Contract Manufacturers Aim to Raise Quality Bar, Partnerfor Innovation

January 5, 2004

16 Min Read
Contract Manufacturers Aim to Raise Quality Bar, Partnerfor Innovation

Contract Manufacturers Aim to Raise Quality Bar, Partnerfor Innovation

The dietary supplement industry is facing a host of changes inthe new year, many in the form of new regulations from the federal governmentoverseeing manufacturing operations. Coupled with a desire to increase quality for consumers whiledelivering innovative products in new delivery forms, this is driving majorchange in the contract manufacturing portion of the industry. INSIDERconducted a question and answer session with a range of companies working inthe segment to determine how they are addressing the changes in the industry andwhere supplement manufacturing is headed.

What are the most common reasons your customers choose to work with acontract manufacturer?

John Blanco, sales/marketing director, AnMar InternationalLtd.:

First is lack of capacity in their facility. Theyre oftenunable to do the type of work necessary, because they do not have the right typeof equipment. Others are looking for speed of turn around or simply require theexpertise of a contract manufacturer.

Robin Koon, vice president sales/marketing, Best Formulations:

Usually for one of two reasons. First, the customer does notmanufacture any products at all (i.e. marketing company), and therefore needs amanufacturer. And second, because we offer a specialty service (e.g., softgels,teabags, etc.) that an existing manufacturer does not have. Other reasons mayalso include our having an experienced research and development (R&D)department and full lab services on premises.

Jay Kaufman, president, Paragon Laboratories:First, they want expertise and the ability to convert suggested ingredients intoa dosage form. Also, contract manufacturers should look to consult withcustomers to offer suggestions as to what could be added to the dosage form inorder to enhance its potential value to consumers. Its a tremendous economicinvestment to manufacture tablets, capsules or powders. It doesnt make sensefor firms that are doing less than $100 million in post-sale product cost tobring that in house.

Eric Barber, national sales manager, Valentine Enterprises:The primary reason is cost. The costs associated with building, maintaining andsupporting a manufacturing facility are too expensive for our customers, and wecan offer a much more cost-effective alternative in producing their products.Another important reason is our expertise in the powder industry. Our customersknow they will benefit from our more than 32 years experience in productdevelopment, blending, packaging and agglomeration.

Greg Williford, vice president client services, VitaTechInternational: First thing, it cuts out a distributoror middle man. Basically, theyre looking for expertise in manufacturingand formulation, and in nutrient selection. Theyre looking for expertise inquality control (QC) and the reality is that manufacturing is very expensive,particularly in light of the new GMPs (good manufacturing practices) and an evermore stringent regulatory environment. It is becoming very expensive to domanufacturingtablet machines are $300,000, coating machines are $200,000.Instead, these clients can tap into our expertise and dont have to make thecapital investment.

What are the primary issues involved in working with a contract manufacturer?

Greg St. Clair, vice president sales/marketing, and EdwardFredericks, production/formulation, Arizona Nutritional Supplements: The biggest issue in our industry is trust. Our customers workhard to create quality products and provide them to the consumer. They need tohave faith in the manufacturing of their products to ensure continued success.We encourage our customers to visit where their products are made and learnabout the process so they can grow to expect more from their manufacturers.

Koon: The first issue is trustdevelopinga great working and responsive relationship. Second, confidentialityknowingthat your competitors will not know where your products are manufactured, andthat your formulas remain yours. Next, quality. Receiving a well-made productthat is also consistent. And finally, lead times, because you want to have shortlead times and receive products on time as scheduled.

John Huber, marketing director, Soft Gel TechnologiesInc./OptiPure: Many companies approach us early in theproduct launch cycle. In fact, most companies before introducing the productcome to us to finalize the soft gel formulation. We can take the client fromconcept to fully realized product better than most manufacturers. We wontlead any clients down the wrong path. Communication at every step of the way;being clear on goals and expectations is critical. The R&D team should beprepared to work closely with customers to create new formulations or help toexpand existing product lines.

Donald J. Cox, Ph.D., business development manager for foodand ingredients, SiberHegner North America: Contractmanufacturers need to have a strong commitment to customer service, GMPproduction methods and food safety issues. The customer must be convinced thecontract manufacturer will produce the final product to the same specificationsas the customers own production processes.

