- The Washington Times - Monday, January 31, 2005

D.C. investment firm Allied Capital is planning to add more companies to its portfolio this year as the economy improves.

Last month, Allied Capital said it would acquire Insight Pharmaceuticals in a $155 million deal that would put the investment firm in the business of producing well-known over-the-counter medicines like Anacin, Fiberall and Sucrets.

Allied Capital also invested $15 million to refinance Minnesota-based Norwesco Inc., a maker of septic and agricultural tanks.

The Insight Pharmaceuticals acquisition, announced Jan. 4, is another move in what Allied Capital does best: buying midsized companies and reorganizing them for bigger profits to add to its $3 billion portfolio.

Shares of Allied Capital closed at $25.61 per share yesterday, down 0.54 percent, or 14 cents, on the New York Stock Exchange.

While Allied Capital celebrates the acquisition of the Blue Bell, Pa., company, it also is cooperating with the Justice Department in an investigation of its biggest holding, a small-business lender in New York.

The investigation appears to focus on “allegations made by short-sellers” involving Business Loan Express’ valuation of loans and investments, the company said.

Short-sellers refers to speculators who earn a profit by selling a company’s stock in anticipation of it losing value.

Washington-based Allied Capital denies any wrongdoing and says it has been turning over information requested by the U.S. Attorney’s Office in the District.

For the Insight Pharmaceutical acquisition, Allied Capital is bringing in former Revlon Chief Executive Officer Jeffrey Nugent.

“We have armed him with a significantly increased marketing budget,” said John Shulman, Allied Capital’s managing director.

Better merchandising and a more efficient supply chain could also increase sales, he said.

The 20 over-the-counter drugs in Insight Pharmaceutical’s product line include Nix, Bonine, Ting, Cepastat, Nostrilla, Aspergum and N’ICE. They are sold through drug, food and convenience stores such as WalMart, Kroger, Walgreens and Rite Aid.

Mr. Shulman called them “orphan brands,” which refer to products only marginally profitable for a company that sells more successful items. The over-the-counter drugs made by Insight Pharmaceuticals originally were produced by pharmaceutical giant Wyeth, which sold them to focus more on its prescription drugs.

“There have been some very good successes in orphan brands, bringing in a strong management team and revitalizing them,” Mr. Shulman said. “These are brands that have been around a long time. In the case of Anacin, it’s been around for 80 years.”

Don Destino, an industry analyst for the San Francisco financial firm JMP Securities, said Allied Capital’s acquisition of Insight Pharmaceuticals was “very consistent” with the firm’s strategy of investing in midsized companies with strong equity assets.

“I think Allied will get more than their share,” Mr. Destino said. “For a company like Allied, finding companies with proven recurring revenue streams is right down the center of the plate for them.”

Allied Capital is heavily invested in companies that provide business services, financial services and consumer products. They include Advantage Sales and Marketing Inc., Border Foods Inc., and Financial Pacific Co. Insight Pharmaceuticals is among the largest companies in Allied Capital’s portfolio.

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