Sterling Products, Inc., Manufacturer
Chapter 5 – Sterling Between the Wars
QUOTES FROM A 1922 INVESTMENT EVALUATION OF STERLING PRODUCTS
Two major themes dominate the history of Sterling between World War I and World War II. The first is its enormous growth resulting from its gathering a wide variety of patent medicines within its ambit, which, toward the end of the decade, brought forth the formation of a very early industrial conglomerate (an aggregation of unrelated businesses).1 The second is its ongoing and intricate course of dealings with the German company, Bayer, which produced not only complicated agreements dividing sales of various medicines, patent and otherwise, all around the world, that led to more charges against, and condemnation of, Sterling as World War II loomed, but also produced an array of significant ethical (prescription only) medicines that permanently changed the practice of medicine by providing doctors with the first substances that genuinely killed disease-causing organisms and saved lives.
COMPLEMENTARY CONVENTION BOX OF STERLING PRODUCTS 1925c
With respect to its growth as a company, to complement its acquisition of aspirin, Sterling seems to have embarked on a parallel campaign to acquire as many as it could of the best-selling patent medicines then still on the market. While the rules that govern sales of such drugs were virtually non-existent in the 1920s, remained hazy for the next forty years, and presently still require sharpening and clarification from time to time, the marketplace itself – with minimal help from the Pure Food & Drug Act and ongoing pressure from the American Medical Association – had begun to sort those products that had some efficacy from those which were completely useless or even dangerous. This entire category of products was beginning its own slow evolution toward today’s status as “over-the-counter medicines.”
PARTIAL LIST OF STERLING HOLDINGS AS LISTED IN EXHIBIT FOR CONGRESSIONAL INVESTIGATION OF FEDERAL DRUG ADMINISTRATION CONDUCTED IN 1930
However, the first major company Sterling scooped up after the end of World War I was Wells, Richardson Co., a New England based drug wholesaler with not only a distinguished company history, but, more importantly, a long course of profitable years and no outstanding debt. Its assets were yet another golden egg in the basket of Sterling’s balance sheet. The next noteworthy acquisition was the Charles H. Phillips Chemical Co. which brought Phillips Milk of Magnesia into the Sterling family. A third company, itself intricately assembled from even smaller companies, was the Centaur Co., which brought Castoria to Sterling. Other companies added included Scott & Bowne, with its popular Scott’s Emulsion, as well as the Bovinine Co., and the Antidolor Manufacturing Co. Note that all of the major products Sterling assimilated – Phillips Milk of Magnesia, Castoria and Scott’s Emulsion – were varieties of laxatives. It is stunning proof of Sterling’s foresight that all of these products remain readily available on the web today, even if they have passed into the portfolios of other pharmaceutical companies since Sterling ceased to exist. Piling growth upon growth, in 1926, Sterling itself launched its American Home Products division, which began its own rapid acquisition of companies that immediately linked it with the Philadelphia manufacturing chemists, John Wyeth & Brother, as well as W.H. Hill Co., O.W. Jadwin Co., Kolynis Co., Pepsin Syrup Co, St. Jacob’s Oil Co., and Whitehall Pharmacal Co. The colorful histories of each of these patent medicine companies and their products before their acquisition by Sterling will be explored in subsequent chapters of this article. Then, as alluded to above and discussed in-depth in subsequent installments, Sterling tried to emulate the patterns of certain industries in other nations by fashioning its own mega-corporation. The one common thread that tied together the various products ultimately lumped together from several disparate industries is that they all required the support of endless exposure of continuous advertising and prominent shelf display that Sterling was used to arranging.
1922 POSTCARD VIEW OF GERMAN BAYER HEADQUARTERS AT LEVERKUSEN
The second major aspect of Sterling’s inter-war history is its continuing relationship with Bayer. Bayer was a world-wide dominion. Once World War I ended, it would have liked to reclaim its aspirin properties in the United States, but Sterling, as the legal purchaser from the U.S. Custodian of Enemy Property, blocked that avenue. Sterling also managed to buy the British Commonwealth rights to Bayer’s trademarks from the British Alien Property Control Board. The loss of the Bayer trademark in the United States and the British Commonwealth engendered an enormous amount of bitterness within Bayer’s German leadership after World War I because it not only regarded Sterling as a thieving interloper, but also felt that Sterling’s management lacked the proper scientific expertise or business acumen to control aspirin. It regarded Sterling’s leadership as little better than patent medicine peddlers. Bayer, as a worldwide manufacturer of ethical drugs, had a complicated leadership hierarchy and a very regulated, scientific process for approving new ethical drugs. The corporate cultures and aims of the two companies, particularly with respect to the marketing of aspirin, clashed.
