I have received a few communications about my assessment that the new anti-obesity pills are not sticky enough. One individual stated that he was not sure what I meant by sticky and then went on to arrive at the conclusion that stickiness had nothing to do with the situation. The obvious question is this...If you do not know what I meant by sticky, how can you then arrive at a conclusion that has any meaning?
When a product is sticky it means that people keep coming back to it once they try it. Sticky is a term used throughout many business that sell products. If an item is sticky, a person will keep buying it. If it is not sticky they will not keep buyiong it.
Example
You buy a new car and get 3 months of SiriusXM Satellite Radio. If the programming on satellite radio appeals to you, then you subscribe for a longer period of time. For you the product is sticky. Another person may not like the programming, or may not drive a lot, or may feel that $15 dollars a month is too expensive. For that person the product is not sticky.
How do we measure the stickiness of satellite radio? We take the number of free trials and see what percentage of them move on to become self-paying subscribers. For SiriusXM, that number is about 40%. Satellite radio is sticky for 40% of those that try it.
Now, once a person is a self-paying subscriber, we can measure how sticky the product is with that group. Sirius XM has churn of about 1.8% of its self paying base each month.
The dynamic is therefore this:
- 100 people try it
- 40 keep it
- each month that passes will see 1.8% deactivate.
The oversimplified math is this:
- Month 1 - 100 people get free trial - 100 total subs in free trial
- Month 2 - 100 people get free trial - 200 total subs in free trial
- Month 3 - 100 people get free trial - 300 total subs in free trial
- Month 4 - 100 people get free trial, 60 drop off from month 1 group - 300 people in free trial, 40 people in self-pay - 340 total subs
- Month 5 - 100 people get free trial, 60 drop off from month 2 group, 1 person churns from month 1 group. 379 total subs.
In general, satellite radio is stick enough that it has now amassed over 25 million subscribers.
With the anti-obesity drugs, what we are seeing is that people tend to only be on them for 2 or 3 months. This was never the plan of these new anti-obesity drugs. The concept was that people that were responders would stay on the drug for a long period of time. This is not happening. Let's look at Belviq specifically.
Back in January, Arena disclosed that 275,000 patients had tried Belviq. At that point in time, the number of scripts sold was 575,000 according to IMS. That meant that the average person was on the drug about 2 months regardless of Schedule IV drug refill rules, etc.
The stickiness of Belviq is that the average person will take the drug for two months. What is important to investors is why.
- Is the cost too high?
- Is it effectiveness?
- Is it side effects?
- Is it a lack of understanding on how the drug is supposed to work?
Those that follow the sector closely know and understand that these drugs help to take off weight, and that remaining on them can help to keep that weight off. If a patient stops taking the drug, they may well gain back their weight, whereas, if the patient keeps taking the drug, they can maintain the weight levels they have seen success with.
Those that follow this sector also know that the bulk of weight loss happens in the first 12 to 16 weeks. After that, the weight loss plateaus. If you think about how these drugs work, you will see that this makes perfect sense. These drugs make the brain feel that a person is full. Simply stated, the control and/or suppress appetite. In an oversimplified example, if a person ate 5,000 calories a day and only burned 2,000, they will gain weight. If a person eats 2,000 calories a day and burns 2,000, they will maintain weight. These drugs essentially limit the amount of calories, or more accurately, the size and amount of food consumed. If a person wanted more weight loss than they achieve on the pill alone, they can increase exercise, improve diet,m or better yet, do both.
Now, we know Belviq works in half of the people that try it. If the drug were sticky with this half, they would be long term users. We also know that the "trial" period of this drug is 12 weeks. If a person has not lost 5% in 12 weeks, then they should cease. In a perfect world we would not have people stopping after a 15 day trial, 1 month, or two months. In essence, the baseline of stickiness should be 3 months. Think about it. Each person that tries the drug should try it for three months (in concept).
Personally I suspect that the issue of Belviq not being sticky is mostly cost, then effectiveness (half will drop because it is not working for them) then education (understanding a plateau and understanding the benefit of staying on the drug to keep weight off), then safety.
Of the items that relate to stickiness, Arena and Eisai can control 2 of them and has no control over 2 of them. The two that can be controlled are cost and education. In my opinion, the education aspect is where I see the most trouble. Consider the average person:
The average person goes on a diet and losses some weight. They then stop what they were doing and over a few months put the weight back on. They then say that the diet worked for a bit, but then they gained the weight back. The average person will take Belviq for 3 months, lose weight, and be happy until month 4. They then see weight loss plateau and feel that the drug is not working. They stop, say that the drug worked, but eventually they put the weight back on.
The bottom line is that currently these drugs are not sticky enough. There are way to many people leaving these drugs way to quickly. It is critical that the education happen, because once a person tries and fails something, they are usually not likely to go back and try again.
One communication stated that the refills will always be around 3.5 months. This is not true. In fact, it is the furthest thing from the truth. Math dictates that the given parameters of how this drug works, that the pool of long term takers will increase with each passing month. The education is the key here. The sooner that message gets implemented the better.