Under the Microscope

As dietary supplement companies reported their financial results this year, they seemed to confirm that despite a down economy, things are looking up. This year kicked off with increased business for many-not all, but many-signaling either recovery from 2009, or growing business that had never dropped off, even during the recession. (Read some positive reports in the sidebar.)

These numbers represent more than recovery; they indicate a steady trend of growing consumer interest in supplement usage. "This news is really remarkable," wrote Mark Blumenthal, founder and executive director of the American Botanical Council, in an herbal dietary supplements market report published in HerbalGram. "In the most economically difficult market in over 70 years, when almost all consumer goods experienced a drop in sales, consumers voted strongly with scarcer dollars for herbal dietary supplements."

Blumenthal also noted a 14% increase in mainstream market sales, such as at drugstores: "The 14% growth spurt is the largest sales increase in the mainstream market in recent memory."

"It's been a good year for dietary supplements primarily because people are looking for less-expensive, alternative remedies," says Bob Green, president of Nutratech Inc. "Not only are consumers more health-conscious; they also want to avoid expensive doctor visits and prescription medications."

It's growth that industry certainly hopes will continue. "Based on our research and analysis, [the Natural Marketing Institute; NMI] projects that the health and wellness industry will grow at a rate of approximately 3 to 15% across various categories in 2010," said NMI president Maryellen Molyneaux. She noted that consumers have positively changed their attitudes about health and wellness during the recession. "These changes are not short term but are lifestyle changes that could impact the industry into the future."

Do the skies ahead look clear? While consumers are paying more attention to dietary supplements, so, however, are regulatory agencies and media.

"Big Brother" Is Watching

Thanks in part to a new administration, this year saw stronger oversight both from the Food and Drug Administration (FDA) as well as the Federal Trade Commission (FTC).

"There's really no question at all that these two agencies that oversee supplements have increased their activity level," says Andrew Shao, PhD, senior vice president, scientific and regulatory affairs, Council for Responsible Nutrition. "So on the one hand, what we see is tremendous promise and growth, despite hard economic times. On the other hand, we see greater scrutiny from regulators."

FDA officials have made it clear that FDA is cracking down-on health claims, on adulterated supplements spiked with steroids and other drugs, and more.

As far as FTC is concerned, the dietary supplements industry remains one to watch, with unscrupulous companies periodically making unsupported and unauthorized product claims.

Both agencies are flexing their muscles. As a result, industry this year has seen increased regulatory action and discussion, amounting to a "blizzard of activity" in Washington, DC, says Daniel Fabricant, PhD, vice president, global government and scientific affairs, Natural Products Association.

FDA kicked off a wave of health-claims crackdowns last year. The agency also further indicated its growing involvement in industry, issuing draft guidance on distinguishing traditional beverages from liquid dietary supplements.

Just this July, FTC got Nestlé to withdraw immunity statements for its Boost Kids Essential beverage. Although industry sidestepped a potential obstacle when expansion of FTC authority for stricter advertising rules was rejected in the Restoring American Financial Stability Act of 2010, industry can certainly expect stricter oversight going forward, from both agencies.

"This is more than moving the scenery around on the stage," says George Burdock, PhD, president of Burdock Group. "It is setting the stage for a new wave of enforcement of dietary supplements and food ingredient laws and regulations. FDA has identified categories-unsupportable claims of grandfathered items, use of unapproved items, and unsupported health/structure-function claims-and has indicated that there is a new sheriff in town. A looming FDA crackdown on violators is obvious to all but the oblivious."

While keeping an eye on regulations that would impede reasonable and responsible business, many industry members support increased enforcement that is likely to weed out "bad actors."

"We welcome increased regulation of manufacturing processes and standards in order to continue to feed customer confidence and industry credibility, and because it will help eliminate some of the more-questionable companies," says Dan Alhadeff, senior vice president for Nutri-Force Nutrition. "However, it still has to be a controlled process."

A controlled process, to many, means enforcement of the laws of the Dietary Supplement Health and Education Act of 1994 (DSHEA)-a law still not enforced in full, due to, for instance, a still-undetermined list of grandfathered and new dietary ingredients.

