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    Features

    2006 State of the Industry Review

    Reviews and forecasts from nutraceutical executives.

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    12.01.06
    This year was another turbulent one as it relates to dietary supplements. And the most recent developments in Congress seem to indicate that functional foods are in for a rough ride as well. With the House of Representatives and Senate now in control of the Democrats, there will be renewed interest in DSHEA as it relates to both categories of products. However, while some look at increased regulation as potentially damaging, others welcome the development so as to rid the market once and for all of the disreputable players that continue to drag down the reputation and credibility of the nutraceuticals industry. The next year will certainly usher in a lot of action but only time will reveal how much the landscape has been altered. Will 2007 represent a new era for supplements and functional foods? We'll soon find out...

    "What happens to dietary supplements impacts the development of functional foods in areas such as claims. It's past time for the supplement industry to 'get its act together' in order to avert further damage to this important and vibrant business. A concerted and consistent effort by the industry will surely help the FDA implement GMPs and AERs. Take a leaf out of the food industry playbook and unite the disparate trade associations so there is one voice to the consumer, the government and the press. Secondly, take action against those companies that willfully ignore self-regulation by expelling them from the organization and making that action public knowledge."

    Steve Allen
    Vice President, New Ventures
    Nestl
    Glendale, CA


    "The convergence of the dietary supplements and health and wellness foods/food ingredients categories continues, driven by baby boomers' interest in prevention of chronic diseases. During 2006, many studies documented clinical effects; larger trials often are needed. This global work demonstrates broad interest in scientific proof of specific health effects of diet. Led by Australians and Europeans, the clinical science supported a multitude of low glycemic index products, especially formulated with whole grains. Consumer interest in omega 3 fatty acids has prompted expansion of more economically viable production methods.

    "For the short term (2007-2008), LSA predicts a continuing search for the silver bullet cause of and intervention in obesity and associated adverse health effects. The ubiquitous use of high fructose corn syrup will receive increased scrutiny. There will be a continued shift in food and beverage availability in schools away from calorie dense/nutrient light foods and beverages. The future of nutritional genomics will be positively influenced by clinical proof of gene-diet interactions as cause/mediation in disease processes."

    Alex Merolli,
    Life Sciences Alliance (LSA),
    Pleasanton, CA
    &
    Nancy Fogg-Johnson
    Life Sciences Alliance (LSA),
    Villanova, PA


    "The winds of change will dominate 2007, beginning with the likely change of control in Congress that will set the stage for bruising DSHEA hearings, AER legislation, and a possible attack on DHEA.

    "FDA, though weak, will again exert its authority. Their agenda will include a final GMP regulation announcing an NDI/ODI policy and beginning efforts to define the difference between foods and dietary supplements. Also, anyone peddling ephedra would be foolish to do so. Watch out for the 'new ephedra' stack of a caffeine sources-green tea extract plus hoodia. If FDA wants to try out their newly minted risk/benefit policy (thanks to the recent ephedra decision), this would be the likely candidate.

    "IP protection will emerge as an issue of significance, as will a growing battle line between our industry and the pharmaceutical industry to define the difference between diseases and health conditions. At the moment, we are losing this battle.

    "The big story will be the first real Congressional inquiry into DSHEA since its passage in 1994. After 12 years of bottled up animosity, the new 'kings of the hill' are itching for a chance to expose (through Congressional hearings) the excesses, abuses and mischief allowed because of DSHEA. This will make for juicy headlines on the 6 o'clock news, with the likely refrain that dietary supplements are not regulated, are of dubious safety and unproven benefit.

    "So, if you are an industry executive who is fed up with all of this, the good news is 2007 is your chance to make a difference personally and corporately. You should plan your time and budget accordingly."

