2a. Tom Aarts- State of the Industry

The 19th Annual NBJ Summit 2016 Thomas Aarts

Co-Chair, Nutrition Business Journal

June 13-16, 2016

Presentation Contents

I. Our Industry in Perspective

II. Recent Press and Trends Update

III. Thoughts on the Summit Theme: The Trust Imperative

IV. CEO Dinner Progress Report - Key Takeaways from Dinner Discussion and Challenge to the Industry

- Update on Industry Initiatives

I. Our Industry in Perspective

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Rx Drugs

Supplements

U.S. Growth in Supplements ($39B in 2015)

vs. Prescription Drugs ($425B in 2015)

Source: IMS Health & Nutrition Business Journal

• The mission of Nutrition Capital Network (NCN) is to:

– Facilitate the financing process for small to mid-size companies

– Introduce investors to the next generation of successful brands and technology in the nutrition, health & wellness, and natural/organic product industries

– Create a vibrant network for collaboration and partnerships

NCN will accomplish this mission by:

– Creating a series of meetings, events, and virtual tools to connect companies and investors

– Facilitating capital flow for the betterment of business and society

Since October 2007, NCN has hosted 27 investor meetings and presented 475 companies, 56% of which have raised capital or completed a transaction.

Nutrition Capital Network (NCN)

NCN’s “Ecosystem”

26 industry

experts

(screening

committee) 27 meetings 260+

investor groups

2,350+

cumulative

applicants

475

presenting

companies

47 investor

members

56% of companies

have raised money

or completed a

transaction

II. Recent Press and Trends Update

Recent Press on Industry Challenges

Taking Vitamin D May Not Reduce Risk of Falls

January 4, 2016

Statins and Memory Loss: Is There Reason to Worry?

June 8, 2015

Teen Sports Faces a Nutritional-Supplement Debate

January 12, 2016

Supreme Court Says Glaxo Must Face Racketeering Lawsuits…

June 6, 2016

FDA Approves New Nutrition Panel That Highlights Sugar Levels

May 20, 2016

Recent Press on Industry Opportunities

Can Regulators Keep Up with the Supplements Industry?

January 19, 2016

Should You Take a Vitamin? Do You Know What a Vitamin Is?

May 26, 2016

GNC, NY AG Deal: Herbal Supplements Were In Compliance

March 31, 2015

Recent Press on Industry Challenges

Donald Trump, Bad Science, and the Vitamin Company that Went Bust

March 2, 2016

Donald Trump’s Amway-Style Naturopathic Health Scam Slam

August 29, 2015

Personalized

Lifestyle Medicine

Accessible

Diagnostics

(Genetics &

Biomarkers)

Nutrition, Rx,

Lifestyle

Therapies

Public Health

Initiatives

(e.g. ObamaCare)

P4 Medicine

(Personalized,

Preventative,

Predictive,

Participatory)

Lifestyle

Healthcare/

Medicine

Healthcare

Crisis

Sources: PLMI, Eric Topol, G. Ferrier

*Innovative = Simpler, Faster, Better,

Real Time Products & Services

Private Health

Initiatives

(Insurers,

Corp. Wellness)

Innovative*

Diagnostics

Innovative*

Self Care

(Quantified Self)

Mobile

Technology

Social

Networks

Computing

Power

Big Data

The Future of Healthcare Driven by Paradigm Shifts in Medicine and Technology

Recent Personalized Approaches with Nutrition and Supplements

Your Scientific Path to Wellness


Optimized Efficacy

Integrated Therapies

Higher Compliance

Genomics

Lab

Assays

Metabolomics

Small Batch

Automation

Precision

Formula Personal Profile “N of 1”

Enabling Precision Medicine and Disrupting Pharma and Nutrition:

“Consumer Friendly Personalization”


Diagnostic Product

QuantifEye MPS II EyePromise Line of Products

III. The Trust Imperative

It’s All About Trust

“In the global market,

trust can be built or

destroyed at incredible

speed.” - Stephen Covey


“Rising levels of transparency

will require companies to

protect the interests of their

customers and employees,

even when it sometimes costs

money in the short term.”

- Martha Rogers & Don Peppers


It’s All About Trust… From the “Dark” Issue to the “Trust” Issue

Rick Polito,

Editor in Chief

NBJ

NBJ Trust Issue Takeaways

• Consumer trust in the supplement industry could be stronger

• The public needs a quick way to tell the good products from

questionable ones

- It is not clear that consumers understand third-party

certification seals yet

• Online and brick-and-mortar retailers have an important role in

curating supplements to keep the bad players off the shelves

- Responsible retailers are interested in helping with this

initiative

• Substantial opportunities exist to improve industry trust

- For example, the product registry and GRMA projects are a

positive beginning

Source: Nutrition Business Journal

71% 67%

52% 51% 45%

39% 33%

20%

SmallBusiness

ThePolice

Banks Newspapers PharmaIndustry

SupplementIndustry

BigBusiness

Congress

How trustworthy, are the following industries or institutions?

