Matrixx Initiatives, Inc.

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Matrixx Initiatives, Inc.

742 North 24th Street, Suite 455
Phoenix, Arizona 85016
U.S.A.
Telephone: (602) 385-8888
Fax: (602) 387-4112
Web site: http://www.zicam.com

Public Company
Incorporated: 1996 as Gum Tech International, Inc.
Employees: 15
Sales: $60.2 million (2003)
Stock Exchanges: NASDAQ
Ticker Symbol: MTXX
NAIC: 325410 Pharmaceutical and Medicine Manufacturing; 325411 Medicinal and Botanical Manufacturing; 325412 Pharmaceutical Preparation Manufacturing

Matrixx Initiatives, Inc., develops, produces, markets, and sells over-the-counter pharmaceuticals, most notably the product Zicam, a patented homeopathic remedy for the common cold with a unique delivery system. Through the Zicam LLC subsidiary, Matrixx offers a total of ten different products for the cough and cold market.

1994–99: Producing and Marketing Gums With Health Benefits

Matrixx traces its roots to Gum Tech International, which in 1994 introduced "hope in a box of gum," according to a 1994 Atlanta Journal & Constitution article. Its cherry-flavored Love Gum with ginseng was reputed to increase "romantic power" and to make those who chewed it feel good and energized. In its first three months of sales at two California quick stops and a gift shop, Love Gum made $250,000 in sales, leading Gum Tech to expand its products to make gums designed to provide health benefits to consumers: Buzz Gum to boost energy, Smoker's Gum to whiten teeth, Orient Express Gum to improve memory, and PMS and Hangover Gum with pain relievers and vitamins.

Two years later, Gum Tech held its initial public offering on Nasdaq. By 1997, it had relocated to Phoenix, Arizona, and its line of functional chewing gums had grown to include Calcium Supplement Gum, High Gear Energy Gum, non-nicotine Cig-Arrest Gum, and gums for oral hygiene, weight loss, and antioxidant properties. Deciding to forsake the health food market in favor of mass-merchandising, the company aimed to create a worldwide distribution network for its products. It also began producing gums for other companies in addition to its own line of branded gums, including two gums for General Nutrition Companies in 1997. In 1998, it added a memory and concentration enhancing gum, a nicotine chewing gum, a dental gum, and a gum with Acutrim for other companies.

The increase in business created the need for additional space, and in 1998, Gum Tech, with the only stainless steel gum-manufacturing facility registered with the Food and Drug Administration to manufacture gum with over-the-counter drug products, leased an additional 32,000-square-foot facility in which to expand its warehouse and packaging capabilities. The company's sales of $5.2 million that year were 40 percent more than they had been in 1997; still Gum Tech registered a loss of roughly $6.2 million.

1999: Zicam Debuts

In 1999, Gum Tech added another distribution agreement with Herbalife International Inc. for energy gum, then embarked upon a new direction with BioDelivery Technologies, Inc. Biodelivery Technologies specialized in the development of unique systems for the delivery of bioactive compounds. The two companies' joint venture, Gel Tech LLC of Woodland Hills, California, introduced Zicam Cold Remedy, a new homeopathic cold remedy that used a nasal gel to deliver an ionic zinc emulsification formula. Initial research showed that Zicam reduced the duration of the common cold from ten to 14 days to one to three days. Zicam sold at supermarkets, such as Fry's and Albertsons, and drug stores, such as Rite Aid, Genovese, Eckerd Drug, King Kullen, American Drug Stores, Basha's, Kroger, as well as Wal-Mart.

Gel Tech moved forward on clinical research to prove conclusively Zicam's ability to reduce the duration of cold symptoms, and to explore its ability to prevent their onset and to relieve symptoms caused by allergic reactions to airborne allergens. Zicam was thought to work because zinc gluconate, the weak organic salt in Zicam nasal gel, interfered with viral attachment to the intercellular adhesion molecule-1 receptor (ICAM-1) on airway cells. Zinc gluconate dissolves to form positively charged zinc ions and negatively charged gluconate, a compound found in all human tissues. Late in 1999, in an article that was to have been published by the American Journal of Infection Control —but was pulled because its contents were leaked to the press before publication—the first controlled study of intranasal zinc formulation suggested the product's effectiveness.

In 2000, the first phase of Gel Tech's own research revealed that Zicam reduced the duration of the common cold by 78 percent when taken at the onset of symptoms. The second phase of research recorded a reduction of 71 percent. Also in 2000, the online peer-reviewed journal, the Internet Journal of Family Practice, conducted a double-blind study that proved Zicam Allergy Relief, introduced that year, was "very effective in relieving primary allergy symptoms such as hay fever, nasal and ocular symptoms . . . ," reducing severity of allergic symptoms by 52 percent. A study published in Ear, Nose & Throat Journal reported that Zicam reduced the duration of the common cold by an average of 75 percent when taken at the onset of symptoms.

