What Women Want

Ed Calesa knows women-or rather, he understands the female market. After starting his career as marketing research manager for Roche, he co-founded Health Learning Systems in 1971 and pioneered the use of continuing medical education as part of the healthcare promotional mix. There he developed and implemented two of the earliest and most successful initiatives targeting female baby boomers. Launched during the drive for women's liberation in the swingin' seventies, Calesa's campaigns helped open a dialogue between opinion leaders and women, addressing contraception and the use of formula for newborns. During nearly 20 years in that position, he gained an intimate understanding of baby boomer women and the ob/gyns that serve them.

Calesa sold Health Learning Systems in December 1988 to the agency holding company WPP and retired. He continued investing in what he knew-healthcare, particularly in specialty pharma companies. But throughout his years of retirement, he kept thinking about the women he first targeted with birth control and baby formula messages. Now those same women were entering menopause, and their healthcare needs were radically different.

In 1996, Calesa linked menopause, baby boomer women, and ob/gyns in a business concept that became the basis of Women First Healthcare (WFHC). Calesa believes targeting that niche makes compelling dollars and sense. After all, nearly 5,500 women a day turn 50 according to the National Institute on Aging. Although the US Census Bureau estimates that there are 54 million women 45 or older in the United States, that number is expected to grow to 72 million by 2020. As cost-containment became a higher priority for managed care, women began to supplement their primary care physicians and internists visits with gynecological check-ups. And if that wasn't reason enough, it is well documented that women influence the majority of healthcare decisions and spend the majority of healthcare dollars.

In the Black

After leading WFHC through two years of market research and raising capital, Calesa turned over the reigns to David Hale. Hale spearheaded a series of co-promotional agreements with Johnson & Johnson's Ortho-McNeil for the hormone replacement therapy (HRT) Ortho-Prefest (estradiol/norgestimate) and the birth control pill Ortho Tri-Cyclen (norgestimate/ ethinyl estradiol), and with Bristol-Myers Squibb's anti-cholesterol therapy Pravachol (pravastatin). But before long, WFHC expenses soared to almost twice its revenue. The stock plummeted from its initial offering price of $11 per share in July 1999 to 44 cents a share in October 2000, and NASDAQ sent WFHC a letter stating it was in danger of being delisted. Serious action was needed to keep the company in business.

Calesa took back control of the company, naming a slew of new appointments, including Saundra Childs, who headed up the company's contracting and managed care division as vice-president of pharmaceuticals-forming the foundation of a powerful team. Calesa then changed the business model from co-promotion and licensing to acquisition, enabling him to reorganize the sales staff on its own terms. In doing so, he realigned the company's expenses and revenues.

As CFO Charles Caporale explains, "Co-promotion typically involves a contractually mandated fixed expense, at least in terms of the sales force, and a variable income stream. The combination can be lethal to an organization if the co-promotion product does not produce as expected. Under an acquisition model, the expenses are variable in that the building of a sales and marketing infrastructure can be timed to coincide with revenues, thereby providing a better alignment of expenses and revenues."

Investors' confidence in Calesa began to build when they saw losses cut from $18.7 million in the first half of 2000 to $3.9 million in the second half. From those murky waters sprang the new WFHC, which reported its first profit in the fourth quarter 2001 and is projected to be in the black in 2002. Now, C.E. Unterberg, Towbin, one of four investment houses following the company, expects WFHC to be one of the fastest-growing specialty pharma companies within the next two years.

One-Stop Shop

With Calesa at the helm, WFHC reworked its existing agreements with Ortho-McNeil and acquired Ortho-Est (estropipate). The company also amended an earlier Laboratoires Fournier agreement struck during Hale's tenure that allowed WFHC greater flexibility to sell the HRT Esclim (estradiol) to managed care organizations. The move increased its group purchasing business, which helped catapult the company into the managed care arena. Since then, WFHC has acquired Elan's headache product Midrin (isometheptene, dichloralphenazone, acetaminophen), Roche's Bactrim (trimethoprim and sulfamethoxazole) line of antibacterial products, and Wyeth's pain management drugs Synalgos (dihydrocodeine), Equagesic (meprobamate), and Wygesic (propoxyphene and acetaminophen).

By the end of 2002, the company hopes to round out its targeted portfolio by acquiring additional approved prescription products that can be marketed to ob/gyns and nurse practitioners as well as therapies for which women have purchasing influence. Potential products, within that wide net, must fall into the $1-$20 million range and have strong brand name equity, even if they face generic competition. A white paper, "Self-Aware: Women at the Forefront of Healthcare," written by Self's director of marketing and strategic planning Cynthia Walsh, confirms what Calesa already knows-women are willing to pay more for a prescription drug they know and trust.

"We do a very good job of due diligence in acquiring our products," says Childs. "Some people ask why we acquire pharmaceuticals that have generic competition. It's because we know that when we reformulate them, either with a new dosing, an indication, or some kind of line extension, it will return to the market offering an advantage. That will allow us to get on pharmacy benefit managers' (PBM) formularies, which increases product usage."

