Nutrition Business Journal

The Vitamin Shoppe’s better-than-expected initial public offering (IPO) on October 27 demonstrated that the public markets, which have been generally turned off by retail plays in recent years, see lots of opportunity in the dietary supplement and nutrition sector. The IPO was the first for a retail-based company in almost two years, and it raised about $150 million for the 434-store supplement chain. A week before The Vitamin Shoppe’s better-than-expected opening day, a group of 20 smaller nutrition-related companies convened in San Francisco for the fifth meeting of the Nutrition Capital Network (NCN). The purpose of the gathering was to network with private-equity and strategic investors and hopefully wow them with their 10-minute business pitches. Just as The Vitamin Shoppe’s successful opening day showed that the overall IPO market is beginning to thaw, the NCN meeting proved that innovation within the nutrition industry remains strong and that investors continue to see opportunities in the growing health and wellness market.

Chaired by Grant Ferrier and Thomas Aarts (who founded Nutrition Business Journal in 1996), NCN was created to help grease the financing wheels for entrepreneurs and introduce investors to the next generation of successful brands in the nutrition, natural and organic, and green product industries. More than 80 companies applied to present at NCN V. Ranging in scale from startups to a $100 million brand, the 20 chosen represented successful and growing businesses in the food and beverage, food service, supplements and nutrition, and skincare categories. “The level of sophistication in early-stage companies continues to grow, but the passion and drive of the individuals behind them has not subsided,” said Ferrier, who is NCN’s CEO and co-chairman. “We saw that in the 20 companies that presented last week but also in the 80-odd that applied during this cycle.”

Each company that presented represented an innovative technology or tapped into a growing trend within the overall nutrition industry. Below are a few highlights:

Cambridge Theranostics: Based in the United Kingdom, Cambridge Theranostics sells a lycopene-based supplement called Ateronon that is backed by a wealth of compelling research showing its ability to inhibit the oxidation of LDL (bad) cholesterol (oxidized LDL is what triggers heart attacks and other cardiac events). Ateronon is currently sold in 75% of all UK retail pharmacies, and the company is looking for capital to fund its expansion into the United States, the Middle East and China. Cambridge Theranostics is focused on educating practitioners and pharmacists on the benefits of Ateronon so that they will recommend it for their patients and customers.

Dale and Thomas Popcorn: What was interesting about this company is how successful it has been with both its retail brand (Popcorn, Indiana) and its direct-to-consumer brand (Dale and Thomas) without having made any real investment in advertising. Popcorn, Indiana is now the No. 2 popcorn behind Smart Food, and its better-for-you popcorn is selling well in alternative retail chains such as Bed Bath & Beyond and Best Buy.

Freshology: This Burbank, California-based company sells fresh, gourmet, portion-controlled meals directly to consumers, with the goal of taking on companies such as Nutrisystem and Jenny Craig. Freshology is also launching a line of frozen foods next year, and its business model taps into the growing consumer demand for healthy, customized meal solutions. With a production facility at the Burbank Airport, Freshology is able to send its fresh meals all over the country, and I see potential for the company partnering with gyms, wellness clubs and weight-loss clinics to offer fresh, portion-controlled meal solutions to their members.

Froozer: This Lake Mary, Florida-based company’s pitch was certainly the wackiest—and the best tasting. Froozer President Arnold Zweben wheeled in this machine that looked like a frozen yogurt maker. Into the machine went a bunch of frozen fruits and vegetables and out came this cold puree that looked and tasted a lot like soft serve ice cream—only it contained no added sugar, dairy or other ingredients. The machine is called a Transmogrification Unit, and it transforms frozen fruits and vegetables into a whole food frozen confection in seconds. The company said it has done a bunch of focus group research with kids, who like the product because it tastes and looks like soft serve ice cream. Froozer has developed a production system that is able to produce push up pops or other frozen confections made entirely of whole fruits and vegetables. The one I tasted was made with strawberries, bananas, turnips, tomatoes and cucumbers. It was really good and was something my two young boys would have loved.

Herbs of Mexico: Founded in 1948, Herbs of Mexico operates one health and wellness retail store dedicated to the Hispanic community in East Los Angeles, with a second store opening soon. The company wants to open more stores for the growing Hispanic population, which tends to be heavy users of herbal products and other complementary and alternative (CAM) therapies. In fact, Martin Lopez, Herbs of Mexico’s managing owner, said 80% of Hispanics use herbal products and 60% view herbs as medicine. The company also has an e-commerce model and is focused on first expanding its retail locations throughout the Southwest, where it hopes to open 35 to 40 stores in the next five to seven years.

