Integrated BioPharma, Inc

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Integrated BioPharma, Inc.

225 Long Avenue
Hillside, New Jersey 07205
U.S.A.
Telephone: (973) 926-0816
Fax: (973) 926-1735
Web site: http://www.ibiopharma.com

Public Company
Incorporated: 1994 as Chem International, Inc.
Employees: 157
Sales: $57.8 million (2006)
Stock Exchanges: American
Ticker Symbol: INB
NAIC: 325412 Pharmaceutical Preparation Manufacturing

Integrated BioPharma, Inc., is a Hillside, New Jersey-based company dedicated to what has become known as the nutraceutical industry, a combination of "nutritional" and "pharmaceutical," referring to foods with medicinal properties. These include vitamins, herbal products, and nutritional and dietary supplements. All told, Integrated BioPharma manufactures more than 130 products through nine subsidiaries, sold to distributors, multilevel marketers, and via mail order, as well as specialized healthcare providers. The company's AgroLabs, Inc. subsidiary offers nutritional products under the Naturally Noni, Naturally Pomegranate, Naturally Aloe, and Naturally Mangosteen labels. IHT Health Products, Inc. specializes in vitamins, amino acids, herbal extracts, and over-the-counter pharmaceutical products such as Biotin Powder, Echinacea Purpurea, and Grape Skin Extract. Subsidiary Chem International offers a wide range of vitamins, and cosmetic products, including sunscreens and emulsifiers. Drawing on plants as a source, InB:Biotechnologies, Inc. offers nutritional minerals in powder form, including chromium, selenium, iron, and zinc.

Another unit, InB:Hauser Pharmaceutical Services, Inc. uses plant, marine, and microbial sources to produce natural raw materials for the pharmaceutical, dietary supplement, and fine chemicals industries. The InB-:Paxis Pharmaceuticals, Inc. subsidiary is devoted to the production and marketing of the generic active pharmaceutical ingredient Paclitaxel, a naturally occurring compound used to treat ovarian cancer, breast cancer, non-small cell lung carcinoma, and AIDS-related Kaposi's sarcoma. The Scientific Sports Nutrition subsidiary produces sports supplements, primarily used in weight training. Manhattan Drug Company produces vitamins and nutritional formulations on a contract basis, also providing packaging and labeling, and distribution services. Finally, The Vitamin Factory sells a wide variety of vitamins and other supplements directly to consumers through catalogs and the Internet. Although a public company listed on the American Stock Exchange, Integrated BioPharma is 70 percent owned by Chairman and CEO E. Gerald Kay and his family.

GOING PUBLIC: 1994

In 1980 E. Gerald Kay became president and chairman of Integrated BioPharma's predecessor, Manhattan Drug Company, whose roots reach at least as far back as 1920. From its plant in Hillside, New Jersey, the company primarily manufactured vitamins, nutritional supplements, and herbal products on a contract basis, mostly for one customer, Rexall Sundown. Vitamins were also packaged under the "Vitamin Factory" label and sold through a mail-order operation and a single company-owned retail store, part of subsidiary The Vitamin Factory, Inc. To take the company public, in December 1994 Kay engineered a merger with a New York shell corporation, Frog Industries, an inactive company with no assets beyond its publicly traded stock. The company took on the name Chem International, Inc., and its stock began trading on an over-the-counter basis.

