Block Drug Company, Inc. History

Address:

257 Cornelison Avenue
Jersey City, New Jersey 07302-9988
U.S.A.

Telephone: (201) 434-3000
Toll Free: 800-365-6500
Fax: (201) 434-5739

Public Company
Incorporated: 1970
Employees: 3,380
Sales: $863.06 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: BLOCA
SICs: 3843 Dental Equipment & Supplies; 2843 Surface Active Agents; 2834 Pharmaceutical Preparations; 3991 Toothbrushes, Except Electric; 2844 Shampoos, Hair

Company Perspectives:

From dental care, to treating dentinal hypersensitivity, adult periodontitis and beyond, people around the world experience better oral health as a result of the strong partnership between Block Drug Company and the dental professional. As we look to the new millennium, Block Drug Company remains committed to this relationship. We will continue to dedicate our energies and resources to develop cutting-edge products and to create strategic alliances that will enable the Company to expand its product line to enable the dental professional to better serve the patient.

Company History:

Block Drug Company, Inc. develops and manufactures a variety of pharmaceutical products, including dental care, oral hygiene and professional dental care products, and other types of over-the-counter healthcare and consumer goods. Block's most popular brands include Polident denture cleanser, Poli-Grip dental adhesive, Nytol sleeping aids, Tegrin medicated shampoo, Lava hand soaps, Beano and Phazyme anti-gas products, Balmex diaper rash ointments, and Sensodyne desensitizing toothpaste. Dental products account for over two-thirds of the company's sales, with consumer goods comprising the rest. Block Drug is a family-run business, now in its third generation. Block's products are sold in over 125 countries, with 60 percent of revenues generated outside the United States.

Beginnings

Although Block Drug Company was incorporated in 1970, the history of the company can be traced back to 1907 when Alexander Block, a Russian immigrant, opened a small drugstore on Fulton Street in Brooklyn, New York. By 1915 he turned wholesaler, and by 1925 he was in the drug manufacturing business, acquiring a 50 percent interest in Wernet's Dental Manufacturing Company.

Continuing to grow through acquisitions in the 1930s, Block entered the dental care products business, which would be the company's most profitable over the years. In 1931 Block bought Antikamnia Remedy Company, a small drug and dental care products company, as well as Pycopay toothbrush and Romilar cough syrup. During this period Block also developed Polident dental powder, which eventually spawned brands including Poli-Grip denture adhesive.

Heavily advertised brand names and slightly differentiated products became Block's trademark for success. In the 1950s, Block was a pioneer in the use of network television commercials, which succeeded in making his products household names. This led to huge growth and new products; for example, he built an entire family of products around the Polident name. An ex-product manager at Block once commented that Block Drug "could hide in the bushes, then ... push a button and TV would sell the product."

After Alexander Block died in 1953, his son Leonard took over the company. He has run the operation since, keeping earnings and sales growth at around ten percent per year. Commentators have noted that while Block Drug does not have the capital to compete directly with such large pharmaceutical companies as Warner-Lambert, its innovative advertising has meant safe niche markets alongside the bigger brand names.

The 1960s: Advertising and Marketing Drive Sales

By 1966 Block was spending $10.5 million annually to advertise its very successful Polident denture cleanser against fierce competition. Warner-Lambert had introduced Efferdent denture cleanser tablets, which reportedly gained 20 percent of the market in its West Coast debut. In response to this move, Block stepped up advertising in 1966, with the company delivering 1.5 billion messages (twice as many as in 1965) in an attempt to reach the denture wearer who watched television.

Block developed a slightly differentiated product, Polident "tablets" for the "portable denture wearer," and also developed new decorator boxes. The new tablets took 15 percent of the entire denture cleanser market by the end of 1965 and had expanded the total denture cleanser market volume by 25 percent. The ad campaign by Polident (costing twice the amount spent on the 1964 Democratic presidential campaign) also included a Block version of Efferdent, called SteraKleen.

The late 1960s were a period of growth for Block Drug. Income increased from $4.8 million in 1967 to $6.6 million for the year ending March 31, 1971. The drug products segment of the business went from nine percent to 29 percent of total business, while dental care products fell from 85 to 65 percent of the total. Foreign sales and television and radio ad expenditures were both on the rise.

