You are on page 1of 9


THE FIRST MAJOR NUTRACEUTICAL COMPANY Stephen L. DeFelice, M.D. In 1965 I conducted the first clinical trial with carnitine, a non-patented natural substance, in hyperthyroid patients. Years later, my good friend and colleague, the late Dr. Claudio Cavazza of Sigma tau, and I decided to develop carnitine as a pharmaceutical. Carnitine taught me how difficult it is to develop natural substances as drugs. Later, and much to my surprise, carnitine also became available as a dietary supplement. I then learned that the dietary supplement industry is a commodity, low profit margin, market driven one unlike the pharmaceutical industry which is a proprietary, high profit clinical research driven industry. In order to encourage clinical research on all natural substances, I wrote the book, From Oysters to Insulin, Nature and Medicine at Odds, recommending ways to encourage such research. Much to my surprise and disappointment, there was no interest from both the pharmaceutical and traditional nutrition markets regarding this potential new health sector market opportunity. In order to transform the dietary supplement food industry into the pharmaceutical clinical studies model, FIM, the Foundation for Innovation in Medicine ( held a series of nutraceutical conferences. I proposed the NREA or Nutraceutical Research and Education Act which was introduced in Congress in 1999 by Representative Frank Pallone but not enacted. There was virtually no support from any segment of the food and dietary supplement industries nor nutritional professionals and organizations. For certain reasons, I was surprised that the formulation- manufacturing industries did not step forward with their support for they have much to gain. About three years ago, I again attempted to persuade Congress to enact the NREA, Once more, history repeated itself. There was no support. The NREA is based on the Orphan Drug Act which purpose is to encourage pharmaceutical research and the reason why Sigma tau invested funds to

obtain two FDA carnitine NDA (New Drug Application) approvals. The Act essentially provides the right for a company to make claims based on the results of clinical studies done on orphan or rare diseases but fewer data are needed and the costs are much lower than what would be needed for FDA approval. The NREA is based on the principles of the Orphan Drug Act but deals primarily with foods and dietary supplements including herbal remedies. If, for example, a company conducts even a single clinical study which demonstrates that vitamin E or a generic herbal remedy significantly reduces acne, FDA will grant the exclusive right to that company, and not other companies which sell the same product, to make the medical or disease claim. This would, for example, along with formulation and manufacturing know- how or patents, convert a product from a commodity to a strong proprietary one. There are a number of ways to obtain strong proprietary positions but it is puzzling that companies havent aggressively pursued this exciting commercial opportunity. I coined the term nutraceutical as a regulatory umbrella which encompasses all types of foods, special diets and dietary supplements in order to make it easier for Congress to both a) understand and b) act on a single nutraceutical law or NREA. All other terms such as functional foods, pharma foods, herbal foods, designer foods and others are marketing terms which are understandably necessary for product promotion. The definition of a nutraceutical is, A food or parts of foods that have a health or medical benefit including the prevention and treatment of disease. Though the term is commonly used and now in many dictionaries, including the prestigious Oxford English Dictionary which credits me with coining the term, this and other published definitions are not correct. A food or dietary supplement becomes a nutraceutical only when its activity is confirmed by one or more clinical studies! Not too long ago there was a movement by several U.S. companies to conduct clinical studies on their nutraceutical products, due largely to FIMs conferences and public relations efforts regarding the potential of the nutraceutical market. Unfortunately, there was a lack of defendable

proprietary positions and insufficient capital to market properly. Also, the companies were inexperienced in clinical protocol design and, for this reason, most results were not optimum. What dealt a major blow to the clinical trials movement and to the image of the value of dietary supplements, in general, were the negative clinical results of vitamin Es effect on cardiovascular disease. Vitamin E was the number one, unquestionably accepted nutraceutical by the medical profession, academic communities, consumers and the media. These studies were conceptually faulty being designed with a pharmaceutical mentality instead of a nutraceutical one. Unfortunately, there were no objections to be heard anywhere and the negative impact not only on vitamin E but dietary supplements, as a group, continues to this day, unopposed. Then other negative news followed. For example, a study done in elderly women taking multivitamins and other dietary supplements chronically, reported no health benefits and even the possibility of accelerating death. Returning to vitamin E, a study done in men who took vitamin E over a long period reported an increased risk of prostate cancer. The studies were covered by the media further adding to negative perception of vitamin E and supplements in general. As with vitamin E and heart disease these studies were faulty in design but, once more, no one from the supplement industry objected. Now lets make the assumption that- speaking about the U.S. only where the regulatory market is favorable- that the dietary supplement nutraceutical industry is born. The market size would be much, much larger than the current one of $28 billion. Compare this to the statin, Lipitor, whose U.S. market size was $8.5 billion, about 30% of the total supplement market. I would not be surprised if the nutraceutical market would range from $100 to $200 billion particularly if the food companies enter the market. Will the nutraceutical market destroy the current supplement market? Just the opposite! It would be similar to the U.S. generic drug market which accounts for 80% of pharmaceutical sales. This was clearly demonstrated by the Ocean Spray cranberry juice market rise which was accompanied by

