Block Drug Company, Inc.

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Block Drug Company, Inc.

257 Cornelison Avenue
Jersey City, New Jersey 07302-9988
U.S.A.
(201) 434-3000
Fax: (201) 434-5739

Incorporated: 1970
Employees: 3,300
Sales: $562.9 million
Stock Exchanges: NASDAQ
SICs: 3843 Dental Equipment & Supplies; 2843 Surface Active Agents; 2844 Toilet Preparations; 2834 Pharmaceutical Preparations

Block Drug Company, Inc., develops and manufactures a variety of pharmaceutical products, including dental care, oral hygiene and professional dental care products (which accounted for about 66 percent of total net sales in 1992); consumer products (which made up about 20 percent); and ethical pharmaceutical products (14 percent). Block’s most popular products include Polident denture cleanser and Poli-Grip dental adhesives; BC headache powders and tablets; Nytol sleeping pills; Tegrin medicated shampoo; 2000 Flushes, an automatic in-tank toilet bowl cleaner; and medical relief products that help treat problems such as hemorrhoids and psoriasis. Block Drug is a family-run business in its third generation. With a very closed and private history, the company went public in 1970 and remains solidly profitable: sales more than doubled from 1983 to 1992. Block’s products are sold in 125 countries.

While Block Drug Company, Inc., was incorporated in 1970, the history of the company can be traced back to 1907 when Alexander Block, a Russian immigrant, opened a small drug store on Fulton Street in Brooklyn, New York. By 1915 he turned wholesaler, and by 1925 he was in the drug manufacturing business, acquiring a 50 percent interest in Wernet’s Dental Manufacturing Company.

Continuing to grow through acquisitions in the 1930s, Block entered the dental care products business, which would be the company’s most profitable over the years. In 1931 Block bought Antikamnia Remedy Company, a small drug and dental care products company, as well as Pycopay toothbrush and Romilar cough syrup. During this period Block also developed Polident dental powder, which eventually spawned brands including Poli-Grip denture adhesive.

Heavily advertised brand names and slightly differentiated products became Block’s trademark for success. In the 1950s, Block was a pioneer in the use of network television commercials, which succeeded in making his products household names. This led to huge growth and new products; for example, he built an entire family of products around the Polident name. An ex-product manager at Block once commented that Block Drug “could hide in the bushes, then … push a button and TV would sell the product.”

After Alexander Block died in 1953, his son Leonard took over the company. He has run the operation since, keeping earnings and sales growth at around ten percent per year. Commentators have noted that while Block does not have the capital to compete directly with the large pharmaceutical companies like Warner-Lambert, its innovative advertising has meant safe niche markets alongside the bigger brand names.

By 1966 Block was spending $10.5 million annually to advertise its very successful Polident denture cleanser against fierce competition. Warner-Lambert had introduced Efferdent denture cleanser tablets, which reportedly gained 20 percent of the market in its West Coast debut. In response to this move, Block stepped up advertising in 1966, with the company delivering 1.5 billion messages (twice as many as in 1965) in an attempt to reach the denture wearer who watched television.

Block developed a slightly differentiated product, Polident “tablets” for the “portable denture wearer,” and also developed new decorator boxes. The new tablets took 15 percent of the entire denture cleanser market by the end of 1965 and had expanded the total denture cleanser market volume by 25 percent. The ad campaign by Polident (twice the amount of money spent on the 1964 Democratic presidential campaign) also included a Block version of Efferdent, called SteraKleen.

The late 1960s were a period of growth for Block Drug. Income increased from $4.8 million in 1967 to $6.6 million for the year ending March 31, 1971. The drug products segment of the business went from nine percent to 29 percent of total business, while dental care products fell from 85 to 65 percent of the total. Foreign sales and television and radio ad expenditures were both on the rise.

In 1970 Block Drug incorporated, and the following year the company went public, putting 275,000 shares of common stock on the market. Revenues rose by seven percent in fiscal year 1971 and net income jumped eight percent over the same period. International sales in 125 foreign countries had 15 percent of the business in 1971. Television was still the company’s favored advertising vehicle, with Polident the most advertised Block product in 1971. Polident lost ground to competitor Efferdent, holding a 36 percent market share compared to Efferdent’s 40 percent. Block’s other leading products, including Nytol, held their own, and Block added a medicated soap to the Tegrin shampoo line.