In 1970 Block Drug incorporated, and the following year the company went public, placing 275,000 shares of common stock on the market. Revenues rose by seven percent in fiscal 1971 and net income jumped eight percent over the same period. International sales in 125 foreign countries had 15 percent of the business in 1971. Television was still the company's favored advertising vehicle, with Polident the most advertised Block product in 1971. Nonetheless, Polident lost ground to competitor Efferdent, holding a 36 percent market share compared to Efferdent's 40 percent. Block's other leading products, including Nytol, held their own, and Block added a medicated soap to the Tegrin shampoo line.

In the early 1970s the company was able to cut distribution costs of spot and network commercials by 35 percent by using videotape rather than film. Block turned to Advertel, a tape company in Toronto, to distribute Block commercials, whatever the original production medium, and hence reduce the costs of duplicating. For a company that relied so heavily on television advertising, this outsourcing of distribution was an important breakthrough in cost reduction.

Problems in the Early 1970s

In 1972 Block's advertising reputation was dealt a blow when the federal government and the National Association of Broadcasters asked Block to downplay its promotion of sleeping pills. The government asked that Block's Nytol (along with J.B. Williams Company's Sominex and Whitehall Labs' Sleep-Eze) ads show sleeping pills as an aid to, rather than a direct cause of, sleep. The ads were modified to comply with the request.

Block's sales began to stagnate in the early to mid-1970s as larger competitors such as Procter & Gamble and Warner-Lambert entered its markets. Some attributed Block's problems to an apparent move away from TV advertising into other merchandising and marketing activities, in which the company could not compete effectively with the giants. It was also noted that Block needed other strategies, such as more aggressive new product development. According to Melvin Kopp, Block's controller, "Our products must constantly be replaced by newer products. We fell behind on that."

Block kept Polident and Tegrin competitive by increasing the ratio of its advertising to sales, focusing especially on television. In 1976, for example, Block spent $30 million or 23 percent of its sales on advertising, while Procter & Gamble, with the largest total advertising budget in the industry, spent $445 million, or eight percent of sales; Warner-Lambert spent 15 percent of its sales on advertising.

While sales of dental care products declined domestically, sales abroad increased from ten percent of net income in 1971 to 26 percent of net income in 1973. One concern over the denture cleanser market was that the market was becoming saturated and that there would be a reduced number of people who use dentures as dental hygiene improved during the 1960s and 1970s.

More advertising battles followed as the struggle between Polident and Efferdent continued. Block brought suit against Warner-Lambert, charging that Warner-Lambert "falsely and deceptively" disparaged Polident tablets in its ads. Block withdrew the suit when Warner-Lambert agreed to revise the contested spot.

Block ran into advertising trouble of its own in 1977. The Federal Trade Commission (FTC) ordered Block to stop what it considered false and misleading advertising, taking exception to Block's claims that users of Poli-Grip or Super Poli-Grip could eat such foods as apples or corn-on-the-cob without difficulty. The FTC also stated that Block did not have reliable scientific evidence to substantiate the claim that its new Extra Effervescent Polident denture cleanser would clean better than Warner-Lambert's Extra Strength Efferdent.

Getting Back on Track with Headache Powders: The 1980s

In the 1980s Block aggressively pursued its niche marketing strategy, including a successful campaign to revive the popularity of powdered pain killers. Targeting the southern United States, where powdered pain killers have retained popularity, Block marketed a "better-tasting," granulated pain killer through folksy ads; soon the "fast-acting powders," as they were known, became available throughout the United States. Sales of powders more than doubled between 1980 and 1986.

The company reorganized its front office in the late 1980s. In 1988 Leonard Block, chairman, was named senior chairman of the board, a newly created post. He was succeeded by James A. Block, who had been president of the company; Thomas Block was named president.

Block's advertising made news once again in the late 1980s as the company developed a new line of commercials for its Super Poli-Grip product. The company sought to develop TV spots with the "real touch," a new trend in product endorsement. This approach involved showcasing an average "Joe" or "Jane" who used the product to speak on its behalf. To develop the Poli-Grip TV spots, Block spent two years--with the help of commercial casting consultants&mdashø find an ideal "real" candidate to promote their new Super Poli-Grip denture adhesive: a woman between the ages of 35 and 50 who was physically active and attractive, wore dentures, and used the Poli-Grip line.

