TV, and that’s a one that we want.” Andthat competence not be a best drug for them. And if you’re a doctorin that situation, your hands are tied,because a studious can simply leave and go to another doctor,and we don’t wish to do that. Meanwhile, we can also have patientsdemanding a code name when there competence be a generic,which is literally a same exactchemical compound, yet nonetheless they’re perfectionist thatthey wish this specific one since of an advertisement.
Shen: We will talkmore about a branding and how critical that is,especially with examples, like we customarily mentioned.I’ve always been surprised, as well,like we mentioned, we don’t see medication drug commercials –especially right now, since TV is a biggest format that they publicize on –you don’t see that and other places. You mentioned New Zealand, andthere’s a United States, and we cruise those competence be a customarily twomajor markets where that happens. But looking in terms of theincentives, it creates a lot of clarity for a large drug companies to do this.I have a list here of a 20 mostadvertised medication drugs in 2015 by spending. Again,this is customarily with normal media. It doesn’t getinto a digital side.
Harjes: Yes, that is harder to lane and news on.
Shen: Exactly.Humira, whichI’m certain you’re informed with, spent over $350 million from what we could find. Correct me if we get any of this wrong. First 9 months of 2016, those initial 3 quarters, income for Humira was $7.6 billion. That is enormous.
Harjes: That sounds about right.(laughs)
Shen: So,they have copiousness of inducement to do this. At a same time,in my research, we have seen some arguments that people say,being means to see one of these commercials,people competence turn wakeful of a symptoms they describe, of a condition they didn’t comprehend they had. So,it’s not customarily a black-and-white issue,necessarily.
Harjes: There’sabsolutely some gray space. One of a otherinteresting nuances is customarily how muchinformation does a drugmaker need to divulge in these ads? Thisespecially becomes an emanate when we cruise how amicable media has turn a biggerpresence in ad budgets. If we customarily have 140 characters in a tweet,you can’t presumably contend any tiny thing that a FDA wants we to. we don’t know if you’ve seenmagazines that have drug advertisements in them, yet it’ll be one page of a ad, and afterwards we flip it over and there’s dual pages of all theprescribing information.
Shen: I’ve seen that.
Harjes: If we have a tweet,how are we ostensible to do that? Is itsufficient to customarily have a link, “Fullprescribing information here”? Or what? It’s another grey area.
Shen: The doubt becomes, how mostly do people click on those follow-up links? Otherwise, all youend adult observant is that selling message. With something like medication drugs,it can be unequivocally critical that we get that full picture. One other associated itemI wanted to pierce adult was,something else that people are holding adult arms aboutin terms of medication drugs and what their selling looks is,they mostly use charcterised characters and cartoons. The thing that we cruise about that was burst down on in a ’90s was large tobacco. They hadfamous characters like Joe Camel, theMarlboro Man,and they would have them dressed in leather jacketsand t-shirts, looking cool. And a lot of people disagree that this wastargeting tobacco toward children. Eventually, in a ’90s,I cruise it was President Clinton who sealed a check banning a use of these characters. In your opinion,do we feel that regulating animated, humorous looking characters –sometimes it competence be for a condition, orsomething that’s not as critical — overallminimizes a risk of certain drugs,even yet they have a lot of side effects?
Harjes: My camber here would be, a use ofcartoon characters would be some-more distinguished in drugs that are inconditions that have a manifest outcome on a person. Because we don’t wish to etch somebody that’s unequivocally ill maybe removing a tiny bit better,which is unfortunately a box with a lot of these drugs. Thetiny tiny extrinsic alleviation is enoughto get approval, since that is betterthan nothing. But if we were afterwards toadvertise that drug, depicting a existence of itis not accurately an fortifying picture.
Shen: Yeah. Moving along here,because we have utterly a few other trends and topics we wanted to reason on, we had talked about branding a tiny bit andI wish to dive into that a tiny bit more. In terms of my world, consumer retail, people understandhow absolute branding can be. Think about a association likeCoca-Cola, a sequence likeWal-Mart orAmazon, they have apparently built out their models in a approach to try and pull we in to be a repeat customer. A news fromBain Company says that customarily a5% boost in influence rate can potentially boost your increase by 25% to 95%. Pretty absolute stuff. At a same time, we beheld –and we talked about this before a uncover — some of a branding in this space is not so most for a companies, like a Coca-Cola overall, yet for their specific products. How does that play into a dynamicwhen somebody goes in for treatment?
