Nutraceutical Companies, Do They Exist, and Where Are They Going?

Nutraceuticals International, June 2002, Vol3, No6

There are as yet no nutraceutical companies, just nutrition companies, according to Steven DeFelice, chairman of the Foundation for Innovation in Medicine, and it is nutraceutical companies which will fit into the new health care paradigm. The major players in the health care market only need to look at current trends to see that there is little risk in the nutraceutical business, he told those attending a FIM-sponsored conference on the nutraceutical revolution and its impact on the food and drug industries.

Clinical data is driving this revolution, and mass media is communicating this information to the consumer, another key factor fueling the growth of the industry. The nutrition market is advertising-driven, he noted, while the nutraceutical market will be data and research driven, he said. In 10 years, over-the-counter medicine companies will dominate the nutraceutical market in which there will not be the proliferation of similar products that now exist. Companies will hook trademarks to clinical research to produce nutraceuticals that are distinguishable one from the other. High-gram dosages and combination products will be needed for the prevention of disease, Dr. DeFelice said, which will require patented technologies. Patented water-soluble products, using taste-masking, will be the wave of the future, he predicted.

There is no need for legislation for this industry, he added, since good data will drive out bad products. The line between food companies and drug companies will blur by 2010, he said, because both nutraceutical companies and drug firms are competing for the same customers. To get Congress interested in these products, the link between them and a reduction in health-care costs must be made, he said, adding that there is no industry group lobbying the Congress on this or any other nutraceutical-related issue.


Products need to “fit legal pigeonholes”

To succeed in the nutraceutical and dietary supplement market, companies need to fit their products into a legal pigeonhole to avoid being classed as a drug by the US Food and Drug Administration, said Stephen McNamara, of Hyman, Phelps & McNamara, who added that good scientific data is needed to leverage arguments on a claim strategy that will dodge the drug bullet. The FDA’s most efficient and usual way of dealing with a product in this category that it does not like is to call it a drug, he noted. Each of the six pigeonholes has its positives and negatives, he noted, and they are:

  • health claims under the Nutrition Labeling Education Act – an opportunity with a lot of baggage since it does not allow an explicit claim. The FDA prefers claims that deal with a substance that is a nutrient in the diet which may help reduce the risk of a disease;
  • nutrient content claims. While a content claim such as “high in –” applies only to substances that have Recommended Daily Intakes, he pointed out that a statement giving the amount of a non-RDI ingredient contained in the product can be included on the label and then linked to a health claim. This semantic gamesmanship is allowed under the FDA rules, he noted;
  • medical foods. The fact that the FDA has not taken any regulatory action in this growing category is a good sign, he said’ suggesting that if a product can be marketed as medical food to be used under medical supervision, do it. And he noted that these products do not have to be sold only in drugstores;
  • dietary supplements and statements of nutritional support. Companies need to be creative about the law and how it applies, especially in the interpretation of benefits relating to chemical deficiency diseases, he suggested’ noting that this term can be broadened through research. On claims for a food other than a dietary supplement about its impact on structure and function of the body, there is good case law that as long as the product is a food, statements can be made about the physiological effect of the substance; and
  • Products for special dietary uses.

The bottom line is not to be discouraged, he said, though companies may need to play games to get the message out about the health-related benefits of a product. However, he noted that one cannot always assume a commonality of views among the participants in this industry, and not all may be in favor of doing research.


Need for dialogue with Congress

The blurry line between a food and a drug will reach a critical point within five years, according to attorney Tony Martinez, who noted that industry must get involved in the dialogue with Congress. The latter respects the fact that this is a sensitive issue with huge public interest. Research is a win-win situation, but incentivizing is needed to get companies to do the required research.

There is no agreement as to what is the most successful route in developing nutraceuticals, according to Rhonda Witwer, currently a business development manager at Monsanto. Drawing on research she did in preparing a soon-to-be-published Decision Resources report called Roadmap to the Future, she noted that a variety of market strategies are being used that combine existing products, line extensions, new brands and new ventures with dietary and nutrition products, individual wholefoods, specific ingredient combinations and individual ingredients. It is too early to tell which will be the most successful route, she added.

