Wednesday, January 23, 2013
Pharmaceutical companies have had some recent lean years thanks to the patent cliff and other factors. But some pharma companies hope to grow fat with profits again soon.
Their plan to do that? Jumping on the growing global trend of obesity. Pharmaceutical firms believe consumers are moving away from fad diets and look forward to a surge in sales from prescription medicines that promise to help consumers lose weight.
In the United States alone, there is a need for something that can tackle the nation's problem with its citizens being overweight. According to the Centers for Disease Control and Prevention (CDC), more than two thirds of Americans are overweight and more than one third – 78 million U.S. adults – are considered to be obese. That percentage is forecast to climb to 42 percent by 2030.
A study last year indicated that obesity accounts for $190 billion in annual medical costs, which is quite a burden on the U.S. healthcare system. The CDC estimate is that obesity costs the U.S. economy $147 billion annually in medical expenses.
Companies Looking to Fatten Up
Several drug companies are moving forward in the battle against Americans' expanding waistlines. One company, Vivus (Nasdaq: VVUS), last autumn it launched its weight loss drug Qsymia. The company's president, Peter Tam, told the Financial Times “It's been a very challenged category, but there is a feeling we have to do something about obesity with the realization that it is a medical epidemic.”
The last diet drug approved – Xenical from Switzerland's Roche Holding AG (NASDAQOTH: RHHBY) – was approved in 1999. The FDA has held to a very high standard for diet drug approvals since the withdrawal of “fen-phen” in 1997. That drug, created by Wyeth, was found to cause heart valve problems. This caused Wyeth, now part of Pfizer, to set aside reserves of $21 billion for legal bills and payments from lawsuits.
But now apparently, the FDA agrees with Mr. Tam and is moving forward. Last year, it also approved another diet drug, Belviq, which will be launched very soon by Arena Pharmaceuticals (Nasdaq: ARNA). Arena's partner on Belviq is Japanese pharmaceutical company Eisai (NASDAQOTH: ESALY).
A third company, Orexigen Therapeutics (Nasdaq: OREX), is preparing to submit its Contrave diet drug for FDA approval again after previous rejections. It also has a Japanese partner, Takeda Pharmaceutical (NASDAQOTH: TKPYY).
But investors shouldn't worry about the prior FDA rejections. Qsymia and Belviq were also rejected by the FDA before receiving approval. Senior biotech analyst with Cowen, Simos Simeonidis, told the Financial Times “There has been a very significant and rather sudden shift in the views of the regulator (FDA) over the past year.”
The changing of the FDA's hard stance against diet drugs is good news for these companies. But several problems still remain.
One is the limited effectiveness of these diet drugs. The weight loss impact of Qysmia and Belviq was found to be 10% and 6% respectively. Those results were under ideal conditions with tight medical supervision too.
The second problem is bigger – the risk of side effects. Diet drugs have had history of unwanted side effects with fen-phen being the worst example.
The current generation of diet drugs also has side effects. Roche's Xenical is also only moderately effective while producing unwanted side effects like oily stools. It is now sold over-the-counter as Alli by GSK, which has been trying to unload it for months now. But no buyers have stepped forward.
Qysmia can cause birth defects. So Vivus had to agree to a tight monitoring program with the FDA in order to gain approval.
But the more widespread the use of Qysmia and other diet drugs becomes (with usage perhaps not so closely monitored by physicians), the door opens wider for misuse of the drugs. Consumers may not only become disappointed by results but litigious if side effects become apparent.
That is likely one major factor keeping the stock price of company like Vivus near its 52-week low despite the approval from the FDA.
This article originally appeared on the Motley Fool Blog Network. Make sure to read all my article for the Motley Fool at http://beta.fool.com/tdalmoe/.
Wednesday, January 16, 2013
One thing is certain. Online retailer Amazon.com (Nasdaq: AMZN) has changed the retail landscape in the United States forever. But that change is an ongoing process. The way Amazon does business continues to prod other retailers to change the way the companies relate to their customers.
For instance, take deliveries of items ordered by customers of retailers' websites. Amazon offers same-day delivery in 10 U.S. cities for an $8.99 fee in most cases. The company is able to do this thanks to the expanded number of warehouses it has across the country.
Amazon has invested hundreds of millions of dollars into expanding its portfolio of warehouses. These new warehouses are an effort to both get closer to its customers (speedier deliveries) and to get around the imposition of sales taxes on items ordered online.
Same-Day Delivery Service
Amazon's introduction of same-day delivery service led to some other retailers jumping aboard the ultra-fast deliveries of online purchases bandwagon last year. But the cost of offering such a service may adversely effect retail companies' profit margins that are already pressure.
Retail firms are still flying blind as many continue to search for the answers to vital questions such as how many customers actually will use such a service,the cost of it and how to divide the cost between the customer and the retailer itself.
Logistics strategist at consultancy Kurt Salmon, Al Sambar, told the Financial Times “It's ultimately a pretty costly service to deliver.” He does not think consumers will be willing to pay for such a service except for a few special circumstances, such as medicines and Christmas toys.
Firms Jumping Aboard the Bandwagon
Nevertheless, many retail firms are pushing ahead with offering same-day delivery services.
One prime example of this is the country's biggest retailer, Walmart (NYSE: WMT). In several markets, it is testing same-day delivery service of goods ordered online. In these markets, customers can have an unlimited number of items delivered for a flat $10 fee.
