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Kroger to acquire Vitacost.com in a deal valued at $280 million

BY Michael Johnsen

CINCINNATI — Kroger and Vitacost.com on Wednesday announced a definitive merger agreement under which Kroger will purchase all outstanding shares of Vitacost.com for $8 per share in cash, or approximately $280 million. 
 
"We are delighted to welcome Vitacost.com to the Kroger family," stated Rodney McMullen, Kroger CEO. "Vitacost.com's talented team has built an exceptional online retail destination in the growing nutrition and wellness market, with an enviable technology and fulfillment infrastructure. This merger is in line with our growth strategy to enter new markets and new channels, and – along with Harris Teeter's online order and pick up service – accelerates our efforts to provide customers with even more ways to shop. Vitacost.com's core focus on healthy living products is complementary to our fast-growing natural foods business, and we intend to grow Vitacost.com's strong position in the online nutrition market," he said. "At the same time, we will build on Vitacost.com's eCommerce platform by integrating it with our existing digital offerings to create exciting new levels of personalization and convenience for our customers."
 
Vitacost.com brings to Kroger its strong position as one of the largest pure eCommerce companies in the nutrition and healthy living market, a team with extensive eCommerce experience, and a substantial platform that includes technology and ship-to-home fulfillment centers to serve customers in all 50 states and internationally. Vitacost.com offers more than 45,000 products including vitamins, minerals, herbs, supplements, sports nutrition, beauty care products and natural and organic foods to approximately 2.3 million active customers. There are about 10,000 SKUs that overlap with Kroger's offerings, Kroger said. The company has more than 800 associates and operates distribution centers in Lexington, N.C. and Las Vegas and a customer service center in Lexington.
 
According to a TABS Group estimate, Vitacost.com accounts for 7% of the $1.7 billion online vitamin, mineral and supplement market, or about $120 million per year. "Vitamins is one of the highest-developed categories of all CPG online," Kurt Jetta, CEO TABS Group, told Drug Store News. "[Vitamins] is a very promotionally-responsive category and online tends to draw those [value-driven] people disproportionately." 
 
The company's eCommerce platform will enable Kroger to serve customers through ship-to-home orders in all 50 states, including 16 states that are currently not served by Kroger supermarkets, expanding Kroger's reach, and its private label brand Simple Truth, into new U.S. markets as well as internationally. 
 
Building on Vitacost.com's technology and fulfillment platform and linking it to Kroger's existing digital capabilities will accelerate Kroger's omnichannel strategy. Millions of customers already plan their shopping online using Kroger's cloud-based shopping list and weekly ad through the company's mobile apps and Kroger.com, and more than one billion digital coupons have been downloaded since 2009.  Kroger offers an order online, deliver-to-home service in its King Soopers division in Denver, and continues to learn from Harris Teeter's successful Express Lane model, which offers customers the ability to order online and pick up at their local store in 154 locations.  With Vitacost.com, Kroger will offer customers the convenience to order online and ship to their door with an expanded assortment online.
 
The purchase price represents a premium of 51% to Vitacost.com's closing share price on Feb. 19, 2014, the day before a major Vitacost.com shareholder publicly asked the company to evaluate strategic alternatives. The terms of the agreement were unanimously approved by the boards of directors of both companies.
 
Under the terms of the merger agreement, Kroger will commence a tender offer for all of the outstanding shares of Vitacost.com common stock. Any shares of Vitacost.com common stock not acquired in the tender offer promptly will be acquired by Kroger in a subsequent merger. The tender offer and merger are subject to Vitacost.com stockholders tendering at least a majority of the outstanding shares of Vitacost.com common stock in the tender offer, certain regulatory approvals and other customary closing conditions. The transaction is not subject to any financing condition. Holders of approximately 26.2% of the outstanding shares of Vitacost.com common stock have agreed to support the transaction and tender their shares in the tender offer. The transaction is expected to close in the third calendar quarter of 2014.
 
Following closing, Vitacost.com will operate as a subsidiary of Kroger and continue to operate its facilities in Boca Raton, Fla., Lexington N.C. and Las Vegas. 
 
Jefferies was the exclusive financial advisor to Vitacost.com for this transaction. 
 

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FDA files complaint against Laclede for illegally distributing OTC drug products

BY Michael Johnsen

SILVER SPRING, Md. — On June 25, the U.S. Department of Justice, at the request of the Food and Drug Administration, filed a complaint for permanent injunction in the U.S. District Court for the Central District of California against Laclede of Rancho Dominguez, Calif., and its president, Michael Pellico. The complaint claims that Laclede illegally distributes over-the-counter vaginal drug products without required FDA approval.