Harjes: we would disagree that a energy of branding in medical competence even be stronger than it is in consumer goods. we was going to contend not as most on a domain standpoint, yet actually, it is, and here’s why. There are so many drugs out there that have unequivocally clinging patients, utterly for ongoing conditions. If you’ve been holding this perpetually and ever, and all of a remarkable a apparent wears off, so a general chronicle comes out, a lot of patients will indeed select to hang with a branded version. Maybe they don’t know that a general is literally a same chemical compound, it’s identical. Maybe it’s customarily laziness, like, “If I’ve been holding X drug, that’s what works for me.” Medicine is not something we wish to disaster around with. It’s not like, “Oh, we customarily wear New Balance regulating shoes, let me try out a new Nike model. Eh, we don’t like it, I’ll go back.” It’s unequivocally opposite when you’re articulate about putting a chemical into your body.
One engaging trend that we have to pierce adult when articulate about generics is a judgment of biosimilars, that we have talked about formerly on a Healthcare show. They are radically general versions of some-more formidable drugs that can’t indispensably be chemically synthesized into an accurate duplicate. Because of that, they’re called biosimilars for a reason. They’re similar. And they are, effectively, a same thing, yet not exactly. And since they’re also unequivocally formidable to make, they’re not as cheap. Generic drugs are maybe 10% of a cost of a code name. Biosimilars, not so much. You’re looking during maybe 40% off, 60% off. So we don’t cruise you’re going to see as many people — and this is a unequivocally new thing in a medical market, a inflection of biosimilars — my theory is that we won’t see scarcely as many people withdrawal their brand-name drug that they know and adore for a biosimilar.
Shen: Yeah. we think,when it comes to whatever medicine we competence be taking, it’s an inherently personal thing. Like we mentioned, forsomeone who needs diagnosis for some kind of ongoing illness, if you’ve been holding it for so prolonged and it’ssomething that had a unequivocally prominent, manifest outcome in improving your lifeand creation we feel better, we can totally understand, some-more than what boots we wear, what you’re drinking, what you’re eating, that’sgoing to be something that would be impossibly formidable to mangle from. Evenover-the-counter medicine, andthe fact that we see Tylenol, for example, and a off-brand replica, there’s apretty estimable disproportion in price, yet still,in a lot of cases,people strech for a code namebecause of a comfort that they get from a fact that they feel like, “That’sgoing to be a peculiarity that I’m expecting,”even yet it competence be accurately a same. And they publicize that on a box. Check theingredients tag of a Tylenol –
Harjes: Right, a store code will say, “Compare to _______.” And we demeanour during a behind of a boxes, and it is a same thing. It has to be.
Shen: Yes. OK, so, here’s something that Asit and we spoke about recently in terms of supertrends in a consumer sell space.I wish to reason fast on faithfulness programs. On a consumer sell side,everybody can demeanour in their wallet or keys and seea lot of opposite things, credit cards, maybe their airfare, supermarket, copiousness of options. How is that personification out in terms of a medical space?
Harjes: For that,I would unequivocally indicate to a sell pharmacy space. In particular, we have these storesthat are radically a same.CVS, Walgreens, Rite Aid.For me, and for a lot of people,proximity is what determines that one of them you’re going to use to fill your prescriptions, or towalk in and buy Tylenolor whatever it is you’re looking for. But, there are tiny things thesecompanies can do to try to keep their business loyal. Thebest instance of this that we can cruise of is Rite Aid with their Plenti program. This issomething we competence have discussed previously. It’s a organisation bid amonga garland of big-name companies: Exxon, ATT, Macy’s, Hulu –
Shen: There’s a ton of sell partners in this.
