INSIDER Law
GNC Explains Reasons for Agreement with NYAG

GNC Explains Reasons for Agreement with NYAG, Moves to Improve Industry Practices

Schneiderman's findings through the use of DNA technology—that herbal supplements sold by GNC and other national retailers failed to contain the labeled herbs—startled the industry and blindsighted GNC.

GNC, the giant retailer of dietary supplements that has been the subject of state law-enforcement probes on both sides of the United States, agreed to reach an agreement with New York Attorney General Eric Schneiderman in order to quiet rumblings in the media and build confidence with consumers, senior GNC executives said Thursday during a conference hosted by the United Natural Products Alliance (UNPA).

The company cooperated with the attorney general's office and turned over raw material specs, batch records and other documents that revealed the products contained all the listed ingredients on the product labels, GNC chief legal officer Jim Sander said.

Schneiderman's findings through the use of DNA technology—that herbal supplements sold by GNC and other national retailers failed to contain the labeled herbs—startled the industry and blindsided GNC. The company first learned about the probe after receiving a call from a New York Times reporter just one hour before his deadline.

"We knew quickly this was an inappropriate use of the DNA barcoding," said Sander, who referenced industry's long-held criticisms that DNA barcoding may not have been appropriate to identify herbs in botanical extracts because the DNA may have become degraded or lost during the manufacturing process.

But Schneiderman refused to release the testing results to GNC and still hasn't done so to date, Sander said. Although GNC was prepared to return the products to store shelves, which would have triggered litigation by Schneiderman's office and forced him to release his testing data, GNC was concerned about the impact of a continuing probe on consumer confidence.

"It was all about consumer confidence that was on our mind," GNC's chief innovation officer, Guru Ramanathan, Ph.D., said. "What is this going to do to consumer confidence?"

Sander and Ramanathan addressed industry Thursday during the first day of a two-day conference on DNA testing and other issues hosted by UNPA.

Instead of fighting Schneiderman, GNC reached an agreement with him, which included a promise to use DNA technology as part of the retailer's testing methods. Building consumer confidence was one of the main drivers behind the pact, Ramanathan said.

Sander said it only took 60 days to reach an agreement with Schneiderman's office. "In the scheme of things, it was a blur even though we were living every nanosecond of it," Ramanathan said.

Lori Kalani, a lawyer in Washington who co-chairs Cozen O'Connor's State Attorneys General Practice and addressed the industry conference, didn't seem surprised that GNC choose to make peace with Schneiderman rather than fight him. 

"A scorched earth approach doesn't work," Kalani said. "You might beat them this time" but the attorneys general will return.

GNC's New Strategy

GNC is perhaps the face of an industry that is under siege, thanks in large measure to states' growing perceptions that supplements are subject to little federal oversight and beleaguered with quality control problems.

UNPA president Loren Israelsen was present during a meeting of state attorneys general that was held on Monday in St. Louis to discuss the supplement industry.

"The questions were canned, pre-asked and were designed basically to say, 'Why are you doing what you are doing?'" Israelsen said. "’You are a bad industry’ ... it was a very painful 60 minutes. Very painful 60 minutes."

"The impression left among the AGs: 'this is an industry that doesn't really care about quality, safety, product integrity,'" he said.

GNC has moved to change that impression through the creation of four working groups that are intended to combat adverse media publicity and improve quality control standards, including the manufacturing practices governing raw materials.

In a third-quarter earnings presentation, GNC’s noted that its objectives include establishing raw material specifications for GMPs (good manufacturing practices), creating a quality seal to identify products and companies that adhere to minimum standards, and changing the conversation about the industry.

The strategy also involves reaching out to policy makers.

"We can't ignore the policy makers," Sander said. “There has to be good interaction between the industry and those that are making policy on Capitol Hill."

Ramanathan said he and Sander have held conversations with more than 40 companies, including brand owners, contract manufacturers and raw material suppliers.

"The goal here is to be inclusive," he said. "This is not about GNC. This is not about a group of big companies. This is about all of us."

The debate in the industry has moved past DNA barcoding, according to Ramanathan. 

"The debate now is, what are we going to do to enhance our customers' confidence levels," he said, “and change the perception?"

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