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    Features

    Contract Manufacturing: Challenges in a Changing Landscape

    Contact manufacturers seize the opportunity, despite shifting regulatory and market hurdles.

    Lisa Olivo, Associate Editor03.03.14
    The standards for dietary supplements are higher today than ever before. Given the current regulatory climate, as well has heightened consumer expectations, contract manufacturers have become a crucial component of the production process.

    Current Good Manufacturing Practice (cGMP) requirements have had a heavy impact on the industry, and FDA issued a record number of Warning Letters to supplement companies in 2013. The overhead needed to meet these regulatory standards is making audited, cGMP compliant contract manufacturers increasingly attractive options for those formulating new supplements. 

    “Launching a product is a daunting task: ideation, formulation, packaging, pricing, not to mention the efforts to get the product to the shelf and promote it,” explained Mike White, vice president of sales and marketing, Century Foods International, Sparta, WI. “The time and costs incurred are significant. Turning to a top-quality contract manufacturer brings economies of scale, purchasing power, product development, engineering and quality control,” he said.

    Adding to the pressures of meeting U.S. demands, Steve Holtby, president and CEO of Soft Gel Technologies, Inc. (SGTI), Los Angeles, CA, stressed that “today’s business climate is also affected by global economic forces. Many of these companies have to compete for an increasingly competitive market share, and they have to focus more on the marketing side of the business. Contract companies that are able to take a lot of the technical load are attractive.” Through a successful partnership with a contract manufacturer, companies can focus on the promotion and marketing of their supplements, and leave product development to the experts, he explained.

    In addition to regulatory and economic pressures, health-savvy consumers are making demands of their own. With more people looking to the Internet, social media and TV doctors for information on new products, dietary supplement usage is becoming more mainstream. Of course, with increased interest comes increased scrutiny.

    “Contract manufacturers need to realize that, in the consumer’s eye, we are held to the same standards as pharmaceutical companies,” said Olivia London, senior operations manager for National Enzyme Company (NEC), Forsyth, MO. “As consumer demand for dietary supplements continues to grow, we must rapidly meet this demand with facilities, equipment and staff. This, however, is a great challenge to face, and we welcome the opportunity to grow and expand as a contract manufacturer.”

    Strength in Technology
    In addition to outsourcing regulatory obstacles, partnership with a reliable contract manufacturer can provide many advantages to companies developing new supplements.

    SGTI’s Mr. Holtby suggested that working with a contract manufacturer offers a wider variety of expertise, while simultaneously streamlining the production process. “A lot of companies are looking for broader ranges of expertise from their contract manufacturers, within a more limited set of rules. Previously, contract manufacturers were, more often than not, just expected to provide them with a finished product. This meant that some manufacturers that only made one type of product, for example, might then contract out to other manufacturers that made other forms, thereby becoming distributors.”

    However, this type of workflow led to confusion and potential errors, as “products changed hands multiple times, and a lot of times, hardly any verification, testing, etc. took place. These days, the rules are much more stringent, and it’s best for companies to deal directly with the manufacturers.” According to Mr. Holtby, “Within that limitation, the broader the types of services and expertise the contract manufacturer can offer, the more enticing it will be for marketers to work with them.”

    Efficiency is an added benefit offered by contract manufacturers. “Speed to market is another invaluable aspect tied to product launch risk. A contract manufacturer can mitigate the gap in essential expertise required to develop, launch and support a product on an ongoing basis,” said Ephi Eyal, president & CEO of Innovative Food Processors, Inc. (IFP), Faribault, MN.

    Contract manufacturers also play a key role in risk management associated with launching a new product. Stakes can be high when production requires equipment, facilities, processes, personnel and more. “To justify such an investment,” said Mr. Eyal, “a company must be absolutely secure in their new product offering, in their marketing plans, as well as in the product’s longevity post launch. A contract manufacturer helps mitigate this risk short to long-term. A contract manufacturer also allows CPG (consumer packaged goods), MLM (multi-level marketing) and ingredient companies to focus on their core competencies while the contract manufacturer serves as subject matter expert within specific elements of the value chain where the client may not have domain expertise.”

