Balchem Corporation

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Balchem Corporation

2007 Route 284, P.O. Box 175
Slate Hill, New York 10973
U.S.A.
Telephone: (845) 355-5300
Toll Free: (800) 431-5641
Fax: (845) 355-6314
Web site: http://www.balchem.com

Public Company
Incorporated: 1967
Employees: 133
Sales: $33.2 million (2000)
Stock Exchanges: American Ticker Symbol: BCP
NAIC: 325199 All Other Basic Organic Chemical Manufacturing

Balchem Corporation of Slate Hill, New York, is a chemical company engaged in two primary niche businesses: specialty gases and encapsulated products. Balchem’s Specialty Products group produces three gases: ethylene oxide, propylene oxide, and methyl chloride. Ethylene oxide is used as a sterilizing agent by hospitals, medical device manufacturers, and contract sterilizers. Because it can treat either hard or soft surfaces, the gas is used to sterilize a wide range of products—from syringes, catheters, and scalpels to gauze, bandages, and surgical kits. Propylene oxide is sold to the chemical synthesis market and used for bacteria reduction in spice treatment. It is also used in the manufacturing process to coat textiles, treat specialty starches, and enhance the strength of paint. Balchem’s third gas product is methyl chloride, which is used as a raw material in herbicides, fertilizers, and pharmaceuticals. It is also added to malt and wine preservers. Balchem’s Encapsulated Products group is the company’s signature business line, one in which it is a world leader. Encapsulation allows nutrients and additives to be protected and controlled in their delivery to both humans and animals. The most commonly recognized form of the encapsulation technique is the time-release cold medicine capsule; the protective shell dissolves at a rate that allows the ingredients to be slowly released into the blood system. Balchem applies its patented encapsulation techniques in a wide range of applications. The food industry is a major customer. Encapsulation fortifies processed foods with vitamins and nutrients, improves flavor, and extends shelf life. It is used in baked goods, refrigerated and frozen dough, processed meats, seasoning blends, and candies. In recent years the company has made great strides in flavor enhancement through encapsulation. Animal feed has also greatly benefited from Balchem’s encapsulation methods. Vitamin C can be delivered as pellets to fish farms, where fish are deprived of natural sources of the vitamin. Animals such as horses, guinea pigs, and primates also take advantage of encapsulated Vitamin C. Microencapsulated choline chloride is used by the animal feed industry for ruminant animals: protected nutrients are able to pass through an animal’s first stomach to the second, where delivery is needed. In addition, Balchem’s Encapsulated Products group works with a marketing partner to sell chemical agents to makers of foamed plastics.

Establishment of Balchem: 1967

According to Forbes, the impetus behind the creation of Balchem came from chemist Dr. Herbert Weiss. In 1967 he noticed an advertisement in the Wall Street Journal that touted an invention that could individually coat particles that would allow the measured delivery of nutrients. Weiss tracked down the inventor, Dr. Leslie L. Balassa, who had earned his doctorate in chemistry at the University of Vienna in 1926, after which he worked for E.I. du Pont de Nemours & Company for a number of years. Today he is primarily remembered for his contributions in pain relief. He developed treatments to alleviate pain in molar extractions, as well as an arthritis treatment to ease long-term pain. His patented microencapsulation process would become the basis for time-release medicine. Weiss and Balassa joined forces with three ex-officers of Baltimore’s Alcolac, Inc. and some other Baltimore investors to create Balchem, which acquired the rights to Balassa’s inventions, processes, and technologies. The company was incorporated in Maryland in 1967, with Balassa initially serving as president.

Balchem underwent a long development phase before it was ready to begin actual operations, which commenced in 1970. At first the company worked out of laboratory facilities on the top floor of the Chemists Club located in midtown Manhattan. The company would relocate to Slate Hill, establishing its operations on the site of a former dairy. In addition, it purchased a nearby parcel of land to serve as an industrial waste site. Despite Balchem’s long gestation period, it soon became apparent that the company would need even more time to build its encapsulation business. In order to generate cash, the company decided to produce and sell what it called known products for known markets. It had the expertise and its equipment was easily adapted to the manufacture of synthetic organic chemicals without interfering with future encapsulation production. In October 1970 Balchem created a subsidiary, Arc Chemical Corporation, to take on this secondary business, which in the early years would provide the bulk of company revenues.

