USANA Health Sciences

Usana Health Sciences, Inc., or USANA, is a Utah-based multi-level marketing company that produces various nutritional products, dietary supplements and skincare products. Usana products, most of which are manufactured at the company’s West Valley City facility, are sold in 24 countries[1] via a network of independent distributors (referred to as "associates"). Most of Usana's independent distributors make less money than the cost of the initial qualifying purchase.[2]

USANA Health Sciences, Inc.
Public
Traded as
IndustryMulti-Level Marketing of Nutritional products
FoundedWest Valley City, Utah (1992 (1992))
FounderMyron Wentz, Ph.D.
Headquarters
West Valley City, Utah
,
U.S.
Key people
Myron Wentz, Ph.D. (Founder & Chairman)

Kevin Guest (CEO)
Jim Brown (President and Chief Operating Officer)
James Bramble (Chief Legal Officer & General Counsel)

Dan Macuga(CCO)
ProductsNutritional supplements, weight management, energy, personal care
Number of employees
1,911 (2019)
Websiteusana.com

Headquarters in West Valley City, Utah

In 2015 Usana was the 24th largest multi-level marketing company in the world by revenue.[3] The company has been subject to criticism from the Securities and Exchange Commission (SEC) and other government agencies for its multilevel marketing practices.[4] It has faced class action lawsuits on behalf of low-level distributors and litigation from Barry Minkow, some of which have been settled out of court.[5][6]

History

In 1992, immunologist and microbiologist Myron Wentz moved his diagnostic testing company, Gull Laboratories, from Salt Lake City to West Valley City, Utah and spun it into Usana Health Services, a multilevel marketing manufacturer of supplements.[7][8] Beginning in 1993, Dallin A. Larsen served as Usana's vice president of sales (and later as consultant to Usana's president and special advisor to the board of directors) prior to founding the MLM beverage company Monavie in 2005.[9][10][11] Usana's products are not available through retail channels, but instead can only be obtained through one of its independent distributors (referred to as "associates") or by direct order through the company.[7] At the end of 2014, The company had 349,000 active associates and 81,000 active "Preferred Customers" in its worldwide distribution network.[12] In 2012, 91% of product sales was purchased by associates[13]

In August 2007, Usana was notified by the Securities and Exchange Commission (SEC) that its shares were subject to delisting from the NASDAQ due to its Form 10-Q, and was determined to be in compliance that October.[14][15] In December 2010, Usana completed the application process to transfer the listing of its common stock from the NASDAQ National Market System, which it had been trading on since 1996, to the New York Stock Exchange. The transfer became official at the beginning of 2011.[16][17] It received drug-establishment registration from the Food and Drug Administration to manufacture over-the-counter drugs later that year.[18] Usana has partnered with HealthCorps on health education for children and, in 2019, the Usana Foundation's Kids Eat program opened a facility to pack and distribute food for childhood hunger in the Utah area.[19] It also was announced as the official nutritional partner of the Spartan Race endurance brand in the United States.[20] The company acquired BabyCare Ltd., a China-based prenatal supplement company, in 2013 and announced that it would build a manufacturing facility in the country.[21] By 2018, Usana had reported record revenue due to growth in the Asia Pacific region,[22] though it recorded a 7% drop in net sales during its 2019 annual report.[23] Its sales for the first quarter of 2020 declined by 2.3 percent compared with 2019 numbers.[24]

Reception

From 2004 to 2006, Usana was named on Forbes “200 Best Small Companies” list.[25] In 2007, a Forbes article quoted industry experts and government officials who had raised questions about the cost of Usana's supplements as well as its business practices.[26][27] Radio-Canada later aired an investigative report that examined the company's products, pricing and "misleading income claims" made to potential associates concerning revenue. It included hidden camera filming of recruitment and other sessions, which found one group of associates appeared to violate the company's policies and distributor agreements. This contrasted the Canadian legal requirements for multi-level marketing companies to provide clear, frequent and complete information about the revenue of the typical participant.[7][28] In addition, the same group of associates were filmed making recommendations for using Usana products to treat illnesses including leukemia.[7]