1912 COVER FROM BAYER HUNGARY TO GERMANY
Once its purchase of Bayer’s assets was complete and Sterling had divested itself of the dyeing business, Sterling placed the manufacture and marketing of Bayer aspirin into a separate American division,² and assigned the other remaining sixty-three ethical drugs it had purchased to its Winthrop Chemical Co. division. However, at the end of World War I, Sterling and Bayer each faced problems. Sterling had control of Bayer’s ethical drugs in the United States, but its Winthrop Chemical division lacked Bayer’s expertise to make the Rensselaer plant operate smoothly and efficiently. On the other hand, if Bayer wanted to sell aspirin again in the United States, it faced the prospect of entering into that marketplace in competition with its own Bayer brand name backed by Sterling’s aggressive and massive advertising tactics. In addition, Sterling lay closer than Bayer to the burgeoning Latin American market for both aspirin and pharmaceuticals, so if the two competed, Sterling’s lower production and transportation costs would allow it to undersell Bayer’s aspirin and other drugs. These circumstances created room for both Sterling and Bayer to negotiate. The talks began promptly, within six months after the U.S. Custodian of Alien Property’s sale in December, 1918 and well before discussions were completed for the Versailles Peace Treaty resolving Germany’s status as an enemy. Business matters were far too important to wait upon such governmental bickering. While these exchanges between Sterling and Bayer were every bit as prolonged and complicated as the meetings among the Allied nations to establish the political treaties (that excluded Germany), unlike the latter political arrangements, they ultimately led to lasting accords.
1925 WINTHROP CHEMICAL CO. COVER
By the end of 1920, Sterling and Bayer had reached a compromise about Latin America. Bayer agreed to license to Sterling its Latin American rights and trademarks for aspirin, which it would continue to manufacture in Germany and supply to Latin America, in return for a 75 percent Bayer – 25 percent Sterling split of these Latin American profits. In return, Sterling agreed not to sell anything under its licenses other than aspirin and aspirin-related compounds in Latin America, thus allowing Bayer to sell its other ethical goods without worrying about competition from Sterling. After 1923, the two companies actually serviced their Latin American customers with a single combined sales force administered through a group of Bayer subsidiary companies each containing in its name the words “Quimica Bayer” (Bayer Chemical) and the particular South American nation that it had been organized to service.
SERVING TWO MASTERS:
1934 CHILEAN BAYER BRANCH COVERS TO BAYER GERMANY
1938 BOLIVIAN BAYER BRANCH COVER TO U.S.
That taste of cooperation led to further negotiations between the parties. In 1923, Sterling and Bayer entered into a second more far-reaching group of contracts. The first contract gave Sterling the right to manufacture, for North America only, certain of Bayer’s German products, largely ethical drugs, through its Winthrop Chemical division in Rensselaer, and pledged Bayer to supply Winthrop with the required scientific expertise, all in return for fifty percent of Winthrop’s profits. The second contract confirmed Sterling’s right to use Bayer’s name in the former enemy territories of the United States, England, Canada, Australia and South Africa, but restricted Sterling from using the Bayer name on any of its many other products, selling any Bayer products under Sterling’s name, or contesting any of Bayer’s other patents or trademarks elsewhere in the world. To handle British and Commonwealth sales of the aspirin trademarks it had purchased from the British government, Sterling had already created a British subsidiary, Bayer Products Ltd. In return for a fifty-fifty split of the profits, the second new contract between Sterling and Bayer also provided that Bayer would manufacture the aspirin for Commonwealth sales, would manage its operations and, as time passed, Sterling would gradually allow Bayer to purchase a fifty percent ownership share.
