By Christie Smythe and Chris Dolmetsch, Bloomberg News
NEW YORK — Dietary supplements are facing more scrutiny from U.S. regulators as two states and Puerto Rico joined New York in a probe of the $33 billion industry after testing showed some products didn't appear to contain key ingredients advertised.
Attorneys general in Connecticut and Indiana and the Puerto Rico Department of Consumer Affairs will investigate industry business practices and whether claims of authenticity and purity are valid, Attorney General Eric Schneiderman said Tuesday in a statement.
Pittsburgh-based GNC Holdings Inc.'s stock price fell as much as 7 percent Tuesday following news of the expanded probe. Herbal supplements make up about 8 percent of the nutritional retailer's sales, according to analysts from Jefferies.
The real $61 billion per year question is whether or not the entire supplement business is one big criminal fraud that steals by deception $61 billion a year of consumer payments. Anyone who has been spending money buying supplements needs to take this case very seriously. It is after all not...
Earlier, a researcher hired by New York found evidence that store-brand products from GNC, Wal-Mart Stores, Walgreens and Target labeled as containing supplements such as echinacea and ginkgo biloba lacked those signature ingredients or contained substances not on the label. GNC has disputed Schneiderman's findings and called his testing methods "incomplete and unreliable."
GNC "fully complied" with inquiries about products from Schneiderman and "took the additional step of commissioning independent, third-party tests to verify the quality of our products," Ellen Davis, a spokeswoman for GNC with Sard Verbinnen & Co., said in a statement Tuesday. The additional tests and the company's own procedures "confirm in no uncertain terms that our products are safe, pure, properly labeled and in full compliance with all regulatory requirements."
Based on work at Ontario's University of Guelph, the DNA barcoding testing method in Schneiderman's probe identifies organisms using a small amount of genetic material.
Minneapolis-based Target and Deerfield, Illinois-based Walgreens Boots Alliance have pulled products flagged by Schneiderman's results from store shelves nationwide. GNC and Wal-Mart have said they would remove some of their supplements from stores in New York.
"We take these issues very seriously," Emily Hartwig, a spokeswoman for Walgreens, said in a statement Tuesday. "We continue to review this matter and also intend to continue cooperating."
Evan Lapiska, a spokesman for Target, declined to comment on the states' actions. Brian Nick, a spokesman for Bentonville, Arkansas-based Wal-Mart, didn't immediately respond to phone and e-mailed requests for comment.
The Food and Drug Administration requires supplement sellers to verify that products are safe and properly labeled. Supplements don't undergo the same strict evaluation process as drugs.
One problem for the industry as the probe expands is "consumer perception" of supplements, Jefferies analysts Mark Wiltamuth, Christopher Mandeville and Clayton Meyers said in a note to investors Tuesday. The timing of the probe is "unfortunate" as companies begin to shake off the effects of scrutiny of products such as fish oil and multivitamins, they said.
Ted Craig, a Miami lawyer who has defended companies in regulatory disputes and class actions, said other states may see Schneiderman's investigation as "low-hanging fruit" and seek to "jump on this bandwagon" by joining it.
Schneiderman said in his release that the industry "contributes" $61 billion to the U.S. economy. According to the Nutrition Business Journal, a trade publication, supplement companies had 2012 sales of $32.5 billion.