The Phoenix-based company saw second-quarter fiscal 2006 profits drop to $9.6m, compared to 2005's Q2 $10.9m, as nutraceuticals sales declined despite a 42 per cent rise in the promotional budget to $6.9m.
The maker of Ester-C and ViziLite also saw administrative costs spiral by 21 per cent to $3.4m as the company increased professional and consulting fees in the pharmaceutical division.
Overall the firm suffered a net loss from continuing operations of $7.2m, up from last year's $2.7m.
But Zila believes the flagship Ester-C brand showed a promising rise in retail sales. And the increased marketing budget for the product should pay off in future, helped by new international distribution agreements with Asahi Godo in Japan and Cederroth International and Bringwell AB in Europe.
Zila CEO Douglas Burkett said: "While we are disappointed by the short-term performance of our nutraceuticals business unit, we are encouraged by Ester-C's turnaround performance at retail.
"We invested heavily in marketing Ester-C during the quarter, based on our successful history of generating strong consumer demand for our product through advertising."
Ester-C generated record sales, and the brand gained important market share, he added, which helped bolster the ailing division.
The company's Ester-E and Ester-C are advanced forms of the vitamins, and previous research indicates that they may help maintain healthy immune and cardiovascular systems.
But CFO Andrew Stevens recently told NutraIngredients-USA.com that negative sales trends for vitamin E have been cited as an indication that the single supplements category as a whole is down. Market reports indicate vitamin C is declining by about 10 percent per year overall, and vitamin E by 40 percent - creating a tough trading environment for the nutraceutical company.
Zila's pharmaceuticals division achieved a 28 per cent revenue increase during the period, helped by the launch of ViziLite Plus with TBlue, a unique product that can help early detection of cell abnormalities in oral cancer patients.
Sales of all ViziLite lines were up 108 per cent to $0.8m. And this figure is set to soar as the company announced that CIGNA Dental insurance providers will begin reimbursing for ViziLite Plus in some of its plans.