Contract manufacturers compete in crowded field on quality, price, dosage form familiarity

Robinson Pharma, based in Santa Ana, CA, offers a complete range of dosage form capabilities and currently churns out more soft gel finished products than any other US-based contract manufacturer. The company has a vast cadre of private label clients. That scale allows the company to buy in bulk and achieve raw material discounts, meaning it can offer highly competitive pricing, said marketing executive Tyler Vissers.

“At one time or another we have dealt with just about every big box brand.  We can extend a discounted price to all of our customers,” ​Vissers told NutraIngredients-USA.

But it’s not just about price, Vissers said. Robinson prides itself on its extensive laboratory facilities and on its multiple certifications. 

“In this day and age with all of the regulatory requirements, we try to stay ahead of the curve. Our lab was definitely not an afterthought. We even have major analytical labs, like Covance or Eurofins, come to consult with us to look at our testing procedures,”​ he said.

Product development assistance​

Another full service company that concentrates exclusively on contract manufacturing is Capstone Nutrition, based in Ogden, UT. Growth in the dietary supplement industry has left Capstone scrambling to keep up with demand, said CEO Jared Leishman. The company recently completed a successful recapitalization and capacity expansion.

“We have some of the most cutting-edge equipment in the industry, housed in a state-of-the-art 300,000 square foot manufacturing plant, which recently received a significant capital investment to further expand our powder and organic product manufacturing capabilities,” ​he said.

Leishman said one of the company’s differentiators is its ability to help customers will the full range of product development decisions.

“Another strong competency for Capstone is our ability to develop innovative solutions for our customers. Our research and development team is a leader in formulation and flavoring, and skilled at developing creative product solutions and finding unique packaging designs for our customers,” ​he said.

Some contract manufacturers leverage their expertise in providing dosage form solutions into providing finished goods using those solutions.  Prime among these companies is Capsugel, known for its prowess as a capsule supplier, but which prefers a more broad-based description as, "a leading dosage form solutions provider that designs, develops and manufactures health and nutrition products." ​The lion’s share of Capsugel’s business is delivering these dosage forms to customers for subsequent manufacturing, but the company also produces finished goods featuring its Licaps liquid filled hard capsules. Like some other contract manufacturers, Capsugel touts how its experience with pharmaceutical requirements helps it raise the quality bar for supplements.

“Our science and engineering approach to problem solving in both the pharmaceutical and health & nutrition space differentiates us from the traditional CRO, CMO or CDMO business model. It is driven by collaborative problem solving with our customers,” ​said Glenn A. Guadi, Capsugel’s senior global product manager for dosage form solutions.

Gaudi said Capsugel offers a wide range of technological solutions beyond just what kind of container to use. 

“We work with our customers to ensure our products and services meet their needs – whether they require technology solutions or functional capsules to help make an ingredient more bioavailable to the body or taste better or improve the stability of moisture-sensitive ingredients like probiotics. In doing so, we are ‘technology agnostic’ – meaning that we choose the best solution without preference to pursing a specific technology or finished dosage form,”​ he said.

Another company proud of its pharmaceutical expertise is Gemini Pharmaceuticals, based in Commack, NY.  The term ‘drug’ might be four-letter word to some backers of dietary supplements, but a company has to have rigid quality procedures in place in order to successfully manufacture them.

“Our background is as a drug company and we’ve taken that expertise and brought it over to the supplement space. Our drug development background has given us a huge leg up on the competition in terms of quality,” ​Mike Finamore, CEO of Gemini said. 

“In terms of these quality requirements the dietary supplement industry is still to a large degree in its adolescence,” ​he said.

Direct selling niche​

Another point of differentiation of differentiation is familiarity with certain market niches. San Marcos, CA-based Natural Alternatives International has used its high profile in the direct selling industry as a way to build a thriving business.  NAI’s two biggest contract manufacturing customers, Juice Plus and Mannatech, are direct selling outfits, and together account for almost 60% of the company’s CM business (NAI also generates significant revenue from its beta-alanine patents). Being involved with the direct selling industry can quickly make a company a global business, as direct selling companies are prone to frenetically seek new markets overseas, perhaps more so than standard dietary supplement clients.

“We predominantly do solid dose, capsules, powder blending and proteins. We probably produce a couple of billion solid dosage forms a year and a million to a million and a half kilos of powder servings that are sold all over the world,”​ said Mark LeDoux, NAI’s CEO.

Having that global exposure lets NAI and its customers play the ‘made in USA’ card, which is becoming increasingly important internationally. NAI also operates a plant in Lugano, Switzerland, a country which has its own high-quality halo.

“We are occupying an interesting niche. We are seeing huge growth in Europe where they are selling products under the calling card that they are made in Switzerland. And in Asia, they don’t trust the stuff that is made in their own countries, in some cases maybe with good reason,” ​he said.

Unwarranted complication?​

One way some companies get into the contract manufacturing arena is as a side effect of vertical integration, by trying to find a way to more fully utilize their existing manufacturing capacity.  This can be seductive, and a number of companies have ventured down that road.  One prominent player in the industry, GNC, has recently pulled back from its commitment to contract manufacturing in an effort to double down on its core retail and franchise business, served by its vertically integrated manufacturing capability. This was widely viewed in the industry as an attempt to eliminate distractions as GNC deals with its current issue of flat to declining revenues caused in part by a recent inventory bulge that led to deep discounts on the shelf.

LeDoux said he understood GNC’s move to streamline its operation, and said that while keeping the tablet presses running on third shift putting out contract goods seems like a no-brainer way to generate extra revenue, it does come with some hidden costs. 

“One of those is an opportunity cost. Let’s say an ingredient like, for example, ChromaDex’s Niagen suddenly gets hot and everybody wants to buy a supplement containing it. If you have excess capacity, you can pounce on that opportunity and sell something that might have a 15% or 20% margin, instead of being locked into putting out that calcium tablet with a 5% margin,”​ he said.

Successful side business​

Nevertheless, a number of companies have successfully integrated contract manufacturing into their overall vertically integrated model. One of these is NOW Foods, based in Bloomingdale, IL, which began decades ago as one of the original manufacturers of soy-based foods and has grown to offer hundreds of dietary supplement SKUs in the natural channel. NOW CEO Jim Emme said his company’s hard-won reputation for quality and value makes its contract manufacturing offering a pretty easy sell.

“​The NOW brand is our main focus, but for our contract manufacturing customers we bring the same strengths the NOW brand is known for: strict ingredient sourcing policies, the most stringent in-house testing in the industry, and multiple certifications independently attesting to our meticulous GMP compliance,”​ he said.

“NOW’s ability to efficiently produce quality products is known throughout the industry, as is our experience in running a business that rejects unnecessary extravagance which only adds to the cost. Additionally, our in-house labs are second to none, so there won’t be any surprises that are the main concern for marketers that don't control their own manufacturing,” ​Emme added.