GP Strategies Corporation
GP Strategies Corporation
Sales: $168.7 million (2003)
Stock Exchanges: New York
Ticker Symbol: GPX
NAIC: 541611 Administrative Management and General Management Consulting Services; 611699 All Other Miscellaneous Schools and Instruction
GP Strategies Corporation, formerly National Patent Development Corporation (NPD), is primarily a holding company, a legal entity separate and distinct from its various operating subsidiaries. Its principal operating subsidiaries are the General Physics Corporation and MXL Industries. General Physics specializes in management consulting, or performance improvement, offering training, consulting, and technical services to companies in various manufacturing fields, to government agencies, and to utilities. General Physics began as a training and support firm with expertise in nuclear power. Its clients now include leading auto makers such as General Motors, Ford Motor Co., and Daimler Chrysler, steel makers Inland Steel, USX, and AK Steel, pharmaceutical firms such as Pfizer Corporation and Johnson & Johnson, computer and communications firms including IBM and AT&T, and consumer manufacturing companies such as Pepsi Cola and Anheuser Busch. General Physics also find the U.S. Army, the U.S. Navy, and the U.S. Postal Service among its clients. GP Strategies' other principal operating unit is the wholly owned subsidiary MXL Industries, Inc. MXL specializes in the manufacture of specialized molded and coated plastic goods, including optical products, shields, and face masks. MXL sells its products in countries around the globe and is known for its proprietary anti-scratch and anti-fog coatings. GP Strategies also has significant investments in several companies in diverse industries. It owns a stake in Millennium Cell Inc., a company that researches and develops fuel cell technology. It also has investments in Valera Pharmaceuticals, involved in cancer drug development, and Five Star Products, Inc., which makes home improvement and decorating items. In 2002, GP Strategies announced it was considering a spin-off of MXL Industries and some other holdings into a separate, publicly owned company to be called National Patent Development Corp. The spin-off was still pending as of May 2004.
Behind the Iron Curtain in the 1960s–70s
In 1959, three New York City lawyers, Jerome Feldman, Martin M. Pollak, and Jess Larson began National Patent Development Corporation as a scouting service for dormant patents. Their idea originated in 1958 after Feldman and Pollak heard about a new resin plasticizer developed and put on hold by a company unsure about the product's marketability. The partners believed the resin offered a superior base material for the manufacture of lipstick, and they offered to arrange a licensing agreement. Although the partners found a major cosmetics manufacturer, problems arose when each company told them to get their fee from the other.
While the deal ultimately fell through, Feldman and Pollak saw profit potential in the patent exchange business and decided to form a company that could act, under contract, as a middleman. They found a third partner in Jess Larson, an attorney with considerable government experience, having formerly served as Administrator of the General Services Administration, War Assets Administrator, and Brigadier General in the Air Force Reserve. Larson also saw the possibility of reaping substantial profits developing new commercial products from forgotten patents.
From the beginning, NPD focused on screening and buying patents on various devices, technologies, and materials, then licensing them to other companies or trying to market the products themselves. To screen the thousands of patents lying idle in corporate files, the partners formed a consulting board consisting of patent lawyers, scientists, and engineers.
National Patent began gaining momentum in 1961, a year before the Cuban Missile Crisis, after Feldman and Pollak wrote a letter to then-Soviet Premier Nikita Khrushchev asking for rights to Soviet inventions. Surprisingly, despite Cold War tensions, the Soviets were willing to deal to obtain American dollars and invited them to visit. After three weeks in Russia, NPD experts screened Soviet developments by conferring with some 250 Russian scientists and technicians and won patent rights to market 14 innovations in the United States. National Patent then signed an agreement with Amtorg, the U.S.-based Soviet trade wing.
While some Soviet-acquired innovations proved profitable, others flopped. A surgical stapling device that replaced needle-and-thread suturing earned enough for Feldman to start a medical instrument business. That venture—U.S. Surgical—was later sold off and grew into a multi-million dollar corporation. Unfortunately, most products were far less successful, including an electric eye pad touted as inducing a blissful nap.
Using their Kremlin link, NPD made inquiries in other communist bloc countries. In Czechoslovakia, they met Otto Wichterle, polymer chemist at the Czechoslovak Academy of Sciences. Wichterle devised a novel application for a new plastic compound called Hema, which turned soft and pliable when infused with a liquid. Hema was originally intended for making artificial veins and body organs, but Wichterle found that spinning a droplet of Hema in a thimble-size dish could produce a soft contact lens.