Among Supplement Users

Substantial Opportunity Exists to Improve Industry Trust

Source: Nutrition Business Journal

IV. CEO Dinner Progress Report

Objectives:

• Discuss the issues and challenges facing the nutrition and dietary

supplement industry

• Build key relationships across leaders in our industry so that we can grow

the “pie” for everyone

• Share the important parts of our culture with a new generation of leaders

• Move forward with a coherent message and new information that will move

our industry in the right direction

2016 CEO Dinner Progress Report

• Responsible members of the Industry must start talking concrete actions

• We should carefully refrain from talking about DSHEA and its apparent

deficiencies

• We need to support a product standard such as NSF, USP, or UL (one is

better than three) at retail to show that our products are safe and high

quality

• Now is the time to embrace the concept of product/facility registration

or notification

- It’s time to support the creation of a registry of dietary supplement

products similar to the NDC

• The industry must consider changing enforcement oversight and funding

2015 Annual CEO Dinner and Summit Summary Conclusions

2015 NBJ CEO Summit Polling Results

Question to audience: To enhance consumer trust, do you

support industry adopting a pre-market notification model?

A. Yes

B. No

Source: 2015 NBJ CEO Summit

A. B.

66% 34%

Coding System for Dietary Supplements?

NDC 0280-1200-80

labeler product

code package

code

NDS Code?!

Just like an NDC code - why not an NDS Code?

Participants: over 80 raw material suppliers, manufacturers,

MLM’s, practitioners, mass market and pharma

Source: GNC proposed at UNPA Summits (November 2015 and February 2016)

Quality Seals &

Facilities

Certification Group

• Establish

Standards

Threshold

• Facilities

Certification

• RM & Finished

Products Quality

Seals

Raw Materials GMP

Group

• Establish RM

cGMPs

• Traceability

Standards

• Testing

Requirements

Industry Product

Notification Database

& Numbering Codes

• Review and

recommend on

advisability of

industry database

• Mechanics of

industry notification

and numbering

system

Media Strategy

Group

• Improve customer

confidence

• Answer

Government

Regulators

• Answer Media

In Late 2015, GNC Proposed R.A.I.S.E. Regulatory Alliance for Industry Supplement Excellence

2016 CEO Dinner Summary Conclusions

• Summarized key industry initiatives

• Discussed a socialization strategy in order to message our

accomplishments

• Agreed that we need to:

- All support the key initiatives, especially the product registry

and the botanical raw materials best practices project

- Work on a coordinated socialization/messaging

- Identify champions to lead this initiative as we had with the registry

• Once progress is made, we need a strategy to communicate with the

following stakeholders:

- FDA

- Regulators

- Retailers

- Media

- Consumers

• Since 2015 NBJ Summit 2015, the industry has coalesced around a

coordinated effort to raise standards for supplements in all categories

• Key companies and trade groups have joined in programs to elevate

the industry to new levels of quality and trust

• Notable efforts include:

- Product Registry led by CRN

- GNC Quality Control Initiative led by GNC and AHPA

- Product Quality Certification Scorecard led by NPA and GNC

- Global Retailer and Manufacturer Alliance Initiative led by

NSF and top retailers

- Attorney General outreach led by CRN, AHPA and UNPA

A Summary of Key Industry Initiatives

Objective: Create a searchable dietary supplement database that:

- Demonstrates “self regulation” and accountability by industry;

- Allows identification, evaluation and comparison of products; and

- improves retailer, consumer, media and regulators’ perception of the

industry

The database would have tiered access levels for consumers and

general public; industry by permission (retailers, B2B customers and

suppliers); and FDA

Participation would be open to all willing industry participants but

required for membership in CRN (and hopefully by other trades)

Source: CRN at UNPA Summit (February 2016)

Dietary Supplement Registry Led by CRN - Background

• CRN announced in April it is developing an online product registry

for launch before the end of 2016

• Will be open to all members of the industry with finished products;

all industry strongly encouraged to participate at no cost

• Will provide basic product information and a copy of product labels

• Initially intended to serve regulators, although open access will

promote transparency and build trust with retailers and consumers

as well

Dietary Supplement Product Registry – CRN Update

Source: CRN

• Establishes more visibility and accountability by the industry

for the products its companies place in the market

• Helps answer such questions as:

- What’s in the marketplace?

- Who markets which products?

- Which ingredients are in which products?

Source: CRN


• CRN and industry leaders acknowledge that the registry

alone will not solve all the issues facing the industry - but

providing transparency is the first step to better addressing

other issues by identifying what the industry looks like

• You cannot patrol what you cannot see

• A registry creates a framework on which other tools—whether industry self-policing initiatives or gov’t enforcement strategies—can be built.

