Sean Moloughney, Editor03.01.17
Demand for wellness products continues to gain steam, fueled by an aging population with a preference for natural, holistic medicine and also a younger, emerging demographic that has adopted a general self-care and preventive approach to health.
Globally, sales of consumer health products reached $219 billion in 2016, up 3%, according to Euromonitor International. Sales are projected to top $250 billion with ongoing growth of 3% per year through 2021. Meanwhile, dietary supplement sales are projected to reach $127.9 billion globally in 2017, up 6.1%, according to Nutrition Business Journal. Weight management, herbal/combination/traditional supplements and sports nutrition are expected to post the fastest growth through 2021, per Euromonitor.
In terms of the health issues consumers care about, maintaining mental sharpness with age was the number one health concern globally in 2016, according to HealthFocus International. Other health concerns included ability to continue normal activity with age (45%), oral health (43%), tiredness/lack of energy (43%), back/neck pain (41%), stress (40%), eye health (39%), lack of mental focus (36%),and skin appearance (27%).
As the dietary supplement industry has grown, regulatory oversight has increased. FDA’s creation of the Office of Dietary Supplement Programs in late 2015 underscores this added regulatory attention. Additionally, FDA’s new dietary ingredient notification (NDIN) draft guidance continues to get significant attention. How exactly it will be implemented and enforced remains to be seen under the new presidential administration.
Overall, in today’s environment, supply chain integrity and adherence to current Good Manufacturing Practice (cGMP) requirements are critical to quality, and ultimately the health of supplement brands.
More than Manufacturers
Against this backdrop, contract manufacturing has become more valuable. In the evolution of the dietary supplement industry, contract manufacturers have become full-time partners for brand marketers, offering not just an assembly line, but also an analytical laboratory, a research facility, and regulatory assistance, said Mark Potocnjak, CFO, Herbally Yours, Gilbert, AZ.
“The fiduciary role of contract manufacturer is growing and it is becoming more and more prominent with industry growth,” he said. “We have a well established network of partners, from lawyers and regulatory experts to laboratories and suppliers, to assist brands beyond production of the bottle. The role of the manufacturer should not end when the product leaves the facility, but it is extended during and beyond the expiration date.”
Contract manufacturers can help companies develop products from infancy, through research, development and formulation, to a complete market-ready item, Mr. Potocnjak added. “Partnering with the right contract manufacturer eliminates the need to compile several different companies who work on formulation, sourcing the right ingredients, testing, development, etc., into one roof, allowing the marketer to focus on marketing and sales.”
At times, dispersing those services can lead to confusion, which can be costly during new product development, he noted. “Consolidating those services at the hands of a trustworthy contract manufacturer will allow brands more time and resources to focus on what they do best.”
The cost of operating a cGMP compliant manufacturing facility is substantial, taking resources away from market research, clinical trials, distribution, marketing, etc.
Jennifer Cusick, director of sales operations, Trividia Manufacturing Solutions, Inc., Lancaster, NH, said contract manufacturing organizations (CMOs) play a key role in the industry, specifically with the regulatory aspects of manufacturing to the appropriate cGMPs regulations.
“It is imperative for the CMO to thoroughly understand the brand labeling, to establish the internal quality systems specific to the appropriate regulatory class. Do the ingredients and label claims require adherence to food, dietary supplement, medical food or another set of cGMP regulations?”
The role of CMOs has evolved along with the broader industry, she added. “As CMOs have a responsibility to manufacture within full compliance, and some brand owners are reluctant to pay for the added costs as regulations increase, the role of the CMO focuses on educating the smaller clients, or those new to the industry. For CMOs that manufacture products that fall under a variety of regulatory classes, the increased costs of compliance require the CMO to establish Master Formula Records and quality processes that are specific to each regulatory class.”
For a new brand owner, partnering with a CMO can provide a range of benefits, from formulation services, education, sourcing expertise, and regulatory compliance knowledge. “The expertise in manufacturing can provide efficiencies and costs savings while the brand owner can focus on sales and marketing. The value of the CMO is their area of expertise,” said Ms. Cusick.
John Altenberg, vice president of sales, Vit-Best Nutrition, Tustin, CA, offered two broad reasons for choosing a contract manufacturer. First, CMOs offer value in managing the supply chain, which allows company to focus on initiatives that build brand equity.
