LeDoux: ‘Failure to Prepare for GMPs Could Lead to Very Unfortunate Outcomes’

Q&A with NAI chairman and CEO

If you’ve been around the supplement industry, you likely know Mark LeDoux, founder, CEO and chairman of Natural Alternatives International Inc. (NAI). The company is a leader in the design, development and manufacture of dietary supplements and operates facilities in Southern California and Lugano, Switzerland. A strong proponent of the new good manufacturing practices (GMPs) for supplements, LeDoux was elected by his peers to serve as chairman of the Council for Responsible Nutrition (CRN) for the next two years. Nutrition Business Journal interviewed LeDoux in late 2008.

 

NBJ: How do you foresee the down economy impacting the supplement industry in 2009, and how should companies respond?

Mark LeDoux: I believe that managers have to come to grips with four real-time events. The fi rst is that access to credit is constricted at best and almost impossible for many industry participants to obtain. This could trigger a series of potential negative outcomes, and consolidation is clearly one real possibility. Excessive leverage is a recipe for failure, so companies need to keep clean balance sheets if they can. Second, the consumer is being forced to make very significant value decisions in the face of deflation on a variety of fronts. People are feeling poorer and, in many cases, are justified in feeling so due to declining asset prices throughout the economy. So, if we want to continue to see consumer acceptance of our supplements, we have to provide them with well-made products that meet or exceed their expectations at reasonable prices. Third, purchasing managers need to understand that the days of inflation may be behind us for some time and be able to respond to deflationary pressures in the supply chain—or exploit them intelligently when presented. Finally, along with the economy, the implementation of GMPs in the dietary supplement space is going to have profound impacts on industry participants— all the way through the supply chain. Failure to adequately prepare for these audits may lead to very unfortunate outcomes. Those companies that have the capabilities to prepare for and execute in compliance of these rules should see their enterprises prosper.

 

NBJ: Is NAI feeling any effects of the economy now in late 2008?

ML: Certainly. One of the great ‘unpredictables’ has come to pass in the surge in valuation of the U.S. dollar and the surge in the value of the Japanese yen—simultaneously. This was unimaginable even a year ago, and it is having currency translation effects on foreign earnings.

 

NBJ: How are you responding to these economic changes?

ML: We have to protect the balance sheet and reduce non-essential spending where appropriate. This does not mean, however, that we will reduce our efforts to continue expanding current and new client relationships.

 

NBJ: Given the current economic situation, how can industry leaders continue growing the industry and secure its long-term prospects?

ML: We need to address the concerns of the consumer in enhancing self care. With people losing jobs and healthcare coverage, we need to be proactive in declaring and demonstrating the virtues of supporting self care through ingesting responsibly made dietary supplements. As data becomes available showing the benefits to society at large from supplements for target populations, we need to get that message out not only to the public, but to the media and the regulatory community as well. One story we should be telling is how daily supplementation of specific nutrients can reduce hip fractures in the elderly and thereby significant decrease expenditures in the Medicare system. Enhancing and restoring confidence in the use of dietary supplements is one of our long-term goals. To the extent that we merge that goal with the desire to reduce preventable disease states in at-risk populations through dietary supplements, I believe we have a sound recipe for securing long-term success for the industry.

 

NBJ: What’s going to be necessary moving forward that maybe wasn’t required just a few years ago?

ML: A dedication to actual adherence to the new regulatory framework associated with GMPs is key to the long-term viability of the U.S. supplement industry. A renewed effort at self regulation— such as is reflected in CRN’s work with the National Advertising Division (NAD) of the Council of Better Business Bureaus to encourage the industry to crack down on blatantly false supplement advertising claims—is also crucial. Willingness to have frank discussions with the research community is important, as well.

 

NBJ: How would you characterize the current state of scientific research coming out of the supplement industry?

ML: At a recent industry conference, Dr. Josephine Briggs, director of the National Center for Complementary& Alternative Medicine (NCCAM), indicated that she believed the methodology for evaluating natural products needs to be revisited. The gold-standard drug model, in her mind, is fl awed, and she encouraged alternative approaches to future inquiries. On that issue, I believe the historical gold-standard investigational technique of a double-blind, placebo-controlled, crossover study is of limited value in the dietary supplement industry. That said, we need to collaboratively find ways to validate efficacy and eradicate chicanery. Many participants in the industry have cut back on investigations for a variety of reasons, chief among these is probably associated with a cost-benefit analysis and the potential lack of recovery of research costs with associated product sales and the lack of exclusivity afforded under current business models. In our early years, we spent considerable sums on human studies to verify value for our clients and ourselves, but of late we have focused more of our resources on the capital intensive requirements for process validation, ingredient and finished-product testing and GMP compliance both here and abroad. Those expenses are likely to continue for the foreseeable future.

