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History of American Cyanamid
When William Bell became president of American Cyanamid in 1922, he is reported to have said “even a fool could see what we need is diversification.” Thus began a prolonged program designed to vary the company’s products and services. Once solely a manufacturer of fertilizer, American Cyanamid now makes products as diverse as Pine Sol cleaner and L’Air du Temps perfume.
American Cyanamid was founded in 1907 by Frank Washburn, a Cornell-educated civil engineer. Cyanamid is a compound of lime, carbide, and nitrogen that is suitable for use in fertilizer. Washburn had been a consultant to a nitrate operation in Chile and had also built three dams in the southern United States. Intent on discovering new industrial uses for hydro-electric power, he saw the perfect opportunity in a revolutionary new way of extracting nitrogen from the air through use of an electric arc. He bought the North American rights to this process, as well as the rights to a new method of binding nitrogen, carbide, and lime. For Washburn, the beauty of these new methods of producing cyanamid lay in the fact that they required large amounts of electricity. He had originally planned to build his first plant and the dam it would require in Alabama, but his hydro-electric project became increasingly controversial. For this reason, the first Cyanamid facility was built in Ontario, Canada, its power supplied by Niagara Falls.
The first carload of cyanamid rolled out of the plant on December 4, 1909. After seven years of producing only this product, Washburn traded holdings in American Cyanamid for stock in Ammo-Phos, a company owned by James Duke (of Duke University). This arrangement provided American Cyanamid with an inexpensive supply of phosphoric acid. Phosphoric acid, combined with the nitrogen in cyanamid, produces ammonium phosphate, a good plant food.
The demand for American Cyanamid’s products came almost exclusively from those people engaged in producing agricultural products. Farmers were especially affected by the poor economy that followed World War I. American Cyanamid’s sales suffered as a result. The once-busy Ontario plant began to operate at 14 percent of its previous capacity. Washburn became seriously ill in 1921 and died the following year. His successor, a Quaker lawyer named William Bell, did not have an easy job ahead of him.
When Bell became head of American Cyanamid in 1922, the company had two principal raw materials: calcium cyanamid and phosphate rock, which were combined to form products for use in agriculture. The challenge for Bell was to find uses for these materials in less cyclical industries. Fortunately for American Cyanamid, while the economic aftermath of World War I had reduced the demand for fertilizers, it had increased the demand for cyanide, which had formerly been supplied by Germany. At the time, cyanide was principally used in the extraction of gold and silver from their ores. American Cyanamid began to manufacture cyanide from cyanamid, thereby broadening its market by supplying mining companies with a necessary chemical. The company also started to produce hydrocyanic acid, an important ingredient in the vulcanization of rubber.
By the mid-1920s American Cyanamid’s expansion of its line of products, along with a revival in the fertilizer industry, launched the company into a period of growth. In the first three or four years of Bell’s leadership the company had pursued a conservative policy of vertical diversification; that is, it concentrated on finding new markets for the same basic material, cyanamid. However, during the 1920s, general improvement in the economy, coupled with an increase in the value of American Cyanamid’s securities, enabled the company to embark on a slightly more aggressive plan of diversification. American Cyanamid, a public company, began to exchange its common stock for holdings in other companies. Some of the first companies acquired in this way were Kalbfleish (heavy chemicals), Selden (sulfuric acid), and Calco (dyes). In retrospect, Lederle Labs, acquired in 1930, was the company’s most important acquisition.
The period between the post-war deflation and the crash of the U.S. stock market in 1929 was a time of expansion for many companies. American Cyanamid, with a total of 30 subsidiaries, was one of the most diversified companies in the chemical industry. Chemical companies as a whole weathered the Depression well in comparison with other businesses. In the mid-1930s, direct sales to consumers in drugs and plastics helped to offset the sharp decline in the industrial demand for American Cyanamid’s products.
With the onset of World War II American Cyanamid’s fortunes improved considerably. The war cut off trade between American companies and their European suppliers so American Cyanamid enjoyed an expanded domestic market. The bulk of the company’s business, however, was from the government. American Cyanamid’s most important contributions to the war effort came from their pharmaceutical division, which supplied typhus vaccine, gangrene anti-toxin, and dried blood plasma to the armed forces. A subsidiary, Davis and Geck, was a major supplier of surgical sutures.
American Cyanamid received its share of commendations for its part in the war effort; however, questions were raised about the size of the company’s financial rewards. In 1942 the parent company was charged with a violation of anti-trust laws and fined $453,461, a large fine considering that American Cyanamid’s net profit for the previous year was a little more than $5.6 million. Bell, writing in the company’s annual report, was reticent in discussing the affair, but he did hint that Calco (a subsidiary that produced dyes) was involved, and that a member of the board of directors had been indicted.
