Do we need research incentives for health claims?
How can we motivate companies to back up their label claims with scientific evidence?
Calcium may reduce the risk of osteoporosis.
Meals providing a daily total intake of at least 3.4 g of plant stanol esters, as part of a diet low in saturated fat and cholesterol, may reduce the risk of heart disease. A serving of Benecol spread supplies 1.7 g of stanol esters per serving.
Low-fat diets rich in fruits and vegetables may reduce the risk of some types of cancer, a disease associated with many factors.
Diets low in saturated fat and cholesterol that include 25 g of soy protein a day may reduce the risk of heart disease.
The use of health claims on cereals such as Cheerios increased by more than 10% over the past year and increased the market share for Quaker Oats oatmeal more than 5 points in a declining market (1, 2). Health claims doubled volume for Tropicana Pure Premium Plus orange juice with calcium added (3).
Food manufacturers clamor for authorization to tout the health benefits of their products on the package and in their advertising. Accordingly, nutrient content, structurefunction information, and health claims abound on food product labels. New Product News counted 1616 health-related nutrition messages on food products in 2000 (4). This figure is up 20% from 1993, the year the Nutrition Labeling and Education Act of 1990 (NLEA) was enacted (5). Much of the nutrition message activity recorded by New Product News included nutrient content claims (a good source of calcium), or structurefunction claims making a positive health association between a nutrient and body function (calcium helps build strong bones), rather than the more rigorous and preapproved FDA health claim that links the nutrient with a specific disease (calcium may reduce the risk of osteoporosis).
Although nutrition messages are plentiful in the marketplace, the actual number of FDA-approved health claims, in which a nutrient and disease link can be stated, are few. Seven health claims were included in the original NLEA legislation, and 8 years later, in mid-2001, only 13 FDA-approved health claims exist (see box, Health claims receiving FDA approval under the NLEA).
Obtaining an FDA-approved health claim involves considerable investment in nutrition research to receive significant scientific agreement by the FDA on the presented science documenting the nutrientdisease connection. The investment in the legal submission of the claim is also substantial. The awarded claim, however, is generic and is available for use on the label of any qualifying productone of several factors discouraging private investment in nutrition research for pursuit of a health claim. This has prompted a question widely debated since the mid-1990s: Do we need incentives for health claim research?
The intent of the NLEAs public policy was to educate and encourage consumers to select healthier food choices by displaying the health claim on the label and to encourage food processors to formulate foods that qualify for health claim use. Proponents of the act also expected that food processors would conduct nutrition research to document new foodhealth associations, thereby creating new health claims for label use and consumer education. The NLEA introduced a petition process for the food industry to pursue health claims. The process involves review of available science data to determine if the proposed health claim is valid. Safety and efficacy determination are key elements of the decision.
In 1994, Congress passed the Dietary Supplement Health and Education Act (DSHEA), which introduced a separate set of labeling and claim regulations for dietary supplement products, as distinct from traditional foods (6). DSHEA covers vitamin and mineral supplements, herbal products, and similar items. This legislation created a separate set of claim requirements for structurefunction statements that did not require FDA preapproval or nutrient disease documentation. The FDA does oversee these claims, however. Traditional foods are not eligible for claim and label regulation under DSHEA, but the different, less rigorous regulations for DSHEA affect NLEA health claim pursuit. The proliferation of generic DSHEA structurefunction claims in the marketplace also compete for consumer attention. With no prior FDA approval required, many experts consider these claims to be inferior in terms of scientific documentation compared with the significant scientific agreement preapproval standard set for health claims on food products. Issues of product safety and efficacy continue to haunt the dietary supplement industry because of inadequate research investment on product mechanisms to document their health impact (7).
The FDA Modernization Act (FDAMA) was passed in 1997 (8). Addressing several regulatory procedures across the FDA, the relevant action for health claim pursuit permitted the use of authoritative statements from government agencies (the only accepted authoritative sources) to substitute for extensive nutrition research documenting a health claim. If an authoritative body had officially stated that a nutrientdisease link existed, the statement could be submitted to the FDA for acceptance as a health claim. The authoritative statement capability would accelerate health claim approval by allowing known nutrientdisease links to be approved without extensive time and research budget commitments. In 2000, Tropicana pursued the potassium health claim using an authoritative statement and received health claim approval with a minimal investment in research and legal process.
By late 1999, Congress still thought that too few health claims had been pursued and approved. The Nutraceutical Research and Education Act (NREA) was introduced to provide research incentives for health claim pursuit (9). Claims would be proprietary for a 10-year period, and an FDA Advisory Council on Nutraceuticals would be established to evaluate submitted claims. Although the NREA was not enacted, it is poised for resubmission in the 107th Congress (2001). Its presence attests to a continuing debate on the need for research incentives to accelerate the pursuit of health claims with sound scientific documentation.
