Strategy shift allows dermatologists to overcome challenges in cosmetic market

May 21, 2014

Challenges facing physicians in dermatology include marketplace consolidation and competition from non-core providers. These issues are top of mind not just among clinicians themselves but also among the executives of pharmaceutical companies.

Las Vegas - Challenges facing physicians in dermatology include marketplace consolidation and competition from non-core providers. These issues are top of mind not just among clinicians themselves but also among the executives of pharmaceutical companies.

“Consolidation in healthcare is inevitable,” over the next decade, according to J. Michael Pearson, chairman and CEO, Valeant Pharmaceuticals International. “The only question for manufacturers is how we’re going to play in this consolidation.” He and other pharmaceutical company leaders spoke recently at Cosmetic Surgery Forum.

Although many companies speak of global products, he says, Valeant believes that in a local market, healthcare is often driven by payers and economics.

Valeant therefore heeds these local forces throughout its enterprise, Mr. Pearson says. Although the company has been averaging about 25 acquisitions yearly, “We’re not huge believers in innovations that come from large companies, because most large companies are less productive at R&D. They spend a lot, but they are not as productive as smaller companies, academic medical centers or practicing doctors.

“Most innovation actually comes from academic institutions and practicing doctors. Increasingly, we are looking for products from doctors and universities,” he says. “We’d rather allow them to be the innovators.”

After a viable product surfaces, “We’ll provide the most efficient distribution channel for it, and share the economics with the inventors,” Mr. Pearson says.

Don’t force synergies

Above all, successful consolidation requires that acquiring companies exercise care with companies they acquire, according to James P. Hartman, Merz North America’s vice president and head of U.S. aesthetics and over-the-counter products.

Unfortunately, he says, many consolidators in the aesthetic sector have taken the opposite approach, often losing the essence of what made the acquired company so attractive.

“If you’re going to participate in this space,” Mr. Hartman says, “you have to want to be in this space and embrace the subtleties that come with it, as Merz does.”

The company’s acquisition of Belotero (hyaluronic acid) and Anteis exemplifies the Merz approach, he says. The company already had rights to the product in many countries, so it seemed a natural evolution to acquire the company’s development expertise and apply Merz’s existing marketing and distribution capabilities.

Regarding acquisitions, “It’s been said that one plus one could equal three. But those synergies need to make sense, rather than being forced,” Mr. Hartman says. “There are always natural synergies and cost savings that happen. But at this point, we are investing in innovation and technology to bring an improved offering to the market. So we’re looking for products and companies that have development plans and opportunities. We don’t just want the product of the day; we want the products of tomorrow.”

Next: Successful acquisitions often require hands-off approach 

 

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If a product is worth bringing to market, it will find its way, regardless of whatever consolidation may be occurring, Mr. Hartman says.

In acquiring SkinMedica, Allergan wanted to build a strong position in physician-dispensed topical aesthetics based on scientific innovation, according to Bob Rhatigan, general manager and chief executive, SkinMedica.

“The only way we were going to be able to do that would be to continue - and dramatically increase - investment in research and development,” Mr. Rhatigan says.

Successful acquisitions also often require letting the acquired companies maintain their autonomy, he says.

“Let them maintain their decentralization, along with smaller teams and more focus, and allow them to innovate, because innovation is always born amid freedom and trust. And very often, companies come in and take a centralization approach,” Mr. Rhatigan says. Centralization can provide synergies and cost savings, he allowed, but those objectives should stand secondary to growing top-line revenues.

Commitment to core

Regarding competition from non-core specialists, Mr. Rhatigan says that, “Pragmatically, anybody who has a private practice is going to see more competition in the form of non-dermatologists and non-plastic surgeons moving into aesthetic medicine, especially given the Affordable Care Act. And frankly I wouldn’t be too concerned because these are very underdeveloped markets.”

Whether it’s fillers, neuromodulators or devices, Mr. Rhatigan says, no manufacturers have reached even 20 percent of the penetration they ultimately could attain within the consumer base for core aesthetic procedures.

“So there’s a lot of headroom and opportunity for new people to come in without it taking a piece of someone else’s pie - provided we continue to educate, advertise and create awareness and enthusiasm among the consumer audience and drive patients into aesthetic physicians’ offices,” he says.

All companies must sell to non-core physicians by law. Mr. Rhatigan adds that SkinMedica will educate and sell to non-core physicians because “It’s the responsible thing to do in order to support good patient outcomes.

“We are not responsible for or able to regulate the practice of medicine,” he says. “So we need to work with customers choosing to provide aesthetic procedures and services, regardless of specialty.”