The company had a good year in 1950 when its sales increased from $237 million to $322 million. This increase in sales was largely due to a series of breakthroughs made by Lederle Labs. In 1947 Lederle researchers succeeded in synthesizing vitamin B. In 1948 they discovered Aureomayacin, an antibiotic that was used to treat pneumonia. By 1953 they were producing tetracycline, one of the first broad-spectrum antibiotics. An oral polio vaccine went on the market in 1954. The demand for Lederle’s vaccines and antibiotics was such that new plants were built to keep up with the demand, both at home and abroad. In 1957, for instance, plants to manufacture Lederle’s antibiotics were built in England, Brazil, and Argentina. Growth was slow during the 1950s for many of Cyanamid’s products, and overseas pharmaceutical sales were important to the company’s financial stability. At times Lederle accounted for almost half of the company’s profits.
During the 1950s the leadership of American Cyanamid changed four times. William Bell died in 1950 and his replacement died within the year. Kenneth Towe took over, but in 1957 he moved to the position of chairman of the board. While the top executives were busy switching places, the workers were frequently on strike. There were four work stoppages in 1954 alone.
In the early 1960s American Cyanamid received increased attention from the press because of its new corporate headquarters in Wayne, New Jersey. Its major divisions are scattered around New York, New Jersey, and Connecticut, and it has subsidiaries in countries all around the world. Industry analysts have remarked, however, on the remarkable coordination that existed within the company.
The 1960s was not a particularly good decade for American Cyanamid or the larger chemical industry. In 1967 American Cyanamid suffered a major setback when it was convicted on the charge of restraint of trade. Along with Pfizer and Bristol-Myers, American Cyanamid was accused of conspiring to monopolize the marketing and manufacturing of tetracycline from 1953 to 1961. The company finally paid a fine of $48.5 million, which represented more than 50 percent of the net profit for that year.
Despite its legal difficulties and conservative fiscal policies, the decade had some bright spots. In the 1960s, part of the formula for Breck hair conditioner was discovered in the textile labs, while the chemical basis for an anti-tuberculosis drug was discovered by chemists working on products for the rubber industry.
For American Cyanamid, the 1970s began with a slump in profits. Industrial sales were down, in part due to a series of prolonged strikes in the rubber and automobile industries. As petroleum companies diversified into chemicals, an overcrowded market developed that depressed chemical prices at a time when inflation had increased operating expenses.
During the 1970s Lederle Labs continued to carry the company. The consumer products division, which had a number of lucrative brands, began to lose a portion of its market share. The best-selling Breck Shampoo was overtaken by Johnson’s Baby Shampoo and Prell; Davis and Geck had once led the market in sutures, but it fell behind products of rival Johnson and Johnson.
The company was also affected by unfavorable publicity from labor disputes and environmental abuses. In 1973 the Georgia State Water Quality Control Board forced Cyanamid to stop dumping sulfuric acid in the Wilmington and Savannah rivers, a practice that the state charged was killing fish. When workers at the Bound Brook, New Jersey, plant charged in 1978 that employee health was being compromised by exposure to carcinogens, they found management unsympathetic. 1,300 workers decided to strike in order to protest health hazards at the plant only to be told by plant manager Eldon Knape that “we don’t run a health spa.” When the company decided that exposure to lead compounds at the Willow Island, Virginia, pigments plant might cause birth defects, women of child-bearing age in the plant were ordered to quit, accept demotion, or be sterilized. A large amount of adverse publicity resulted from this last incident after five women admitted they had themselves sterilized in order to keep their jobs.
Whereas the strategy of American Cyanamid had once been to diversify, the strategy of the 1980s was to eliminate unprofitable product lines. President George Sella sold the Formica and titanium divisions because their markets were too cyclical. Sella put a greater emphasis on research as well. The increase in research and development began in 1979 and began to show results. Lederle Labs continued its status as a leading company in the American Cyanamid family, racking up more than 40 percent of Cyanamid’s earnings some years.
In the mid-1980s American Cyanamid move increasingly into pharmaceuticals via purchases and joint ventures. It bought 49.9 percent of Langford Labs, a Canadian company specializing in veterinary biologicals, and signed an agreement to jointly develop and market veterinary products with Enzon. It bought Acufex Microsurgical, a medical equipment manufacturer for $19 million, Storz Instrument for $100 million, and then, in mid-1986, formed a medical devices division. The firm signed a $7.5 million agreement with Britain’s Celltech Ltd. to produce a new generation of monoclonal antibodies. Researchers hoped to use the antibodies to deliver cancer drugs directly to affected sights in the body. The two firms planned to eliminate the parts of the antibodies not involved in delivering the drugs, improving their effectiveness and lessening allergic reactions.