 
The prebiotic vaginal products named in the complaint are: Luvena Prebiotic Vaginal Moisturizer and Lubricant, Luvena Prebiotic Enhanced Personal Lubricant, Luvena Prebiotic Feminine Wipes and Luvena Prebiotic Daily Therapeutic Wash.
 
The complaint requests, among other things, that the court issue a permanent injunction order requiring Laclede to cease distribution of these drug products until the company obtains an approved new drug application from the FDA or until all drug claims have been removed from the products’ labels, marketing materials and any websites controlled by or related to Laclede. 
 
“The drug approval process is critical to ensuring that drugs are safe and effective for their intended uses,” stated Carol Bennett, acting director of the Office of Compliance in the FDA’s Center for Drug Evaluation and Research. “The FDA will take swift action when companies bypass this important process established to protect consumers from harmful products.”
 
Since 2010, the FDA has repeatedly told the company that it must obtain the FDA’s approval before selling its drug products. According to the complaint, the company subsequently marketed and distributed the unapproved drug products, despite the FDA’s warnings.
 

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CDC: Opioid prescribing varies widely by state

BY Michael Johnsen

ATLANTA — Health care providers wrote 259 million prescriptions for opioid painkillers in 2012 — many more in some states than in others — according to a Vital Signs report released Tuesday by the Centers for Disease Control and Prevention that highlights the danger of overdose. The report also includes an example of a state that reversed its overdose trend. 

 
Health care providers in the highest prescribing state, Alabama, wrote almost three times as many of these prescriptions per person as those in the lowest prescribing state, Hawaii. Most of the highest prescribing states were in the South. Previous research has shown that regional variation in use of prescriptions cannot be explained by the underlying health status of the population, the CDC stated. 
 
The Vital Signs report also contains a study highlighting the success of Florida in reversing prescription drug overdose trends. Results showed that after statewide legislative and enforcement actions in 2010 and 2011, the death rate from prescription drug overdose decreased 23% between 2010 and 2012. Florida officials had taken these actions in response to a 28% increase in the drug overdose death rate over the preceding years (2006-2010).
 
Declines in death rates in Florida for specific prescription painkillers (oxycodone, methadone, and hydrocodone) and sedatives paralleled declines in prescribing rates for those drugs. This report was based on Florida Medical Examiners Commission data from 2006 to 2012 and IMS Health National Prescription Audit data from 2008 to 2012.
 
“Prescription drug overdose is epidemic in the United States. All too often, and in far too many communities, the treatment is becoming the problem,” stated CDC director Tom Frieden. “Overdose rates are higher where these drugs are prescribed more frequently. States and practices where prescribing rates are highest need to take a particularly hard look at ways to reduce the inappropriate prescription of these dangerous drugs.”
 
For this Vital Signs report, CDC analyzed 2012 prescribing data collected from retail pharmacies in the United States by a commercial vendor. CDC calculated prescribing rates by state for various types of opioid painkillers.
 
Key findings include:
 
  • Southern states — Alabama, Tennessee, and West Virginia in particular — had the most painkiller prescriptions per person;
  • The Northeast, especially Maine and New Hampshire, had the most prescriptions per person for long-acting/extended-release painkillers and for high-dose painkillers; and
  • State variation was the greatest for oxymorphone (a specific type of painkiller), among all prescription painkillers. Nearly 22 times as many prescriptions were written for oxymorphone in Tennessee as were written in Minnesota.
 
According to the CDC, steps that states can take to address the overprescribing of painkillers include:
 
  • Considering ways to increase use of prescription drug monitoring programs, which are state-run databases that track prescriptions for painkillers and can help find problems in overprescribing. Impact of these programs is greater when they make data available in real time, are universal (used by all prescribers for all prescriptions for all controlled substances), and are actively managed (for example, send alerts to prescribers when problems are identified);
  • Considering policy options, including laws and regulation, relating to pain clinics to reduce prescribing practices that are risky to patients;
  • Evaluating their own data and programs and considering ways to assess their Medicaid, workers’ compensation programs, and other state-run health plans to detect and address inappropriate prescribing of painkillers; and
  • Identifying opportunities to increase access to substance abuse treatment and considering expanding first responder access to naloxone, a drug used when people overdose.
 

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