Commercial costs for obtaining a health claim
A third choice is to take an existing product and emphasize its inherent health benefits via health claim marketing. The cereal companies have extensively repositioned their products, for example, General Mills Cheerios and Quaker Oats oatmeal. Although this approach incurs no new investments in formulation or brand building, marketing costs increase when companies promote the health claim position for their products.
The introduction of a new brand requires larger marketing efforts and accordingly, far more extensive advertising and marketing budgets than repositioned flanker products. Because these unique products are not expanding off a preexisting consumer base and established shelf presence, they have the yeomans hurdle every new product faces in the marketplace, in addition to proving and obtaining the health claim for use on the regulated label.
Costs and risks are greater for innovating unique products, but the likelihood of value-added price is an incentive. A new product can set its pricevalue point in the marketplace. A flanker inherits its pricing from the existing brand. For the familiar flanker-positioned product, added value pricing is unlikely, but share growth is anticipated from the new health position. In fact, flanker products and health claim marketing have become a lucrative source of volume growth for the cereal and juice marketers.
Costs for health claim leader vs follower strategies. The development and marketing strategies to flanker from a preexisting brand or create a new brand are not the only deter mining factors in deciding to pursue the product. It is equally important to consider whether the product will be a health claim leader in the market or health claim follower that piggybacks on the availability of the generic claim. This is the situation that Quaker Oats encountered in pioneering the nutrition research and legal pursuit of the first company-sponsored FDA health claim for -glucan in oat bran under NLEA. General Mills then used the claim on its Cheerios brand, which qualified for generic use of the claim. The Cheerios health claim follower position was a lucrative success in growing brand share without performing the nutrition research or incurring legal expenses specific to obtaining the health claim. Table 1 itemizes the cost differential between a health claim leader and follower. The follower strategy is rewarded with low cost and low risk.
The private sectors traditional diligence in pursuing return on investment discourages the pursuit of new health claims in the private sector. Accordingly, few new health claims have been pursued for FDA approval using private-sector research funds (Table 2).
Recent health claims have been approved under the FDAMA mechanism acknowledging an authoritative bodys pronouncement on the nutrientdisease link to serve as the necessary research. These would include the recent whole grain claim (Diets rich in whole grain foods and other plant foods and low in total fat, saturated fat, and cholesterol, may help reduce the risk of heart disease and certain cancers.) and potassium claim (Diets containing foods that are good sources of potassium and low in sodium may reduce the risk of high blood pressure and stroke.). Of the 15 approved health claims reviewed since 1990, 10 were based on public-sector research (Table 2). In Japan, by contrast, the FOSHU (Foods for Specified Health Use) regulatory category permits exclusive product claims for petitioners, and there are now more than 200 approved nutrientdisease health claims.
The incentive formats include claim exclusivity, the orphan drug model, compulsory health claim royalties, lead time to market, research pools, and research tax credits (see box, Definitions of proposed research incentives). All are variations on market exclusivity, and several share similar advantages with each other. Market exclusivity is a fundamental advantage to the U.S. patent system, which encourages and protects the powerful innovative legacy of Americas competitive private sector research and development culture. Market exclusivity is also a common thread to the options in the proposed research incentives. Figure 1 positions these incentive options on an exclusivity continuum, and Table 3 assesses the options for market advantages.
There is a concern that international markets are encouraging more nutrition research through governmentindustry partnerships such as the European Food and Industry Research programs (11) and through proprietary claim approval as awarded by the Japanese FOSHU designation (12). Many of these regulatory environments include publicly funded health care and aging populations. To moderate their health care costs, these governments are amenable to permitting and promoting functional food contributions to improve health. These developments open the possibility for the U.S. industrys competitive advantage to be captured by international competitors.
Generic vs exclusive claim issues. The public policy decision set forth in NLEA to keep newly documented health claims generic rather than exclusive to the organization that invested in the research produces different market dynamics and outcomes. Particularly, nonexclusive policy will generate high expenditures on marketing, which has the benefit of educating the consumer about the nutrientdisease health advantage. Marketing distinguishes the product in the marketplace, whereas the generic claim does not differentiate among competitors. Brand building and support will be a dominant strategy, and branded flankers will abound rather than new products. Companies including Tropicana and General Mills and agricultural co-operatives such as Ocean Spray all use this approach.
Under an incentive structure that provides some form of exclusivity to the investing firm, R&D expenditures will increase to capture a protected and differentiating advantage. Dollars will pursue technology, and players other than branded manufacturers will see advantage to discovering and documenting nutrientdisease connections. These incentives will generate more differentiated products, such as McNeil Consumer Products Benecol, Monsantos various agricultural biotechnology products, and products such as Novartis Aviva, and Otsukas efforts under the FOSHU designations. Pharmaceutical companies, familiar with high research investment for innovation, will immediately recognize the advantages of exclusivity.
Exclusivity incentives for proprietary claims create a different marketplace than the current generic claim environment, which is now driven by public sectorauthorized claims. Public sector research plays a vital role in the evolution of the nutrition science, especially for the agricultural commodities that lack a dominant cooperative to fund and promote research or consumer education. Commitment to the generic claim environment requires an overt commitment to academic- and government-sponsored research. It also encourages a wider and more expansive use of claims on products, as the DSHEA legislation permits.
