[HN Gopher] Listerine Royalties
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Listerine Royalties
Author : DL-Invariant
Score : 64 points
Date : 2022-07-27 17:10 UTC (5 hours ago)
(HTM) web link (invariant.substack.com)
(TXT) w3m dump (invariant.substack.com)
| boredumb wrote:
| Since it was based on ounces sold, my initial thought was it
| would balance incentives of watering down the actual formula over
| time.
| DL-Invariant wrote:
| You're smart to think of how it could be gamified.
|
| However, the product is tightly regulated and has stiff
| competition. The brand name is a huge driver of sales. Anything
| that could impair the brand image, like dilution of product,
| would cause more long-term value destruction.
| [deleted]
| jawns wrote:
| Discussion on this from 3 months ago:
|
| https://news.ycombinator.com/item?id=31112411
| ggm wrote:
| Some mouthwash has been implicated in oral cancers. It wouldn't
| take long for sales to tank and alternative formulation and
| branding to seize the market.
|
| Smart investors would of course have a time machine to cash out
| before that happened.
| DL-Invariant wrote:
| Listerine is one of the most heavily studied oral care products
| in all of history.
|
| It is also the only nationally branded antiseptic mouthwash in
| the U.S. that has earned the ADA seal of acceptance(American
| Dental Association.)
|
| While we can accept what you're saying is a risk, I think it is
| exceedingly unlikely.
| ggm wrote:
| If you'd told me stocks in high street shops would be a risk
| investment because of online shopping when Amazon started I
| would have laughed in your face. They are not immensely un-
| risky holdings any more, because people's shopping habits
| moved. Look at Macy's value. It's way down from peak.
|
| Revlon is a major consumer brand. How many people know about
| its involvement in haemophilia treatment, and the downside
| risks? Its in bancruptcy. How can a brand with that kind of
| recognition, which also owned Elizabeth Arden, tank?
|
| I love listerine strips. I use them all the time. I haven't
| used TCP mouthwash since a big panic around phenols, and TCE
| in the 80s. I think the market moved. I certainly don't use
| Listerine any more, or use "fishermens friends" mouth
| lozenges which have chloroform in then (or used to)
|
| The risk isn't "cancer" its "ohmygod cancer" headlines.
| DL-Invariant wrote:
| I appreciate the pushback, and love how you're thinking
| about this.
|
| Negative press can always be a head headwind.
|
| I'd counter, if you look across the world, as oral hygiene
| has become a greater focus as we learn to appreciate it's
| importance in overall wellness, there is a huge positive
| trend: Health organizations and governments are spending
| huge amounts of money to support the adoption and frequent
| use of products like antiseptic mouthwash.
|
| Bad headlines can certainly stifle volumes a bit, but long-
| term I am not sure they'd ever be enough to counter the
| concentrated efforts of so many major establishments.
| mikestew wrote:
| _Some mouthwash has been implicated in oral cancers._
|
| Listerine has offered an alcohol-free (alcohol being the
| concern for oral cancer) version for quite a while.
| ggm wrote:
| Presumably they still pay out on that, but I wonder if with
| sufficient shift in formulation and brand, they could get out
| of it?
| DL-Invariant wrote:
| AFAIK, they must pay for volumes of all products sold under
| the Listerine brand name, regardless of formulation.
| tstrimple wrote:
| I don't think the American public cares too much about products
| which cause cancer. Certainly not enough to punish companies
| from a sales standpoint. Johnson & Johnson have known for
| decades that they sold talc powder contaminated with asbestos
| and was killing people, but consumers never punished them for
| it. You can't even tell by looking at a graph of the last 5
| years of JNJ stock when this news came out and were fined for
| it. It didn't make a dent. They won't even pay the fine. They
| spun up a new company to own the liability and are declaring it
| bankrupt instead. They *STILL* sell asbestos talc powder
| outside the US and Canada.
|
| https://www.reuters.com/investigates/special-report/johnsona...
| commoner wrote:
| > Listerine is the only branded OTC antiseptic mouthwash in the
| United States approved by the American Dental Association.
|
| The full list of ADA-approved products for plaque/gingivitis
| control is here:
|
| https://www.ada.org/resources/research/science-and-research-...
|
| All of the rinses in that category have formulas similar to
| Listerine, but many of them are generic store brands that have
| also independently obtained ADA approval. The generic rinses work
| just as well as Listerine, and they wouldn't be subject to the
| royalties.
| DL-Invariant wrote:
| Wonderful catch!
|
| This was an unfortunate error on my part. The initial claim was
| based on this source:
|
| https://www.listerineprofessional.com/products/oral-care-rou...
|
| Thank you so much for bringing this to my attention. I have
| amended the article, and have included a footnote reflecting
| the initial error.
|
| Fortunately, I don't think that this altars the approach to the
| valuation portion of the analysis.
| belltaco wrote:
| > And in the future, Dr. Lawrence would receive $20 for every
| gross (144 bottles) sold. This was later amended to be based on
| ounces sold to equivalize different container sizes.
|
| Since it's denominated in USD, wouldn't inflation have eaten up a
| large percentage of the royalty over time?
| bluedino wrote:
| $20 USD was a lot in 1915. The average worker probably made
| $400 a year back then.
| kps wrote:
| At the time, the US dollar was pegged to gold.
| fencepost wrote:
| That's covered briefly in the article, but basically they move
| such huge volumes that it's still a lot of money - and there's
| potential for growth in international markets.
| DL-Invariant wrote:
| You're correct in your baseline of thinking. If you dig into
| the valuation portion of the article, I explore that a bit.
|
| International growth, strong USD, usage rates increasing.
| Overall, it's volumes vs inflation. Volumes have been growing
| faster on a relative basis.
|
| Certainly a long-term risk; just one of many.
| jsmith99 wrote:
| Additionally, the driver for the huge volume increase was
| partly Listerine going down market from an expensive medicine
| to a mass market product. $20 in 1881 is apparently
| equivalent to $580 now. J&J probably only get around $200
| revenue for each gross of Listerine sold now (a guess based
| on retail prices and markups), suggesting that despite
| inflation the royalty is still a respectable 10% but implying
| the 1881 price must have been much higher, in real terms,
| than Listerine costs now.
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