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Prophy Research Corporation reports
Wal-Mart strategy

 The “Wal-Mart” strategy

March 13, 1999

(from e-mails with Dr. Glenn Jan 20, 1998)

 

 

            This is a potential way to flog our OptiDose® droppers. As I write this we still do not have the patent in hand.

 

I’m not sure when, but things have changed in the marketing of acetaminophen (Tylenol®, etc.) for infants. In the old days (about 1990) when I first took a look at pharmacy shelves to see what our possibilities were, here is how it was. There would be the number one brand (say Tylenol), the number two brand (Tempra), and then at least one generic or one store brand ("private label"). Sometimes there would be brand number 3 (Panadol), etc. This was the basic competitive situation in a basic "neutral" retail pharmacy.

 

Now, what do I see? It ain't the same. Wal-Mart has only two options: number one brand - Tylenol, and their own private label - Equate. That is it. There is no room for that pesky number 2 and certainly no room for that competing-for-el-cheapo generic. Wal-Mart is clearly trying to push their private label, and I would bet dollars to dingleberries that their private label is a major profit maker for them. They have it all over the pharmacy in other products as well. I bet they do it on Rx items also, but I didn't think to ask. They must be getting both bigger volume and a bigger than usual markup. It is a schweet competitive situation for the house, plus far easier inventory-wise, etc.

 

Now, assuming all this is true and that it will soon spread throughout the universe (maybe that is how I get into trouble so much, making big leaps based on assumptions...), what does that give us as the best option for OptiDose?

 

1.      Try to bail out the loser - poor Tempra - in product number 2. They must be crying for shelf space as this technique spreads. If we gave them OptiDose, ~exclusively, they could at least claim to be different. It might take an expensive national ad, but if parents wanted the one with proportional dosing, the Wal-Marts might feel pressure to give it shelf space.

 

 

2.      Go with the winners - work with guys like Wal-Mart and K-Mart, etc. (Note - in our license we can specify - ie, restrict - sales to either "retail" or "wholesale", so if we do not give out wholesale we can deal with each one separately, which means we can be generous on the first, and if it works make the later adopters pay a greater percentage of the profits.)

 

2A. Encourage Wal-Mart to have a better Equate to better compete with Tylenol. Since they are trying to pull more business away from Tylenol, if they have an OptiDose dropper and Tylenol does not, it should help - either in volume or in raising the price a little.

 

2B. Encourage insanity. Wal-Mart could go for three options for the consumer: Tylenol @ $5.00, Equate as is @ $2.50, and, ta-dah, new brand “Best”, w/ OptiDose, @ $5.50. I would love to see the market response. To make the insanity complete, however, would require one more step. Give Wal-Mart a nice position in Prophy stock. You know all the K-Marts and everybody else watches Wal-Mart's shelves. The typical market researcher just looks at how much shelf space the retailer gives to each product. In the old days that was a good indicator of relative sales volume. But anyway, if the wannabees see OptiDose products beating out Tylenol, they'll be screaming for a license and (ha, ha) shares of our stock.

 

 

            If we are going to consider the 2 option, we’d be working with a marketer, not a pharmaceutical company. I think we’d need to find a generic/private label maker with vision greater than the old compete-on-price routine. They could use OptiDose as a lever to get the Wal-Mart type business. I doubt if the Wal-Marts have the regulatory savvy to get the new dosing approved (I think acetaminophen is now labeled ~see your doctor below age 2 years). So somebody’s got to have the wherewithal and patience to diddle with the FDA for however long that will take. The company I like best of these is Taro Pharmaceuticals (taropharma.com). The license would be trickier. We’d have to write in milestones all the way from designing the strategy, to submitting and getting approvals, to getting the contracts with the Wal-Marts. We’d have to give them a wide open horizon, with options on all sorts of other products. They might think this Wal-Mart scheme is stupid, but want to try another vision. The fountain of youth in the generic biz is, I think, to somehow combine the low cost of generic with the high sales price of a patent protected very popular product. Heck, maybe someone could create a whole new brand name of pediatric products. That should be an option for them too. All these options make the licensing far more complex than just a single product in a single market, but I sort of like it. The advantage for us is that it would give us someone who had a clue as to how to actually take advantage of this opportunity.

 

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