"What we need to do is enforce the current DSHEA law to its fullest," says Nutratech's Green. "If FDA had all of the resources it needs to fully implement DSHEA, then we'd have a safer and more secure industry."

Much to industry's relief, Senator John McCain's (R–AZ) 2010-introduced bill, the Dietary Supplement Safety Act, which would have altered DSHEA with stringent rules such as reporting of all adverse events, has since been replaced with Senator Orrin Hatch's (R–UT) Dietary Supplement Full Implementation and Enforcement Act of 2010-a bill that calls on FDA to receive more resources to start enforcing DSHEA's regulations, including finally establishing clear guidelines for new dietary ingredients and grandfathered ingredients.

Industry lobbyists credit a grassroots response for helping dissuade such measures as McCain's bill and the FTC expansion of powers. As the regulatory waters continue to heat up, folks such as Fabricant say that now more than ever, industry members must make their voices heard in order to protect the industry's rights and consumers' reasonable access to dietary supplements.

On the international regulatory front, attention continues to focus on the European Food Safety Authority (EFSA), now in the process of evaluating the more than 4600 Article 13.1 general-function health-claims applications submitted by companies. In light of the numerous negative opinions so far issued by EFSA, many have questioned the soundness of EFSA's evaluation process. (So far, EFSA has evaluated approximately 1000 of the claims.)

Shao questions the "transparency" of EFSA's evaluation process. "Nobody really knows EFSA's thinking when it's evaluating these claims-what criteria they're using, how they go about making their decisions," he says. "It's been a black box of sorts."

"I think the other problem is that their decisions have been very black and white," he continues. "But of course, the science behind the nutrient-disease relationship is not black and white; it's continual. And there can be some evidence to support it. It might not be completely conclusive, but it would be incorrect to say that there's none-and EFSA's decisions are as if there were no evidence. They claim they review the totality of the evidence, but they don't really do that. They just review what's submitted. That may or may not be the totality of the evidence."

Given the backlash it's faced, EFSA has been making efforts to open a dialogue with industry members, but so far participants have indicated that discussions haven't shed more light on the questions at hand. How industry's relationship with EFSA evolves in the coming years remains to be seen.

Media, Consumer Perception

While news about bills, recalls, and crackdowns has certainly put industry on the front page this year, other high-profile events also generated a lot of press-a "consistent drumbeat," says Shao. "Everyone seems to be taking more interest in the industry."

Two widely publicized senate hearings, the Senate Subcommittee on Crime and Drugs' Body-Building Products and Hidden Steroids: Enforcement Barriers hearing last September, as well as the recent Dietary Supplements: What Seniors Need to Know hearing held by the Senate Special Committee on Aging, also drew mainstream attention to industry. Negative news coverage, such as on study findings questioning the efficacy of an ingredient on disease (think Ginkgo biloba), and news about adulterated supplements and supplement safety (e.g., the controversial Fish Oil Safety lawsuit), has had media all over the map, so to speak, when reporting on dietary supplements.

To many in the industry, this is both good and bad. Good, because more coverage means that more people are interested in dietary supplements. However, there is also the worry that a lack of understanding about supplements and their science, unrealistic expectations of clinical trials, and plain and simple sensationalism can send consumers a confusing message.

"The majority of consumers believe that supplements are safe and that they've been proven to have health benefits," says Lynda Doyle, marketing director, new nutritional ingredients and dietary supplements, DSM Nutritional Products. "Where we've seen some change is lower consumer confidence in media reporting of the research regarding supplement safety and effectiveness. Consumers [don't know] what to believe because there are so many conflicting news reports on supplements."

And it's not just media that's become more interested in supplements, says Shao. "One thing I've noticed that is relatively new now is that the medical and research community is weighing in on the debate, through published editorials and commentaries, calling for revisions of the law."

He points to the Institute of Medicine's recent recommendations on establishing guidelines for clinical trial biomarkers. The institute's report veered off into a discussion about regulations, which some industry members called "out of boundaries." Another instance is the new 2010 Dietary Guidelines Advisory Committee (DGAC) Report with several negative comments about multivitamins. Such reports from the medical community "scarily, have sway, a lot of influence" with consumers, says Shao.