What are the primary misconceptions you encounter regarding the capabilitiesof contract manufacturers?

Koon: Our industry has a range ofquality in contract manufacturers. The quality offered by some is excellent and others not somuch. As such, some people do think that we (as a group) generally have poorquality, a lack of capacity, and a lack of expertise. None of these points aretrue for us. It is unfortunate that some competitors tend to badmouth eachother. Sometimes their utterances may be true and many times not, but it is alldone in an effort to gain business. It is unprofessional conduct and does nothelp improve our image.

Huber: In our business ofmanufacturing soft gels, the most common misconception we come up against isthat anything can be encapsulated into a soft gelatin capsule. The fact of thematter is that some things are just not doable in a soft gel format. Our job asa manufacturer is to do research and advise our clients on whether a soft gel isthe right delivery method for their product. Another common misconception isthat because a product may look the same and come from the same facility that itis in fact an equal product. The truth is that the added value of manufacturingsomething special with novel ingredients and/or delivery systems can overcomeshortcomings that a client may not see in a commodity product.

Jerry Raymond, vice president sales/marketing, P.A.L. Laboratories: Their biggest concernis whether we assure their confidentiality, including formulation, marketing andsales and also technical issues. Clients also underestimate our industryknowledge, our clinical and technical abilities, and our manufacturingcapabilities Barber: We live in an age of specializationmany customersthink that because you are known as a quality producer of powders that youautomatically can make bars or tablets/capsules. Few contract manufacturers areequipped to do all of these well.

Williford: The first misconceptionthat comes to mind is that were able to make a very small amount of product.Small is relative, but it is amazing how some people dont know requesting 40cases of a specialty formulation is not viable business. Second, its the timeinvolved. As a custom manufacturer, I dont know the marketing portion oftheir business. Similarly, they dont know what is involved in doing amanufacturing job correctlytaking the time for QC, inprocess inspections,micros on the incoming materials. Some customers really believe you can justcrank from scratch a custom formula in two or three weeks. But if you followGMPs and do it by the book, you just cant do that.

How have you addressed the upcoming federal GMPs and the bioterrorismregulations?

St. Clair and Fredericks: ANS hasbeen very active with regard to the regulatory issues in the industry. For theproposed GMPs, we attended meetings across the country with the Food and DrugAdministration (FDA) and numerous trade groups to discuss our concerns and howthey would impact our industry. We were a part of the group that worked togetherto shape the National Nutritional Foods Associations (NNFA) comments to theproposal and sent our own comments to FDA, as well. With respect to theBioterrorism Act, we registered as soon as it was possible and worked to ensureall of our vendors took the proper steps as well. It will have a great impact onall imports in this country, but we are working hard with our vendors in orderto minimize the effects on our customers.

JoAnn Peterson, director of quality assurance, National EnzymeCo.: To date, we have not changed any of ourlaboratory or manufacturing procedures as a result of the most recentlypublished GMPs. We are, however, continually working to develop and/or validatelaboratory tests and procedures in anticipation of increased testing demands.The areas of emphasis will be determined once the GMPs are published in theirfinal form. We have completed FDA registration as mandated by the BioterrorismAct. We do not import ingredients directly, but have worked closely with all ourraw material suppliers to communicate the new regulations and procedures. Asmost contract manufacturers are currently doing, we are asking for some type ofverification of compliance, either planned or implemented.

Huber: The biggest hurdle we haverun into in light of the increased homeland security measures is sometimesclearing raw materials through customs. Many times, what used to take days now sometimes will take weeks, and that increases the challenge todeliver finished goods in a timely manner. We are one of the first companies toapply to become a participant in the C-TPAT (Customs Trade Partnership AgainstTerrorism). Through C-TPAT, customs is establishing close cooperation with thetrade community to heighten security efforts of the global supply chain,specifically commercial shipments imported into the United States againstterrorist infiltration.

As for the GMP regulations, we are GMP certified and have beensince our plant opened in 1995. I think the impending FDA GMPs have betterleveled the playing field as well as raising the bar for all participants in ourindustry by establishing minimums that all companies will be required to operateby. Likewise, it will challenge us to stay one step ahead of thecompetition because we already abide by the pending FDA GMPs and look forward toimproving our quality systems and processes even further.

