Herbalife, Other Ephedra Marketers Face Soaring Insurance Rates
By David Evans
Los Angeles, April 11 (Bloomberg) -- Herbalife International Inc. continues to sell weight-loss products containing ephedra, following lawsuits blaming the substance for customer deaths, and a six-fold increase in product-liability insurance expense.
Herbalife, which faces two wrongful death suits blaming its ephedra weight-loss products, still includes the herb in its line of diet products, which made up 42.7 percent of last year's $1.66 billion in sales, according to its annual report.
Late yesterday, the company agreed to be taken private for $685 million, or $19.50 a share, by Whitney & Co. LLC and Golden Gate Capital Inc.
Robert Hartwig, chief economist for the Insurance Information Institute, said ephedra insurance premiums have increased along with adverse incident reports and lawsuits. ``You have a situation where the house is on fire,'' said Hartwig. ``If your house was already on fire, it's very unlikely we'd write a policy.''
More than a half dozen other publicly traded companies also continue to sell ephedra products, while unable to obtain desired levels of insurance.
Herbalife said in its federal filing that its product- liability insurance premium soared from $400,000 in 2000 to $2.5 million last year, even as its deductible increased 10-fold to $5 million, and its coverage limit fell by $10 million to $40 million.
Ephedra is an herbal stimulant also used for bodybuilding. The National Football League banned ephedra last year after it was linked to the deaths of several athletes. Health Canada ordered a voluntary recall of the products in January, after finding ``these products pose a serious risk to health.''
Dozens of Deaths
Ephedrine, the active ingredient in ephedra, also called ma huang, is a chemical cousin of amphetamines and increases both blood pressure and heart rate, say experts. The U.S. Food and Drug Administration has linked ephedra to hundreds of adverse reactions and dozens of deaths.
Herbalife, based in Los Angeles, said in its annual report it might discontinue selling ephedra products because insurance is ``becoming prohibitively expensive.'' It said the company had ``substantial defenses'' to the lawsuits and said ``they will not have a material impact on us.''
An Herbalife spokeswoman, Tammy Taylor of Sitrick & Co., said Herbalife believes ephedra products are ``safe and effective when used as directed.'' Francis Tirelli, company president, didn't return telephone calls.
Nine other public companies say they sell ephedra products. Advantage Marketing Systems Inc. received 52 percent of its $28.4 million of 2001 revenue from ephedra. The company's product liability insurance excludes ephedra claims, according to its annual report. The company didn't indicate any ephedra lawsuits in its annual report.
Reggie Cook, chief financial officer, said the coverage would be too costly. ``If I paid $100,000, I could get $100,000 of coverage,'' he said.
No Complaints
Natrol Inc. of Chatsworth, California, has sold ephedra supplements for 18 years, without a single complaint, said Elliot Balbert, president and founder. Still, the company can't find product-liability insurance for the products, which include Natrol High, Metabolfirm and Therma Pro.
``We couldn't even get a damn bid,'' said Balbert. ``I don't like the exposure.'' He said Natrol might stop selling ephedra products, which generate less than three percent of revenue.
Three other public companies said they are selling ephedra products although their insurance now provides less protection.
Wrongful Death Suit
Twinlab Corp. of Hauppauge, New York, faces a lawsuit over a customer death following use of its Metabolift ephedra product. Chattem Inc. of Chattanooga, Tennessee, cautioned in its annual report it might not have sufficient insurance coverage to cover sales of Dexatrim after its policy expires on May 31.
Weider Nutrition International Inc., which distributes diet products from its Salt Lake City headquarters, is defending three ephedra lawsuits. Daniel Thomson, Weider's general counsel, didn't return telephone calls. William Rizzardi, Twinlab's chief information officer, and Scott Sloat, Chattem's controller, declined to comment.
Four other companies that sell ephedra products don't indicate any lawsuits in their annual reports. Nutraceutical International Corp. said its liability insurance excludes ephedra, and the Park City, Utah-based company said it recently halted sales of some ephedra products. Les Brown, chief financial officer, didn't return telephone calls.
Mannatech Inc. of Coppell, Texas, reported selling ephedra products. Steve Fenstermacher, chief financial officer, didn't return phone calls.
Both Natures Sunshine Products Inc. of Provo, Utah, and NBTY Inc. of Bohemia, New York, sell ephedra supplements. Harvey Kamil, NBTY's chief executive, didn't return telephone calls. Natures Sunshine Products executives weren't available.
`Natural Reaction'
Among a group of 140 FDA adverse reaction reports, 104 show ephedrine was the ``very likely'' cause of a medical problem, according to Ray Woosley, who examined the reports. Woosley, dean of the University of Arizona College of Medicine, said there were 10 reported ephedrine cases of ``sudden death'' and 15 severe strokes.
Woosley, who joined Public Citizen in its petition for an FDA ephedra ban, said he's not surprised that insurers are shying away from companies selling ephedra.
``That's a natural reaction to reckless behavior,'' he said. |
