It’s not a new strategy. Many times already, 'big pharma' has focused on nutrition. And in almost all cases these forays have turned into disasters.
One of the most notable was Novartis’ disastrous Aviva Life range of functional foods and beverages, which was pulled from the market within three years.
Another was Johnson & Johnson-owned McNeil’s failure in cholesterol-lowering foods. McNeil mistakenly believed that a cholesterol-lowering food - Benecol - backed by multiple clinical studies and carrying an approved health claim could become a mass market success.
McNeil invested around $100 million (€79m) in a US market launch. The launch got sales of $30 million (€24m). McNeil probably never got a return on its investment and the license was sold back to brand owner, Raisio.
Still, pharma companies believe that they have competitive advantages in functional foods. Here are the two common beliefs:
1. Science
This is what we have heard pharma execs say:
“Drug companies have unmatched research capabilities – this matters particularly in Europe, where the European Food Safety Authority (EFSA) requires a standard of proof that is close to that required for drugs. It will matter more in the US also.”
“Drug companies have vastly more and superior experience in, and knowledge of, how to conduct effective clinical trials.”
2. Regulatory know-how
“Pharma companies have significantly greater expertise than food companies in navigating through regulatory regimes.”
However, if these ever were competitive advantages, they are no-longer. Major food companies already have a track record of creating or buying science that enables them to secure health claims.
One example is Mondelez Belvita Breakfast Biscuits – one of the most successful brands of recent years. Supported by over 20 clinical studies, it has secured a health claim approval for a “sustained energy” benefit.
And science is an accessible commodity:
- There are tens, even hundreds, of universities and research organisations offering their services to the food and beverage industry. They undertake clinical studies and help build dossiers of evidence.
- Increasingly companies collaborate with a wide range of third party researchers to conduct research that would in the past have been conducted in-house.
- Research is often a service provided to food and beverage brands by their ingredient suppliers, who deliver not only ingredients but proof of efficacy and validity of claims, final product concepts and formulations and regulatory advice. Such companies range from the large to the small, from Beneo (a major supplier of dietary fibres) to Carbery (a mid-size Irish supplier of dairy proteins).
Competitive disadvantages
In fact, pharma companies have several competitive disadvantages:
- Pharma companies mostly do not own food brands with health credentials that are valid in the mind of the consumer.
- They could buy such brands, but they would need to be run at arms-length if they are not to be smothered by the corporate culture.
- Or they can launch new brands. But this is high risk, the growth curve is very low and the long wait for breakeven and a positive ROI is more than most pharma companies realise.
- Competing food and beverage companies are often world-class at functional foods. One example is New Zealand dairy group Fonterra. Its high-calcium milk brand Anlene is a clinically-proven product that actually works, backed by a sophisticated, focused, consumer communication effort. As a result the brand has retail sales in Asia in excess of $600 million (€478m) and a 50% share of the high-calcium milk market in many countries - despite selling at a 100% price premium.
- Fragmented markets, filled with an ever-greater proliferation of niches and a host of dynamic, start-up brands that are close to the consumer, may be the biggest challenge to lumbering giants such as pharma companies.
It’s often claimed that pharma companies can be a force in functional foods. That’s not going to happen. Their track-record – with one or two exceptions - is largely one of failure. If you want to see the future of functional food, look down at the small entrepreneurial brands, operating under the radar, not up at pharma giants.
Julian Mellentin is a food industry consultant, analyst and editor.