Mannatech tells consumers & investors different tales

Evans, David

Coppell, Texas, March 5 (Bloomberg). Mannatech Inc. tells consumers scientific studies show its nutritional supplements are safe, promote good health and are even covered by a health insurance plan. Investors get another story. In documents for its initial public stock sale last month, Mannatech told potential buyers it doesn’t know if its products are safe, or even if they work. Stephen Boyd, a physician who is Mannatech’ s international medical director, praises its supplements in a recorded message for prospective customers. He says the products facilitate the body’s ability to heal itself and are “inherently nontoxic.” Coppell, Texas-based Mannatech warned in the share-sale prospectus, however, that there is no assurance its products, “even when used as directed, will have the effects intended, or will not have harmful side effects.” “Why are they telling consumers one thing and investors another,” asked Stephen Barrett, a medical doctor and chairman of Quackwatch Inc, a not-for-profit organization that monitors healthcare fraud. “A company has a responsibility to determine its products are safe and effective before it sells them.” Company executives declined to comment about the products, which are sold through more than 400,000 independent agents nationwide and in Australia. The company, which has plans to expand in the UK and Japan, had sales of $122.9 million for the first nine months of 1998.

Mannatech’s president, Sam Caster, speaks on a recorded message about a patentpending Mannatech product called Ambrotose, which is blended from eight sugars and costs $39 for a bottle of 60 tablets. Healing Aid

“Ambrotose transcends all forms of malady because it supplies the body with those unique components that truly allow the body to heal itself,” Caster says. In its IPO filing, Mannatech cautioned investors that its MVP product, marketed for weight control, contains ephedrine, a substance the U.S. Food and Drug Administration has linked to heart attacks, strokes and death. There are no warnings in the company’s literature for consumers about MVP. The FDA, which has received more than 800 reports of adverse events associated with ephedrine, has proposed banning its sale for weight control. While Mannatech says it has an eight-member scientific team, its monthly magazine recently said there are no double-blind, placebocontrolled studies of the type used by drug companies establishing that its products work. It said it spent 0.25 percent of sales on research and development between 1995 and 1997, or about $667,000. Mannatech offers consumers insurance called MannaCare that reimburses up to 50 percent of the cost of its supplements. It also provides full medical, dental and vision coverage for premiums of up to $9,120 annually.

Last Resort

The insurance is offered through U.S. Alliance, a Crofton, Maryland, insurer that said it’s unlicensed in the state. “There wasn’t an insurer they met with in the last three years that would reimburse” for Mannatech products, said Walter Nieves, president of U.S. Alliance. “That’s why they came to me.” Nieves said he doesn’t need a license because his plan is exempt from state regulation. Regulators aren’t sure. Maryland insurance regulators yesterday ordered Nieves to explain why he isn’t violating state criminal law that forbids insurance sales by unlicensed companies. “We regard this as an urgent matter requiring an immediate response,” said Dennis Carroll, Deputy Insurance Commissioner. Mannatech’s President Caster, 48, is no stranger to product promotion or the inquires of state officials. In 1991, his Eagle Shield Inc. claimed its Electracat device would repel insects and other pests by emitting high-frequency vibrations. The Texas Attorney General disagreed. “The device is a hoax and stands on the same scientific footing as a perpetual motion machine,” said Assistant Attorney General William Goodman, who won a permanent injunction against Caster and Eagle Shield in Travis County District Court. Caster agreed to stop selling the Electracat, not make unsupported scientific claims about any other product and pay $125,000 in investigative costs.

Energy Product

Two years earlier, Caster and Eagle Shield were accused of deceiving consumers by claiming their Eagle Shield Radiant Barrier was a scientific breakthrough in home insulation and provided significant savings in energy costs. The Texas Attorney General got a court order banning such claims after arguing the product had been available for more than 40 years and that the energy-saving claims were false. Caster and the company agreed not to make more false statements, and Eagle Shield filed for Chapter 11 bankruptcy protection. Caster co-founded Mannatech in 1993 and took it public last month. Nearly half the 5.3 million shares went unsold at the self-underwritten initial public offering on Feb.11. Only 3.1 million shares were sold, half owned by insiders including Caster. So who drove up Mannatech’s shares from $8 at the sale to 44 1/2 two days later, valuing the company at more than $1 billion? John Coffee, professor of securities law at Columbia University Law School, suspects they were so-called day traders, who bought because the stock was moving up and they thought they could sell for a quick profit. “They weren’t interested in the fundamentals,” he said. Mannatech’s fundamentals include current liabilities that exceeded assets on Sept. 30 by $ 11.3 million. Its net tangible book value before the offering was $493,000, or 2 cents a share. Sales increased 11 percent in the first nine months of 1998 from the year-earlier period. That’s down from the pace of 1996 to 1997, when sales grew 67 percent. Earnings fell 3 percent in the first nine months of 1998. From 1996 to 1997, earnings grew 48 percent annually, with profit in 1997 of $10.6 million, or 50 cents a share. Mannatech’s shares traded today at 11 7/16, cutting the company’s value to $270 million. -David EvansReprinted by permission

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