Chattem, Inc.

views updated May 21 2018

Chattem, Inc.

1715 West 38th Street
Chattanooga, Tennessee 37409
U.S.A.
Telephone: (423) 821-4571
Toll Free: (800) 366-6077
Fax: (423) 821-0395
Web site: http://www.chattem.com

Public Company
Incorporated: 1879 as Chattanooga Medicine Company
Employees: 425
Sales: $300.55 million (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: CHTT
NAIC: 325412 Pharmaceutical Preparation Manufacturing; 325620 Toilet Preparation Manufacturing

Chattem, Inc., manufactures and markets a diverse array of brand-name pharmaceuticals, toiletries, and cosmetic items. Focusing on smaller product lines that it can market without competing directly against other giant companies in the business, Chattem has had a successful history in helping such products flourish. Over the years, it has manufactured and promoted over-thecounter drugs such as Pamprin; topical analgesics such as Aspercreme and Icy Hot; and toiletries such as Sun-In Hair Lightener, Selsun Blue dandruff shampoo, and Bullfrog sunscreen. Chattem distributes certain products outside the United States in Canada, Europe, and other international markets.

THE EARLY YEARS

Chattem’s beginnings can be traced to the year 1879, when a small business called the Chattanooga Medicine Company was created to produce and sell Black-Draught, a senna-based laxative. The product had been invented almost half a decade earlier by a doctor who sold it from the back of a covered wagon through a small enterprise called the Dr. A.Q. Simmons Liver Medicine Company. Black-Draught had sold well in the southern United States until the Civil War, but struggled thereafter. It was then that Z. C. Patten purchased all rights to Black-Draught from Dr. Simmons’s son-in-law and founded the Chattanooga Medicine Company to market the product.

With the help of four other Chattanooga businessmen, Patten began an aggressive marketing plan to boost sales of Black-Draught. He used letters of endorsement from satisfied customers to create a stronger trade base in the southern states and, in doing so, posted first year sales of $35,488. This success prompted Patten and his partners to expand their product line; therefore, a menstrual relief product for women called Dr. McElree’s Wine of Cardui was introduced in 1880. To maintain the company’s building reputation for quality, the new product was delivered to customers with the agreement that they would pay for it only if fully satisfied with its results. Wine of Cardui immediately became successful, as more than 6,500 women reported cures and sent payment to the company for an initial shipment of 7,000 bottles.

With both of its products becoming huge regional successes, the Chattanooga Medicine Company soon implemented a sales force to cover its expanding territories and combat the effects of the slow distribution characteristic of the horse and buggy era. This effort helped the company enter into new areas of the country, where consumers quickly accepted its products. According to the company’s historical information, customers were so pleased with the new products that their subsequent communications to the company were massive, and the Chattanooga Medicine Company “quickly became the largest generator of mail in the Chattanooga area and was assigned its own government-paid post office on the premises.” Using this resource, the company launched a massive print advertising campaign, which included the distribution of items such as flyers, wall calendars, almanacs, and even songbooks for churchgoers. The prevalence of these items ensured that the company’s product names were constantly in the eyes of the public, a tactic that aided in the Chattanooga Medicine Company’s rapid growth throughout its early years.

A NEW ERA FOR THE CHATTANOOGA MEDICINE COMPANY

In 1881, an Arkansas crop failure left many of the company’s clients unable to pay for the products being shipped to them. Furthermore, two separate fires and a flood in the early 1890s left the company headquarters in near-ruins three different times. Although the company was doing well enough to expand in 1893 to include a branch office in St. Louis, Patten’s business partners became uneasy and sold their shares in the company to his nephews, John A. Patten and Zeboim Carter Patten. The two brothers began running the business as partners in 1906, just five years after the Chattanooga Medicine Company had grown to include a second branch office in San Francisco. (The business was incorporated in Tennessee in 1909.) The company’s sales throughout the country were booming, and in the following year Wine of Cardui surpassed the $1 million mark in annual sales.

