Mallinckrodt Group Inc.

views updated

Mallinckrodt Group Inc.

7733 Forsyth Boulevard
St. Louis, Missouri 63105–1820
U.S.A.
(314) 854–5200
Fax: (314) 854–5381

Public Company
Incorporated: 1882 as Mallinckrodt Chemical Works
Employees: 10,400
Sales: $2.21 billion (1996)
Stock Exchanges: New York
SICs: 2819 Industrial Inorganic Chemicals; 2834 Pharmaceutical Preparations; 3841 Surgical and Medical Instruments; 3845 Electromedical Apparatus

Mallinckrodt Group Inc. is a global developer and producer of specialty chemicals and human health care products. Many of its products, such as barium sulfate (for X-ray diagnosis) and narcotic analgesics (such as codeine), have been market leaders. The company distributes its products throughout the world.

The Mallinckrodt Group is organized into two separate companies: Mallinckrodt Medical Inc. and Mallinckrodt Specialty Chemicals Company. A majority of its revenues are from its human health care products, which include, among other things, imaging agents, critical care products, and pharmaceuticals. Mallinckrodt has plants in North and South America, Europe, and the South Pacific.

Company Origins

The company can be traced back to Emil Mallinckrodt and his cousin Julius, who both left Germany for the United States in 1831 to seek opportunities in the New World. Emil settled in St. Louis, Missouri, where he became a successful farmer specializing in apple orchards and vineyards. One of his sons, Edward, who was interested in the applied uses of chemistry for farming, went to Germany with his brother Otto in 1864 to study chemistry. When the brothers returned to the United States, they started G. Mallinckrodt & Company, Manufacturing Chemists, with their eldest brother, Gustav, as a partner. Founded in 1867, the business began with $10,000 capital.

Most of the major pharmaceutical companies at the time were located in the East. The Mallinckrodt brothers would have to compete with such firms as E.R. Squibb and Sons, Charles Pfizer and Company, Powers-Weightman and Company, and Rosengarten and Sons. Edward later recalled, “We realized from the start that we would have to make it to the interest of the buyer to place his order with us by supplying goods of the highest quality.” Working in their favor was the fact that St. Louis was fast becoming a major commercial center because of the railroad and the development of the Mississippi River. As the only chemical manufacturing company west of Philadelphia, Mallinckrodt was able to capture much of the newly emerging western markets.

The brothers manufactured chemicals and administered the business in several small buildings located on the family farm. Office management and sales were Gustav’s job, while Otto was in charge of the laboratory and purchases. Edward supervised the factory. Some of the staple chemical products they produced were aqua ammonia, spirits of nitrous ether, and acetic and carbolic acids. They later began to make chloroform and burnt alum, which is used in baking powder. The hallmark of their products was the fineness of their chemicals, which were easily soluble and did not cake like some of the other powders on the market at the time. Mallinckrodt soon became identified as quality producers whose goods, unlike other producers, could withstand the scrutiny for adulteration.

Growth from the 1870s until World War I

By 1877 the company had grown from the three brothers to a work force of 40 people, and in 1882 it was incorporated as Mallinckrodt Chemical Works. Edward’s bothers, Otto and Gustav, both died untimely during this period, leaving Edward in charge of the operations. One of Edward’s successful innovations was the introduction of anhydrous ammonia used in the production of ice. His investment in the refrigeration industry paid off. By 1890 Mallinckrodt Chemical Works became one of the chief producers of anhydrous ammonia.

Edward had other important successes. During the 1880s he succeeded in making his company a chief supplier of chemicals used in the manufacture of photographic plates. In the 1890s Mallinckrodt entered the expanding business of narcotic analgesics, which was being spurred by German chemical companies. While he was building his business, Edward participated in St. Louis’s business and civic development. He purchased real estate in the city’s downtown business district and was a board member of the St. Louis Trust Company, which was active in the construction of the Memphis and Southeastern railroads. He was also active in promoting higher education, contributing to the medical departments of Washington University and Harvard University, where his son Edward, Jr., had graduated in 1901.

Edward, Jr. had an intent interest in chemical research. One of his earliest projects with the company was to develop methods for the preservation and purification of ether used for anesthesia. By 1914 he had designed a way to stabilize and protect ether from impurities by using various types of bottles and canisters. An associate of his, Henry Farr, joined the company in 1906. In 1913 Farr led the way in the development of barium sulfate for X-ray diagnosis.