The company doing the heavy lifting for Walmart is the Supply Chain Solutions division of leading delivery company United Parcel Service (NYSE: UPS) to make these deliveries. This division of UPS is normally used for instances such as the ultra-fast delivery of key machinery parts for a machine that may have broken down.
This business is not completelt new for UPS though. Last year, it took a 6% stake in Shutl, a London-based firm that matches up retail orders with couriers that can make high-speed deliveries.
Online auction site eBay (Nasdaq: EBAY) is also trying out a same-day delivery service in New York and San Francisco. Customers using eBay's special iPhone app in those two cities that place an order are charged only $5 for delivery of the product that day.
According to the Financial Times, eBay is working closely with Target, Toys R Us, Best Buy, Home Depot and Urban Outfitters to make this experiment work.
The Future of High-Speed Delivery Services
The real question here is whether the majority of consumers really want the option of same-day delivery service.
After all, it would be a costly option for retail firms to offer. Most retailers would have to upgrade their logistics system. Many simply do not know what items they have and where. That makes it difficult to locate a product and ship it immediately.
So far, results have shown customers are more interested in knowing when an item will arrive and not if it can be delivered same day.
UPS has found that what customers really want is a service that helps them to not miss deliveries. UPS does currently offer such a notice service that gives customers a four-hour window in which the delivery will be made.
A UPS spokesperson told the Financial Times, “Quite honestly, what customers are telling us is as long as they know what the committed delivery date and time is, they are fine.”
Even Amazon's CEO Jeff Bazos told Fortune that he's “a little skeptical that same-day delivery is ever going to be a huge part of the business.”
Bottom line – such a service is going to be offered by more and more retailers. But it really will not be a driver of the business and may actually be a further drag on already tight profit margins.
This article originally appeared on the Motley Fool Blog Network. Make sure to read all my articles for the Motley Fool at http://beta.fool.com/tdalmoe/.
Tuesday, January 8, 2013
In the midst of a disappointing sales season for retailers, there have been several bright spots. One of those has to be the number of e-book readers that appeared under Christmas trees.
But the cheer is not expected to last throughout 2013. According to some technology analysts, this category of tech gadgets is expected to see a very rapid decline in its fortunes over the coming months thanks to competition from other devices.
Competition From Tablets
There are several well-known e-readers on the market including the Nook from Barnes & Noble (NYSE: BKS). Last April, the company announced a partnership with Microsoft (Nasdaq: MSFT) whereby Microsoft invested $300 million into its Nook unit. This investment is interesting in the light of Microsoft's move into tablets with Surface.
There also a number of Asian manufacturers, but the best known of the e-readers are the various versions of the Kindle from Amazon.com (Nasdaq: AMZN). In the run-up to Christmas, the latest Kindles occupied three of the top 10 slots for electronics at Amazon's website.
But they were outsold by tablets, which occupied eight of the top 20 spots for electronics on Amazon's website.
Tablets are becoming more user friendly. . .lighter, cheaper and with longer battery life. Not to mention tablets are multifunctional. The Kindle and others are under direct fire from the mini-iPad from Apple (Nasdaq: AAPL) and the Nexus 7 from Google (Nasdaq: GOOG) that costs only $199.
It is this competition that has industry analysts so worried.
The Way of the Dinosaurs?
One worry wart is the research firm IHS iSuppli. It titled its recent report on the industry: Ebook Readers: Device to Go the Way of Dinosaurs?
According to iSuppli, total e-book readers shipments grew from a mere one million worldwide in 2008 to ten million in 2010. Shipments hit a peak of 23.2 million units in 2011. But even then, tablets had already taken the lead over e-readers with shipments of 67 million units.
In 2012, iSuppli has forecast that sales will fall 36% to just 14.9 million units. Another drastic 27% fall is forecast for 2014 when shipments decline to 10.9 million units. The firm sees sales of only 7.1 million units by 2016 as the consumer trend toward a multifunctional device – the tablet – continues.
Research firm Forrester is in agreement with iSuppli. It also believes that tablets will be become cheaper and cheaper while at the same time screens and battery life improves.
An analyst with Forrester, James McQuivey, believes e-reader prices and sales have only one direction to go. . .down. He told the Financial Times' Chris Nuttall, “Prices are falling so quickly that at some point Amazon's going to give you one for free to extend its customer relationship.”
As iSuppli points out in its report, it is an inexorable move from a single-use device to multifunctional devices. But it doesn't mean the complete end for e-readers. Think GPS devices and MP3 players.
There still may be some demand for the devices from one specific sector – the education industry in emerging markets.
With the growing popularity of the iPad and other tablets, it may too late to tap into the U.S. educational market in a big way. But it is a different story in the emerging world. But only if the e-reader makers grasp the opportunity quickly.
Jordan Selburn, an analyst with IHS, told the Financial Times “the future [for e-readers] is in emerging regions and in heavily subsidized opportunities.”
But in those markets, with incomes low, e-readers would have be very low-cost. Perhaps in the less than $20 range for end users. Some one (governments?) would have to subsidize the cost so e-reader manufacturers would make some profit.
So there is a bit of hope for e-reader manufacturers. But just not a lot of it.
This article originally appeared on the Motley Fool Blog Network. Make sure to read all of my articles for the Motkey Fool at http://beta.fool.com/tdalmoe/.