Kaufman: We have already registeredunder the bioterrorism regulations, and with regard to federal GMPs, we areproactively moving ahead with our systems and our internal QC and qualityassurance (QA) systems to take on whatever the federal government may require ofthe industry. We are GMP certified by the NNFA, which is a great foundation. Iserved on the NNFA GMP committee, which went through the proposed rule and spentseveral hours a week in discussion. Were all for better quality regulation inthe industry.

Williford: As far as thebioterrorism requirements, were already registered and have our registrationnumber. There are a lot of tangential issues associated that were alsodealing with. Weve looked over the cGMPs and identified areas where we feelwe need to improve and weve started doing that. My feeling is if companieswere not already manufacturing to almost pharmaceutical levels, theyll have avery difficult time in complying. Were almost there, so were going to meetthe additional requirements and be in line. Its very strict and tough, and alot of manufacturers wont be able to do it. Were going point by point downthe cGMPs seeing where we comply and where we might need to make adjustments. Wevealso hired consultants to ensure we dont overlook anything.

What certifications do you hold and how have they helped you position yourcompany with current and potential clients?

Blanco: Currently, we are certifiedkosher, FCC/USP and GMP compliant. These are all essential for dealing withcustomer requirements and requests. Some of these are what you need to havebefore you are able to do work for the customer.

Isaac Gilinski, president, Osmopharm USA LLC:We are FDAregistered and -approved, certified to produce kosher products, anduse USP methodologies for testing products. We are pharmaceutical contractmanufacturers for Wyeth, formerly known as American Home Products. Wyeth (with$15 billion in sales) is one of the largest manufacturers and distributors ofpharmaceuticals and consumer health care products in the world. They own brandssuch as Advil and Centrum.

Raymond: We hold koshercertification and are an FDA-approved packaging facility. We are also building anew facility that will be FDAcompliant up to and including manufacturing ofover-the-counter (OTC) drug products.

Barber: We are NNFA GMP certified,hold a Certificate of Good Standing from the state health department, and are inthe process of receiving certification from the American Institute of Baking(AIB) in the first quarter of 2004. We also have kosher (OU) certification forspecific products produced at VEI on a product-by-product basis. VEI also has a strict HACCP (hazard analysis critical controlpoints) program in place. These certifications and programs are seen by top-tierclients as desirable to have in place and are familiar to their QC/QA personnel.

How closely do you work with customers to develop new products and determinethe best delivery form for their products?

Koon: We work constantly and closelywith our customers. Because we manufacture such a diverse range of products(softgels, tablets, capsules, powders, teabags and some liquids), we see a largevariety of materials and formulations. We are often one of the first to see newdelivery systems or unique raw materials. Whenever possible, we share thisinformation with our customers. We are often asked to help R&D or offer newconcepts on our customers products or ideas.

John Davidson, product development manager, National EnzymeCo.: Form follows function! Its a concept that canbe applied when selecting the best delivery form for a particular product.Knowing the products intended use and market positioning can help guide theselection process. Tablets, capsules, powders and liquid formseach hasinherent advantages and disadvantages. The materials must be compatible with the processingconditions and equipment required to produce a particular dosage form. Regulatory constraints can be a determining factor, especiallyinternationally. Sometimes the choice is obvious, but then sometimes the obviousis not the best choice. To innovate or not to innovate, that is the question!

Gilinski: We work very closely withour customers, and are continuously innovating and creating new products. It isimportant to realize the best delivery form is one that lasts the longest, isthe most effective and has the least side effects, which is what we deliver withour time-release products in pellets.

Raymond: We work closely with theclient to review market needs and patient categories based on data from varioussources and then a determination is made as to dose, delivery system, flavoring,size, etc. We work through Confidentiality Agreements to allow freeexchange of vital information and ideas to develop the optimum product andmaximize sales for our clients.

Williford: We work very closely.Other manufacturers may have their own line in addition to doing custommanufacturing for other people, so they can fall back on those lines. We do not.We strictly do custom manufacturing for our clients, so obviously we have tolisten very carefully to what they want and what they say. Were veryflexible. We sit down one on one, they tell us what they want, we givesome options and talk ideas and review pricing. We do not do every form ofpackaging or marketing, so if we dont do it in-house, well put them intouch with someone who can do that.

What are the hottest market trends in dietary supplements?