“The other primary reason is to either outsource internal production as a means of cost savings or the dedication of limited capital and equipment to other brands,” he said. “Overlooked areas where CMOs can provide value include expertise in manufacturing certain ingredients and modalities, or certification(s) to sell products overseas. Whatever scenario drives the brand to outsource to a CMO must be built on transparency and trust.”
Anthony Broom, sales manager, 4Excelsior, Anaheim, CA, said contract manufacturing helps brands develop superior formulations. “Contract manufacturers also have a lot of experience in sourcing, formulation development, and quality manufacturing processes, allowing supplement brands to focus on marketing the product to the client. Contract manufacturing benefits the client by making their lives easier, and helping them provide consumers with the best product possible.”
In the past, CMOs provided basic functions around procurement of ingredients and manufacturing of products, according to Ephi Eyal, president & CEO of IFP, Inc., Faribault, MN. “The contemporary definition resembles a partnership and is driven by transparency, accountability and innovation.”
A quality manufacturer provides the transparency and accountability associated with new standards in the industry, he added. “Most importantly, they must have world-class quality management and a solid infrastructure to implement the current standards efficiently and effectively to get products out to market quickly and cost-effectively. At IFP, we sell trust and product quality, and we take this seriously. We have made a large investment in our quality management systems, and we see this as a space that differentiates us, and offers our customers a competitive edge. Proven and well-run quality systems can ensure a quick and timely product launch rather than bog down a manufacturing process.”
IFP sees itself as a trusted resource and innovation partner. “We offer knowledge on patented ingredients, powder processing, and particle engineering, retail packaging innovations or regulatory issues,” said Mr. Eyal. “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.”
More companies are partnering with CMOs so they can focus on marketing, he added. “They trust the required diligence associated with quality and manufacturing standards to their CMO 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.”
Reviewing Qualifications
There are a few items companies should pay attention to when selecting and qualifying contract manufacturer, noted Mr. Potocnjak. “Reputation and certification is definitely a primary one. Always look for certifications and ask to confirm them,” he said. “Logos on a website mean nothing without a current certificate from an issuing agency.”
Transparency is another vital issue, as contract manufacturers are last in the supply chain to actually see and touch the product before it reaches the consumer. Mr. Potocnjak called this a “huge fiduciary responsibility.”
“Always look for a manufacturer that is comfortable sharing information, laboratory data, and will always have their doors open for inspection or tour,” he offered.
Brands should also look for a manufacturer that has experience and capabilities to produce their products. “One of the questions that I have been asked frequently, and still confuses me the most, is ‘what is the size of the facility?’ It is an irrelevant number and without a physical tour of the manufacturing plant—from laboratory and regulatory department to packaging line—will provide no relevant information.”
Ms. Cusick also recommended companies qualify CMOs by “visiting their facility, understanding their culture, reviewing their compliance issues and reviewing their audit documentation.”
A quality CMO offers consumer insights, product development, manufacturing, and product support, according to Mr. Eyal, but also has the flexibility to offer specific technologies and services as needed.
Additionally, CMOs must provide transparency and accountability associated with new standards in the industry. “Most importantly, they must have world-class quality management and a solid infrastructure to implement the current standards efficiently and effectively to get products out to market quickly and cost-effectively,” he said.
CMOs should also provide innovative, value-driven ideas to present to customers. “We see ourselves as a trusted resource, whether it is offering knowledge on patented ingredients, packaging innovations or regulatory issues, we create new and better. The services demanded require the CMO to maintain an expensive overhead structure to support R&D, regulatory, engineering, and manufacturing activities while playing in a competitive market space in which cost is an important driver.”
Mr. Altenberg said transparency leads to trust and evaluations of potential CMO partners should include: R&D experience with ingredients in formulas; firm control of production process with detailed documentation; equipment and operators that can handle challenging material; example of QA programs and their success stories; how does the CMO handle interruptions to the supply chain; how versed is management in daily details of business?
Mr. Broom said 4Excelsior prides itself on third party certifications. “This helps provide clients with confidence that the manufacturer can provide them with a quality service that has been third party validated.”
One of the biggest challenges for contract manufacturers is competing at certain price points, he added. “There are those in the market that will take shortcuts to meet a brand’s price point. It does become difficult when trying to compete with those groups in the industry.”
Ms. Cusick said escalating testing costs and the redundancy of auditing present challenges as well. “As a CMO that has maintained many third party certifications (such as NSF and UL) for sports nutrition, dietary supplements, OTCs and Canadian drugs and natural health products, we are still subject to many, many customer audits. Although UL markets the universal acceptance of its certifications, we routinely find the retailers do not accept the certification at face value, and require additional audits. The requirements for social audits is also increasing. If the industry could consolidate auditing standards and get the buy-in and support of the largest retailers, the industry could gain efficiencies. The focus could be moved from supporting the redundant audits to focusing on improving compliance.”