The factors considered by companies to be the most important in determining success are (in descending order): research/clinical trials, consumer awareness of health benefits, media attention, FDA approval of health claims, a proprietary position, and proprietary technology. Some 70% of respondents to the survey said they are working to create proprietary positions, she said, and of those responding affirmatively, 75% are developing processes, more than 60% are working on developing unique substances and 60% are looking at existing brand equity.

In looking for a partner, the ability most sought (in descending order) is marketing expertise, research on health benefits, raw materials, regulatory expertise and manufacturing expertise. To succeed in marketing nutraceuticals, a combination of expertise in the areas of food products, health, communications and regulatory affairs is needed, she said, noting that it is therefore not surprising that a lot of creative partnerships are being formed. Combination products will be important in developing proprietary products, she said, and public relations strategies will be important in getting the product message out. Other key factors for success include appropriate distribution channels and proper product placement, she advised, and bioactive ingredients may prevail over balanced nutrition.

When functional foods begin to enter the mainstream marketplace, the first categories will be bars, beverages and soups, according to Thomas Aarts, executive editor of Nutrition Business Journal, who told those attending the conference that the major food companies are trying to figure out where the trend in marketing nutraceuticals is heading. Consumers do not want to go too far with these products yet, he added. Food and pharmaceutical companies will be less aggressive in moving information on these products to the mass media, which is the key to transmitting information to the consumer, he noted. Mr. Aarts foresees an increasing emphasis on high-quality products, scientific validation, and more funded research on botanicals. There will be more coverage of these products by insurance providers, which are carefully following this market. There will also be an emphasis on the phytopharmaceutical model, with more regulations, he added.

The growth of the market depends on how quickly the industry will conduct needed scientific trials, how willing the FDA will be to accept these studies and approve new products, and how willing the consumer will be to accept these new products and pay higher prices for them.

The growth of the nutraceuticals industry lies with its integration into the standard therapeutic market as complementary care, according to Nancy Childs, professor of food marketing at St. Joseph’s University in Pennsylvania, who noted that 30%-40% of the US population, mostly female, is disenchanted with the current health care protocol.

The public is already using alternative medicine to treat disease, she said, and among those trying to mitigate the effects of Alzheimer’s, 35% are using vitamin E, 25% anti-inflammatories, 14% gingko and 9% herbal medicine. Of those with high cholesterol, 5% are using alternative therapy and 4% are taking herbal medicines, she noted, and in the asthma market, 7% are using alternative therapies and 4% are taking herbal remedies. The large number of moderate-form asthmatics is a huge pool of people who would be prone to use OTC drugs to treat their condition, and who would be receptive to a nutraceutical approach, she feels. Migraine sufferers, of whom 17% already take alternative therapies and 7% use herbals, would also be another good potential market for these products.

Some 94% of pharmacists responding to a survey felt that nutraceuticals were beneficial to health, 84% felt pharmacies should capture more of this market, and 60% felt more science was needed. Pharmacists will ask hard questions, she added, noting they are most informed about herbals and least informed about nutraceuticals. Issues of concern to pharmacists about nutraceuticals include dosages, interactions, adverse reactions, adulteration and standardization, she said. Additionally, 56% of pharmacists said they are questioned about nutraceuticals, 100% get questions on herbals and 85% get questions on homeopathic products.

Some supermarkets are conducting studies on how best to combine these products with the store pharmacy and the produce section, she noted, indicating they are looking for a larger role and a larger share of this market. Some doctors are moving into selling dietary supplements, she said, and opportunities lie with cardiologists, those dealing with immune function and gerontologists. Insurers are aware that ethnicity is an important factor, she said, with some ethnic groups more disposed to this class of product.

Cost will drive HMOs and insurers to look to nutraceuticals as a way of saving money, she said, and some HMOs have already begin to move into self-providing these products to assure quality, standardization and efficacy. More states are requiring that HMOs cover nutraceuticals if doctors recommend this therapy, she noted, and consumers are demanding insurers cover these products, even if they do not already use them.