St. Clair and Fredericks: Trends arenot as common in our industry as they were several years ago where a popularproduct or ingredient such as MSM would be the buzz. Today were seeing moresubstantiation, support and studies being done to preserve and keep a materialor product verified. As more studies are done on specific supplements, we findmore customers looking for manufacturers they can trust to withstand the rigorof scientific review. As a result, we have seen an increase in specialtyformulations influenced by the medical community, which has grown more receptiveto nutritional supplementation. Those customers appreciate the QC processes andstandards we implement, and inspire us to continually review our methods so thatwe can provide new and efficient solutions for their manufacturing needs.

Nena Dockery, director of technical services, National EnzymeCo.: In many ways, the market trends in dietarysupplements reflect the current research and actions within the pharmaceuticaland overthe- counter (OTC) markets. For example, there is continued interest andgrowth in menopausal support products in reaction to the negative researchsurrounding hormone replacement therapy. Likewise, there continues to be strongsupport for effective weight management products, especially those products thatdo not contain ephedra. With recent research indicating that the number of individualsbeing diagnosed with Type II diabetes is increasing dramatically, the demand forexercise programs, diets and supplements to aid in weight management willcontinue. Also, as the number of older individuals increases, there willcontinue to be a strong demand for products that help to maintain a healthylifestyle well past middle age. Included in this area are antioxidant formulas,anti-inflammatories, products that support eye health and brain health, andcardiovascular support products. Finally, because of our stressful lifestyles,the number of individuals experiencing gastrointestinal problems isskyrocketing. The competition within the pharmaceutical industry for safeand effective products is tremendous, and the demand for supplements that aid indigestion and provide an alternative to these drugs will continue to grow.

Kaufman: The glucosamine/chondroitinmarket is still very active and represents a significant portion of our industryas a whole. More people are interested in essential fatty acid (EFA)formulations. There is more research being performed on botanicals and theherbal segment of our industry is a hot, growing segment. Green foods is anothervery hot segment. It is a significant portion of what were doing here.

Barber: The high-protein, low-carbtrend is certainly influencing supplements in traditional and powdered forms.These can be found in meal replacement drinks and in mixes targeting the fitnessindustry.

What are some of the specific challenges in manufacturing with natural andwhole food ingredients?

St. Clair and Fredericks: Due to thenatural aspect of many of these products, variation can be expected. Forinstance, with herbals, crops can be harvested in different locations atdifferent times of the year, resulting in minor differences in material. It isimportant to work with a manufacturer that is familiar with these products andhas reliable sources that can provide consistency. Every ingredient received byANS is tested in-house upon receipt so we can ensure the products we manufactureare what they are purported to be. In addition, with nutritional supplements, wesee many more complex formulas with multiple ingredients. It is important towork with a manufacturer that is familiar with the different materials and howthey might react with one another so that product integrity can be preserved. Insome instances, it may be necessary to separate ingredients in a formula andcreate two separate dosage formsin others, additional processing may benecessary in order to create a single product that will meet specifications.

Raymond: There is the issue ofconsistent material supply as well as consistent quality of materials. Anotherissue is how to attain proper dosing in a reasonable dosage form.

Cox: Maintaining product form of awhole food ingredient requires specialized processing equipment and experienceto accomplish proper mixing, pasteurization, and maintain product appearance.This is a primary reason why some customers work with contract manufacturerssuch as DKSH.

Is there increased interest in vegetarian options and, if so, how are youmeeting that need?

Gilinski: We were the second in theworld to manufacture vegetable capsules and the first to manufacturetime-release herbal supplements.

Kaufman: I think that more peopleare looking to have vegetarian or vegetarian-source capsules in terms ofhardshell capsules. Vegetarian is a significant portion of what were doing intwo-piece hardshell work. Sales of vegetable capsules are on the rise andgelatin capsules are declining. There is a premium associated withvegetablesource capsules, depending on the segment of the market one is lookingto address and the distribution channel one has. Some are, some arent. Thereare consumers who are very vegetarian oriented who like to stay away fromanimal-based products and prefer a vegetable-type capsule. Other segments of themarket dont care one way or the other.

Davidson: The interest in vegetarianproduct options continues to increase. National Enzyme Co. has developednon-animal enzyme alternatives to animal derived enzymes. Vegetable capsules areavailable to make a completely vegetarian enzyme product in capsule form.

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