Dietary supplement sellers could face fresh challenges in 2016

Natural Health Trends

14/01/2016 17:28

By Noel Randewich 
    SAN FRANCISCO, Jan 14 (Reuters) - GNC Holdings  GNC.N , 
Vitamin Shoppe  VSI.N  and other dietary supplement sellers 
could take a hit to their financial health in 2016 if safety 
concerns attract new action from U.S. federal and state 
officials. 
    Shares of GNC and Vitamin Shoppe fell more than 30 percent 
last year after allegations of impure and dangerous ingredients 
in dietary supplements hurt already sluggish demand for their 
products. They and other companies are still under scrutiny, 
with pressure building to tighten regulation on dietary 
supplements, which are not covered by U.S. rules governing 
pharmaceuticals. 
    Last year, a challenge from New York's attorney general led 
to an agreement by GNC to adopt new testing standards for 
ingredients used in its products. On Nov. 17, shares of GNC 
briefly plummeted 27 percent and rivals Vitamin Shoppe, 
Herbalife  HLF.N  and Natural Health Trends Corp  NHTC.O  also 
sank on concern that the U.S. Department of Justice was about to 
name them in criminal and civil actions. 
    The Justice Department action turned out to be against 
another company, but the $37 billion industry faces more 
scrutiny this year including a lawsuit and investigation by the 
Oregon attorney general.  urn:newsml:reuters.com:*:nL1N13C2PM 
    "This is something investors have to contemplate." Jefferies 
analyst Mark Wiltamuth said. "These waves of media and 
regulatory attacks have impacted consumer sales trends and 
valuations."  
    Oregon Attorney General Ellen Rosenblum has ongoing 
litigation with GNC for selling products with illegal 
ingredients. She is also conducting a separate investigation 
related to dietary supplements that has yet to be announced, a 
spokeswoman said. 
    "I do believe you will see more activity in 2016," said 
Kevin Bell, a lawyer at Porzio Bromberg & Newman who represents 
dietary supplement companies. "There has been no real indication 
as to how much more aggressive they could get but it has 
certainly spread beyond just New York." 
    Even after the beating the companies' shares took last year, 
prices may not fully reflect the potential for future lawsuits 
and regulatory crackdowns. 
    "It's not a factor we look at. There's no real way to 
quantify an unknown variable like that. Regulation may never 
happen," said Tigress Financial Partners analyst Ivan Feinseth, 
who has a "neutral" rating on Vitamin Shoppe and does not cover 
GNC. 
    Five analysts tracked by Thomson Reuters recommend buying 
GNC's stock while none recommend selling. Eight have hold 
ratings. The split for Vitamin Shoppe is similar. Wiltamuth has 
hold ratings on both companies. 
    Dietary supplements including powders and pills aimed at 
weight loss, sexual enhancement and sports performance are 
regulated in the United States more like food than 
pharmaceuticals. Manufacturers do not have to demonstrate a 
product's effectiveness or safety before introducing it. 
    But some of the products contain potent substances that have 
led to kidney failure, cardiac arrest and even death in some 
cases. Attorneys general in states beyond New York and Oregon 
have taken notice, and some legislators have also been pushing 
for stricter oversight of dietary supplements. 
    New York Attorney General Attorney General Eric Schneiderman 
said in a statement to Reuters he will keep sharing information 
and best practices with other states to improve oversight.   
    The U.S. Senate's special committee on aging will likely 
take additional steps this year. Senator Claire McCaskill, the 
panel's ranking Democrat, in 2015 sent letters to retailers 
asking them to explain how they prevent the sale of harmful and 
fraudulent products, said Drew Pusateri, a spokesman for 
McCaskill. 
    Asked about the risk of increased scrutiny, GNC said in an 
email that 2016 will be pivotal in an effort with over 40 
companies to improve safety standards and consumer perceptions 
in the dietary supplement industry.  
    The Center for Science in the Public Interest has spoken 
with federal lawmakers keen to close regulatory loopholes 
allowing the use of dangerous ingredients, said Laura MacCleery, 
the advocacy group's director of regulatory affairs. 
 
 (Reporting by Noel Randewich; Editing by David Gregorio) 
 ((noel.randewich@thomsonreuters.com; Twitter handle: 
@randewich)(415)(677 2542; Reuters Messaging: 
noel.randewich.thomsonreuters.com@reuters.net)) 
 
Keywords: STOCKS DIETARYSUPPLEMENTS/