Natrol, a Chatsworth maker of nutritional supplements, is opening a manufacturing plant this summer in the Valley under new ownership after surviving a financial disaster. The company was acquired out of bankruptcy last month by Aurobindo Pharma USA Inc., a U.S. subsidiary of Indian generic drug company Aurobindo Pharma Ltd., which is proceeding with a previously announced expansion plan. The planned 50,000-square-foot plant in Chatsworth will allow the company to bring in house all third-party manufacturing. It plans to hire up to 100 workers to staff the plant and maintain its headquarters and existing local manufacturing at the 200,000-square-foot Chatsworth plant at 21411 Prairie Street, where 216 employees are being retained. “It’s very important for us to control what we manufacture,” said Mesrop Khoudagou-lian, Natrol’s longtime chief executive, who has remained in place under the new ownership. “We used to use third party manufacturers but we had some difficulties in the past. So we’ve decided to bring in whatever was outside of our control so we can have vertical control to ensure our quality … remains uncompromised.” Aurobindo, which is based in Hyderabab and has its U.S. headquarters in Dayton, N.J., paid $133 million and assumed $10 million in liabilities to gain control of the company and pay off creditors. Aurobindo is publicly traded on the National Stock Exchange of India. It has a market capitalization of $4.6 billion and revenue of $1 billion annually. Natrol filed for Chapter 11 bankrtuptcy protection in June after it breached loan covenants with New York investment firm Cerberus Capital Management LP, which had provided debt financing for Natrol’s operations. Cerberus’ $68 million in secured debt was paid off in its entirety as part of the acquisition. At the time of the filing, Natrol was owned by Plethico Pharmaceuticals Ltd., another Indian generic drug maker that that had purchased Natrol in 2008 for $82 million. Narayanan Govindarajan, managing director of Aurobindo, said that the acquisition will position his company in the U.S nutraceutical market. “Natrol comes with certain well-established brands and an extensive distribution network,” he said. “The acquisition of Natrol’s assets will help us tactically position ourselves in the U.S. … and offer an effective growth strategy to expand market penetration further.” Technical difficulties Natrol’s brands include ProLab for sports nutrition products; Essentially Pure Ingredients, which sells garlic and melatonin pills; Laci Le Beau, a line of weight-loss tea; NuHair, a supplement to enhance hair growth; and Natrol, a line of vitamins and other nutritional supplements. It has a distribution network of 54,000 retailers in 40 countries. Among its competitors are Nature Made, a brand of discount vitamins produced by Pharmavite LLC in Mission Hills, NutriGold Inc. in Orem, Utah, and a multitude of private label vitamins and supplements marketed by supermarkets and chain drug stores. Khoudagoulian said Natrols’ bankruptcy resulted from “technical defaults” on its loan covenants with Cerberus, not because the company’s sales took a nosedive. “None of it had to do with financial stability. We never missed a payment to our bank (Cerberus) and we were never late on a payment,” he said. “But our bank decided to act on the four corners of the agreement that we had signed with them and tried to call the loan early. We had to seek bankruptcy protection to restructure properly to make sure that the assets of the company did not go to waste.” Surprisingly, Natrol experienced 10 percent sales growth during the six months it was in Chapter 11, so the company is moving quickly to open the new Chatsworth plant by this summer, Khoudagoulian said. “During our Chapter 11 filing and while in bankruptcy, our business grew. Many expected that we would be in hardship but we were not,” he said. “We are constructing the lines of the new manufacturing facility now.” The acquisition of Natrol by Aurobindo comes at a time of consolidation in the pharmaceutical sector, ranging from the $66 billion buyout of Allergan Inc. in Irvine by Valeant Pharmaceuticals International Inc. to smaller deals such as Natrol. According to a report last year from the Wharton School at the University of Pennsylvania titled “Trying to Recapture the Magic,” the buyers in these deals want access to new products and operational synergies, factors in evidence in the Natrol buyout. “Clearly, the global pharmaceutical industry is undergoing a major consolidation phase,” the study said. “Driving the M&A rush is a desire by pharmaceutical companies to buy products aligned with their strengths.” The acquisition of Natrol will give Aurobindo a much broader line of business. Currently, Aurobindo sells generic drugs such as penicillin, other antibiotics and antiretroviral drugs to treat HIV and conditions. The nutritional supplements will bring added sales to the same customer base of pharmacies and other retailers. However, John Hazlin, marketing director of Marketing Naturals Inc., a nutrition and dietary supplement consulting firm in Huntington Beach, said Aurobindo’s turnaround plan could be difficult to negotiate. “The Natrol brand has not been developed over the last few years,” he said. “The ultimate issue is the spending on marketing. One can assume the prior management wasn’t spending the money needed, now the question is will this new group spend the money needed to develop this brand or not.” Another challenge is slow growth in the vitamin and dietary supplement market, which only grew at a 2 percent rate last year, despite the reviving economy. “It’s still a growth category but you can’t be in the category broadly,” he added. “You have to constantly be innovating and doing new things so that you’re targeting the growth categories.” Business as usual Meanwhile, the company is trying to wind down its bankruptcy proceedings, which are being conducted in Wilmington, Del. Jenette A. Barrow-Bosshart of Otterbourg PC, a New York law firm, is co-counsel for the unsecured creditors. She said she expects that half a dozen creditors will be reimbursed in full. “Based on the results of the auction and claims filed against the estate, Aurobindo assumed many obligations,” she said. “Aurobindo will pay them and we assume all claims from unsecured creditors will be paid in full.” Novel Ingredients Services, LLC. in West Caldwell, N.J., Elk Designs, Inc. in Los Angeles and Bioactive Resources, LLC. in South Plainfield, N.J. are among the unsecured creditors that will be paid back, according to bankruptcy filings. Khoudagoulian said he is focusing on the operations and sales as the proceedings wrap up. “We will continue to do business as usual,” he said. “So things have not really changed for us.”