Product Trends
Mr. Broom, noted that 4Excelsior, a full-service contract manufacturer that offers powder blending, encapsulation and tableting, has seen strong growth for organic greens, and vegan protein sources. “There’s been a strong move from the industry toward sourcing organic materials and targeting the vegan/organics market. Our specialty has really been in flavor development within the industry; we managed to develop some great tasting formulas for both the sports nutrition and naturals sector.”
Demand for organic materials and “clean label” products has been driven by consumers who are more aware of what they are putting into their bodies.
“We certainly see it becoming essential that manufacturers offer services for the non-GMO, organics sector. We only see brands wanting to offer more transparency to their consumers.”
In that move to go more natural, the use of traditional excipients has been questioned. “Brands want to push toward a more natural approach when it comes to encapsulation projects,” said Mr. Broom.
As for product and dosage format, Ms. Cusick said Trividia has offered tablet formulation services for many years. “In recent years we have done a lot more liquids/lotions/creams formulations. We are noticing that brand owners are more focused on natural materials with some specific interest in natural preservatives.
Lisa Unlu, senior food scientist at IFP, said clean label foods can mean different things to consumers. “For some, it means shifting from GM ingredients to non-GMO ingredients. For others, it’s a shift all the way to organic. Clean label also means shorter ingredient declarations, so the importance of every ingredient for function and purpose is critical.”
Transparency is also important from a labeling perspective, she said. “Being very clear about exactly what is in the food, using common words to describe food ingredients, is known as ‘clear labeling,’ or labeling transparency. Additionally, this includes labeling GM ingredients when they are in foods. Essentially, consumers are looking for more information about what is put into their food, to make more informed decisions about their food choices.”
In terms of ingredients, protein is definitely trending, she added. “Many of the new products being developed contain one or more of the ‘in demand’ proteins—from pea protein, hemp, lentil, fava bean protein, to the tried and true dairy proteins like whey protein isolate, whey protein concentrate or casein. One shift seen more recently from our customers is to have sources of dairy from grass-fed cows and organic farms. The same could be said for the vegetable proteins; the requests are more commonplace to have organic sources versus traditional sources of supply.”
Ms. Unlu also noted demand for fruits/vegetables, greens, probiotics, antioxidant sources, digestive enzymes and sugar reduction.
Ultimately, Mr. Altenberg said customers continue to research and develop formulas for “lifestyle solutions.”
The Evolution Continues
In the future, Mr. Potocnjak predicted contract manufacturers will become more transparent, allowing for a better flow of information. “As the industry matures, the market is becoming increasingly saturated with existing formulations, private labeled products, and development of new formulas. The introduction of new dietary ingredients will be an exciting challenge for contract manufacturing—from a manufacturing and a regulatory stance.”
Additionally, Mr. Potocnjak noted a common misunderstanding about the different services provided by contract manufacturers versus private label manufacturers.
“I hope in the future we will see more clear separation of those two different services, and better understanding of their difference. While private label services offer excellent products, at lower cost, without the need to develop new formulations, it is a very different operation than contract manufacturing. I like to look at contract manufacturers as research facilities with a large assembly line under the same roof.”
Ms. Cusick said she believes CMOs need to continue to focus on regulatory compliance. Those that do not will eventually meet their own demise. “Brand owners who grew manufacturing as their brands grew, but their area of focus was sales and marketing, are now outsourcing their manufacturing. Rather than invest in their facilities, both structural and process/compliance needs, they are evaluating and outsourcing products.”
Form a third-party perspective, she added, “we find that some (large) brand owners are not as ‘tight’ with regulatory compliance as we are, as we have a focus strictly on manufacturing. Another observation is regarding brand sales. As brands are sold to venture capital firms or virtual companies, the manufacturing is moving from the brand owner facility to a contract manufacturer. We also notice foreign companies that acquire brands manufactured and sold in the U.S. are looking for U.S. CMOs to continue the manufacturing.” Additionally, international brands looking to expand into the U.S. market are partnering with U.S.-based manufacturers.
Contract manufacturing has always been an important vehicle for the industry, according to Mr. Altenberg. “The entrepreneurial nature of the industry has often emerged from those with a product idea and marketing message. Outsourcing their production has and will continue to be of importance to minimize capital outlays and allow professionals to ensure quality.”