In 1971 Arc Chemical went into production and Balchem began commercial work encapsulating solids for the food industry, including flavor enhancers fumarie acid and adipic acid, preservative sodium nitrate, leavening agent sodium bicarbonate, and nutrient ferrous sulfate. Balchem’s encapsulation efforts received a major break when the company landed a contract with General Foods, which was looking to simplify a lemon pudding mix. Balchem reduced the three-step process to just one step by using encapsulation to combine lemon oil, powdered starch, and citric acid. Not only did General Foods become a major customer for the next 20 years, its cachet as a client helped bring other food manufacturers into the fold, including Nestlé, Nabisco, and Unilever. For the year the company would generate almost $350,000, resulting in an operating loss of nearly $180,000.

Early Growth Despite Chemical Fires: 1970s–80s

Balchem’s momentum would be halted on February 2, 1972, when a fire in one of its chemical producing facilities damaged both a building and its contents. Enough temporary repairs were completed by the end of the month to allow the company to continue manufacture on a limited basis. On April 20, 1972, a $300,000 settlement was reached with the company’s insurer that would allow for the proper repair of the building as well as replacement of damaged equipment. Balchem took advantage of the accident to rebuild its facility with anti-pollution devices that were becoming mandatory in the chemical industry during the early 1970s. Not only did Arc Chemical return to production, it expanded its product line to include monomers used in plastics and specialty ethoxylates needed in textiles, plastics, and cosmetics. Revenues for 1972 were approximately $850,000. The company’s operating loss was reduced to $36,500. Moreover, in 1972 Balassa retired and was replaced by Weiss.

Balchem and Arc Chemical made considerable progress toward profitability in 1973, generating almost $1.2 million in revenues, but on January 21, 1974, another fire caused by the manufacture of specialty chemicals once again set back the company’s efforts. Balchem sold whatever equipment could be salvaged, but in the end the fire produced a loss of more than $222,000. For the year the company lost $524,000, with revenues falling to $706,000. Management decided to cease the direct production of specialty chemicals, electing to have an outside company produce the items that it would market on a commission basis.

Balchem finally produced a profit in 1975, netting $236,000 on revenues of $967,285. The benefits of encapsulation were becoming widely understood, which boded well for the company’s future. Revenues rose steadily through the rest of the 1970s, reaching $5.15 million by 1980, resulting in profits for each year. In 1976 Balchem employed 12 people, but by the end of the decade its staff had increased to 50. In late 1976 the company also returned to the direct sale of specialty chemicals after a three-year hiatus. This time, however, it hoped to protect its encapsulation business by establishing a separate South Carolina facility to produce the volatile substances. In January 1977 the Arc Chemical subsidiary merged with Balchem to form the Arc Chemical Division, and the corporation was dissolved. The South Carolina plant was completed and operational by May 1979.

Generally Balchem enjoyed steady growth through the 1980s, reaching almost $10 million in revenues by the end of the decade. The company’s prospects in the 1990s would be bolstered by new uses for encapsulation. In 1990 Weiss was approached by a New York trade delegation looking for local products to promote during a trip to Thailand. Aware that Far East shrimp farmers threw raw vitamin C into ponds, he suggested that encapsulating the vitamin would not only last longer but would provide more effective delivery, and save the farmers money. In short order, Balchem had a representative in Thailand generating an entirely new revenue stream for the company.

Company Perspectives:

Mission Statement: To provide the benefits of Balchem’s advanced technology to customers throughout the world, while enhancing stockholder value. This will be done by continuing to furnish value-added microencapsulated ingredients for a multiplicity of expanding applications in the human and animal food industries; and by maintaining a leadership position in supplying essential hazardous specialty chemicals in environmentally sound returnable containers .

This mission will be accomplished by providing superior quality products and service to customers; by having highly skilled and motivated employees and according equitable treatment to all; by continuing to develop new products and new markets and by continuing to conduct business in an environmentally and socially responsible manner .

