The big news in our specific channel is Nestlé’s acquisition of Atrium Innovations. The $2.3 billion deal, announced last December, is the second largest valuation in the history of supplement industry transactions, and by far the biggest one to directly affect the practitioner channel.
Atrium, based in Quebec, Canada, owns a strong portfolio of practitioner-only companies, most notably Pure Encapsulations—a brand that consistently ranks among the top three most dispensed professional lines in Holistic Primary Care’s annual practitioner surveys. Atrium also owns Douglas Laboratories, Seroyal, Sedona Labs, Wobenzym, and others within the functional medicine space.
On the retail side, Atrium holds Garden of Life, one of the best-selling direct-to-consumer brands. Combined, Atrium-owned companies cover a huge swath of the supplement landscape.
The acquisition will put all of that within Nestlé Health Science, a stand-alone entity inside the Nestlé empire that’s responsible for a broad range of medical products, including parenteral and post-surgical nutrition formulations, and specialized nutrition products for everything from “inborn errors of metabolism” to cancer care.
In January, shortly after acquiring Atrium, Nestlé announced the sell-off of its U.S. confectionery business—including venerable sugar-shockers like Butterfinger, Crunch, and BabyRuth—to Italian chocolate king Ferrero (owner of Nutella), for 2.8 billion Swiss francs. That’s a lot of $100,000 Bars—and it neatly offsets Nestlé’s cost for acquiring Atrium.
One month later, in February, Nestlé acquired majority interest in Terrafertil, an Ecuadorean company specializing in organic plant-based snacks.
With these moves, the Swiss candy titan seems to be trying to shed its high-glycemic past and reposition itself as a force for health and healing—at least in the U.S. Nestlé will retain its confectionery businesses abroad.
Nestlé is the world’s largest food and beverage company. In the U.S. alone, it employs approximately 50,000 people, and grossed well over $27 billion in 2016. The company claims that Nestlé-owned products are present in 97% of all American households.
Inroad to Mainstream Medicine
The company’s presence in the nation’s hospital systems is nothing to sneeze at either. Nestlé Health Science has representatives calling on roughly 4,500 hospitals and large clinics in the U.S., and an additional 1,500 in Canada.
The Atrium acquisition, therefore, has potential to solve one of the most vexing aspects of the practitioner channel: how it can scale.
Historically, practitioner brands—including Pure, Douglas, and other Atrium lines—have been built by winning over the hearts and minds of individual health professionals working in solo or small-group practices. It’s been a slow and steady build.
But with a few notable exceptions, supplement companies have not made much headway in entering the formularies of large mainstream medical institutions. Supplements are still considered “fringe” options in most conventional clinics, and not part of standard practice. Thus, practitioner-based sales have never been able to scale on the level that direct-to-consumer retail sales have over the last decade.
Nestlé could change that fairly quickly. The company has the resources, sales force, and relationships to be able to catapult Atrium’s practitioner-only lines into the country’s biggest medical centers and clinical networks. That depth of reach is something many practitioner channel companies have dreamed of, but none has thus far achieved.
On its own, Pure Encapsulations had already made inroads into some mainstream centers, most notably the Cleveland Clinic, to which the company donated $1 million to help establish the clinic’s Center for Functional Medicine.
A strong sales and research boost from Nestlé may open doors at many other institutions, and that could have positive ripple effects for the entire practitioner channel.
‘A Legitimizing Moment’
Kyle Bliffert, president of practitioner brands at Atrium, believes Nestlé’s move is, “a legitimizing moment” for the entire dietary supplement industry.
Mr. Bliffert, a seasoned veteran who diligently led the team that built Pure and Douglas to their present status, said Nestlé Health Science has clinical research, new product innovation, and marketing resources far beyond that of even the biggest practitioner-facing supplement brands.
He and his management team—who expect to remain in their current roles—hope to tap those resources in ways that will have major impact on healthcare at large.
He sees the acquisition as a natural step in the convergence of the formerly separate worlds of “conventional” and “alternative” medicine.
