Twinlab Corporation

views updated

Twinlab Corporation

150 Motor Parkway
Hauppauge, New York 11788
U.S.A.
Telephone: (516) 467-3140
Fax: (516) 630-3484
Web site: http://www.twinlab.com

Public Company
Incorporated: 1968 as Twin Laboratories, Inc.
Employees: 1,137
Sales: $315.6 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: TWLB
NAIC: 325412 Pharmaceutical Preparations Manufacturing; 51112 Periodical Publishers

Twinlab Corporation manufactures and distributes several hundred different vitamin, mineral, and herbal supplements and nutritional products, thus making it an industry leader. While about 63 percent of its products—such as Twinlab, Nature’s Herbs, Changes, and Bronson vitamins and herbal supplements, Alvita Herbal Teas, and Triathlon and PR* Nutrition Bars—are sold in health food stores, the firm is increasing sales through mass retailers and supermarket chains as well, including Wal-Mart and Albertson’s. Through its acquisitions Twinlab has also begun using a direct sales approach to customers using catalogs and multilevel marketing. In addition to nutritional products, the company publishes Muscular Development magazine and a variety of books on nutrition and fitness. Although 94 percent of Twinlab sales are in the United States, its products are sold in 70 nations. Twinlab operates two production and distribution plants: its historic facility in Ronkonkoma, New York, and one in American Fork, Utah, built in the 1990s.

Origins and a Major Obstacle to Overcome

In 1968 David Blechman, a pharmaceutical detail man, had an idea for a liquid protein product. He and his wife, Jean Blechman, both quit their jobs and with very limited funds between them started Twin Laboratories in their family garage. The firm was named in honor of the founders’ two sets of twins.

Sales of Twin Labs’ only product, liquid protein, skyrocketed in the 1970s, as liquid protein diet supplements gained widespread fame, in part from the success of a 1976 book entitled The Last Chance Diet—When Everything Else Has Failed: Dr. Linn’s Protein-Sparing Fast Program. Dr. Robert Linn, a Pennsylvania osteopath, had begun prescribing for his overweight patients a program of fasting and four- to six-ounce daily doses of liquid protein. By 1977 Linn and his staff of 60 were treating over 1,500 patients annually at New York, Philadelphia, Delaware, and Washington, D.C., clinics. At the same time, at least two million people bought Linn’s book to read about the latest weight-loss fad diet. This helped spark sales for Twin Labs’ over-the-counter liquid protein.

However, the fasting/liquid protein craze came to a halt in the late 1970s. In late 1976 and early 1977 reports of the deaths of people who had followed Linn’s diet surfaced, 58 in total. A U.S. Food and Drug Administration (FDA) investigation found that many of the program participants were ingesting fewer than 400 calories a day, and that very low calorie protein diets could cause serious illness or death. The findings and itinerant coverage of what had become a popular diet and its potential side effects, in such magazines as Newsweek, Parents’ Magazine, and Science Digest, devastated the liquid protein market, and Twin Labs as well. The company’s sales hit rock bottom, as product inventory that formerly sold in one week took two years to sell.

In response to almost nonexistent sales, Twin Labs was forced in the late 1970s to cut almost its entire workforce, which had grown to 150 since the company’s founding. Only David and Jean Blechman and their five sons—Ross, Neil, Brian, Steve, and Dean—remained. In spite of the near-collapse, the Blechmans did not quit. “It was a little speed bump along the way,” said Ross Blechman, in a videotaped interview, adding “We swore on that day that we’d never let the company be a one-product company.”

Diversification and Competition in the 1980s

Twin Labs soon diversified by formulating new vitamin and nutritional supplements. The company also pioneered the use of two-piece hard capsules and time-released herbs. By the 1980s company sales reached $100 million, and the company kept growing. The Blechmans by this time were publishing their own fitness and bodybuilding magazine called Muscular Development through an associated family business known as Advanced Research Press.

The nutrition/fitness industry began to boom in the late 1980s, and competition became fairly intense. Among Twin Labs’ competitors during this time was Weider Health & Fitness, a supplier of sports nutrition supplements. During this time, Twin Labs had sought to run ads in the two muscle-building and fitness magazines published by Weider, and was denied the opportunity. In response, Twin Labs filed a lawsuit against Weider, in February 1989, for restricting competition.

U.S. District Judge Michael Mukasey dismissed all of Twin’s antitrust and tort claims, stating that Weider had made a “legitimate and responsible business decision” by refusing Twin Labs’ ads, according to the April 11, 1990 Wall Street Journal. Moreover, in 1990 a federal appellate court panel upheld Judge Mukasey’s decision, finding that Twin “has remained an effective competitor” without advertising in Weider publications. In a reference to famous muscle-building ads published for many years by Charles Atlas, the appeals court also noted that Twin Labs “is not a 90-pound weakling in whose face Weider has kicked sand. Rather, (Twin Labs) is a muscular competitor who is complaining about the competitive process.”