If a provider who lacks deep training in dermatology and plastic surgery produces a bad outcome, he reasons, the patient won’t blame the provider’s lack of training, but the product or procedure in general, which will hurt dermatologists and plastic surgeons.

Therefore, he says that although dermatology and plastic surgery will remain Allergan’s core focus, “We believe it’s very important to ensure that the education is available and accessible for people regardless of specialty.”

Next: Primary focus on core specialists, but educating all product users is important 

 

 

Aligning with reality

If Merz had its choice, Mr. Hartman says, “We would focus only on dermatologists and plastic surgeons. But that doesn’t align with the reality of who is actually utilizing our types of products. At the end of the day, it’s still our brand, so it’s incumbent upon us to make sure the experience is as safe and positive as we can make it for patients regardless of specialty.”

At the same time, he says, “We believe it’s incumbent to stay in communication with core specialties. Our primary focus and investment really is in the core - plastic surgery and dermatology.”

Conversely, Mr. Pearson says Valeant will take a contrarian approach. For example, under Bausch & Lomb, “We have a great new contact lens coming out. We’re only going to market it to eyecare professionals, such as opticians. We’re not going to discount it to the Internet companies. So if you want that product, you’re going to have to go to an eyecare professional,” to renew associated prescriptions as well.

“We’re taking the same approach in dermatology and aesthetics. Will that have a financial cost to us in the short term? Yes. But not in the long term,” he says. “In business, it’s all about the long-term.”

In setting a value for a medical practice, “It’s worth what you will earn for the next 20 to 30 years. And when you look at the value of a company, it’s not based on your current earnings, but your future earnings,” Mr. Pearson says. “So if we do the right thing in this area, we’re confident that our market share will increase,” as will core specialists’ loyalty to the company.

“The question is how we do it. We will do things perfectly legally, but we will not accept the excuse that ‘We have to market to everyone, so we will.’ We’re going to figure out appropriate ways, just like we did with the contact lens, to focus our efforts on aesthetic products to groups such as dermatologists and plastic surgeons,” Mr. Pearson says.

Next: Practice management programs support specialists

 

 

Practice management programs

Further support for dermatology will come in the form of practice-management offerings. One of the key challenges that dermatologists and plastic surgeons face in this regard is the growing presence of large hospital and insurance groups, says Robert Grant, CEO of lifestyle healthcare organization Alphaeon.

“They say, ‘Come work for us. We’ll make life easier for you.’ Don’t believe for a second in that particular model that efficiency is not eventually going to hit you. And efficiency is going to mean that you’re going to be working more and making less. That’s how the model works,” he says.

“We built a new business model that is specifically tailored to help the board-certified specialists and build consumer awareness under one brand, Alphaeon, which serves as an umbrella for board-certified specialists in lifestyle-related healthcare, wellness, beauty and performance,” Mr. Grant says. “Only board-certified specialists in core specialties will be listed on Alphaeon.com.”

Mr. Pearson adds, “Probably one of the greatest needs in this consolidation is helping doctors grow their practices. It’s more about growing their practices with things such as new products, because if you’re part of a growing market, you’ll figure out a way to be healthy. Many people think that Valeant is all about efficiencies. It’s actually not. It’s all about growth. Growth creates value,” for aesthetic physicians and their suppliers.

Accordingly, he said Valeant will spend twice as much on support and meetings for the specialty than it did in 2013. As part of this initiative, “We are making a big investment in growing doctors’ practices, through a separate company that will provide tools, at a cost, to our customers.”

Similarly, Mr. Grant says, “We have built an entire business around helping board-certified specialists be more successful and remain independent in their private practices.” Along with expertise, he says, Alphaeon also supplies integrated, easy-to-use technologies and software.

Merz gives back to dermatology through research and development via new products and compounds that dermatologists can use to keep their practices and patients healthy, Mr. Hartman says.

“Secondarily, we believe in supporting educational meetings and events at a significant level, and we'll continue to increase that over time,” he says.

In dermatology, Mr. Rhatigan says, “I believe where investment really needs to take place is the residency programs. It’s a shame that there is no clear curriculum or training platform focused on aesthetics that is established in residency programs across the United States.”

SkinMedica is taking steps in that direction, he says, “And we need a responsive recipient that is willing to codify a step-oriented aesthetics teaching platform in residency training. That’s critical for folks coming out into practice - not in the future, but today, given how large a portion of dermatologists’ business aesthetics is going to represent.”

Disclosures: Mr. Grant is a founder (including personal investments) of Alphaeon. Mr. Rhatigan owns Allergan stock as a result of his employment with the company. Mr. Pearson owns Valeant stock. Mr. Hartman reports no relevant financial interests.