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    Columns

    Business Insights: The Emerging Market for Medical Foods

    ...

    Gregory Stephens, RD, President of Windrose Partners,09.01.12
    Over the past few months there has been quite a bit of activity in the medical foods market. Indeed, industry reports are reflecting consistent and sustainable growth in this multibillion-dollar health and wellness segment. Major pharmaceutical companies are competing head-to-head for market share and acquiring emerging products with growth potential, such as Nestlé Health Science’s recent investment in Axona (more in-depth analysis on this acquisition can be found on page 58 in this issue’s brain health article).
     
    During my 20-year immersion in marketing and business development at Abbott Nutrition (formerly Ross Laboratories), we developed a medical foods franchise with more than $2 billion in sales. The market continues to grow and opportunities are plentiful for those who innovate in this attractive but often misunderstood market. 
     
    Understanding Medical Foods
     
    Medical foods are those that are specially formulated and intended for the dietary management of a disorder, disease or condition that has distinctive nutritional needs that cannot be met by normal diet alone. These criteria were defined in FDA’s 1988 Orphan Drug Act Amendments and are subject to the general food and safety labeling requirements of the Federal Food, Drug, and Cosmetic Act.
     
    A clear distinction can be made between the regulatory classifications of medical foods and dietary supplements. Medical foods must be shown, by medical evaluation, to meet the distinctive nutritional needs of a specific population of patients with a specific disease being targeted. Dietary supplements, on the other hand, are intended for normal, healthy adults and may not require proof of efficacy on the finished product.
     
    Furthermore, medical foods are distinct from the broad category of “foods for special dietary use” and from traditional foods, even those that may qualify for a health claim. 
     
    Prior to 1972, medical foods that mitigated serious adverse effects of underlying diseases were regulated by FDA as “drugs” under the Federal Food, Drug, and Cosmetic Act. Subsequently, in the Orphan Drug Act (1988 Amendment), a medical food was defined as “a food which is formulated to be consumed or administered enterally (orally) under the supervision of a physician, and which is intended for specific dietary management of a disease or condition for which distinctive nutritional requirements, based on recognized scientific principles, are established by medical evaluation.” The other requirements include deomonstrated safety and efficacy.
     
    In an interesting article in Nutrition in Clinical Practice, Sheila Campbell, PhD, RD, provided an insightful glimpse into the history of medical foods, specifically enteral nutrition. When President Garfield was shot in 1881 by assassin James Guiteau, Garfield survived for 79 days. He was given rectal feedings of whiskey and partially hydrolyzed beef and beef broth every four hours for most of that time (Nutr Clin Pract. 2006 Aug;21(4):411-5).
     
    Certainly, the sophistication and administration of medical foods have advanced since those days. Prior to 1972, they were primarily formulated to manage patients with inherited metabolic diseases. They were mainly orphan products for limited populations. Since medical foods were considered drugs, they were regulated accordingly to ensure their use under medical supervision. However, in 1972 FDA reclassified these products from drugs to foods for special dietary use to enhance their development and availability. In the intervening years, a wide variety of products categorized as medical foods was developed.
     
    In relation to the Nutrition Labeling and Education Act of 1990, Congress exempted medical foods from the nutrition labeling, health claim and nutrient disclosure requirements applicable to most other foods, further distinguishing this category from conventional food products.
     
    Market Activity
     
    Certainly, from a sales and market share standpoint, the major pharma players dominate the market. Global sales have been projected at just under $9 billion (Kalorama, 2010; Global Industry Analysts, 2011) with my estimation of the U.S. market easily exceeding $2 billion. This is not what I call a niche market.
     
    The majority of medical food sales are generated by major pharma or CPG companies, including: Abbott Nutrition, Abbott Laboratories (e.g., Glucerna, Nepro, Ensure), Nestlé Health Science, Nestlé SA (e.g., Boost Glucose Control, Novasource Renal) and Nutricia, Groupe Danone (e.g., Fortifit, Souvenaid).
     
