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    Columns

    Expect Changes for the Nutraceutical Industry in the Year Ahead

    To succeed in a complex, emerging environment, don’t react; be the agent of change.

    Expect Changes for the Nutraceutical Industry in the Year Ahead
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    By Gregory Stephens, Windrose Partners01.05.18
    It’s that time when we are finalizing our business plan for the year. As a “boutique” consulting firm, our assessment includes a review of project activity over the past few years. How has it changed? What is constant, and what are the new opportunities we hope to pursue? Many of our new assignments require more in-depth combined expertise in a variety of disciplines, whereas in years past I was able to provide the expertise required for most strategic consulting projects without engaging additional experts. We now have associates with in-depth education and expertise in clinical research, regulatory affairs, marketing, quality assurance, and even reimbursement. Like our industry, our projects are getting more sophisticated and complex. In this column, I’ll address a few of these changes and provide my thoughts on how this trend toward sophistication may affect our industry.

    The Pharma Effect
    I have written many times about the convergence of the dietary supplement and pharmaceutical industries. A few of you may remember when the acquisition frenzy began. In my mind, it was in 1998 when Wyeth Pharmaceuticals (American Home Products) shocked the supplement industry by acquiring Solgar Vitamin and Herb for $425 million. Ten years later, in 2008, NBTY acquired Solgar from Wyeth for $115 million—certainly not one of Wyeth’s better investments. In this case, I believe it was Wyeth’s pharma culture that slowed innovation and the launch of new products, which the supplement industry thrives on.

    The big pharma acquisition news this year is the move by Nestlé Health Sciences to acquire Atrium Innovations for $2.3 billion. Permira, the private equity firm leading the consortium, acquired Atrium for $591 million only four years ago (2013). Atrium’s supplement products include Pure Encapsulations and Garden of Life. Until now, many pharma companies learned the hard way that supplement companies do not thrive under the pharmaceutical business model, especially as it relates to the desire to rely solely on patented compounds. In this case, Atrium will become an independent operating division within the Nestlé Health Science business. Atrium will continue to operate as it did prior to the acquisition, with no changes to its strong team, brands, and management style. Should we consider this a threat? I prefer to think “a rising tide lifts all boats.”

    Companies like Nestlé Health Sciences sell billions of dollars in medical foods and other clinical nutrition products. Medical foods are specially formulated foods for the “dietary management” of a specific disease or medical condition. Though Atrium will be operating independently, I expect to see its Pure Encapsulations division launching new medical foods in the health practitioner channel.

    They will not be the first. Metagenics now has medical foods, albeit less than initially launched as a result of FDA intervention. Also, Integrative Therapeutics recently launched a medical food into the practitioner channel with an elemental formulation similar to Nestle’s Vital. Other supplement companies are beginning to market therapeutic nutritionals in the traditionally pharma-dominated healthcare institutions. Orgain is beginning to find success marketing its nutritional beverages through allopathic physicians and dietitians as well as gaining some distribution in healthcare institutions.

    Even though relying heavily on physician recommendation to drive retail sales of clinical nutrition products, the largest distribution channel remains healthcare institutions (i.e., hospitals, nursing homes and home care establishments). With cost containment measures, a significant change taking place in the institutional setting is the level of substantiation required for acceptance of the formulary.

    ‘A Complex Matrix’
    The requirement for sound clinical research supporting efficacy has always been mandatory. Today, however, requirements include the addition of sound cost-benefit documentation. Healthcare is big business, and even though we all know the physiological health benefits of clinical nutrition, companies need cost-benefit studies documenting the cost savings now more than ever. Research end points may include fewer patient readmissions, shorter average length of stays, and associated reductions in patient care costs. I expect to see more products like probiotics that can reduce C. difficile infections in nursing homes, for example.

    We have also been more involved in assessing the potential for third-party reimbursement for nutritional supplementation. My advice is to pursue appropriate documentation, but do not launch a product with unrealistic expectations for reimbursement. The highest likelihood for reimbursement is for sole-source of complete balanced nutritional products fed orally or via nasogastric (NG) tube. If reimbursement is critical, consider a drug route to market.

    When considering unmet needs, try not to focus solely on isolated health issues but rather embrace an intertwined, more complex matrix. A good example is immune health. By understanding the relationship between gastrointestinal health and immunity, more efficacious approaches can be identified than simply looking at immune health ingredients. There are also multiple or cascading health events to consider.

    Conducting consumer research in years past, I recall qualitative sessions on sleep issues. Over a period of time, a common link began to emerge. It was not uncommon for this population to take OTC sleep enhancements. Most reported waking up groggy and restless. From there they described the progression as a lack of mental focus and, by the end of the day, anxiety. Subsequently, they needed sleep aides to rest again—a vicious cycle. Focusing on the big picture provides the opportunity to address the whole of the problem along with new, unique product opportunities with novel formulations or multi-functional products.

    Maybe more so than in years past, over the coming year we can expect to see considerable change in the nutraceutical industry. To take full advantage of this new environment, do not react … be the change agent. 


    Gregory Stephens
    Windrose Partners

    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 267-432-2696; E-mail: gregstephens@windrosepartners.com.
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