Female Health Company (FHCO)
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Health Company is offering the international community a condom for women that will reduce
the risk of getting AIDS
BIO: O.B. Parrish has
served as Chief Executive Officer of the Company since 1994, as acting Chief Financial
Officer from February 1996 to March 1999 and as the Chairman of the board and a Director
of the Company since 1987. Mr. Parrish is a shareholder and has served as the
President and a Director of Phoenix Health Care of Illinois, Inc., a holding company,
since 1987. Mr. Parrish also is Chairman and a Director of ViatiCare, LLC, a
financial services company, and Chairman and a Director of MIICRO Inc., a neuroimaging
company. Mr. Parrish is also a trustee of Lawrence University. From 1977 until
1986, Mr. Parrish was President of the Global Pharmaceutical Group of G.D. Searle & Co
(Searle). Prior to that, Mr. Parrish was Executive Vice President of
Pfizers International Division.
Mr. Parrish: The Female Health Company owns the worldwide rights to the female condom. We are the only marketer of the female condom and we own patents throughout the world. The female condom is used in AIDS prevention programs throughout the world. The United Nations Joint Program on AIDS released a report last year indicating that there were about 40 million currently living with AIDS, about five million new cases of it and that about three million people died of AIDS last year, so the epidemic is getting worse and not better. A number of prevention programs exist in the developing world countries sponsored by UNAIDS and the World Health Organization; the female condom is an integral part of these programs. We have seen substantial growth in the use of the Female Condom and in the long term expect to see continued growth. Our headquarters is in Chicago and our manufacturing facility is in London, England. The female condom is available in one form or another in eighty-eight different countries.
CEOCFOinterviews: How does the female condom differ from the male condom?
Mr. Parrish: Male condoms are put on after arousal, but prior to intercourse and are generally made out of latex, which is a rubber-based type of product. The female condom is made out of polyurethane. It is made to line the vagina while the male condom is designed to fit over an erect penis. One difference is that the female condom is under the control of a woman as to whether or not protection is used. In fact it is the only product controlled by a woman that can be used both to prevent disease and unwanted pregnancy. Another advantage is that it can be put in place prior to sexual arousal, which makes it easier due to less disruption of the sex act. I would like to point out that we dont see the two products as competitive. The tests conducted show that if you make the female condom available as an option along with abstinence or using a male condom, there is about a 25% reduction in unprotected sex acts, which ends up in a much lower incidence of sexually transmitted diseases including HIV and AIDS. The more options people have, the more protected sex acts you have.
CEOCFOinterviews: Tell us about your partnerships and contracts for distribution.
Mr. Parrish: We have an umbrella contract with The United Nations Joint Program on AIDS. Health ministries in various countries purchase the product from us under that umbrella contract. In addition to that, in some countries, we have commercial partners that sell it into the commercial market."
CEOCFOinterviews: I have seen commercials for male condoms on television but not for the female condoms!
Mr. Parrish: Our entire program is focused on the public sector. We dont promote the female condom commercially. It is part of AIDS prevention programs, so our focus is on serving the public sector and that market worldwide. Our business model is relatively simple; we are a manufacturer, we produce the product and ship it based on orders. We have only nominal advertising or marketing costs. The public sector and commercial partners who purchase the product pay for virtually all marketing, shipping and distribution costs. We generally manufacture the product against orders and do not produce inventory that we hope we can sell, but only for specific orders. The business model is an interesting one and an unusual one for a product that is proprietary worldwide.
CEOCFOinterviews: What is the shelf life of the product once it is on the market?
Mr. Parrish: The FDA has approved a five-year shelf life for the female condom. One of the advantages that we have in the developing world is that latex, which is used in the male condoms, tends to deteriorate in hot and humid conditions, where people do not necessarily have refrigeration. Our product doesnt under the same conditions."
CEOCFOinterviews: I noticed that your second quarter there was 31% increase, what do you account for that?
Mr. Parrish: We have substantial variations from quarter-to-quarter, but over all we expect to get continued growth. The second quarter represents the timing of orders. Prevention programs are sometimes disrupted due to political or other issues, this creates an irregular order flow."
CEOCFOinterviews: Are there any side-affects associated with the use of this product?
Mr. Parrish: We have not had any significant issues in terms of side-affects.
CEOCFOinterviews: Do you have any competition?