Meanwhile, the Blechmans had begun to grow their holdings through acquisition, purchasing in 1989 NaturPharma, Inc., of Orem, Utah. NaturPharma was a well established producer of herbal products founded as Nature’s Herbs, Inc. by Grace Larsen and well-known herbalist John R. Christopher, whom many herbalists regarded as “the pioneer of today’s herb renaissance,” according to Robert Conrow and Arlene Hecksel in their book Herbal Pathfinders. In 1968 Larsen and Christopher started a small herb shop/health food store in Orem and began making their own herbal products. Christopher eventually sold Grace Larsen and her husband, Ernie Larsen, the rights to his herbal products. On January 1, 1988 the firm changed its name to NaturPharma, Inc. The company employed 53 individuals and made over 150 products, marketed under such brands as Nature’s Herbs, Herb Masters’ Original Formulas, HealthCare Naturals, Certified Potency Power-Herbs, and Pro-Pharma.

NaturPharma was just one of several natural products corporations based or started in Utah; others included Sunrider, Nu Skin, Murdock Madaus Schwabe, Weider Nutrition, Shaperite Concepts, Enrich International, and Nature’s Sunshine. By the early 1990s, this concentration of herbal and supplement corporations in Utah, with ties to traditional Mormon use of plant remedies, generated about $ 1 billion annually and had acquired some political clout as well.

In 1994, Utah Senator Orrin Hatch sponsored the Dietary Supplement Health and Education Act, backed by the Utah Natural Products Alliance, a Salt Lake City trade group to which NaturPharma belonged. The act sought to prevent the FDA from controlling nutritional supplements as it did prescription drugs, and its passage represented a major victory for the nation’s growing supplement and herbal industry. As reported in The Buying of the President 2000, Hatch stated that “My bottom-line goal is to allow the one hundred million Americans who regularly consume dietary supplements to continue to reap the ever-growing body of science indicating that dietary supplements can promote health.” Of course, some noted that in addition to an interest in health, Hatch maintained a list of long-term financial supporters that included Herbalife and Weider Nutrition, and that Amway Corporation, maker of popular Nutrilite supplements, was another large contributor to Republican politicians.

In 1991 the Blechman family followed its purchase of NaturPharma with the acquisition of Alvita Herbal Teas, a family firm started in 1922 to market alfalfa leaf tea. From modest beginnings in Huntington Beach, California, Alvita gradually added different kinds of herbal teas to its product line, using raw tea ingredients grown all over the world and purchased from distributors within the United States. Following its acquisition, Alvita moved its packaging operations to Twin Labs’ facilities on Long Island.

Expansion of production facilities soon became necessary, and in 1993 NaturPharma built a new plant in American Fork, Utah, just a few miles north of its first location in Orem. On a 4.5-acre site in the Utah Valley Business Park, the new 48,000-square-foot building tripled NaturPharma’s manufacturing capability and also provided space for other Twin companies. The new facility proved an ideal spot for much of Alvita’s operations too, and in 1994 Alvita made the transition from New York to American Fork, Utah.

Reorganizing a Health Empire in the 1990s

By the mid-1990s, the Blechman family holdings had become considerable, and plans were for another acquisition spree, some management changes, and a debut as a public company. In preparation, they formed Twinlab Corporation in 1996, a holding company for the Blechman interests. Thus came together Twin Laboratories Inc.; Twinlab Export Corporation; Twinlab Specialty Corporation; Alvita Products, Inc.; Natur-Pharma, Inc.; B. Bros. Realty Corporation; and Advanced Research Press, Inc. under the parent umbrella of Twinlab Corporation. Also during this time, subsidiary Twin Labs announced that it would sell a 55 percent ownership stake to Leonard Green & Partners, a Los Angeles merchant banking company, for $225 million cash.

Company Perspectives:

Twinlab Corporation’s mission is to be the best-in-class nutritional and wellness company delivering high quality, innovative products and services globally.

With a new corporate structure in place, founders David and Jean Blechman resigned from the board, though they would continue to serve as consultants. Their five sons retained majority control of the firm’s eight-member board of directors, while three executives from Leonard Green began serving on the board as well. Ross Blechman was named chairman, president, and chief executive officer of Twinlab, while his four brothers—Brian, Neil, Steve, and Dean—became executive vice-presidents. On November 16, 1996, Twinlab completed the firm’s initial public offering of common stock, with the sale of 8.5 million shares at $12 per share on the NASDAQ.

The following year, Twinlab entered the multilevel marketing arena when it acquired Changes International, a firm started in 1994 by Scott and Terry Paulson. The new subsidiary offered its own line of nutritional supplements and weight-loss products. According to a company-sponsored article in Money Maker’s Monthly, the firm’s flagship product was Thermo-Lift, a blend of minerals and herbs in capsule or caplet form to help people lose weight and increase their energy. Other Changes International products included protein bars and shakes, as well as a variety of supplements for adults and children.

