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    Features

    Contract Manufacturing: Setting Standards in the Supplement Industry

    Ensuring nutraceuticals are produced safely and according to strict quality requirements is paramount in the current climate of regulatory scrutiny.

    Contract Manufacturing: Setting Standards in the Supplement Industry
    Outsourcing manufacturing operations can allow companies to focus on other core business priorities.
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    Sean Moloughney, Editor, Nutraceuticals World03.01.16
    U.S. dietary supplement sales totaled about $36.7 billion in 2014, according to estimates from Nutrition Business Journal, Boulder, CO. Usage has remained steady among adults over the last several years, with about two thirds (68%) saying they take supplements, according to a 2015 consumer survey from the Council for Responsible Nutrition, Washington, D.C. An aging population, increasing lifestyle diseases and rising healthcare costs are some of the major factors driving market growth.

    Meanwhile, concerns about product safety, quality and supply chain integrity have compelled many companies to reconsider their manufacturing and product development strategies.

    Partners with Benefits
    In today’s complex marketplace, contract manufacturers (CMs) can help companies manage the manufacturing and packaging process while focusing on other business priorities and controlling costs, said Richard Kaufman, COO, Paragon Laboratories, Torrance, CA.

    “The manufacturing process has become more sophisticated in terms of testing for quality and new specifications to manufacture products,” he added. “As a result, CMs have had to invest in new technology and educate themselves and customers to stay abreast of new developments within the dietary supplement industry.”

    The cost to set up a manufacturing operation that is compliant with current Good Manufacturing Practices (cGMPs) is quite expensive, he said. Own-label distributors (OLDs) can avoid this expense by partnering with a CM. Additionally, CMs have valuable expertise given the various products they manufacture, helping OLDs to avoid development costs for new formulations.

    There are several reasons partnering with a CM would be beneficial to brand owners and distributors, according to Mark Potocnjak, CFO, Herbally Yours, Inc., Gilbert AZ. “It can provide substantial cost savings since the CM will provide already established production equipment, laboratory services and skilled, well-trained employees. Unlike a distributor, CMs have established contracts with raw material suppliers. CM employees are well trained in all parts of production, from manual labor in the assembly line and compounding, to operating and understanding sophisticated laboratory equipment.”

    The decision to outsource manufacturing operations forms a complex synergy where the CM can be dedicated to formulation and manufacturing, allowing the distributor to focus on marketing and sales.

    “Partnering with a contract manufacturer is often more demanding than partnering with a private label manufacturer, Mr. Potocnjak noted. “Private label manufacturers have products somewhere in their warehouse, just waiting for a new company to put its label on it. The downside of this relationship is obvious: the product already exists, and the distributor is entering an already saturated market with just another version of the same product. A CM, however, allows the distributor to start with an idea, and the CM will work to develop that idea into a brand new finished product. The right CM, with absolute confidentiality, will always assure the distributor’s formulation will not be used for any other product or company.”

    Contract manufacturers face a delicate task of taking thoughts and ideas and bringing them to life, he continued. “We formulate, develop test methodology, source materials and packaging, and test the finished good. We are often the last piece of the supply chain to touch the final product. It is a huge responsibility and one we should not take lightly.”

    Outsourcing certain segments of a business continues to be an important strategy in today’s supplement market, “given the complexity and number of nutrients, product specifications and manufacturing capacity constraints,” said John Altenberg, vice president of sales/client services, Vit-Best Nutrition, Tustin, CA. “CMs can offer similar services as available in a vertically integrated company. In addition, CMs in many cases are specialists in niche categories.”

    There are numerous benefits to partnering with a CM, according to Paul Altaffer, chief information officer, RFI LLC, Blauvelt, NY, but the most important reasons have to do with control, transparency, quality and sustainability.

    “The closer the partnership between co-manufacturer and brand customer, the better chances the product has of success, as well as compliance and quality. RFI has a different approach to co-manufacturing, focusing on product development partnerships with our customers. Our expertise is in joint product development, supply chain management, developing quality systems all the way through to labeling, regulatory and marketing support. In our opinion, the ‘verticalized’ approach is essential to ensure control, quality, transparency, sustainability as well as a better value proposition. We see our role as an indispensible partner throughout the entire product development and fulfillment process.”

    By partnering with a CM, companies don’t need to worry about many of the fine details, such as hiring appropriate personnel, raw material testing, etc., noted Steve Holtby, president and CEO, Soft Gel Technologies, Inc., (SGTI) Los Angeles, CA. “At that point, the biggest detail you have to concern yourself with is dealing with a trustworthy, cGMP-compliant facility, and performing your own audit of them.”

