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Dollar General reports strong Q1

BY Allison Cerra

GOODLETTSVILLE, Tenn. Net income for Dollar General rose nearly 64% for the first quarter of fiscal 2010.

Dollar General reported Tuesday that for the 13 weeks ended April 30, net income rose to $136 million, or 39 cents per diluted share. Conversely, sales increased 11.9% to $3.11 billion in first quarter 2010  compared with $2.78 billion in the 2009 first quarter. Same-store sales increased 6.7% in the 2010 quarter and 13.3% in the 2009 quarter, with customer traffic and average transaction amount contributing to the same-store sales increases in both periods. Sales were strongest in the consumables and seasonal categories.

Meanwhile, operating profit increased by 29% to $290.7 million, or 9.3% of sales, compared with $224.9 million, or 8.1% of sales, in the 2009 first quarter. Excluding the expenses relating to the secondary offering discussed above, first quarter 2010 operating profit would have been $305.8 million, or 9.8% of sales.

“Dollar General’s first-quarter performance marks a great start to the year. Our first-quarter sales were ahead of our expectations. Our same-store sales growth of 6.7% for the quarter was on top of 13.3% growth in the first quarter 2009,” said Rick Dreiling, chairman and CEO. “We generated these positive results by continuing to provide our customers with a convenient shopping experience at everyday low prices. Our strong first-quarter results, coupled with our consistent track record, give us confidence to raise our full-year outlook for 2010.”

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FDA takes a stand against misleading drug ads

BY Alaric DeArment

SILVER SPRING, Md. —From sophisticated computer-generated animation to camera work worthy of Hollywood to celebrity endorsements, direct-to-consumer drug advertising has grown into a sophisticated and expensive business. But according to the Congressional Budget Office, the amount of money that drug companies spend advertising to healthcare professionals dwarfs what they spend advertising to consumers—nearly threefold. Now, the Food and Drug Administration is launching a campaign to make sure drug makers stay honest when they pitch their products to professionals.

The FDA announced last month the launch of the Bad Ad Program, an educational outreach effort administered by the agency’s Division of Drug Marketing, Advertising and Communications. The stated goal of the program is to prevent misleading prescription drug advertising.

“The Bad Ad Program will help healthcare providers recognize misleading prescription drug promotion and provide them with an easy way to report this activity to the agency,” DDMAC director Thomas Abrams said.

The program is divided into three phases: In the first phase, the DDMAC will engage healthcare professionals at medical conventions and distribute educational materials through partnerships with medical societies; in the second and third phases, the agency will work to update the materials.

The agency’s traditional methods of monitoring drug advertising have relied on reviews of promotional materials submitted by drug companies themselves, as well as complaints and field surveillance at conventions. The agency said that while these methods are effective, it has more limited ability to monitor promotions in more private settings, particularly drug company representatives’ visits to doctors’ offices and hospitals, as well as dinner programs and promotional speaker programs.

In particular, according to the FDA, two problems that frequently occur among drug reps are overstatements of drugs’ effectiveness, such as saying a drug can work in as little as three days even though most participants didn’t show improvements for three months, or promoting drugs’ effectiveness while downplaying the risks involved.

“Companies send us their sales aids—the booklets and campaign materials for their drug that the reps are supposed to use in the field when they talk with doctors—and we review those materials,” an online FDA article directed at consumers quoted DDMAC group leader Robert Dean as saying. “But we have limited access to the promotional activities in these settings. That’s why we’re asking healthcare professionals to partner with us in our efforts to stop misleading prescription drug promotion.”

While not directly related, the program comes shortly after settlements in April between the federal government and drug makers Johnson & Johnson and AstraZeneca over alleged promotion of drugs for unapproved uses. J&J subsidiary Ortho-McNeil-Janssen Pharmaceuticals announced it would pay $80 million to settle allegations that it promoted the epilepsy drug Topamax (topiramate) as a treatment for unapproved uses between 2001 and 2003. The settlement was announced days after AstraZeneca agreed to pay $520 million to settle claims that it promoted the schizophrenia and bipolar disorder treatment Seroquel (quetiapine) between 2001 and 2006 as a treatment for Alzheimer’s disease, attention deficit hyperactivity disorder, insomnia and other unapproved uses.

