Since passage of the Dietary Supplement Health and Education Act (DSHEA) of 1994, which ensured consumers would have greater access to natural health products, the nutraceuticals industry has grown significantly.

Driven by poor dietary habits, sedentary lifestyles and an aging population focused on preventive health, the supplement market has proliferated as a cost-effective means of obtaining essential nutrients.

To ensure quality in a dynamic and evolving landscape, the U.S. FDA’s current Good Manufacturing Practice (cGMP) requirements established an industry-wide set of standards for the consistent production of dietary supplements in terms of identity, purity, strength and composition.

The regulation includes requirements for designing and constructing physical plants, establishing quality control procedures, and testing dietary ingredients and manufactured supplements. It also includes requirements for maintaining records and for handling consumer complaints.

The final cGMPs went into effect in June 2008 for large companies, June 2009 for those with less than 500 employees and June 2010 for businesses with fewer than 20 employees. Therefore, quality today is non-negotiable in the nutraceuticals industry.

Cost & Quality Advantage
FDA’s requirements are rigorous with respect to the documentation of manufacturing operations and the evaluation, analysis and release of finished products. The cost of manufacturing and burdens of documentation and quality control are especially heavy for small and medium-size companies that cannot spread these costs to large volume production. Consequently, many of these businesses are turning to contract manufacturers to produce and label their products.

“Years ago, a vitamin and supplement company could go into business with little more than manufacturing equipment and an operating site,” said Jay Kaufman, president, Paragon Laboratories, Torrance, CA. “Now, with increasing FDA requirements and current Good Manufacturing Practices and requisite certifications, companies are depending more on contract manufacturers to be the entity responsible for meeting these required standards.”

More companies are partnering with contract manufacturers (CMs) in order to focus on marketing efforts, according to Ephi Eyal, president and CEO of Innovative Food Processors, Inc. (IFP), Faribault, MN. “They trust the required diligence associated with quality and manufacturing standards to their CM partners. We see our clients stay with us not only because of our commitment to quality standards but also because of our evolving processes that help get products to the shelf faster and cost effectively.”

Gary Cochran, director of operations, National Enzyme Company (NEC), Forsyth, MO, also said the principal advantage to using a CM is cost reduction. “When you factor in labor costs, insurance costs, along with the costs associated with industry certifications, this can prove challenging for many companies. In addition, dietary supplement GMPs require a myriad of procedures, personnel and documents to remain compliant. A credible CM will have a robust quality control team which works tirelessly to maintain the safety and integrity of every product they manufacture.”

With increased regulatory scrutiny, manufacturers have been compelled to upgrade their capabilities, such as analytical laboratory instruments, trained personnel and operators, or face the prospect of acquisition from larger players.

However, companies that outsource their manufacturing operations can save money by not having to invest in facility maintenance and upgrades, while also saving time from regulatory and administrative work, said Junius Rahardjo, CEO of Javaplant, based in Indonesia.

The high standards mandated for contract manufacturers to support the needs of those who market their own supplements necessitate investing significant capital and employing highly trained personnel, added Mr. Kaufman.

“There are huge advantages in relying on a CM’s expertise in controlling materials, sourcing, manufacturing, quality assurance and quality control. The biggest advantage is freeing up a company’s time and budget to use on sales, marketing and research for both existing products and line extensions. It’s clearly an advantage not having to deal with the day-to-day operations of the manufacturing process, which includes ensuring the right systems and procedures are in place, and the right equipment is purchased and maintained. The cost of and time spent doing all this is enormous, and is often overwhelming for a company to take on along with all the other responsibilities of running their operations for sales of finished products to end users.”

Mr. Kaufman also said a few customers he’s spoken with over the years initially hesitated to relinquish control of the manufacturing process. “But after talking about how much expertise, time, industry study and labor they’d need to commit to the manufacturing process, the perceived disadvantage of off-site manufacturing was no longer an issue.”

A New Baseline
IFP’s Mr. Eyal said federal cGMP regulations for dietary supplements and the emphasis on proper categorization of medical foods has created a new baseline for the industry, making quality non-negotiable.