Source: CRN


Best Practices in the Herbal Ingredients

Supply Chain

Good Agricultural and Collection Practice Program

• Revision of “Good Agricultural and Collection Practice for Herbal Raw Materials,” issued in 2006 by AHPA and American Herbal Pharmacopoeia

• Recommendation for best practices for herb farming (GAP) and wild herb collection operations (GCP)

• Revised GACP will address:

- GAP: propagation material, site selection, fertilization, irrigation, crop maintenance and harvest

- GCP: permits and permission, site selection, equipment, identification, sustainability, timing and handling

- Post-harvest handling

- Personnel (training, safety and hygiene)

- Record keeping and retention samples

Botanical Raw Material GMP Initiative

• AHPA will draft guidance on good manufacturing practice for various operations that supply herbs and herb-derived ingredients (i.e., extracts) to supplement manufacturers

• The revision process engages experts in these affected operations (herb suppliers and extraction companies)

• Resources exist in federal GMP regulations:

- 21 CFR 110: Current food GMP

- 21 CFR 117: New food GMP (and hazard analysis)

- 21 CFR 111: Current dietary supplement GMP

37

Global Retailer & Manufacturer Alliance

Progress continues in all categories of the GRMA as the dietary

supplement standard nears completion:

- Joint Committee holding monthly meetings

- Active Task Groups (TG) meeting bi-monthly:

-- Audit Criteria & Interpretation

-- Audit Scope & Duration

-- Grading & Scoring

-- Auditor Competency & CB Oversight

- Drafts being reviewed for each Task Group section of standard

- Gap analysis conducted of FSMA/21 CFR 117 against 21 CFR

111 for inclusion of relevant requirements

- Joint Committee for GRMA Dietary Supplements – Completing

rough draft standard for the August Summit meeting

- Finalize draft language and approval will be completed and

submitted for review by Q1 2017

- Publish final standard by Q1 2017

Source: NSF

• The NSF Non-GMO True North standard was created to assure the

integrity of non-GMO claims and to grow the breadth and diversity of non-

GMO/GE verified products sold at retail and non-GMO certified

ingredients sold throughout the supply chain.

• NSF Non-GMO True North incorporates elements from the EU and

Vermont GMO labeling requirements and pulls best practice from

commonly used leading food safety standards.

- Expand the scope of products eligible for independent non-GMO

certification

- Meets consumer expectations of non-GMO supply chain, not just

absence of GM DNA.

- True North Accepted by Whole Foods for GMO transparency

requirement

38

The NSF Non-GMO True North Standard

Source: NSF

National Animal Supplement Council (NASC) Preferred Supplier Program

3 areas of focus for the Seal:

1. Promoting the Seal downstream through educational initiatives

2. Maximizing value to NASC members and keeping the regulatory

environment stabilized. NASC continues to work closely with both the

state and Federal agencies (FDA/CVM) achieving positive progress

3. Having trust and confidence in the supply chain (Preferred Supplier

Program)

- Quality Raw Materials

- Quality Processes

- Quality Components & Services

- Quality Products

• Suppliers that qualify for the program are promoted throughout the industry

• Petco continues to be a strong supporter

- Petco is in the process of including the NASC Seal on all Petco

private label products

Source: NASC

Thank You!

Appendix

1. Responsible members of the Industry must start talking and proposing concrete actions to enhance consumer confidence, transparency and scientific support of our products and our industry

2. As part of this dialogue, we should carefully refrain from talking about DSHEA and its apparent deficiencies, such as the lack of oversight of raw material producers and brokers, and instead focus on solutions such as:

- Expanding product quality requirements to the point of origin of materials

- Extending GMPs and testing requirements downstream to the raw material producers and their distributors

3. Support a product standard such as NSF, USP, or UL (one is better than three) at retail to show that our products are safe and high quality (e.g., NASC is a great model for this)

2015 Summit Position Paper: Suggestions to Change the Narrative

4. Although we believe industry must continue to thoroughly reject the premise and the need for pre-market authorization, now is the time to embrace the concept of product/facility registration or notification

5. It is also time to support the creation of a registry of dietary supplement products similar to the NDC code system employed on all over the counter drugs. The system works very well and is managed by the FDA.

6. Finally, industry must consider changing enforcement oversight and funding

2015 Summit Position Paper: Suggestions to Change the Narrative

?

1. Industry initiated

2. Broadly implemented &

supported

3. Broadly available to the

industry

4. Tiered for companies who

want more,… for a price

5. Informative about the product

(e.g., unique identifier)

6. Consumer facing, with

additional access for B2B and

FDA

7. Iterative/Modifiable

8. Rapidity to launch

9. Compatible with continued

support of the ODS DSLB

10. Portable, ultimately

accountable to the industry,

not the vendor

Source: CRN at UNPA Summit (February 2016)

Dietary Supplement Registry Led by CRN - Principles CRN is Looking for…

Documents

2a. Tom Aarts- State of the Industry