Nutraceuticals – opportunities in an emerging market

Natural products such as cereals are likely to from the basis of nutraceuticals — a rapidly growing industry set to penetrate the food and pharmaceuticals markets. Photo by K Owaki/ZAFA

Reprinted from Scrip Magazine, September 1992
by Stephen L DeFelice

Within the next decade nutraceuticals will dramatically penetrate the food and pharmaceutical markets. These two giant industries must now decide whether to enter this business themselves or let it emerge as a major competitive force.

Nutraceutical is a term coined by the Foundation for Innovation in Medicine, an educational foundation established in the US to encourage discoveries in medicine. A nutraceutical can be defined as any substance that may be considered a food or part of a food and that provides medical or health benefits, including the prevention and treatment of disease. Such products may range from isolated nutrients, dietary supplements and diet plans to genetically engineered ‘designer’ foods, herbal products and processed foods such as cereals, soups and beverages.

Certain countries classify vitamins as drugs with government-approved medical or health claims, while others regard them as foods and do not allow such claims. Furthermore, certain countries reimburse such products and others do not. An added complication is that it is commonly believed that many countries which currently reimburse nutraceuticals will stop doing so in order to cut their drug bills.

The vexing question for the pharmaceutical and the food corporations is how they can enter a market which has such ill-defined and rapidly changing guidelines on medical or health claims.

There are other areas where the ground rules are almost nonexistent. An example is cereals and soups that have medical value. If a company demonstrates that vitamin E-enriched cereals reverse the atherosclerosis process, or that a protein-enriched soup alleviates the symptoms of the common cold, it would be difficult to obtain claims for such medical benefits in the absence of a defined approval process in most, if not all, industrialized countries.

The nutraceutical market is undoubtedly confusing and has given rise to understandable corporate unease, but the promise is enormous. Indeed, there have been a growing number of clinical trials published in distinguished medical journals which demonstrate the clinical benefits of nutraceuticals.

The demonstrable clinical benefits of nutraceuticals, coupled with powerful public demand, may well prompt a rapid change in worldwide government policies to accommodate a new and vigorous research-oriented nutraceutical industry. There is little doubt that such an industry will join the mainstream of legitimate regulated industries by the end of this century, resulting in a market that will parallel the present food and pharmaceutical ones.

I believe that companies should not wait for these changes before committing themselves to, and implementing, a long-range nutraceutical business plan. Once a nutraceutical is accepted by medical authorities as having significant medical value, the market will then accommodate that promise. Indeed, worldwide consumption of nutraceuticals has recently exploded despite the archaic and inhibiting regulations that generally prevail.

So how can a company enter this ‘grey zone’ market and what are the elements of success?

Clinical proof
Firstly, the products must be effective, or probably effective, as demonstrated by published clinical trials. Clinical studies must be published in respected clinical journals. But they do not necessarily have to demonstrate definitive clinical activity, such as the effect of vitamin C in patients with scurvy. Strongly suggestive data are sufficient as we have seen with a psylliumbased cereal that lowers blood lipids and a mineral, such as magnesium, which inhibits platelet aggregation and reduces insulin resistance in certain diabetics.

These publications must create sufficient interest among highly visible academic physicians who are willing to communicate the message to practicing physicians and consumer media. The nutraceutical market clearly requires both consumer and physician product awareness.

There must also be significant media interest in the nutraceutical product. High-level media interest has two effects. On the one hand, it creates the necessary dual market by educating both the physician and the consumer and, if it is successful, it establishes immediate product impact, if not trademark impact. For example, the media may discuss the effect of fibre on bowel cancer, but will not usually mention the name of a specific fibre product.

A proprietary position is essential for success. Unlike many pharmaceuticals, a nutraceutical will not usually be supported by very strong patents. But reasonable proprietary positions are still obtainable through one, or a combination of strategies, such as strong trademarks, lead time in registration, patented delivery dosage forms, use, and process or composition patents. These strategies can be effective, and require creative corporate knowledge.

From the standpoint of strategy and return-on-investment, the ability to penetrate multiple markets is of great potential benefit to a nutraceutical corporation. Moreover, since the regulations governing nutraceuticals vary from country to country, intemationai capabilities give a company the flexibility to enter a specific marketplace quickly.

If a nutraceutical company can satisfy all the aforementioned conditions, it has the potential to become a hugely successful international corporation, and possibly the first of its kind in a potentially enormous new business.

The truly unique feature of the nutraceutical market, and probably the most difficult for the pharmaceutical corporate mentality to appreciate, is the need to establish effective medical and consumer media relationships. Moreover, the mentality and culture of the nutraceutical company must also be unique because the market fits neither the consumer over-the-counter culture nor the ethical pharmaceutical culture. It requires uniquely flexible management.

I believe the pharmaceutical industry has the knowledge to enter the market, but lacks the will, while the food industry has the will but lacks the expertise.

Clearly, the pharmaceutical industry has the ability to establish the R&D operations which will increasingly be needed to find new products and establish proprietary positions. It will also be able to set up the necessary business organizations and corporate rate cultures which, with their emphasis on R&D, licensing, regulatory affairs, and sales and marketing to both physicians and consumers, will resemble those of the pharmaceutical industry.

However, as a regulated industry, with clear guidelines involving even the smallest of acts, the pharmaceutical industry will find it difficult to enter a market with vague regulations and unclear and changing guidelines. In contrast, the food industry does not yet know how to evaluate and develop a nutraceutical properly, but it is far more comfortable with the promotion side of the business. It is worth noting, however, that some major food companies have begun to develop nutraceuticals to support medical or health claims for food products. This should be a clear signal to the pharmaceutical industry to expect significant competition from large and powerful non-pharmaceutical corporations in the near future.

There do not appear to be any corporate structures which are temperamentally and logistically capable of capitalizing fully on the new nutraceutical market at the moment. As in other emerging areas, however, it is likely to be small entrepreneurial units that first demonstrate the legitimacy of this new market. They will achieve their success through a growing array of outlets in pharmacies as well as food counters.

The nutraceutical revolution represents an enormous opportunity for growth and expansion. The immediate challenge. however, will be to gamer the vision and foresight to participate in this expanding area. Regardless of the from it ultimately takes. the scientific, medical!’ and social groundwork has been laid for the rapid emergence of a significant new phenomenon.

Stephen L DeFelice MD is Chairman of the Foundation for Innovation in Medicine, New York, US.