John Cloud, senior writer for Time Magazine, conducted an evaluation of nutritional supplements in which he took a regimen of Usana pills, protein bars, powder drinks and psyllium fiber as recommended by the company's online evaluation. Cloud took a blood test prior to taking the products to determine the levels of calcium, protein, sodium, cholesterol, glucose, and other substances, and then was tested again five months after taking the supplement regimen, which included 3,000 pills at a cost of $1,200. The follow-up test revealed a change in only two values; a 75% increase in vitamin D levels (attributed to the vitamin D3 supplement Cloud had been taking) and a 28 mg/dl increase in high-density lipoprotein, which could not be accounted for. Cloud also experienced a placebo response where that act of taking the supplements made him feel more vigorous despite no physiological reasons being present. This response also led to a 10-lb increase in weight, as the belief he was more vigorous led to his making poorer dietary decisions—a phenomenon referred to as the "licensing effect".[29]

Products

Usana produces three product lines: Usana Nutritionals (Cellsentials, Optimizers, and Digestion/Detox nutritional supplements), Usana Diet & Energy (Reset meal replacement shakes, protein bars, and Rev3 energy drinks), and Sensé & Celavive personal care (skin care, skin treatment, and hair & body care products).

Usana Essentials were tested in 2011 by ConsumerLab.com in their Multivitamin and Multimineral Supplements Review of 38 of the leading multivitamin/multimineral products sold in the U.S. and Canada. The Essentials passed ConsumerLab's test,[30] which included testing of selected index elements, their ability to disintegrate in solution per United States Pharmacopeia guidelines, lead contamination threshold set in California Proposition 65, and meeting U.S. Food and Drug Administration (FDA) labeling requirements.[31]

As of 2019, its products are marketed in the United States, Canada, Australia, New Zealand, Hong Kong, Japan, Taiwan, South Korea, Singapore, Mexico, Malaysia, the Netherlands, the United Kingdom, Caribbean, Puerto Rico, Philippines, France, China, Spain, Italy, Germany, Romania, Denmark, Colombia and Indonesia.[32]

Business model

Usana, a multilevel marketing company, sells its products primarily via non-employee distributors known as sales "associates" as well as via the Internet. Associates may be eligible to receive commissions based on their own product sales as well as through sales made by any new distributors they recruit (referred to in multilevel marketing parlance as a "downline").[7] Usana's compensation plan awards commissionable 'points' for sales volume. When the points reach a pre-determined number, the associate is paid. If the points do not reach the payment threshold, they accumulate towards the next week. The firm requires that associates purchase a minimum of 100 volume of products (equivalent to approximately $110–$130) every four weeks in order to remain eligible to receive compensation. If this minimum is not maintained, the distributor loses the points that have accumulated but not yet been paid.[33] According to documentation from Usana corporate, 87% of associates fail to make enough from commissions to recover the cost of their qualifying purchases with 67% of all associates making no commission; 72.2% of the company's commissions are earned by the top 2.31% of associates.[2] According to a 2011 article published by the Salt Lake City Tribune, the firm's FY09 income disclosure statement indicated that the average yearly income of the company's 165,710 associates, which includes those just starting out, was $617, while the "top-of-the-pyramid distributors earn an average of $857,865 annually".[34]

The firm's 2010 income disclosure statement defines "associates" as those who are actively building a business, acting as wholesale buyers, or are new distributors.[35] The firm's 2009 SEC 10-K filing draws a distinction between associates and preferred customers.[36] Associates are independent distributors of Usana products who also purchase their products for personal use. Preferred customers may purchase products, at wholesale prices, strictly for personal use and are not permitted to resell or to distribute. As of July 2011, the firm had 222,000 active Associates and 68,000 preferred customers.[12]

New Zealand government statistician for the Commerce Commission, Dr. Murray H. Smith, who served as an expert witness in every pyramid scheme case brought by the Commission preceding 10 years, opined in 2008 that very few Usana distributors are likely to become wealthy, and stating "you can make a very strong argument that this could be a pyramid scheme." When asked by the National Business Review to review the firm's business structure and compensation plan, it was Smith’s opinion, from a statistical not legal standpoint, that the firm demonstrated a number of characteristics commonly occurring in pyramid schemes including that most members recoup less than what they pay to participate; that those at the top of the structure are more likely to make more than those on the bottom of the structure; and that as the company grows it will become harder to recruit others. Dr. Smith also noted the company’s significant turnover in distributors making it necessary to continually recruit.[2]