Globally, sales of consumer health products reached $219 billion in 2016, up 3%, according to Euromonitor International. Sales are projected to top $250 billion with ongoing growth of 3% per year through 2021. Meanwhile, dietary supplement sales are projected to reach $127.9 billion globally in 2017, up 6.1%, according to Nutrition Business Journal. Weight management, herbal/combination/traditional supplements and sports nutrition are expected to post the fastest growth through 2021, per Euromonitor.
In terms of the health issues consumers care about, maintaining mental sharpness with age was the number one health concern globally in 2016, according to HealthFocus International. Other health concerns included ability to continue normal activity with age (45%), oral health (43%), tiredness/lack of energy (43%), back/neck pain (41%), stress (40%), eye health (39%), lack of mental focus (36%),and skin appearance (27%).
As the dietary supplement industry has grown, regulatory oversight has increased. FDA’s creation of the Office of Dietary Supplement Programs in late 2015 underscores this added regulatory attention. Additionally, FDA’s new dietary ingredient notification (NDIN) draft guidance continues to get significant attention. How exactly it will be implemented and enforced remains to be seen under the new presidential administration.
Overall, in today’s environment, supply chain integrity and adherence to current Good Manufacturing Practice (cGMP) requirements are critical to quality, and ultimately the health of supplement brands.
More than Manufacturers
Against this backdrop, contract manufacturing has become more valuable. In the evolution of the dietary supplement industry, contract manufacturers have become full-time partners for brand marketers, offering not just an assembly line, but also an analytical laboratory, a research facility, and regulatory assistance, said Mark Potocnjak, CFO, Herbally Yours, Gilbert, AZ.
“The fiduciary role of contract manufacturer is growing and it is becoming more and more prominent with industry growth,” he said. “We have a well established network of partners, from lawyers and regulatory experts to laboratories and suppliers, to assist brands beyond production of the bottle. The role of the manufacturer should not end when the product leaves the facility, but it is extended during and beyond the expiration date.”
Contract manufacturers can help companies develop products from infancy, through research, development and formulation, to a complete market-ready item, Mr. Potocnjak added. “Partnering with the right contract manufacturer eliminates the need to compile several different companies who work on formulation, sourcing the right ingredients, testing, development, etc., into one roof, allowing the marketer to focus on marketing and sales.”
At times, dispersing those services can lead to confusion, which can be costly during new product development, he noted. “Consolidating those services at the hands of a trustworthy contract manufacturer will allow brands more time and resources to focus on what they do best.”
The cost of operating a cGMP compliant manufacturing facility is substantial, taking resources away from market research, clinical trials, distribution, marketing, etc.
Jennifer Cusick, director of sales operations, Trividia Manufacturing Solutions, Inc., Lancaster, NH, said contract manufacturing organizations (CMOs) play a key role in the industry, specifically with the regulatory aspects of manufacturing to the appropriate cGMPs regulations.
“It is imperative for the CMO to thoroughly understand the brand labeling, to establish the internal quality systems specific to the appropriate regulatory class. Do the ingredients and label claims require adherence to food, dietary supplement, medical food or another set of cGMP regulations?”
The role of CMOs has evolved along with the broader industry, she added. “As CMOs have a responsibility to manufacture within full compliance, and some brand owners are reluctant to pay for the added costs as regulations increase, the role of the CMO focuses on educating the smaller clients, or those new to the industry. For CMOs that manufacture products that fall under a variety of regulatory classes, the increased costs of compliance require the CMO to establish Master Formula Records and quality processes that are specific to each regulatory class.”
For a new brand owner, partnering with a CMO can provide a range of benefits, from formulation services, education, sourcing expertise, and regulatory compliance knowledge. “The expertise in manufacturing can provide efficiencies and costs savings while the brand owner can focus on sales and marketing. The value of the CMO is their area of expertise,” said Ms. Cusick.
John Altenberg, vice president of sales, Vit-Best Nutrition, Tustin, CA, offered two broad reasons for choosing a contract manufacturer. First, CMOs offer value in managing the supply chain, which allows company to focus on initiatives that build brand equity.
“The other primary reason is to either outsource internal production as a means of cost savings or the dedication of limited capital and equipment to other brands,” he said. “Overlooked areas where CMOs can provide value include expertise in manufacturing certain ingredients and modalities, or certification(s) to sell products overseas. Whatever scenario drives the brand to outsource to a CMO must be built on transparency and trust.”