"We hope that consumers are more inclined to not always take such reports at face value," says Nutri-Force's Alhadeff.

So what can industry do to maintain its good name? "As an industry, we have to continue to act and make decisions in a manner that ultimately will reinforce our credibility so that we can try to minimize the negative impact from some of these [reports], because they aren't going away any time soon," says Alhadeff.

In light of conflicting information and opinions, the good news may be that today's supplement consumers are doing more of their own fact-checking than ever before. "I think what has happened is, because one day the press says supplements are good, and the next day, the press says supplements are bad, consumers have really taken a lot into their own hands," says Fabricant.

ON THE RISE

Leading retailers and marketers reported growth. Vitamin Shoppe saw quarter-two comparable-store sales increase 8.6%. "2010 started strong, and that momentum continued into the second quarter," said chairman and CEO Rick Markee in a press release. General Nutrition Centers' (GNC) first-quarter results were strong-a 33.5% net-income increase over the previous years'. Meanwhile, NBTY Inc. had a 7% increase in its third-quarter sales over last year's third quarter.

The Natural Marketing Institute in May announced that U.S. health and wellness consumer packaged goods retail sales in 2009 grew an overall 5% over the previous year, according to the group's annual Health & Wellness Trends Database study. Specifically, vitamin, mineral, herbal, and dietary supplement sales rose 8%. Functional and fortified food and beverages had smaller growth, at 2%.

Even more specifically, the American Botanical Council (ABC), in partnership with Nutrition Business Journal and market researcher SPINS, reported in ABC's HerbalGram that U.S. herbal dietary supplement sales alone jumped nearly 5% in 2009, to more than $5 billion in sales.

Many ingredient suppliers also saw business improve over the last year. Cognis (to be purchased by BASF) in April said that first-quarter sales were back on track compared to 2009, growing 10.6% "due to a strong recovery in actual demand." With net sales up 24%, DSM also had "a strong start to 2010," said chairman of the board Feike Sijbesma. Naturex saw a 15.4% sales growth in the second half of 2010, compared to the same period in 2009.

Responsible Business

Industry members say that the focus must be on maintaining quality standards in their own operations.

"A lot of the regulatory hype this past year has made it seem like our industry has tainted products and other serious safety issues-that we're an evil industry that doesn't self-regulate," says Nutratech's Green. "When in fact, the opposite is true. We're one of the safest industries out there, especially when compared with foods and prescription and over-the-counter drugs."

Suppliers and manufacturers are focusing on some of the positive measures recently established-or on the horizon-that will help industry underline quality standards, such as the now fully implemented current Good Manufacturing Practices (cGMPs) for dietary supplements and the upcoming Food Safety Modernization Act, which would give FDA authority over mandatory recalls and annual registrations for dietary supplement facilities.

Not that adopting cGMP measures has been without its challenges. "While we strongly welcome the new cGMPs in the hopes they will continue to grow consumer confidence and credibility, in addition to leveling the 'playing field' amongst competitors, there is no denying the cost of ensuring full compliance," says Alhadeff.

Ecuadorian Rainforest, which also adheres to strict cGMP standards, says, "It has been a long process, to date," says Jason Soltis, the company's internal legal consultant, citing challenges such as implementing good documentation practices and employee education and training.

"I am sure the next few years, similar to the last few years, will still provide much room for a growing curve," says Soltis. "The dietary supplement industry can get fairly complex in many areas, so on that front, FDA may need to take some more time to learn a bit more about the parts of the industry. For instance, the sheer amount of products offered in the industry alone is staggering. On the flip side, companies will have to start learning how to interact with FDA in order to keep up with FDA and public health concerns."

He adds, "An industry that was once somewhat lightly regulated is become more so on a regular basis. This, however, will be good for the industry as a whole."

And, says Adam Ismail, executive director, Global Organization for EPA and DHA Omega-3s (GOED), it will be up to industry, through responsible actions, to maintain market credibility. "Industry needs to collaborate to ensure that product quality remains high so all sectors can grow, rather than let a few 'bad actors' take down entire product sectors."

Innovation

In light of all this-tighter regulations and a tight economy-supplement companies continued to innovate as best as they could this past year.

"Innovation did continue in 2009-however, at a slower pace-and many companies were focused on revamping current brands, positioning, and packaging," says DSM's Doyle. "I expect innovation to increase in 2010 and 2011 as consumers turn to supplements to stay away from their doctors' offices."

"We expect to see innovation pick up this year," agrees Mike Bush, vice president, business development, Ganeden Biotech. "With the downturn in the economy the past few years, innovation stood still a bit."

Companies also continue to focus on the science of ingredients. "Those who can provide evidence from well-designed medical studies will be able to use vitamins and dietary supplements as ingredients in their products and reap the rewards from a consumer who is hungry for natural, medically effective products," wrote Samantha Chmelik, head of global consumer health research for Euromonitor International.

However, says Ismail, companies should also be sure to take a collaborative approach to research that will benefit the industry at large.

"Five to 10 years ago, everybody was saying, 'Invest in science. Invest in science.' However, almost all the investment went into proprietary science," he says. "One or two companies benefit a little from this, but the goal of scientific investment from industry is to be able to make claims to consumers, and regulators have said that claims have to be justified with human studies that are consistent with the context from other studies on the same ingredient. If you invest in well-designed proprietary studies, but other poorly designed studies are published, it creates many more hurdles for you. There are two effective strategies I have seen to manage this-either collaborate as an industry on science with academia, or if you invest in proprietary science, you need to play a role in all science being published on the ingredients. Both require significant resources."

Besides innovation, what do consumers want?

• • Eye health, probiotic/digestive health, and cardiovascular health products, says Dallas Clouatre, PhD, a consultant to Jarrow Formulas. More specifically, he points out lutein and curcumin (whose popularity has led to tightened prices for raw material), vitamin D (a "runaway winner" due to continued positive research), omega-3, fiber, and stevia. Another trend? "Avoidance: avoidance of salt, preservatives, unrecognizable excipients on labels, and so forth." Other areas of interest are cognitive health (both cognition and sleep), energy, immune health, and bone health, as well as beauty-focused vitamins and supplements, says DSM's Doyle. Weight management is also still a big consumer concern, says Nutratech's Green.
• • Focused, targeted solutions. "This year has seen a shift away from the 'synthetic' multivitamin approach, and a shift toward supplementing with whole-food products," says Thomas Walton, managing director for NP Nutra. "Supplements containing a single botanical or a blend of botanicals have become popular as consumers are becoming more aware of what they are putting into their bodies and beginning to question long ingredient lists."
• • Tried-and-true ingredients. "With limited dollars to spend, we have found that instead of always going for the flavor of the month, more consumers are seeking out supplements with ingredients that have stood the test of time and that have a wealth of research supporting their safety and efficacy," says Green.
• • Convenience is another trend consumers are now demanding, companies unanimously say. It's one reason the functional-food format is becoming more common, says Ganeden's Bush. Products that combine popular ingredients will also be in demand, he says.
• • Delivery systems: Tablets, capsules, and soft gels remain big sellers, says Nutri-Force's Alhadeff. Mark Vieceli, director of sales, marketing, and business development for Capsugel, adds, "In general, consumers are responding more positively to dosage forms that are easy to swallow, that they perceive to work more quickly, and that appear to preserve the strength of the [formula]. Dosage forms such as capsules, 'liquid-filleds,' and 'gel-coats,' including products considered rapid-release forms, are more likely to deliver those perceptions." As formulations become more advanced, so are delivery systems, he says. Formats to watch: Multiphase-release capsules, capsule-in-a-capsule technologies (great for synbiotics), and capsules that protect moisture-sensitive products and shelf life.
• • Sustainability. "All other things being equal, consumers would much prefer to have supplements delivered in bottles and other packaging materials that are eco-friendly," says Clouatre.
• • New markets, says Doyle. "Although the top supplement-user demographic in the United States is the 50-plus group, young, image-conscious adults present new opportunities for preventive nutrition, energy, and immune health. These individuals are interested in staying healthy, energized, and looking their best."

And no matter what the state of the industry, consumers will always want this in their supplements-efficacy and safety. "Many dietary supplement manufacturers in the natural products industry have shopped for price alone," says Green. "You can't do that if you want ingredients of superior quality."