    Industry Challenges & ‘Bad Actors’
    Navigating the technical and regulatory challenges of an evolving nutraceuticals industry present a variety of obstacles for contract manufacturers.

    The mercurial nature of the overall market and its rules are perhaps among the biggest obstacles, according to Tom Miskowski, president of Century Foods International. “The nutraceutical industry is constantly changing; regulations or the latest trends can create an abundance of formulation revisions,” he said. However, quality contract manufacturers can sometimes anticipate these shifts. “Deliberately, Century Foods has grown with the industry. We have a highly trained quality control staff that allows us to be proactive to regulatory requirements and our progressive, in-house R&D team consists of experts in reverse engineering, formulating and flavoring. When you add that with our state-of-the-art labs, we’re able to effectively and efficiently respond to our customers’ requests.”

    GMPs certainly make testing more time-consuming and thorough than ever before, but according to Mr. Holtby, there are “other systems, such as California Proposition 65, that add to testing times and cost.” Vetting a product based on varying state regulation regarding food and supplements can be a huge hurdle. Looking ahead, individual state laws regarding the use of GMOs may add a level of complexity to the manufacturing process.

    Educating customers on regulatory guidelines is also a new burden contract manufacturers have taken on. “With the advent of the new FDA GMPs for dietary supplements, contract manufacturers must advise customers of the implications of the new regulations. It is important to have formal training programs in place to ensure that personnel have a thorough knowledge of GMPs and SOPs (Standard Operating Procedures) and follow them,” said Mr. Holtby.

    Following FDA protocol isn’t enough either—compliance must be documented thoroughly. “Record keeping and documentation are crucial components to ensure GMP compliance and continued certification,” Mr. Holtby explained. “Complete and detailed batch records need to be maintained for traceability purposes.”

    When working with natural elements, herbs or botanicals, conditions in the environment can impact production. Ms. London of NEC noted, “All of our materials and ingredients are derived from natural sources so they are subject to a host of environmental factors such as heat, drought or excessive rain. To meet our very specific label claims, each material and ingredient must be tested for potency and activity levels before we develop a finished product.”

    Yet among all of the challenges for contract manufacturers, the issue plaguing them most could be negative perceptions brought about by a few “bad actors,” or non-compliant companies.

    “Some of our biggest challenges of late have been on the heels of the FDA citing contract manufacturers that have developed the reputation of being ‘bad actors’ (male enhancement products or unproven weight loss supplements for example),” Ms. London explained. “Unfortunately, these limited incidents can influence consumer perception and shed an unfavorable light on reputable dietary supplement manufacturers who actively follow FDA regulations and strive to exceed expectations.”

    Mr. Eyal of IFP similarly commented, “Though the number of fly-by-night outfits within our industry is decreasing, there remains enough non-compliance to create an uneven playing field when it comes to cGMP adherence.”

    To avoid dealing with a non-compliant contract manufacturer, Mr. Holtby recommended that all companies “perform regular audits of a contract manufacturer with whom they do business. Look at the batch records, raw material certificates of analysis, and most importantly, make sure they are doing all the testing required by the GMPs.” He warned, “A lot of money can be saved if a manufacturer is not doing all the required testing. If a quotation looks too good to be true, there is probably a reason.”

    New Trends & Applications
    In working with a wide variety of clients, contract manufacturers are privy to up-and-coming trends, and new innovations within the nutraceuticals market.

    Some trends pertain to how contract manufacturers function within the production process. “We see a trend toward more collaborative efforts, with more alignment from different players within the value chain. For example, collaboration between ingredient suppliers and contract manufacturers is growing in order to offer a single service or product,” explained Mr. Eyal.

