IVC Industries, Inc.
IVC Industries, Inc.
Incorporated: 1971 as International Vitamins Corporation
Sales: $67.87 million (2001)
Stock Exchanges: OTC
Ticker Symbol: IVCO
NAIC: 325411 Medicinal and Botanical Manufacturing
IVC Industries, Inc. is engaged in the manufacturing, packaging, sale, and distribution of branded and private-label vitamins, herbs, nutritional supplements, and nonpharmaceutical drug products. The company markets more than 700 different products, packaged under various labels and bottle counts in tablets, powders, two-piece hard-shell capsules, and soft gelatin encapsulated capsules. After growing through acquisitions and consolidations, IVC found the going rougher in its hotly competitive field during the late 1990s. The company was struggling to meet its debts in 2001, when it signed a letter of intent to be acquired by Inverness Medical Innovations, Inc.
Growing by Acquisition: 1989-95
Arthur S. Edell and E. Joseph Edell, brothers, founded American Vitamin Products, Inc., a manufacturer and distributor of vitamins, minerals, and nutritional supplements, in 1955, with the latter becoming its president. They still owned this firm in 1989, when they purchased International Vitamins Corporation, which had been incorporated in 1971. Arthur Edell became the president and chief executive officer of International Vitamins. In 1992 and the beginning of 1993 International Vitamins, merged with International Vitamin Supplements, Inc. and Vitamin Factory Outlets, Inc., respectively. Arthur Edell owned these companies at the time of the mergers. International Vitamins had revenue of $5.79 million in fiscal 1992 (the year ended July 31, 1992) and $8.58 million in fiscal 1993, when its net income was $401,000. The company, previously based in Union, New Jersey, moved its headquarters, plant, and warehouse to a leased facility in Irvington, New Jersey, in 1993. It made its initial public offering of stock in 1994, raising $6.3 million, following which Arthur Edell retained nearly 38 percent of the stock. There were only about 26 stockholders of record in late 1994.
At this time International Vitamins was manufacturing vitamins, minerals, and nutritional supplements under its own brand names, Synergy Plus and Nature’s Blend, and also in “bulk” form. A full line of Synergy Plus products was being marketed to health food stores, and a full line of Nature’s Blend products, to independent drug stores. The company was manufacturing and packaging all of its products except for soft gels, which were being purchased from others.
Its products included vitamins C and E, beta carotene, calcium, multivitamins, food supplements, minerals, and specialty formulas. Each product category could be produced in numerous dosage sizes and unique combinations of ingredients. Aside from serving independent drugstores and health food stores, International Vitamins had a bulk-sales division to sell the company’s products to diet and fitness centers and mail-order companies. The U.S. market for private-label vitamins and supplements was said to have grown 42 percent between 1991 and 1994.
International Vitamins merged with American Vitamin Products in 1995 and simultaneously acquired the outstanding partnership interests of Hidel Partners, for which American Vitamin Products was the operating arm. Hidel owned the land and buildings where American Vitamin’s manufacturing facility was located. E. Joseph Edell and members of his family owned all of both entities, and he became chairman and chief executive officer of the consolidated company, with his brother continuing as president. American Vitamin Products was by far the larger of the two united companies, with annual sales exceeding $35 million, about 185 employees, and manufacturing facilities in Freehold, New Jersey. Freehold became the new headquarters of the consolidated company, which kept the International Vitamins name.
The American Vitamin Products business complemented International Vitamins’ business, since the former was selling its products in drugstore, supermarket, and mass-merchandise chain stores, where the latter did not have a presence. American Vitamin Products was manufacturing and distributing the Fields of Nature, Rybutol, and Nature’s Wonder brands and also was making private-label products for more than 20 retail chains, located primarily in the Northeast. The merger added magnesium, folic acid, calcium, and potassium to International Vitamins’ product line. The Freehold facility now was International Vitamins’ main plant and was equipped with large-volume blending, tableting, coating, and high-speed packaging equipment. The Irvington facility was confined to certain warehousing and distribution operations and the manufacture of protein powders.
International Vitamins previously had focused its marketing and promotional activities on its branded products, Synergy Plus and Nature’s Blend, being sold in health food stores and independent drugstores. It now inherited American Vitamin Products’ effort to build relationships with retail chains. Generally, its marketing efforts were directed at developing customized programs in the form of comprehensive sales and marketing support. These included money-saving coupons, individualized promotions, and advertising in such forms as store circulars and newspaper inserts. In most cases, according to International Vitamins, the retailer earned a greater profit per unit on both International Vitamins’ brands and the retailer’s own store-brand products made by the company than it could from the products of nationally advertised brand manufacturers. The company’s export efforts included a distribution agreement with Israel’s largest drugstore chain, including joint marketing and promoting of its “American Vitamin” brand in Israel. International Vitamins’ net sales reached $49.26 million in fiscal 1995, and its net income was $799,000.
