What was it like entering this field as a startup competing with established pharmaceuticals?Finizio: In the last five or six years, the larger pharmaceutical companies, even the midcaps, have really left this space. In pharmaceuticals, supply chain will take about half of the drug's cost—it's gotten so exorbitant, the large pharma companies have left most of these areas, especially women's health, and moved on to rare diseases, oncology, areas where the price points are very high, so that even though the patient population is low, they can have a much more profitable run. The high-volume, low-cost areas, even though it's a bigger population, have seen a real lack of innovation across the board, women's health being most deficient. And then if you look at the generic industry, they have price-fixing going on, they have issues with taking products that are difficult to get and upcharging them 3000%, 5000%—so there has been a lot of abuse in the system. Our company has taken the price-at-parity approach to all our products and we haven't charged these exorbitant premiums that a lot of people have done.
What made you focus specifically on this space?[caption id="attachment_73340" align="alignright" width="280"] TherapeuticsMD Co-Founder and Director Brian Bernick[/caption]
Bernick: We had identified these chronic conditions that women spend a long period of their life with. When you look at reproductive health, contraception and family planning, a woman's going to spend the better part of 30 years in that state.They could go on a contraceptive product for literally up to 30 years or they could be trying to get pregnant and need to be on a pregnancy related medicine, like our prenatal vitamins—and then there's menopause, where women will spend well over 30 years in that state and will want to use our products. So it's an opportunity to capture women in these conditions and keep them on product for a long time, which is really rare. Most medicines, as you know, treat a disease state and then it goes away. These are disease states that stay with women for a very long time. So we took my experience for 25 years, my patients' experience, my colleagues' experience and we went out and we designed products that offer comfort, convenience and really fit well with the modern day woman, how she lives her everyday life, and we did so with a big commitment to being affordable.What kind of response are you getting from providers and patients? Bernick: From both the medical community and the women themselves, what we're hearing is almost like a thank you—thank you for being committed to women's health, where everyone else has abandoned women's health for these more attractive, high-dollar products. They're also saying, what took so long for companies to bring these products [to market]?
The time to market in pharmaceuticals is obviously much more protracted than, say, technology, so you can't quickly innovate to avoid disruption. How do you deal with that?Finizio: So your barriers become your strengths and your weaknesses become your strengths when compared to a technology company. CareFusion was largely focused on medication safety technology, so I know the software world very, very well. When you're in a heavily regulated environment like we are now, for someone to compete with you, they have to go through the same regulatory process unless they're generic. When someone wants to compete on a branded basis, they have to go through a 10- to 15-year development time cycle and the average drug development cost is $1.2 billion. So someone has to be really, really sure and have a lot of time to come after us. Whereas the software, you can turn on a dime, you can make a new hardware device, you can make a new software application and if you have enough developers you can move things very quickly. Here, there is a long process of each phase and each phase has to be met with statistical significance, safety and efficacy at a certain population amount. it's a long, slow process with this much regulation, so although it's very difficult and expensive to get there, it provides a lot of barriers to entry that don't exist in normal product areas.
Do you feel frustrated that your share price doesn't seem represent your recent successes?Finizio: We think it will definitely work itself out. What's happened is that specialty pharma launches, from an investor standpoint is, have gone from most doing very well to most not doing very well. What you're seeing a lot of success with is biotech oriented, products that are not looking at day to day life satisfaction and comfort, but at disease states that are threatening like cancer or rare disease with a small population and very high dollar, or that are wildly scientific like genetics, genetic therapies, those are stocks that are still doing very well. You go back to 2015, '16 even part of '17, spec pharma stocks like us and dermatology and neurological companies, were doing well. So the exodus as been very clear away from spec pharma and into biotech. Now that that's happened, companies that can get out, take rapid market share and turn a good profit, those companies will be the new set of winners since these changes have happened. And I believe these changes in market perception are due to payer rebates, or the amount of money you have to give back to an insurance company to cover your product, and due to supply distribution costs being 10% to 12% for a small company. So it's taking so much of the apple, there's not much left for the company. Our strategy takes all of those factors into account and our only goal is to become profitable and not be dependent on the market for capital. We're very unique in an area where there's a huge unmet need, not a lot of innovation and very little promotion going on with current products. I don't have to spend a lot on marketing to get the attention of doctors. We can leverage one single sales force [for all three products], so the efficiency here is significant and the ROI we believe will be pretty strong. These markets are also growing and underserved, so there's room to grow all of these markets, significant room, because no one has been there for a while, right? I think we're a victim of a macro pharmaceutical trend that's going on. Given all of the things we talked about, uh, that are negative headwinds, like the politicking—[saying] "Medicare for all," "everybody will be priced like a generic," "we're gonna take all the pharmaceutical money away"— the mutual fund generalists have left this space. The only spaces they're in now are the high-tech genetic spaces, or high-tech cancer spaces. So that leaves only the pharmaceutical specific funds and indexes, which leaves less people to buy your stock. I think assuming we continue to do what we've done, which is clearly execute and get market share with these three products, our ability and our focus on becoming profitable will definitely turn that share price around—assuming we're successful, which is our only intention.