increased sales of generic cranberry products (see below). As one of traditional dietary supplements industrys leaders said at a FIM nutraceutical conference, Well have a smaller piece of a much, much bigger pie and be very happy about it! SUBJECTS TO BE COVERED 1. The ideal and novel nutraceutical, low cost marketing model to create physician-consumer demand: During the early 80s the National Institutes of Health (NIH), released a report recommending calcium supplementation for the prevention of postmenopausal osteoporosis. Within a few months, a high percentage of Americans were aware of this recommendation and, subsequently, practically the entire population. I was both amazed and stunned by this rapid, massive marketing success for even if a pharmaceutical company spent enormous sums of promotion dollars, it could not nearly approach these numbers. Out of curiosity and a sense of a new health sector, I decided to evaluate the dynamics of this historical event. They are as follows: a) Published clinical studies were reviewed by medical experts and recommendations for calcium supplementation use made by them were made public b) Mass and specialized media covered the story en masse to both the public and physicians as well as other health care parties c) What was also new and a critical factor is that physicians, for the first time, entered the dietary supplement marketplace and they and their patients began to communicate with each other about taking calcium and d) Sales of calcium skyrocketed. (By the way, I believe this was a major factor in increasing the U.S divorce rate which we can discuss during coffee break). But, and this is important to note, it was the sales of generic forms of calcium that increased. I then wondered how one could connect a brand name, proprietary product to this marketing model. In academic medicine it is a policy not to recommend brand names in medical publications unless its necessary. For example, if a study is done with Pfizer penicillin and published, the medical experts would only recommend penicillin and omit Pfizers name. If, however, the study was conducted with a unique marketed branded dosage form of Pfizer penicillin which is different than other marketed penicillins, then the medical experts would mention that

brand. Despite my efforts, this potential marketing approach was not well received when I tried to convince companies to enter the nutraceutical market. And then the sudden Ocean Spray phenomenon proved the brand name marketing model. A clinical study published in the Journal of the American Medical Association- a forum of medical experts- reported that the brand name, Ocean Spray Cranberry Juice prevented urinary tract infections in elderly women. Then the nutraceutical- brand-name model immediately followed and the mass and specialized media cited Ocean Spray and not other cranberry juice products. The sales of this product increased with strong support by physicians. The message of this brand name educational phenomenon should have alerted companies of the enormous flexibility in making health-medical claims where the media becomes the claimer. For strange and puzzling reasons, this beautiful, once in a lifetime gift placed on the plates of companies was not opened. 2. There are numerous times that I personally failed to convince corporations to create the first dynamic nutraceutical company (and the lessons learned) including: a Pfizer- General Foods joint venture, Kelloggs, Sigma Tau-General Nutrition, Johnson &Johnson and a presentation to the Board of Monsanto. There was, except by the Monsanto Board, little understanding of the potential nutraceutical business. Concerns about making health- medical claims coupled with doubts whether strong proprietary positions could be achieved to justify corporate investments were paramount. But, bottom line, it was the new in between pharmaceutical- dietary and food health sector that was both new and confusing to them. It simply did not fit in their corporate cultures. 3. My personal attempts to form the nutraceutical company, Intracellular Health, dealing with private capital groups: Private investor concerns were also related to regulatory restrictions on making claims and the new marketing approach but also about the lack of understanding and support by those they turned to for advice. One intelligent investor asked me, How come only you and nobody else knows about this nutraceutical