Heritage Foods: Heritage Foods was founded by Patrick Martins, who founded Slow Food USA (he’s sort of a celebrity in the slow foods movement). Through a successful Internet/mail-order catalog model, Heritage Foods sells ethically raised heritage meats (such as Berkshire pork and Bourbon Red turkeys). With all of the recent meat safety scares and the backlash against factory farms, Heritage Foods could represent the future of meat production in the United States—at least for the growing segment of consumers who care about where their meat comes from and how it was raised. The company doesn’t appear to be going after the organic label, but in some ways what it is doing could do more to influence consumer purchasing habits.

Related links:

The Missing Link: NCN Connects Firms, Investors in Nutrition Industry

With Sales Thriving, Vitamin Shoppe Parent Files for IPO

M&A and Investment Activity Slows for U.S. Nutrition Industry

On October 15, 2009, the U.S. Food and Drug Administration (FDA) and Federal Trade Commission (FTC) issued a joint H1N1-related warning letter to DrWeil.com for claims the Internet retailer published for its Immune Support Formula. The agencies said the company had made illegal claims about the Immune Support Formula being a prevention, treatment or cure for the H1N1 flu virus in people. DrWeil.com—which is owned by Weil Lifestyle LLC and sells products under the name of the well-known integrative medicine guru Andrew Weil, MD—pulled the content in question from its Website in response.

The DrWeil.com warning illustrates how careful supplement marketers must be when making claims for immune-support products. The agencies said the warnings are part of the “urgent measures” being taken to protect consumers from products that claim to ward off or treat the deadly swine flu, which is now widespread in 41 states.

“The FDA continues to consider the sale and promotion of fraudulent H1N1 influenza products to be a possible threat to the public health and in violation of the Federal Food Drug and Cosmetic Act,” Michael Chappell, the FDA’s acting associate commissioner for regulatory affairs, said in a statement. “The FDA has an aggressive surveillance program to detect fraudulent H1N1-related products and will take prompt action to stop the marketing of fraudulent H1N1 influenza products and will hold those who are responsible for doing so accountable.”

Although the claims made for Weil’s Immune Support Formula come no where close to the fraudulent H1N1 claims made by some other supplement marketers, the FDA did take issue with these statements made on the DrWeil.com site:

• “[D]uring the flu season, I suggest taking a daily antioxidant, multivitamin-mineral supplement, as well as astragalus, a well-known immune-boosting herb that can help ward off colds and flu. You might also consider. .. the Weil Immune Support Formula[,] which contains both astragalus and immune-supportive polypore mushrooms ….”

• “The Immune Support Formula contains astragalus. . . . Astragalus … is used traditionally to ward off colds and flu and has been well studied for its antiviral and immunity-enhancing properties.”

• “Th[e] synergistic combination of immune modulators [found in the Immune Support Formula] is especially useful for those who tend to get every bug that goes around during the winter.”

• “Worried About Flu? Dr. Weil’s Immune Support Formula can help maintain a strong defense against the flu. It contains astragalus, a traditional herb that boosts immunity. Buy it now in one click, and start protecting your immune system against flu this season.”

In a statement on the DrWeil.com site, Weil wrote that all “Weil editorial content is reviewed for compliance with FDA /FTC guidelines,” that he “directed the Website team to remove the FDA/FTC-referenced content for review,” and that he “fully support[s] the FDA/FTC task force in its efforts.”

NBC’s Today Show was among the news outlets that ran stories about the Weil warning and the government’s other H1N1 warnings, which have gone out to numerous supplement marketers since the virus began spreading in April of this year.

Related NBJ links:

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

McLemore: ‘There Is No Question That a New and Improved FDA is Emerging’

Weil: We Need to Create a Completely New Culture of Health and Medicine

Related NPICenter links:

FDA Warns of Unapproved and Illegal H1N1 Drug Products Purchased Over the Internet

I have some very interesting news.

Daniel Fabricant, Interim Executive Director of the Natural Products Foundation, has agreed to join the NBJ Sports Nutrition & Weight-Loss webinar and present an expert review of the September 29 Senate Subcommittee hearing on steroid products being marketed as supplements, the FDA’s recent raid on Bodybuilding.com, the Hydroxycut recall and other regulatory-related events pertinent to dietary supplements, particularly sports and weight-loss products.

Our goal is to provide webinar attendees with an intelligent and realistic view into the current regulatory situation for supplements in the U.S. and Daniel is one of the most informed, if not the most informed, regulatory expert on this situation

To accommodate for Daniel’s schedule, we will be moving the webinar to 3pm ET/1pm MT/12pm PT on October 27th.

We hope you are as excited about Daniel’s involvement as we are.

