Contract Manufacturers: A Profitable Partnership

Correct formulations and quality control are essential to the success of any end-product manufacturer of dietary supplements. Shane Starling investigates the role of contract manufacturers in contributing to that success.

Most supplements manufacturers aren't really manufacturers at all—'supplements marketers and distributors' would be a more accurate description. That's because the company whose name appears on the bottle does not make most supplements.

Although some, such as Solgar, Centrum and Nature's Plus, do make their own, most are happy to farm out the manufacturing to third parties—contract manufacturers (CMs). Some will employ more than one CM, while others will place all manufacturing operations in the hands of a trusted partner. The benefits are obvious—the brand owner can concentrate on sales and marketing, leaving the manufacturing to somebody who has the right expertise and specialist knowledge.

"When you've got the dramatic overheads that a factory requires, then it makes sense to send that work outside," says Helen Franks, operations director at UK-based organic supplements supplier Sage Organic. "Not many manufacture their own in this industry anymore."

Active Partners
Start-up capital and ongoing cost issues aside, employing a CM can bring with it other benefits, especially since most CMs possess a sizeable suite of ingredients and are therefore often experts in the area of formulation. A two-way dialogue between the client and the CM usually results in a better product. "The CM might recommend alternatives to us," Franks says. "We want them to do that, and in fact I would be quite concerned if they didn't have input."

It's a view mirrored by Mitchell May, PhD, CEO of the Utah-based CM Synergy Production Laboratories. "We often get involved in advising a client as to what is and isn't achievable," he says. "In fact, the majority of our time is spent discussing with the client what is and is not realistic. We do a lot of research and development. They might not be as well acquainted with these matters, so we help where we can."

For Sage Organic, the principal concern is organic certification. However, all manner of formulation expertise is invaluable in a nutraceutical world that May says is somewhat less 'scientific' than its pharmaceutical cousin. "Working in the food supplements and botanicals area is a completely different ball game to working with synthetic or chemically derived ingredients," May notes. "Nutraceuticals require a great deal more attention to detail and quality control. They require an understanding of their nature and how they respond to different manufacturing processes. Our equipment and our facilities were built to accommodate that."

If nutraceuticals require a fair bit of attention, herbal formulations bring an even greater suite of challenges, which CMs are well suited to address.

"Oftentimes, marketers are from non-medical or non-herbal backgrounds. To produce an 'exotic' or untested formulation can be highly detrimental or, in some cases, fatal," says Sherlock T Lin, general manager of Canadian CM Alta Natural Herbs and Supplements. "This is where experts at a CM can provide the necessary guidance to produce a product that is both safe and viable in the market."

Many CMs conduct in-house testing, and also employ third-party certification so clients know they are getting exactly what they signed up for.

"We use our own labs to give us indications, but final results come from third-party labs," May says. "When a product has upwards of a dozen raw materials, you have to verify that they meet the specifications the product is being designed for. Once the product has been manufactured, whether it be encapsulated, tableted, powdered, or delivered in pouch or a blister pack, then the final product will be tested for various things depending upon what you are trying to attain."

Operating Without Regulations
Unfortunately, there are corners of the industry that aren't quite so rigorous. Lax contract manufacturers (or lax clients) have tainted the industry's reputation, according to May. "There are many products out there that do not adhere to proper standards, and I think it is unfortunate and unnecessary," he says. "Our company will only work with companies that are 100 per cent aboveboard and in compliance with Food and Drug Administration and US Dietary Association guidelines. If they are not, we simply won't work with them, period."

When a product has upwards of a dozen materials, you have to verify that they meet the specifications the product is being designed for.
He lays the blame for this predicament in the US at the feet of the FDA, which he says fails in its duty to regulate the industry appropriately. "The industry is waiting for the FDA to set standards that are non-negotiable—that all companies have to comply with. And the standards that have been set up to now need upgrading. Everybody is waiting for the FDA to take the lead here, but they have been stalling for several years to the disadvantage of the industry."

May adds: "I understand the FDA is in the process of publishing a review of GMP standards. But it is up to all companies in contract manufacturing and others in the industry to set their own standards until that time comes. It's up to the companies that really have quality, safety and ethics at their core to set the standards here."

In some jurisdictions, local law dictates manufacturing policy. One such situation affects sigma-tau HealthScience's operation in Italy, where it is forbidden to manufacture both dietary supplements and pharmaceuticals in the same plant. "For this reason, we are practically obliged to use a third party to produce our dietary supplements," says Franco Gaetani, the company's research and development director. Just to make sure, sigma-tau conducts its own testing on top of the CM's analysis, he notes.

Pablo Abrahams, business manager at UK-based CM Cultech, which operates across European markets as well as in the US, recommends as much. "If I had a brand, I would check it myself, because then, as well as keeping a check on your products, you can also keep an eye on your manufacturer," he says. "But there are cost issues. Testing is very expensive. Some clients demand testing of the final product, some of them don't. Some of them do it themselves. We independently analyse all the raw materials we order, and we expect a certificate of analysis to come with it. If the two don't match, we'll reject the raw material."

Abrahams, too, has sharp words for those who fall short on the quality-control front. "The majority of the large contract manufacturers are ethical operators, but there are people at the other end of the spectrum who have very poor quality controls."

Just like US CMs, pan-European CMs must operate in a vacuum of proper legislation, he feels. "The industry is self-regulating at the moment, but it is likely to change in the next few years when the Traditional Herbal Medicinal Products Directive comes into force."

Control And Responsibility
Ernie Schenk is the investor relations manager at Perrigo, a Michigan-based contract manufacturer. Perrigo specialises in OTC pharmaceuticals as well as own-brand vitamins and minerals supplements for chains like Wal-Mart, K-mart and Safeway.

"The retailers have long since vertically integrated. They used to make their own, but they don't do it any longer," Schenk observes. Quality controls are not an issue with Perrigo, which conducts in-house and third-party testing at all stages of the manufacturing process. "Because our main business is in OTC pharmaceuticals, we are driven by FDA GMP standards," Schenk says. "We are FDA-regulated and are inspected on a regular basis. Having FDA certification makes the national brand equivalent case a lot stronger."

If you are still not convinced you can get what you want from a CM, you can always go down the route of companies such as Solgar, whose reputation is founded on producing quality products, even if they cost more. "We believe the only way we can get the quality standards that we specify is to make the supplements ourselves," says Solgar UK Marketing Manager Marie Kendall. "That's why we invested 7 million pounds to upgrade our state-of-the-art manufacturing facility in New Jersey last year."

Whilst using contract manufacturers can represent a passing of responsibility, it needn't mean a loss of control. James Fearnley, commercial development director at the UK-based CM, Herbalapothecary, summarises it this way:

"The main advantage in employing a contract manufacturer is for its expertise and technical and scientific backup. You want partners who have been in the area for a long time and whom you can trust to develop and deliver the kinds of products you want. It could be very damaging to your reputation if you get it wrong. We'll work with the customer to make sure the product is safe and legal and packaged nicely. It's up to them to make sure it sells."

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