Do we need research incentives for health claims?

How can we motivate companies to back up their label claims with scientific evidence?

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, structure–function 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 structure–function 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 nutrient–disease 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 product—one 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?

Legislative background
The implementation of the NLEA in spring 1993 brought forth several significant changes in food labeling as mandated by the FDA. First and most importantly, the act mandated the Nutrition Facts panel on food packaging, which provides a universal format for comparing nutrition content in packaged foods. It also permitted, for the first time, the use of health claims that reference a disease to be stated on the food label. These claims, such as “calcium may reduce the risk of osteoporosis” or “fruits and vegetables, as part of a low-fat diet, may reduce the risk of some types of cancer” can only be used on qualifying foods. In addition to the seven “preapproved” health claims, the act provided a mechanism for petitioning additional health claims for FDA approval.

The intent of the NLEA’s 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 food–health 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 structure–function 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 structure–function 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 nutrient–disease 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 nutrient–disease 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
Developing and marketing products with health claim positioning requires investment. These costs vary considerably depending on whether the manufacturer develops and launches a unique product endowed with a new brand, such as Unilever’s Take Control sterol ester cholesterol-lowering spread or formulates an existing branded product and launches a health-positioned “flanker” to the preexisting brand. An example of a flanker product is Tropicana Pure Premium Plus Orange Juice with Calcium. Tropicana had already established a presence in the orange juice market. The company protected its market position by adding another orange juice product with the calcium additive.

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.

Table 1. Private sector costs for developing and marketing functional foods

Products Health claim strategies

Flanker Unique Leader Follower

Nutrition research H H H L

Product development L H H H–L

Claim communication H H H L

Label preparation M M M L

Advertising campaign L H H H–L

Value-added share growth 1 0 1 1

Value-added price increase 0 1 0 0

Risk assessment L H H L

Overall cost and risk assessment L H H L

H=high; M=medium; L=low; 1=positive; 0=neither positive nor negative

Costs for new vs flanker products. The relative commercial costs for developing unique and flanker products are shown in Table 1. Costs include the nutrition research needed to document the health effects of a new ingredient, or if the ingredient is already approved in an FDA health claim, the documentation of the ingredient’s presence in the prescribed concentration. Product formulation and development costs are greater for new products than for preexisting formulations. Communicating an approved health claim to the consumer on the label and advertising the product is a cost whether a product formulation is new or not. Likewise, label costs are similar.

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 yeoman’s 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 price–value 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 beta

-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 sector’s 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 body’s pronouncement on the nutrient–disease 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 nutrient–disease health claims.

Preferred research incentives

Incentive Mean score^a

Exclusivity 2.0

Orphan drug model 3.1

Lead time to market 3.6

Compulsory royalties 3.6

Tax credits 4.1

Research pools 4.3

N=184
^a1 is most preferred.
Source: Reference 13.

Incentives for health claim research
The uncertainty and dynamics of the marketplace favoring low-risk flanker and health claim follower strategies have led to the consideration of research incentives for health claim research sponsored by the FDA, Congress, the Keystone Center, industry groups and others that would better harness the private sector’s research capabilities. As early as the mid-1990s, policy discussions addressed incentive variations, notably six options presented in the Keystone report (see box, “Preferred research incentives”) (10). These options have been discussed in small working committees at FDA. More significantly, however, was the introduction of the NREA in Congress in October 1999, which provided a form of health claim exclusivity.

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 America’s 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.

Figure 1. Classification of research incentive options on a continuum of market exclusivity.

Scientific research is fundamental to the continued successful development of the functional food industry. Nutrition research and product documentation are eased by the presence of a biomarker for monitoring the progress and subsequent successful intervention of a chronic disease state. Cholesterol levels serve as biomarkers for heart disease, as does blood pressure for hypertension. Discovering and documenting appropriate biomarkers require substantial research investments because they are delicate processes.

There is a concern that international markets are encouraging more nutrition research through government–industry 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. industry’s 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 nutrient–disease 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 nutrient–disease connections. These incentives will generate more differentiated products, such as McNeil Consumer Products’ Benecol, Monsanto’s various agricultural biotechnology products, and products such as Novartis’ Aviva, and Otsuka’s 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 sector–authorized 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 firm’s 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 firm’s 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.

Figure 2. Incentive formats most likely to yield higher profits. Survey respondents indicated which incentives would have the greatest effect. “Research pools” and “Lead time” gene-rated low numbers of positive responses and are not shown here.

Figure 3. Incentive formats most likely to increase market share. Survey respondents indicated which incentives would have the greatest effect. “Compulsory royalties” generated a low number of positive responses and is not shown here.

Figure 4. Incentive formats most likely to grow the market category. Survey respondents indicated which incentives would have the greatest effect.

The last inquiry about which incentive format would grow the overall market category, a more public gain, resulted in more diverse responses. The nonexclusive options of the present generic claim format and the existing research pool incentive emerged as the two leading responses. This indicates a belief that such nonexclusive formats promote fullest access to the market and would generate products and marketing that would best grow the category. It is deduced by the earlier responses that although these nonexclusive incentives grow the category, they are not perceived to do so in a way that would increase individual corporate profits or market share. In fact, the nonexclusivity would likely generate copycat products based on price competition and not product differentiation. Price competition and generic products would likely decrease profits.

More detailed results are presented in Figures 2, 3, and 4. A careful perusal notes the pharmaceutical industry’s 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
With only six unique health claims approved since 1993, known market behavior can be extrapolated to anticipate market dynamics without research incentives. Dietary supplement claim activity, permitted by the DSHEA legislation, has proliferated, as has use of qualified health claims. The lack of exclusivity, and any urgency to protect claim use, results in extensive structure–function and nutrient content claim use. This advances consumer education but also adds to consumer confusion because claim proliferation is confusing and can be misleading.

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 Board’s 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
A strong, credible, vibrant functional food industry supported by an array of documented health claims is dependent on the quantity and quality of research available to isolate and document the safety and efficacy of functional properties. Additionally, the discovery of viable biomarkers to document endpoints and monitor individual needs and progress is necessary to move the field forward efficiently for consumers and health providers. Accordingly, there is a strong need for consumer and health provider education to accompany the maturation of this field.

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.

Nancy M. Childs is a professor of food marketing in the Erivan K. Haub School of Business at Saint Joseph’s University (5600 City Ave., Philadelphia, PA, 19131; 610-660-1643; nchilds@sju.edu). She is a founding director of the Nutraceutical Institute, a partnership of Saint Joseph’s 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 Board’s 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; childsm@stockton.edu). 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.