PORTRAIT AND PHOTO OF CARL DUISBERG AS HEAD OF BAYER GERMANY
Just as Sterling was growing during the twenties, Bayer had also evolved. Admiring the efficiency of American trusts, Carl Duisberg and the rest of Bayer’s leadership had always desired to draw the entire German chemical business into a single corporation, but the idea met resistance among the various rival companies. Under the pressure of war, beginning in 1916, all of the large German chemical companies began participating in a co-operative board for the purpose of consulting to eliminate duplicative efforts while each retaining its own individual corporate autonomy. The name of this co-operative organization was IG Farben (literally “community of interests of dye making firms”), and Duisberg, as Bayer’s chairman, initially acted as its chairman. By 1923, scorched by the ruinous inflation brought on by the pressure of reparations, the German chemical companies were forced to re-think their individual strategies. Suddenly, a single corporation did not appear to be as far-fetched as it once had seemed. In 1925, the dream became a reality and Bayer became a part of the newly minted successor combine of the largest German chemical companies, IG Farben. At approximately the same time as Germany’s chemical industry united into a single firm, it should be noted that those industries both in Great Britain and France also consolidated into a single mega-company. Sterling’s own attempts at creating such an industrial combine will be detailed in later installments of this blog.
DIAGRAM SHOWING FORMATION OF IG FARBEN³
Bayer’s metamorphosis into IG Farben proved to be a windfall for Sterling, for, when the parties reviewed Sterling’s contracts with Bayer, Sterling was able to convince Farben that, as Bayer’s successor, it was now obliged to license to Sterling all the same products of every one of its constituent parts as Bayer had. This contract interpretation opened the door for Sterling to bring to the United States the latest innovations in ethical drugs made by all of Germany’s most technically advanced pharmaceutical labs. Among the most important of these products that Sterling brought to the American market through its Winthrop Chemical division were: Luminal, the first of the phenobarbital class of barbiturates, originally used to relieve symptoms of anxiety or tension, insomnia and to control certain kinds of seizures and later for detecting blood at crime scenes; Salvarsan and Neo-Salvarsan, the earliest effective treatment for syphilis; Prontosil, the first of the sulfa drugs – the earliest commercial antibiotics; Novocaine, the first local anesthetic as well as its subsequent derivatives, such as lidocaine; and Atabrine, the synthetic quinine for fighting malaria, which became essential to the American war effort against Japan in the Pacific Theater during World War II. Thus, Americans and the United States benefitted greatly from Sterling’s arrangements with Farben before World War II.
GERMAN PRODUCTS BROUGHT TO THE AMERICAN MARKET BY STERLING
GERMAN BAYER & WINTHROP CHEMICAL CO. LUMINAL
GERMAN SALVARSAN AND STERLING SALVARSAN*
GERMAN BAYER PRONTOSIL
WINTHROP CHEMICAL CO. NOVOCAINE & TUTOCAIN
However, there was a darker side, as well, to Sterling’s dealings with IG Farben. In return for Farben’s accepting Sterling’s reading of its contracts, Sterling converted Farben’s interest in Winthrop Chemical from a fifty percent share of the profits to a fifty percent ownership interest, definitely a violation of the spirit of the 1918 sale by the United States government to Sterling at the end of World War I. Not only was IG Farben successor to the very alien company from which the United States had originally seized the assets, it was also a German company, an as such, had to navigate the chaotic political situation developing within Germany with the rise of the Nazi party. As the Nazis became more powerful, IG Farben was obliged increasingly to co-operate with the Nazi regime until it became not only an arm of the Nazi state, but, many later critics claim, a willing participant in Nazi atrocities during World War II. In the thirties, the more the Nazis pressured Farben, the more Sterling was ensnared in, and besmirched by, the ensuing controversies as well. For example, during the late thirties Farben issued directives to its Latin American subsidiaries to purge themselves of Jews and Jewish advertising because of increasingly hostile German racial policies. While Sterling internally viewed such policy directives as interfering with its aim of maximizing its profits by leaving certain small portions of the Latin American markets unserved, it did not publicly denounce such directives, and continued to cooperate with the Germans, along with many other large American companies, such as Standard Oil (whose pre-war agreements with Farben were later shown in Congressional hearings to have restricted the development and growth of the synthetic rubber industry in the United States).