    Most marketers choose to work with a CM because the cost to start their own manufacturing line, along with the technical issues and necessary experience, are simply too great, especially for softgel capsule production, he noted.

    “By outsourcing manufacturing there is no need to purchase or rent production facilities, buy equipment, purchase raw materials, or hire and train employees to produce the goods. There are also no headaches from dealing with employees who fail to report to work, equipment that breaks down, or any of the other minor details that any manufacturing company must face daily. Instead, they are able to completely focus on making sales, advertising and marketing the product.” Many companies are looking for broader ranges of expertise from their CM, he added.

    More companies are partnering with CMs so they can focus on their core competencies, said Ephi Eyal, president and CEO, Innovative Food Processors Inc. (IFP) Faribault, MN. “They trust the required diligence associated with quality and manufacturing standards to their CM partners. We see our clients stay with us not only because of our commitment to quality standards but also because of our evolving processes that help get products to the shelf faster.” 

    Federal cGMP regulations for dietary supplements, and the emphasis on proper categorization of medical foods, have created a new baseline for the nutraceuticals industry, making quality non-negotiable, he continued. “While the industry still sees an occasional ‘bad apple,’ most industry players appreciate the new reality and look for trusted suppliers. Industry associations such as the Natural Products Association and Council for Responsible Nutrition do an excellent job maintaining a productive dialogue with FDA and promoting CMs that maintain the high standards our customers deserve.”

    Turnkey CMs may drive technical innovation, which impacts all aspects of the value chain, including product development, process development, regulatory support, process and product validation, marketing and supply chain support. “It is necessary for us to have a finger on the pulse of all that is new in the industry and marketplace to offer clients meaningful conversations to innovate quickly.”

    Changing Responsibilities
    In the past, a CM’s role was to procure ingredients and manufacture products, noted Scott Langston, quality systems manager with IFP. However, today, CMs have become “trusted partners” and “solution providers.”

    “Our partners place their trust in us to manufacture and pack their products with the same care that they would themselves,” he said. “They also expect us to solve problems and meet challenges, whether technical or commercial in nature. We take that trust very seriously and ensure that quality is built into the product and process, from sourcing raw materials, to development of the Master Batch Records and processing documentation, to the quality analyses performed on inbound raw materials, work in progress, and finished products.”

    In the past, CMs were considered co-packers that just filled the product into the bottle, according to Mr. Potocnjak. CMs today, however, are responsible for formula development, compounding, packaging and testing. Modern CMs with in-house labs have knowledge and capabilities to teach and educate the distributor about cGMPs, FDA regulations, and other important information that is needed to ensure the product will reach consumers as it was originally intended.

    “We have formed a huge network of legal advisors and label printers to assure that packaging will be made according to current laws and comply with regulations. Our knowledge of raw materials and production methods allows us to confidently answer any question customers have about testing.”

    FDA defines distributors as own-label dietary supplement suppliers, while treating them as they are their own manufacturers of dietary supplements. As such, they have ultimate responsibility for the products they introduce into commerce. “As the industry grew, more and more distributors came with great ideas, and solid investments, but they knew little or nothing about compounding, regulations, or chemistry as a whole,” said Mr. Potocnjak. “That is where CMs should jump in. It is our responsibility to assist distributors with how to establish specifications for identity, purity, strength and composition, how and what to test for, and how to assure that the product will be what it claims on the label to the expiration date.”

    CMs were once able to provide a “black box” product and process, especially when working with smaller entities, according to IFP’s Mr. Eyal. “Customers often launched products without auditing and visiting their supplier. Now a CM is expected to provide visibility into its operation and most of its stages. A CM’s ability to maintain a proprietary process and product is limited. This includes detailed reporting throughout the commercialization process, offering customers the ability to understand where their product is within the manufacturing process and the supply chain.”

    Vit-Best Nutrition’s Mr. Altenberg agreed that the role of CMs has evolved over time. Once considered, primarily, as a lower-cost option for production, today CMs play a collaborative role in development, manufacturing and supply chain optimization.

    “CMs must not only comply with cGMP 21CFR parts 110 and 111, but also understand regulatory policies of FDA and FTC,” said Mr. Altenberg. “This translates into a CM knowing and advising clients continually throughout the relationship as opposed to just order fulfillment.”

    At one time, contract manufacturers were, more often than not, just expected to deliver a finished product, according to SGTI’s Mr. Holtby. “This meant 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. This resulted in products changing 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. Within that limitation, the broader the types of services and expertise the CM can offer, the more enticing it will be for marketers to work with them.”