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Report: drug cos. must adapt, collaborate to navigate health reform

BY Jim Frederick

NEW YORK —The era from 2010 to 2020 will be the “decade of health reform,” according to a new report from PricewaterhouseCoopers. But despite adding tens of millions of Americans to the rolls of the insured and boosting prescription drug usage as a result, provisions contained in the Patient Protection and Affordable Care Act will actually put a squeeze on revenues for drug makers—and force them to collaborate far more effectively with other healthcare entities and fundamentally change the way they approach the pharmaceutical business, the company predicted.

In a newly released study on the potential impact of the health-reform law, PricewaterhouseCoopers’ Health Research Institute projected that drug manufacturers will see total industry revenues decline by $112 billion over the next 10 years as elements of the massive health-reform package signed by Pres. Barack Obama earlier this year sweep through the healthcare system. What’s more, health reform will “profoundly alter the healthcare environment,” and “may make health organization’s current business practices and markets irrelevant.”

One of the most visible effects of health-reform legislation will be the expected addition of 32 million Americans to the ranks of the insured, and the elimination of the Medicare Part D drug-coverage “doughnut hole.” But along with the expansion in drug utilization will be new rebates and fees that will eclipse some of the sales and profit gains made by drug makers serving this increased drug-usage population, according to the report. And branded drug manufacturers that heavily depend on government-spending programs for much of their revenues will be hardest hit, PWC predicted.

In “the new coverage vs. discount landscape,” PWC noted, “expanded coverage means increased sales, but higher rebates and fees may mitigate the gain.”

The ultimate effect, the company added, is that “health-reform changes will cut into expected spending on brand-name drugs by 4.3%. The increased number of insured will be offset by heavier discounts required by Medicare and Medicaid and other new fees on government sales, making it less attractive to sell to government programs.”

Overall impact of legislation on pharma revenues

*Source: National Health Expenditure Accounts, PricewaterhouseCoopers’ calculations** Includes increased revenues due to Part D coverage improvements
Industry impact, 2010-2019
Total brand pharmaceutical revenues, 2010-2019* $2.6 trillion
Less: Discounts in coverage gap, net change** -35.0 billion -1.3%
Less: Increase in Medicaid rebates -35.0 billion -1.3
Less: Annual industry fee -28.0 billion -1.1
Less: Follow-on biologics -25.0 billion -1.0
Plus: Increased use from coverage expansions in under-65 population 11.0 billion 0.4
Net change in pharmaceutical revenues -112.0 billion -4.3

The new regulations will challenge every healthcare stakeholder. “Health organizations face more than 60 major regulatory deadlines over the next ten years to meet the timetable and goals of health reform,” PWC noted in its report, released May 12 under the title “Health Reform: Prospering in a Post-reform World.”

“To look at the implications of health reform only in the context of current business practices is not only futile but [also] misses the point of the reform agenda,” said Kelly Barnes, PWC’s U.S. health industries leader. “If health organizations make no other changes and sectors continue to operate in silos, the direct financial impact of healthcare reform could be devastating and even threaten their survivability.”

“To prosper, it is incumbent on health executives to reassess their businesses, find new market opportunities and sit on the same side of the table with unlikely new allies who now share common goals,” Barnes urged.

In its report, PWC cited “an environment of relentless challenge and change” within the pharmaceutical industry. “The industry remains under pressure from physicians, patients, payers and regulators to deliver more effective treatments at lower cost,” the company asserted. And with the onset of new demands and new, evidence-based payment structures from a reformed healthcare system, the industry’s “current business model, based on development and marketing of blockbuster drugs, is increasingly economically unsustainable and operationally unsuited to the kind of quick action needed to meet complex stakeholder demands,” the report noted.

Nevertheless, the report’s authors concluded, “the future holds promise.” Among the reasons why: the ramp-up of personalized medicine and increasing number of biologic products in development portend growth for the industry; the delivery of targeted, specialty medicines to selected groups of patients should improve outcomes and boost profitability; and rising populations and personal incomes in emerging markets have the potential to broaden the customer base in untapped and underserved regions.

“To seize these opportunities, the industry must embrace a fundamentally new approach to doing business,” PWC noted.

“Pharma’s traditional strategy of investing heavily in a few molecules, promoting them aggressively and turning them into blockbusters worked well for many years. But today, productivity has plummeted, and the worldwide marketplace has changed dramatically,” the report added. “In response, the industry must improve its understanding of disease, reduce research and development costs and funnel innovation into its pipeline. It must tap emerging markets and switch from selling medicines to improving outcomes.”

And, PWC warned, “Few companies will survive without improved stakeholder management and collaboration with nontraditional partners.”

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