Under Twinlab, Changes International received a new CEO, Steve Coggin, who came to the company from tenures at competitors Melaleuca and Avon products. Company founders Scott Paulson and Terry Paulson remained at Changes International as president and vice-president, respectively. Coggin oversaw a 1999 strategic alliance with ADoctorInYourHouse.com, a Beverly-Hills-based organization that offered a web site with celebrity endorsements, streaming video, and chat rooms to assist dieters. By early 2000 Changes International’s distributors numbered about 100,000, some of whom had successfully expanded outside the United States. Based on good results in Canada and the United Kingdom, the company sought to establish a presence in many other areas including Europe, Australia, Japan, Mexico, South America, Singapore, and elsewhere.

In April 1998 Twinlab completed its purchase of the Bronson Nutritional Division of Jones Medical Industries, Inc. for $55 million in cash. Based in St. Louis, Missouri, Bronson manufactured and distributed over 350 vitamin and herbal supplements and health and beauty products through its catalogs and direct mailings, a sales venue Twinlab would exploit in earnest with the acquisition of the Bronson operations. Bronson contracted with other firms to make private-label supplements, while also producing and selling its own MD Pharmaceutical name brand, sold exclusively through U.S. military commissaries. With over 118,000 active customers, Bronson’s annual revenues were about $31 million. Helping finance the Bronson purchase was another offering of common stock, eight million shares, at $36.5 per share.

Twinlab also acquired from Jones Medical Industries a company called Health Factors, International, based in Tempe, Arizona, and formerly known as JMI-Phoenix Laboratories, Inc. Health Factors would make vitamins and nutritional products for Twinlab and some private-label distributors but did not manufacture its own brand names. The acquired Twinlab subsidiary had annual revenues of about $13.6 million.

In August 1998 Twinlab acquired San-Diego based PR* Nutrition, Inc., a company formed in the early 1990s by Bill Logue and Sheri Sears. Their main product, PR* Nutrition Bars, and other products developed later, used the controversial 40-30-30 formula in which 40 percent of daily calories come from carbohydrates and 30 percent each are derived from protein and dietary fat. Also known as the “Zone” diet, it was developed by Sheri Sears’s brother Barry Sears, Ph.D. In the 1990s PR* Nutrition Bars competed against other 40-30-30 bars such as Balance Bars and BioZone Bars. PR* Nutrition also manufactured Ironman Triathlon Bars.

According to Twinlab’s 1998 annual report, the company used three main distribution channels, the main one being health and natural food stores, with sales increasing from $164 million in 1996 to $193 million in 1997 and $212 million in 1998. The second largest category was direct sales from multilevel marketing, direct mailings, and catalog sales, which brought in $9.6 million in 1996, $17.1 million in 1997, and $70.5 million in 1998. Mass markets—drugstore chains, supermarkets, and mass market retailers—accounted for $2.8 million of 1996 sales, but this share rapidly increased to $14.1 million in 1997 and $47 million the following year.

By the late 1990s Twinlab faced increased competition as more companies realized the demand for nutritional and herbal supplements, especially from the approximately 76 million middle-aged baby boomers. Large corporations, such as American Home Products Corporation, Bayer Corporation, and Warner-Lambert, had all added herbal products to their lines by December 1998. As the playing field expanded to include major firms, supplement sales continued to rise, and stock values of many supplement firms plummeted. Twinlab’s stock price declined 43 percent in 1998, while the stock prices of rivals Nature’s Sunshine and Weider Nutrition International fell 39 and 48 percent, respectively.

Some skeptics argued that supplements were unnecessary if one had a good diet, and that in any case the products were often overpriced. However, vitamin and herbal products were generally becoming more accepted by medical doctors and other healthcare professionals. The federal government’s creation of an agency to study alternative medicine helped legitimize what many in the medical establishment used to consider quackery.

Thus at the dawn of the new millennium, Twinlab faced the good news of increased consumer demand and growing acceptance by doctors while confronting the bad news of stiff competition from some much larger corporations. Although outside investors owned most of Twinlab, the company’s management remained in the hands of the second generation of the Blechman family.

Key Dates:

1968:: David and Jean Bleckman found Twin Laboratories.
1977:: Sales of Twin Labs’ liquid protein product plummet.
1980s:: Twin Labs enters the vitamin market.
1989:: NaturPharma Inc., with its Nature’s Herbs brand name, is acquired.
1996:: Company is incorporated as Twinlab Corporation and completes its initial public offering on the NASDAQ.
1997:: Twinlab embarks on an acquisition program and debuts its web site, called The Health Lab.
1998:: Nutritional Outlook honors Twinlab as its “Manufacturer of the Year.”

Principal Subsidiaries

Twin Laboratories Inc.; Advanced Research Press, Inc.; Changes International of Fort Walton Beach, Inc.; Bronson Laboratories, Inc.; PR* Nutrition, Inc.; Health Factors International, Inc.

Principal Divisions

Al vita Herbal Teas; Nature’s Herbs.

Principal Competitors

Herbalife International Inc.; Wei der Nutrition International, Inc.; Nature’s Way Products, Inc.; Nutraceutical International Corporation; Leiner Health Products Inc.; Pharmavite Corporation; Rexall Sundown, Inc.; Balance Bar Company; The Sun-rider Corporation; Nature’s Sunshine Products, Inc.