In the West, contact lenses were still produced of hard plastic. By purchasing the spinning technology and the rights to make and market Hema, NPD found its first important product. Nevertheless, for two years the company experimented with the compound, prevented by scarce capital from marketing its new product. Then, in 1966, NPD concluded a licensing agreement with Bausch & Lomb of Rochester, New York, a major player in the optical business that well aware of the potential market for soft lenses. The agreement gave Bausch & Lomb exclusive license to the new lens material and Wichterle's spinning and manufacturing technology. In return, NPD would receive a licensing fee plus half of all Bausch & Lomb's domestic lens profits.
After the Bausch & Lomb agreement, Feldman searched for other uses for Hema, which had been trademarked as Hydron. While National Patent licensed the rights to Hydron for contact lenses, it retained rights to use the compound for other applications and to produce new products. The company's labs produced a range of new Hydron-based products, including nail polish, burn-wound dressings, dental root-canal fillers, artificial breasts, and algae-resistant boat paint.
Most promising of all was a reactive chemical that showed potential for dissolving tooth decay, thus replacing drilling. Feldman found the compound at Tufts University, bought the patent rights, and offered the product to Warner-Lambert, which anticipated a use for the product as a plaque-removal agent in mouthwash. NPD's stock shot up from less than $10 in 1971 to $67 a share in 1972, one year after the Food & Drug Administration (FDA) approved Bausch & Lomb's new soft lens.
NPD shareholders' rising expectations proved false when the company's fortunes turned sour. Bausch & Lomb royalties proved disappointing, prompting National Patent to file suit in a protracted legal battle that threatened to end NPD's royalties entirely. Then Warner-Lambert announced that trial tests on schoolchildren showed their new mouthwash to be a failure as a plaque remover. NPD's stock collapsed to just $4 a share in 1973. Responding to these disappointments, Feldman diversified the company into gardening supplies, sporting equipment, solar energy, medical instruments, and contact lenses, planning to make NPD more independent. He also recruited a Russian professor to train company chemists in the production of interferons, a group of proteins produced by the body's immune system to help combat disease. This erratic strategy proved a dismal failure, causing a decade of poor earnings and a blighted reputation for the company. Feldman later recalled this period as the "dark years."
Through the 1970s, National Patent's fortunes rested on a $14 million settlement from Bausch & Lomb. Charles Allen, a world-class dealmaker and founder of Allen & Co., also figured prominently in the company's survival. Allen took Feldman as a client, arranged private infusions of cash, and bought NPD stock even when times appeared bleakest. He soon controlled one of the largest interests in NPD after the combined holdings of Feldman and Pollak. In spite of Allen's help, NPD continued to be plagued by marketing mishaps and technological failures. For example, a malfunction in an intravenous control system forced an expensive recall, and the company fell more than a year behind schedule in developing and marketing a solar energy cell. As a result, Feldman cut corporate staff and sold off NPD's medical equipment and solar energy ventures.
Pollak had better luck with American Hydron, NPD's contact lens subsidiary. Established in 1979 as International Hydron Corporation to manufacture and sell contact lenses in the United States, the subsidiary produced its first earnings in 1982. A year later, industry leader Bausch & Lomb considered American Hydron its major competitor in the sale of daily-wear soft contacts. Pollak's clever marketing strategy—offering Mercedes-Benzes, videocassette recorders, and gold coins to optometrists who placed large orders—caused the subsidiary's second-year shipments to double.
GP Strategies, a New York Stock Exchange company, is divided into two operating entities—General Physics Corporation (GP), and the Optical Plastics Group. GP Strategies' principal operating company, General Physics Corporation, is a performance improvement company providing training, engineering, consulting, and technical services to leading organizations in the automotive, steel, power, chemical, energy, pharmaceutical and food & beverage industries, as well as the government sector. The company has a long history of providing homeland security services. GP Strategies' Optical Plastics Group, through its wholly owned subsidiary MXL Industries, Inc. (MXL) manufactures molded and coated optical products such as shields, face masks, and gas masks.
Despite intense competition, American Hydron fared well in producing high-quality lenses at a low cost. By the end of 1983, the subsidiary unveiled a new, compact, spincast system that could make lenses similar to Bausch & Lomb's most popular line. American Hydron also began testing collagen, a protein produced from cowhide, in an attempt to displace Hydron in low-cost lens production. By 1987, American Hydron was producing contact lenses using three distinct methods—lathing, cast molding, and spincasting, each having its own production and marketing advantages. While lens lathing was labor intensive, it proved superior for specialty lenses and low production. Cast molding maintained high optical lens quality but was more efficient in large-volume production. Spincasting was particularly suited for large-volume manufacture with low labor costs.
