Perhaps the most debated issue on this forum to date has been Phosphagenics’ decision to create Elixia. The wisdom of this move into cosmetics has been questioned and company decisions regarding product selection, distribution and promotion have been fiercely debated. Product effectiveness has been analyzed, sales have been scrutinized and future directions for Elixia have been a rich source of speculation. This post revisits the story of Elixia, discusses its chosen strategies within the framework of global market trends and considers its current and likely future success in the light of its stated rationale.
Phosphagenics’ decision to branch out into the area of cosmetics, through the establishment of its Elixia brand, has divided opinion. This cosmetic detour was first hinted at by the then newly appointed Fred Banti in 2008, when he spoke of TPM’s “many applications in multiple therapeutic areas, including pharmaceutical, nutraceutical and cosmeceutical.”1 In the following year, Chairman Andrew Vizard outlined a new cosmeceutical division within the company and revealed that POH was developing a range of skin care products. He cited the lower costs and regulatory hurdles and the shorter time to market for personal care compared with pharmaceutical products and announced that the company would accelerate its personal care division in the medium term.2 In December 2009, CEO Esra Ogru formally announced the impending launch of Elixia, stating that it was a strategic move for the company “to become financially self sufficient in a shorter period of time.”3
The move into cosmetics made sense from a number of standpoints. Years of researching transdermal delivery had made Phosphagenics an expert on skin and its properties – hence skincare was a logical extension of that groundwork. TPM was capable of providing safe, fast, non-irritating dermal and transdermal delivery of both small and large molecule substances while controlling depth and rate of diffusion. It was this ability to enhance the absorption and penetration of cosmetic actives into the skin that promised to give Phosphagenics a unique and potentially lucrative point of difference in the highly competitive beauty market. A pharmaceutical company containing a personal care division was certainly not without precedent, with Johnson and Johnson and Procter and Gamble being two notable examples. One attraction in taking this path was the huge size of the worldwide skincare market - it is predicted that by 2014, skincare will increase its already sizeable lead in the global beauty market to reach $91 billion.4 In addition, as Vizard noted, there was no long, expensive lead time to market such as with pharmaceutical products, which must first receive FDA clearance. Hence it was hoped that a cosmeceutical division could quickly capitalize on the company’s TPM technology to provide vital cashflow during the Oxycodone patch R &D process.
The creation of Elixia certainly had its critics. Concerns were expressed that the venture would distract company focus from its primary goal – commercializing its drug delivery technology. Some suggested that the move was damaging to the company’s scientific credibility. Others suggested that the move was based more on ego than on financial logic. It was also pointed out that the world of cosmetics was a highly specialized field in which Phosphagenics lacked experience. Perhaps the most commonly voiced concern was that making money in cosmetics necessitates spending large sums on promotion, expenditure which can consume or exceed total sales.
In the December 2009 company newsletter it was observed that there was an expected growth in the cosmeceuticals market of 7.7%, “fuelled by the needs of Baby Boomers searching for natural ingredients, and anti-aging as well as firming/anti-cellulite products.” The company announced that Elixia would target “the high-end, savvy skincare customers ...Generation X and Baby Boomers.” Store sales people were to be provided with training and in-store point of sale and visual merchandising elements were identified as being essential in making the new range visible.5 Future personal care opportunities identified were sun care, healing, baby care and aftershave balms. Phosphagenics’ strategy was to first develop a natural skincare range. The 2010 version was replaced in early 2011 with a new natural range, a more expensive anti-aging range and an anti-cellulite product, BodyShaper. While the initial Elixia range was distributed solely through the Pulse chemist chain, the subsequent ranges have been distributed through Terry White chemists and the discount beauty chain, Priceline, as well as through Myer department stores, the TVSN shopping channel and online through a dedicated Elixia website. Promotion has been mainly through Sunday newspaper beauty liftouts, segments on TV “current affair” programs, the Elixia Facebook site and by providing trial products to various online blogs and beauty sites. Bioelixia, (Elixia’s international brand name), commenced sales in Singapore through the large A S Watson chain at the beginning of this year as well as through a chain of high-end spas in Hong Kong and Macau. The company has announced that Bioelixia distribution will be further expanded this year to China, through AS Watson, and to the United States through a TV shopping channel 6
It is worthwhile to evaluate Elixia’s product development and distribution strategies within the framework of current global skincare trends. Current trends identified by Global Industry Analysts Inc.’s 2012 report, "Personal Care Products: A Global Outlook", are:
• continued growth in naturals/organics • continued growth in anti-aging products boosted by the growth in the 45+ market segment • continued growth in cosmeceuticals • growth in the sun care market, driven by increased consumer awareness of skin damage caused by sun exposure • growth in the acne treatment market, driven by a growing teen population • growth in medicated skin care, driven by the fastest growing population groups, babies and the elderly • growth in male products, especially shaving and lip care products • growth in nutricosmetics • growth in prestige beauty products, up 11% in 2011 in US and 22% in China • less definition of retail channels with product lines being sold at various levels, through multiple channels • growth in online sales (annual growth rate of 26%) especially to baby boomers 7
Viewed in the context of these trends, Elixia’s product development choice and distribution strategies to date would appear to be well considered. Of course, Elixia’s primary strategy was to provide enough revenues for the company to become financially self-sufficient within a relatively short timeframe. The company’s 2011 financials show a gross profit from product sales of approximately $1.5m. This figure includes a full year’s sale of Vital ET as well as 7-8 months of BodyShaper and skincare sales. This compares with a 2010 gross profit from sales from Vital ET of $375 000. 8 These figures seem to suggest that sales of Elixia to the Australian market alone will not quickly lead the company to financial self-sufficiency.
However, Elixia may still contribute significantly to Phosphagenics’ bottom line. The market for high-end skincare products in Australia is relatively small but this year’s expansion into the huge Asian and American markets should be a gamechanger. In addition, the allocation of $5 million from last year’s company capital raising towards brand establishment and expansion should impact significantly. Substantial sales growth is likely. Other possible mid to long term strategies are for Phosphagenics to spin off its Elixia division or to offer it as a unique and attractive acquisition for a much larger player.
What can be assured is that Elixia will continue to be the source of much debate.
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