Metabolife Files for Chapter 11 Protection
The weight-loss firm cites lawsuits filed by users of its
products containing ephedra
By Claire Hoffman
July 2, 2005
Los Angeles Times
San Diego-based Metabolife International Inc.,
once a leading seller of herbal weight-control products, filed
for bankruptcy protection Friday, citing the burden of hundreds
of lawsuits filed by users of its products containing ephedra,
a now-banned dietary supplement.
Ephedra is an amphetamine-like herbal stimulant linked to
dozens of heart attacks and 155 deaths — including the
2003 death of Steve Bechler, a pitching prospect for the Baltimore
Orioles. Ephedra was the primary ingredient in the company's
formerly bestselling product, Metabolife 356.
The company stopped producing ephedra-based products in December
2003.
David Osias, the company's bankruptcy lawyer, estimated that
Metabolife spent about $20 million in legal fees in the last
five years as the company has faced 358 lawsuits, including
several wrongful death suits. The lawsuits will be included
in the bankruptcy proceeding.
The Food and Drug Administration issued a ban on ephedra in
April 2004. But this last April, a federal judge in Utah overruled
the ban, saying that the FDA wrongly regulated ephedra as
a drug instead of as a food. Osias said the uncertainty had
been challenging.
"After many years and lots of money, they are still in
a position where they have this large number of cases left,
they still have to defend them, and it's not clear how they
are coming out," Osias said of Metabolife. "It's
not a very good place to be."
In its Chapter 11 bankruptcy filing, the privately held company
said it was under investigation for understating its income
in 1997 and 1998 and said the Internal Revenue Service was
seeking nearly $1 million in penalties and back taxes.
The company said Grand Rapids, Mich.-based Idea Sphere Inc.,
which owns several vitamin companies, has offered to buy Metabolife's
assets for $23.5 million. Any sale would be subject to U.S.
Bankruptcy Court approval.
Osias said it was likely that most proceeds from a sale would
be consumed by legal claims and fees.
Since 2003, the company has continued to produce ephedra-free
herbal weight-control and energy-boosting products.
According to the bankruptcy filing, the company reported an
$11-million loss in revenue of less than $47 million last
year. In 1999, at the height of its success, the company took
in more than $350 million in revenue and reported more than
$24 million in profit.
The bankruptcy petition lists more than 650 creditors, with
the 20 largest owed more than $6.4 million.
Michael J. Ellis, the founder and one of three major shareholders
of Metabolife, faces federal criminal charges for allegedly
lying to the FDA about the safety of Metabolife 356, with
prosecutors accusing him of ignoring numerous customer complaints
of illness and deaths caused by the product.
From 1999 to 2001, Ellis and two other company owners were
paid a total of $146 million, Metabolife's vice president
of finance testified in a deposition.
Ellis founded the company in 1995, less than a decade after
prosecutors accused him of manufacturing methamphetamine,
a drug that also contains ephedrine. He pleaded guilty to
a lesser charge, after working as a federal informant. In
February Ellis was indicted for illegal possession of weapons,
after federal agents discovered handguns, a rifle and ammunition
at his ranch home in Julian, Calif.
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