Leadership

In 2007, Usana faced repeated controversy after several of its executives were discovered to have made false statements regarding their qualifications.[37] The executives included Denis Waitley, a member of the board of directors who had falsely claimed to hold a master's degree from the Naval Postgraduate School;[37][38] sales associate Ladd McNamara, who quit the company's medical advisory board after it was discovered that his license to practice medicine had been revoked;[39][40][41] Vice President of Research and Development, Timothy Wood, who was found to have a doctorate in forestry, as opposed to biology as he had claimed;[42] and the Executive Vice President and Chief Financial Officer, Gilbert Fuller, who had continued to use the title of CPA,[43] though his CPA license had expired 10 years before he joined Usana in 1996.[37][42][44]

Founder Myron Wentz was the company's chief executive officer from 1992 until 2008 when his son, Dave Wentz, succeeded him after working in positions such as president, executive vice president and senior vice president of strategic development. In 2015, Usana announced that the chief executive officer role would be divided between Wentz and Kevin Guest with the former taking global operations and for the latter, field development and sales. Guest was appointed the sole chief executive officer in November 2016.[45][46]

Sponsorships

Usana has been a paid[47][48] sponsor of various athletic organizations.[49][50][51][52][53][54] Usana offers an "Athlete Guarantee Program" to select sponsored athletes. The program permits selected participants to enter into an agreement with company stipulating that, should an athlete enrolled in the program test positive for a banned substance (included in World Anti-Doping Agency regulations) as a result of taking Usana products, the company will compensate the athlete up to two times his or her current annual earnings up to $1 million USD.[55][56][57]

In 2006, Usana signed a co-sponsorship agreement with the WTA tour and extended the agreement in 2011.[58][59] As part of the agreement in 2011, Usana donated $1 to Children's Hunger Fund for every ace scored at a WTA tournament beginning at Wimbledon and continuing through the end of the season.[60][61]

In 2003, Usana became the title sponsor of the USANA Amphitheatre, an outdoor amphitheatre based in West Valley City, Utah with a seating capacity of 20,000.[62] In May 2012, United Concerts announced a continued naming rights partnership with USANA Health Sciences through March 2018.[63][64]

Lawsuits

On 20 February 2007, Barry Minkow, founder of the Fraud Discovery Institute, distributed a 500-page report to officials at the U.S. Securities and Exchange Commission (SEC), the Federal Bureau of Investigation (FBI), and the Internal Revenue Service (IRS) accusing Usana of operating an illegal pyramid scheme.[38][65] Usana countered by lodging suits against Minkow and his company claiming defamation and stock manipulation.

According to an article published in the San Diego Reader, Usana was subsequently the subject of an investigation by the SEC.[38] The SEC conducted a probe of Usana's business practices in March 2007 and found nothing incriminating, concluding its inquiry with no enforcement action recommended.[66] The company's longtime auditing firm, Grant Thornton, resigned in July 2007 because it could not agree with Usana on procedures for an outside, independent investigation of the charges. Because it had no auditor, Usana was late with official government filings and was not in compliance with SEC and NASDAQ requirements.

On the day Minkow's report was released, Usana's shares had traded at $61.19 but by August the share price had tumbled to less than $35.[27][38] Minkow acknowledged that he was shorting Usana's shares, hoping to profit from a drop in the stock price.[37] However, in reference to Usana's lawsuit, news columnist Herb Greenberg commented that the criticism of Minkow "is a bunch of malarkey; he has a right to publish his research, as long as people know his position [in the stock]." Minkow had revealed in the report that he was betting for the stock to go down.[38] Usana dropped the defamation suit and in March 2008 U.S. District Judge Tena Campbell threw out four of the five claims brought by Usana against Minkow ruling that Usana's claims violated California's anti-SLAPP law for suing Minkow for fair criticism.[67] and that Usana did not show a reasonable probability of winning on those claims.[68] The judge also cited two examples where Usana failed to refute Minkow's claims that their products were overpriced and of no better quality than other lower-priced brands.[68] The remaining charge of stock manipulation was settled in July 2008 when Usana and Minkow reached an undisclosed settlement, which included the removal of all Usana-related materials from the Fraud Discovery Institute website, a related Chinese website, and from YouTube. Minkow also agreed to never trade in Usana's stock again.[69] Separately from the settlement, the company paid $142,510 in attorney fees to Minkow and his institute under an order from federal Magistrate Samuel Alba. Court documents show that Usana never pursued others whom they suspected of being part of the alleged stock manipulation nor did they ask for an injunction, their only avenue of release in this case.[68]