1938 BAYER 5OTH ANNIVERSARY POSTCARD
In the end, however, it was the Latin American dealings between Sterling and Farben that brought United States government scrutiny upon Sterling that changed Sterling’s leadership forever. Once war began in Europe, not only was Farben’s share of Bayer Products, Ltd. in England immediately seized by the British as alien property, but also the English navy’s blockade of Germany and control of the Atlantic Ocean interdicted trade between Farben and its Latin America subsidiary Quimica companies. The blockade upset the delicate balancing arrangement – Sterling’s owning the license to Bayer’s name and Farben supplying the aspirin products actually sold – Sterling and Farben had maintained in Latin America for twenty years. To circumvent it and maintain Latin American sales for both companies, in November, 1939, William Weiss, on Sterling’s behalf, proposed a solution. He agreed to ship to Latin America aspirin produced at the Sterling’s Rensselaer, N.Y. factory to replace the shipments that Farben could no longer make, an arrangement that Farben unwillingly was forced by circumstances to accept. However, in return and to make the new conditions more palatable to the Germans, Weiss also pledged, without any formal contract between Sterling and Farben, that Sterling would have its Winthrop Chemical division also produce at the Rensselaer plant the ethical drugs for continued sale by Farben in Latin America that Farben had been producing at Leverkusen and selling in Latin America under Bayer’s name. While the Germans were not thrilled about sharing with Sterling any additional expertise required to produce even more of Farben’s ethical drugs, they also did not want to lose any of their Latin American sales, so they reluctantly embraced this arrangement as well. Just as Weiss had earlier helped Farben hide its share of Winthrop Chemical’s American sales from the Nazis, he agreed to cooperate with Farben in cloaking records of these sales from the British government by transferring the earnings generated through a farrago of intermediate corporations located in neutral countries. Neither obfuscation, both done solely for business reasons in the name of maximizing profit, ultimately earned Weiss plaudits from the enemies of the governments from whom the funds were concealed.
1938 BAYER CHILE COVER TO GERMANY
As American sentiment soured toward the Nazi government, increasingly, by negotiating arrangement after arrangement with Farben as well as Sterling’s behavior, discussed above, such as tolerating the imposition of Nazi directives throughout its joint Latin American branches with Farben, Sterling rendered itself more and more vulnerable to public criticism. Moreover, while still remaining neutral itself, the United States government, reacting to shifting social opinion, began to scrutinize American companies with ties to Germany and the Nazi party. By early 1941, Sterling’s affairs were being examined by the State Department, the Treasury Department, the Justice Department, the Securities and Exchange Commission and, in addition, by Congressional Committees. Congressional hearings about whether German patent holders were unduly influencing the growth of American industry led to price-fixing indictments against Farben, Alcoa and Dow Chemical. Headlines in newspapers gleaned from documents handled over to governmental investigators claimed (correctly) that Sterling was preserving the Latin American pharmaceutical trade for the Nazis. Once the Justice Department had copies of the 1920 and 1923 contracts between Sterling and Farben, as Bayer’s successor, it also had concrete evidence of Sterling’s engagement in the anti-competitive division of the pharmaceutical market and price-fixing. As the price for avoiding indictment, Weiss as well as Albert Diebold – Sterling’s principal founders and most public representatives since its beginning at the turn of the Twentieth Century – were forced to resign from Sterling in August, 1941. The terms of the Consent Decree between Sterling and the Justice Department barred Weiss and Diebold from Sterling for life and required them to pay fines. The abrupt end to the era of their control and direction was a complete and utter repudiation of them and Weiss’s policies of cooperating with Farben. Weiss never really recovered from his removal and was killed in a car accident about a year later. Diebold lived until 1967, but, among his many lifetime achievements, his official obituary made no mention of his role in founding and creating Sterling.
¹ As opposed to the earlier trusts, which had been an integration of linked businesses – either horizontally by controlling all the retail outlets for sale of a product or vertically by controlling the entire process of creating a product – from mining, drilling or growing the raw materials, through transporting, manufacturing and selling the product in retail outlets – to bring an entire industry, like steel, oil, or sugar under a single centralized control
² also, quite legally, called Bayer Co.
³ © Dogan, Musin. Making Innovative Chemical Giants: A Firm-Level Analysis of IG Farben and DuPont.? Columbia University Press, 2017, cup.columbia.edu/book/globalectics/9780231159500.
* Metz Laboratories was also owned by Sterling Products, Inc.
© Malcolm A. Goldstein 2018