Chem International grew sales to $16.8 million in the fiscal year ending June 30, 1995, resulting in a net profit of $380,000. When Rexall Sundown elected to begin producing some of its own vitamins, Chem International experienced a drop in revenues to $10.6 million and earnings of $42,000 in 1996. This setback did not, however, prevent Kay from taking Chem International public a second time. In February 1996 the company was reincorporated in Delaware, and voluntarily halted the trading of its stock, which was worth about $.75 a share. Then in late October 1996, with Monroe Parker Securities of Purchase, New York, acting as the underwriter, Chem International conducted a highly successful public offering, selling 1.1 million units at $7. In a short period of time, 217,300 of those units were purchased at $8. "Were those units sold back to the underwriter?" asked the New York Times' Floyd Norris, who was unable to elicit an answer for Monroe Parker. Calling Chem International a "classic example of a hot penny stock offering," Norris added, "Whoever bought the units at $8, however, did not have to wait long to see a big jump. The next trade … was for 1,000 units at $20. And from there it was onward and upward. The broken up units began trading soon thereafter." By the end of the day, the former penny stock was quoted at $24.50, and Chem International had publicly traded securities worth $55.7 million, or five times its annual sales.

Despite the unusual circumstances of the company's second stock offering, Chem International had some prospects for future growth that could warrant some optimism. It was only generating about $750,000 a year in retail and mail-order sales, but planned to grow that number through aggressive marketing. In 1997 the company took a step in that direction by introducing its first proprietary product, MAP (Master Amino Acid Pattern), a sports nutrition food supplement that helped maximize protein synthesis to reduce body fat and increase muscle mass, acquired through an exclusive marketing and distribution agreement with International Nutrition Research Center, Inc. Chem International also sought out new customers to avoid repeating the mistake of becoming too dependent on a single customer. In February 1997, Chem International signed a renewable two-year deal to distribute the products of Roche Vitamins, Inc. to certain of its accounts. In addition, the company invested in the renovation of the blending facility at the Hillside plant to improve efficiencies and lower costs. While sales improved to $11.1 million in 1997, the company lost $654,000, due to higher prices in raw materials and other factors.

NEW CEO: 1999

After a sluggish start to 1998, Chem International was able to return to profitability in the second half of the year. As a result, revenues improved 44 percent over the previous year to more than $16 million, and the company cut its net loss to less than $100,000. However, Chem International was not able to build on its momentum, as 1999 was beset with problems that led to a 23 percent drop in sales to $12.3 million. This was due in large measure to delayed product launches in Eastern Europe. Furthermore, the company had anticipated increased orders and had beefed up its workforce accordingly. When those sales did not materialize, it was saddled with higher production costs that crippled the bottom line. For the year Chem International posted a loss of more than $2.6 million. As the fiscal year came to a close, Kay turned over the CEO post to Seymour Flug, the former chairman and CEO of Diners Club International.

COMPANY PERSPECTIVES

Integrated BioPharma (Ticker Symbol: INB) is a well-established biopharma company serving the varied needs of the nutraceutical industry.

As Chem International entered 2000 with Flug at the helm, it began taking steps to adjust its business model by supplementing its contract manufacturing business with raw material sourcing, new product development, and the addition of technical services. In this way the company hoped to become involved in more profitable areas. In keeping with this approach, Chem International entered into a joint venture with NuCycle Therapy, Inc., which owned patented technology for the hydroponic growth of plants to increase the production of such nutrients as chromium, iron, selenium, and zinc. The two companies planned to develop and market nutritional formulations derived from these plants. Also in 2000, Chem International improved its product development capabilities by acquiring I.D.E.A.S. Inc., a company that offered formulation development, dosage form design, process improvement implementation, formulation optimization, scale-up, and validation services to pharmaceutical, nutritional/botanical, and food/confection customers. Revenues rebounded sharply in 2000, increasing 46 percent to nearly $18 million, while net income returned to the black, totaling more than $3.1 million.

To better reflect its changing business, Chem International adopted a new name in 2001: Integrated Health Technologies Inc. I.D.E.A.S. Inc. assumed the Integrated Health Ideas, Inc., name and began offering solid dosage product development and technical services. The company also launched a new subsidiary, IHT Health Products, Inc., to distribute and sell fine chemicals. Offsetting these positive developments, however, was a flagging economy, which contributed to a loss of business in 2001, when the company experienced a 15 percent decrease in sales to $15.3 million and a net loss of nearly $1.5 million, most of which was due to a civil law suit settlement payment Integrated Health made in connection to a contaminated supplement that a number of companies had distributed.