How much time do you spend talking to investors vs. on talent strategy?Finizio: I manage all of the investor relations here and I spend probably four weeks a quarter out with investors; the other eight or nine weeks per quarter I spend focused on internal initiatives. Brian has less of a role with investors and more of a role with customers. But the only way we're going to be really successful and it's very, very clear in every business I've been in or that I've observed is, you have to get the best people around you that you can. My goal is not to be the smartest guy in the room. My goal is to have the people around me that have done what we need to get done before, and they're good at it. So, in essence, the adage of the company is to take a 12th grader and put them back in third grade to do it again—it just might be a little bit different this time. So we've tried to take that trend, whether it's on sales, marketing, clinical development, accounting, you name it, and get them to help re-establish these products in their capacity with women, re-establish these products with OB/GYNs and reestablish the connections in markets and in the media—and I think so far we've been doing a great job.
The CEO's Role[caption id="attachment_72890" align="alignright" width="300"] Cardinal Health CEO Mike Kaufmann[/caption] Kaufmann said that if the CEO isn't leading conversations about D&I, nobody else will take it seriously. "In my opinion, it has to start with the CEO—and I don't mean just saying the words and periodically having meetings, but literally making themselves vulnerable and authentic and talking about where they got something wrong. If you don't do that as CEO, nobody is going to take time away from their busy schedules to attend an event or take money out of their budget to bring a speaker in or to fund unconscious bias training. If CEOs aren't engaged, you can see it across the company—it's really just happy talk." Kaufmann added that incentives tied to D&I metrics should definitely be in the mix. "We do that in our compensation program," he noted. "Sometimes in the beginning, incentives might feel more like softballs, but at least it gets the conversation going. You're encouraging people to to at least look at their numbers, to have diverse slates, to do things that will start leading the organization in the right direction. And over time, you have to assess things like putting metrics out there and real numbers on representation." Those goals have to be based in reality, he cautioned. "You can't say I'm going to increase female leadership by 10 percentage points when your turnover is low and there's no way to do that without firing 30 percent of your people. So you have to be careful about how you set goals. But organizations have to tie some portion of compensation to making progress in this area."
A Life-Changing ExperienceKaufmann first became interested in the topic a decade ago, when the leader of the company's women's initiative left the company and Kaufmann asked Cardinal's then-CEO George Barrett if he could run it. It was an experience that led to a lot of uncomfortable conversations that ultimately changed his interactions with women from then on. "It was the most important thing I've ever done in my life." It also led him to believe that the only way diversity initiatives can move forward is when white men, like himself, get involved. "And I mean really involved, so they're in uncomfortable situations and you're making mistakes and you're willing to make them." CEOs also have to surround themselves with "truth-tellers," he added. "They will say to me, 'Hey Mike, when you said that, that could be kind of offensive to women,' or 'Mike, that choice of words wasn't quite right.'" While he acknowledges that the company's employee resource groups are intended to give space to like-minded people of similar backgrounds or cultures a chance to commune, he said he routinely encourages male employees to join the women's ERG, white employees to join the African-American or Hispanic ERGs, and so on, so each can get exposure to the other's viewpoint. "I get really frustrated when folks say—and particularly white males—that they feel like they're being discriminated against. Because that's not what we're trying to do at all. We're really just trying to level the playing field," he said. "I know it feels uncomfortable when you're used to having a 30-year start in a hundred-yard dash and now everybody else is only 10 yards behind you, but that doesn't mean we're discriminating against you. We're just trying to remove the barriers for others." Kaufmann also gets impatient with those who can't see the business case for D&I. "That thinking is really outdated now," he said. "If you were a CEO 20 years ago, there really wasn't a lot of data available. But today there's plenty of scientific, reliable data that will tell you that companies that are more diverse, both in gender equity and people of color, perform better." And if you don't trust the validity of the data, he added, "just look at the workforce. If you're not a company that can attract talent from all groups, you're going to be limited to a really small group of people. How can you get the best talent if you're only choosing from 30-40% of the population? You have to be able to choose from 100% of the population. There's evidence—not just from the returns but the demographics of the country. If you can't see that, you're just not looking. Or you're ignoring it. Because I think it's there."
Perhaps most importantly, the Torchbearers outperform their peers in revenue growth and profitability:Mantas sat down with Chief Executive to discuss the findings and how CEOs can use them to move their companies from aspirational to torchbearer.