Cyanamid moved into other high-tech areas it believed would grow in the future. In 1986 it bought 75 percent of Applied Solar Energy from Chesebrough-Pond for $38 million. At the same time, the firm was moving out of the lower-tech chemical businesses it had been engaged in for years. Its calcium carbonate business was sold to Iowa Limestone, while its dicalcium phosphate business went to Occidental Chemical and its lead chemical plant went to Cookson America. Cyanamid sold its phosphate rock processing plants to International Minerals and Chemical and its lead chemical business to Anzon Industries.
Since consumer products were less cyclical than its chemical business, the firm invested in expanding them, rolling out Pine-Sol spray cleaner and three new products in the Combat insecticide line.
As the restructuring progressed and the U.S. economy grew, profits for 1987 climbed to $275.6 million from $202.5 million in 1986. In 1988 Cyanamid formed a biotechnology research and development consortium with six firms to focus on fermentation technology. The following year the firm made its biggest investment yet in biotechnology when it acquired Praxis Biologics, a vaccine manufacturer, for $238 million in stock. The purchase brought Cyanamid products like Praxis’ meningitis vaccine into the Cyanamid fold. Cyanamid was already putting its biotech expertise to work through work on herbicides and growth hormones for cows.
In 1990 the company took a major step toward making drugs and agricultural products its most important focus when it sold the product lines in its Shulton consumer products unit to various buyers. The Old Spice toiletries division was sold to Procter & Gamble for over $300 million. Clorox Co. bought Combat Insecticide and Pine-Sol cleanser for $465 million, a price many industry analysts believed to be an excellent deal for Cyanamid.
Many of the Shulton products were leading brands or had high name recognition, but with total sales of $600 million a year, the division was far too small to compete effectively against consumer products giants like Procter & Gamble. Shulton had an operating margin of about eight percent, while the medical division had a 17.5 percent margin. The medical division accounted for about 50 percent of 1990’s $4.5 billion in sales, a healthy figure but still small compared to the medical divisions of rivals such as Bristol-Myers Squibb. Agricultural products sales were also booming, as the U.S. farm economy picked up and Cyanamid’s newest insecticides and herbicides proved popular.
In 1991, with the U.S. chemical industry in a prolonged downturn, Cyanamid consolidated its chemicals business into a separate division called Cytec Industries, based in West Patterson, New Jersey. The company’s chemicals business pulled in 1991 sales of $1.1 billion, with profits of about $30 million.
To help increase its presence in the drug market, Cyanamid bought 53.5 percent of Immunex Corp. in 1992. Immunex, a California biotech company, was strong in anti-cancer research, and Cyanamid soon combined Immunex’s anti-cancer division with its own. Sales for 1992 reached a record of $5.27 billion, with revenue of $395 million.
In 1993 Albert J. Costello, a chemist with 36 years of experience at Cyanamid, was named to succeed Sella. At the same time, the Clinton administration’s attack on drug prices cast new uncertainties on Cyanamid’s strategy of emphasizing drug sales. Cyanamid and other drug companies reacted by sending lobbyists to Washington to persuade lawmakers they were not the villains behind rising medical costs.
With the 1993 announcement that it would sell Cytec to its shareholders, Cyanamid virtually finished its transformation from a chemical to a drug and agricultural products company. American Cyanamid now awaits the outcome of the health care reform struggle, which is certain to have a significant impact on the company.
Principal Subsidiaries: Acufex Microsurgical, Inc.; Cyanamid Inter-American Corp.; Cyanamid International Corp.; Cyanamid Metals Corp.; Cyanamid International Sales Corp.; Cyanamid Overseas Corp.; Davis & Geck, Inc.; Glendale Protective Technologies, Inc.; Jacqueline Cochran, Inc.; Lederle Parenterals, Inc.; Lederle Piperacillin, Inc.; La Prairie, Inc.; Shulton, Inc.; Toiletries, Inc. The company also lists subsidiaries in the following countries: Australia, Bermuda, Brazil, Canada, Costa Rica, France, India, Italy, Japan, Korea, Mexico, The Netherlands, Netherlands Antilles, Pakistan, Peru, Philippines, Portugal, Switzerland, United Kingdom, Venezuela, and West Germany.