Ascorbic acid prices erode Zila's profits

Related tags Ascorbic acid Vitamin c Antioxidant

Zila, a US pharma and biotech company, has achieved double-digit
sales growth for the first half of 2004, mainly due to the
performance of its nutraceutical division. Operational costs
exceeded sales however, due to higher cost of ascorbic acid and the
continuation of the company's brand awareness strategy.

Net revenue for the group grew by 13 per cent to $25.6 million for the first half of 2004, meanwhile second quarter sales for the nutraceuticals business increased 21 per cent to $8.6 million compared to $7.1 million a year earlier.

Sales of Zila's Ester-C ascorbate - a patented and natural form of vitamin C included in a wide range of supplements, pharmaceuticals and functional foods - increased during the second quarter by 38 per cent with domestic sales for the product growing by 49 per cent.

The sales of Ester-C during the quarter were driven principally by increased radio and television advertising support as part of Zila's continuing strategy of brand development.

"Our second quarter was marked by significant progress towards the accomplishment of our corporate strategic goals despite certain challenges posed by our operating environment,"​ said Zila's CEO Doug Burkett.

Operating loss fell to $1.4 million from $0.7 million a year earlier. The cost of products sold as a percentage of net revenues for the nutraceuticals business unit increased to 40 per cent in the second quarter of 2004 compared to 36 per cent a year earlier.

This increase was caused primarily by a $1.5 million increase in cost of goods due to the higher price of Ester-C's main ingredient, ascorbic acid.

"The nutraceuticals business unit has now obtained a stable supply of ascorbic acid in sufficient quantity and at prices equivalent to historical averages that assures cost predictability for the second half of 2004,"​ said Burkett.

He added that the company will continue to invest in marketing and selling efforts and to develop new products including Ester-E, ViziLite and OraTest.

Ester-E, launched last week, has been created by combining natural d-alpha tocopherol with a phosphate molecule. The patented process is designed to protect the antioxidant potential of vitamin E during absorption, transport, and storage in the body to improve the delivery of its nutritional benefits when needed.

"With our new Ester-E product, we intend to match the market success and favorable gross margins achieved by our Ester-C brand, within the larger vitamin E category,"​ said Burkett.

Ester-E will be sold as a bulk ingredient to nutraceutical manufacturers and promoted directly to consumers through brand-building national advertising.

Zila has initiated customer presentations for Ester-E and the product is to be launched in the second half of 2004.

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