In the early 1970s the company was able to cut distribution costs of spot and network commercials by 35 percent by using video tape rather than film. Block turned to Advertel, a tape company in Toronto, to distribute Block commercials, whatever the original production medium, and hence reduce the costs of duplicating. For a company that relied so heavily on television advertising, this outsourcing of distribution was an important breakthrough in cost reduction.

In 1972 Block’s advertising reputation was dealt a blow when the federal government and the National Association of Broadcasters asked Block to downplay its promotion of sleeping pills. The government asked that Block’s Nytol (along with J. B. Williams Company’s Sominex and Whitehall Labs’ Sleep-Eze) ads show sleeping pills as an aid to, rather than a direct cause of, sleep. The ads were modified to comply with the request.

Block’s sales began to stagnate in the early to mid-1970s as larger competitors such as Procter & Gamble and Warner-Lambert entered its markets. Some attributed Block’s problems to an apparent move away from TV advertising into other merchandising and marketing activities, in which the company couldn’t compete effectively with the giants. It was also noted that Block needed other strategies, such as more aggressive new product development. According to Melvin Kopp, Block’s controller, “Our products must constantly be replaced by newer products. We fell behind on that.”

Block kept Polident and Tegrin competitive by spending more advertising dollars per sales dollar, especially on television. In 1976, for example, Block spent $30 million, or 23 percent of its sales, on advertising, while Procter & Gamble, with the largest total advertising budget in the industry, spent $445 million, or eight percent of sales; Warner-Lambert spent 15 percent of its sales on advertising.

While sales of dental care products declined domestically, sales abroad increased from ten percent of net income in 1971 to 26 percent of net income in 1973. One concern over the denture cleanser market was that the market was becoming saturated and that there would be a reduced number of people who use dentures as dental hygiene improved during the 1960s and 1970s.

More advertising battles followed as the struggle between Polident and Efferdent continued. Block brought suit against Warner-Lambert, charging that Warner-Lambert “falsely and deceptively” disparaged Polident tablets in its ads. Block withdrew the suit when Warner-Lambert agreed to revise the contested spot.

Block ran into advertising trouble of its own in 1977. The Federal Trade Commission (FTC) ordered Block to stop what it considered false and misleading advertising, taking exception to Block’s claims that users of Poli-Grip or Super Poli-Grip could eat such foods as apples or corn-on-cob without difficulty. The FTC also stated that Block didn’t have reliable scientific evidence to substantiate the claim that its new Extra Effervescent Polident denture cleanser would clean better than Warner-Lambert’s Extra Strength Efferdent.

In the 1980s Block aggressively pursued its niche marketing strategy, including a successful campaign to revive the popularity of powdered pain killers. Targeting the southern United States, where powdered pain killers have retained popularity, Block marketed a “better-tasting,” granulated pain killer through folksy ads; soon the “fast-acting powders,” as they were known, became available throughout the United States. Sales of powders more than doubled between 1980 and 1986.

The company reorganized its front office in the late 1980s. In 1988 Leonard Block, chairman, was named senior chairman of the board, a newly created post. He was succeeded by James A. Block, who had been president of the company; Thomas Block was named president.

Block’s advertising made news once again in the late 1980s as the company developed a new line of commercials for its Super Poli-Grip product. The company sought to develop TV spots with the “real touch,” a new trend in product endorsement. This approach involved using an average “Joe” or “Jane” who used the product to speak on its behalf. To develop the Poli-Grip TV spots, Block spent two years—with the help of commercial casting consultants—to find an ideal “real” candidate to promote their new Super Poli-Grip denture adhesive: a woman between the ages of 35 and 50 who was physically active and attractive, wore dentures, and used the Poli-grip line.

Block continued to expand into new product areas and to market other companies’ products. As part of a joint venture with Chemex Pharmaceuticals, Inc., Block Drug marketed Chemex’s Actinex Cream, designed to treat pre-malignant skin lesions. Relying on its expertise in dental products, Block also contracted to market Ciba-Geigy Corporation’s Habitrol nicotine skin patch, a smoking cessation aid, to dental professionals. Habitrol was the leading nicotine patch, with sales of about $350 million.

Block’s sales grew by 12 percent in 1992, and its profits increased by 10 percent. A public company, Block nevertheless remains a family affair: Block family members hold three top positions with the company, while the family controls 100 percent of the company’s voting stock and 50 percent of the non-voting stock. Block is generally risk-averse, preferring to keep a good portion of its retained earnings in the form of long-term bonds, which generate increasing amounts of tax-free income. The company’s taxes have been generally kept low by the location of major subsidiaries in tax sanctuaries like Ireland and Puerto Rico.