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.

Related Links:

FDA Sends Warning to Bayer About Drugmaker’s OTC-Supplement Combo Products

FDA Increases Enforcement Efforts, Warns Internet Marketers About Swine Flu Claims

How Worrisome is the Hydroxycut Recall for the Dietary Supplement Industry?

A study published in the March 2009 issue of the Journal of Nutrition found that 78% of Canadian children ranging from four to eight years old were not receiving adequate amounts of Omega-3 EPA and DHA in their diets. That estimate is based on the suggested daily intake of 90 mg of Omega-3 EPA/DHA, as recommended by the Institute of Medicine. The suggested daily intake from the American Dietician Association and the Dieticians of Canada is 351 mg. By that standard, 90% of children who participated in the study were deficient. The U.S. Department of Health and Human Services has estimated that the average consumption of Omega-3 EPA/DHA for children four to eight years of age in the U.S. is only 50 mg per day. Thus, American children are typically DHA-deficient as well.

The Guelph University researchers who conducted the study concluded that additional education is needed to help consumers understand the benefits of DHA. “There is an apparent need to create greater awareness of the importance of the long-chain omega-3 polyunsaturated fatty acids among both health professionals and the general public, as well as the existing gap between actual and recommended intakes from various sources,” researchers stated in their findings.

NBJ recently spoke with Ethan Leonard, VP of Pediatric Nutrition for Martek Biosciences, who underscored the need for children to start getting the necessary dosage of DHA early in their lives. “DHA and ARA are proven to improve developmental outcomes in infants through breast milk, or substitutes. Martek recommends breast feeding first. If they cannot, or choose not to breast feed, then we want to participate in that and provide the best nutrition process possible.”

Martek Biosciences has established itself as the leading supplier of DHA and ARA to the infant nutrition market in the U.S. The company estimates that its life’sDHA and life’sARA products are used in more than 95% of infant formulas in the U.S. and are found in over 75 global markets. The company generated more than $352 million in global revenues in 2008, but still feels that there is untapped potential in the market for DHA. “American kids and North American kids don’t eat a ton of fish, whether it’s due to economic factors, or increasing problems with allergens and containments. We’re seeing in our own work that these products [fortified with ARA and DHA] are coming to market and will continue to come to market to fill in gaps,” said Martek’s Senior Public Relations Manager Cassie France-Kelly. Still, there are challenges in trying to educate consumers on the benefits of a product that does not have the name-recognition that other fortification ingredients like calcium or fiber do. “This idea that you eat to improve your intelligence or long term brain health is a sort of a new idea. When I was a kid we always heard you drink your milk for strong bones, but you didn’t hear a lot of, ‘If you eat this, you’re going to do better on your test or you’re going to have better concentration.’ The science has continued to develop and parents like the idea that you can eat something to contribute to cognitive and brain,” France-Kelly told NBJ.

So how does a company like Martek, which is predominately a supply company as opposed to a finished goods manufacturer, go about educating consumers? “We follow loosely the Intel Inside model. Although we are a business-to-business brand, we think that because our source is superior and because it’s such a complicated topic, it’s important to create a brand for consumers. That’s why we did life’sDHA a few years ago,” Martek’s Executive Director of Sales Jeff Bernfeld told NBJ. The company also has invested in print and television marketing, and has recently partnered with the March of Dimes to promote the importance of DHA.

While studies like the one conducted by Guelph University illustrate that a need for education still exists, Martek is seeing positive indicators that awareness is increasing. Based on an annual thousand-person survey conducted by the company, 78% of parents with kids less than 2 are aware of DHA, 68% of parents with kids two to six are aware of DHA and 82% of pregnant women have heard of DHA.

Read more about the Guelph University study here.

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Martek Strengthens its Hold on Baby Formula Supply Market

Have Omega-3 Functional Foods Run out of Steam? GOED Says ‘No’

New Omega-3 Tests Highlight Industry, GOED Success

For a limited time, NBJ has access to a special Nutracon 2009 registration discount code. If you are interested using this code and receiving $200 off a 2-day registration or $100 off a 1-day registration to Nutracon, email me at prea@nutritionbusiness.com.

Nutracon is the premier event for ingredient and technology innovation in the health and nutrition industry that occurs in conjunction with Natural Products Expo West. The conference goal is to help companies develop new science-supported products in the supplements, functional foods and beverages, and nutricosmetics sectors.

If you’re looking for invaluable insight on current, impactful, science and business information on selected themes, then you should attend Nutracon. As an attendee you’ll get a sense of the practical and operational opportunities – as well as the challenges – in your growing business.

In addition, NBJ will be presenting a special State of the Industry presentation at Nutracon on Wednesday. Presenters that will join me will include Carlotta Mast, NBJ’s Editor and Bob Burke of Natural Products Consulting.

I hope to see you there!

-Patrick

2008 was a year of bad debt and tighter access to capital and credit for nutrition industry suppliers. Firms were still dealing with the blows that rising fuel prices and currency fluctuations delivered in 2007 and the first half of 2008 which left many supply companies uncertain of how the economic downturn would affect the U.S. nutrition industry and what would be in store for 2009.

On January 14th, 2009 NBJ’s Carlotta Mast and Thomas Aarts will join me to present a strategic analysis and review of the U.S. nutritional raw material & ingredient supply industry. You are invited to register for this online seminar that will begin at 11am MT.

For $495, each registered company will be allowed up to six participant access points to the live online seminar.

During the seminar, we will present new NBJ market figures and discuss the following topics:

• Snapshot of 2008 business issues, preview of 2009

• Review of over the counter (OTC) & Supp Combo Products and their regulatory potential

• A category overview of pricing and supply trends for vitamins, minerals, herbs & botanicals and specialty ingredients including fish oil, probiotics, whey protein and COQ-10

• Major factors affecting growth in supplement and functional food supply markets

• New steps vitamin manufactures and suppliers need to undertake to maintain market credibility

• Discussion of how the economy is impacting the ingredient supply segment of the U.S. nutrition industry

I encourage you to register here. If you have any questions, please feel free to call me at 303.998.9229

Patrick D. Rea

Publisher & Editorial Director, Nutrition Business Journal

Co-Chair, The NBJ Summit

We’ve recently created Nutrition Business Journal and The NBJ Summit Facebook Groups.

If you are on Facebook, search on “Nutrition Business Journal” and “The NBJ Summit” to find us and join up!

We will distribute special offers and update this community regularly.

If you have any questions, call Rachel Dederich, NBJ’s Marketing & Subscriber Coordinator at 303.998.9263

-Patrick