    In the U.S. and worldwide, we have seen more than 100 new medical food product launches annually since 2009 (Innova Market Insights, 2011). However, although the major players are the ones launching a significant number of these new products, they are not truly innovative. Most of these launches represent line extensions and brand expansion into new geographies (i.e., countries). This is where these companies are battling for growth and market share. So, what is the source of innovation driving this growth? Taking a close look at the launch of truly, innovative products, we see small to moderate sized biotech and nutritional companies investing in research and driving promotion of new products (e.g., Limbrel, Axona, Glycemx-360, Deplyn, Sentra). 
     
    Of course, after a launch demonstrates promise, the major players are more than willing to invest or acquire the platform. This is precisely what prompted Nestlé Health Science to acquire a stake in Accera, a company that specializes in medical foods for neurodegenerative disorders such as Alzheimer’s. Accera’s main brand is Axona, which is a medical food intended for the dietary management of mild to moderate Alzheimer’s. According to Nestle’s press release, Axona is already being used by 30,000 people. Being generous on compliance, sales are in the single-digit millions, far from a pharmaceutical blockbuster. Keep in mind, however, that products like Abbott Nutrition’s Glucerna had similar sales for oral applications not long ago, and today brand sales likely exceed $200 million. The major players certainly have the sales forces and distribution arms to drive sales and thus do not mind investing in high-potential emerging products.
     
    Common Misconceptions
     
    It is beyond the scope of this column to cover where “white space” in the market exists, or to provide regulatory advice. Rather, I would like to point out a few observations or misconceptions about medical foods I have heard over the years.
     
    Clear and Compelling Label Claims: A benefit of medical food labeling is the ability to reference the disease on the label. Medical food claims refer to the “nutritional or dietary management of a specific disease or its metabolic processes” and must be stated on the label (e.g., Glucerna—“for people with diabetes”).
     
    Premarket Approval by FDA: A similarity between medical foods and dietary supplements is that neither require pre-approval from FDA for marketing, unlike pharmaceutical products.
     
    Distinctive Nutritional Requirements: One often overlooked element is the “distinctive nutritional requirements” standard established by FDA.  Medical foods must be shown, by medical evaluation, to meet the distinctive nutritional needs of a specific diseased patient population being targeted prior to marketing. This is not just the demonstration of efficacy, but rather it must provide: “nutritional support specifically modified for the management of the unique nutrient needs that the dietary management of which cannot be achieved by the modification of the normal diet alone.”
     
    This is not a simple requirement, and FDA has a track record of challenging companies on compliance of their new products, which may require they be pulled from the market.
    Of course, the “distinctive nutritional requirements” of medical foods toward a specific disease must be supported by sound clinical substantiation and by product performance. 
     
    Medical Food Prescriptions: Medical foods do not require a prescription for retail purchase and they are not required to be behind the (pharmacist) counter. It is my understanding that Congress originally used “under physician supervision” in the legislation, which excluded other doctors, dietitians and others with the proper education to administer medical foods. To remedy this, FDA revised it to more appropriately state: “use under medical supervision.”
     
    Opportunities in Medical Foods
    Although medical foods represent a specific FDA regulatory category, healthcare professional awareness of them is relatively low. Additionally, there is  confusion among professionals as to the difference between medical foods and dietary supplements. Reimbursement by Medicare and other third-party payers and patient access (i.e., distribution) are also important opportunities to be addressed.
     
    This can be overcome through education  of medical practitioners that clarifies the unique features of medical foods, including safety and efficacy.                              
     
    Note: Opportunities in the medical food market will be integrated into the program at the upcoming “Healthcare Practitioner Marketing Forum,” April 3-5, 2013 in Long Beach, CA—a conference jointly orchestrated by Holistic Primary Care and Windrose Partners. For more information on this educational event, contact me at GregStephens@WindrosePartners.com. 



    Greg Stephens, RD, is president of Windrose Partners, a company serving clients in the the dietary supplement, functional food and natural product industries. Formerly vice president of strategic consulting with The Natural Marketing Institute (NMI) and Vice President of Sales and Marketing for Nurture, Inc (OatVantage), he has 25 years of specialized expertise in the nutritional and pharmaceutical industries. His prior experience includes a progressive series of senior management positions with Abbott Nutrition (Ross Products Division of Abbott Laboratories), including development of global nutrition strategies for disease-specific growth platforms and business development for Abbott's medical foods portfolio. He can be reached at 215-860-5186; E-mail:gregstephens@windrosepartners.com
     
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