    -Loren Israelsen
    Executive Director
    Utah Natural Products Alliance (UNPA)
    Salt Lake City, UT


    "Over the past 10-15 years I have heard and read about the blurring lines between conventional foods and beverages and functional foods and beverages. I also have heard and read about the blurring of the lines between the supplement industry and the food industry. I really do not believe this to be true. I believe that all foods and beverages are functional and that both the dietary supplement industry and food industry can only be relevant if they are relevant to the consumers they plan on serving.

    "What has changed in recent years is a focus on the interaction between the functional value of the host brand consumer proposition and the consumer themselves. This is where all the science and technology meets its intended target. Consumer brand owners are shifting away from marketing a new ingredient to delivering a compelling consumer proposition that has a cultural fit with its target consumer. In our industry, it is essential that we connect with our consumer. Our functional proposition must enhance the value of our customer's consumer in either a functional or emotional way, or both.

    "The lines between functional and conventional are only blurry to us. Consumers know what they want when they see it. It is our job to figure out how to deliver our complex scientific proposition to them in a manner that they can understand."

    -Paul Paslaski
    Market Development Director
    Cargill Health & Food Technologies
    Minneapolis, MN


    "Japan appears to be back on track on a macroeconomic level, with controlled growth in the economy and an improved outlook for the future. Although the Japanese population has finally begun its expected gradual long-term decline, the market for functional foods and nutraceuticals in Japan is continuing to grow. The Japanese government continues to be very supportive of initiatives to help maintain the health of the general population, encouraging the development of foods and beverages with proven health benefits. As responsible members of a rapidly aging population, Japanese consumers of all ages are willing to purchase and consume such products to try to help to reduce the financial burden of expensive medical intervention."

    -Ron Bailey
    President
    California Functional Foods
    Ashland, OR

    "Mainstream food and beverage companies are under enormous pressure to deliver healthier product portfolios as regulators, policy groups and consumer representatives are reviewing their products and range of product choices. Both their products and their marketing efforts to children are under scrutiny and the marketing approaches may be of higher concern than the foods and beverages. The microscope is on the larger public companies so smaller firms are operating in the shadows drawing less attention. Curtailed marketing efforts to children will drive marketing dollars into the store. Retailers will offer more private label. And both will be looking for healthier ingredient profiles and healthier messages for their products. The year ahead will be one of testing new strategies and assessing if the consumer is in alignment with the policy direction."

    -Nancy Childs
    Professor of Food Marketing
    St. Joseph's University
    Philadelphia, PA


    "2006 was distinguished by some remarkable collaborations between industry and other organizations that now have an interest in our materials and products. For example, AHPA worked with US Fish and Wildlife to develop state-specific brochures on wild American ginseng good stewardship practices. AHPA staff also brought false black cohosh case reporting to the attention of four international regulatory agencies, collaborated with USP and FDA on pesticide testing and other areas of mutual interest, and improved how NCCAM evaluates product quality prior to granting research funds. Such collaboration continues to expand industry's essential connections and build its still developing foundations."

    -Steven Dentali, PhD
    VP, Scientific & Technical Affairs
    American Herbal Products Association (AHPA)
    Silver Spring, MD


    "The outcome of the mid-term elections could potentially have a big impact on the industry, particularly if-as many predict it will-the House goes Democratic. This would put two of our biggest critics-Reps. Henry Waxman and John Dingell-in leadership positions on two powerful committees. While it's hard to predict where dietary supplement issues may fall on what will undoubtedly be packed legislative agendas, their ability to hold hearings and pass legislation that the industry won't like is exponentially increased. Introduction of a final GMP rule for dietary supplements will have a tremendous impact, especially if some of the suggestions made by us and others to keep costs realistic have not been incorporated. Hopefully, we'll know soon."

    -David Seckman
    Executive Director and CEO
    Natural Products Association
    Washington, D.C.


