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    Nutraceutical Contract Manufacturing 2011

    Increased demand for higher processing standards and certified production capabilities characterize a contract manufacturing industry that’s banking on increased economic growth

    Joanna Cosgrove, Online Editor03.02.11
    Given the ongoing trend of fiscal belt-tightening, contract manufacturing operations are an increasingly important supply chain resource for the nutritional supplement industry. But make no mistake, competence — not cost—is king, and more supplement formulators are unwilling to settle for anything less than certified and GMP-compliant facilities.
     
    For many supplement formulators, hiring a contract manufacturer is simply the most cost -effective route to producing their product. “Most marketers choose to work with a contract manufacturer because the cost to start their own manufacturing line, along with the technical issues and the experience, make it difficult to start a manufacturing line,” said Steve Holtby, president and chief executive officer, Soft Gel Technologies Inc., Los Angeles, CA. “By outsourcing production, there is no need to purchase or rent production facilities, buy equipment, purchase raw materials or hire and train employees to produce the goods. Instead, they are able to completely focus on making sales, advertising and marketing the product.”
     
    “Contract manufacturers should be viewed as an extension to your own company,” commented Suhail Ishaq, president, GMP Labs, Anaheim, CA. “With globalization and cGMP regulations in full effect . . . companies are mandated to ensure that their products are compliant in the U.S., and in some cases internationally for export. 
     
    “Therefore, the need to have a cGMP certified, internationally registered and experienced contract manufacturer . . . should not be understated,” he continued. “In order to derive the maximum value out of your contract manufacturer, there should be an emphasis on nurturing the relationship so that both sides understand that there is more to the relationship than price alone.”
     
    Sam Wright, president and chief executive officer of The Wright Group, Crowley, LA, agreed with a nod toward the tricky challenge of balancing costs and turning a profit. “The contract manufacturing environment today is increasingly challenging,” he said. “Commodity prices have escalated worldwide putting pressure on supply chains, while pricing power remains quite limited at the retail and consumer levels.
     
    “At the same time,” he continued, “cGMPs and other global quality standards have made it necessary to bring in new capital investments as well as personnel investments, which tend to add to costs going forward. Additional quality testing and supplier auditing in the wake of Chinese raw material adulteration scandals have also added to costs, but has also added tremendous value from the customers’ standpoint. We feel this increased focus on food safety and higher quality will benefit the stronger companies.”
     
    He went on to note that the business of contract manufacturing has become more relationship-oriented and less transactional. “The better, more sophisticated customer companies look more at total cost in use adjusted for risk rather than simply lowest price,” he said. “If the contract manufacturing firm is doing its job well, they may command the highest price and still be the lowest total cost.”
     
    “There was a time not very long ago that price was the top concern when someone was looking for a contract manufacturer to produce a product,” concurred Harold Fox, director of sales, National Enzyme Company, Forsyth, MO, who pointed out that proper certifications, quality and appropriate documentation are crucial points of differentiation. “Certifications that allow you to get into other markets around the world will be important as well as being able to aid your customers in navigating the various regulatory structures in those markets.”
     
    Balancing Challenges
     
    Maintaining quality assurance while keeping abreast of regulatory issues are two of the biggest challenges for most contract manufacturers, which further underscores the crucial importance of appropriate accreditation.
     
    In fact, ongoing quality assurance regulations have increased the profile of nutraceutical contract manufacturers. “In addition to the continued presence of internationally-recognized certification groups such as NSF International and the Natural Products Association, the FDA has taken a much stronger stance on controlling quality with GMPs,” said John Yanusas, executive director, Tedor Pharma, Cumberland, RI. “In 2008 and 2009 respectively, FDA cGMP compliance enforcement began in favor of large and medium-sized manufacturers. The June 2010 requirements of manufacturers with less than 20 employees marked the final stage.
     
    “The added cost of analysis required by the new regulations increases the cost of production,” he continued. “For this reason, many small nutritional supplement companies are now looking to partner with a contract supplement manufacturer who is prepared to meet these regulations.”
     
    He went on to assert that not partnering with a properly accredited contract manufacturer could equal a risky gamble on product potency and stability. “The education process needs to start at the consumer level and move up the product distribution and supply channels, educating the parties about the need for products coming from a cGMP facility versus someone’s garage or warehouse space,” he said. “As an example, by offering products with potency claims at time of manufacture or lacking expiration dating that is not backed up with real stability studies the consumer potentially is receiving a product that is no better than a placebo or sugar pill.”
     
    Despite the consumer confidence in the nutraceutical industry, there has always been a shadow of doubt regarding product quality. This is why keeping abreast of current regulatory issues is such a crucial aspect of the contract manufacturing business, according to Soft Gel Technologies’ Mr. Holtby.
     
    “With the advent of the new FDA GMPs for dietary supplements, contract manufacturers must advise customers of the implications of the new regulations,” he said, noting the importance of conscientious record keeping. “Record keeping and documentation are crucial components to ensure GMP compliance and continued certification, [and] detailed batch records need to be maintained for traceability purposes.”
     
    This kind of accountability, said GMP Labs’ Mr. Ishaq, helps distance efficacious contract manufacturers from the increases numbers of “online pseudo-manufacturers.”
     
    “[They] purport to be real contract manufacturers when in fact they are nothing but brokers or middlemen who compromise quality to make their margin,” he said. “They have created a lot of unhappy customers because of their false promises and lack of transparency. Transparency [is] a key element in building long-term and sustainable relationships . . . based on trust and performance expectations.”
     
    Manufacturing Trends
     
    Challenges aside, contract manufacturers are uniquely able to meet market demands, especially as they relate to specific product trends.
     
