The long-term viability of Scottsdale-based Matrixx Initiatives could be in doubt as company officials work to mitigate consumer fears about the safety of its Zicam homeopathic cold remedies in the wake of an FDA warning letter that the company received on June 16. In the letter addressed to Acting President, CFO and COO William J. Hemelt, the FDA identified two products, Zicam Cold Remedy Nasal Gel and Zicam Cold Remedy Swabs, as potentially harmful products that could cause the temporary or permanent loss of smell, a condition also known as anosmia. The company has voluntarily taken both products off the market based on the warning from the FDA.
The full implications of the product withdrawal are still unclear, as Matrixx scrambles to address the concerns of consumers, media, FDA and now the Securities and Exchange Commission (SEC), which has launched an informal inquiry into the product withdrawal. Company officials, while insisting that the FDA’s actions are unwarranted, have initially estimated the costs of a recall to be around $10 million, Hemelt said on a June 18 media conference call. However, those costs could rise significantly if retailers refuse to carry Matrixx Initiatives’ other products. The combined sales of the two products in question represent 40% of the company’s 2009 net sales, according to company financial releases. In addition, the FDA will require the company to file a New Drug Application (NDA) for approval on its zinc gluconicum products, which is a process that requires significant funding. The immediate costs the company faces don’t factor in potential losses due to brand damage or pending litigation, both of which could ultimately contribute to the company’s demise.
Matrixx paid $12 million in 2006 to settle 340 lawsuits brought by consumers who complained of smell problems after using Zicam products. In addition, the FDA claims that the company had knowledge of 800 additional cases of consumer adverse events that were not reported to the FDA. The company claims it did not feel the number of complaints were more than would be expected of the general population and acted on the advice of counsel in not reporting the events.
“The key issue is who knew what and when,” Loren Israelsen, executive director of the United Natural Products Alliance (UNPA), told NBJ. “What is a serious adverse event, and in this case, is the loss of smell a serious adverse event? As I read the statute, I would say it is. The intriguing question is: What did Zicam’s counsel advise them?” In a conference call with reporters on June 17, Hemelt classified the company’s product liability insurance as being “very limited.”
In addition to the up-front costs associated with a potential product recall and the down-the-road costs associated with litigation, the company’s biggest challenge will be to control the scope of the damage to the brand. “Consumers tend to assume the worst and that the rest of the product line suffers from the same consumer perceptions,” Israelsen told NBJ. The company is bracing for a downturn in sales. It had initially forecasted revenue growth of 5% for its fiscal 2010 year, but those projections have been withdrawn.
It is still too early in the case to draw any broad conclusions on how firms can work to prevent disruptions in business such as this; however, companies should be vigilant and err on the side of caution when it comes to adverse event reporting. “Companies should be investigating, getting advice and making some tough decisions as to whether they ought to act on these things,” Israelsen said.
Matrixx maintains it has done nothing wrong and will work with the FDA to reach a favorable outcome in the case. “Matrixx Initiatives stands behind the science of its products and its belief that there is no causal link between its Zicam Cold Remedy intranasal gel products and anosmia,” said Hemelt in a company release. Matrixx’s price per share has fallen 73% in 7 days, with a trading price hovering slightly above $5 on June 22. U.S. consumers spent $795 million on homeopathic remedies in 2008, according to NBJ estimates.
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A study published June 16 in the Annals of Internal Medicine showing the cholesterol-lowering benefits of red yeast rice triggered a cascade of news stories in the popular press—a welcome change from all of the negative headlines published over the last month about dietary supplements being unregulated, ineffective and, in some cases, dangerous.
In the study, researchers followed 62 patients who had tried taking prescription statins to lower their cholesterol but had to stop because the medications caused severe muscle pain, a common side effect of statins. All of the patients received nutrition and exercise counseling and half also received 1,800 mg of red yeast rice supplements every day. After 12 weeks, those taking the supplements saw their LDL or “bad cholesterol” drop by a significant 27%. Those who did not take the red yeast rice supplements experienced a 6% drop in LDL.
“I was pleasantly surprised with the degree of LDL lowering,” Daniel Rader, MD, a lipid specialist at the University of Pennsylvania School of Medicine and an author of the study told ABC News. “I have to confess, I did not expect this degree of LDL lowering. And there were many fewer side effects than expected.”
The news was not all positive for the supplement industry, however. In nearly every story that was published about the red yeast rice study, reporters erroneously stated that supplements are not regulated. Several stories also used the research to talk about the quality problems that have surfaced for red yeast rice and to issue warnings about supplement use. As a case in point, here’s what CNN reported:
In 2008, the supplement-industry watchdog group ConsumerLab.com analyzed 10 brands of capsules whose labels advertised 600 milligrams of red yeast rice. When the products were tested in a lab, however, they were found to contain wildly different amounts of lovastatin and other compounds. “There was a 100-fold difference from the lowest to the highest,” says ConsumerLab.com president Tod Cooperman. An unexpectedly large dose of lovastatin could cause serious side effects and could interact with other drugs.