    As testing requirements have increased, so too has the financial burden on companies, noted Jennifer Cusick, director of sales operations, Trividia, Lancaster, NH. As a result, CM-quoted costs have also risen. “As the most technically challenging part of the supply chain—the actual manufacturing—and the one with the least profit/margin (compared to the raw materials suppliers, retailers and distributors), our role has become more focused on educating the client on the requirement for testing.”

    With education and understanding, cost increases are more readily accepted, she added. “Yet, we continue to compete with manufacturers who are not committed to following the required cGMPs. At times this makes us non-competitive. We do believe we will be successful in the long run. The examples of FDA audits resulting in 483s provides ample evidence of these requirements and visibility to those who are non-compliant.”

    Challenges & Qualification Tips
    Some of the most critical challenges in today’s marketplace relate to quality control and identification issues, said RFI’s Mr. Altaffer. “Supply chain management is at the heart of this issue as well.”

    According to Paragon’s Mr. Kaufman, there is a constant effort to develop more accurate test methods at the raw material, in-process and finished-product stages of manufacturing to improve quality. “It takes a tremendous amount of investment in new instrumentation and personnel time in developing these more sophisticated test methods.”

    Companies that partner with a CM should perform regular audits of that business, noted Mr. Holtby. “Audits should be conducted on a timetable that is consistent with their buying habits (i.e., at least annually, if not more often). 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. 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.”

    It is critically important to pay close attention to the Quality Unit and to monitor how decision-making is implemented throughout the production process—from procurement of raw ingredients to the final release of finished products, he added. “This is the most essential part of a contract manufacturer. If a weak QA/QC presence is observed, the rest of the processes will have the likelihood of being incomplete, not in compliance and just downright bad.”

    In addition to receiving the final Certificate of Analysis, which shows the test results and methods, customers should review batch records when they conduct audits of the contract manufacturing facility. The batch records should also include the test results and history for a particular product.

    “Often, test results for a large variety of components are stated on the certificate of analysis for each and every batch,” Mr. Holtby said. “Test methods are often indicated, and more marketers are now documenting their own requirements for testing protocols. A CM that communicates with the marketer and is open about their procedures is a huge selling point, as it takes guesswork and liability out of the GMP responsibility equation.”

    Mr. Altaffer recommended companies develop a supplier qualification program. “Interview the potential CM, make sure there is alignment in product development and quality philosophies. Try to understand the full capabilities of the CM, especially when it comes to product design and development support, supply chain management and control, quality practices, as well as regulatory and marketing support. Churning out products is not enough anymore.”

    Prerequisites that companies should look for in a contract manufacturer, according to IFP’s Mr. Eyal, include quality culture and capability, manufacturing capacity and acumen, and overall economic offering.

    “Look for transparency, accountability and innovation from your CM,” he said. “A trustworthy manufacturer provides the world-class quality management system and practice, solid infrastructure and continuous improvement required to implement current standards efficiently and effectively. When these components are an ingrained part of the manufacturing process, products go out to market safely, quickly and cost-effectively.”

    Vit-Best Nutrition’s Mr. Altenberg advised companies to evaluate the CM’s resume from a variety of perspectives: reputation, quality standards, third-party audits, client service and whether it can offer competitive pricing.

    In addition to checking for third-party certifications, as well as auditing the CM, Paragon’s Mr. Kaufman said companies should seek referrals. “Ask questions as to what types of products the CM specializes in manufacturing and how long they have been in business,” he said.

    Mr. Potocnjak of Herbally Yours suggested companies ask for actual certificates and check them with the issuing agency. “After your selection is down to just a few companies, the next step should be an in-person visit. It is often an overlooked expense of starting a new line, introducing a new product, etc., but it is absolutely crucial. In a one- or two-day visit you will get to meet people and witness the mentality and environment of the company. Ask for a tour of the facility. You can then experience production in person, see if it will match your projections, and if it will be a sufficient environment for producing your product, or if the company is simply too big for you. Check with the laboratory department; ask for substantiation of all test results. This evidence-based decision informed by experience will produce better results than simple intuition, previous experiences or your bargaining skills.”

    Transparency has became a buzzword lately, Mr. Potocnjak added, however, it is often misunderstood. “Transparency in manufacturing is operating in such a way that other companies, or partners, can see what actions are performed in order to meet and exceed their expectations. Transparency is about quality of shared information, not quantity.”

