Obagi Medical Products Reinvented: New Life as an Independent Entity

As it passes into its third decade of existence, Obagi Medical is reinventing itself as an independent global specialty skin care company.

Late last year, as part of an overall debt reconciliation effort, Valeant Pharmaceuticals International agreed to sell Obagi Medical. In hindsight, the transaction saw both sides win: The $190 cash deal helped the parent company reduce debt while providing the spinoff with an opportunity to return to its core values.

The taste of independence was like a breath of fresh air after a turbulent period within a larger corporate entity. But the immediate needs of running an international company left little time for sentimentality. As an inevitable consequence of the departure from its former parent company, Obagi Cosmeceuticals, LLC didn't have much leadership structure. The newly independent entity did have a long history with its customer base upon which to build.

“It almost feels like we are a startup, but a startup with an established brand,” Obagi Cosmeceuticals, LLC President Jaime Castle says. “We had the liberty to design the executive structure we wanted and that would support us going forward. I've never been in the position where I can hand pick the whole leadership team, so it's been really unique to be able to build a solid model based on some of the feedback we have heard from our customers.”

Refocusing on Consumer Needs

Reinventing a brand can be a nebulous proposition. Many companies have offered to renew themselves with little success, and so the idea of a restart is likely to engender a certain degree of skepticism. What makes the gambit from Obagi Cosmeceuticals, LLC different, though, is that its newly established executive team has a clear vision and focus for where they want to take the company.

One of the first moves Ms. Castle made was to promote Lisa Errecart to Vice President of Operations. A 15-year company veteran, Ms. Errecart had a frontline view of Obagi's historic ups and downs. Her experience provides insight on what makes Obagi tick and what allowed it to survive. To Ms. Errecart, the entire enterprise begins and ends with customer relationships.

“The focus for us is making sure that we're meeting our physicians' needs as their preferred skin care partner. As we grow and expand, we want to ensure that we're listening to our customers, we're leveraging the experience of the new leadership team, and investing in new partnerships,” Ms. Errecart says.

It's more than an attitude change. Some practical measures are already being enacted in response to customer feedback. One recurring comment was that, while the company was highly successful in engaging the physician community, bottlenecks in the distribution chain proved to be, at times, very frustrating. Obagi Cosmeceuticals, LLC is attempting to change that with new distribution partner WBC Group, a company with over 70 years experience serving health and wellness brands. To further bolster the supply chain, the company is also moving toward a dual source manufacturing model to ensure there is adequate supply to meet customer demand.

The management team, with more than 50 years of experience in the physician dispensed skin care industry, has directed all employees to examine the company through the needs of the consumer. There is perhaps something else notable about the makeup of both the company and its leadership that helps inform this new approach. Over 80 percent of the employees, including those in upper level management, are female. It's a feature that ultimately allows Obagi Cosmeceuticals, LLC management to both understand the needs of its customers and empathize with the end users of its products.

The particular construction of the new Obagi Cosmeceuticals, LLC leadership has not gone unnoticed by aesthetic providers like Deborah Sherman, MD, who has worked closely with the company for many years.

“If you look carefully at this team at the top level of leadership and also at the director level, what's interesting is that you see that there are all skin types represented and there's a majority of women,” Dr. Sherman says. “If you are the market you know the market, and then you know how to deliver for the market.”

Innovation as a Growth Strategy

Having addressed short-term distribution and sales force needs, Obagi Cosmeceuticals, LLC is eyeing future growth by returning to its roots as an innovator. As one of the earliest brands to emerge in the nascent cosmeceutical market in the late 1980s and early 1990s, Obagi quickly became known for developing and distributing market-leading products, like the NuDerm system, the gold standard for correcting hyperpigmentation and signs of skin aging. But that heritage got abandoned with Obagi's previous parent company.

Looking back, Ms. Castle says that Obagi was very much a “round peg in a square hole” in the previous corporate structure. While that sentiment is most often conveyed the other way around, flipping it on its head seems somewhat appropriate—when it was part of the previous company, Obagi was undoubtedly an important aspect of the overall financial portfolio, but divergent philosophies on the role of research and development resulted in an imperfect culture fit. The inability to develop new product lines meant Obagi could not fill out and fit the square hole it found itself in.

In a move that epitomizes the reinvention of Obagi Cosmeceuticals, LLC, the company announced it will increase R&D spending for FY2018 by four times, with plans to continue to keep innovation front and center going forward. “We really need to be very high-level customer-focused. We need to focus on R&D,” says Ms. Castle.

As a cosmeceutical brand, Obagi Medical faces different market forces relative to over-the-counter lines. In general, health and beauty brands need to continually release the “new and next” to pique consumer interest. By contrast, the demand for rigorous science and proven results drives a slower, more methodical approach to innovation among brands intended for use in medical settings. This is a key reason why Obagi Cosmeceuticals, LLC is now seeking to expand its breadth of innovation while also redefining for itself what fits into the category of new product research.

Laurence Dryer, PhD, Vice President Research and Development, proudly calls herself an Obagi boomerang—she briefly left the organization but returned once it regained independent status and the promise of rededication to what made Obagi excel throughout its history. Yet, the commitment to increasing R&D spend was only half the equation. The mandate to innovate in the midst of changing times created an entirely blank slate: in this new era, innovation includes than just where to spend resources.

“The vision for innovation at this company is much more aggressive than looking for hero products, and much more broad,” Dr. Dryer explained. “We are thinking about clinical innovation, but we also see opportunity for regimen innovation, and there is visual innovation, or considering the look and feel of our products. Going forward, it's not just about, ‘Flip a new product on the portfolio, launch it, and call it new.' Our standards are higher than that. For me, the free reign in introducing new ways to innovate, and not just being beholden to traditional innovation models, provides a chance to define how Obagi wants to be known in the future.”

Partnering with the Physician Community

Looming behind all the changes that Obagi Cosmeceuticals, LLC is experiencing is the reality that the aesthetics market has become more crowded and competitive in recent years. Aesthetic providers find themselves at risk of losing patients under the presumption that their services can be replaced by the latest and greatest beauty product—even if the results are unproven and undocumented.

And so, the reinvention of Obagi Cosmeceuticals, LLC puts the company in a better position to serve the changing needs of physician partners.

“We don't just want to sell products into the physician community; we want to really invest in selling it through. That's truly what physicians need right now. They need a really strong business partner. Historically, we've always been there for the physicians, but I'm not sure quite in that capacity, and that is truly what we are working on now as an organization,” says Ms. Castle.

Obagi Cosmeceuticals, LLC has started to disseminate completed clinical trial data that demonstrate how their products can be used to improve patients' outcomes. Clinicians like Joel Schlessinger, MD, who has used Obagi Medical products in his practice for over 15 years, say this is an important consideration that helps foster best practices.

“Obagi Medical has always been associated with great products. That part never changed in all the years and during all the challenges that occurred,” Dr. Schlessinger says. “It's had the right ingredients, the right products, the right approach, but in order to market it effectively, it needed a team behind it that was devoted to the product and the customer. In addition, they also needed to educate the customer regarding their incredible products.”

Dr. Schlessinger says he is encouraged to see data that had been forgotten re-emerge, including studies he participated in but was never able to fully disclose. These recent efforts to remind the physician community about the gold standard heritage of their brands, he says, lay an important foundation as Obagi Cosmeceuticals, LLC focuses on future innovation.