The uncertain lovastatin content of red yeast rice products have led to a long-running dispute between the manufacturers of the pills and the federal government. A decade ago, the FDA successfully sought to regulate a red yeast rice extract known as Cholestin, claiming that the lovastatin it contained made it an unapproved statin rather than a supplement.
Any red yeast product containing more than trace amounts of lovastatin can also be regulated (and effectively banned) by the FDA, but red yeast rice products containing monacolin K have remained on the market. And though the FDA does continues to monitor the industry—in 2007, the agency warned three manufacturers that their red yeast rice products were unapproved drugs—the woolly marketplace for supplements should make consumers wary.
“I would never, under any circumstances, suggest that someone take red yeast rice,” says Dr. [Paul[ Phillips [a cardiologist who runs a clinic for statin-related muscle complications at Scripps Mercy Hospital in San Diego]. “It’s not controlled, it’s not safe, and it hasn’t been approved by the FDA in such a way that it’s formulated to be consistent.”
Such a statement is just one more reason why supplement quality and adherence to the FDA’s supplement GMPs (which go into effect for mid-size companies next week) are of the upmost importance. As Keri Marshall, medical director for Gaia Herbs, told Nutrition Business Journal recently: “GMPs will make the good companies stand out and will identify the outliers that are putting bad products on the market. They are also a great example of how the supplement industry is, in fact, regulated.”
According to NBJ research, U.S. consumer sales of red yeast rice grew 6% to $20 million in 2008. More than half of sales—$11 million—were rung up in natural & specialty retailers.
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In the Letters section of its June 8 issue, Sports Illustrated ran reader responses to the May 18 supplement article, “What You don’t Know Might Kill You.” The letter Nutrition Business Journal submitted, which corrected the NBJ data that was erroneously cited in the article, was not printed—nor were any other letters supporting the industry or calling the magazine on its misleading reporting about supplements and DSHEA. (NBJ confirmed that we weren’t the only ones to respond to the Sports Illustrated article in defense of the industry and to correct misinformation published in the article). Instead, the magazine published three anti-supplement letters. Needless to say, it’s disappointing to see such blatant bias on the part of a popular mainstream publication.
For what it’s worth, following is the letter NBJ submitted to Sports Illustrated:
In a May 18 Sports Illustrated cover feature titled “What You Don’t Know Might Kill You,” David Epstein and George Dohrmann incorrectly cite Nutrition Business Journal research to create a picture of a sports supplement industry that appears much larger than it actually is. In reading the article, the average reader would come away with the idea that, according to Nutrition Business Journal, the sports supplement industry has grown to become a $20 billion business—which is simply not true. In 2007, U.S. sales of sports supplement products—the type which this Sports Illustrated article focused on—totaled $2.5 billion, while the entire U.S. sports nutrition and weight-loss market—which includes sports supplements, weight-loss pills, meal-replacement supplements, low-carb foods, nutrition bars, and sports and energy drinks—generated just under $20 billion in sales in 2007, according to Nutrition Business Journal estimates. Yes, sales of sports supplements have been growing, but they still constitute a small piece of the overall sports nutrition and weight-loss market—and this certainly was not made clear in the way Sports Illustrated cited Nutrition Business Journal’s research.
Along with getting this important fact wrong, Sports Illustrated also did its readers a disservice by publishing a story that focuses on only a small minority of products within the U.S. dietary supplement market—products that, in the words of Steve Mister, president and CEO of the Council for Responsible Nutrition (CRN), “are not representative of the mainstream companies that manufacture products that consumers choose to include in their cadre of personal healthcare options.” Furthermore, by blaming the Dietary Supplement Health and Education Act (DSHEA) for creating what Epstein and Dohrmann call a “Pandora’s Box of false claims, untested products and bogus science,” your magazine demonstrated a lack of understanding of DSHEA and the regulations it put in place for the dietary supplement industry. As Mister noted in the five-page response CRN wrote to your article, “The extreme examples the article describes appear to be a product of DSHEA, when in fact, they more likely result from FDA’s lack of enforcement of that law over the past 16 years.”
At a minimum, Sports Illustrated should run a correction regarding the Nutrition Business Journal data it incorrectly cited in its article, but also deserving is a follow-up piece that, instead of relying on sensational examples that scare readers into believing that the majority of supplements are unsafe, actually paints a true picture of dietary supplement regulation and its enforcement and maybe even helps readers understand how to identify the many safe and effective supplement products that are available to them today.