market? Thats a difficult question to answer, and I wasnt successful at responding to it. 4. Placebo effect, safety and health care cost reduction: In the U.S. the safety profile of dietary supplements is impressive. If all the supplements were removed from the shelves of the stores and replaced with pharmaceuticals freely available for consumer purchase, within six months one-half of Americans would be either in heaven or hell and the rest hospitalized. Even if we assume that all dietary supplements are clinically ineffective, they, nevertheless, offer an enormous benefit to both the consumer and to the reduction of national health care costs. The reason? The placebo effect! Depending on the condition, the effect can range from 30 to 60%. Unlike in the past, we now believe that certain positive biologic beneficial processes occur just by the psychological impact of taking an inert pill. In the U.S. over a 100 million consumers take at least one dietary supplement daily. Making the assumption that there is a national placebo response of 40%. Then 40 million Americans would respond clinically and not visit their doctors for treatment where reimbursement of costs occurs. Also, since consumers, themselves, pay for supplements, the overall cost savings is enormous for both insurance companies and the government. To my knowledge, this argument has never been made by the dietary supplement industry or anyone else. 5. Impact of clinical studies on freedom to make health-medical claims: Regarding regulatory pressure on claims, positive clinical studies will inevitably lead to more flexible guidelines. For example, many products are promoted as antioxidants with broad claims but regulators are not happy about this because of a lack of clinical studies to support the claims. The epistemological chaos regarding the difference between a health and disease or medical claim will diminish. First of all, health is primarily concerned with the prevention and treatment of disease. Clinical studies accompanied by public demand- and the public loves dietary supplements and fears pharmaceuticals- will result in claims being based on the results of clinical studies accepted by medical experts. If carnitine reduces the toxicity of the anti-cancer drug, doxorubicin, in

cancer patients, the company will be able to make the claim. If an Ayurvedic remedy decreases fatigue in stressed men and women, that then will be the claim. IF THERES TIME-OTHER SUBJECTS 6. Nutraceutical Rejection- Acceptance Theory: Carnitine and anti-aging products support the theory. Cells must perceive a need for dietary supplements before they utilize them. Sometimes its necessary to create that need. 7. Nutraceutical- pharmaceutical combination market- increasing efficacy, decreasing toxicity and both. Carnitine, doxorubicin and ovarian cancer is an example ( I particularly like this approach for the product market is already established and the nutraceutical is simply an add-on. 8. One lesson of carnitine regarding how to design clinical studies: There are multiple types of natural substance deficiencies- acute, chronic, total body, specific organs and parts of organs. 9. Critical role of production-formulation technology to enhance a proprietary position: The formulation companies could be the pioneering leaders in the nutraceutical health sector. 10.The importance of flexible instead of fixed daily dosing of fat and water soluble substances: This, in certain cases, is necessary in order to deliver effective amounts of dietary supplements HOW TO FORM A MAJOR NUTRACEUTICAL COMPANY The first step would be to establish an independent corporate entity with a nutraceutical culture outside of the traditional pharmaceutical, food and dietary supplement companies which will fund the first major nutraceutical company (NUC).

The financial structures can vary from a minority share with an offbalance sheet investment with an option to buy to total ownership. Regarding private investors, in my experience they prefer to purchase a small company with some cash flow to launch NUC. The NUC will have two components a) clinical development and b) marketing. The first step, however, is to clinically demonstrate proprietary effective or efficacious nutraceuticals. As a young doctor I was interested in predicting the efficacy of a drug from animal to man to FDA approval. I dont remember the exact results of my study but, lets say, the chances of FDA approval were extremely low. I recently reviewed some data regarding drugs that first enter into clinical trials. It can take up to 13 years for such approval with a probability of success somewhat less than 10%. (The latter does not include promising therapies in preclinical studies that never enter first clinical trials. Also, it is reported that 1out 1000 preclinically tested compounds makes it to clinical trials). The average cost for FDA approval of a successful clinical trial phase approaches 150 million dollars. This figure does not, however, include the total costs of R&D with other compounds which can approach $1 billion. Now lets compare this to nutraceutical products but I must warn you that this opinion is based on my personal judgment and not published data. First of all, the predictability of clinical effectiveness from animal to human studies is far, far greater than with pharmaceuticals. I would estimate, if one understands the animal human biological relationships, that the predictability borders 50%. This is one of the worlds best kept medical secrets. Such clinical activity can be demonstrated, on average, within 2 years. Regarding the average cost to demonstrate such clinical activity, I would estimate $4 million per nutraceutical product. Regarding the potential U.S. market size, it is not unreasonable to project a market size of $100 to $200 million per product. Regarding specific marketing costs, thats up to the marketeers but, however, if the

marketing team is talented and has know-how with respect to using the nutraceutical marketing model described above and the Internet, then the costs should be economically acceptable. If I were to compose a business plan for the United States market, the first phase would be to identify and develop six proprietary potential high profit margin nutraceuticals with a 50% probability of clinical success at a cost of approximately $24 million with a potential market size of $600 million. Making the assumption, however, that only 50% would be clinically effective, we are talking about a market size of $300 million. If during the clinical phase it becomes evident that the clinical results are unequivocally promising, then further investments in additional new nutraceuticals development can be made. And this should be the continuous strategy of the NUC. If the marketing team cannot successfully market these products, then they should be fired and replaced by another team. Conclusion: The potential nutraceutical market is pregnant with promise. Who will be the obstetricians to deliver this promise?