    He also observed a stronger push from private equity groups who provide strong financial backing and expect high growth while supporting new industry collaborations. “We also see a continued focus on validated quality processes and systems. And of course, we see the continued evolution of the private-label space as retailers and those who supply them create new and energized product concepts moving beyond the me-too, copy-cat mindset.”

    Other developments relate to which key medical and wellness issues are effecting today’s population most. Rich Mihalik, director of innovation & product development for NEC, suggested that consumers today want “something more than ‘supports your general health and well-being.’ Right now, some of the hottest trending products are stress and sleep management, weight management and body shaping, in addition to digestive support.”

    Consumer demands and perceptions about their health have led to innovative product launches, with the aid of contract manufacturers. SGTI’s Mr. Holtby explained, “Our company offers two types of products: stock formulations of popular ingredients and dosages, and custom formulations based on a customer’s label claim. Although we require the basic formulation details from the customer for custom formulations, there is countless potential for variation within those formulas. That is where we can offer suggestions and advice, based on such things as market trends or ease of manufacture.”

    Such collaborative efforts led to the company’s development with Kaneka Corporation, Osaka, Japan, in producing a reduced form of CoQ10 ubiquinol. “This form shows great promise for specific groups of people that are older and/or have oxidative stress from specific diseases or situations. There is great potential for this active antioxidant form of CoQ10. Our reduced CoQ10 formulation (CoQH-CF) is also clinically studied, also showing high absorption.” CoQH-CF was developed using SGTI’s crystal-free (CF) technology, and targets Baby Boomers and those with disorders of elevated oxidative stress.

    SGTI has also developed a patented hops extract called Perluxan in soft gels, which provides an anti-inflammatory effect for relief from minor aches and pains. A major benefit of this ingredient is that it offers anti-inflammatory support for pain, “without the side effects commonly associated with prescription anti-inflammatory products,” said Mr. Holtby. Further, he added, “The subject of multiple in vitro, ex vivo and in vivo human clinical trials, Perluxan moderately inhibits COX-2 and mildly inhibits COX-1, and is well-tolerated and does not cause GI distress.”

    Mr. Eyal of IFP predicted that functional foods targeting breakfast could be the next big trend within the nutraceuticals market. “Within the past 12 months we’ve seen the breakfast occasion take on growing importance as CPGs try to differentiate themselves in the face of a declining traditional cereal market.” IFP is also encouraged by the acceptance of powdered products as convenient, on-the-go and economical options.

    Nutraceutical coffee and teas are adding an active wellness element to a common beverage platform, Mr. Eyal said, also noting “a significant drive to reduce partially hydrogenated trans-fats from functional foods, nutraceutical products and coating systems.”
    NEC acknowledged a wealth of opportunities for nutraceutical manufacturers, particularly in the area of weight management. “Our business is ultimately consumer-driven and over the last year, growing demand for dietary supplements has created tremendous opportunities for growth,” said Melony Fuller, director of marketing, NEC. “As consumers continue to seek more natural ways to improve their health, we will be on the opposite end of the chain working to provide more and more options to supplement marketers to meet those needs.”

    On the Horizon
    Despite industry challenges, IFP’s Mr. Eyal anticipated significant opportunities ahead. “There are three driving forces behind what we see as a bright future for our industry. First, the consumer is looking for wholesome, better-for-you and convenient products.

    This consumer, whom we traditionally thought of as North American, now resides in much of the rapidly growing developing world.”
    Second, he said, consumers are looking beyond traditional medicine for health and wellness, and are eagerly taking steps to improve their health through nutrition. Lastly, he stated, “regulators and leaders in our industry have a strengthening quest for quality and consistency within product offerings.”

    Those companies that seize the opportunity with these key breakthroughs will be well positioned for success, said Mr. Eyal. “We believe that the future will look kindly at organizations that are nimble, innovative and add low-risk value to their service and product offerings.” 


    Lisa Olivo is the associate editor of Nutraceuticals World. Her e-mail address is lolivo@rodmanmedia.com.
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