Unfortunately, John A. Patten died unexpectedly in 1916 at the age of 48, leaving his brother to operate the business alone. Before his death, John A. Patten had not only played a key role in the company’s successful use of billboard and print advertising, but had also engineered the company’s entrance into the export business on an international scale. His efforts had introduced the company to a great deal of success and affluence, and his death was a huge blow to its continued growth potential. Although his brother did an excellent job in helping the company survive the effects of the Great Depression, the Chattanooga Medicine Company’s growth was stagnant for many years. In 1938, Zeboim Carter Patten passed the modest operation on to his nephew, Lupton Patten, who at age 31 became the youngest president in the company’s almost 60-year history.

Lupton Patten immediately began to modernize the company, adding new automated machinery and equipment to the packaging plants and branch offices. He also began using the services of numerous advertising and consulting firms, which resulted in both the creation of the company’s own research program and its entrance into the specialty chemicals business. The company began developing specialized chemical products that it could sell to other manufacturers for use in their own consumer products, and this helped generate more annual earnings. The company also got a boost when it was called upon to produce foods and medicines for the U.S. Army during World War II. In addition to the manufacture of its own consumer products, the company actually produced more than 34 million packets of K-rations for U.S. troops. During this time, the company’s newly formed research division was continually faced with the need to alter its own products when traditional ingredients became unavailable. The company achieved record earnings during those years nonetheless and was left in excellent financial condition at the conclusion of the war.

COMPANY PERSPECTIVES

Our Corporate Mission is to be the best mid-sized company in the health and beauty aids market in America.

POST–WORLD WAR II RESTRUCTURING AND EXPANSION

After the war ended, the company was restructured to include two main operating divisions: the consumer products division and the specialty chemicals division. The consumer products division was responsible for the production and distribution of the company’s many food and drug products, and the specialty chemicals division focused mainly on research and development and continued supplying chemical ingredients for other manufacturer’s products as well as its own. For example, research and experimentation during the war years led to the creation of a liquid form of Black-Draught, as well as to different aluminum compounds that became important ingredients in other companies’ antacids, such as Rolaids.

Then in 1958, in what seemed to be an emerging family and company trend, Lupton Patten also died unexpectedly at the early age of 51. The company’s operations were left to his nephew, Alex Guerry, who spent the next decade altering the Chattanooga Medicine Company’s financial structure to provide it with greater growth potential. After a decade had passed and the company had continued to prosper in the specialty chemicals realm, he realized that the company’s name did not accurately reflect the businesses with which it was involved at that point in time. Therefore, Guerry called for a corporate name change in 1968, and the company became the Chattem Drug and Chemical Company. The following year, Chattem sold its stock in a public offering, which was the first time that the company’s stock had been openly available to outsiders.

Guerry then led the company in acquiring several other small businesses, whose products soon supplemented Chattem’s own. The first major acquisition was the DePree Company of Michigan, a health and beauty care business that was a successful addition to the consumer products division. That purchase was followed by the addition of the Petrochemicals Company of Texas to Chattem’s specialty chemicals division. Meanwhile, Chattem continued to create and market its own successful products. Pamprin, a women’s menstrual pain relief medicine, had been introduced in 1962 to take the place of Wine of Cardui, and by 1970 was one of Chattem’s leading products.

It was in the mid-1970s that Chattem made a move that became characteristic of its business procedure for many years to come. It began purchasing the rights to small or struggling product lines from other companies, with the intent to help the products flourish by marketing them in small product niches where there would be little competition from the other giant companies in the industry. Within a five-year time period, Chattem acquired Sun-In Hair Lightener, MUDD Facial Masque, and the Corn Silk cosmetics line. The adoption of these products marked Chattem’s entrance into the cosmetics and toiletries business, once again rendering the company name an incomplete representation of its business ventures. Therefore, in 1979 the company became Chattem, Inc., a designation that more aptly reflected its rapidly expanding scope of business.

