Weighing Their Options, Diet Firms Add Drugs
Defending their business against the newest twist in dieting, commercial weight-loss companies are expanding their menus to include prescription drugs.
Jenny Craig, Nutri/System Inc. and Diet Centers, three of the largest weight-loss firms, said Wednesday that they are launching test programs in which clients use the recently approved drug Redux along with the usual diet of prepackaged foods. The companies say that so far the programs appear to be popular with customers, giving a boost to a business that is otherwise flat.
“I think there is a pretty clear trend out there, and that is people want access to weight-loss medications,” said Joseph DiBartolomeo, a spokesman for Nurti/System, which plans to offer the drug at 20% of its 500 facilities nationwide by the end of the year. “That is the direction the overweight consumer is moving, and that is the direction we are moving.”
The companies are offering the drug to prevent prospective customers from going elsewhere to lose weight. Offering the drug marks the latest attempt of commercial diet firms to remake themselves as they adjust to the shifting demands of consumers.
Although it’s been available for only nine weeks, Redux appears to be a success. Physicians have written 400,000 prescriptions for the appetite suppressant, also known by its chemical name dexfenfluramine.
David Crossen, a health care industry analyst with Montgomery Securities in San Francisco, said sales of the drug could reach $300 million in 1997. Because it has fewer side effects, Redux is expected to outsell its predecessor drugs, phentermine and fenfluramine, the so-called Phen-Fen diet, used by about 600,000 dieters.
Jenny Craig on Tuesday blamed a softening in its business on consumer interest in Redux, which is being marketed by American Home Products and costs about $2 a day, less than the meal plans offered by commercial diet firms. The Del Mar, Calif.-based company said that in July and August, leads for prospective clients fell about 31%, active customers fell 12% and weekly deposits fell 14% from a year earlier. By contrast, Jenny Craig said leads were up in July and August by 30% in the three test markets where it is offering Redux. “The challenge is to convert these leads into active clients,” the company said.
The softening of business prompted a sell-off in Jenny Craig shares Wednesday. They lost 33% of their value, plunging $5.625 to $11.50 on the New York Stock Exchange on volume of nearly 1.8 million shares. The stock price had been buoyed in part by a March buyback in which founders Sid and Jenny Craig tendered 2 million of their shares at $10 each. They jointly control about 13.8 million shares.
It is not clear how many dieters will ultimately want to use programs that combine meal plans with medications. Since Redux leaves dieters with a “full feeling,” they may be less inclined to buy costly meals that are aimed at helping them control their eating, analysts said.
“My feeling is people will choose one program or another, but not both,” said John LaRosa of MarketData, a research firm that tracks the weight-loss market.
Nonetheless, he said there will be a market for the commercial programs because not every dieter can use Redux. It can be prescribed only for people who are 30% above their ideal body weight, or for people who are 20% above their ideal body weight with certain risk factors, like heart disease.
The diet drugs represent the latest challenge to the commercial weight-loss business. It struggled through the early 1990s, when a recession forced consumers to cut back on expenses. Also hurting the business were false advertising claims from the Federal Trade Commission, which pointed out that many people regained much of the weight they lost.
To recover, the commercial weight-loss firms made an effort to remake themselves, shifting from a strict emphasis on weight loss to “lifestyle management” and fitness. Nutri/System, for example, teamed up with Johnson & Johnson to offer “wellness” programs, emphasizing weight loss for health rather than appearance.
According to MarketData, the business recovered in 1995, with sales increasing to $1.86 billion from $1.69 billion. But the firm said that some of the growth came at the expense of the large chains, which have faced competition from local diet facilities offering more personalized service.
MarketData expects commercial weight-loss centers to post sales increases of 4.5% this year, compared to 7% growth in medically supervised programs, including prescriptions for Redux.