At the same time, NPD's Interferon Sciences, Inc. (ISI) subsidiary was moving toward marketing a host of interferon-based treatments for viral diseases. Production problems stemming from inefficiencies in extracting interferon from leukocytes, or white blood cells, were helped by the company's Czech connection. Pollak was vice-chairman of the Czechoslovak-U.S. Economic Council, a bilateral organization formed to promote trade between the two countries. This role introduced him to council chairman Fred Kuhlmann, vice-president of Anheuser-Busch, the St. Louis-based brewery that used Czechoslovakian hops to make beer. Anheuser's advanced fermentation technology for cultivating yeast cells proved to be the solution to the interferon production problem. Through the innovative process of "transformation," DNA molecules containing the genetic code for interferon could be extracted from human white blood cells and inserted into yeast cells, thereby producing interferon on a large scale.
Mutual interest in this process led both companies to embark on a joint production enterprise. ISI would alter individual yeast cells for use by Anheuser to produce billions of offspring. In return for the option of making new interferon products, Anheuser would provide ISI $6 million for research and development. This money aided Interferon Sciences' clinical trials of an interferon ointment for treating genital herpes—which afflicted an estimated 20 million in the United States alone—and allowed the company to begin testing a treatment for genital warts.
Holding Company in the 1980s
Feldman's typical business strategy was to spin off new technological ventures into separate companies while retaining most of their stock. By doing so, he transformed NPD into a holding company benefited by the rising asset value of satellite companies taken public. In 1981, Feldman spun off ISI into a public company while retaining 75 percent of the shares. Two years later, he spun off NPS Waste Technologies, an innovator in particle-glass filtering mechanisms for radioactive waste.
By 1987, NPD essentially operated through various subsidiaries and affiliates as a manufacturer and distributor of a wide array of products and services. The company's operations consisted primarily of four business segments, as well as various research and development programs that were not yet commercially viable. The company's Ophthalmic Products Group produced and marketed soft contact lenses and accessories. The Medical Science Group produced and distributed first aid products, surgical dressings, and various other hospital and medical products primarily through three subsidiaries, Acme Cotton Products, Chaston Medical & Surgical Products, and Abbey Medical, Inc. In addition to its interferon subsidiary, the Medical Group included dental products, such as the Caridex (R) Caries Removal System. An FDA-approved product that showed promise in removing tooth decay without the need for drilling, Caridex was the same failed dental plaque remover that had shown false promise a decade earlier.
NPD's Consumer and Service Group distributed home and garden products, as well as produced paint, paint specialties, coated and molded plastic products, and electronic components through several subsidiaries: J. Levin & Co., Inc., E. Rabinowe & Co., Inc., acquired in 1985, and Interstate Paint Distributors Inc., acquired in 1986. The Physical Science Group provided training, operations, engineering, and maintenance services to the electrical power industry and the U.S. Navy. In addition, this group also developed, manufactured, and marketed products and services used in the clean up of low-level radioactive material from waste water at utility-operated nuclear power plants.
In 1987, NPD sold its interest in both International Hydron and Abbey Medical, Inc., a renter and seller of durable medical equipment. In 1989, the Medical Group introduced a new quick-opening adhesive bandage, STAT STRIP, to the hospital and medical markets. Interferon Sciences (ISI) received FDA approval of its Alferon N Injection, an alpha interferon product derived from human leukocytes developed for the treatment of recurring genital warts in patients 18 years or older. This achievement essentially transformed ISI from a research and development firm into an operating pharmaceutical company. An agreement was made with the Purdue Fredrick Company, a privately owned multinational drug company, to market Alferon N Injections in the United States and abroad. In addition, ISI acquired the worldwide rights from Amarillo Cell Culture for the oral administration of natural interferon, apparently effective in boosting the immune system. In addition, NPD's consumer and service group, collectively known as the Five Star Group, acquired State Leed, a distributor of various paint items. Together these companies, comprising J. Levin, E. Rabinowe, and Interstate Paint Distributors, had become the largest U.S. distributor of paint specialties, including interior and exterior stains, brushes, rollers, and caulking compounds.
- Three New York lawyers form National Patent Development Corp.
- NPD experts travel to Soviet Union looking for new technology.
- NPD licenses soft contact technology to Bausch & Lomb.
- International Hydron subsidiary is founded.
- NPD acquires the remainder of General Physics.
- The company's name is changed to GP Strategies Corporation.
