American Home Products - Company Profile, Information, Business Description, History, Background Information on American Home Products

Five Giralda Farms
Madison, New Jersey 07940-0074

History of American Home Products

American Home Products, one of the largest health care concerns in the United States and a conglomerate that includes food and household-product divisions, has been referred to as 'Anonymous Home Products' or the 'withdrawn corporate giant.' Though the company markets such popular products as Black Flag insecticides, Easy-Off oven cleaner, Woolite, and Chef Boyardee, as well as the familiar pharmaceuticals Anacin, Advil, Dristan, Robitussin, and Dimetapp, the corporate name has never appeared on its products' labels. Public relations was considered such a low priority that until recently switchboard operators answered the phone with the company phone number instead of the company name. And although executives at American Home Products had made few efforts to influence Wall Street analysts until recently, the company's forty plus consecutive years of increased sales and earnings make AHP shares a very popular investment.

American Home Products' unusual combination of anonymity and financial success stems from its history of competent management, product diversification through acquisition, and close-fisted expenditures on virtually everything except advertising. AHP has been able to strike a balance between the aggressive advertising of its consumer package goods and maintaining a reputable name within the medical community, which is often reluctant to accept the idea of ethical drugs supported by the pressure of advertising.

AHP's strict management policy allows for a minimal margin of error. If a product does not show promise before money is spent on promotion, it is dropped. If a division does not increase sales and earnings by 10 percent annually, a division president could be out of a job. Until recently, AHP found little reason to invest in research, preferring to wait for competitors to release innovative products, and then launching its own improved line. Or it would simply buy the competitor.

Expenditures are so closely monitored at AHP that in 1983 employees at the Whitehall division paid $20 each to attend their own Christmas party. A journalist from Business Week, researching a rumor in 1970 that then AHP chairman and president William F. LaPorte had reduced the size of the toilet paper in the executive washrooms to save money, discovered that, in fact, the paper was 9/16-inch narrower than regulation size. As late as 1980, LaPorte was personally approving any expenditures of more than $500, including anything from the purchase of a typewriter to a secretarial pay raise.

American Home Products' knack for acquiring little-known products and companies at a reduced price and turning them into money-makers dates back to AHP's earliest years. In 1926, a group of executives associated with Sterling Products Inc. and Household Products Inc. consolidated several independent nostrum makers into a holding company. Its subsidiaries sold such medicinal products as Hill's Cascara Quinine, St. Jacob's Oil, Wyeth's Sage and Sulphur, Kolynos dental cream, and Old English No Rubbing Floor Polish.

W. H. Kirn was named chairman of the new company in 1930 and served until 1935, when Alvin G. Brush, a salesman of Dr. Lyon's toothpaste, took over as president and chief executive officer, a position he held for the next 30 years. Brush's penchant for expansion through acquisition, while maintaining a sizable amount of cash in reserve, set the pattern for AHP's operating style. In his first eight years as president, Brush acquired 34 food and drug companies for a total of $25.6 million in cash and stock. One of AHP's earliest prizes was the acquisition of a sunburn oil in 1935 that the company transformed into Preparation H, which became one of the world's best selling hemorrhoid treatments.

Other purchases included the 3-in-One Oil Company and Affiliated Products Inc., which made cosmetics and toiletries under such names as Outdoor Girl, Kissproof, and Neet. In 1938, AHP acquired Eff Laboratories, a manufacturer of commercial vitamin products, and S.M.A. Corporation, a producer of infant foods and vitamins. In 1939, the Black Flag Company came under the AHP umbrella, followed in 1943 by the G. Washington Coffee Refining Company, a manufacturer of grocery specialties. In 1946, another grocery-specialties firm, Chef-Boy-Ar-Dee Quality Foods Inc., came aboard.

AHP's marketing genius transformed its newly acquired products into household words. Preparation H is a good example. By 1981, Preparation H had captured 64 percent of the hemorrhoid-treatment market, and its success was attributable exclusively to the company's aggressive advertising. In 1968, AHP spent more than $2 million on radio spots and $6 million on television advertising for Preparation H. These amounts may seem exorbitant for a single product; the figures become even more impressive when one realizes that the radio code standards only re-admitted the controversial advertisements for hemorrhoidal medications in 1965 and that the National Association of Broadcasters continued to debate approval for television. AHP advocated a broadened scope of code approval even as it appropriated more funds for advertising on noncode television stations.

The struggle for an expanded consumer audience was fought not only over advertising codes for personal products; AHP's aggressive marketing style also brought investigations of the company's advertising copy. In 1967, the Federal Trade Commission (FTC) ordered AHP and three other companies to refrain from making false claims with regard to the therapeutic value of their hemorrhoid treatments. Citing the advertisements' unsubstantiated claims, the FTC prohibited any future misrepresentation.

Company executives were not intimidated by the FTC ruling. AHP, deeming the commission's findings 'capricious' and 'arbitrary,' asked for a review before a federal appeals court. The company continued to run advertisements in more than 1,100 newspapers, 700 radio stations, and 100 television stations. In response, the FTC temporarily enjoined AHP from continuing to run the advertisements. The court finally upheld most of the commission's findings, and the advertising copy for Preparation H had to be permanently modified.

