1. Origin BioMed, part 3: even the fraud is fake
In the last couple of Morning Files I’ve been detailing the problems with Origin BioMed, a Halifax company that went into receivership last month. Nova Scotia Business, Inc. owns a $7.9 million equity stake in the company, which I think will mostly have to be written off. In Part 1 of this series, I discussed a cyber letter the US Drug Enforcement Agency wrote to the company, which demanded that the company’s Neuragen product line comply with prescription drug regulations. In Part 2, I discussed the ethical issues related to a government agency facilitating and financing the sale of a quack medicine, and as well simply the bad business decision to support the company.
But the US DEA cyber letter was merely the nail in the coffin for Origin BioMed. The company’s problems date back four years.
You see, the marketing premise behind the sale of Neuragen was intertwined with the discounting and couponing culture, especially in the United States. The Neuragen product line sells at a listed retail price of $29.99, but is permanently discounted so that no one actually pays that price.
I tried this out for myself when I was in the States last year. I went to a Walgreens Drug Store, asked a clerk where the Neuragen was, she pointed me to the bottom shelf on a aisle filled with other quasi-medical products. The shelf tag announced the price at $29.99. When I brought the box up to the register, another clerk rang it in, and the total price was $29.99 plus whatever the sales tax was. “Wait, that’s not right,” said the clerk, who voided the sale, and then re-rang it using a promotional code, and suddenly the price was $14.99 plus tax. I thanked her and left.
I know nothing at all about marketing and sales, so I’ll just take it on faith that such permanent discounting and couponing strategies work, and serve to increase sales. The problem, however, comes when a company doesn’t properly manage the strategy. And that’s what happened to Origin BioMed.
Early in 2011, various couponing websites in the US started publicizing a $5 “money maker” at Walgreens. Here’s an January 30, 2011 announcement from Wild For Wags, “your site for everything Walgreens — Walgreens coupons and sales”:
I did this deal with the product pictured and it worked for me! The shelf price for this product is $29.99, however it rang up $14.99. I suggest doing a price check and if it rings up $14.99 you should be good to go!
1 – Neuragen PN Pain Relief Topical Solution $14.99
1 – $10/1 Neuragen PN, .17 fl oz or Neuragen Gel, .28 oz – 12-05-10 RP x1/31
1 – $10/1 Neuragen PN 0.17fl oz. or Gel – Walgreens Diabetes & You, Winter x3/31
TOTAL = $4.99, Get Back $10 RR
= $5.01 MONEY MAKER!
A person using the handle Savcoupon discussed the Money Maker on the coupon message board afullcup.com:
At Wags [Walgreens] there has been a month long RR deal on Neuragen. It is on sale for $14.99, there is a man Q [manual coupon] for $10 off in the Diabetes mag [found right in the store, at the pharmacy] and there is a a $10 RR [register rebate] which makes it a $5.01 MM [money maker]. I had planned to do this deal until someone pointed out that the coupon says it is to be used off the “regular price”. My feeling was that the intention of the manufacturer was an “either/or” situation with the coupon/RR. At that point I decided I would personally not do the deal but I would not say anything about my feelings and leave everyone to make their own decisions.
Of course the deal caught on like wildfire. The D&Y mags disappeared in many locations and someone found the pdf copy on the website and people started printing from there. People started selling printed pdf copies on ebay. There are people who have done this deal 10, 20, 30 or more times this month.
Keep in mind this is very much a “niche” product designed for a small market. I did some research and this product is offered by a relatively small company when compared to the corporate giants we are used to. This is not P&G [Procter & Gamble], with a huge amount of capital and resources. I am sure when they entered into this agreement with Wags they were excited about the opportunity. What do you think is going to happen when the promotion is over and they start having to pay $20 to Wags for every product sold? I would bet that $20 is more than the wholesale price Wags paid in the first place. Not to mention that the vast majority of people who purchased this product 20+ times will never buy this product again.
I imagine it will be a nightmare that this company did not foresee. Hopefully it will not strain the company beyond its resources.
Indeed. It appears that pretty much the entire stock of Neuragen in every Walgreens in the United States was sold out in just days, and by the following weekend the product was showing up on flea market tables across the country, the clever couponers finding a way to squeeze a bit more profit from Origin BioMed’s screwup.
I can’t help but note the irony of a company taking advantage of consumers by selling them a quack product itself being taken advantage of by savvy couponers working the system. Turns out, cynicism is a two-way street.
Actual annual revenue for the company appears to be in the $3-4 million range, but Origin BioMed told investors it expected to have $50 million in sales in 2011 — I have no clue how much of that was related to the $5 Walgreens Money Maker, but no doubt the first quarter sales looked fantastic. I imagine company execs patting themselves on the back, sales people getting giant bonuses… I bet somewhere in the provincial archives there’s a gushing letter from company founder Robert Cervelli to Finance Department officials gushing about the ROI.
Of course the coupon bill would come due. “A 2011 coupon promotion fraud created $1.8 million in unexpected liabilities and forced the company to restructure,” reported the Chronicle Herald last week, but there was no “fraud” involved in any of this. One internet poster’s moral qualms aside, no couponer broke any law. No one was ever charged with anything, much less convicted. If Origin BioMed filed any legal action against Walgreens, I can’t find it — and indeed, such a move would be doubly stupid as it would result in destroying a relationship with its largest retailer.
