Practitioner channel: Pitfalls and opportunities for supplement brandsPractitioner channel: Pitfalls and opportunities for supplement brands
Current trends and acquisitions in the health care practitioner channel demonstrate common pitfalls and benefits supplement brands face selling through medical professionals.
January 26, 2018
The health care practitioner channel is one of the most dynamic segments of the natural products industry—a sub-market characterized by strong, steady growth, product innovation and, recently, the involvement of major, multinational players.
With a 10-year compound annual growth rate (CAGR) of 8.3 percent, the practitioner channel is outpacing big box and specialty retail, where the CAGR ranges from 4.5 to 6.2%, according to the Nutrition Business Journal (NBJ). Practitioner sales topped US$3.7 billion in 2016, accounting for roughly 9% of all supplement sales. That’s up from 6.6% in 2003.
The growth reflects the public’s strong desire for non-pharmaceutical, nutrition-based medical options and a growing acceptance of supplements by conventionally trained practitioners, as well as an increase in the number of clinicians seeking new revenue streams to make up for declining insurance reimbursement. Holistic Primary Care’s 2017 practitioner survey indicated two-thirds (67%) of respondents are looking for additional ways to increase their income. Of these, 46% are thinking about selling supplements as a revenue option.
The $3.7 billion sales figure also indicates a small but significant segment of the consumer population is willing to pay premium prices for nutraceuticals perceived to be safer, of higher quality, and possibly more effective than brands obtained in direct-to-consumer (DTC) retail.
Despite the turbulence in health care, the erosion of doctor-patient relationships and the preeminence of “Dr. Google,” many people still value a clinician’s one-on-one recommendations, and view their practitioners as trusted health authorities. According to the SORD (Supplements, OTC, Rx Database) study, 64% of supplement consumers say physician recommendations are a major influence on their purchase decisions.
So, how large is the base of the practitioner channel?
It’s a simple question that’s not so easy to answer. In part, this is because the term “practitioner” can encompass a wide spectrum of health care disciplines. The number will vary depending on whether one includes health coaches, nutrition counselors, nurses, physician assistants, massage therapists, oriental medicine practitioners or others, along with M.D.s, naturopaths and chiropractors. However, the best current estimates suggest between 175,000 and 250,000 health care professionals are actively selling supplements (not including nurses or pharmacists).
In Holistic Primary Care’s survey, 63% of the 661 responding clinicians are currently dispensing supplements. Among the conventionally trained M.D.s and D.O.s (40% of the cohort), the number was somewhat lower at 53%, but still an encouraging proportion. Most (80%) of the respondents are discussing supplements with patients at least daily, and 94% of non-dispensing clinicians still recommend some supplements to their patients.
Compared with major DTC retail brands, companies serving the practitioner channel are still fairly small. NBJ estimated only three players generate more than $100 million annually, and 16 companies are in the range of $20 million to $100 million. There are 51 brands in the $5 million to $20 million range, and close to 300 small brands, many of which are practitioner private-label brands, doing less than $5 million.
The major players in the segment—companies like Pure Encapsulations, Metagenics, Designs for Health, Thorne Research, Integrative Therapeutics, Ortho Molecular Products, Standard Process and others— have long legacies and deep histories within various practitioner sub-sets.
The practitioner space is still something of a “boutique” industry—relatively small companies with high-quality products at premium prices, serving a clientele of solo or small group practices. Several of these companies have ventured into medical food products, those by FDA authority designed for the nutritional management of certain disease states. But, by and large, professional-only nutraceuticals have not penetrated the major hospital systems or large clinic networks.
This may be changing. The establishment of a high-profile functional medicine center at the Cleveland Clinic two years ago bodes well for the field. Practitioners at this center—which hit maximum patient volume immediately after opening, and is undergoing a major expansion—freely use many practitioner-only supplement brands as basic clinical tools.
Though the functional medicine center is merely one small star in the massive Cleveland Clinic galaxy, it represents a major step forward for the mainstreaming of supplements into conventional care settings.
Nestlè’s recent acquisition of Atrium Innovations—the Canadian company that holds several top practitioner brands (Pure Encapsulations, Seroyal, Douglas Labs and Sedona Labs) as well as the Garden of Life retail brand—is another sign of growth. The $2.3 billion deal puts Atrium’s brands into a global distribution network, with deep reach throughout both retail and institutional (e.g., hospitals and nursing homes) health care.
Some practitioners who currently dispense Atrium’s practitioner-only brands have voiced discontent that these products will now be owned by a multi-national “candy company” with a poor track record on environmental issues. The backlash is not surprising. Yet, hopefully Nestlè will have learned from past mistakes made by major pharma companies embarking on such ventures. Case in point, the early acquisition of Solgar Vitamin & Herb by Wyeth Pharmaceuticals (American Home Products) became a disaster when the pharma infrastructure and perceived arrogant culture was imposed on Solgar. Planned growth was stalled, and many of its existing health food retail customers were lost. Less than 10 years after paying over $425 million for Solgar, Wyeth sold the company to NBTY for $115 million.
Nestlè Health Science, however, already has a strong portfolio of specialty nutrition products, and will likely be able to bring Atrium’s practitioner-grade nutraceuticals into mainstream health care channels inaccessible to smaller brands. Additionally, Nestlè pledged that Atrium will be an independent business unit and will continue to operate as it did prior to the acquisition, with no changes to its strong executive team, brands or management style. Time will tell.