Mr. Parrish: There are no other female condoms available, which have been successfully tested and received broad regulatory approval. There are people that have tried to develop them but there are significant barriers to entry. One is patent protection. Beyond that, if you can circumvent the patents, then you would have to get regulatory approvals. The female condom was approved by the FDA as a Class III device; it was approved by the European Union and many other regulatory bodies. Getting these approvals would be expensive and time consuming. I would estimate that if someone attempted to get a U.S approval it would take five to six years. Finally, in the global public sector market, in order to get the WHO and UNAIDS approval would require significant work. These organizations would have to be convinced the product was safe and effective. It will not be easy for somebody else to come out with another female condom. I should point out that the Female Health Company is working on a second-generation female condom that we believe could substantially reduce the cost of manufacturing the product, and extend our proprietary position. Patents for what we call FC2 were filed in 2003.
CEOCFOinterviews: It is more expensive than the male condoms and some people think that is a big issue!
Mr. Parrish: Cost is an issue in the developing world where there is subsidized distribution. Studies have been done that show it is cost-effective and the cost of the product and education is more than offset by the cost of treatment avoidance savings. Nevertheless, we believe if we could reduce the cost, we could penetrate the market more rapidly. Our second-generation product addresses this issue.
CEOCFOinterviews: Where are these manufactured?
Mr. Parrish: In London, England. Our facilities are in an industrial park called Park Royal. It is a state-of-the-art facility of about 40,000 square ft. The facility has been inspected by the FDA and we are authorized to import the product into the United States. It has also been inspected by the EU and the United Nations Joint Program on AIDS.
CEOCFOinterviews: Once everything is approved and running well, do you go back to make sure that the products are manufactured the way you want them?
Mr. Parrish: Yes, I was there earlier this year. More importantly, every year or two, the FDA does follow-up inspections."
CEOCFOinterviews: Since you do not get involved any of the advertising or marketing, it is just one less expense!
Mr. Parrish: At this point, we dont see ourselves as a consumer marketing company. We market to Ministries of Health and commercial partners. We have people who call on them but it isnt the classic thing where advertising is important to get their business. For example, there is a major AIDS prevention program going on in Brazil that has been quite successful and we have been a part of that program. We are in contact with the Ministry of Health, but advertizing doesnt play a role in it.
CEOCFOinterviews: What is your long-term goal for this company?
Mr. Parrish: We think that over the next three to four years, we are going to achieve substantial growth because of the unfortunate AIDS crisis and the need for prevention. Longer term, we have developed a unique distribution system in the public sector around the world. We will be looking at additional products that we could put in to that type of distribution system.
CEOCFOinterviews: Would this include acquisitions?
Mr. Parrish: It could include acquisitions of products or a company if we find something that fits into what we do, and the expertise we have developed in the public sector around the world.
CEOCFOinterviews: This company is not that old; it was formed back in 1996 is that correct?
Mr. Parrish: Yes, in its current form, as a worldwide business, it was formed back in 1996.
CEOCFOinterviews: What was the biggest hurdle that you had to overcome?
Mr. Parrish: There
were a number of hurdles; one was getting regulatory approvals, then there were
fundamental hurdles that didnt have anything to do with the company but reflected
the environment in the developing world. For a long time in many countries, people
wouldnt recognize that AIDS was a problem. In fact, if you had AIDS, you often were
a cast-out. Over time, the problem became so severe (In South Africa about 25% of the
people are HIV positive; in Botswana, they estimate about 37% are HIV positive.)
socio-economic structures of these countries began to collapse. Once that began to happen,
people began to recognize the issue.
CEOCFOinterviews: In closing, for potential investors looking at this company for the first time, and wants to know why he should invest in this type of company, what would you say to him?
Mr. Parrish: Unfortunately, the HIV/ AIDS issue is getting worse and it isnt going to go away. There are drugs that help people live longer but there is no simple treatment or cure. There is no preventative vaccine and some scientists think that if there ever is one, it will be years away. We have one of only two products that help to prevent the spread of HIV/AIDS, the female and the male condom, and ours is proprietary. We have a business model that is low risk in that we do not invest in advertising in hope that somebody will buy our product, or manufacture product in the hopes that we can sell it. Beyond the break-even level, we should have a solid and profitable business. However, we expect significant period to period variations, but substantial growth in the long term.
CEOCFOinterviews: So you dont have the added expenses that other companies would have!
Mr. Parrish: We dont have to take the risk of putting the cash into advertising.
Unfortunately, the HIV/ AIDS issue is getting worse and it isnt going to go away. There are drugs that help people live longer but there is no simple treatment or cure. There is no preventative vaccine and some scientists think that if there ever is one, it will be years away. We have one of only two products that help to prevent the spread of HIV/AIDS, the female and the male condom, and ours is proprietary. We have a business model that is low risk in that we do not invest in advertising in hope that somebody will buy our product, or manufacture product in the hopes that we can sell it. Beyond the break-even level, we should have a solid and profitable business. However, we expect significant period to period variations, but substantial growth in the long term. - Mr. O. B. Parrish
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