ACQUISITIONS CONTINUE

Chattem’s newly acquired products responded positively to the increased advertising and distribution that they received from their new owner, and sales began to rise almost immediately. Therefore, Chattem continued the acquisition trend with the 1980 purchase of Love’s Fragrances, a perfume line targeted at teenagers, and the 1983 purchase of Quencher cosmetics. Along with the addition of a liquid form of makeup to the Corn Silk product line, Chattem hoped to round out its cosmetics offerings with the new purchases. Unfortunately, although both products performed adequately for Chattem, neither one possessed the growth potential the company was seeking. As a result, both product lines were sold to outside suitors by 1985. The company also divested its original acquisitions, DePree and Petrochemicals. The consumer products division was still expanding steadily, however, and for the first time ever it began to surpass the specialty chemicals division in annual profits.

KEY DATES

1879:: Chattanooga Medicine Company is established to produce Black-Draught laxative.
1938:: Lupton Patten becomes youngest company president to date and launches modernization and expansion drive.
1969:: Firm goes public after being renamed Chattem Drug and Chemical Company.
1991:: Revenues are more than $100 million.
1995:: Chemicals division is sold.
1998:: Revenues exceed $200 million.
2007:: Five major brands are acquired from Johnson & Johnson; Chattem’s market cap exceeds $1 billion.

The success of Chattem’s consumer products division was further bolstered by the 1985 acquisition of Nullo Deodorant tablets and the 1986 acquisitions of Bullfrog waterproof sunblock and Ultraswim chlorineremoval shampoo. As with most of its other successful products, these items demanded only small amounts of retail shelf space, due to the fact that they were single products that did not have large line extensions. This helped Chattem convince many stores with limited shelf space to carry its products and made it possible for the company to market the majority of its products nationwide. On the rare occasions when Chattem did extend one of its product lines, it was done to gain a stronger customer base by tailoring the product to the demands of the consumers. For example, in 1988 Chattem added two new variations of its Sun-In Hair Lightener product to store shelves when it unveiled Gentle Highlights and Natural Lemon Sun-In. The gentle variety was targeted at younger first-time users, and Natural Lemon was a means of capturing reluctant clientele.

The year 1989 saw Chattem achieve one of its largest acquisitions with the purchase of Flex-all 454 topical analgesic. At the time of the purchase, Flex-all 454 averaged less than $1 million in annual sales. Chattem immediately launched an extensive $5 million advertising and distribution campaign (the company’s largest ever), including television and print advertisements featuring football great Joe Namath. These efforts were incredibly successful, and within a year the product achieved more than $10 million in sales. These new profits were supplemented by the retail sales of another 1989 acquisition, Norwich Aspirin, and together the new products helped Chattem achieve an extraordinary 27.3 percent return on equity in 1990.

DOMINATING NICHES

After guiding Chattem through some of its most defining years, Alex Guerry died in 1990 and left control of the company to his son, Zan Guerry. Noting the positive results that years of successful product acquisitions had produced, Guerry immediately began negotiating a deal to purchase Icy Hot brand topical analgesic from Procter & Gamble. The transaction was finalized by mid-1991, at which point Chattem had become known as a “guerrilla marketer,” defined in a 1991 edition of the Insiders’ Chronicle as “the ability to ‘pick a niche and dominate it.’” The purchase of Icy Hot increased Chattem’s share of the market for topical analgesics used to relieve sore muscles to 16 percent.

Meanwhile, Chattem was successfully dominating other product niches as well. Sales of Pamprin had combined with sales of a newer product, Premsyn PMS, to help Chattem control more than 40 percent of the menstrual symptom relief market. Similarly, the company’s Corn Silk cosmetics line was a leader in the oil-absorbent makeup category. When purchased by Chattem, all of these products had been struggling to reach the million dollar mark in sales each year. Years of boosted marketing support, however, had enabled each of them to contribute multimillion dollar sales figures to the company’s earnings by the early 1990s.

