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Banner Pharmacaps expands focus & portfolio

Our nutritional business has been very positive this year," said John Barbee, senior vice president of North American Sales for Banner Pharmacaps Inc. (High Point, N.C.).

The global innovator of proprietary health care technology develops and encapsulates products for the pharmaceutical and over-thecounter drug business in addition to the nutrition industry. "On the nutritional side, we supply a lot of the key private label suppliers in the industry," said Barbee. "We supply products to the mass market, multilevel marketers and the health food industry, as well as some small direct-to-doctors programs."

Overall, the nutrition category has grown 2-3% over the past year in supplements, Barbee estimated, citing IRI data and other industry figures. "That's very, very positive," he said, adding that Banner has seen healthy growth in mass market as well as in multilevel marketing (MLM) channels. "Their business offshore has grown tremendously," he said of the MLM companies, adding that Banner also maintains a strong foundation in the health food retail industry.

Banner Pharmacaps was formed in 1994 when the Sobel Company (based in The Netherlands) merged three companies: Banner Gelatin Products Corp., Pharmacaps Inc., and Chase Pharmaceutical Company. "We are a global company with more than 1,500 employees, " Barbee noted, adding that the company currently has facilities in the United States, Mexico, Canada, The Netherlands and India.

In the past, Banner has carved out a niche specializing in contract manufacturing of private label products. But in the past two years, Banner has begun shifting its focus from being strictly a contract manufacturer to becoming a consumer health care and drug delivery company. "What we want to offer is more than just a customer coming to us and saying, ÔHere's Product X. Can you make this into a softgel?'" Barbee said. "Sure we can, but we want to add value and with our R&D department on a proactive basis bring products or concepts to our customers."

Banner aims to analyze its customers' portfolios then suggest opportunities for new formulations and unique products that can be created with an exclusive or proprietary position. "The customers that we would look favorably to would be customers that would have a full line of products, customers that are more proactive or on the leading edge, and companies that would be able to promote and sell new products," Barbee added.

Softgels 20-25% of the Business

Gelatin capsules, or softgels, represent approximately 20-25% of the total supplement business worldwide, Barbee estimated. In the past year, rising sales have been driven in large part by growing demand among consumers for fish oil and omega-3 fatty acid supplements. "It would be double-digit growth," Barbee said of the fish oil/omega-3 segment. "With such tremendous increases in that area, the category will lend itself to overall growth." A feature on the Oprah Winfrey Show helped to raise consumer awareness regarding benefits of fish oils/omega-3 supplements, which are also attracting the attention of aging baby boomers. "Other products are continuing to be strong out there," added Barbee, citing calcium and CoQ10 as examples. "Products that tie into women's health, like soy and black cohosh, are very strong this year."

Barbee noted a shift away from single-entity supplements and a trend toward combination and condition-specific products. "Even at the retail sales level, you see merchandising of products has changed to condition-specific instead of single entity," he added. Condition- specific branding, packaging and marketing approaches "are helping the consumer who is self-diagnosing to find the appropriate products. The supplement category is finally becoming less confusing to consumers."

Advantages of Softgels

Softgel capsules have several advantages over conventional tablet and capsule forms in Banner's view. "When you look at softgels, clearly it's a preferred dosage form," Barbee said. "Softgels are easier to swallow and may mask tastes and odors, making them an ideal medium for unpleasant-tasting ingredients such as fish and garlic oils. Any product with an oil base can be produced as a softgel."

In 2004, Banner plans to emphasize a different form of delivery for supplements. "We have a patented technology called Soflet enrobing," Barbee said. "We take a tabletÑand then enrobe it in gelatin. The process is used extensively in the OTC side of the business, but we are also building that into the nutrition side. The process makes tablets easier to swallow, masks tastes and odors, and allows for the addition of colors and brand names," Barbee said. "With that comes unique marketing opportunities that have mostly been unavailable in softgels prior to the enrobing process. "

"We conducted quantitative research for Soflet gelcaps. Three out of four consumers prefer a Soflet gelcap versus a tablet." The fact that many analgesic products are now sold with this technology attests to its success in the marketplace, Barbee added.

Banner also plans to market a non-gelatin capsule as an alternative for vegetarians, people with religious or dietary restrictions and others seeking to avoid animal-based gelatin products. "Clearly, mad cow disease has added an intensity to the project," Barbee said presciently in an early December interview shortly before discovery of the first U.S. cow found to have Bovine Spongiform Encephalopathy (BSE), or mad cow disease.

Since the Washington state case of BSE was diagnosed, Banner has issued a statement assuring that bovine bone gelatins in its products comply with FDA industry guidelines; the company purchases gelatin outside of the United States only if suppliers have obtained a certificate of suitability under guidelines of the European Pharmacopoeia.

A company statement maintains that Banner "is confident that our customers will continue to receive products meeting the high standards of safety and quality that they have come to expect from Banner." Asked to name the biggest challenge during the past year, Barbee cited the company's influx of business and ongoing need to "keep up with the demand in 2003."

Another challenge has been coping with a shortage of CoQ10 raw material exacerbated by consumers seeking to increase their dosages from 30-50mg to 150mg. "Demand has gone up a lot," Barbee noted, adding that CoQ10 is only available from a small number of suppliers. The quick rise in popularity of CoQ10 has "pushed us into an allocation situation, " Barbee added. "You can only get a percent. " To resolve the shortfall, key suppliers are expanding facilities to double capacity. "We hope to see relief in the mid part of 2004," Barbee said, adding that the price of CoQ10 is increasing.

Banner is investing in research and development as well as clinical trials to bolster support for its products. Noting the increased demand placed on customers by major retailers such as Wal-Mart, CVS and Target, Barbee said that customers' demands are changing. "Clearly, you want to have on-time delivery and quality products. You want to be responsive to emergencies, and you love to be on the leading edge where at all possible," he said. "How we fit and parallel around those elements will be key to our successÑand their success."

Looking to the future, Banner changed its logo and made additional changes to position itself as a global consumer healthcare products company. "We are continuing to gear towards looking for new products and new technologies as we move forward in the marketplace, " Barbee concluded.

"We are excited around here as the whole company is moving toward globalization. We instituted that last year, and it's making a big difference in increasing our ability to supply our customer's needs. As we go out to the marketplace, we are respected for our new ideas, our creativeness and being able to respond to our customers' needs."