    "We observe strong growth in cosmeceuticals, in functional cosmetics from the outside, as well as in nutraceuticals positioned to promote beauty from the inside. A lot of claims regarding anti-aging, anti-wrinkle and anti- cellulite effects are being made, but claim substantiation is often weak or non-existent. Functional botanical ingredients from around the world are available, but only a small percentage of them is being used. With solid research and good clinical trials, this segment offers great growth opportunities."

    -Joerg Gruenwald
    President
    analyze & realize AG
    Berlin, Germany

    "Troubling high profile issues with pharmaceuticals and healthcare have expanded opportunities for nutraceuticals to significantly enter mainstream American consciousness. Skepticism and bad publicity also afflict our industry; therefore, solid science and high quality standards are now essential. 'Natural,' 'GMO free,' 'preventative,' and 'Where Food and Health Meet' (PLT's motto) have strongly growing appeal to a public that is increasingly taking over management of their personal diet and health from the medical and food industry establishments.

    "We are making our ingredients more suitable for inclusion in functional foods. This will contribute to the public's increasing enthusiasm for dietary supplements. We feel fortunate to have our feet in both the food and dietary supplement industries."

    -Paul Flowerman
    President
    PL Thomas (PLT)
    Morristown, NJ


    "I think we'll see more consolidation, which usually characterizes a high growth-to-mature market; a steadily growing target market for natural/organic products; and widening distribution channels as natural/organic products become more mainstream. Yet I feel that there is an elephant in the living room. The term 'natural' must be defined for the industry and for consumers, so that competitive advantages can be preserved and standards can be set. If this problem isn't addressed with some urgency, we will continue to see the erosion of what natural really means. This is bad news for everyone. We've done it for organic, albeit with mixed results, so why can't we do it for a much larger product category?"

    -Darrin Duber-Smith, MS, MBA
    President
    Green Marketing, Inc.
    Nederland, CO


    "Our North American sales of OptiMSM have been extremely strong due to investment spending we've done and also consumer marketing support from the leading joint health brands. Joint health is one of the most underdeveloped categories in the industry: demographically, more than 20 million Americans suffer from osteoarthritis while more than 70 million baby boomers now straddle the 50+ 'vitamin age' of heavier usage of nutritional supplements. Even today, a small percent of consumers with achy joints know to take supplements for this situation.

    "Regarding quality, too many product marketers are still too eager to cut corners and downgrade product quality for short term gain. If acetaminophen were a dietary supplement, half the industry would have it down to 100 mg a day and many would be cutting it with a cheaper filler. As an industry, we have to be more loyal to providing what's effective in the body."

    -David Lakey
    President
    Bergstrom Nutrition
    Vancouver, WA


    "The sterilization of herbal powders continues to be a big issue in the industry. Europe cannot accept ETO or irradiated botanical powders, and North American consumers are becoming more educated about the dangers of ETO/irradiated products. Companies providing nutraceuticals to the consumer must provide alternatives that are prop 65 compliant. BI Nutraceuticals has developed a line of botanical powders called Protexx HP, an extensive line of herbal powders that uses super-heated dry steam to reduce microbiological load with results comparable to that of treatment with ethylene oxide or irradiation without the potential regulatory issues. Protexx HP delivers maximum reduction in potential contaminants while preserving color, flavor and bioactive components. We also verify through PSL testing that the materials have not been irradiated.

    "Increasingly, customers are requiring that herbal products run efficiently and without problems in their manufacturing environment. Particle engineered ingredients are formulated to a consistency that is optimized for liquid, tablet, capsule or soft gel applications. By roller compacting, wet granulating, milling, etc., herbal raw materials can be changed to improve the manufacturing efficiencies."

    -George Pontiakos
    President & CEO
    BI Nutraceuticals
    Long Beach, CA


    "The role of a nutritional ingredient supplier will evolve more dramatically than in past years. We are at an important crossroads with the worlds of functional foods and dietary supplements converging and these companies expect fully integrated services from their suppliers. Cognis goes the extra step by conducting our own clinical studies to support products, so we have the scientific basis to educate our customer as to what claims they can make. We conduct surveys of targeted consumers to help customers with their marketing plans. Taste will always be critical to consumers, so as a supplier, Cognis must continue to find new ways for our customers to formulate nutritional ingredients into their products without altering the sensory characteristics of the food or beverage."

