Zila discusses nutraceuticals sell-off

By Jess Halliday

- Last updated on GMT

Related tags Nutrition

US health care company Zila, which has a strong presence in Europe
with Ester-C, is in discussions over the divestment of its
nutraceuticals business unit in order to concentrate on its oral
cancer detection business.

The Arizona-based company revealed its plans along with its financial results for Q3 2006.

Zila Nutraceuticals' sales for the quarter were profoundly affected by the plan, falling 65 per cent on the prior year period to $3.6m. It emerged that some customers have been aware of the possible sell off for several months, and have reduced their orders or ceased entirely as they evaluate whether they have a strategic interest in acquiring the business.

The knock-on effect for Zila as a whole, which also comprises pharmaceutical and biosciences business units, was a 44 per cent drop in net revenues to $6.8m. Margins also decreased from 67 per cent last year to 56 per cent due to promotions on new stock keeping units.

Zila chairman, president and CEO Douglas Burkett, said that for several years Zila's strategy has been to grow its nutraceutical business, then treat it as a cash-cow to get the pharmaceutical and biotechnology businesses off the ground.

"The plan has worked and we believe we have reached a point where it is prudent to evaluate a more targeted focus on the company's highest potential products,"​ said Burkett.

He revealed that, following several competitive offers, the company is now embroiled in negotiations with one particular bidder. If it does not see a way to closing a transaction with this party, it will reopen negotiations with others.

It is not known whether bidders are US or European companies.

Burkett was firm in his believe that the blip in Zila Nutraceuticals' sales was just that, and should the company decide against divestment in the near future it will return to positive EBITDA performance within the next several months - although he added "no assurances can be given in this regard"​.

Zila Nutraceutical's flagship ingredient is Ester-C, an advanced form of vitamin C. Amongst the benefits is a neutral pH, which means that the vitamin is gentler on the stomach than traditional forms of the vitamin. The company recently announced an updated version said to offer improved antioxidant and anti-carcinogenic potential, which is expected to come to market in the near future.

Not only is Ester-C claimed to be the most recognisable brand of vitamin C in the US, but the company has also been avidly expanding international distribution. Last month it announced a Europe-wide deal with Gee Lawson, which previously covered just UK and Ireland, and at the end of 2005 it signed two new agreements in Scandinavia.

Over the past year it has worked hard to ensure that Ester-C conforms to new regulatory requirements in Europe, submitting a dossier to the European Union in accordance with the 2002 Food Supplements Directive, which came into effect last August. It has since received derogation in a number of countries.

It is also working with Japanese distributor Asahi Godo to introduce it in Japan, the market seen as the key to the Asia Pacific rim.

Zila also licenses some rights to the technology behind another ingredient, Ester-E, from Australian company Phosphagenics. Ester-E is designed to protect the antioxidant potential of vitamin E during absorption, transport and storage in the body.

At present Zila's rights cover the United States, Canada and Indonesia. The original agreement, signed in 2003 and running until the expiration of the underlying patents, gives Zila first refusal for other international markets.

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