Complex Interests in the 1990s
By 1995, NPD had developed into three primary business segments: Physical Science, Distribution, and Optical Plastics. The company also had investments in Hydro Med Sciences (HMS), a health care business, and GTS Duratek, Inc., an environmental technology firm, as well as continuing investments in ISI.
The Physical Science Group consisted of SGLG, Inc. (formerly GPS Technologies), of which NPD had a 91 percent controlling interest, and General Physics Corporation, approximately 51 percent owned. General Physics provided numerous services, including personnel training and engineering, environmental, and technical support, to commercial nuclear and power utilities, the U.S. Departments of Defense and Energy, Fortune 500 companies, and other commercial and governmental clients. SGLG was a holding company with a 35 percent interest in GSE Systems, a company specializing in simulator software. In 1995, General Physics acquired Cygna Energy Services, a provider of design engineering, materials management, and safety analysis services to the nuclear power industry. General Physics also acquired all of the assets of SGLG, Inc. for approximately $34 million. In response to federal cutbacks in the Departments of Defense and Energy, General Physics began focusing on expanding its management and technical training services as well as specialized engineering services to manufacturers and federal agencies.
Five Star operated as a wholesale distributor of home decorating, hardware, and finishing products. Through the mid-1990s, Five Star remained the largest distributor in the United States of paint products and accessories, caulking compounds, and other items, despite intense competition from considerably larger hardware franchises, including Servistar and True Value.
The Optical Plastics Group operated through NPD's wholly owned subsidiary MXL Industries, a producer of molded and coated optical and non-optical products. MXL also made state-of-the-art injection molding tools, using polycarbonate resin to make shields, face masks, and lenses for over 55 clients in the safety, recreation, and military industries.
NPD's Hydro Med Sciences subsidiary manufactured medical devices, drugs, and cosmetic polymer products. HMS was established to explore the application of HydronR polymers for biomedical purposes. Since the 1970s, HMS was involved in the development of human and veterinary drugs and dental and medical devices. The company developed the Syncro-Mate BR implant for the synchronized breeding of bovine heifers, the first veterinary implant drug to be approved by the FDA. HMS also produced a water-soluble HydronR polymer for commercial applications in cosmetic products, including body lotions, moisturizers, and sunscreens.
ISI, a biopharmaceutical company, continued to be involved principally in the production and sale of Alferon N Injections. In 1995, the product still represented the only FDA-approved drug based on a natural source for the treatment of certain types of genital warts. ISI also explored new applications for its injectable, topical, and oral formulations of natural alpha interferon for the treatment of HIV, hepatitis C, hepatitis B, multiple sclerosis, cancers, and other diseases. In the biomedical industry, various alpha interferon drugs have been approved for 17 different medical uses in more than 60 countries. As a group, sales of these biopharmaceuticals approached $2 billion in 1994. Gaining approval to sell the product in Mexico in the mid-1990s, ISI also sought regulatory approval to market Alferon N Injections in Austria, Canada, Hong Kong, Israel, Singapore, and the United Kingdom.
ISI's other products under development included Alferon N Gel and Alferon LDO. Alferon N Gel, a topical application, had potential for treating cervical dysplasia, recurrent genital herpes, other viral diseases, and cancers. Alferon LDO constituted a low oral dose of liquid alpha interferon, possibly proving beneficial in treating HIV and other viral diseases. These products were undergoing clinical trials during the mid-1990s.
NPD organized its American Drug Company (ADC) subsidiary in 1993 to distribute general pharmaceuticals and medical products in Russia and the Commonwealth of Independent States (CIS), countries which formerly composed the defunct Soviet Union. ADC was formed from NPD Trading (USA), Inc., which had been set up in 1990 to provide consulting services to Western businesses in Russia and Eastern Europe. NPD Trading would continue to operate as a subsidiary of the newly formed ADC, providing a broad range of business services to many American and Western corporations. Through NPD Trading, ADC's various activities involved developing and assisting Western businesses to create trading, manufacturing, and investment opportunities in Russia, the Czech and Slovak Republics, and other countries in Eastern Europe and the CIS. ADC also focused on marketing American-made pharmaceuticals and health care products—antibiotic ointments, pain-relief medication, vitamins, bandages, prescription injectable anti-cancer drugs, antibiotics, and other prescription drugs—under its own label in Russia and the CIS. To distribute these products, ADC initiated marketing ventures with hospitals, pharmacies, and clinics throughout Russia and the CIS.
