Date: September 7, 1994

Location: Jersey City

Title: New Jersey”s Most Private Public Company

Author: Dan Goldblatt

Subject: Block Drugs continues to maintain an extremely low profile even as its business hits the skids

The railroad tycoon William Henry Vanderbilt once told a newspaper reporter, “The public be damned.” Jersey City”s Block Drug, a manufacturer of dental products, over-the-counter medicines, household goods and prescription drugs, has pretty much the same attitude. Although it is a public company traded on the Nasdaq, the company never talks to the press and only rarely to stock analysts. From its fortress-like Jersey City headquarters, which does not even have a sign giving its name on the building on Cornelison Avenue, this public company fights fiercely for its privacy.

To anyone who watches television, however, Block”s products are like family. They include such brands as Polident, Nytol and Tegrin. The products are so well known, while the company is so little known, because Block spends more than any company its size on advertising. Last year, more than $181 million went into promoting Block products.

Until recently that strategy seemed to pay off. For decades, Block enjoyed steady 8% to 10% annual sales increases. The company has some 3,500 employees and 32 branches, divisions and subsidiaries on five continents.

But recently things have been going wrong. Some of its main products are aging and face new competition, while Block has not brought out what can only be called new blockbusters to replace them. For its 1994 fiscal year, which ended March 31, sales dropped 1.8% to $613.3 million from $624.8 million in 1993. Net income fell 22.3% to $47.9 million from $61.5 million. Part of the drop in earnings was due to the decision to increase spending by $10 million to promote some flagging products. “That came right out of earnings,” says Michael Shonstrom, a stock analyst with Neidiger/Tucker/Bruner in Denver, “and competition is not going away.” Those results were reflected in the company”s stock, which dropped from $41.75 in July 1993 to $31 on August 31.

Although it has been public since 1971, Block operates much like the private, family-run firm founded in 1907 by Alexander Block, a Russian immigrant. Leonard N. Block, 82, his son, is senior chairman. Leonard”s nephew James A. Block, 57, is chairman. Leonard”s son Thomas R. Block, 49, is president and treasurer. Daughter Peggy Danziger and niece Susan B. Stearns are also directors. The family holds all Block voting shares in addition to 54% of the company”s non-voting stock. The company takes its relative freedom from having to account to non-voting shareholders very seriously: There are no annual meetings or proxy statements. David Sorin, partner in charge of the Princeton office of Buchanan Ingersoll, a national law firm, says, “It”s rare to see a public company with no voting shares held by the public.”

This closed approach has led to very little awareness of the company on Wall Street. Says Shonstrom: “I”m the only guy who continually calls on them and writes on them. The stock doesn”t trade all that actively.” Only 3.9 million shares traded last year. In the same time period, 144.8 million shares of Madison”s Schering-Plough changed hands. This is apparently the way the family wants it.

One source who has had experience with the firm says the family does not print proxy statements or hold annual meetings because “they”re frugal.” He adds: “Anything that would require resources on their part, they consider a luxury.”

In view of the family”s penchant for secrecy, it is surprising that Block went public. The company made the move in 1971, when 65% of its $75.7 million in sales came from dental products. Block raised only $5.2 million from its initial offering. Two years later, another stock sale raised $23 million.

Early on, the company began specializing in dental products. Its strategy of concentrating on those products and advertising them heavily was evident in 1948, when it introduced Ammi-i-Dent tooth powder. The product had an ad budget of $2 million, an almost unheard of amount at the time. In 1976 it spent $30 million on advertising, 23% of its total sales. In the early 1960s, 90% of its ad dollars went into television.

The company has always believed in niche marketing, and Block doesn”t even offer something for everyone with teeth. It concentrates its efforts on the vunerable, but extremely successful, Polident, Dentu-Creme, Poli-Grip and Sensodyne lines. It”s not sexy, but Block is a leader in products for denture care and cleaning sensitive teeth. The company has approximately 32% of the $400 million market for denture-care products. Block also makes a variety of products for dentists” offices. Dental products accounted for 64% of company sales in its last fiscal year.

According to Shonstrom, Block has the largest direct sales force that calls on dentists in their offices. Kathryn Griffie, manager of the pharmaceutical group of Kline & Co., a Fairfield business consulting firm, says, “The company”s strength has always been in its relationships with dentists.” Rather than churn out glitzy new products, it “relies on its trademarks and the goodwill associated with its older brands.”

Over the years, Block has branched out a bit. Nytol came out in the early 1950s. The name for the product was coined by a marketing man who one night was passing the St. Regis hotel in New York City and heard a young lady wave and shout to friends, “Night all.” In 1964 Block introduced Tegrin, a dandruff shampoo. The company acquired 2000 Flushes toilet bowl cleaner in 1983, when it purchased its maker, Passaic-based Flushco. The X-14 line of hard-surface cleaners was purchased from White Laboratories in 1985.

Some of its older products have been running into problems as markets change. Its BC Headache Powder, an aspirin-based product pop-ular in the South, has had falling sales as the popularity of products with acetaminophen (Tylenol) and ibuprofen (Advil) grew.

Block”s reliance on denture products makes it vulnerable. The company is the leader in the denture-products market, with Procter & Gamble in second place and Warner-Lambert in third, but it is a basically flat market. Lenka Contreras, senior consultant in Kline”s consumer products group, says better oral hygiene and dental care mean that people are not using Block products as much. The company has recently tried to extend the Polident name into new niches. Enter Smokers Polident and Polident for Partials. Brand extensions can be successful, as Arm & Hammer discovered with its baking soda toothpaste, but they are usually a sign that a company has run out of new ideas or new products.

Another danger for Block is that the big boys are also aggressively going after its markets. Procter & Gamble and SmithKline Beecham have come out with sensitive teeth formulations for their Crest and Aquafresh brands. After Block”s 2000 Flushes became a success, a rash of me-too products such as Vanish Drop-Ins and Clorox Automotic Toilet Bowl Cleaner followed.

Block”s business is clearly stagnating. Figures from Media General Financial Services tell the story: While Block ranks 25th in size among 223 American drug companies, it was 132nd in revenue growth for the last four quarters, 59th in five-year revenue growth and 50th in profit margin for the last four quarters. In spending to increase its sales, Block ranks only 157th in percent change over the last four quarters.

Investors looking for a secretive company with declining sales, a falling stock price and no desire for outside input might be interested in looking at Block Drug. u