GNC 2010 Annual Report Download - page 26

Table of Contents
Compliance with new and existing governmental regulations could increase our costs significantly and adversely affect our results of
operations.
The processing, formulation, manufacturing, packaging, labeling, advertising, and distribution of our products are subject to federal laws
and regulation by one or more federal agencies, including the FDA, the FTC, the Consumer Product Safety Commission, the United States
Department of Agriculture, and the Environmental Protection Agency. These activities are also regulated by various state, local, and
international laws and agencies of the states and localities in which our products are sold. Government regulations may prevent or delay the
introduction, or require the reformulation, of our products, which could result in lost revenues and increased costs to us. For instance, the FDA
regulates, among other things, the composition, safety, labeling, and marketing of dietary supplements (including vitamins, minerals, herbs, and
other dietary ingredients for human use). The FDA may not accept the evidence of safety for any new dietary ingredient that we may wish to
market, may determine that a particular dietary supplement or ingredient presents an unacceptable health risk, and may determine that a
particular claim or statement of nutritional value that we use to support the marketing of a dietary supplement is an impermissible drug claim, is
not substantiated, or is an unauthorized version of a "health claim." See Item 1, "Business — Government Regulation — Product Regulation"
for additional information. Any of these actions could prevent us from marketing particular dietary supplement products or making certain claims
or statements of nutritional support for them. The FDA could also require us to remove a particular product from the market. Any future recall or
removal would result in additional costs to us, including lost revenues from any additional products that we are required to remove from the
market, any of which could be material. Any product recalls or removals could also lead to liability, substantial costs, and reduced growth
prospects.
Additional or more stringent regulations of dietary supplements and other products have been considered from time to time. These
developments could require reformulation of some products to meet new standards, recalls or discontinuance of some products not able to be
reformulated, additional record-keeping requirements, increased documentation of the properties of some products, additional or different
labeling, additional scientific substantiation, adverse event reporting, or other new requirements. Any of these developments could increase our
costs significantly. For example, the Dietary Supplement and Nonprescription Drug Consumer Protection Act (S3546) which was passed by
Congress in December 2006, imposes significant new regulatory requirements on dietary supplements including reporting of "serious adverse
events" to FDA and recordkeeping requirements. This legislation could raise our costs and negatively impact our business. In June 2007, the
FDA adopted final regulations on GMPs in manufacturing, packaging, or holding dietary ingredients and dietary supplements, which apply to
the products we manufacture. These regulations require dietary supplements to be prepared, packaged, and held in compliance with certain
rules. These new regulations could raise our costs and negatively impact our business. Additionally, our third-party suppliers or vendors may
not be able to comply with the new rules without incurring substantial expenses. If our third-party suppliers or vendors are not able to timely
comply with the new rules, we may experience increased cost or delays in obtaining certain raw materials and third-party products. Also, the
FDA has announced that it plans to publish a guidance governing the notification of new dietary ingredients. Although FDA guidance is not
mandatory, it is a strong indication of the FDA's current views on the topic discussed in the guidance, including its position on enforcement.
Depending on its recommendations, particularly those relating to animal or human testing, such guidance could also raise our costs and
negatively impact our business. We may not be able to comply with the new rules without incurring additional expenses, which could be
significant. For example, the Dietary Supplement Safety Act (S3002) was introduced in February 2010 and contains many restrictive provisions
on the sale of dietary supplements, including, but not limited to, provisions that limit the dietary ingredients acceptable for use in dietary
supplements, increased fines for violations of DSHEA, and increased registration and reporting requirements with the FDA. If enacted, this bill
could severely restrict the number of dietary supplements available for sale and increase our costs and potential penalties associated with
selling dietary supplements. 21