Throughout this controversy AHP executives remained characteristically unavailable for comment. This combination of persistent product promotion (at the risk of damaging company reputation) and a united but anonymous executive front came to the fore in the promotion of another AHP product. In 1930, the company had purchased the rights to manufacture a little-known painkiller called Anacin, previously promoted through samples to dentists. AHP's Anacin grew in popularity and became the nation's leading over-the-counter analgesic. As with Preparation H, it took aggressive marketing to propel Anacin into this position.

By 1971, AHP had spent more money on the promotion of Anacin than had any other analgesic manufacturer on a comparable product. Total costs for radio advertising reached $1.5 million, and for television advertising surpassed $25 million. In 1972, the FTC charged that AHP and two other analgesic manufacturers were promoting their products through misleading and unsubstantiated claims. Because no reliable scientific evidence existed as to the superiority of one brand over another, or the ability of analgesics to relieve nervous tension, the FTC disputed therapeutic claims and advertisements that did not identify generic ingredients such as aspirin and caffeine.

AHP and the other manufacturers refused to negotiate consent agreements, and so the FTC issued formal complaints and ordered hearings before an FTC administrative judge. The case was finally settled in 1981 and permanent limits were placed on misleading claims in Anacin advertisements. In 1982, a federal appeals court upheld the FTC ruling after AHP attempted to have it overturned.

During the hearings on aspirin advertisements, Johnson & Johnson's Tylenol made its market appearance. To maintain their market share, AHP and other aspirin manufacturers launched a campaign to promote aspirin's anti-inflammatory action. After several suits and countersuits between AHP and Johnson & Johnson, a federal court judge in 1978 ordered the discontinuance of the advertising of Anacin's anti-inflammatory property as a claim of superiority over Tylenol.

Competition in the pain-reliever market was intensified by the introduction of ibuprofen. The drug is a non-steroidal anti-inflammatory agent that is as effective as aspirin and aspirin substitutes, but without the side effect of digestive-tract irritation. AHP marketed its ibuprofen under the name Advil. Industry analysts suggested that ibuprofen could capture as much as 30 percent of the pain-reliever market.

The pattern of controversy and investigation established in the marketing for Preparation H and Anacin continued with several other AHP products. Easy-Off oven cleaner, Black Flag insecticide, Easy-On starch, and Aero Wax were all involved in an FTC investigation into deceptive advertising. Yet, for all of the controversy, no one can dispute AHP's success in capturing markets and acquiring products that have become household staples.

AHP's advertising budget for 1985 was estimated at more than $412 million. Despite or perhaps because of this great expenditure, AHP is notorious among advertising agencies as a demanding and uncompromising client. Paying the lowest possible commission rates, the company will, nonetheless, demand the best price for prime-time spots on television and expect promotion to be effective on strict budgets. In 1967, Ted Bates & Company, the fifth largest advertising agency in the world at that time, resigned AHP's $20 million account because of 'differences in business policy.' This was not the first time an AHP account had been abandoned by an agency. Grey Advertising Inc. and J. Walter Thompson similarly dropped the demanding company's account. The Bates agency was replaced with an in-house agency called the John F. Murray Company. At the time of the replacement, industry-owned agencies were rare.

By 1983, AHP grudgingly began to change its attitude toward promotion. The company hired world-renowned photographer Richard Avedon and actress Catherine Deneuve to promote its line of Youth Garde cosmetics. But despite this willingness to 'upscale' its advertising, AHP was voted as one of the ten worst clients of 1983 by Adweek.

The success of AHP's proprietary goods has overshadowed the company's position as a leading manufacturer of ethical drugs. In 1932, AHP acquired Wyeth Chemical Company (now Wyeth Laboratories), a pharmaceutical manufacturer with a long history, under unusual circumstances. Wyeth was run by family descendants until the death of Stuart Wyeth, a bachelor. He bequeathed the laboratory to Harvard, his alma mater, and the university in turn sold the company to AHP at a generous price. In the early 1940s, AHP also acquired two other pharmaceutical laboratories, Ives and Ayerst.

AHP's prescription drugs and medical supplies accounted for 47 percent of sales and 62 percent of profits in 1983. Among the ethical drugs AHP produces are Ovral, a low-dosage oral contraceptive, and Inderal, a drug that reduces blood pressure and slows the heartbeat. Inderal was introduced in 1968, and by 1983 supplied more than half of the U.S. market for beta-blocker drugs. The company was also busy developing new pharmaceuticals: AHP filed 21 new drug applications with the Food and Drug Administration in 1985 alone.

In 1981, company president John W. Culligan was promoted to chairman and chief executive officer. LaPorte, who had been chairman since 1965, continued as chairman of the executive committee. Culligan, 64 years old at the time of the promotion, had been with the company since 1937. John R. Stafford, a lawyer recruited from Hoffmann-LaRoche in 1970 as general counsel, was named company president on December 1, 1986. Some observers predicted that AHP's management changes would herald a modernization of LaPorte's highly centralized style of management and financial control, which contradicted contemporary theories of corporate management.