“The intersection of conventional allopathic medicine and integrative functional medicine continues to get closer and closer,” he said. “We’re seeing conventional practitioners using and recommending nutritional products, and in many instances recommending professional-only brands. We want to see that grow.”
If Nestlé really can channel Atrium’s products into major hospital networks, it would go a long way in building the case that supplements have a vital role to play in healthcare, and that they belong in the therapeutic toolkits of even mainstream physicians. In short, Nestlé’s support—especially if backed by significant research investments—would build credibility for the industry as a whole.
Core Values & Corporate Imperatives
Yet there is a peculiar irony in the fact that a conglomerate built largely on candy, bottled water, and processed foods now owns some of the wellness industry’s biggest brands.
When Nestlé announced the Atrium acquisition, critics quickly took to social media with concerns that the fiscal imperatives and mass market impulses of multinational corporations like Nestlé will inevitably corrupt—or at least substantially alter—the core health values on which Pure, Douglas, and Garden of Life were founded.
For generations, Nestlé has reaped huge profits by selling sugar-laden junk products that fuel the epidemics of diabetes, obesity, chronic inflammation, dental decay, and a host of other lifestyle-related disorders. This fact bothers some healthcare practitioners.
Further, Nestlé also has a questionable environmental track record. The company is very aggressive in the U.S. and worldwide in acquiring aquifers—some on public lands—to supply its bottled water business, one of the world’s largest. It has also been cited in allegations of child labor exploitation in its cocoa harvesting operations. The latter is an issue the company has acknowledged.
Though the deal could vastly expand the number of practitioners who recommend or dispense Atrium brands, it also has potential to alienate the base of naturopaths, chiropractors, and functional MDs on whose loyalty these brands were built.
Some practitioners posting on Facebook vowed to switch to other pro-only brands that remain independent or at least unaffiliated with massive multinationals. Whether they really do switch remains to be seen.
Nestlé declined interview requests for this article.
For his part, Mr. Bliffert said he’s well aware of the concerns. Though he is unable to comment specifically about Nestlé’s bottled water business, its chocolate companies, or the child labor issue, he pointed out that in its earliest days, Nestlé had its roots in health and wellness, and that in many ways the company is returning to those roots.
The Nestlé-Atrium deal is not the only major deal with potential to rock the practitioner space. Late last year, Mitsui—one of Japan’s biggest keiretsu (integrated grouping of enterprises)—and one of the world’s largest corporations—made a strategic investment in Thorne Research. The dollar amount was not disclosed, but given the size and reputations of the players, it can be presumed significant.
Thorne, which has been helmed by Goldman-Sachs veteran Paul Jacobson since 2010, has been at the vanguard of the practitioner channel since its founding by Al Czap in 1984. The company has grown steadily and maintained an influential position ever since. Like Pure, Thorne has also been able to establish good relationships with some mainstream institutions, most notably the Mayo Clinic.
Mitsui owns a gamut of businesses from steel manufacturers and breweries (think Sapporo), to paper producers and insurance companies.
In a press release, Mitsui indicated an intention to expand its existing wellness business in Japan by utilizing Thorne’s nutraceuticals and its Wellness FX diagnostic testing platform.
“As in other leading nations, the Japanese healthcare system is searching for ways to keep its population healthy through more natural approaches, so Thorne’s commitment to proving that its products work through testing and research makes them the ideal partner for us,” said Masami Yokoyama, general manager of Mitsui’s NutriScience division.
For his part, Mr. Jacobson said he hopes to tap Mitsui’s $40 billion annual sales network and to expand Thorne’s reach not only in the practitioner space but also into the consumer market in the U.S. and overseas. Mitsui’s investment, he said, will allow Thorne to expand into consumer-focused home testing.
Most recently, GNC announced that it was taking on a $300 million capital investment from Harbin Pharmaceutical Group (aka Hayao), a leading Chinese drug company. The deal, once completed, will make Harbin the largest shareholder in GNC. The goal is to establish a joint venture to produce and market GNC branded products in China.