“There is a new definition evolving around turnkey contract manufacturing. In the past, it was about procurement of ingredients and manufacturing of products. The contemporary definition resembles a partnership and is driven by transparency, accountability and innovation.”

Federal oversight and increased quality demands from customers have compelled contract manufacturers to operate openly and in some cases sacrifice proprietary technologies.

“CMs were once able to provide a ‘black box’ product and process, especially when working with smaller entities,” said Mr. Eyal. “Customers often launched products without auditing and visiting their supplier. Now, a CM is expected to provide visibility into its operation and most of its stages. A CM’s ability to maintain a proprietary process and product is limited. This includes detailed reporting throughout the commercialization process, offering customers the ability to understand where their product is within the manufacturing process and the supply chain.”

A new level of transparency for the industry can be tied to overall accountability for quality, safe and efficacious products.

“While the industry still sees an occasional ‘bad apple,’ most industry players appreciate the new reality and look for trusted suppliers,” said Mr. Eyal. “Industry associations such as the Natural Products Association (NPA) and Council for Responsible Nutrition (CRN)—both of which IFP is a member—do an excellent job maintaining a productive dialogue with FDA and promoting CMs that maintain the high standards our customers deserve.”

Turnkey CMs may help to drive technical innovation, which may in turn impact all aspects of the value chain, including product and process development, regulatory support, process and product validation, marketing and supply chain support. “Not only is IFP required to be an audited GMP-certified manufacturing firm that offers state-of-the-art facilities, quality infrastructure, and ensured compliance, but it is necessary for us to have a finger on the pulse of all that is new in the industry and marketplace to offer clients meaningful conversations to innovate quickly.”

Ultimately, there are many complex factors that go into successful production today that businesses need to consider, Mr. Eyal noted. Working with a specialist can alleviate some of the pressures of doing business in today’s challenging marketplace.

“If you have the consumer insights, the confidence that your concept will be successful, the technical knowledge, the processing and packaging capacity, the access to raw materials, the regulatory knowhow, the financing capacity, the supply chain capability and the ability to scale-up and commercialize your product quickly, then you should go at it alone. If not, find someone that does.”

The reality today is that few entities except large multinationals and multi-level marketing firms (MLMs) have this broad in-house capability, he added. “Even for those that do, they are often experimenting with new formats and the make-vs-buy analysis often leads them toward a CM for risk mitigation.”

Certified Credentials: A Value Proposition
Contract manufacturers have evolved over time to address gaps in the oversight of the nutraceuticals industry, according to NEC’s Mr. Cochran.

“This includes investing time and money in industry-recognized certifications such as TGA (Therapeutic Goods Administration of Australia) and NSF International, which instill confidence that our products and facilities are routinely audited and are kept to the highest industry standards. There are many reasons that companies may partner with a CM, but one of the biggest reasons is likely the cost involved in acquiring industry certifications such as TGA and NSF.”

To obtain third-party certifications, a company must participate in regular audits that require a substantial investment of resources, he said. “This type of investment might prove financially challenging for a smaller company. It is no surprise that the ideal solution is to partner with a reputable CM, like National Enzyme Company, which continually makes these investments to provide our customers with the highest quality products, along with peace of mind.”

Industry-recognized certifications also serve as a significant point of differentiation between manufacturing partners, he added. “Not only are these difficult to obtain, but they are also challenging to keep year after year. Considered the most stringent regulatory agency in the world, the TGA certification is conducted at a pharmaceutical level standard. Only a few U.S. companies have been able to achieve TGA certification and National Enzyme Company is one of those. It’s easy to find a contract manufacturer with one certification, but it is rare to find one with multiple certifications they have maintained for many years.”

Companies looking to partner with CMs should inquire about these certifications and how long companies have maintained them, Mr. Cochran suggested. This can help companies evaluate credibility.

“As a reputable, industry-leading CM, we must always be in an audit-ready state,” he noted. “And, while we are externally audited on a regular basis to maintain our industry certifications, we internally self-audit so that we are always operating at the highest standards. As a CM that is dedicated to quality and credibility, no stone is left unturned as we evaluate and reevaluate our procedures and operations, to make sure that we are always the best in our industry.”