NPD's interests in environmental technology centered on GTS Duratek, Inc. As of March 1, 1995, NPD decreased its holdings of Duratek's outstanding shares of common stock from 61 to 40 percent. Incorporated in Delaware in December 1982, Duratek's operations comprised two principal groups. The Technology Group converted radioactive and hazardous waste to glass by means of in-furnace vitrification processes, as well as specializing in removing radioactive and hazardous contaminants from waste water through a filtration and ion process. The Services Group provided consulting, engineering, and training services, as well as technical personnel, assistance with nuclear power outages and operations, and Department of Energy environmental restoration projects. As of 1995, major customers for these services included Duke Power Company, Vermont Yankee Nuclear Power Corporation, New York Power Authority, Tennessee Valley Authority, GPU Nuclear Corporation, PECO Energy Company, and FERMCO.
New Directions in the 2000s
Through the mid-1990s, NPD had operated in a host of different areas, with little tying together its various products and services. Feldman was interested in new technology, whatever the industry, and he was not always successful in picking winners. For instance, two of National Patent's earliest products, surgical staples and soft contact lenses, had very different fortunes. Feldman sold his interest in the company that became U.S. Surgical for $2 million in 1964, and it went on to have a market capitalization of $2.2 billion by the end of the century. On the other hand, NPD had retained its soft contact lens business until 1987, when it was worth only about $155 million. Despite many promising products, NPD had often sold at the wrong time or held on too long, with the consequence that the company had never really hit it big. Beginning in 1996, National Patent went in a new direction, consolidating its business and changing its name.
In late 1996, NPD announced that it was buying up the remaining 48 percent of its engineering consulting subsidiary General Physics. General Physics had expanded its service offerings in the mid-1990s through acquisitions, and it had grown from a specialist in nuclear engineering to a consulting firm with expertise in materials management, seismic engineering, systems engineering, and safety analysis, with clients across the globe. It acquired a training and consulting company that gave it a significant slice of the automotive industry training market. In 1998, National Patent Development Corp. announced that it was changing its name to GP Strategies, Inc. This new name emphasized the importance to the parent company of its General Physics subsidiary. A few months later, the company moved its stock from the American Exchange to the more prestigious New York Stock Exchange. As GP Strategies, the company was very different from the old National Patent. Feldman described his company to the Westchester County Business Journal (April 22, 2002) as "the largest customized technical company in America, offering businesses and entrepreneurs help in building their companies." There was no mention here of new or developing technology. While GP Strategies continued to own MXL Industries, Hydromed, Five Star, and various other assorted subsidiaries and investments, it focused on General Physics, which had more than 2,000 employees in 75 offices worldwide by the late 1990s. General Physics continued to grow by acquisition, buying up a Seattle, Washington, management consulting firm, Deltapoint, in 1998. That year it also paid $24 million for the learning technologies business of Systemhouse, a subsidiary of MCI Corp. This became part of General Physics' Information Technologies group.
The company looked much more focused in the late 1990s, but it still had its troubles. It lost money in 1998 and 1999 on its investment in ISI when the FDA failed to approve a key product. ISI was essentially washed out at that point. Founder Feldman was nearing 70, and he decided to sell GP Strategies. The buyer was to be VS&A Communications Partners III, a publishing and communications company. However, VS&A withdrew its offer shortly after it was made. GP Strategies had revised its revenue projection for the fourth quarter due to poor performance at its new learning technologies group, and VS&A backed out. GP Strategies took a huge charge in 2000 because of the problems with the learning technologies group and posted a loss of $34.3 million for the year.
For 2001, sales were flat, though the company was back in the black. The business magazine Forbes (July 23, 2001) noted that investors were interested in GP Strategies at that point principally because it owned a 20 percent interest in Millennium Cell, the fuel cell development company. Millennium Cell went public in 2001, and GP Strategies' stake in the company was valued at as much as GP Strategies itself. The next year, GP Strategies announced that it was filing preliminary papers that would allow it to spin off some of its assets into a separate, publicly owned company to be called National Patent Development Corp. The new company would include the optical plastics business of MXL and its subsidiaries, plus Five Star and some other assets. General Physics would continue to focus on business and information training and technology.
The deal was slow to come to fruition. In the meantime, GP Strategies increased its stake in GSE, the simulation company it had owned in part since the early 1990s. This business was to go with General Physics when the spin-off took place. Jerome Feldman remained CEO of the company into 2004, and he still owned more than 20 percent of its shares.
General Physics Corporation; Five Star Group, Inc.; MXL Industries, Inc.
McKinsey & Company; Accenture Ltd.; BearingPoint Inc.
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—update: A. Woodward