In 1991 Chattem’s specialty chemicals division enjoyed a 45 percent increase in sales, even though the United States’ chemical process industries in general experienced decreases. The increase was attributed by some to the fact that Chattem’s specialty chemicals division was a leading producer and patent holder of different aluminum compounds that were necessary in the production of many other companies’ products. The success of its specialty chemicals division helped Chattem achieve its first $100 million sales year in history and prompted the company to expand itself even further by opening a 1.3 million-share secondary offering of its stock to the public in 1992.

It was not until 1994 that Chattem made another notable acquisition, when it added two new products to its consumer products division: pHisoderm facial cleanser and Benzodent oral analgesic. Chattem’s continued emphasis on consumer products expansion then prompted an even more notable 1994 event, as the company decided to put its specialty chemicals division up for sale. The decision was a reflection of the company’s desire to focus solely on its consumer products division, which at that point accounted for almost 90 percent of Chattem’s yearly income. The specialty chemicals division was purchased by the privately held Elcat Company of New Jersey for $25 million, and the sale was finalized by mid-1995. Elcat then maintained both the division’s operations and its name of Chattem Chemicals. Without its specialty chemicals division, Chattem continued its consumer products acquisition process with the purchase of rights to Gold Bond Medicated Powder in early 1996.

After growing from a covered wagon peddler of laxative in the 1800s to a multimillion dollar conglomerate whose products were being distributed worldwide, Chattem entered the late 1990s with the desire and potential to expand further its product offerings and distribution territory. By 1996, Chattem was producing and marketing name-brand products such as Pamprin, Premsyn PMS, Norwich Aspirin, Sun-In, Ultraswim Shampoo and Conditioner, Bullfrog Sunblock, Flex-all 454, Icy Hot, Benzodent, pHisoderm, MUDD Facial Masque, Corn Silk, and Gold Bond Medicated Powder.

LARGER AND LARGER DEALS

Chattem continued to acquire select niche brands. It bought Sunsource International, maker of herbal supplements such as Garlique, in 1997. Sales exceeded $200 million in 1998 after Chattem bought Ban Anti-Perspirant and Deodorant from Bristol Myers Squibb Company for $165 million, its biggest deal to date. In the same year, the company sold the CornSilk cosmetic business to Del Laboratories Inc. of New York for about $11 million. In December 1998, Chattem became the largest topical analgesic manufacturer in the country through the addition of several brands, including Sportscreme, Aspercreme, and Capzasin, from Thompson Medical Company Inc.

Another of the brands acquired from Thompson Medical, Dexatrim diet pills, soon became the focus of controversy after the U.S. Food and Drug Administration (FDA) took phenylpropanoline (PPA), a key ingredient, off the market following studies that indicated a connection between the drug and hemorrhagic stroke. Chattem reformulated the product a couple of times and eventually paid millions to settle PPA-related lawsuits.

Chattem’s ownership of the Ban brand turned out to be short-lived; the Andrew Jergens Company, a subsidiary of Kao Corporation, bought it in 2000 in a deal worth an estimated $166.5 million. A Chattem official told the Chattanooga Free Press that though Ban had annual sales of almost $90 million, the deodorant market had become uncomfortably competitive in a short time.

In 2002, Chattem acquired Selsun Blue, a leading brand of dandruff shampoo, from Abbot Laboratories in 2002 for about $75 million. Selsun Blue had global sales of more than $40 million a year. A new European subsidiary was formed in Ireland in 2004, and, together with the company’s existing U.K. office, Chattem distributed Selsun, Mudd, and Sun-In, the latter sold only on the Continent. Chattem continued to sell CornSilk in the United Kingdom under license. Other key international markets included Mexico, Brazil, and Australia; Chattem was making headway in Central Europe and the Middle East. Chattem sold its underperforming pHisoderm brand to the Japanese-owned Metholatum Company in November 2005.