Harjes: They all gottogether and they done this commune faithfulness module so we can share your faithfulness points around all of them. Whether that’sgoing to be adequate to inspire people to go to Rite Aid as opposite to theCVS that competence be a tiny bit closer,I’m not sure, utterly when we cruise thatthese stores are mostly right subsequent to any other,or during slightest in a same frame mall –it competence be enough.
Shen: On tip of a Rite Aid Plenti program,which we cruise is utterly appealing since of what we mentioned — itsnetwork of sell partners — we was looking during CVS, they have their ExtraCare Rewards,Walgreens has a Balance Rewards.I’m curious, in terms of a sell pharmacy business –I feel like when we go to any of these stores, they’re all unequivocally similar. If it’s not proximity,how most does product selection, in terms of magazines, candy, or other products over theprescription counter, have a draw, if it’s not customarily proximity?
Harjes: we cruise it’s so easy for these companies to offer a same stuff, a things that works a best. One thing we will indicate out here, though, is CVS carrying gotten absolved of cigarettes. That was a outrageous pierce for them.
Shen: Oh yes, we remember that.
Harjes: This was a while ago. we can see that carrying both certain and disastrous impacts on consumers. we can see people saying, “That’s a good brand,” if you’re a non-smoker and we support healthy things like that. But if you’re a smoker, afterwards you’re not going to go to CVS since we can’t collect adult a container of cigarettes on a approach out. Realistically — this is another thing we talked about on a Healthcare show formerly — that pierce for CVS was a branding move, yet it was some-more for their PBM side of a business, that is their pharmacy advantages management, that radically negotiates drug prices. For that, it mattered a lot some-more that they had this code design of, “We’re cigarette-free.”
Shen: Sure. If we remember correctly, they had estimated that would have something like a $2 billionimpact on their sales. For a association a distance of CVS, their tip line is multiples and multiples of that. So,it should have been minimized. You competence disagree that there competence have been an outcome in thatpeople who formerly would have bought cigarettesand other products, now they remove on some of that revenue. But,like we mentioned, it seems likethat wasn’t unequivocally their categorical concern.
Harjes: AndI cruise that was factored into a estimate. And, a PBM is a infancy of their revenue, so if it helps them a tiny bit there and dings them some-more on a sell pharmacy side, that’s OK, that substantially nets out.
Shen: Last dual –trying to work by these comparatively fast –this is something that’s been unequivocally distinguished recently in headlines,and that’s with cost transparency. On a sell side,you don’t see this utterly as much. A unequivocally good instance that we could cruise of wasT-Mobile. T-Mobile and a CEO, John Legere, he has his Un-carrierinitiatives. Basically, these have beenbreaking attention standards in terms of billing,practices in terms of what your information is,how those things work out. These uncarrierinitiatives are designed to be unequivocally accessible to a consumer, and overtly put some egg on a face of thecompeting wireless use providers likeVerizonand ATT, by saying, “They have thesereally untrustworthy billing practices, they’re charging we for overages, we’re going to stop doing that.” Even on your wire bills, in some cases,Comcasthas gotten flak, for example, for adding fees next a line so they can fundamentally market, “Yourmonthly use will be $50,” butin actuality there’s $15 some-more of fees and they’rejust reclassifying it. So there are some moveson a sell side with cost transparency. But in a medical side,it’s unequivocally something we’re observant in a headlines utterly a bitin terms of a EpiPen and some other controversies. What’s going on there?
Harjes: Those weresome unequivocally good examples. When we initial brought this adult as a topic,the approach that we saw this going was,we would speak about how,McDonald’s, we travel in andthere’s a menu and there’s pricesand we know how most things are going to be, thenI was going to paint this sheer resisting design of medical whereeverything is so ghastly and we can’t see what anything’s going to cost until we get a bill. But yeah,those examples we described have a lot ofa lot of symmetry. For example, there is this large emanate in medical coverage whereyou competence not know accurately how most you’re going to be charged for some arrange ofprocedure. So we go to a clinicand we know that a sanatorium is in network. But, we don’t know thatevery singular alloy that competence see we within that sanatorium –or maybe customarily one chairman concerned in your medicine –is not indeed in network. Andthen we get slammed with this large bill,and it’s a surprise, it’s always a surprise.California, in September, upheld this law called ABO72. That’ssupposed to strengthen people from this by tying a patient’sfinancial obligations to what they would have paid had a provider been in network.