Integrated Health began 2002 by completing the acquisition of NuCycle Therapy Inc., setting the stage for a strong comeback. The addition of NuCycle bolstered the company's efforts to become more involved in nutraceutical and drug development. With the addition of new products and expansion into international markets, Integrated Health was able to grow revenues by more than 50 percent to almost $23.6 million in 2002. The company also returned to profitability, posting net earnings of $1.4 million.

ACQUISITION OF PAXIS
PHARMACEUTICALS: 2003

Although business fell off the following year, when revenues and net income totaled $22.2 million and $900,000, respectively, 2003 brought a number of significant changes to the company, which sought to take a unified approach to healthcare, developing products to prevent disease, assuage cancer, and maintain health. Accordingly, in 2003, the company changed its name once again, becoming Integrated BioPharma Inc. As part of this strategy the company acquired a half-interest in Natex Georgia LLC, a company organized in the Republic of Georgia to harvest and collect botanical materials used to produce paclitaxel, an anticarcinogenic agent used to treat several forms of cancer, including ovarian and breast cancer. The stake in Natex was then traded to acquire Boulder, Colorado-based Paxis Pharmaceuticals Inc., which was set up to manufacture and distribute paclitaxel. An alliance was also forged with a Canadian company to provide Paxis with another source of the biomass material it needed to produce paclitaxel. Another important development in 2003 was receiving an American Stock Exchange listing, making the company more visible to investors. As the year came to a close, Integrated BioPharma was able to raise $9.5 million in a private placement of stock to support continued growth. The year also saw the retirement of Flug and return of Kay to the CEO role.

Integrated BioPharma raised another $5 million in a private placement of stock in 2004. Some of the cash the company raised was put to use in further acquisitions. The company acquired three product lines from Dallas-based Aloe Commodities. Naturally Aloe, Naturally Noni, and Avera Sports then formed the basis for the AgroLabs, Inc. subsidiary. In September 2004, Integrated BioPharma acquired Hauser Technical Services, Inc. and Hauser, Inc., involved in the production of supplements and pharmaceuticals from plant, marine, and microbial sources. The addition of the Hauser assets strengthened the Paxis unit. Another important development in 2004 was an agreement between NuCycle and the U.S. Navy to develop a plant-derived oral anthrax vaccine. The company through its InB:Biotechnologies Inc. subsidiary also entered into an agreement with Fraunhofer USA to use the same approach in developing flu vaccines.

KEY DATES

1980:: E. Gerald Key assumes control of Manhattan Drug Company.
1994:: Chem International, Inc. is formed.
1996:: Chem International reincorporates and goes public.
2001:: Company changes name to Integrated Health Technologies.
2003:: Integrated BioPharma Inc. name is adopted.
2004:: Hauser companies are acquired.

Revenues increased to $25.3 million in 2004. The company's net loss of $5.3 million on the year was due to the costs of starting up the Paxis operation, which opened a new manufacturing plant. The cost of transforming the company continued in 2005, resulting in a net loss of $11.4 million, despite a jump in revenues to $32.7 million. Nevertheless, Integrated BioPharma believed it was well positioned to enjoy future growth, a contention supported by the results of fiscal 2006. Not only did revenues increase 77 percent to $57.8 million, the company returned to profitability, netting $5.5 million.

Ed Dinger

PRINCIPAL SUBSIDIARIES

Chem International; Manhattan Drug Company, Inc.; Vitamin Factory, Inc. AgroLabs, Inc.; IHT Health Products, Inc. NuCycle Therapy, Inc.; Paxis Pharmaceuticals; Hauser Pharmaceutical Services, Inc.; InB:Biotechnologies, Inc.; InB:Pharmaceutical Services, Inc.; InB:Paxis Pharmaceuticals, Inc.