Though not directly impacting the practitioner channel, the Harbin-GNC deal underscores the fact that nutraceutical-based health solutions are now commanding the attention—and the capital—of some of the world’s largest corporations.
All of these nutrition industry deals are happening against a background of massive consolidation and disruption in healthcare at large.
The Nestlé-Atrium deal hit the headlines just a few weeks after CVS/Caremark—the nation’s largest drug store and pharmacy benefits company—acquired Aetna health insurance. Once completed, the $69 billion deal will create a hybrid pharma-insurance-retail entity with tremendous potential to reshape nearly every aspect of healthcare.
And talk about Big Data! The joint CVS-Aetna company will hold one of the world’s largest retail databases as well as one of the biggest aggregations of medical records and healthcare transactions information.
Since the announcement, Aetna has been posting paid advertorials to the New York Times website, titled, “From the Exam Table to the Kitchen Table: A Path to Better Health Care.” The article proclaims, “a new health care model is on the horizon—one that focuses on keeping people healthy rather than just treating specific illnesses.”
The piece quotes Dr. Hal Paz, Aetna’s chief medical officer, discussing things like personalized approaches, getting to root causes, keeping people out of hospitals, and other core holistic concepts.
Of course, Aetna is also under investigation by California’s state insurance commissioner, Dave Jones, after a former company medical director, Dr. Jay Ken Iinuma, admitted that he routinely denied treatment authorizations without reviewing patients’ medical records.
As the healthcare world was beginning to wrap its head around the CVS-Aetna deal, Amazon announced the intention to form a healthcare partnership with JPMorgan Chase and Warren Buffett’s Berkshire Hathaway.
The statement said almost nothing about the actual plan, or the nature of the partnership. But Amazon has disrupted and re-organized every industry it has touched so far. And the notion that the nation’s most lucrative retailer was teaming up with the world’s third largest publicly traded conglomerate, and one of the globe’s four biggest banks to do “something” in healthcare was enough to send healthcare stocks reeling for a couple of days.
Combined, the three companies employ roughly 900,000 people in the U.S.—a population larger than many mid-sized cities, and enough to create a substantial insurance pool all its own.
Many in healthcare have long expected Amazon to enter the arena. Some have said that the CVS-Aetna deal emerged in part because both parties were looking to build a bulwark against disruption caused by an Amazon-driven healthcare entity.
How will these mega-deals affect the daily practice of medicine down in the trenches? What are the implications for small to mid-sized nutraceutical businesses that support and rely on medical practitioners? It is far too soon to tell. With all of these deals, there are more questions and unknowns than clear answers at this point. But we can draw out a few general themes worth considering:
- Healthcare cost pressures are forging new and previously unheard of relationships across industries and across national and geographic borders.
- Market-share, market-shaping power, and massive quantities of healthcare data are being concentrated into the hands of a relatively small number of very large corporate entities.
- Many of the companies and executives now entering the healthcare sphere come from other non-healthcare business sectors and bring in very different mindsets.
- Health-centric core values that have been the foundation of many nutrition and supplement businesses will increasingly be met with—and challenged by—the fiscal imperatives of major multinational conglomerates.
- Nutraceuticals, dietary supplements, and holistic medicine are no longer small-scale “fringe” phenomena; they are on the table in the world’s largest corporate boardrooms, and poised to move into the healthcare mainstream.
They will certainly have transformative effects, and the status quo business models that have been operative in healthcare for decades are not likely to remain status quo for much longer.
We’ll be discussing these and other trends and themes at the 6th annual Practitioner Channel Forum, May 30-31, at the Hyde Resort in Hollywood, FL. It’s conveniently scheduled right before the Institute for Functional Medicine’s annual conference. We hope you’ll join us. For more information visit www.TPCForum.com.
Holistic Primary Care
Erik Goldman is co-founder and editor of Holistic Primary Care: News for Health & Healing, a quarterly medical publication reaching about 60,000 physicians and other healthcare professionals nationwide. He is also co-producer of the Practitioner Channel Forum, the nation’s leading conference focused on opportunities and challenges in the practitioner segment of the dietary supplement industry.