    For Farmingdale, NY-based Nutricap Labs, the market niche is weight loss products. “Typically [our customers] request that these products be manufactured in tablet or capsule form, however we’re starting to see more people request their weight loss products to be manufactured in powder form,” said Jason Provenzano, the company’s executive vice president of sales and operations.
     
    “The same trend applies to people seeking to manufacture functional foods and beverages,” he added. “Powders are more attractive because of the low minimum requirement and low cost associated with them. As it relates to convenience, consumers tend to like products in powder form because they can mix it with water or another liquid and take it on the go.”
     
    Tedor has been focusing on combination probiotic and nutraceutical component tablets and capsules, in an effort to ensure compatibility and long-term stability to differentiate their products from manufacturers who justify their stability claims with statements like “at time of manufacturing.”
     
    Tedor has also been working in the areas of taste masking for palatable oral dosage delivery, especially as it relates to the development of children’s nutraceutical products that can be directly swallowed, chewed or dissolved in the mouth. “From a formulation perspective we constantly deal with taste issues and the incorporation of marketplace-acceptable GRAS excipients,” conveyed Lakshimi Devi Ethirajan, a formulation scientist with the company. “Since Tedor establishes a higher level of stability in its products the formulator is constantly monitoring accelerated and real-time data to make sure the product is within specifications at time of manufacturer until its expiration date. Due to the unique ingredients incorporated into some of our nutraceuticals, we experience challenges with product conformity and have adopted or incorporated many of the pharmaceutical manufacturing processes/analytical testing techniques to ensure product conformity to specifications within the individual dosage form and within the batch manufacturing process.”
     
    In the soft gel category, the hottest trend continues to center around omega fatty acid products, with a heavy emphasis on fish oil sources. Soft Gel Technologies’ EZ Mega 3 soft gels contain a stable and deodorized ethyl ester fish oil concentrate. “The highest standards were used to manufacture this fish oil concentrate, so that it is not only free of potential toxins, but it is also odorless and minimizes aftertaste and reflux,” commented the company’s Mr. Holtby. “Since the fish oil contains higher concentrations of EPA and DHA than standard fish oils, it allows us to put more omega 3 in smaller capsules.” Typical omega 3 oils have a fishy aftertaste, cause reflux (burping) and often come in large, hard-to-swallow capsules. EZ Mega 3 soft gels contain fish oil concentrate with no burp, no taste, no smell!” 
     
    The flourishing joint and skin health categories have been beneficial for GMP Labs. “The joint health market alone is roughly $2 billion dollars and the skin health or ‘nutricosmetic’ market is estimated to be over a billion and growing,” said Mr. Ishaq. “Our favorite ingredient is BioCell Collagen II because it addresses both applications and customer satisfaction is extraordinary.”
     
    Increasing knowledge about the benefit of enzymes has also proven successful for National Enzyme Co. “The market for nutritional enzyme supplements is growing as consumers become more aware of the benefits, which has led to exciting advances in delivery methods,” said the company’s Olivia McRae, production manager. “As new materials become available we strive to use them to deliver our products to the consumer in the most cost effective ways possible, while at the same time retaining the time tested virtues of the natural product. Contribution from medical experts provide a more comprehensive approach to new formulations and applications.”
     
    Nutricap Labs’ Mr. Provenzano pointed to the private label sector as a valuable segment for contract manufacturing. “Nutraceuticals World recently published an article that stated approximately 73% of shoppers would either recommend a store brand over a brand name or did not feel that they were giving up anything by purchasing a store brand,” he said. “Furthermore, 62% of consumers that were polled felt there was no difference in quality between name and store brands. As long as these sentiments continue to hold true, there’s no reason to believe that the private labeling industry will do anything other than thrive.”
     
    From a business perspective, The Wright Group’s Mr. Wright pointed out the shift in the role of the contract manufacturer. “There has been a noticeable increase in the reliance on contract manufacturers to participate at the earliest stages of product development, where in the past, we manufactured based primarily on the customer’s specifications delivered to us,” he said. “It is partly a function of corporate downsizing and the tendency to outsource functions not critical to the enterprise.”
     
    Future Outlook
     
    Although the specialties of the contract manufacturers interviewed for this article are unique, they are united by a common belief: that the demand for contract manufactured supplements is poised to grow.
     
    “The growth of the contract manufacturing business has actually outstripped the growth in the overall nutraceuticals industry over the past decade because of the growth in outsourcing,” said The Wright Group’s Mr. Wright. “It is nearly impossible for a company to be totally vertically integrated while maximizing revenues and profits. The value chain has become very disaggregated. Contract manufacturers and distributors, for that matter, play an increasingly valuable cost transfer role in this value chain.”
     
    As clients continue to become more educated about what it takes to produce quality nutraceuticals, Tedor’s Mr. Yanu-sas said he believed there would be continued growth and opportunities for established cGMP CMO manufacturers. “Tedor anticipates further consolidation occurring as barriers to entry or FDA regulations raise the bar for higher quality products,” he said. “This ensures a number of legitimate CMO’s operating under cGMP manufacturing environments can stand out from the old school competitors who produced a product in a garage or warehouse space with little or no cGMP practices in place.”
     
    GMP Labs’ Mr. Ishaq aptly summarized how the business of contract manufacturing dovetails with current consumer and economic trends. “We see moderate growth consistent with the current rate of the recovering economy,” he said. “We see an acceleration of the business as more people turn to supplements in an effort to live a more healthy lifestyle, which is a trend that is being supported by government and media due to the rising costs of healthcare.”
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