    -Dave Eckert
    Vice President
    Cognis Nutrition & Health
    LaGrange, IL


    "The nutraceutical industry is in a state of self-assessment. The past year has seen its share of negative publicity and inconsistent science. However, the demographic mega trends of aging continue and the baby boomers are not going gracefully into retirement. The continued interest in health and the steady emergence of condition-specific formulations of nutraceuticals bodes well for the next year. At NAI we continue to push for open international markets, better visibility in regulations and the publication, adoption and enforcement of appropriate standards for manufacture by the FDA under the DSHEA legislation. We continue those efforts at both the domestic and international level-because without adoption of standards of excellence our industry will continue to suffer from the occasional misdeeds of peripheral participants."

    -Mark LeDoux
    Chairman & CEO
    Natural Alternatives International (NAI)
    San Marcos, CA


    "The trend toward improved wellness in the food industry has evolved into a full-fledged movement that we believe is here to stay-and this health movement has engaged many if not all ingredient suppliers and manufacturers who are now offering better-for-you food, beverage and supplement alternatives. Powerful messaging via packaging is increasingly being used to capture the attention of health-conscious consumers. GTC Nutrition is gaining momentum along with this movement by continually supporting our customers with a unique portfolio of customized, healthy ingredient solutions, as well as scientific, technical and marketing expertise to further differentiate products and educate consumers."

    -Patrick Smith
    President
    GTC Nutrition
    Golden, CO


    "2006 was the year they got it! After all the press and media attention concerning the health crisis in the USA (and world), food companies began introducing healthier, great-tasting foods that will have a positive impact on the health of consumers, from infants to active baby boomers.

    "2007 will be the year functional foods really get traction. Food companies will begin targeting 'life stages' with specific food products formulated to meet that particular audience's taste preferences and health issues. These directions include cognitive development for children, heart health for middle age and Alzheimer's concerns for the aging. DHA (docosahexaenoic acid), the lifecycle nutrient, will explode into mainstream markets."

    -Philip Fass
    Executive Director of Sales & Marketing
    Martek Biosciences
    Columbia, MD


    "During the past year, the U.S. nutraceuticals industry has benefited from a growing consumer awareness of all things related to health and wellness. The convergence of 'food as medicine' and 'medicine as food' has continued, hindered only by the inability of the regulatory agencies to keep pace. With CNI's focus on dietary fiber, we have seen a strong increase in the fiber fortification of all types of processed foods and beverages. The proven link between dietary fiber and disease prevention and/or treatment is now well understood by many consumers. Even consumers who may not completely understand all the science clearly know that eating more fiber will make them healthier."

    -Sharrann Simmons
    Vice President & General Manager
    Colloides Naturels, Inc.
    Bridgewater, NJ

    "The omega 3 category has seen another strong year of growth in North America. Consumer awareness of these materials is increasing, and we are now seeing the emergence of these fatty acids in food as well as pharmaceutical products. Competition at the raw material end has increased too as more and more suppliers see the benefits of being in this category. We are also seeing a trend, now well established in Europe, toward condition-specific products. As more and more research becomes available showing the benefits of EPA and DHA in the body and their very different roles, opportunities are created for companies to tailor products to certain fatty acid concentrations for the treatment of certain conditions. Suppliers are pushing the boundaries of technology in their quest to supply more highly concentrated products. 2006 has also seen the formation of the Global Organization for EPA and DHA (GOED), a trade association set up to grow the category through education, including establishing an RDA, and the protection of consumers through self-regulation and the development and maintenance of quality standards. 2007 and beyond are exciting times for those associated with the omega 3 category, from the supplier of the oils to the consumer."

