Weight Watchers International Inc (WTW)

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Weight Watchers International, Inc. (WTW)

Credit Suisse Annual Health Care Conference Call

November 10, 2011 10:30 am ET

Executives

David Kirchhoff - President & CEO, Director

Analysts

Presentation

Unidentified Analyst

Good morning, everyone, and welcome again to the 20th Annual Credit Suisse Healthcare Conference. And when I launched coverage on this next company, Weight Watchers, I got a lot of phone calls, but all anybody wanted to know was, why a guy covering healthcare for 17 years is picking up a consumer company?

I think people thought I was trying to change my career path, but it's really a company I found that was building a budding and a very good healthcare business around a core of a very successful consumer franchise. It's my pleasure to introduce David Kirchhoff, who is the President and CEO of Weight Watchers to present that story to us.

David Kirchhoff

Good morning. Yes, in fact, it is very much the case that we are a company with a considerable identity crisis in so much as, Charles is exactly right. I mean for many, many years, going back to our founding in 1963, we've always been a direct-to-consumer company. Yet we increasingly find ourselves also being seen as an internet company which I will talk about in a little bit and I think frankly most importantly as we go into the future whether we wanted to be one or not, we are in fact becoming a healthcare company.

We had our first ever healthcare conference this year, this January through JPMorgan conference and we've since been fortunate enough to pick up coverage by a healthcare analyst and I say that because if you think about the long-term growth strategy for our business, I think what you are going to see is more and more clear that our destiny is very much intertwined with the future direction of healthcare, both in the United States as well as abroad.

So some of you may have seen this chart from time to time, which is from CDC which shows a progression of obesity over time. It’s not a political map. And what you can basically see is you know about 1990 there was not a state in the union that had obesity rates in excess of 14%. If you looked at, actually there was one of these in 2009 where Colorado was still the shade of blue and of course as a state they were very proud about the fact that they are the least obese state in the union, but I would also point out the fact that if you look at Colorado in 2010, it would have greater levels of obesity than any other state in the union in 1990.

This is sadly no longer a uniquely American phenomenon, it is also a global phenomenon. UK, Australia, Western European countries, kind of across the board are sadly catching up in terms of obesity trajectories and we’re even beginning to see obesity show up in emerging countries and economies such as China, Brazil places like that and it’s not complicated to understand why is that where you have affluence, you have availability of calorie dense foods, dining out increasing portion sizes and you also have increasingly sedentary lifestyles. People aren’t moving around for their jobs they way that they used to. And low and behold obesity becomes kind of an affliction of wealth.

The significance of it is become increasing clear and the simplest way that I can express it is what I call kind of the unfortunate math of obesity, which is if you take $2.5 trillion of healthcare spending in the United States and you consider the fact that about 75% of that goes to the treatment of chronic disease. Of those chronic diseases, if you look at World Health Organization estimates, they in turn are driven anywhere 50% to 80% by lifestyle.

And it leaves you to the inevitable conclusion is that if you are ever going to have long-term containment of healthcare costs in this country or any country it is literally impossible to do it without going about the messy business of getting people to live their lives in a different way.

You know, it’s hard to open up a newspaper these days and not hear the litany of disease states that are associated with obesity, from heart disease to diabetes to things like hip and knee joint replacements, sleep apnea, so on and so on. In fact it seems like a new one comes up just about every other day.

If you look at the impact to the cost of this, obesity today is about 10% of the healthcare expenditure in the United States. It’s directly driving, if you look at the impact of obesity from a broader perspective, for example for employers you are looking at its impact on productivity engagement, presenteeism, absenteeism so on and so forth to the extent that it really is beginning to become and has become a significant issue.

Let me take a specific example within it, which is probably the most significant example within it, but sadly not the only one which is diabetes. Today about 11% of Americans are now diabetic. That’s effectively doubled from 1970 in terms of percentage of population. If you look at the latest CDC estimates that came out about a year ago, the estimate was that by the year 2050, one out of every three Americans would be diabetic, fed old Americans and I will just let that sink in for a second.

Read the rest of this transcript for free on seekingalpha.com