During calendar year 1995 International Vitamins completed work on a soft gel encapsulation manufacturing facility on its Irvington property. The company believed its sales and profit margin had been affected adversely by difficulty in fulfilling its customers’ current demand for such products because of a shortage of capacity. In recent years an ever increasing number of vitamins was said to have been introduced in or converted to soft gel capsules because of such factors as ease in swallowing and superior absorption, stability, content uniformity, and precision of dosage. Capsule production began in early 1996, under the direction of the company’s Intergel division. At about the same time, the company introduced a new Revlon line of vitamins and nutritional supplements for women.
Reaching Maximum Size:1996-98
During fiscal 1996 International Vitamins acquired Hall Laboratories, Inc. Based in Portland, Oregon, and founded in 1953, Hall, a privately owned company, was engaged in the manufacturing, packaging, sales, and distribution of vitamins, nutritional supplements, and over-the-counter pharmaceutical products, primarily through chain drugstores, supermarkets, mass merchandisers, and warehouse clubs. The former included such big chains as PayLess Drug Stores, Fred Meyer Inc., and Price/Costco Inc. For about half a dozen customers, Hall’s operation included computers that planned the entire purchasing, manufacturing, and distribution cycle so that deliveries arrived at just the right time to restock inventories. Its Health Essentials brand was promoted in company literature as “the second-best way to get your vegetables,” but the vast majority of Hall’s products was marketed under the private labels of its retail chain customers. Its products were distributed in Canada through a subsidiary with headquarters in Surrey, British Columbia.
The acquisition of Hall Laboratories gave International Vitamins a presence on the West as well as the East Coast. It also raised International Vitamins’ revenues by about $40 million; for fiscal 1996, sales reached $104.16 million, although net income was only $296,000. International Vitamins paid for the acquisition by issuing shares of stock valued at about $9.5 million. Hall’s president, Andrew Pinkowski, thereby became, with his wife, Rita, a major shareholder of the consolidated company, which now took the name IVC Industries, Inc.
IVC Industries made another significant acquisition in 1997, when it purchased the Vitamin Specialties division of HealthRite, Inc. for about $2.7 million. This operation—formerly Healthfair Vitamin Center, Inc.—was acquired by Arthur Edell in 1979 and had grown from two New Jersey health food stores in 1994 to 15 in Pennsylvania as well as New Jersey in 1997. It also was marketing its products through mailorder catalogues distributed regularly to its customers. “The [health food store] industry is highly fragmented,” International Vitamins Chief Operating Officer I. Alan Hirschfeld declared in a press release, “leaving tremendous opportunities for a well-managed, vertically integrated new entrant in this growing field.” Taking into account IVC’s existing operations, he added, “This combination will provide us with a vehicle through which we can now aggressively participate in the segment of the vitamin industry which we believe offers us superior sales and earnings growth potential.” The company’s fiscal 1997 results were its best ever: net sales of $108.53 million and net income of $1.35 million.
Our Mission: We will creatively and aggressively market products worldwide to meet the needs of customers for high quality health and beauty care products. An integral part of this effort will be to educate the consumer, as well as our wholesale and retail partners. We remain committed to positive workplace policies, encouraging open communication and offering growth opportunities for our company associates, our community and our shareholders.
IVC Industries, in January 1998, announced its new LiquaFil line, comprised of a full spectrum of some 40 soft gelatin encapsulated vitamins, herbs, and nutritional supplements. It included calcium with vitamin D; calcium-magnesium-zinc; vitamins C, E, and B-complex; multivitamins; coenzyme Q10; St. John’s wort; saw palmetto; zinc; selenium; and potassium. (Echinacea, ginseng, and kava kava were added in fiscal 1999; lycopene in fiscal 2000; and gingko biloba in fiscal 2001.) Interviewed for Chain Drug Review, Hirschfield said LiquaFil was the only full line of such products in soft gel form and maintained, “This is a truly new concept in the marketplace. We don’t believe that the LiquaFil line will make tablets obsolete, but we do know that anyone who has tried any of these products in soft gel form refuses to go back to tablets. . . . for those consumers who are taking nutritional products and are concerned with fillers and binders used in tablets and don’t like swallowing tablets or the aftertaste, why not introduce these different products in a soft gel version and offer them a viable alternative?” The LiquaFil line, packaged in a distinctive blue bottle with a red-white-and-blue label and a special tamper-proof cap, was not only shipped to existing customers but through such new accounts as Eckerd Drug Stores, Kmart, Meijer, Phar-Mor, American Drug Stores, and Kerr Drug. The company’s Fields of Nature, Synergy Plus, and private-label brands subsequently became available in LiquaFil soft gel.
