Slimming Down Medifast marketer plagued by suits, plunging sales

March 14, 1993|By Michael Dresser | Michael Dresser,Staff Writer

Jason Pharmaceuticals Inc. grew fat when Oprah got thin, and thin when Oprah got fat again.

That much is agreed upon by everyone connected with the Owings Mills-based marketer of the Medifast diet plan. But the agreement ends there.

After rising to $51 million in annual sales during the late 1980s, the skyrocket that was Jason Pharmaceuticals landed last month in Baltimore's federal bankruptcy court, asking for protection from creditors while it reorganizes.

Members of Jason's founding Vitale family say the company can recover from the slump that hit the liquid-diet industry after television talk show host Oprah Winfrey regained the weight she had lost on a rival plan called Optifast. They say Jason, now slimmed down to 55 employees from more than 300 in its heyday, will develop new products to replace the 80 percent of sales lost since 1989.

But Jason's bankruptcy case is far from ordinary. Its Chapter 11 bankruptcy petition could prove a flimsy shield for a company enmeshed in a tangle of lawsuits.

Jason faces a $2.05 million damage claim from Patti Levitt, a former administrative assistant to the company's founder and chairman, Dr. William J. Vitale. The Pikesville woman charges in a Baltimore County Circuit Court suit that she lost her job after being caught between a boss who sexually harassed her and a jealous wife who defamed her and drove her out of the company.

Several dieters are suing, claiming that the Medifast program caused problems ranging from gallstones to gangrene. The company's fired former president, whom Dr. Vitale once hailed publicly as Jason's "Lee Iacocca," is suing for $500,000.

Jason's landlord has charged in court that the Vitale family drained more than $7 million from the company while its sales were sliding in recent years. Joel Sher, attorney for the creditors' committee, said Thursday that the group will join the landlord's motion to dismiss the bankruptcy filing as improper.

Meanwhile, former employees of Jason describe a company led by executives whose volatile tempers and erratic behavior left workers demoralized and confused -- a company where the owners insisted on extracting as much money in lean times as when sales were soaring.

The Vitale family is fighting all lawsuits. And they say the 'N allegations of erratic behavior come from disgruntled employees who were fired for good cause.

If Jason can get out of some ill-considered leases, as bankruptcy law permits, it will repay all valid claims, says James Vitale, chief executive and co-founder.

But Jason's adversaries doubt that the bankruptcy case will yield a routine corporate reorganization.

"Before it's all over, there could be fireworks," said Robert L. Hanley Jr., an attorney who represents a former landlord suing Jason.

Jason Pharmaceuticals was born in a kitchen blender, James Vitale recalls.

His father, a Baltimore dermatologist, had long been interested in the problem of obesity. In the mid-1970s, Dr. Vitale began to treat patients using the Optifast liquid-diet plan, but many other doctors had a hard time getting the product from Optifast, which imposed strict rules on participating doctors.

Sensing an opportunity, Dr. Vitale began developing a new liquid-diet formula in his kitchen. Into the blender went some dried milk, some egg white and various vitamins and nutritional supplements. The result, which Mr. Vitale describes as almost identical to Optifast, was dubbed Medifast.

Jason was founded in 1979. In the beginning, it was strictly a father-and-son act. James Vitale left the home-remodeling business and joined Dr. Vitale as a one-man production and marketing department.

Business took off when Jason ran an ad in a medical journal, James Vitale recalls. Sales grew from $250,000 the first year to $1 million the second and steadily up to $17 million.

"We could do nothing wrong," said Mr. Vitale, who recalls working "100 hours a week, minimum" during that period. He was joined in the business by his two sisters, Susan Vitale Boone, now vice chairman and chief counsel, and Barbara Vitale Forrester, who has left the payroll. The three share ownership of Jason, having bought out their father a few years ago.

Boom goes bust

Lightning struck in 1988. As the tabloids chronicled her every weigh-in, Ms. Winfrey lost more than 60 pounds on Optifast. The public reaction created a boom even for Optifast's competitors, and Jason's sales leaped to $51 million, a performance the company duplicated in 1989, Mr. Vitale says.

As the work force grew to 300, Jason executives laid plans for even greater growth. They moved into sparkling quarters in an Owings Mills industrial park, leasing spacious offices in three buildings.

An article about the company described the Vitales' trappings of newfound riches: Jim's speedboat, cabin cruiser and Jaguar XJS, Dr. Vitale's $715,000 Hunt Valley home and Piper Dakota. And it caught Jim boasting: "As most people know, some athletes make a few million bucks a year. My earnings are far in excess of that."

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