For that reason, Calesa believes the specialty pharma business model is elegant in its simplicity. To succeed, WFHC must acquire under-promoted products at a reasonable cost, and then market them in ways that will boost sales.

One Size Does Not Fit All

In a Barron's interview, money manager Oscar Schafer explains that WFHC's focused management and targeted niche may allow it to outperform larger pharma companies. Perhaps that is because, while large companies are scrambling to establish expensive programs to become customer-focused, WFHC was born that way.

"Many companies say they are customer-driven, but they are not," says Calesa. "Other companies research and manipulate molecules to come up with products, then figure out how to market them. We started with a blank page and listened to doctors and patients to find out what they need. Next we turned to the experts on our health advisory board and worked to bridge the gap between clinicians' concerns and patients' needs. Then we acquired and licensed those products."

WFHC market research found that women aren't getting what they want-particularly, greater use of natural products and more individualized ways to manage their healthcare. The company's two leading products fill that need: the Ortho-Est pill comes in two doses, the Esclim patch has five formulations, and both are soy-based estrogens. That approach distinguishes it from larger companies, such as Wyeth, which controls 75 percent of the $2.5 billion HRT market. WFHC sales reps bring those differentiated messages to clinicians, breaking through the clutter of information about the benefits and risks of estrogen products.

Test and Treat

Women worry that taking HRT will lead to cancer, so compliance is a problem, according to Childs.

Based on that, the company developed a protocol called "Test and Treat," which WFHC supports through medical education and promotions such as "lunch and learn" events and teleconferences. Test and Treat involves measuring estrogen levels in the blood before prescribing HRT, then testing again after two months to evaluate the treatment's effectiveness. The idea is to minimize side effects by finding the lowest effective dose. Although the protocol is a marketing concept that supports Esclim, the practice is backed as clinically sound by WFHC's health advisory board, made up of opinion-leaders and notable physicians specializing in women's health. Other areas of medicine, such as endocrinology, already use that approach to determine dosing, yet women are traditionally prescribed an empirically determined dose of hormones, usually based on symptoms.

"If a woman is taking too much estrogen, her breasts become tender and she thinks, 'Oh my god, I have breast cancer,' and she stops taking it," says Childs. "We've had so much positive feedback from every doctor who has implemented the Test and Treat concept. Other companies are not talking about the real problem and are saying instead, 'Here's our drug, prescribe it.' We are saying, 'Here is the real issue and a concept to help you fix it.'"

Winning with Managed Care

That fusion of market research, marketing savvy, and science allows WFHC to score big on the managed care front. (See linked article "Lending OTC to DTC.")

In 2002, AdvancePCS, the largest US pharmacy benefit manager, added Esclim to its performance drug list (PDL), making it the smallest company to have a product receive that designation. The PDL is a therapy-specific guide that helps physicians identify cost-effective products. Caremark, another PBM, also added Esclim to its preferred and primary lists of brand name drugs. AdvancePCS and Caremark will promote the listings through their retail network and mail order pharmacies, which should not only increase revenues but also enhance WFHC's efforts to gain access to other managed care groups.

"The PBMs really like the Test and Treat approach," says Childs. "The biggest issue that managed care organizations have is that patients will not be compliant. It's a cost issue for them and a long-term treatment and care issue for patients. Our product not only has very good clinical advantages, but we showed that we want to spend our marketing dollars getting out the Test and Treat message. We believe we can drive business for them, that our sales force is effective, that Test and Treat will keep patients on the product, and that it is favorable to have a product accompanied by the right clinical message. We are now starting in the honeymoon stage with Esclim, and we hope to get into a solid marriage with our other products."

Bright Future

WFHC's "march toward profitability" is one of incredible turnaround, says Calesa. But in eight years of business, its foundation has changed little. Instead of marketing a brand, WFHC continues to brand a market with its approach and name. Through extensive knowledge of what women want and what managed care wants to pay for, the company is distinguishing itself in a space glutted with a surfeit of products and information.

After spending a lifetime reaching toward women, Calesa is confident that WFHC has secured a place within the industry. "In this business, a successful future usually means two things. You generally buy other companies, or other companies buy you. So within five years, we'll be either on the left or the right side of that equation."

Although WFHC uses detailing as its primary selling strategy, it has a unique approach to patient outreach. The company sends the mail order catalogue As We Change, which showcases the company's OTC and health and beauty aids, to more than four million women in the targeted age range. The quarterly catalog drives traffic to AsWe Change.com, where women are invited to click on "Traditional Options." That takes them to WomenFirst.com, where they can learn about prescriptions that treat conditions related to midlife women and menopause. The catalog also asks readers if they are, "interested in comprehensive information from world leading experts and pharmaceutical solutions for women's issues." It then directs women to the WFHC website or to the company's toll-free number.

Notes Calesa, "We do DTC, except we have a way of virtually not paying for it. We sell creams and vitamins and various other products and are doing that at a relatively close-to-break-even scenario. We make information available to women to discuss with their doctor, and we also direct them to the internet site, which brings them back to our pharmaceutical products."