    -David Shannon
    Sales Director, Health Care
    Croda, Inc.
    Edison, NJ


    "At Embria Health Sciences we see our future, as well as the industry in whole, resting on our ability to provide safe and efficacious supplements to consumers. As the efficacy expectations for nutritional supplements increase, it is our belief that only those companies that support strong and significant scientific research will, and should succeed. As an emerging leader in immune health support with our EpiCor product, we are energized by the interest in this growing segment, and will continue to contribute significant resources to build our body of scientific and clinical support in 2007. We support the efforts of responsible and science-based groups like the Council For Responsible Nutrition (CRN), and welcome industry and government oversight to improve consumer confidence in the safety and performance of dietary supplements."

    -Larry Robinson, PhD
    Vice President, Scientific Affairs
    Embria Health Sciences, LLC
    Cedar Rapids, IA


    "In 2007, the Council for Responsible Nutrition (CRN) looks forward to building acceptance among industry members for its new initiative with the National Advertising Division (NAD) to increase the scrutiny of dietary supplement advertising. As stewards of this industry's future, marketers of these products will need to take responsibility for exposing those who push the envelope too far. We're excited about supporting and promoting this forum where controversial advertising claims can be evaluated objectively, transparently and efficiently before the FTC gets involved. When consumers are misled or deceived about any supplement, it affects their faith in the reasonable, well-documented and legitimate claims of all supplements. Along with CRN's other initiatives to promote responsible industry behavior and build acceptance for supplements among healthcare professionals, this NAD program can demonstrate why consumers can have faith in our products."

    -Steve Mister
    President & CEO
    Council for Responsible Nutrition (CRN)
    Washington, D.C.


    "The business climate in the nutraceuticals industry has been both challenging and rewarding in 2006. Demand dynamics in all developed markets has never been more positive due to rising age, escalating healthcare costs, strong income growth and the desire on the part of consumers to pursue non-drug solutions for chronic health problems. In the business-to-business space, we saw a growing demand for complete nutritional solutions and value-added ingredients rather than single entity components.

    "The convergence of a number of formerly distinct industries along the food-drug continuum promises to accelerate growth into 2007 and beyond, and the emerging field of nutrigenomics presents the possibility of quantum leaps in nutrient demand in decades ahead.

    "There has never been a better time to be involved in the nutrition business and we are excited about Wright Group's future prospects."

    -Sam Wright IV
    President & CEO
    The Wright Group
    Crowley, LA


    "Soya is definitely making inroads into the European mainstream. The consumer demand for soya showed high growth in 2006, with figures well above 20%. The soya beverages and drinks category has left the emerging life cycle growth phase. 2006 also witnessed major manufacturers launching new concepts in various countries. Danone introduced a new soya-based line of desserts under the new brand Senja in Spain and France. Unilever decided to introduce its successful Adez brand from Mexico in the U.K.-spending 11 million in marketing. Alpro has increased its marketing efforts to run a 44 million campaign in various European countries. All these initiatives are good signs of faith in the future healthy potential of soya by key industry players."

    -Gerard Klein Essink
    Founder
    PROSOY Research & Strategy
    Bilthoven, The Netherlands


    "While Baby Boomers are considered to be an influential consumer group, recent research by The Natural Marketing Institute shows large market gaps and opportunities exist-especially as they relate to various boomer healthy aging needs and satisfaction levels. These are most evident among issues related to health-having enough energy, maintaining proper weight, finding ways to manage stress, being physically fit and most important, brain fitness, with more than half stating that losing mental capacity is their biggest fear of aging. These satisfaction gaps represent large funnels of opportunity for savvy manufacturers and marketers to tap into this market of 78 million adults."