Records at the Registry of Joint Stock Companies show there was a house cleaning at Origin BioMed later in 2011. Gordon Buchan, the chair of the board, signed a letter of resignation on October 24. As of November 28, Cervelli was no longer on the board, and neither was director Ronald Mitton. Nova Scotia Business, Inc.’s rep on the board, Peter McNeil, was at the same time made an officer of the company. Remarkably, chief operating officer Robert Silverstein retained his job.
Fast forward to 2013. Late that year, NSBI issued a press release announcing a further $1 million investment in Origin BioMed, bringing the total to $7,928,000. The million dollars was to finance the purchase of a minor product line and to enter the Australian market, but the release does acknowledge the coupon problem from two years before:
Origin BioMed’s primary product is Neuragen, a topical pain treatment sold in a cream and oil format. Retailers such as Walgreens, CVS, Rite Aid, Kroger, Shoppers Drug Mart, London Drug and many others in the United State and Canada sell Neuragen products.
In 2011, the company faced major challenges, including a coupon promotion that created $1.8 million in unexpected liabilities that forced it to restructure. The company has since repaid the liabilities through product sales.
“Origin BioMed has witnessed significant growth in overall sales and is on track for 50 per cent more sales over last year,” said [Carlo Shimoon, executive chairman of Origin BioMed’s board].
Marli MacNeil, CEO of BioNova, the province’s life sciences association, said Origin BioMed’s turnaround is great news for the company and the industry.
“Origin had already proven itself in the international marketplace with a respected brand. To see the company weather a setback and come out with a new product and new customers is exciting. It’s a credit to its management and to the investors who had the foresight and patience to let that happen.”
Origin BioMed’s performance has increased customer demand for its product and now new marketing and distribution is needed in its larger markets.
The press release was issued on December 2, 2013. The US DEA “cyber letter” ordering Neuragen to be treated as a prescription drug was dated July 15, 2013. Either NSBI didn’t conduct even a cursory review of Origin BioMed’s operations before committing that last million dollars, or a review was conducted, the cyber letter considered, and the million dollars invested all the same. Either way, the failure of Origin BioMed is mirrored by a failure at NSBI.
Sixty people boarded the LeHave ferry yesterday and rallied against proposed fare increases, reports the CBC:
The price of taking the cable ferry jumped on April 1. The cost of a punch pass for 10 trips increased 160 per cent, from $13.50 to $35. A single ticket went from $5.50 to $7.
The increased fares on the six provincially run ferries were announced along with other provincial fee increases last week.
The forecast calls for five to 10 centimetres. It’s already a messy commute.
4. Wild kingdom
Were this never-ending winter not bad enough, the very thing that epitomizes spring — the welcome appearance of the first robin — is instead a dispiriting, heart-wrenching sight:
People are finding dead robins in their yards. They are starving to death because they don’t eat regular bird seed and require worms and berries to survive. If you can take the time to chop up apple or put out grapes or frozen fruit for them it could help save their lives. They also need access to fresh water. Just be careful if you have pets because grapes can kill dogs.
1. How high?
Stephen Archibald, the wisest or at least most sensible Haligonian, has been taking refuge in Mexico for the past month with his lovely wife Sheila. From there, while sitting on a beach, sipping cerveza, and watching the gentle breeze sway the palm trees, he taunts us:
[We] missed the horror that was March weather in Halifax and the rest of Nova Scotia. We were aware of the serial, extraordinary, snow events and sensed the pain. Give yourselves a hug.
Yea, buddy, and we’ve been directing the dump trucks to deposit all the deconstructed snowbanks to your front porch. Hope you remembered to leave the shovel in the car at the airport garage.
Anyway, Archibald continues:
I thought of those giant mounds of snow and ice when we visited the charming, colonial city of Guanajuato. On many buildings we noticed little blue and white signs that looked like they should be street names. Closer examination showed they marked the height of water during a monster flood on the first of July, 1905.
I’ve seen the same sort of things in lots of American cities, Johnstown, Pennsylvania, Ashland, Oregon, and others. Archibald has a great suggestion:
Made me think that somehow the height of our snow banks should be celebrated and commemorated. Our town is full of creatives who could take on this challenge and our summer visitors would be an eager audience. Painting lines on utility poles would probably not communicate the enormity of the snow -a-rama. Our tech crowd could produce a phone app that would display the winter view when you stood in special locations. Or maybe shops just need to display photos of their winter environment. We live in the north, let’s flaunt it.
For some reason, this makes me want to cry.
2. Cranky letter of the day
It’s time we looked at taxing lottery winnings. Atlantic Lottery paid out $384 million in untaxed prizes in 2013.
Surely we could squeak out $25 million from these winnings to cover, as an example, the film tax credit and help save a $150-million-a-year industry.
Seems like a bit of a no-brainer to me. Would the public be up in arms over this? I think not.
Robert Dempsey, Halifax
No public meetings.
Legislature sits (1pm, Province House)
Thesis defence, Psychology and Neuroscience (10am, Room 3107, Mona Campbell Building)—PhD candidate Kate Thompson will defend her thesis, “The Cognitive Consequences of Forgetting: An Investigation of IOR in Item-Method Directed Forgetting.”
Complex machines (11:30am, Slonim Conference Room, Goldberg Computer Science Building)—Dean Tsaltas and Eduardo Vaz, from Halifax company QRA, will talk about “How QRA is using cutting-edge computing to find design flaws in the next generation of complex machines.”
Ebola (7pm, Theatre B, Tupper Medical Building Link)—journalist David Quammen will talk on “Ebola and company: the animal sources of emerging viruses.”
In the harbour