Anthony Broom, sales manager, 4Excelsior, Anaheim, CA, said contract manufacturing helps brands develop superior formulations. “Contract manufacturers also have a lot of experience in sourcing, formulation development, and quality manufacturing processes, allowing supplement brands to focus on marketing the product to the client. Contract manufacturing benefits the client by making their lives easier, and helping them provide consumers with the best product possible.”
In the past, CMOs provided basic functions around procurement of ingredients and manufacturing of products, according to Ephi Eyal, president & CEO of IFP, Inc., Faribault, MN. “The contemporary definition resembles a partnership and is driven by transparency, accountability and innovation.”
A quality manufacturer provides the transparency and accountability associated with new standards in the industry, he added. “Most importantly, they must have world-class quality management and a solid infrastructure to implement the current standards efficiently and effectively to get products out to market quickly and cost-effectively. At IFP, we sell trust and product quality, and we take this seriously. We have made a large investment in our quality management systems, and we see this as a space that differentiates us, and offers our customers a competitive edge. Proven and well-run quality systems can ensure a quick and timely product launch rather than bog down a manufacturing process.”
IFP sees itself as a trusted resource and innovation partner. “We offer knowledge on patented ingredients, powder processing, and particle engineering, retail packaging innovations or regulatory issues,” said Mr. Eyal. “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.”
More companies are partnering with CMOs so they can focus on marketing, he added. “They trust the required diligence associated with quality and manufacturing standards to their CMO 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.”
Reviewing Qualifications
There are a few items companies should pay attention to when selecting and qualifying contract manufacturer, noted Mr. Potocnjak. “Reputation and certification is definitely a primary one. Always look for certifications and ask to confirm them,” he said. “Logos on a website mean nothing without a current certificate from an issuing agency.”
Transparency is another vital issue, as contract manufacturers are last in the supply chain to actually see and touch the product before it reaches the consumer. Mr. Potocnjak called this a “huge fiduciary responsibility.”
“Always look for a manufacturer that is comfortable sharing information, laboratory data, and will always have their doors open for inspection or tour,” he offered.
Brands should also look for a manufacturer that has experience and capabilities to produce their products. “One of the questions that I have been asked frequently, and still confuses me the most, is ‘what is the size of the facility?’ It is an irrelevant number and without a physical tour of the manufacturing plant—from laboratory and regulatory department to packaging line—will provide no relevant information.”
Ms. Cusick also recommended companies qualify CMOs by “visiting their facility, understanding their culture, reviewing their compliance issues and reviewing their audit documentation.”
A quality CMO offers consumer insights, product development, manufacturing, and product support, according to Mr. Eyal, but also has the flexibility to offer specific technologies and services as needed.
Additionally, CMOs must provide transparency and accountability associated with new standards in the industry. “Most importantly, they must have world-class quality management and a solid infrastructure to implement the current standards efficiently and effectively to get products out to market quickly and cost-effectively,” he said.
CMOs should also provide innovative, value-driven ideas to present to customers. “We see ourselves as a trusted resource, whether it is offering knowledge on patented ingredients, packaging innovations or regulatory issues, we create new and better. The services demanded require the CMO to maintain an expensive overhead structure to support R&D, regulatory, engineering, and manufacturing activities while playing in a competitive market space in which cost is an important driver.”
Mr. Altenberg said transparency leads to trust and evaluations of potential CMO partners should include: R&D experience with ingredients in formulas; firm control of production process with detailed documentation; equipment and operators that can handle challenging material; example of QA programs and their success stories; how does the CMO handle interruptions to the supply chain; how versed is management in daily details of business?
Mr. Broom said 4Excelsior prides itself on third party certifications. “This helps provide clients with confidence that the manufacturer can provide them with a quality service that has been third party validated.”
One of the biggest challenges for contract manufacturers is competing at certain price points, he added. “There are those in the market that will take shortcuts to meet a brand’s price point. It does become difficult when trying to compete with those groups in the industry.”
Ms. Cusick said escalating testing costs and the redundancy of auditing present challenges as well. “As a CMO that has maintained many third party certifications (such as NSF and UL) for sports nutrition, dietary supplements, OTCs and Canadian drugs and natural health products, we are still subject to many, many customer audits. Although UL markets the universal acceptance of its certifications, we routinely find the retailers do not accept the certification at face value, and require additional audits. The requirements for social audits is also increasing. If the industry could consolidate auditing standards and get the buy-in and support of the largest retailers, the industry could gain efficiencies. The focus could be moved from supporting the redundant audits to focusing on improving compliance.”