Though Atrium will be operating independently, we expect to see its practitioner channel brands launching new medical foods. It will not be the first company in this channel to do so. Though slowed by FDA in 2015, Metagenics has been proactive in medical foods for several years, and is expanding its portfolio. Also, Integrative Therapeutics recently launched a medical food into the practitioner channel with an elemental formulation like Nestlè’s Vital®.
Other supplement companies are beginning to market therapeutic nutritionals in the traditionally pharma-dominated health care institutions. Orgain is beginning to find success marketing its nutritional beverages through allopathic physicians and dietitians, as well as gaining some distribution in health care institutions. The lines between big pharma and high-quality supplement companies continue to blur.
The Nestlè-Atrium deal is not the only big play happening in the practitioner space. Right about the same time, Mitsui—one of Japan’s biggest keiretsu (grouping of enterprises), and one of the world’s largest corporations—announced a strategic investment in Thorne Research, another key player in the U.S. professional channel.
The objective is to expand Thorne’s nutraceutical and functional diagnostic testing business in the United States while simultaneously growing the brand into Japan’s burgeoning wellness industry. Thorne already has a large network of practitioner-customers in the United States, as well as an ongoing exclusive research collaboration with the Mayo Clinic.
What does the future hold for the practitioner channel?
This market segment will remain viable and highly dynamic for years to come. The channel’s many strengths and opportunities include:
Premium price points.
Steady increase in the number of physicians, nurses and other professionals who are interested in supplements and other non-pharma alternatives.
Greater opportunity to leverage science by addressing an educated customer base (practitioners) that understands scientific language.
Higher bar for entry, with relatively fewer competitors compared with DTC retail.
Reputation for quality, safety and efficacy, along with the inherent credibility that comes with a practitioner recommendation.
Expanding opportunities for medical foods and highly targeted therapeutic nutritionals.
Some regulatory leeway by FDA and other regulators allowing health practitioners to make broader claims for supplements.
The influence of a “learned intermediary,” which confers somewhat greater latitude in claims/marketing language, and freedom to leverage clinical data.
The “learned intermediary” concept bears some explaining.
Officially, restrictions on disease claims outlined in the Dietary Supplement Health and Education Act (DSHEA) of 1994 apply equally to practitioner-only and DTC retail brands. Some prescription vitamins (e.g., prenatal), though, have no legal definition of “professional-grade supplements” or anything of the sort. From a strictly legal perspective, a practitioner-only supplement sold in a doctor’s office is no different from a no-name discount product in a convenience store.
In practice, however, regulators recognize the guidance of a “learned intermediary,” such as a physician, nurse or other health professional, can mitigate potential risks associated with indiscriminate supplement use. Such guidance will depend, in part, on a clinician’s understanding of the products. This, in turn, requires clear, non-ambiguous communication.
While the “learned intermediary” principle does not give practitioner channel companies a green light for making disease claims, attorney Todd Harrison and others in the field believe it does give more latitude in the use of clinical data to explain clearly what specific ingredients or formulas can do.
Harrison, a partner with Venable LLC, said federal and state officials generally choose to leave the practitioner channel alone. To date, there have not been any major legal challenges to practitioner dispensing. This is, in part, because regulators are reluctant to interfere with doctor-patient relationships, but also because practitioner-focused companies are small, and much bigger fish to fry are on the retail side of the supplement industry. However, this does not mean the practitioner channel is an indefinite regulatory safe haven. Just because regulators haven’t made moves against professional brands does not mean they never will.
Though it is ripe with opportunities, the channel also has significant vulnerabilities, including:
Institutional inertia and obstructions in mainstream clinical: health practitioner channel surveys consistently show many practitioners who want to dispense supplements are blocked from doing so by their administrators.
The “Amazon Effect” of illicit, online resale of practitioner brands, which erodes the practitioner-only value proposition.
Difficulty justifying premium prices in a marketplace glutted with discounts.
The inconvenience factor, where several surveys show repeat purchase rates are low because many patients dislike the inconvenience of returning to their doctors to obtain supplements. Online dispensaries have mitigated this issue, but only somewhat.
High price points, which may limit growth. Many middle- and low-income people cannot afford out-of-pocket office visits to functional medicine doctors, let alone the high-priced supplements.
The quality challenge, where the perception of quality is not the same as actual quality, and increasingly, practitioner-only brands will be called upon to prove their quality claims and justify their high prices.
Greg Stephens ([email protected]) is president of Windrose Partners LLC, a strategic consulting firm specializing in medical foods, clinical nutrition, dietary supplements and functional foods. He has more than 25 years of experience in nutritional health and wellness. Prior to founding Windrose Partners, Stephens held a progressive series of senior management positions at Abbott Nutrition (Abbott Laboratories), Natural Marketing Institute (NMI) and Nurture Inc. He has published over 100 articles and is a frequent lecturer at U.S. and international forums.
Erik L. Goldman ([email protected]) is editor/co-founder of Holistic Primary Care-News for Health & Healing, a medical publication serving 60,000 clinicians with news about non-pharma alternatives for preventing and treating common chronic conditions. He is also co-producer of “Heal Thy Practice: Transforming Patient Care” conference series; and The Practitioner Channel Forum, an annual executive retreat focused on the opportunities and challenges in the practitioner segment of the natural products industry.
For a deep dive into the unique opportunities and challenges in this distinct market segment, attend Holistic Primary Care's Sixth Annual Practitioner Channel Forum (TPCForum.com), which will be held on May 30 and 31, at the Hyde Resort, Hollywood, Florida. The meeting, scheduled immediately prior to the Institute for Functional Medicine's annual international conference, is the nation's only executive gathering focused exclusively on the practitioner channel of the natural products industry.
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