Industry perspectives and preferences. In survey research among industry directors of research and marketing on the need and preference for research incentives for health claims, we found consistent results across the surveyed industries of food, pharmaceuticals, and dietary supplements (13). The overall preference was for an exclusive research incentive, which is not surprising, given the prevalence of exclusivity within most of the options (see box, Preferred research incentives). The two least preferred incentive options were tax credits and research pools, both of which are nonexclusive.
Attempting to examine more than just the incentive preference, the research delved deeper to determine the rationale for incentive preference by the manner in which the incentive was thought to reward the research investor. Key areas were the firms direct likelihood to increase profits, to increase its market share, and to grow the size of the overall market category, dependent on the research incentive offered.
All three industry segments strongly believed the exclusivity incentive would yield higher functional food profits, more so than any of the other formats proposed. Likewise, all three industries believed the exclusivity format would offer the most potential for growing the firms individual market share. The former suggests that value capture through price premium or larger volume is obtainable via exclusivity, thus best growing profits. The latter suggests volume gains are expected via exclusivity, best driving market share growth. Both are private gains recovered by the investing firm.
More detailed results are presented in Figures 2, 3, and 4. A careful perusal notes the pharmaceutical industrys stronger preference for exclusive formats, reflecting its current successful experience with exclusivity provided through patents in its prescription drug sector.
Among many potential findings, the research showed a strong preference for proprietary exclusive claims across the sample. The pharmaceutical and dietary supplement industries particularly preferred exclusivity. The nonexclusive formats evidenced by the existing generic claims and research pools were found to be best for growing the market category. Exclusivity was associated with higher profits (52%) and with share growth (49%), but not with market category growth (16%).
Market expectations without research incentives
Because companies are less likely to pursue authenticated health claims, emphasis is put on marketing and media coverage to differentiate products. Reliance on generic media coverage of products and categories creates an uncontrolled and unregulated environment rife with the potential for misunderstanding and overstatement. Research investments in science promote new discoveries and further understanding of nutrient health impacts. Marketing investment builds brands and expands consumer exposure to health claims.
From the perspective of regulatory impact, wider scope for claims increases the likelihood of serious outlier claims exaggerating product performance. As the regulatory bodies expand regulation to control these outliers, rather than enforce existing regulation on such claim abuse, the regulatory environment becomes more constraining for all participants. Media and regulatory behavior motivated by alarm and unsatisfactory personal experience with products combine to create consumer distrust in the entire category. It also generates consumer advocate interest to further critique the industry in universal terms. This kind of attention diminishes the comfort level the medical community may be establishing with such products. It also encourages entrepreneurial manufacturers and marketers to go outside traditional retail channels and pursue direct-to-consumer channels where unregulated personal endorsement plays a prominent role in product promotion.
Industry representatives indicated that exclusivity would maximize privately funded research and discovery for functional foods, maximize the approval rate for health claims, and increase functional food profitability. They also indicated that research pools would provide the most consumer education on diet and health and would maximize opportunities for improving public health. The current campaigns by the Florida Citrus Board using the FDA-approved health claims and the Fluid Milk Processor Boards milk mustache campaign promoting nutrition information with celebrities are examples of marketing efforts funded by grower pools.
Additionally, research-documented differences categorized by industry suggest that it will be hard to reach consensus in the functional food industry. As long as the functional food industry participants commercialize products under different regulatory constraints, NLEA and DSHEA, it will be difficult for them to reach common ground on commercialization paths and appropriate levels of research.
The case for research incentives
As the commercial marketplace grows in value and prominence for the consumer, it is essential that science research be aggressively pursued to document health advantages for these products. Products marketed with valid scientifically established health claims educate and influence consumers decisions to select more healthful foods. It appears that a private sector structure for research incentives is a proven mechanism, as well as increased public sector funding, to encourage necessary research investment for continued discovery and documentation.
Note: All of the URLs were accessed in July 2001.
Nancy M. Childs is a professor of food marketing in the Erivan K. Haub School of Business at Saint Josephs University (5600 City Ave., Philadelphia, PA, 19131; 610-660-1643; email@example.com). She is a founding director of the Nutraceutical Institute, a partnership of Saint Josephs University and Rutgers University, and editor of the Journal of Nutraceuticals, Functional and Medical Foods published by Haworth Press, Binghamton, NY. She is a member of the National Academy of Science Food and Nutrition Boards Food Forum. Her research interests include the business and public policy issues of commercializing nutraceutical products.
Michael E. Childs is an assistant professor of chemistry in the Natural Science and Mathematics division of the Richard Stockton College of New Jersey (PO Box 195, Pomona, NJ 08240; 609-652-4365; firstname.lastname@example.org). Prior to his academic career, he spent 20 years in product and process development of specialty chemicals for Lonza, Sybron Chemicals, and UOP. His current interests include organic synthesis and natural products.