Product Trends
Mr. Broom, noted that 4Excelsior, a full-service contract manufacturer that offers powder blending, encapsulation and tableting, has seen strong growth for organic greens, and vegan protein sources. “There’s been a strong move from the industry toward sourcing organic materials and targeting the vegan/organics market. Our specialty has really been in flavor development within the industry; we managed to develop some great tasting formulas for both the sports nutrition and naturals sector.”
Demand for organic materials and “clean label” products has been driven by consumers who are more aware of what they are putting into their bodies.
“We certainly see it becoming essential that manufacturers offer services for the non-GMO, organics sector. We only see brands wanting to offer more transparency to their consumers.”
In that move to go more natural, the use of traditional excipients has been questioned. “Brands want to push toward a more natural approach when it comes to encapsulation projects,” said Mr. Broom.
As for product and dosage format, Ms. Cusick said Trividia has offered tablet formulation services for many years. “In recent years we have done a lot more liquids/lotions/creams formulations. We are noticing that brand owners are more focused on natural materials with some specific interest in natural preservatives.
Lisa Unlu, senior food scientist at IFP, said clean label foods can mean different things to consumers. “For some, it means shifting from GM ingredients to non-GMO ingredients. For others, it’s a shift all the way to organic. Clean label also means shorter ingredient declarations, so the importance of every ingredient for function and purpose is critical.”
Transparency is also important from a labeling perspective, she said. “Being very clear about exactly what is in the food, using common words to describe food ingredients, is known as ‘clear labeling,’ or labeling transparency. Additionally, this includes labeling GM ingredients when they are in foods. Essentially, consumers are looking for more information about what is put into their food, to make more informed decisions about their food choices.”
In terms of ingredients, protein is definitely trending, she added. “Many of the new products being developed contain one or more of the ‘in demand’ proteins—from pea protein, hemp, lentil, fava bean protein, to the tried and true dairy proteins like whey protein isolate, whey protein concentrate or casein. One shift seen more recently from our customers is to have sources of dairy from grass-fed cows and organic farms. The same could be said for the vegetable proteins; the requests are more commonplace to have organic sources versus traditional sources of supply.”
Ms. Unlu also noted demand for fruits/vegetables, greens, probiotics, antioxidant sources, digestive enzymes and sugar reduction.
Ultimately, Mr. Altenberg said customers continue to research and develop formulas for “lifestyle solutions.”
The Evolution Continues
In the future, Mr. Potocnjak predicted contract manufacturers will become more transparent, allowing for a better flow of information. “As the industry matures, the market is becoming increasingly saturated with existing formulations, private labeled products, and development of new formulas. The introduction of new dietary ingredients will be an exciting challenge for contract manufacturing—from a manufacturing and a regulatory stance.”
Additionally, Mr. Potocnjak noted a common misunderstanding about the different services provided by contract manufacturers versus private label manufacturers.
“I hope in the future we will see more clear separation of those two different services, and better understanding of their difference. While private label services offer excellent products, at lower cost, without the need to develop new formulations, it is a very different operation than contract manufacturing. I like to look at contract manufacturers as research facilities with a large assembly line under the same roof.”
Ms. Cusick said she believes CMOs need to continue to focus on regulatory compliance. Those that do not will eventually meet their own demise. “Brand owners who grew manufacturing as their brands grew, but their area of focus was sales and marketing, are now outsourcing their manufacturing. Rather than invest in their facilities, both structural and process/compliance needs, they are evaluating and outsourcing products.”
Form a third-party perspective, she added, “we find that some (large) brand owners are not as ‘tight’ with regulatory compliance as we are, as we have a focus strictly on manufacturing. Another observation is regarding brand sales. As brands are sold to venture capital firms or virtual companies, the manufacturing is moving from the brand owner facility to a contract manufacturer. We also notice foreign companies that acquire brands manufactured and sold in the U.S. are looking for U.S. CMOs to continue the manufacturing.” Additionally, international brands looking to expand into the U.S. market are partnering with U.S.-based manufacturers.
Contract manufacturing has always been an important vehicle for the industry, according to Mr. Altenberg. “The entrepreneurial nature of the industry has often emerged from those with a product idea and marketing message. Outsourcing their production has and will continue to be of importance to minimize capital outlays and allow professionals to ensure quality.”