At the beginning of World War I the American chemical industry was dependent on Germany for supplying the chemicals it needed. Thus, the U.S. embargo of 1914 against German goods initially hampered production for companies like Mallinckrodt.

When the United States entered the war in 1917, the demand for certain products, such as aspirin and phenobarbital, led to the passage of legislation allowing American chemical companies to manufacture these products. This legislation ignored international proprietary laws binding American companies from producing them. During this time American companies also expanded their research and development of products, an activity formerly monopolized by the German chemical industry.

Mallinckrodt, like other American chemical companies, eventually benefited from this period of turmoil. One of its major products was phenobarbital, which was used as a substitute for German coal-tar sedatives.

Developments between the Wars

In the 1920s Mallinckrodt turned out many compounds that were requested by the Washington University School of Medicine research departments. One of the most important of these compounds was lodeikon, an X-ray contrast medium for visualizing the gall bladder. This product enhanced the company’s reputation in the field of diagnostics, especially in the area of contrast media.

In 1928 Edward, Jr., took over the company on the death of his father, Edward Mallinckrodt, Sr. While the father represented the business-minded expansionism of the past, the son was more concerned with improving the quality of the company’s products, manufacturing techniques, and relations with their employees.

During the Great Depression the company displayed unusual commitment to its employees. Instead of laying off workers, Mallinckrodt put employees to work at various jobs that would keep them busy. For example, they maintained the grounds of the factories and offices, fixed equipment, painted fences, and cleaned yards. In 1938 a cafeteria with picnic benches was installed on-site. During this period many service businesses grew up around the plant to provide employees with convenient shopping for their daily needs.

During the 1930s major changes taking place in the pharmaceutical industry began to challenge the existence of Mallinckrodt. Pharmacists, rather than buying and mixing bulk chemicals for their own formulations, were increasingly using wholesale drug companies like McKesson and Robbins to provide them with ready-made prescriptions and tablets. Sulfa drugs were in demand, and the new range of vitamins and other specialty drugs required the company to consider new strategies for survival.

In 1936, as a way of adjusting to the changes taking place at the neighborhood pharmacy, Mallinckrodt launched a campaign called the Prescription Department Promotion Plan. This plan gave pharmacists advice on how to advertise and increase prescription revenues. It helped the public understand what to look for when they visited their druggist and disseminated bulletins to promote information that could help pharmacists stay in business.

Also helping Mallinckrodt during the 1930s was its production of medicinal narcotics. The company’s entrance into medicinal narcotics, a source of continuous and steady revenue for the company over the years, began in 1898 with its production of morphine and codeine. Research and production of narcotic drugs was later hampered in the first two decades of the 20th century by both national and international legislation designed to curtail the nonmedical traffic of narcotic drugs. These laws would create occasional shortages of opium supplies. The restrictions put on opium import made it difficult to analyze the quality of the plants that were being used for morphine production.

By the 1930s codeine, another derivative from opium, had gained popularity. It was considered less addictive than morphine. Thus, morphine sales began to decline, while codeine sales increased. Mallinckrodt became the pacemaker in refining and improving the codeine product in the 1930s. During World War II the government relied on Mallinckrodt’s narcotic production capability to supply the needs of the war effort. The company found it difficult, however, to fulfill its war contracts while still serving its regular customer base because the government wanted its narcotic analgesics to be produced separately.

Although there were major problems with opium supplies after World War II, Mallinckrodt continued to be a major player in the production and research of narcotic analgesics. By the early 1990s Mallinckrodt remained a chief producer of bulk medicinal narcotics, selling more than 20 high-value products to manufacturers of prescription Pharmaceuticals.

Wartime Refining of Uranium Ore

In 1942 Mallinckrodt was invited by two scientists from the University of Chicago to prepare refined uranium for secret work on a war project. Edward, Jr., eagerly accepted the job. After 90 days, even before the government project was signed, he produced 60 tons of high-level refined uranium ore. This material was used on December 2, 1942, in the first selfsustaining nuclear chain reaction, which took place beneath the west stands of the University of Chicago’s Stagg Athletic Field. Mallinckrodt became the sole supplier for these experiments, known as the Manhattan project, well into 1943, and the company continued during and after the war to be a leader in the field of uranium ore refining.

In 1955 construction began on a materials plant at Weldon Springs, Missouri. It was backed with a $70 million investment by the U.S. government for the manufacturing of various types of uranium ore products. Weldon became an official site licensed by the government, and by 1957 the Weldon Springs facility was processing between 60 and 70 tons of raw materials a day. Another plant was soon opened in Hematite, Missouri, for commercial atomic power plants and atomic-powered sea vessels.