    -Maryellen Molyneaux
    President
    The Natural Marketing Institute
    Harleysville, PA


    "As most industry stakeholders know, AIBMR Life Sciences was founded in the late 1970's with the objective of putting science into products marketed as nutraceuticals, whether they be dietary supplements, functional foods, or cosmeceuticals. Interestingly, as the industry has grown so has the scope of our services and global activities. Today we are able to offer a wide range of services, one of the most important of which is to substantiate the safety and efficacy of nutraceutical products. We are doing so many studies that our costs per study are going down due to volume discounts offered by labs and clinical entities. We pass these savings on to our clients, often to the tune of thousands of dollars in savings. This allows our clients to do far more studies on their products for the same dollar. It is also helping companies build a solid platform of product substantiation as the industry moves from its previous market-driven paradigm to a much smarter and more effective utilization of evidence-based science to support marketing. As we see more and more companies move in this direction, it will in time resolve many of the disputes with regulators and strengthen consumer confidence."

    -Alex Schauss, PhD, FACN
    President & CEO
    AIBMR Life Sciences, Inc.
    Puyallup, WA

    "The robust participation at the retail shows this past year indicates that the industry is back in a growth mode. An aging population, the obesity epidemic, and increased interest in condition-specific supplements-along with growing concern about the safety of foods and drugs-are combining to give quality nutrition companies the chance to offer products that can help people live longer and healthier lives. We're also seeing a significant increase in the purchase of functional foods and beverages.

    "At InterHealth, we produce patented, high-quality ingredients that are meeting the needs of today's discerning consumer. With extensive scientific research proving them safe and effective, our ingredients are designed for consumers seeking support for a variety of leading health concerns-including those related to obesity, diabetes, arthritis and allergies. For the food and beverage market, we are providing ingredients that are stable, odorless, soluble and able to be incorporated into a wide variety of products."

    -Paul Dijkstra
    Executive Vice President
    InterHealth Nutraceuticals
    Benicia, CA


    "The vitamin E market took a beating in 2006. However, there is a silver lining in all this negative news. In nature, there are eight forms of vitamin E. Tocotrienols have been proven to be beneficial for cardiovascular health. In an NIH-funded study, OSU Medical Center found that Tocomin full spectrum palm tocotrienol complex is better at protecting the brain from stroke-induced neurodegeneration.

    "Consumers are now looking for a full spectrum vitamin E-one that has both the mixed tocopherols and mixed tocotrienols (the "Yin & Yang" of Vitamin E)-getting the best of both worlds.

    "2007 could be the year where this trend will be featured prominently in the vitamin E market."

    -WH Leong
    Vice President
    Carotech Inc.
    Edison, NJ


    "BASF helps food, beverage and supplement manufacturers make their products more nutritious with a combination of quality ingredients, advanced technologies and scientific expertise. This year, BASF launched new, allergen-free and vegetarian formulations such as Dry Vitamin E Acetate 50% DC/GFP, Beta-Carotene 10% DC/GFP and Dry Vitamin A Acetate 250 DC/GFP. We also introduced two new grades of Coenzyme Q10 that target soft-gel and tablet applications. On the scientific front, BASF-sponsored research published in the American Journal of Clinical Nutrition demonstrated that a combination of carotenoids in dietary supplement form can effectively protect deoxyribonucleic acid (DNA) from oxidative stress damage."

    -Folker Ruchatz
    Business Director, Pharma Solutions & Dietary Supplements
    BASF North America
    Florham Park, NJ


    "As I look forward to 2007, one of the salient industry issues I see is the need for greater Integrity.Integrity in how we market and talk about our products from a regulatory standpoint.Integrity in how we respect the intellectual property of our competitors. Integrity in how we deal with our customers and in the quality of the product we deliver to them. Whether we are a manufacturer, supplier, retailer or consultant, this industry will thrive or decline to the degree that we deal honestly in the marketplace."

    -Jeff Hilton
    President & Partner
    Integrated Marketing Group (IMG)
    Salt Lake City, UT
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