At the same time, IVC Industries launched a new line of Pine Bros. soft throat drops, having recently acquired the Pine Bros. brand name. It initially introduced the drops in two flavors: wild cherry and honey cream. In a press release, Hirschfeld announced, “The Pine Bros. line, which is formulated with zinc, vitamin C and slippery elm, provides us with an entree into the fast growing segment of the cough and cold category recently captured by such nutritional based products as Cold-Eeze and Halls Defense.” For this line IVC secured distribution additional to its existing customer base through such new accounts as Eckerd Drug Stores, Arbor Drug Inc., Genovese Drug Stores Inc., Meijer, Inc., and Neuman Distributors, the largest distributor to independent drugstores on the East Coast.
IVC Industries raised its net sales in fiscal 1998 to a record $119.78 million; its net income was $1.15 million. The U.S. market in dietary supplements reached about $9 billion in 1997, doubling in a five-year period, and it passed $10 billion in 1998, when IVC reached 12th place, in terms of sales, among publicly traded U.S. botanical and dietary supplement marketers. All 11 companies with greater sales and the next 13 companies behind it, however, had greater market capitalization than IVC’s meager $8.9 million.
Losing Ground to Competitors: 1999-2001
IVC Industries suffered a severe reversal of fortune in 1999. In October 1998 market leader General Nutrition lowered prices, forcing its competitors to follow and leading to a dollar sales growth in the field of only 3 to 4 percent in 1999. At the same time the field was narrowed by the consolidation of top marketers and the increased presence of pharmaceutical companies, such as American Home Products Corp., which had recently purchased Solgar Vitamin & Herb Co. IVC’s net sales for fiscal 1999 dropped to $107.34 million, and the company sustained a net loss of $7.04 million. As part of a restructuring that included a one-for-eight reverse stock split, IVC closed the former Hall operation, except in Canada, and sold the retail stores, which registered 1999 sales of only $2.68 million, to Archon Vitamin Corp. for $1.8 million. Hirschfeld left the company and Arthur Edell yielded the presidency to his brother.
Net sales for shrunken IVC Industries fell to $85.87 million in fiscal 2000. The company attributed $11 million in lost revenue to its cancellation of sales contracts with several customers who did not meet its gross-margin targets. IVC was able to register a net profit only because it received a settlement valued at about $16.3 million in connection with an agreement to end a class-action lawsuit against a supplier, charging a price-fixing conspiracy. For fiscal 2001, net sales were even lower—$67.87 million—and the company sustained a net loss of $2.55 million. It attributed the sales decline, among other reasons, to a customer’s discontinuance of the Fields of Nature line and to its discontinuance of certain Canadian over-the-counter products due to poor profitability. Total assets were only $51.09 million at the end of the fiscal year, compared with $81.25 million at the end of fiscal 1998. The long-term debt was $21.34 million. Despite the reverse stock split, by April 2001, IVC’s stock was habitually trading below $1 a share, and as a result it was dropped from the NASDAQ Small Cap Market and relegated to the OTC Bulletin Board system.
IVC Industries was distributing more than 700 products in 2001 and was manufacturing about five billion tablets, capsules, and soft gels a year. The top ten of its 700 customers accounted for about 83 percent of its sales volume in fiscal 2001; Costco accounted for 57 percent alone.
In September 2001 IVC signed a nonbinding letter of intent to be acquired by Inverness Medical Innovations, Inc., a majority owned subsidiary of Inverness Medical Technology, Inc., for cash or cash and stock valued at $2.50 a share. Inverness Medical Technology had agreed to be acquired by Johnson & Johnson and planned to spin off its Inverness Medical Innovations subsidiary as a separate, publicly owned company. Four stockholders of IVC, holding approximately 42 percent of the outstanding shares of common stock, had agreed to vote their shares in approval of the acquisition. As of November 2000, E. Joseph Edell owned 32 percent of IVC’s common stock, Pinkowski owned nearly 15 percent, and Arthur Edell owned 10 percent.
Hall Laboratories Ltd. (Canada).
American Home Products Corp.; Leiner Nutritional Products, Inc.; NBTY, Inc.; Pharmavite Corp.; Rexall Sundown, Inc.; Twinlab Corporation; Weider Nutrition International, Inc.
“IVC Industries Inc.—Common Stock to Trade on OTC Bulletin Board,” Market News Publishing, April 24, 2001.
“IVC Industries Inc.—To Be Acquired by Inverness Medical Innovations, Inc.,” Market News Publishing, September 24, 2001.
“A New Concept from IVC,” Chain Drug Review, June 29, 1998, p. 256.
Sauer, Pamela, “Is the Bloom Fading for Dietary Supplements?,” Chemical Market Reporter, November 8, 1999, Supplement, pp. 3-6.
Woodward, Steve, “Eastern Company Will Acquire Portland Vitamin-Maker,” Portland Oregonian, November 14, 1995, pp. 16 B+.