The Foundation for Child Development issued a scary report last week arguing that the recession could result in children—particularly poor and very young kids—eating even more cheap, low-quality, unhealthy food than they currently do, as cash-strapped parents are forced to substitute fast food and junk food for more nutritious fare in the current economy. “There is a concern with ‘recession obesity’ apart from the general trend toward an increasing number of obese American children,” said Kenneth Land, project director of the foundation’s Youth Well-Being Index Project, which issues an annual composite assessment of how U.S. kids are faring in terms of education and health.
In issuing the report, the foundation and child advocates called for the creation of policies that help families during tough economic times and strengthen early childhood education. “We should be doing a lot more to invest in children and youth, and it’s pretty clear we’re not doing that,” Ruby Takanishi, president of the Foundation for Child Development, said June 3 during a presentation of the foundation’s report.
The idea of the recession erasing the progress that has already been made on the childhood nutrition front is pretty frightening. And, although the nation’s poorest children are likely to suffer the most nutritionally (and in many other ways) from the economic crisis, not everyone believes the economy will have parents turning toward the cheapest food possible in an effort to weather the economic storm.
In fact, some people argue that the economy is driving parents to expect more value from the products they purchase, and this could present a competitive advantage for those companies selling products that truly pack a healthy punch. “In this poor economic time, parents are a lot more conscious of how they spend their food money,” Denise Devine, president and CEO of Froose, which makes a patented children’s beverage that combines organic whole fruit and whole grains, told Nutrition Business Journal. “The value proposition is so much more important these days. Why would you pay more for a 50% watered down juice? Half the time [those products] don’t give your child any nutritional value. My product is not just a juice with isolated vitamins. It is a whole food that has all of these wonderful things, including gluten-free brown rice.”
As a mother who is more focused than ever on keeping her kids healthy by feeding them nutritious foods, I tend to agree with Devine on this one. But I also think that much more needs to be done to make healthier foods available, accessible and affordable to all children, especially in the current economic environment, and I’m hoping President Obama and U.S. Secretary of Agriculture live up to their stated promise of making improved children’s nutrition a top priority. In addition, I urge more companies to invest in helping make healthy food and nutrients available to children in need, such as Revolution Foods is doing by supporting bringing healthy school lunches to inner-city schools and Vitamin Angels is doing through its many programs here in the United States and abroad.
NBJ’s newest report—Healthy Kids’ Market Report: Breaking the Entry Barrier—was created to help companies operating in, working to move in to or simply evaluating the U.S. healthy kids’ product market better understand this market and its opportunities and challenges. Order your copy of the report via the NBJ Website.
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Cognis, one of the largest raw material and ingredient supply companies serving the nutrition industry, saw its sales volume decline 18% during the first quarter of 2009 compared to the same period last year, as falling consumer demand and a subsequent customer destocking effect negatively impacted company performance, Cognis reported May 27. When excluding the impact of foreign currency and company acquisitions, net sales were down 13.9% for the quarter on a year-over-year basis.
The company’s three main divisions all turned in poor results for the quarter, with the largest decline coming from the functional products division, which was down 16.9% and which services a number of industries, including the automotive, housing and engineering sectors. The company’s nutrition & health division saw its sales decrease 8.3% to 84 million euros for the quarter, as poor consumer demand contributed to weaker sales. The care chemicals division reported a sales decline of 13.8% to 370 million euros.
As rough as the first quarter was for Cognis, total sales volume for the quarter increased 5% over the fourth quarter of 2008—a period which may prove to be the trough in the consumer spending recession. The nutrition & health division was up 4% compared to Q4 of 2008. “We are starting to see a few positive signs, with the rate of volume decline slowing appreciably in March,” Cognis CEO Antonio Trius said in a prepared statement. “Our goal is to further strengthen the leading position we enjoy in growth markets driven by the wellness and sustainability trends.” Trius said Cognis remains cautiously optimistic that performance will improve in 2009. “We expect our cost-saving measures to counteract lower sales. Most of the initiatives will materialize from April onwards,” he said. “Together with our efforts on optimizing our costs, we will also stay focused on maintaining our healthy cash position.” The company also expressed hope that its strategy of investing in global wellness and sustainability trends will help the company better withstand the recession.
Cognis recorded sales of about 3 billion euros in 2008. The company is owned by private equity funds advised by Permira, GS Capital Partners and SV Life Sciences. Cognis appears to be well positioned for success within the nutrition industry as the company has made a number of strategic acquisitions in recent years, including the purchase of WILD Flavors Inc. and InterMed Discovery GmbH. However, only about 10%-15% of Cognis’s total business is devoted to the nutrition & health division, thus, the company is reliant on other sectors to improve total business performance. NBJ expects the nutrition & health division to turn in progressively more favorable results as the year progresses and the company’s cost savings measures have had a chance to take hold.
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