Repellent debate causes buzz at Reilly Industries: CDC recommendation could hurt company's revenue

June 20, 2005

A recent recommendation by the Centers for Disease Control and Prevention has the potential to slow a significant revenue stream for Indianapolis-based Reilly Industries Inc., but company officials insist they're not worried.

This spring, CDC for the first time recommended two alternatives to DEET in the fight against mosquito bites and the diseases they carry. Picaridin and the oil of lemon eucalyptus were recommended as alternatives to DEET, which is manufactured by a Reilly subsidiary and is the active ingredient in the vast majority of mosquito repellents, including Off brands.

Picaridin, a man-made substance using a floral derivative, and oil of lemon eucalyptus are attractive to those looking for more natural ingredients in insect repellent. Brands such as Cutter and Repel have already been launched in the United States using the DEET alternatives.

"I think DEET is a great product that works, but the problem is there are people out there for whatever reason who won't use DEET," said Richard Falco, a medical entomologist at Fordham University in New York. "It's not just a segment of the general public that views DEET negatively; I've seen it among health officials. They don't like the idea of applying a man-made chemical to a person's skin."

Reilly's subsidiary, Greensboro, N.C.-based Morflex Inc., is the world's largest DEET manufacturer. Morflex, which Reilly acquired in 1990, is one of two U.S. companies that manufacture and sell DEET, short for n,n-diethyl-m-toluamide.

"DEET was an important consideration in our acquisition of Morflex," said Robert Polack, Reilly vice president. "We saw they had a strong place in the market and there was potential for growth."

But industry sources said not even Reilly officials could have seen the growth of DEET demand in the wake of scares over mosquito-borne Lyme disease and West Nile virus.

"I think more people each year are aware of this problem and are taking action to protect themselves and their children," Falco said.

Morflex reported revenue of about $50 million in 2000 and profit margin percentages in the low teens. In 2000, the company said DEET made up one-third of sales, but industry sources said recent growth in insect repellent sales has likely sent that percentage higher.

Reilly, a privately held company, doesn't release revenue figures, but Hoover's Inc., a business research firm based in Austin, Texas, reported the company's annual sales near $330 million. With the U.S. Environmental Protection Agency reporting 10 million pounds of DEET now sold annually, industry sources estimated DEET sales make up 10 percent of Reilly's revenue.

Reilly bought Morflex with the idea of using its superior international distribution channels to grow the sale of DEET and Morflex's other products, which include organic esters and plasticizers, used to give resins and rubber flexibility.

There are only a handful of DEET manufacturers worldwide, one in Japan and several smaller companies in China.

DEET, which Morflex officials said is used in 95 percent of mosquito repellents, was developed by the U.S. Department of Agriculture in 1946 and approved by the EPA in 1957 for use in insect repellents.

Despite endorsements from the EPA and CDC, DEET has come under fire from users who said DEET repellents caused rashes and, in some cases, seizures.

"If you can't convince people, you have to work with their beliefs," Falco said. "A lot of the fear has more to do with manmade beliefs rather than science."

Dr. Lyle Peterson of the CDC said alternatives are needed to get more people to protect themselves against diseases mosquitoes can carry. A CDC study showed only 40 percent of people use mosquito repellent.

"Since West Nile is present and continues to be a concern across the country, and it's likely here to stay, we need to stay vigilant in offering alternatives," Peterson said.

Picaridin and the oil of lemon eucalyptus have been available in Europe and Australia since the 1980s, and Morflex President David Gleeson said his company's DEET sales have seen little impact there. He expects DEET to remain popular in the United States.

"We're still seeing growth in DEET sales of 1 [percent] to 2 percent above [gross domestic product]," Gleeson said. "We welcome alternatives to DEET because it only brings light to the importance of protecting yourself against mosquitoes and the diseases they spread. We think DEET will prove to be a superior product compared to the alternatives and this added publicity will add to sales growth."

Federal officials for years held that non-DEET repellents were less effective. Recent studies, however, prompted the CDC to broaden its recommendations, stating in a report that picaridin is "often comparable with DEET products of similar concentration" and oil of lemon eucalyptus provides protection time "similar to low-concentration DEET products in two recent studies."
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