Nutrition Business Journal
Vitamin manufacturers invest in new products

Vitamin manufacturers invest in new products

Daiichi Fine Chemicals, the world's largest producer of pantothenic acid (vitamin B- 5), is anticipating final results from a clinical trial on pantethine sponsored by the National Institutes of Health.

"Pantethine, because it"s new for us, is where we"ve seen the growth," said Julie Blohm, director of corporate marketing for Daiichi, a Japanese company whose U.S. headquarters are in Vernon Hills, Ill. "We"re doing a clinical trial looking at building the market for that particular product because it is an innovative treatment."

The clinical trial now underway at the University of Minnesota"s medical school is examining the impact of pantethine on cardiovascular health. Specifically, the study measures the impact of pantethine (a metabolic precursor of pantothenic acid) on the full lipid profile, including LDL and HDL cholesterol, triglycerides and subfractions. Initiated last August, the trial is slated for completion in early 2004. "They are showing positive benefits," Blohm revealed. While growth in demand for pantethine has been strong, the market for vitamin B-5 overall has remained stable, with only a 1-3% growth rate over the past year.

"The majority of our market today would be dietary supplements," said Tom Schmitt, director of business support services at Daiichi. Approximately 60% of revenues for Daiichi Fine Chemicals are derived from sales of materials for dietary supplements, 35% from animal nutrition, and 15% from cosmetics. However, growth in the cosmetic sector has outpaced the other two. "That"s because we"ve been involved in the supplement industry longer so our market penetration is deeper, where cosmetics is a newer market," Schmitt said, adding that Daiichi entered the cosmetic business about six years ago. While the supplement and animal feed sectors grew at a modest 1-3% last year, the cosmetic sector had a 5- 7% growth rate.

The company sells 11 different pantothenic acids, including its best-seller, D calcium pantothenate. Technology has helped Daiichi attain its competitive edge. "We are the only manufacturer that has a patented enzymatic process for one of the key raw ingredients," Schmitt added. "It"s an enzymatic resolution process for production of pantolactone, the key raw ingredient for production of pantothenic acid products research by Kyoto University and Daiichi. Basically, it replaces several chemical purification steps for the production of that raw material and replaces it with one enzymatic step that is very efficient, energy efficient, environmentally friendly and it gives us very easily expandable capacity. " In addition to its own pantothenic acid products, Daiichi represents several other vitamin manufacturers in the North American market. "We have Lonza with their niacin and niacinamide, Solvay Pharmaceuticals for vitamin D-3 and D-2, and Kuraray for betacarotene and vitamin E," Schmitt noted.

A key challenge has been financial pressures resulting from low-priced materials produced in China. "Pricing is continuing to be a significant challenge for all of us," he said of the leading vitamin manufacturers. "The B-5 market has trended downward over the past years, in some cases substantiallyI would say 15-20%" from the peak prices of a few years ago.

Quality of low-priced Asian products is another problem for the industry. "We still have serious concerns about quality parameters for products manufactured in China and being imported to this country," Schmitt said. "A lot of that material is not acceptable in Japan or Europe. It doesn"t meet EP standards."

The Harmonization Group, a worldwide compendial organization, has been meeting to discuss standardizing assay procedures and quality parameters of ingredients, he noted. "I think it"s a matter of time before they get to some of the quality issues surrounding specific ingredients."

Leading Vitamin Raw Material
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In addition to Asian competitors, Daiichi faces competition from the top two vitamin supply firms BASF and DSM. Asked how DSM"s acquisition of Roche"s vitamin division in October 2003 might affect the market, Schmitt replied, "Roche"s acquisition is still too new to determine what the impact will be."

Daiichi is also facing changing ownership in its customer base including manufacturing leaders Rexall Sundown, GNC and Nature"s Bounty. "Changing ownership over the past couple of years has been a challenge," Schmitt observed. "The brands that are sold by these companies are fairly stable, but the biggest challenge is turnover in purchasing staff that they are making." He added, "In some cases, we've had people come back into the company that we've had past relationships with, so change is not always a bad thing."

