Mentholatum builds on skin care portfolio with acquisition

By Simon Pitman

- Last updated on GMT

Related tags Skin care Skin Brand management Chattem

Health and cosmetics marketer Mentholatum says it is building on
its acne skin care product range with the acquisition of the
pHisoderm brand name from the Tennessee-based Chattem business.

Mentholatum​, which is based in New York and is a wholly-owned subsidiary of Japanese business Rohoto Pharmaceutical, says that the acquisition builds on its ambitions within the skin care category in the US market, where it is aiming to build a significant portfolio of brand names that aim to treat specific skin conditions and skin types.

The brand has been bought for $8.5 million, together with inventories of around $1.1 million, sales of the product line were said to have contributed to 4 to 5 per cent of Chattem's​ total sales during the 2004 and 2005 period.

In the nine months up to September this year, the company achieved sales of $215.4 million, a rise of 9 per cent on the previous year. However, the company has had to face up to litigation costs totalling $56 million over safety claims relating to its Dexatrim PPA supplement.

These costs have meant that the company reported its net income fell by more than half compared to the same period in 2004, to stand at $15.26 million.

"This transaction was a good opportunity to divest a brand that was no longer consistent with our strategy of having leading products in small to medium sized HBA categories and allows us to focus management and financial resources on our key brands,"​ said Zan Guerry, Chattem CEO.

"Additionally, the cash generated through the sale of pHisoderm further strengthens our balance sheet and creates additional financial flexibility," he added.

Chattem said that the transaction is expected to attribute to a non-cash loss of approximately $8.0 - 8.5 million before tax in the fourth quarter in 2005. For 2006, it said that the divestiture will have a negligible impact on earnings per share in comparison with its previous guidance for the year.

The transaction was finalized at the end of November and means that Mentholatum will now start selling and marketing the pHisoderm brand with immediate effect.

The range includes facial cleansers, acne cleansing treatments and a new line of hydrating moisturizers and cleansers called pH20.

Whereas the divesture of the brand may help Chattem through a difficult period, Mentholatum is hoping the acquisition will help to build on the success of its specialty skin care division.

"This is Mentholatum's second skin care acquisition within twelve months,"​ said Dr. Akiyoshi Yoshida, Mentholatum CEO, referring to the Company's purchase of the OXY line of acne care products in December of 2004.

"It reaffirms our Company's commitment to bring innovative skin care technology to the US consumer. The pHisoderm brand has strong consumer awareness in the skin care category, offering dermatologist developed skin cleansers."

Mentholatum vice president of sales and marketing, Mark Cielinski added that the company is planning the same type of rebranding campaign that has already been carried out on the Oxy line, which will entail further development and new product lines.

A recent market report from Euromonitor pointed to the fact that the stagnant market for US cosmetic and toiletries is set to realize growth in the coming years, partly from demand from teenagers for products such as effective acne treatments.

"Consumption by teenagers in the US cosmetics and toiletries market is estimated to amount up to 20 percent of total value sales, thus making teenagers a very important consumer market,"​ said the report.

With the US teenage population continuing to grow, combined with the rising spending power of this group, experts are expecting that niches such as acne treatment will prove one of the few growth areas in coming years.

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