Fat-Burning Drug Moving to Sales Slow Lane

Kythera Biopharmaceuticals Inc. has one of the hottest new biotech drugs around: an injectable that has been shown to markedly reduce skin fat. And the prospect that it will become a favorite for plastic surgeons looking for non-surgical options to reduce the double chins of aging boomers has sent its stock on a wild ride. But the Westlake Village company has decided on a go-slow marketing plan after spending 10 years and more than $300 million to win Food and Drug Administration approval in April. Forget a direct-to-consumer ad campaign. Instead, the drug, called ATX-101 during the regulatory process and since named Kybella for commercialization, is being methodically introduced to dermatologists and plastic surgeons through group training sessions. Chief Executive Keith Leonard said the strategy is to make doctors first understand how to properly use the drug and get good outcomes – even if that means initial sales might be slower than some analysts might like. “Physicians will be able to purchase Kybella and treat their patients only after they have been trained,” Leonard said in an email to the Business Journal. Still, that does not mean the company hasn’t planned an aggressive sales push. Leonard added that the company, which has a little more than 150 employees, expects about 215 by year-end. The vast majority will go to support sales of the drug and will not be based at headquarters. “We are significantly expanding our sales team and therefore the majority of our new hires are in sales or medical affairs to help support our physicians,” he said in the email. Chris Schott, an analyst at JP Morgan Chase & Co. in New York, estimates Kybella could bring in more than $1 billion annually in revenue. However, given the doctor-education marketing strategy, he expects a slow start to sales this year. “Kythera is initially targeting high-prescribing physicians who are expected to test out the product over a period of time before ramping use,” Schott wrote in a note to investors on May 7. “The majority of 2015 revenues will come in the fourth quarter and (will) accelerate throughout 2016.” With commercialization looming, Kythera’s stock price has increased 44 percent so far this year, even though the company still has no revenue. It closed at $49.97 on May 27. Schott sees further gains in the future, possibly if the company becomes a target of a strategic acquisition. Meanwhile, the company has seized on the stock gains to expand the number of executives who qualify for stock options as part of an employee incentive plan passed by the board last year. Kythera said the options would be used “to induce new employees to enter into employment with the company,” in a Securities and Exchange Commission filing. Corporate Cutbacks Health Net Inc.’s decision to outsource about 2,000 of its employees to an IT contractor is driven by the need to lower costs amid the turbulence and increasing competitiveness of the health insurance market. At least that’s the take of Steve Valentine, president of health care consulting firm Camden Group in El Segundo. “The belief is they will get better service at lower cost through better technology, economies of scale and more automation,” he said. “They are ahead of other health plans that are looking to streamline their costs as well.” The move, outlined in documents the Woodland Hills health insurer filed with the state last month, has its roots in a seven-year master agreement reached with Cognizant Technology Solutions Corp. in November. Under the deal, the Teaneck, N.J. company will handle claims management, customer communication, quality assurance and appeals and grievance services. Health Net expects savings between $150 million and $200 million annually starting in 2017, when the new system is fully implemented. “We entered into an innovative new agreement with Cognizant that has the potential, once regulatory approval is secured, to give us scale parity with much larger plans while enhancing our product and service capabilities,” Chief Executive Jay Gellert told analysts during a Feb. 10 conference call. As previously reported by the Business Journal’s website, Health Net is laying off 1,174 employees at its Woodland Hills headquarters and another 878 in Rancho Cordova, outside Sacramento. Brad Kieffer, a spokesman for Health Net, said the employees would literally remain at their desks and be “rebadged” as Cognizant employees. But he said the company couldn’t provide additional details until it receives regulatory approval for the outsourcing plan. Valentine said the government has an interest in making sure the company’s data is secure and processed properly. Staff Writer Joel Russell can be reached at (818) 316-3124 or [email protected].