Schmitt believes that more companies today are interested in trademarked ingredients and scientific backup to build consumer brand awareness. "We're seeing more and more ingredients looking to prove their worth through clinical trials and other scientific activities today than in the past," he added.

Blohm sees opportunities in educating consumers, noting that today's consumers are looking beyond advertising hype to seek out products with proven effective ingredients. "Now, because we are such a leader in the science of pantethine, we will take a more active role," she said. "It is our responsibility to educate consumers on the new science... but it's definitely a combination effort" with manufacturers and retailers on overall consumer education marketing to drive growth in the supplement category.

In the future, she predicted that the best growth opportunities will arise from new discoveries in science. "The players that will invest in legitimate science are the players that will find the new opportunities," she concluded.

BASF Sees Strong Demand for Lycopene, Omega-3

"Lycopene and Omega-3s are two of BASF's newer products," said Barry Kaufman, product manager of human nutrition at BASF's fine chemical group. BASF is a German company whose U.S. operation is based in Mount Olive, N.J. "We've seen strong growth in both owing to a number of factors, including the growing number of consumers who are becoming increasingly conscious about diet and nutrition."

BASF manufactures and sells a broad line of nutritional ingredients including fat- and water- soluble vitamins and omega-3 fatty acids. "Vitamin E, vitamin A and carotenoids continue to be among our biggest selling products, " Kaufman added. "We've seen some consolidation in the industry, as a number of suppliers have dropped out. However, we remain committed to expanding capacity to support growth in a number of areas, such as E."

Overall, the U.S. market for vitamins has remained stable over the past year, according to BASF, which supplies all segments of the market. Bright spots include functional foods and beverages, which have had higher growth rates, said Kaufman.

On a global basis, the competitive marketplace has undergone significant changes in recent years, including acquisition of Takeda Chemical Industries Ltd. by BASF (giving BASF a complete range of fat- and watersoluble vitamins) as well as DSM's 2003 acquisition of Roche Vitamins and Fine Chemicals division.

In addition to major acquisitions, the market has seen other changes in the competitive landscape. Kaufman noted, "Less cost-efficient producers have left the market and new competitors have emerged from Asia. However, we feel BASF is uniquely positioned in this marketplace through our Verbund strategy, which includes integration of all parts of the production process.... With increasing regulation affecting the industry, we think this strategy will be a key advantage for BASF in terms of maintaining cost effectiveness and regulatory integrity."

Globally, BASF has expanded its reach to include production facilities in China, Indonesia, Japan and South Korea, among other locations. The presence of Asian companies in the U.S. vitamin market is increasing, Kaufman confirmed. "We are continuing to see more suppliers from that region who are competing primarily on price." But he added, "This may change in the future, due to increasing regulatory and other requirements for documentation " that may drive some of these companies out of the market. Kaufman feels certain there will be increasing regulations both domestically and globally, but doesn't necessarily see these developments as negative. "BASF will prepare for and respond to any changes that affect our business."

Asked to name the biggest challenges facing BASF and the vitamin industry overall, Kaufman responded, "A number of external factors have certainly had an impact and will continue to do so going forward including more competition, the economy and newsmaking items from our industry."

To increase its competitive edge, BASF is supporting numerous clinical studies. The company also weighs the merits of trademarking key products. But Kaufman noted, "Not all products lend themselves to a trademark. Our decision to trademark would depend on whether doing so offered an advantage to our business. In many cases, it's not necessary because the BASF brand has tremendous recognition and equity among our investors." Kaufman understandably declined to comment on the remaining litigation relating to the price-fixing scandal that rocked global vitamin suppliers a few years back, but although pending decisions are likely to have some more financial impact, most observers believe the issue is behind the industry.

For the future, BASF sees numerous opportunities for growth based on a more cooperative approach with the branded manufacturers that they supply. "The greatest opportunities for BASF will come from strengthening our relationships with our customers by providing services such as supply chain improvements, e-commerce and collaborative marketing programs," Kaufman concluded.