In 2008, two Canadian Usana distributors were awarded $7 million in compensation for damages related to their wrongful dismissal from the company. The firm had terminated their positions in 2003 because it believed the distributor had violated the companies' policies and procedures.[70][71]

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See also

References
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  2. Helen Malmgren (13 July 2007). "Most People Won't Get Their Money Back". National Business Review. Retrieved 11 August 2011.
  3. "Direct Selling News Global 100". Direct Selling News. Retrieved 24 November 2015.
  4. "SEC Ends Investigation of Usana Without Acting, but Lawsuits Loom". The Wall Street Journal.
  5. "RM LAW Announces Class Action Lawsuit Against USANA Health Sciences, Inc". PR Newswire.
  6. "Federal Securities Class Action Lawsuit Against USANA Health Sciences Dismissed, With Prejudice". Wilson Sonsini Goodrich & Rosati.
  7. "Vente à paliers multiples: légale, à de strictes conditions!". La Facture (in French). 24 February 2009. Radio-Canada. Retrieved 11 August 2011.
  8. "Dr. Myron Wentz, Microbiologist and Founder of USANA Health Services". Forbes.
  9. Emily Lambert and Klaus Kneale (11 August 2008). "Climb to the Top". Forbes. Retrieved 9 September 2008.
  10. "USANA Announces Vice President of Network Development; Peggie Pelosi Named to New Position". Business Wire. 20 June 2000. Retrieved 6 September 2011.
  11. "Usana Health Sciences Inc 10-K/A for 12/27/97". secinfo.com. 27 December 1997. Retrieved 6 September 2011.
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  15. "USANA reports that Nasdaq will keep listing its stock". Deseret News. 18 October 2007. Retrieved 11 August 2011.
  16. "USANA's stock listings moving to NYSE". The Salt Lake Tribune. 22 December 2010. Retrieved 23 June 2011.
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  20. "USANA Named Official Nutritional Partner Of Spartan U.S. Obstacle Course Racing". 5 June 2019.
  21. "USANA Health Sciences Now Offering Prenatal Product". 22 April 2013.
  22. "USANA tops $300 million in sales for quarter". 26 July 2018.
  23. "USANA's sales fall; future outlook dimmed by coronavirus crisis". 7 February 2020.
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  25. "200 Best Small Companies". Forbes. 12 October 2006. Retrieved 11 August 2011.
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  32. https://www.dsa.org/forms/CompanyFormPublicMembers/view?id=7F3000008D9
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  45. USANA Board of Directors Appoints Dave Wentz and Kevin Guest as Co-Chief Executive Officers
  46. CEO Cites Success from Experiences, Relationships, Lessons
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  49. "The Official US Speedskating Website". Retrieved 11 August 2011.
  50. "Speed Skating Canada". Retrieved 11 August 2011.
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  52. "Cross Country Canada Corporate Partner / Supplier Team". Retrieved 11 August 2011.
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  60. "Andre Agassi preparatory academy receives $18 million donation from billionaire: This Week in Tennis Business with Justin Cohen". 2 November 2011. Retrieved 26 October 2012.
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  64. "United Concerts Announces Continued Partnership With USANA Health Sciences At Amphitheatre". Retrieved 31 May 2012.
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  66. Angela Cullen (11 January 2008). "Usana Cleared as Securities Regulator Ends Probe". Bloomberg. Retrieved 11 August 2011.
  67. "USANA ordered to pay for SLAPP violation". Salt Lake Tribune. Associated Press. 7 May 2008. Retrieved 11 August 2011.
  68. Tom Harvey (6 March 2008). "USANA claims tossed". Salt Lake Tribune. Retrieved 11 August 2011.
  69. Paul Foy (29 July 2008). "Supplement-maker USANA settles suit with critic". Associated Press. Retrieved 11 August 2011.
  70. "USANA Health Sciences Form 8-K - 22 December 2008". United States Securities and Exchange Commission. 22 December 2008. Retrieved 11 August 2011.
  71. "Judgement will cost Usana $7 million". The Salt Lake Tribune. 13 February 2009. Retrieved 11 August 2011.
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