EXTENSIONS

By this time, brand extensions (extending a brand name to new, related products) had become an important part of Chattem’s strategy. Gold Bond sales, for example, had nearly doubled in the decade Chattem owned it, thanks to the introduction of new lotions and creams under the Gold Bond name. The company came out with a conditioner companion to Selsun Blue and in 2005 added moisturizers and nutrients to its leading dandruff shampoo to create Selsun Salon. Extensions for other brands were being added at the rate of several a year. Some, such as a bid to extend the Icy Hot Brand via an innovative Pro-Therapy treatment, were not immediately successful, however.

Revenues reached $300 million in 2006, and Chattem employed a workforce of about 425. Net income rose 25 percent during the year to $45 million. International sales accounted for less than 10 percent of the total. Gold Bond and Dexatrim (reformulated without PPA or ephedrine and containing caffeine, green tea, and blood sugar moderators instead) were the company’s fastest-growing brands, with Capzasin, Bull-Frog, and Pamprin close behind. The topical pain care and medicated skin care categories together made up more than half of total sales.

A BILLION-DOLLAR BUSINESS

Chattem acquired five top brands from Johnson & Johnson in a $410 million deal that closed in January 2007. These included the anticavity mouthwash ACT, Unisom over-the-counter sleeping pills, Cortizone antiitch cream, Balmex diaper rash treatment, and the antidiarrhea product Kaopectate. Johnson & Johnson sold the brands to meet antitrust requirements related to its acquisition of the consumer healthcare business of Pfizer Inc. The deal, by far the largest in Chattem’s history, instantly added about $115 million to Chattem’s annual revenues; officials said they planned to grow the new assets through brand extensions and increased ad spending. Investors applauded the move, and Chattem’s market capitalization soon passed $1 billion.

Laura E. Whiteley
Updated, Frederick C. Ingram

PRINCIPAL SUBSIDIARIES

Chattem Global Consumer Products Ltd. (Ireland); Chattem (U.K.) Ltd.; Chattem (Canada) Inc.; HBA Indemnity Company, Ltd. (Cayman Islands); Signal Investment & Management Company.

PRINCIPAL COMPETITORS

Bayer HealthCare AG; Gillette Company; Johnson & Johnson; Procter & Gamble Company; Unilever N.V.

Chattem, Inc.

views updated Jun 27 2018

Chattem, Inc.

1715 West 38th Street
Chattanooga, Tennessee 37409
U.S.A.
(423) 821-4571
Fax: (423) 821-0395

Public Company
Incorporated: 1879
Employees: 400
Sales: $100.6 million (1995)
Stock Exchanges: NASDAQ

SICs: 2834 Pharmaceutical Preparations; 2844 Toilet Preparations; 2869 Industrial Organic Chemicals, Not Elsewhere Classified

Chattem, Inc. manufactures and markets a diverse array of brand name pharmaceuticals, toiletries, and cosmetic items. Focusing on smaller product lines that it can market without competing directly against other giant companies in the business, Chattem has had a successful history in helping such products flourish. Over the years, it has manufactured and promoted over-the-counter drugs such as Pamprin, Premsyn PMS, and Norwich Aspirin; analgesics such as Flex-all 454, Icy Hot, and Benzodent; toiletries such as Sun-In Hair Lightener, Ultraswim Shampoo, Bullfrog Sunblock, MUDD Facial Masque, and pHisoderm; and the Corn Silk, Quenchers, and Baby Soft cosmetics lines. Chattem distributes its products across the United States, Canada, Europe, and throughout numerous other international markets.

The Early Years

Chattem’s beginnings can be traced to the year 1879, when a small business called the Chattanooga Medicine Company was created to produce and sell Black-Draught, a senna-based laxative. The product had been invented almost half a decade earlier by a doctor who sold it from the back of a covered wagon through a small enterprise called the Dr. A.Q. Simmons Liver Medicine Company. Black-Draught had sold well in the southern United States until the Civil War, but struggled thereafter. It was then that Z.C. Patten purchased all rights to Black-Draught from Dr. Simmons’s son-in-law and founded the Chattanooga Medicine Company to market the product.