Food Labeling Laws and Expansion of the Business: 1990s

Revised food-labeling laws would also have a major impact on Balchem. In 1990 Congress passed a new food labeling law, requiring that food packages list complete nutritional information, which previously had been provided on a voluntary basis by manufacturers. The format for the label was not completed until 1994, and was required on 90 percent of all processed food. To avoid a fallout with consumers, who were becoming increasingly more health conscious, food manufacturers were motivated to list more than just trace levels of nutrients on their labels. Encapsulation that extended the shelf life of nutrients was the ready answer, and Balchem was a major beneficiary.

In June 1994 Balchem also bolstered its specialty chemical business by acquiring the ethylene oxide (sterilant) business of Allied Signal Inc. It also took over Allied’s current accounts. In 1995 Balchem moved from the NASDAQ to the American Stock Exchange. Overall the company was making great strides in the mid-1990s, reaching $25 million in revenues in 1995 and record net income of $1.6 million.

After 30 years with Balchem, Weiss stepped down as the company’s chief executive at the end of 1996. He was replaced by Dino Rossi, who had joined the company early in the year as its chief financial officer. He had previous management experience with chemical companies Norit Americas Inc. and Oakite Products Inc. He was eager to find new niches for Balchem’s encapsulation technology. He increased the company’s annual research and development budget to the $1 million level. By way of comparison, 20 years earlier the company devoted approximately $50,000 a year to R&D. Rossi was especially keen on expanding its animal nutrition business.

In 1999 Balchem introduced an encapsulated choline product it called Reashure, intended to deliver essential nutrients to dairy cows during transition periods, resulting in increased milk production. Encapsulation allowed the choline to pass through the animal’s first stomach in order to be absorbed in the small intestine and provide the maximum benefit. The concept of rumen bypass had been around for some 20 years, but not until Balchem’s encapsulation solution did it become viable. In 2000 the company received a patent for its Reashure technology. It also took a significant step towards expanding into the global dairy marketplace when it signed an agreement with NYC Co., Ltd., a major importer of agricultural products to Japan, to distribute Reashure Choline to feed companies and farms in Japan. Balchem created a subsidiary to run its animal nutrient fortification business, which it further bolstered in 2001 by acquiring the DCV Inc. and its affiliate DuCoa LP in a deal valued at nearly $15 million. The two companies were involved in the choline animal feed, human choline nutrient, and encapsulated products business, with most of its annual sales of $17 million generated in North America.

Balchem’s R&D efforts also created new food products for people. It introduced Flavorshure Cinnamon, an encapsulated product that promised radical use of cinnamon in baking. Cinnamon naturally inhibits the ability of yeast to rise, resulting in smaller loaves of cinnamon bread. Encapsulated cinnamon did not interfere with leavening while retaining the spice’s aroma and flavor. Balchem also improved the delivery of preservatives, as well as flavor enhancements. It introduced Confecshure Burst pop rocks, encapsulated sodium bicarbonate that brought what the company called an “interactive” taste sensation to candy products. Balchem also introduced Vitashure nutrients, including flaxseed (highly regarded for its health benefits, including its ability to fight cancer and lower blood pressure and cholesterol levels) and guarana (a natural stimulant that purportedly not only suppresses appetite but helps reduce smoking and pain). Encapsulation was employed to mask the bitter aftertaste of guarana, allowing it to be used in such products as yogurt, cereals, candy, and ice cream.

To continue its growth in encapsulation, Balchem increased its 2001 R&D budget by 80 percent. With revenues of $33.2 million in 2000 and net income of $3.7 million, the company appeared ready to reach an entirely new level of financial success.

Principal Operating Units

Encapsulated Products; Specialty Gases.

Principal Competitors

Clariant; Hercules Inc.; Nutrition 21; Opta Food Ingredients; Pharmacia & Upjohn Inc.; Praxair, Inc.

Key Dates:

1967:: Balchem Corporation is incorporated.
1970:: Balchem Corporation begins operations.
1971:: Arc Chemical subsidiary begins to produce speciality chemicals.
1974:: Fire leads to company suspending direct manufacture of chemicals.
1977:: Balchem Corporation merges with Arc Chemical in preparation for return to chemical production.
1994:: Balchem Corporation acquires sterilant gas business of Allied Signal.
1996:: Balchem Corporation is listed on American Stock Exchange.