Case Study: Larex, White Bear Lake, MN

Business Description: A privately-held nutraceutical ingredient company focused on providing bioactive material to the dietary supplement, functional foods, personal care and animal feed markets. Its strength lies in its unique and protected supply chain and the inherent benefits of its products. Specifically, the ingredient works for immune enhancement (i.e., ImmunEnhancer® AG) and as a dietary fiber and a prebiotic (i.e., FiberAid® AG)—two categories that are increasing in demand.

Background: Larex’s main ingredient is arabinogalactan, which is extracted from the Western Larch tree. It cleverly sources this ingredient from the bottom 10 feet of the Larch tree not utilized in logging, and uses manufacturing methods to obtain its different products, which are targeted for specific markets. The company has built some significant competitive insulation through securing supply, investing in a production plant, funding research and branding the ingredient. In addition, Larex has invested in clinical trials, obtained generally recognized as safe (GRAS) status and gained approvals for entry into many international markets.


Situation Assessment: Larex has recognized that its product must be marketed to several markets simultaneously. As such, it has segmented its technology into different products that address multiple health benefits and as a result, are gaining entry into each of its targeted markets. This offers the company many opportunities, but also many challenges, ranging from ensuring adequate resources to funding operations to competing with multiple players and understanding where to focus its efforts. For the relative size and scale of the company, Larex has been very successful in getting its ingredient incorporated in major dietary supplement brands, as well as major food and beverage products, such as the Dole® Smoothie and the Balance Bar® Satisfaction bar.

Larex is a relatively well-known company that has partnered with several major players. It has strong brand recognition and a sound value proposition, which allows it access to attractive customers. Further, the company has demonstrated a significant ability to work with large companies and convey its uniqueness. Bo Nickoloff, CEO, has effectively led his management team in front of the major food, nutrition and pharmaceutical companies, in a way that they are delivered the information and data required to make a decision.

The company has lined up all the factors it needs to execute its strategy—supply, manufacturing, clinical evidence, regulatory compliance, and market focus. Larex is now in a transition phase in terms of its approach to the market and its goal is to try and create exclusive partnerships for select markets to drive demand, rather than just be an ingredient supplier. This effort is leading the company to seek more strategic partners and to look outside of North America, where the majority of the focus has been to date. To that end, Larex recently completed an innovative deal for its ImmunEnhancer product with Essentially Pure Ingredients, Chatsworth, CA, a division of Natrol, to both use the ingredient in its own finished products as well as aid in its distribution to the market.


Opportunities: Larex is in a unique position to have many options, but its most pressing issues deal with targeting markets, increasing geographical reach and broadening its technology platform. A key near-term opportunity for Larex is the dietary fiber and prebiotic market. Although there are several initiatives within Larex, the main thrust for the company now is to capitalize on all of the energy and interest in this market, which is being driven by a variety of factors such as consumer awareness, lack of fiber in the diet and product functionality benefits. Additionally, the prevalence of low-carb diets is pushing more companies to seek ways to lower the net effective carbohydrate level of which fiber plays a key role. Larex has technology in this area that offers uniqueness, both in the physiological benefits and also in the product benefits. Larex’s arabinogalactan product offers flexibility in formulations because it is tasteless, odorless and highly soluble. In addition, it also acts as a binder and excipient in some formulations for dietary supplements.

Reaching out beyond the North American market also represents a significant opportunity for Larex. It has a product with benefits that addresses needs common to many markets, and its is well positioned to handle new business. The company’s struggle will be in the execution of getting the product out to the markets through innovative partnerships and not losing focus of its current business. Another key challenge is that Larex is at relatively low utilization levels of its production facility. On one hand this is good news because it means that the company can ramp up production rather quickly. The bad news is that it needs the sales orders to be able to do that. This is where the opportunity of going global could really pay off for the company. Larex needs to drive the volume globally because this will allow it to start utilizing its plant, its production costs will come down and the margins will go up. In the end, making the move to go global will create an offering that will be very hard for other competitors to beat.

Looking even further into the future, Larex can take better advantage of its assets—the Larch tree. Arabinogalactan is only one of hundreds of useful compounds in the Larch tree, and its future could very well be the untapped phytochemicals within. Larex may be able to leverage a more biotech-like business model to fund looking within the tree itself for other active ingredients that have commercial potential.


Lessons Learned: For this analysis, some key “take away” messages have been synthesized. (1) When involved with a multi-functional product, companies must prioritze their markets and be conscious of the resources and capabilities required for each market. When approaching customers, such as food companies, the first impression is critical, so the uniqueness of your value must be clearly articulated. (2) Larex has all the elements necessary to go global, and it needs the demand to fill its production plant. Larex must go global and it need partners to do so. Recognize that there may be times when a company cannot go it alone. Larex’s newly formed relationship with Natrol is a perfect example of this. Even though the company has been out in the marketplace pushing and selling its arabinogalactan for years, it recognized that its success in the future will be greatly determined by the ability to find very good partners. (3) It is paramount to execute well when operating from a single ingredient platform. This is a high risk, high return situation. Larex’s success not only depends on its ability to get business and execute, but also on new and evolving science and competition. To spread the risk, companies should examine all of the capabilities and assets they have available to them. One way for Larex to spread risk is to become involved in different markets—new active ingredients, new regions and new applications.