Companies/25″/mike1st/mark2nd

By DANIEL TAUB

Staff Reporter

It was in 1971, long before the widespread acceptance of natural health products, that Pharmavite Corp. began selling its line of vitamins and other nutritional supplements. But rather than going to the same health-food stores that its competitors were targeting, Pharmavite decided to try distributing through mainstream drugstores.

The Mission Hills-based company was able to convince a few drugstores to devote shelf space to Pharmavite products, and then moved on to supermarkets and discount chains like Target and Kmart. While Pharmavite found some success in its early years, it was not until late 1994, when Time magazine published a cover story about the benefits of vitamins, that things really took off.

“(The Time article) really spurred consumer interest and usage,” said Tom Fourt, Pharmavite’s director of marketing for branded products. “From that point on, we saw a relatively steady increase, year to year, in household penetration.”

In 1994, the privately held company, which sells its vitamins and herbs under the Nature Made and Nature’s Resource labels, exceeded $200 million in revenues for the first time. Last year revenues were nearly double that amount.

Pharmavite is just one of many L.A. area-based companies that have seen their business surge over the last several years, as consumers have embraced not only multivitamins and other nutritional supplements, but herbal remedies like ginkgo biloba, echinacea, ginseng root and St. John’s wort. Americans spent more than $10 billion on such products in 1997, according to research firm Hartman & New Hope.

The list of locally based manufacturers includes Carson-based Leiner Health Products, Chatsworth-based Natrol Inc., Westlake Village-based Natren Inc. and Paramount-based Naturade.

Then there is Century City-based Herbalife International Inc., which sells multivitamins, herbal tablets, weight-control shake mixes and other nutritional supplements and which posted a net income of $54.7 million in 1997 on revenues of $782.5 million. It also topped the Business Journal’s 1998 list of the most profitable public companies in L.A. County, with a 43.6 percent average annual return on equity over five years.

Herbalife, however, took a hit last year with the devaluation of the ruble in Russia, a country that in 1997 accounted for 10.8 percent of its business. Today, that figure has plummeted to less than 2 percent leading to a $6.5 million charge in the third quarter ended Sept. 30. Analysts cited the Russian problems as the reason for 1998 and 1999 earnings expectations being below 1997 earnings.

“I think it’s fair to say that the impact of lost sales in Russia will have an impact on the company at least through ’99,” said Erik Randerson, director of investor relations for Herbalife.

While other regions of the country are centers of vitamin and herbal manufacturing, L.A. is home to some of the industry’s more established companies.

Natrol is one of them. Founded in 1980, the Chatsworth manufacturer has enjoyed a sales growth rate of at least 30 percent in eight of the last 10 years, reaching revenues of more than $67 million last year.

While Natrol stock has not performed well on Wall Street it fell from a July high of $17.88, when the company first went public, to about $10.50 as of last week its earnings growth continues to exceed expectations. For 1998, analysts expect earnings of about $7.3 million (62 cents a share).

Natrol, which has about 230 employees at its 90,000-square-foot facility, has grown not just through increased sales but acquisitions. Last February, it bought Pure-Gar, a natural ingredients supplier, for $11 million. Then, in October, it bought Fresno-based Laci Le Beau Tea Co., which makes tea that contains echinacea, St. John’s wort and other herbs, for $7.5 million.

“That allows us to get into another product area within our industry, because we were not in the tea business” before the purchase, said Dennis Jolicoeur, Natrol’s chief financial officer.

Another growing, locally based company is Natren, started by Natasha Trenev and her husband Yordan 16 years ago to sell “probiotics” bacteria thought to be good for such things as preventing cancer and fighting yeast infections.

The 21-employee company has had a revenue growth rate of between 10 percent and 20 percent a year, and now has more than $5 million in annual sales, said Natasha Trenev.

“The most growth is coming in from the professional division,” said Trenev, the company’s president. “I’ve had more calls from mainstream doctors in the last five years than in all the years I’ve been in business,” she said, adding that the professional division now accounts for about 20 percent of the total business.

Fourt of Pharmavite said industrywide sales are being spurred not just by the growing acceptance of natural remedies among mainstream doctors, but by the high cost of traditional health care.

“These consumers take a look at these things, and they say, ‘Maybe I need to take a more proactive role in my health and diet. I’m going to take a nutritional supplement as an insurance measure,’ ” Fourt said.

Once consumers become more aware of the broad spectrum of vitamins, minerals and nutritional supplements that are available, “they eventually develop into what we call heavier users more informed users,” Fourt said.