Ryan Graff, Medill News Service
The market for the female condom is finally booming. But you won’t find any evidence as you stroll through the aisles of your local pharmacy. A better place to look would be the ledgers of international HIV/AIDS relief organizations.
The contraceptive, manufactured by Chicago-based Female Health Co., failed to catch on with consumers around the world after it was invented in the early 1990s. People giggled at it. Women weren’t interested in using it. Many eventually forgot about it and assumed that the product had disappeared.
But the female condom survived quietly despite weak retail sales because of public health organizations. Now with a worldwide focus on the HIV/AIDS pandemic in developing nations, the female condom and the company that manufactures it have finally found some footing. Female Health broke a 10-year losing streak in 2006 when it made a $282,000 profit – earning money for the first time in its history. By 2007 Female Health posted $1.7 million in profit on revenue of $19.3 million.
“It took many more years to make it work than we thought it would,” said O.B. Parrish, Female Health’s CEO and co-founder of the company. “But we’re now across the line.” The company has no debt.
Why is Female Health suddenly profitable? The worldwide budget for the prevention and treatment of HIV/AIDS has ballooned – from $4 billion in 2004 to $10 billion in 2007. And things may be getting better. Last summer the President's Emergency Plan for AIDS Relief committed $48 billion to AIDS relief over the next five years. And the United Kingdom's Department for International Development announced a plan to commit $12 billion over the next seven years. Another big customer is National AIDS Control Organization, in India.
FHC stands “to make a pretty good chunk of money” if it can capture even a small percentage of that business, said Tim Hanson, a senior analyst at Motley Fool, which lists FHC among its Hidden Gems. Hanson owns shares of Female Health.
The stock rose from $1.20 in December 2006 to $3.60 in October 2007 before settling at prices ranging from $2.50 to $3. It closed Wednesday at $2.55.
There is some risk in relying on government spending, Hanson said, especially since many governments that poured billions into HIV/AIDS relief over the past few years have lately poured billions into saving their own financial systems.
Still, if the funding for HIV/AIDS continues, there is certainly room for Female Health to grow. Last year over 11 billion male condoms were shipped to various part of the world grappling with HIV/AIDS, compared to just 26 million female condoms, said Donna Felch, Female Health’s chief financial officer.
“We’ve just barely begun to enter that market,” Felch said. In some parts of Africa 70 percent of new AIDS cases are in women, she said. The female condom is the only AIDS-protection product that women themselves control. She expects as more and more women get to know and accept the product that Female Health will ship even more.
“There’s a huge upside for potential sales,” Felch said.
Female Health was formed as a public company in 1996 after three founders – Parrish, Felch, and Mike Pope, the company’s vice president of international operations – left Skokie-based pharmaceutical company J.D. Searle when it was acquired by Monsanto Co. nearly two decades ago. Initially the founders went in search of investment opportunities in the healthcare industry that they could be “personally involved in.” They eventually came across the female condom, which was invented by a Danish physician. The founders struck a deal with the physician to seek FDA approval, which they obtained. The three eventually bought the worldwide rights to the product and formed Female Health.
Today, Female Health still has just one product – the female condom. It launched the second generation of the female condom, called FC2, in the spring of last year. The new condom is softer, easier to use and cheaper to produce. While the first generation cost between 84 and 86 cents to make, the new generation costs only 60 cents, thanks to a switch to a nylon synthetic rubber.
Female Health is still the sole maker of female condoms in the world. Though based in Chicago, it manufactures in the U.K. and Malaysia. Condoms are sold almost exclusively to non-governmental organizations and relief organizations, which then give out the devices free in Sub-Sahara Africa and other places where HIV/AIDS is ravaging communities.
“It’s quite unique,” Felch said, referring to the company’s business model. “We haven’t been able to find another one like it.”
The company is clearly focused on developing the female condom as a public sector product, but does have a small consumer segment.
Both Rite Aid Corp. and Walgreen Co. stock the product and it can be found in locally-owned retailers. But Mayer Laboratories Inc., which distributes Female Health Co.’s product under the brand FC Female Condom to retailers in the U.S, has sold fewer units in retail stores each year since at least 2003, according to Information Resources Inc., a Chicago-based market research firm. In 2003 Mayer sold 38,000 units. In 2007 it sold just 14,500.
Still, people in the consumer business are reluctant to call the product a failure. “People had these expectations that every woman was going to start using it,” said David Mayer, president of Mayer Laboratories. “They thought women by droves would come to this product.”
By those expectations, the product did not succeed, he said.
But even the consumer market is looking up, Mayer said. The company redesigned the packaging in July and it has already seen a 10 percent increase in over-the-counter sales, he said. They’ve also launched a print advertising campaign in certain cities, and in magazines read by Hispanic and African American women. HIV/AIDS is the leading cause of death among black women age 18 to 35, according to the Centers for Disease Control and Prevention.
Mayer expects to end the year with increased sales over 2007.
Female Health concedes that with only one product it’s reliant on the prevalence of HIV/AIDS in the world. But the company thinks serving the world and making a profit go hand in hand.
“The higher the volume, the more profitable the company becomes. And the more volume the more people are protected,” he said. “It’s a very interesting combination of capitalism with a humanitarian end point.”