Other research focused on the efficacy of nasal sprays in quickly relieving congestion, part of a nationwide movement toward prevention in the treatment of colds and allergies. In 2000, after research proved that saline sprays, in particular, played a preventive role against allergy symptoms, the market for nasal products reached $382 million in 2000, with Zicam the No. 9 brand in its category with sales of $9.9 million. Zicam products were now available at more than 50,000 drug stores, grocery stores, pharmacies, mass merchants, and convenience stores in United States. The company received a patent for its "method of delivering zinc ions in a nasal gel to the nasal membrane to relieve the symptoms of the common cold."

The Rise of Zicam in the Early 2000s

Product sales increased 49 percent in 2001, generating $61 million in revenues, revealing growing consumer acceptance of the Zicam brand in the midst of a weak cold season during which overall sales of over-the-counter cold remedies decreased. Thanks in part to Gel Tech's 2001 agreement to distribute its cold remedy to General Nutrition Centers and Vitamin World stores nation wide, Zicam had become one of the top five best-selling cold products in the United States. Gum Tech sold the manufacturing operations, contracts, and assets associated with its gum business and 200,000 shares of Gum Tech to the Wm. Wrigley Jr. Co. for $25 million and used the proceeds of the sale to enhance its marketing of Zicam products. It then purchased the remaining shares of Gel Tech LLC.

A favorable judgment in 2002 on a patent infringement case that the company filed in behalf of its Zicam products in January 2000 helped reinforce Zicam's position as the No. 4 nasal product after Afrin, Primatene Mist, and Nasal-Crom. In fact, the mild winter of 2001 to 2002 had weakened sales for most cough and cold products as had the scare over anthrax-tainted letters. Since the anthrax virus when inhaled causes flu-like symptoms, more people with upper respiratory symptoms opted to see their doctor rather than buy an over-the-counter remedy. Afrin, Primatene Mist, and Nasal-Crom all posted a decline in sales for the year ending February 2002. Zicam, however, posted double-digit gains.

Gum Tech changed its name mid-year in 2002 to Matrixx Initiatives, Inc., to reflect its exit from the functional chewing gum market, and by August, Zicam had moved to the No. 3 slot in the cold remedy product line-up. In September 2002, it introduced five new Zicam brand products: Zicam Cold Remedy Swabs, Zicam Kids-Size Cold Remedy Swabs, Zicam Extreme Congestion Relief, Zicam Sinus Relief, and Zicam Nasal Moisturizer.

The company's growth in sales continued strong. During 2002, revenues increased 47 percent to $23.5 million from $16.1 million in 2001. The company's net income for the year was $1.4 million as compared to a loss of $4.8 million the year before. By 2003, that figure was $3.3 million on sales of $43.5 million, an 85 percent increase above 2002 sales. Zicam Cold Remedy nasal spray had also moved into the No. 2 spot for nasal sprays purchased in the United States, behind only Afrin.

In 2003, Matrixx Initiatives again brought new products to market: Zicam Cold Remedy Chewables, RapidMelts, and Oral Mist products were designed to appeal to consumers uncomfortable with nasal applications. A problem with the company's swab manufacturer led to the launch of new type of swab in 2004. And, in 2005, Matrixx Initiatives introduced the first over-the-counter spray treatment for coughs.

Matrixx Initiatives responded promptly to an early 2004 Dow Jones "In the Money Report" that focused on the possibility that Zicam nasal products could cause lost or diminished olfactory function, or anosmia. A press release announced that "[a]ll Zicam products are marketed according to FDA guidelines for homeopathic medicine . . ." and went on to say that Matrixx believed statements alleging that intranasal Zicam products cause anosmia (loss of smell) were completely unfounded and misleading . . . "In no clinical trial of intranasal zinc gluconate gel products has there been a single report of lost or diminished olfactory function . . ."

Company Perspectives:

Our business objective is to be a high growth over the counter (OTC) healthcare company marketing products that utilize novel, unique and proprietary delivery systems that provide consumers with "better ways to get better." To achieve our objective, the key elements of our business strategy include expanding marketing efforts for existing and new products and pursuing additional delivery systems.

Fortunately for Matrixx, consumer acceptance of Zicam was largely unaffected by the report. The line continued to grow about 50 percent a year, contributing to a 30 percent annual compound sales increase from 1999 to 2004, the year in which the company's revenues reached $60.2 million. The company also continued to branch out into the nasal health market, increasing its line of offerings in 2005 to include a new product called Nasal Comfort. This hyper-tonic aqueous solution contained essential salts oils to cleanse and moisturize the nose and thereby increase nasal cavity function during respiration.

Principal Subsidiaries

Zicam LLC.

Key Dates:

1994:: Gum Tech begins business in North Hollywood, California.
1996:: Gum Tech holds its first public offering.
1997:: Gum Tech relocates to Phoenix, Arizona.
1998:: The company leases an additional 32,000-square-foot facility.
1999:: Gum Tech forms Gel Tech LLC with Biodelivery Technologies and introduces Zicam Cold Remedy.
2000:: Gum Tech adds Zicam Allergy Relief.
2001:: Gum Tech sells its gum business to the Wm. Wrigley Jr. Company and purchases the remaining shares of Gel Tech LLC.
2002:: The company changes its name to Matrixx Initiatives, Inc. and introduces five new Zicam brand products.
2003:: Matrixx brings three new Zicam products to market.