To register for this event, please go to http://nutritionbusinessjournal.com/supplements/web-seminars/9-15-sports-weight-loss-seminar-nbj-supplement/

Cargill, one of the world’s largest suppliers of raw materials, saw its net earnings decline by 65% in the first quarter of the 2010 fiscal year. Cargill’s bottom line was negatively impacted by its majority investment in the Mosaic Company, a fertilizer company which saw a 91% profit decline in Q1. Revenues for the global supplier totaled $525 million for the quarter ended August 31, 2009. Last year’s Q1 revenues of $1.49 billion were the highest in company history.

Despite Cargill’s large first quarter decline driven by industrial segment losses, it was able to churn out earnings increases for its agricultural services and food ingredients segments. “Cargill posted a solid quarter, notwithstanding the comparison to last year’s all-time record,” said Chairman and CEO Greg Page in a prepared statement. “Our business unit earnings were broad based, and they were up considerably from the final two quarters of fiscal 2009.”

In its financial earnings press release, the company cites lower raw material costs, reduced operating costs and changes to product mix as drivers of growth in the food ingredient and agricultural services segments. Page expressed confidence in Cargill’s long term growth outlook, though he noted that the global economy is still very fragile.

Nutrition Business Journal explores the raw material and ingredient supply segment of the nutrition industry in greater depth in the upcoming October issue. Pricing trends, currency issues and quality concerns are among the topics discussed in the issue. To order a copy of the issue, subscribe to NBJ or download a free 32-page sample issue, go to NBJ’s subscription page.

Related NBJ Links:

Sweet Developments in Healthy Foods and Beverages for Children

2007 NBJ Business Achievement Award Winners Announced

Pepsi’s PureVia Maker Files for Bankruptcy in Latest Development in U.S. Stevia Wars

Related Natural and Nutritional Products Insider Links:

Cargill Reports FY10 Q1 Earnings

Good manufacturing practices (GMP) and supply quality were both topics du jour at Natural Products Expo East in Boston last week, as attendees from all ends of the supply chain converged to discuss the ways in which they could better the industry and inspire more consumer confidence. While there seemed to be a shortage of ingredient supply companies exhibiting, it didn’t detract from a robust and timely education program highlighted by a number of Supply Expo-sponsored sessions. Many of these sessions conveyed an underlying sense of urgency surrounding the latest eyebrow-raising media headlines detailing tainted or unsafe nutritional ingredients.

One session that captured this sense of urgency featured Mark Ullman, a partner with New York’s Ullman, Shapiro & Ullman law firm, and Sabinsa President and Chief Operating Officer Jim Cudahy. Titled “Your Supplier Can Kill You,” the main take away of this session—aside from the fact that finished goods manufacturers ought to be very afraid of unscrupulous suppliers—was that the due diligence needed to ensure ingredient quality ultimately falls on the finished product manufacturer. Although plenty of quality suppliers and third-party certifiers help make this task easier, nothing should be taken for granted when scrutinizing the suppliers you work with, the presenters warned.

To illustrate his points, Ullman analyzed a number of devastating supplier-generated recalls and talked about the different lessons to be learned from each. In the examples of the melamine debacle of 2007 and the Star Caps recall in 2008, clear evidence of economically motivated adulteration by Chinese and Peruvian suppliers existed, he said. In both cases, there was little or no oversight of the raw material manufacturers, and neither the brokers nor the finished goods manufacturers had visited their facilities—two steps that may have prevented the recalls, Ullman noted.

Cudahy cautioned manufacturers to “keep your friends close and your suppliers closer.” He noted the importance of reviewing a supplier’s systems and facilities—whether it be through a direct audit, a third-party audit, or even a shared audit, where multiple manufacturers split the costs of inspecting a raw material manufacturer. Such audits, Cudahy added, play a vital role in enabling finished goods manufacturers to know what’s happening throughout the supply chain.

The concepts laid out by Cudahy were fairly straight forward and may have seemed like common sense to some of the industry veterans in the room, but the reality is that there are still a number of suppliers not playing by the rules and a number of manufacturers willing to turn a blind eye to quality issues in order to save some money. The two panelists cautioned that trying to save money in the short term can lead to the collapse of a business in the long term, and in some cases lead to jail time for the executives involved. “If the supplier cannot meet your requirements, find another,” Cudahy said. “It’s your life!”

Nutrition Business Journal’s October issue is devoted to the raw material & ingredient supply end of the U.S. Nutrition Industry. In the issue, NBJ investigates the problem of economically motivated adulteration in the dietary supplement ingredient market, in addition to exploring ingredient pricing trends and a number of other topics. To order a copy of the issue, subscribe to NBJ or download a free 32-page sample issue, go to NBJ’s subscription page.

Related NBJ Links:

GMP Q&A with CFSAN’s Brad Williams

11 Tips for Ensuring a Smooth FDA Inspection

CEO Video Interview: Is Sabinsa Seeing Signs of an Economic Recovery?

Related Functional Ingredients Magazine Links:

Quality beyond GMPs