Block continued to expand into new product areas and to market other companies' products. As part of a joint venture with Chemex Pharmaceuticals, Inc., Block Drug marketed Chemex's Actinex Cream, designed to treat pre-malignant skin lesions. Relying on its expertise in dental products, Block also contracted to market Ciba-Geigy Corporation's Habitrol nicotine skin patch, a smoking cessation aid, to dental professionals. Habitrol was the leading nicotine patch, with sales of about $350 million.

Block's sales grew by 12 percent in 1992, and its profits increased by ten percent. However, a year later sales had slowed, dropping two percent, with profits declining by 22 percent. The company again pushed up its advertising budget, announcing that it would spend over $35 million in that area in 1994, an increase of ten percent. The same year the company entered into another new co-promotion agreement, with Wyeth-Ayerst Laboratories, to assist in the marketing of Lodine, a non-narcotic dental anti-inflammatory analgesic. Block also purchased Goody's Pharmaceuticals, Inc. of North Carolina, a well-known maker of headache powders.

1995: Acquisitions and a Divestiture

The year 1995 was a busy one for Block, with a number of new acquisitions and a major divestiture. In June, the company announced it was selling off its U.S. Reed and Carnrick Pharmaceuticals Division to Schwarz Pharma KermersUrban, a unit of the German Schwarz Pharma AG. The move was partly in response to the increasing likelihood of healthcare reform in the United States, as well as increased pressure from generic drug manufacturers, which had for some time been cutting into the profits of brand name pharmaceutical producers. On the acquisition front, Block added the well-known cleaning and deodorizing products of Reckitt and Coleman, Inc., which had been forced by an antitrust ruling to divest itself of its Carpet Fresh and Rug Fresh brands. Also in 1995, an agreement was signed with U.S. Biomedicals Corporation to market its Bioglass technology, which regenerated bone that had been lost due to periodontal disease.

Another major acquisition for Block was the Lava soap brand, purchased in late 1995. The hand soap, with its grains of pumice for heavy-duty cleaning, had been owned for 68 years by Procter and Gamble, having originally been introduced in 1893. In December 1995 further acquisitions were announced, including Nature's Remedy laxatives, purchased from SmithKline Beecham, Parodontax oral hygiene products, from Madaus AG in Germany, and the English brand Setlers antacids, also obtained from SmithKline Beecham. These purchases, and the divestiture of Reed and Carnrick, were part of a declared strategy to focus on Block's strongest areas, those of consumer, dental, and household products.

Over the next several years such strengths were further bolstered by other acquisitions, including the Baby's Own line of baby care products in June 1996 and the maker of Beano antigas tablets in October 1997. Marketing alliances with Atrix Laboratories (for periodontal disease treatment products) and Wyeth-Ayerst (for a new dental analgesic, Duract) were also added, in December 1996 and September 1997, respectively. The company had consolidated its manufacturing operations as well, announcing the planned closing of six of its 12 plants in a February 1997 restructuring. Further streamlining of Block's product mix occurred in early 1998, when the company sold its 2000 Flushes and X-14 toilet bowl cleaning lines, and the Carpet Fresh Rug and Room deodorizer business, again citing the need to focus on the company's strengths of dental and medicinal products. In mid-1998 a joint venture with Access Pharmaceuticals of Texas yielded the first-ever drug approved to treat canker sores, Aphthasol.

With its consistently profitable product mix, and its demonstrated ability to purchase existing brands and maximize their potential, Block Drug appeared robust as it approached the end of its first century. A public company, Block nevertheless remained a family affair, Block family members holding three top positions with the company and the family controlling 100 percent of the company's voting stock and 50 percent of the non-voting stock. Block was generally risk-averse, preferring to keep a good portion of its retained earnings in the form of long-term bonds, which generated increasing amounts of tax-free income. The company's taxes had been generally kept low by the location of major subsidiaries in such tax sanctuaries as Ireland and Puerto Rico.

Principal Subsidiaries: Ada Products Company; Block Drug Corporation; Dentco, Inc.; Reedco, Inc.; Stafford-Miller International, Inc.

Block Drug Company, Inc. History

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