Consumer demands for non-GMO, natural and/or organic ingredients brings relatively new certification requirements into play, said Paragon’s Mr. Kaufman, and a superior contract manufacturer must be able to anticipate trends in customers’ ingredient requirements through a combination of market studies and experience.

Paragon Laboratories has been in business for more than 40 years, he noted. The company has gained GMP certification from NSF and NPA, and has also gone through Certified for Sport procedures from NSF for manufacturing sports nutrition products.

“We’re also certified by QAI for organic formulations. We have a fully equipped in-house quality control laboratory, as well as a fully equipped microbiological laboratory. All raw materials are checked for quality upon receipt, and all products are checked by our in-house laboratory before being released to our customers. A key feature we offer is the ability to custom manufacture and package innovative formulations of tablets, capsules and powders in-house.”

Javaplant’s Mr. Rahardjo agreed that more companies are demanding verification and third-party audits. “This trend has an effect on contract manufacturers to be more open and honest about their capacities and capabilities.”

He predicted more companies will outsource their operations to qualified CMs as they struggle with investment costs, high regulatory hurdles and other challenges of producing high-value products.

Mr. Kaufman said he expects there to be consolidation in the number of CMs in the market. “Those who survive will be able to offer their customers solutions for the myriad of challenges inherent in the manufacturing process, as well as complying with the most current regulatory and quality standards and being responsive to the trends that the marketplace has to offer.”

These dietary supplement trends are often fueled by consumer perception, said Mr. Cochran, and consequently may ebb and flow. “For instance, any time a new ingredient is discovered and studied, consumers are quick to respond with an uptick in interest. In addition, health challenges such as gluten sensitivity or lactose sensitivity can drive consumer demand for supplements, which may address these challenges. There is always demand for general well-being products, but consumers are often intrigued by clever and unique delivery systems such as drink mixes, chewables and portable packaging. CMs have to be ahead of the curve and willing to offer unique products and services that will help maintain and also drive consumer interest.” 

Capstone Nutrition Formed as New Manufacturing Partner Integrity Nutraceuticals and Cornerstone Research & Development join forces to provide OTC development and manufacturing. H.I.G. Growth Partners, the dedicated growth capital investment affiliate of H.I.G. Capital, unveiled the creation of Capstone Nutrition in December 2014, a new venture in nutraceutical and OTC development and manufacturing. Capstone was created through the integration of H.I.G. portfolio companies Integrity Nutraceuticals in Spring Hill, TN, and Cornerstone Research & Development in Ogden, UT. Capstone will compete as a consolidating player in the $35 billion U.S. dietary supplement market touting formulation, product development and production capabilities across 600,000 square feet of manufacturing space. “Capstone Nutrition is a new kind of partner for innovators in nutrition,” said Capstone’s CEO Greg Horn, an experienced nutrition executive who has previously served as the CEO of both General Nutrition Centers and Garden of Life. “With deep research and development resources, a turnkey suite of services from product concept to market, and world class, purpose-built production capability in both the eastern and western United States, Capstone is a one-stop shop for the industry’s most successful product innovators. We are helping our customers bring nutrition to life.” “Capstone is dedicated to our customers’ success, and does not compete with them by having our own brands,” added Peter Miller, Capstone’s chief innovation officer. “We bring significant expertise and resources every step of the way, from our research development team to our brand new formulation and flavor lab to our state-of-the-art and fully certified manufacturing services. We grow with our customers, many of whom have been with us since their founding.” In a crowded field of smaller players, Capstone’s scale provides a competitive advantage to its customers, noted Mike Beardall, Capstone’s president and COO. “From sourcing expertise to world class manufacturing to GMP compliance, our enterprise brings you all the advantages of working with a true leader. We have a full suite of certifications including NSF, NSF Sport, and TGA. We are qualified to produce organic, non-GMO, Halal and Kosher certified products, which helps us meet almost every customer need.”