While production hummed in the 1950s for the company’s atomic and traditional products, Mallinckrodt began to restructure its stock issuance program. In 1954 Class A stock was sold to the public and Class B, which held voting privileges, was owned by the Mallinckrodt family. Then, in 1956, company officers relocated sales offices to New York City, where they tried to control the production and sales of the St. Louis establishments. During this time several new projects were attempted without success, and it became apparent that the process of transformation in the next few decades would not be an easy one.

The Thayer Period, 1960–1981

In 1941 Harold E. Thayer became coordinator of the U.S. government’s War Production Board. It was in this position that his attention turned toward Mallinckrodt for their processing of uranium for the Manhattan Project. He soon became an employee of Mallinckrodt, first as a plant manager and then as a project manager for all the company’s uranium work at Weldon Springs. He was made a company vice-president in 1950 and ten years later became president. When Edward Mallinckrodt, Jr., stepped down as chairman in 1965, Thayer became chief executive officer and chairman of the board.

As president in 1960, Thayer saw his job as coaxing and pulling the company into the present. He maintained that if Mallinckrodt was to survive intact, it would have to transform itself from a small, family-run business to a professional and profitable modern corporation. Decentralization was the first order of business. Thayer created three new business units: medicinal, industrial chemicals, and nuclear. Employee involvement was another change he initiated. He believed that those who were close to the workplace could “make mincemeat” of any problem. Then he set up a formal operating committee to facilitate corporate decision making. In 1960 the company’s sales were about $35 million. Thayer issued the slogan “70 by 70,” meaning $70 million in sales by 1970. With the introduction of new management policies and the acquisition of new companies, that goal was reached before 1970.

After the death of Edward Mallinckrodt, Jr., in 1967, the Class B family stock was not passed to his surviving son, George, who preferred to follow a career in science rather than business. The stock went instead to a Mallinckrodt management team to be held in trust for fifteen years. These stock holdings infused much new capital into the growth plans during the Thayer management period.

Changes in the 1980s and 1990s

Raymond Bentle, a senior financial analyst at Mallinckrodt, was appointed president in 1978 and succeeded Harold Thayer as chief executive officer in 1981. Not long afterward, on January 18, 1982, the stock previously owned by Edward, Jr., but held in trust by a company management group (representing about 20 percent of the company’s stock) was transferred to Harvard and Washington universities, a move that reflected the company’s continued commitment to research and development. Meanwhile, other companies were trying to corner larger shares of Mallinckrodt’s stock for a takeover, but, according to Bentle, “none of these companies represented the type of owner that had the quality and integrity that we desired.”

While Thayer, from backstage, was advising independence from takeovers, Harvard University, the major trustee of the shares of Edward, Jr., was encouraging outside bidders. When a company executive chided Harvard for working against its benefactor’s interests, he was told that “fifteen years is long enough for any man to reach from the grave.”

Avon Products won Bentle’s interest, and a deal for $711.5 million was struck, with Harvard and Washington universities receiving $125 million in gifts. In 1982, the year of the Avon purchase, Mallinckrodt had reached $494 million in sales, the highest it had ever achieved in its long history.

The Avon relationship lasted for only four years. “Avon thought we were a health care company,” explained Mack G. Nichols, the head of Mallinckrodt’s specialty chemicals division under Avon. “So for three years we pretended we were.” Avon sold Mallinckrodt in 1986 to International Minerals and Chemical Corporation.

Although owned by International Minerals and Chemical Corporation, Mallinckrodt remained an independently run company, and its shares were traded on the New York stock exchange. Then, in 1989, it was decentralized into two smaller companies—Mallinckrodt Specialty Chemicals Company, headed by Mack Nichols, and Mallinckrodt Medical Inc., headed by Roy Holman—which were placed under the umbrella organization Mallinckrodt Group Inc. It was in this arrangement that Mallinckrodt stabilized, though in 1997 Mallinckrodt divested its veterinary division and its interest in Tastemaster, a worldwide flavors business with which it had entered into a 50–50 joint venture in 1992.

Principal Divisions

Mallinckrodt Baker; Mallinckrodt Catalysts and Chemical Additives; Mallinckrodt Critical Care; Mallinckrodt Medical Imaging; Mallinckrodt Nuclear Medicine; Mallinckrodt Pharmaceutical Chemicals; Mallinckrodt Pharmaceutical Specialties.