The Early 1900s: A New Era for the Chattanooga Medicine Company

In 1881, an Arkansas crop failure left many of the company’s clients unable to pay for the products being shipped to them. Furthermore, two separate fires and a flood in the early 1890s left the company headquarters in near-ruins three different times. Although the company was doing well enough to expand in 1893 to include a branch office in St. Louis, Patten’s business partners became uneasy and sold their shares in the company to his nephews, John A. Patten and Zeboim Carter Patten. The two brothers began running the business as partners in 1906, just five years after the Chattanooga Medicine Company had grown to include a second branch office in San Francisco. The company’s sales throughout the country were booming, and in the following year Wine of Cardui surpassed the $1 million mark in annual sales.

Unfortunately, John A. Patten died unexpectedly in 1916 at the age of 48, leaving his brother to operate the business alone. Before his death, John A. Patten had not only played a key role in the company’s successful use of billboard and print advertising, but had also engineered the company’s entrance into the export business on an international scale. His efforts had introduced the company to a great deal of success and affluence, and his death was a huge blow to its continued growth potential. Although his brother did an excellent job in helping the company survive the effects of the Depression, the Chattanooga Medicine Company’s growth was stagnant for many years. In 1938, Zeboim Carter Patten passed the modest operation on to his nephew, Lupton Patten, who at age 31 became the youngest president in the company’s almost 60-year history.

Post-World War II Restructuring and Expansion

Company Perspectives:

Chattem Consumer Products’ mission is the satisfaction of consumer needs in personal and health care areas through the marketing of brand name products which are of excellent quality and proven efficacy. These products are promoted through the national media and are distributed through the mass distribution channels of food, drug and general merchandisers. The objective is to create or maintain a leadership position in each of our domestic markets and to thereby provide superior earnings while also building the value of each brand.

Acquisitions Throughout the 1980s

The success of Chattem’s consumer products division was further bolstered by the 1985 acquisition of Nullo Deodorant tablets and the 1986 acquisitions of Bullfrog waterproof sunblock and Ultraswim chlorine removal shampoo. As with most of its other successful products, these items demanded only small amounts of retail shelf space, due to the fact that they were single products that did not have large line extensions. This helped Chattem convince many stores with limited shelf space to carry its products and made it possible for the company to market the majority of its products nationwide. On the rare occasions when Chattem did extend one of its product lines, it was done to gain a stronger customer base by tailoring the product to the demands of the consumers. For example, in 1988 Chattem added two new variations of its Sun-In Hair Lightener product to store shelves when it unveiled “Gentle Highlights” and “Natural Lemon” Sun-In. The gentle variety was targeted at younger first-time users, and “Natural Lemon” was a means of capturing reluctant clientele.

The 1990s and Beyond

After guiding Chattem through some of its most defining years, Alex Guerry died in 1990 and left control of the company to his son, Zan Guerry. Noting the positive results that years of successful product acquisitions had produced, Guerry immediately began negotiating a deal to purchase Icy Hot brand topical analgesic from Procter & Gamble. The transaction was finalized by mid-1991, at which point Chattem had become known as a “guerrilla marketer,” defined in a 1991 edition of The Insiders’ Chronicle as “the ability to ’pick a niche and dominate it.’ “The purchase of Icy Hot increased Chattem’s share of the market for topical analgesics used to relieve sore muscles to 16 percent.

Meanwhile, Chattem was successfully dominating other product niches as well. Sales of Pamprin had combined with sales of a more recent product, Premsyn PMS, to help Chattem control more than 40 percent of the menstrual symptom relief market. Similarly, the company’s Corn Silk cosmetics line was a leader in the oil-absorbent makeup category. When purchased by Chattem, all of these products had been struggling to reach the million dollar mark in sales each year. Years of boosted marketing support, however, had enabled each of them to contribute multimillion dollar sales figures to the company’s earnings by the early 1990s.

Principal Subsidiaries

Chattem Consumer Products; Chattem International; Chattem (U.K.) Limited; Chattem (Canada) Inc.; HBA Insurance Limited; Signal Investment & Management Co.