Nevertheless, this anachronistic approach has guaranteed shareholders a handsome return on investment. In 1982, Fortune magazine's directory of the 500 largest U.S. industrial corporations ranked American Home Products 76th in sales and 24th in profits. The company had no long-term debt, and it paid out 60 percent of earnings in dividends. Despite a chronically low stock price in the late 1980s and early 1990s, AHP saw higher earnings and increased dividends every year from 1951 to 1993.

In 1983, AHP spent $425 million to buy the Sherwood Medical Group. A manufacturer of medical supplies, Sherwood placed AHP in a competitive position to capture the lion's share of the growing medical-device market. That subsidiary was supplemented with the 1992 acquisition of Symbiosis Corp., a developer and manufacturer of disposable instruments for minimally-invasive laparoscopic and endoscopic surgery.

Under Stafford's guidance in the late 1980s and early 1990s, American Home Products worked to transform itself into a health care company through acquisitions and divestments. In 1989, the firm divested its Boyle-Midway division and purchased A. H. Robins Co., an over-the-counter drug manufacturer that complimented the Whitehall laboratories subsidiary. In response to criticism of its low research and development expenditures, AHP spent a record 11 percent of sales on R&D in 1990. The firm invested in Genetics Institute, Inc., a biotechnology firm specializing in blood cell regulation, bone repair, and immune system modulation, in 1992.

AHP's marketing of infant formula came under intense scrutiny and criticism in the late 1980s and early 1990s. Prior to 1988, infant formula was marketed strictly as a pharmaceutical product. Given historical product loyalty, formula makers offered their products free to pediatricians and hospitals in the hopes that the first formula a mother used would be the one she continued to purchase. According to a 1990 Business Week article, many doctors began to allege that hospitals promoted infant formula over breast-feeding--despite the inherent advantages of breast feeding--because of the money and services received from manufacturers. And when the federal government directed the states to purchase all their formula from one manufacturer to garner lower prices, formula manufacturers were forced to compete directly for Women, Infants and Children (WIC) contracts, which constituted about 35 percent of state formula purchases. In June of 1993, Advertising Age reported that the Federal Trade Commission had charged the top three formula marketers--divisions of Abbott Laboratories, Bristol-Myers Squibb Co., and American Home Products Corp.--with price fixing in government nutrition programs.

Although food products received less attention in the 1990s, American Home Products did augment its Chef Boyardee line with the 1992 purchase of Ro*Tel, the leading brand of canned tomatoes and green chilies in the Mexican food category. In 1993, the company added M. Polaner Inc., a jam maker, to the food products segment.

By 1993, over 60 percent of American Home Products' global revenues came from pharmaceuticals. Uncertainty due to the Clinton Administration's proposed overhaul of the American health care system suppressed the company's stock price, but with one-third of revenue derived from proprietary drugs and specialty foods, AHP was considered a relatively safe investment. The company's sales and profits increased steadily from 1988 to 1992, from $6.4 billion to $7.87 billion and $.995 billion to $1.46 billion, respectively.

Principal Subsidiaries: AH Investments Ltd.; A.H. Robins Co., Inc.; A.H. Robins Intnl. Co.; AHP Subsidiary Holding Corp.; AHP Subsidiary Corp.; American Home Food Products Inc.; American Home Foods Inc.; Ayerst Laboratories Inc.; Ayerst-Wyeth Pharmaceuticals Inc.; Corometrics Medical Systems Inc.; Genetics Institute Inc.; Quinton Instrument Co.; Sherwood Medical Co.; Symbiosis Corp.; Vermont Whey Co.; Viobon Corp.; Wyeth-Ayerst Intl. Inc.; Wyeth-Ayerst Ltd.; American Drug Corp.; American Home Investments Ltd.; Ayerst Intl S.A.; Ayerst Organics Ltd.; Ayerst McKenna & Harrison Inc.; Brenner-Efeka Pharma GmbH; Home Products Italiana SpA; Laboratorios Wyeth Whitehall Ltda; Much Pharma A.G.; Sherwood Medical Industries Ltd.; Sherwood Medical Industries of Ireland Ltd.; Whitehall-Robins Canada Inc.; Wyeth Ltd. Ireland; Wyeth Corp.; John Wyeth & Brother Ltd.; Wyeth Ltd. Canada; Wyeth-Pharma GmbH; Wyeth Pharmaceuticals Pty ltd.; Wyeth S.A. de C.V.; Wyeth SpA.; Wyeth-Suaco Laboratories Inc.; Sherwood Medical S.A.; Whitehall Laboratories Inc.; Whitehall Laboratories Ltd.; Wyeth Laboratories Inc.; Wyeth Nutritionals Inc.

Additional Details

Further Reference

Levin, Gary, 'Time for Bottle: Infant Formula Ads May Spurt,' Advertising Age, June 7, 1993, pp. 3, 42.Siler, Julia Flynn, 'The Furor over Formula Is Coming to a Boil,' Business Week, April 9, 1990, pp. 52-53.

User Contributions:

very informative. a lot of good interested in stock report asap. a friendbrought thiscompany to my attention, now will try to find stock symbol.

Comment about this article, ask questions, or add new information about this topic: