The pharmaceutical industry is currently experiencing a rather precarious period, often referred to as the “patent cliff”, ie the mass expiry of drugs patents. The situation is further compounded by a dearth of new potential blockbuster drugs, which does not bode at all well for the future. It is no surprise, in an attempt to compensate for declining revenues, that ‘big pharma’ is looking for other ways of generating new revenue streams. And the prosperous nutraceutical, as well as the functional foods and beverage industries, look ripe for the picking.
‘Nutra’, as these industries are often referred to, has indeed shown highly encouraging growth in recent years. Fortified/functional foods and beverages, for instance, enjoyed a 44% rise in retail value sales between 2005 and 2010 across the 32 markets in which Euromonitor International conducts its in-depth health and wellness research. Global value sales of functional bottled water rose by 70% over 2006-2011, while those of vitamins and dietary supplements (VDS) increased by a commendable 50%. It is easy to see why pharmaceutical companies are hankering after a slice of this market, especially as there is such a considerable overlap with its own realm of expertise.
The scene is already rife with examples of pharma dabbling in the nutra camp, and very successfully at times. GlaxoSmithKline, for instance, is the long-standing owner of the Lucozade functional sports and energy drinks brand, a product which started off under the name of Glucozade as a convalescent drink served in Irish hospitals.
Lucozade now ranks seventh among global sports and energy drinks brands (by off-trade value), with global value sales of US$1 billion in 2011, up from US$897 million in 2006. GlaxoSmithKline also owns Lovaza, an FDA-approved prescription omega-3 fish oil product used for lowering high triglyceride levels. Merck also sells a broad range of fish oil supplements under the Seven Seas brand while in April 2011 Bayer launched Arctic Wonder Krill Oil in the US. Pfizer owns Centrum, the world’s top-selling multivitamin brand, and Japanese pharma giant Otsuka Holdings claims the leading share in Asia Pacific’s sports and energy drinks market owing to brands like Pocari Sweat and Oronamin.
With the pharmaceuticals industry already having a firm foothold in the nutra camp and its desire to gain market share intensifying, it is easy to see how VDS companies and functional food and beverage players may get slightly edgy. Furthermore, pharma’s research and development budgets are enormous by comparison. According to Bernstein Research, drug companies’ R&D spend in Europe exceeds that of the food industry by around 10 times. In addition, pharma’s expertise and capacity to carry out “gold standard” clinical trials dwarfs that of the nutraceuticals and food industries.
Pharma – competitor and partner
If any food company is cut out to face big pharma head on, then it would be Nestlé. Nestlé remains the undisputed leader of the global packaged food market, also ranking third in global soft drinks. In 2010, the company amassed US$78.2 billion in global value sales in packaged foods and soft drinks combined.
Nestlé has made no secret of its ambitions of moving into a more medicalised direction. In 2010, it announced the creation of two new corporate entities, Nestlé Health Science SA and the Nestlé Institute of Health Sciences, with the core objective of straddling the gulf between food and pharma. Its focus is on tackling the growing burden of chronic health conditions, such as cardiovascular disease, diabetes, obesity and Alzheimer’s disease, brought on by changing lifestyle patterns and population ageing.
And the company is clearly set on going where no food company has ventured before. In March 2013, Nestlé reported its involvement in a breakthrough research programme, licensed from US-based biotech company VitaCyte LLC, which employs stem cells derived from human adult cells to investigate the causes of metabolic diseases, such as diabetes as well as gastrointestinal and brain health.
It is also moving into other areas which were once considered the sole preserve of medical science, for example the field of cancer care. In March 2012, the company launched a nutrition guide for cancer patients undergoing chemotherapy and radiotherapy to aid in the prevention of the rapid muscle loss and weakening of the immune system which are common side effects of these heavy duty treatments. Initially, the booklets will be available in public hospitals and private health centres and via cancer associations in Catalonia, with the aim of extending their distribution across the rest of Spain.
This example of a food company working in tandem with pharma, where all three sides (not forgetting the patient!) stand to benefit, shows that there is plenty of scope for nutra to develop complementary strategies – and even foster symbiotic relationships – with the pharmaceutical industry, rather than fixating on pharma eroding its market share.
Nutra much closer to consumers
Smaller players in the nutra realm may also harbour the fear that it is only global heavyweights like Nestlé which stand a chance of defending its turf in the face of big pharma’s encroachment. There is no reason why small and medium-sized companies, which are not afraid of concentrating their energies on what they do best, with a firm focus on consumer demand, should not continue to thrive in this increasingly competitive environment.
One major advantage to be leveraged by the food, beverages and nutraceuticals industries is their closeness to consumers. Bejit Edeas, Chairman of Japanese nutraceuticals company Ninapharm, eloquently made this point at the Nutraceuticals Business and Technology (NBT) Roundtable discussion in Geneva in May 2012. In this industry expert’s opinion, the pharmaceutical industry does not pose a direct threat to the nutraceuticals industry because it is simply not close enough to consumers. Instead, according to Edeas, it is those companies which succeed in connecting with consumers’ everyday health concerns and which are capable of presenting health information in a way that is credible and intelligible to their target audience, will emerge as the winners. Communication and education are paramount.
George Pontiakos, President/CEO of BI Nutraceuticals, USA, seconded Edeas’s opinion, stating that it is the food and beverage industries which are driving the market now with their functional offerings. They benefit from the inherent advantage that consumers have to keep eating and drinking to stay alive, ensuring a comparatively high degree of loyalty.
Pharma, Pontiakos believes, possesses neither the speed nor the nimbleness to catch up. The nutraceuticals industry, he believes, is the one with all the relevant expertise. Hence, it has to make the most of its golden opportunity to act as the primary consultant to the food and beverage industries, imparting its expertise on the application of functional ingredients, which are made from food and intended for food.
The ‘natural’ versus ‘chemical’ battleground
There is little doubt that the pharmaceutical industry will increasingly shift its focus onto producing dietary supplements based on standardised extracts. Identifying active components, usually (but not exclusively) from plant sources, extracting them, testing their efficacy, followed by packaging them into pills or other formats is where its expertise lies. Countless commonly available drugs started out this way, including aspirin (acetylsalicylic acid), originally derived from willow bark.
The nutraceuticals industry, although it also produces and markets products made from standardised extracts, has an advantage over pharma in that it can credibly promote products based on “whole” foods and herbs. Nutra can focus on the concept of ‘synergism’, ie where a wide range of naturally occurring phytochemicals in foods and plants act synergistically to bring about a health benefit, rather than boiling efficacy down to one single, isolated component.
Many potentially health-promoting substances in foods and medicinal herbs have not yet been identified, never mind tested, and even the pharma industry, equipped with formidable research muscle, would be at a loss to conclusively identify all the bioactive components of a food/herb and how they interact in and with the human body to produce positive health outcomes.
The two industries will increasingly be competing on the ‘natural versus chemical’ battleground, with purified and concentrated extracts and ‘designer molecules’ on the pharma side of the line, while natural whole-food based products will be controlled by nutra. The encouraging news is that consumers want more access to both, and that the pharmaceutical industry cannot possibly hope to compete on the natural platform. The natural trend is one of the most powerful drivers in the fmcg market today, with its impact seen virtually across all categories.
Let’s pull together!
Is there anything that nutra could do better in order to stand up to pharma without buckling?
At the aforementioned NBT Roundtable event, George Pontiakos took the opportunity to address one of the core weaknesses holding back the nutraceuticals industry – its fragmentation in terms of marketing message, with too much focus on how companies’ individual brands could benefit. This is due, he believes, to individual players’ fears that a rival might run off with their competitive advantage. For this reason, there is no political will to carry out the large-scale, gold standard studies that are needed to propel the entire industry forward.
Pontiakos very much lamented the lack of a unifying, powerful philosophy that conveys to the consumer the central message that nutra’s products are healthy, efficacious, safe and that they provide good value.
Undoubtedly, this is a tricky subject with many potential pitfalls, but by taking a cold, hard look at what is needed for nutra to continue thriving, a much higher degree of industry player co-operation will be necessary over the long term.
Opportunities abound – for both camps
For smaller players lacking the scope to go head-to-head with pharma in a fierce battle for market share, there is plenty of room, particularly in the fields of cardiovascular health, diabetes, obesity, brain, musculoskeletal, digestive and infant health, for both nutra and pharma to flourish. Consumers want both – drugs as well as natural products – to treat and prevent illness.
One example in the area of digestive and immune health, where the working-in-tandem approach could be further exploited, is in antibiotics and probiotics. Antibiotics remain among the most common prescription drugs, and one well-known side effect is antibiotic-associated diarrhoea (AAD). This complication arises because antibiotics present a kind of ‘sledgehammer’ approach, killing off not only disease-causing pathogens, but they also destroy much of the beneficial bacteria residing in the human digestive system. This not only results in diarrhoea but other negative effects such as a weakened immune system. Probiotics have been shown to prevent and/or significantly shorten the duration of AAD. There is also plenty of evidence of probiotics boosting immune health, although a more collaborative approach from the industry is desperately needed to substantiate these benefits in large-scale, gold standard trials.
The antibiotic-probiotic dynamic presents nutraceuticals and functional food companies with a prime opportunity to leverage their closeness to the consumer by communicating the concept that everyone prescribed antibiotics by their doctor should also be consuming probiotics to counteract the negative impact of these drugs on their bodies.