So, we start tosee these tiny incremental steps,because people are perfectionist it. They can no longer accept that when yougo to a hospital, we don’t get a menu like we get during McDonald’s, that says “Here’swhat all is going to cost, and a right to exclude an additional $42 Band-Aid.” You customarily get a check during a end. We do have a change going onwithin a attention where people design to know what they’re going to compensate beforehand.
Shen: we overtly could see thatas a outrageous indicate of split for certain use providers within a medical space. You can go to one sanatorium that is most moreopen and pure about what you’re profitable for and everything,and on a other side it’s a bit murkier,and we can see people valuing that clarity and branch there.
Harjes: Yeah,it’s a rival advantage. It’s a rival advantage for hospitals. You see themstarting to post reviews online of open and honest feedback. It’s adifferentiator for insurers,for example, if we have an app that’s unequivocally easy to use,people can see what they’re going to pay, and they value that.
Shen: Absolutely. Last one. This one issomething that’s flattering new, and that’salso building in a consumer space. That’s with subscription business models. We’ve seen thesuccess with some of those. we don’t know if you’re informed withDollar Shave Club, yet they wererecently acquired byUnilever, a unequivocally large association in a consumer sell space, for about $1 billion. In my opinion,very most explanation of judgment of how remunerative this can be. Then,some other large ones that people are informed with, thinkBirchbox,Blue Apron. The categorical thought on a consumer sell side is, we canvery fast build faithfulness with customers, since they’ve sealed adult to get something any month, any dual weeks,whatever it competence be. And they can representation a lot of new products though being impressed with a unequivocally many choices out there now. How is that personification out on a medical side?
Harjes: Youwouldn’t cruise there’s an apparent tie here, butI’m going to pull a together between a subscription business indication on a CG side of things withchronic illness diagnosis in healthcare. It is unequivocally remunerative for theseconsumer products companies to have business that are sealed up, and are fundamentally sealed adult for life. If we pointer adult forSpotify, and all of a suddenthat’s where all your playlists are and your friends are on there,you’re not leaving. You’re going to keep profitable that $9.99 or however most it is indefinitely. You can kind of see a together business indication with ongoing treatment. If you’retaking a drug for a rest of your life as a diagnosis rather than a cure, that income comes in day in and day out. AndI cruise that’s indeed a fairlynefarious partial of a medical business model, yet we will indicate out that a one saving beauty is, if a illness could be treated –some people will impugn medical companies,saying that they are creation these treatments becausethey wish we to have to take a drug for a rest of your life –
Shen: Instead of creation a cure?
Harjes: Yeah, that they could make a heal and it would be one-and-done. That’s not a case. If that was probable — that we could make something that could heal it — somebody is going to do that,because as shortly as we make a cure,you have stolen all of that market.
Shen: Sure. Well,I cruise that’s all a time we have for today. Ifanyone has any some-more questions, be it on a consumer side or a medical side,you can strech out to us and a rest of a IF organisation around Twitter @MFIndustryFocus. You can send us any questions or comments around email to firstname.lastname@example.org.People on a module competence possess companies discussed on a show, and The Motley Fool competence have grave recommendations for or opposite bonds mentioned, so don’t buy or sell anything formed only on what we hear during a program. Thanks unequivocally much, Kristine, for fasten me on a uncover today.
Harjes: Thanks, Vince!
Shen: Thanks, everyone, for listening and Fool on!
Kristine Harjes has no position in any bonds mentioned. Vincent Shen has no position in any bonds mentioned. The Motley Fool owns shares of and recommends Amazon.com, Illumina, Nike, Starbucks, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool owns shares of ExxonMobil. The Motley Fool recommends Coca-Cola, CVS Health, T-Mobile US, Unilever, and Verizon Communications. Try any of a Foolish newsletter services free for 30 days. We Fools competence not all reason a same opinions, yet we all trust that considering a different operation of insights creates us improved investors. The Motley Fool has a disclosure policy.