 

NBJ: What’s it like to be one of the few publicly traded firms in the nutrition industry?

ML: It’s getting lonely. The consolidations of the past few years have been amazing. Being public allows interested investors to participate via proxy in the industry. Given the fact that the demographics are very much suited to promote growth in the industry, the current thinking is that being a publicly traded company is probably not such a bad thing, assuming the equity markets return to some semblance of normalcy. Still, the significant costs associated with being a public entity under the Sarbanes-Oxley Act of 2002 are quickly changing the equation in favor of other potential alternatives, such as going private. The benefit of being a public company is the transparency of the business and the evidence of a strong balance sheet in these trying times. Short-term fluctuations in profits or losses, many of which are often caused by currency translations or discontinued operations costs, are a good way to keep score in a baseball game, but our long-term goal remains long-term success. The costs of being a public entity are significant, probably in excess of $1.5 million dollars annually. Hopefully, the current economic environment will return to some element of normalcy, allowing real valuations to shine through in a landscape littered with demolished balance sheets and excessive leverage.

 

NBJ: How do you believe an Obama administration will impact the dietary supplement industry?

ML: President Obama will most likely have his hands full with much more pressing issues than our industry. However, his selection of Tom Daschle to be the secretary of Health and Human Services is a positive development. Senator Daschle is a pragmatist and is very much in favor of sensible regulations favoring consumer protection, while affording input from responsible parties with a demonstrated track record of excellence. We remain hopeful that as evidence materializes showing the significant economic benefits of supplements taken for years versus expensive procedures to rectify past deficiencies, President Obama will see value in requiring Medicare and Medicaid to change their roles from being reactive to more proactive with regard to healthcare. This change alone could conceivably save trillions over several generations.

 

NBJ: What regulatory threats to the supplement industry do you see on the horizon?

ML: The change of leadership in Washington with Congressman Henry Waxman taking the chair for Energy and Commerce is something nobody could have predicted just three months ago. While many in the industry are concerned over this development, I believe that there are many other issues of significant import to the health of the economy [that supersede] any issues regarding dietary supplements. Furthermore, with the passage of the AER [adverse event reporting] legislation and the implementation of GMPs for dietary supplements, the areas of significant concern have been greatly winnowed.

 

NBJ: What is the supplement manufacturer’s role in educating physicians and other health practitioners on the benefits of dietary supplements?

ML: I have often stated that physicians and pharmacists are thought leaders in shaping consumer opinion. The recent study commissioned by CRN’s Life-Supplemented program demonstrated that the majority of physicians and health professionals take supplements. Clearly, they know something about their intrinsic value. We have to provide essential data that is scientifically valid to them in a meaningful and unbiased way to balance the messages coming from our detractors. I think the message should be that supplements are not intended to replace good eating and lifestyle choices, but in this day and age, are essential in making up for real deficiencies in our food ingestion habits. We also need to communicate the role supplements play in combating environmental insults, such as stress and chemical pollutants. Fundamentally, I believe it is the role of responsible industry in a collective manner to provide the tools to educate the physicians and health practitioners of new developments in our world.

 

NBJ: Some say the supplement industry is moving into a mature phase. Do you agree?

ML: The capacity of the industry seems to be adequate, but with the advent of the GMPs this may not remain the case. New companies engaged in developing new products for new markets may find themselves with a smaller number of suppliers given the significant requirements for quality under the new federal regulations. The capital constraints of the credit crisis also are having a bearing on barriers to entry, which may constrict further development. There may be some pricing power returning in the next couple of years, but this is currently being buffered by mitigating disinflationary forces. Supply chains may experience some reconfigurations as well, with expanded opportunities and increased risks.

 

NBJ: You are widely recognized as one of the funniest guys in the industry. What is the funniest thing you heard in 2008?

ML: I heard a lot of funny stuff, for example: ‘The bounce in real estate prices is just around the corner,’ or ‘Oil is going to $200 a barrel so it is time to lock in supply contracts for petroleum based materials’ or ‘My 401(k) is now a 101(k).’ OK, so maybe those aren’t so funny, but they do reflect what we all faced in 2008.

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