NEW YORK (AdAge.com) -- What do you do when a brand that accounts for 40% of your sales and $20 million of your advertising is slapped with a warning letter from the Food and Drug Administration saying it can cause temporary or permanent loss of smell?
Facing a huge tumble in its stock and potential consumer litigation, Matrixx Initiatives, which markets Zicam Cold Remedy nasal gels and swabs, has voluntarily withdrawn two of its 19 zinc-derived Zicam products -- Zicam Cold Remedy Nasal Gel and Zicam Cold Remedy Swabs. Those lines represented about 40% of the company's $111.6 million business in the U.S. and Canada, according to its latest annual report.
Countering the FDA's letter
Matrixx's acting president, Bill Hemelt, said he would vehemently counter the FDA letter but was operating under the assumption that the FDA probably wouldn't change its mind. Matrixx will not pursue a New Drug Application, as the FDA would require, because that would not be "economically feasible," Mr. Hemelt said. Such processes are costly and can take years. Instead, Mr. Hemelt indicated that Matrixx will encourage consumers to use Zicam oral products, with which the FDA has not taken issue.
It's also working with Golin Harris, the PR firm brought onboard last October, to handle the crisis. Mr. Hemelt said Matrixx has been actively reaching out to consumers in the past few days on the internet and through social media to calm safety concerns, adding that the company would expand that effort. "We are going to be communicating through all sorts of those -- Twitter, Facebook -- and get our story out," he said. "There probably will be an open letter to consumers that will be published in newspapers," he added.
Two new Zicam oral products are expected to enter the market later this year. But whether it will take additional marketing to rebuild the Zicam brand, Mr. Hemelt could not say. Zicam only few weeks ago tapped Interpublic Group of Cos.' Lowe Worldwide to handle the business after a four-month-long review. The incumbent was Interpublic sibling McCann Erickson, Los Angeles.
"At this point I can't say about increasing marketing," Mr. Hemelt said. "I mean, I hope not. We obviously have to figure out how to shrink this company if we cannot get these products on the shelves."
Mark Wnek, chairman and chief creative officer at Lowe, said only: "Lowe was proud to win the Zicam pitch against Wieden & Kennedy, DDB and Kaplan Thaler. We look forward to working on Zicam's oral products."
Wither ad spending? In 2008, Matrixx spent $25 million on measured media, according to TNS Media Intelligence. That number was poised to grow in 2009; in the first three months of the year Matrixx spent $11.2 million. Roughly 84% of that outlay went to Zicam Cold Remedy Swabs, one of the two products Matrixx has now withdrawn.
"The letter we received Tuesday morning came as a complete surprise to us," Mr. Hemelt said in an investor's call held this morning to discuss the letter. "Neither our company nor I would ever market a product that we believe has a public-safety concern."
Ivan Wasserman, a partner in the advertising, media, marketing and entertainment practice at Manatt, Phelps & Phillips in Washington, said Zicam is a homeopathic product, and in the past the FDA has taken the position that it would not ordinarily make homeopathic products go through the regular drug-approval process. "This is first time that they're taking action against a homeopathic product on safety grounds," he said, adding that it may not be because all others are safe. "The zinc products have really been the first mass-marketed homeopathic products."
Mr. Hemelt put the potential cost of withdrawing the two Zicam products at $10 million, based on preliminary estimates. But that figure did not include the potential litigation costs that may result from the FDA's letter -- nor did it account for the negative impact to future Zicam sales. On the call, Mr. Hemelt vigorously defended the safety and efficacy of the Zicam intranasal products, citing four peer-reviewed, controlled epidemiological studies.
Withdrawing fiscal outlook
Based on this week's events, Mr. Hemelt said, Matrixx will be withdrawing its fiscal 2010 predictions. "Obviously we're re-evaluating our plan for the entire year," he said, and later adding that there is flexibility on cost-cutting advertising for Zicam products. "None of it has been committed," he said.
Peter Pitts, partner and director of global health care at public-relations firm Porter Novelli, said a product such as Zicam should not have been on the market without first going through a rigorous drug evaluation. "All the people who use [Zicam] and buy it view it as a drug," he said. "But it's regulated as a food, and in 2009 that's an antiquated way of looking at the proposition."