    Trividia’s Ms. Cusick offered some advice on how companies might avoid common “manufacturing disappointments” after choosing to partner with CM. “Participate in a process to create a timeline with your CM to know what your deliverables are, what their deliverables are, and the delays caused by missing those deadlines. Our master scheduler has methods to be sure our account managers have firm dates for materials—no weather delays, no mechanical problems, no trucker GPS issues.”

    It’s also important to realize that the CM evaluates potential customers as well, with the intention of creating strong partnerships. “The CM wants to be sure they have production capacity to fit your needs today, next month and next year. They want you to achieve success with your brand and are often willing to make capital investments, or to share in the capital requirements as you grow the business together.”

    In analyzing whether the CM has the capabilities to take on a company’s business, the CM will consider technical competency, an equipment review as well as engineering support, she added. “For example, we make a product that is an OTC containing sodium hypochlorite—it’s only bleach and water, how hard can it be? But if you don’t have the proper tanks, piping, plumbing, valves, etc., this will be a corrosion nightmare.”

    It’s also important to identify both the scope of work and who is responsible for which tasks/deliverables. “Clear communication of deliverables at the outset of your relationship will help to establish expectations,” said Ms. Cusick

    Product Trends
    In terms of actual product trends, RFI’s Mr. Altaffer said emphasis on whole food nutrition and clean label are two important market developments. “This encompasses many smaller trends. Consumers want wholesome products with ingredients that are mostly natural, minimally processed and free of many undesirable ingredients. They want simple claims they can understand and that will be effective. They want products that are safe, and they want to have confidence these products are what they claim to be.”

    Paragon’s Mr. Kaufman also noted ongoing interest in clean label products (i.e., organic, non-GMO, and natural ingredients) and use of packaging components that are recyclable and/or minimize landfill waste.

    Mr. Holtby of SGTI said both consumer and marketing companies are requesting softgels for their dietary supplement dosages more than ever before. “As the average individual’s education level regarding supplements continues to rise, the unique and superior qualities of softgels in specific situations becomes more appealing.”

    Marketing companies seem to be targeting consumers whose supplementation needs extend beyond basic nutrition, and whose concerns include maximizing bioavailability, he added. “The costs for manufacturing softgels are higher than that of most other formats, so the increased cost needs to have meaning. Depending on the ingredient in question, the softgel format has shown itself to have an optimal absorption profile. Other, more superficial benefits, such as visual appeal and ease of swallowing are just icing on the cake.”

    Softgel production is a unique and complicated process. One of the challenges is that operators who run the encapsulation machine have to be well-trained and competent to learn the techniques for a smooth and efficient operation, Mr. Holtby said. “In addition, when formulating products, specific shell/fill interactions, which include chemical reactions of fill components with the gelatin and the plasticizer, and migration of fill components in or through the shell and vice versa, have to be considered.”

    Future Expectations
    Contract manufacturing will follow the overall growth pattern of the dietary supplement industry, according to Vit-Best Nutrition’s Mr. Altenberg. “Companies will continue to evaluate the make/buy scenario. While materials will continue to be sourced worldwide, finished production will remain in the U.S. for many customers.”

    RFI’s Mr. Altaffer predicted there will be some consolidation among contract manufacturers moving forward. “With the enforcement of GMPs and the negative attention the industry has attracted recently, there will be increased pressure to perform at higher levels and probably at higher costs than many contract manufacturers were accustomed to.”

    IFP’s Mr. Eyal agreed that consolidation will continue, noting that private equity firms and other strategic investors are creating larger players within the CM space.

    Ultimately, the future is bright for contract manufacturing and the nutraceuticals industry, according to Mr. Potocnjak of Herbally Yours. “With more and more requirements for cGMPs and testing, contract manufacturers are growing their knowledge and experience, and they are no longer a quiet part of the industry. Unfortunately, CMs can no longer make small runs of product with competitive pricing due to associated laboratory and testing costs.”

    “We will continue to see business churn as large companies vertically integrate, creating their own manufacturing capacity, as do Herbalife and Amway,” he added. “This has an adverse impact on CMs who rely on these entities for base volume. On the other hand, other companies are moving more toward outsourced manufacturing and relying on CMs more  than ever before. This trend includes some of the largest consumer packaged goods companies.”

    With savvy consumers making the effort to educate themselves about what goes into making their dietary supplements, CMs can help companies meet high expectations for quality finished products, said Paragon’s Mr. Kaufman. “Companies must work closely with each other to assure success in meeting those consumer demands.” 
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      HELP Committee released discussion draft that includes language similar to Senate Bill 4090 introduced last month by Senators Durbin and Braun.
      By Sean Moloughney, Editor 05.18.22

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