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"NUTRACEUTICAL" STRATEGIC ALLIANCES BEING CONSIDERED BY 45% OF DRUG FIRMS

This article was originally published in The Tan Sheet

Executive Summary

"NUTRACEUTICAL" STRATEGIC ALLIANCES BEING CONSIDERED BY 45% OF DRUG FIRMS polled by Nancy Childs, a professor of food marketing at Saint Joseph's University, Philadelphia. Presenting the results of a survey of 96 pharmaceutical, biotech and food companies at a Sept. 28 meeting of the Foundation for Innovation in Medicine in New York City, Childs said that about 45% of the drug firms indicated that they were considering the establishment of a strategic alliance, joint venture or partnership to develop a nutraceutical product "within the next 12 months." She noted that 36% of the drug companies polled are "presently involved" in such an alliance. Of the biotech companies surveyed, Childs found that 60% of the firms are already involved in strategic alliances, joint ventures or partnerships, and 30% think they may enter a strategic alliance within the year. The food industry seemed the least enthusiastic about collaborating on nutraceuticals, Childs noted; 29% of food firms were already involved in an alliance and 14% said they were considering such projects. The marketing professor suggested that the "complexity and variety of the multiple technologies that this [nutraceutical product] category embraces . . . lends itself to a partnering of companies with complementary competencies." Childs also asked participating companies whether they were investing staff and R&D resources in the development of nutraceuticals, a term defined by FIM as "any substance considered a food, or part of a food, which provides medical or health benefits, including the prevention and treatment of disease." Thirty-six percent of the drug companies revealed that they were investing in the development of nutraceuticals, compared to 55% of the food companies and 90% of the biotech firms. In her poll of drug, food and biotech companies "with active research programs" in the nutraceutical area, Childs found that prevention of heart disease is the most sought after claim (63% of companies) followed by cancer prevention (56% of companies), treatment of high cholesterol (56% of companies), osteoporosis prevention (37% of companies), diabetes treatment (37% of companies) and hypertension treatment (30%). The poll allowed multiple responses, she noted. In addition, Childs said that nearly two-thirds of the 96 companies surveyed envision "possible international marketing opportunities" for their nutraceutical products. However, the companies polled by Childs also foresee substantial barriers to entering the nutraceutical market, with the number-one obstacle being government regulation of nutraceuticals. The cost of clinical trials was seen as the second most serious obstacle, followed by the high cost of R&D, it concern about lack of consumer awareness" of the products, the "lead time to market, and the uncertainty of how to market or how to price these products," Childs said. When breaking down the responses by industry, Childs noticed that food companies were more concerned with R&D costs than drug firms. Drug firms, on the other hand, viewed consumer marketing issues as larger obstacles than did food companies. Asked by Childs whether an unmet need for nutraceutical products exists, all of the drug and biotech companies answered yes, while 71% of the food companies replied affirmatively. Many drug firms predicted, however, that consumers would not necessarily pay premium prices for nutraceuticals; 27% of pharmaceutical companies said that consumers would pay premium prices, compared to 43% of food companies and 78% of biotech firms. Many companies said they are uncertain how premium-priced products would fare. The three industries were divided on which distribution channels should be used for marketing nutraceuticals based on their marketing experience. Pharmaceutical companies favored pharmacies and physicians' offices, for example, while food firms preferred grocery stores. Other channels mentioned included health food stores, mail order and mass merchandisers. Childs suggested that when developing nutraceuticals "without easy and affordable access to proprietary claims," the product "point of difference needs to be based on brand image and positioning." In this marketing environment, Childs pointed out that "large companies capable of providing generous marketing support, which are experienced with consumer marketing and have access to major distribution channels will have the material advantage over smaller firms when proprietary claims are not permitted." Such a market, she said, "also suggests . . . smaller margins and a need to obtain a larger share of" the market to generate profit. FDA's Nutrition Labeling & Education Act allows all companies to carry health claims as long as they are deemed by FDA to be supported by substantial scientific agreement. "FDA's authorized generic category drives investment dollars into marketing tactics rather than research," Childs maintained, as well as "caps margins and creates price competitions rather than product competitions." Childs added that if clinical trials supporting proprietary claims for nutraceuticals are based on a "rigorous drug protocol," large drug companies will fare better in getting their products to market. FIM Chairman Stephen DeFelice, MD, who coined the term "nutraceutical," suggested that nutraceuticals would be a good category for drug companies to pursue in light of adverse conditions in their own industry. With profit margins declining, drugs going off patent and a "booming" generic drug industry, DeFelice outlined, "the pharmaceutical industry is in an interesting position of reassessing its personality and future. I think nutraceuticals is a wonderful place for them to go."

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