Movers and Shakers with the President of Leiner Health Products -- MEDICA - World Forum for Medicine

Movers and Shakers Interview with Mr. Gale K. Bensussen, President of Leiner Health Products

Mr. Gale K. Bensussen is President of Leiner Health Products, one of the world's largest manufacturers of vitamins, nutritional supplements and over-the-counter drugs.

Mr. Bensussen, a founding executive of Leiner Health Products, has held a key role since 1974 as the company evolved from a basic importer of bulk chemicals into an industry leader in self care consumer products. His expertise in product development, marketing and building business partnerships has enabled the company to grow in an increasingly competitive environment. Mr. Bensussen's emphasis on accountability has proven effective whether working with internal team members or equity partners. His management of complex legal and regulatory affairs has contributed to the company's success in new product development, contract manufacturing and over-the-counter (OTC) product development.

Mr. Bensussen has developed international partnerships, building a manufacturing plant in China and establishing product development agreements with OTC and pharmaceutical companies in numerous countries. He is a past representative of the Transatlantic Business Partnership.

He has contributed both time and resources to support research in university centers across the United States. He recently led the development and fundraising efforts to establish the Analytical Laboratory for Nutritional Supplements at the USC School of Pharmacy.

Mr. Bensussen is a frequent speaker on health-related topics and serves on numerous boards and committees that develop standards for manufacturing and promote consumer protection.


Frost and Sullivan: Leiner Health Products has created a niche for itself in nutritional supplements and OTC pharmaceuticals market. Can you comment on your present position in this market? What is the key to your success?

Mr. Bensussen: Our present position is to focus on where we have our dedicated expertise in the core of our business.

· Our core is manufacturing nutritional supplements and OTC drugs on a large scale for store brand retail customers.
· Our focus is providing the highest quality product at the lowest possible cost, shipped and serviced to the nations leading retailers in the most efficient manner possible.

It means that we don't really deal with some of the fringe items that are low volume and trendy. We concentrate on items that are high volume, that are growing and that are backed by science. We manufacture all of our products whether OTC or nutritional supplements to OTC drug standards that ensure that we are achieving the highest quality standards on a consistent basis for our retailers. We focus on making products and selling them to retailers only. We don't sell in any instance directly to consumers. Which means we don't sell over the Internet, we don't have a chain of retail stores; we don't sell in terms of pyramid sales or door-to-door selling. While we may manufacture for people who do that, we don't do that ourselves.

When I talk about efficiency for supplying our retailers, you know that the world has changed with the consolidation of retail outlets. When I started 30 something years ago, when we founded Leiner, there were numerous 150, 175, 200 and 300 chain stores in the country. Today, we are limited to really a very few chains which run on a high efficiency basis. Much more sophisticated than 15 or 20 years ago. So these retailers like the Wal-Mart's, Costco's, Sam's, CVS, Walgreen's, etc. know on a daily basis what their turnover basis is per skew at retail. So if you went back 10 years, they would have a feel for what the poll from the warehouse was, but they really did not know what was selling at retail level. So you had a very inefficient supply-chain. Today we know on a daily basis, what's selling by store, by region, by category, by vendor - just about anything. And more importantly, the retailers have it too. So efficiency comes in terms of managing the inventory and managing the supply chain.

That's really been our niche. We turn it over faster. We measure Return on Inventory investment for our retailer. So they are getting more turns of inventory and that is a big part of the efficiency that these retailers demand.

Frost and Sullivan: The nutritional supplements and OTC pharmaceuticals market has witnessed increasing acceptance of products for cardiovascular health and pain management. What are the current technological trends in this market?

Mr. Bensussen: Technological trends can be from a consumer standpoint or a scientific standpoint, however when referring specifically to cardiovascular disease is how to deal with inflammation. Obviously, cholesterol reduction is now a given fact. This leads credence to the concept of taking some of these Statin drugs, from Rx status to an OTC status. They were shot down in the most recent FDA hearings. But they were shot down more from an information communication standpoint than the efficacy of the drug or the benefit to the consumer. So, I think from a technological standpoint, we are going to see increased science supporting a broader range of products being available as OTC, thus lessening the burden on the prescription drug insurers and the prescription drug costs.

In the pain management area, I think we are going to see that Naproxen becomes vindicated from the recent adverse press that it had. FDA pulled a study involving Naproxen in what appeared to be an increase in cardiovascular disease. So, I think we are going to see a little bit more of that. I doubt that the COX2 inhibitors will see the light of day for quite some time given their cardiovascular issues. So, on the OTC front, we're going to see a lot more products going over the counter.

We may see what are the drivers of that; the biggest driver is the growing pressure from the insurance payers on prescription drugs. Claritin is a non-sedating anti-histamine, and it used to be an Rx drug for 15-20 years marketed by Schering-Plough. The healthcare providers such as Kaiser went to FDA and said, this item should be OTC and not an Rx drug to which the FDA agreed. When it was an Rx drug, the average selling price was $2. When it went OTC, the consumer can now buy the drug at 14 cents a pill. It took over a billion dollars from what the insurers where paying for it as an Rx drug. So, when we see that kind of an economy in a system that is breaking down because of aging population and the increasing use of prescription drugs, we can be sure that a lot of products are going to be switching from Rx to OTC. If for no other reason, help save Medicare and to service the surge of baby-boomers that are entering the late 50's and early 60's.

Frost and Sullivan: Aging population is a major factor resulting in increased demand in all major Healthcare sectors. What are the future growth areas that Leiner has identified to address this opportunity?

Mr. Bensussen: If you follow the ailments that unfortunately always seem to follow the aging population, you will notice things like Arthritis; and in Arthritis we are seeing a surging sales of a nutritional supplement called glucosamine chondroitin, which is now one of the leading supplements. We know that heart disease is one of the major concerns, as people get older. Heart disease is the number one killer in the US. And to that extent we are seeing tremendous increase in sales of Omega-3 products such as Fish Oil.

If you watched the Super bowl this year and last, you would have seen a surge in products for erectile dysfunction for an aging population. And we are seeing along with a surge in obesity, a corresponding surge in diabetes as a problem for the aging population. So, products that seek to deal with that we think will be big items in the future.

With regard to that kind of growth, we are looking at items that can go over the counter and create new categories for retailers. It's interesting to note that in the next 6 years, $53 billion worth of Rx drugs will have their patents expire. Now in the last 12 years, only $33 billion worth of drug patents have expired. So historically OTC growth has been 4 percent, but we project a growth of 9-10 percent with a surge of products that will inevitably end up going from Rx to OTC. The big drivers of that are those items that will affect the aging population.

We have Prilosec for ulcers, which was like a $6 billion drug as Rx. It recently came off patent and it's gone OTC, now becoming one of the largest selling digestive products. We believe that the other non-sedating anti-histamines such as Zyrtec and Allegra whose patents are ending will go OTC in the next couple of years. That's just for non-sedating anti-histamines. Then we have others such as Flonase, Glucophage for diabetes that may find their way to OTC to help treat an aging population.

Frost and Sullivan: As the market expands, more companies are expected to enter and make the market very competitive. Can you tell us more about your clients and your competition?

Mr. Bensussen: That's an interesting phenomenon. We would say that the products that are patent protected Rx drugs, most of them will loose their patents and become generic drugs and as you know the generic drug industry is exploding right now again driven by the desire to reduce the cost of Rx drugs. What happens is that, the drug companies that have done their research work and made their filings with the FDA are going to find that most of their drugs are going to remain Rx and they will be able to sell their generic equivalent and that is their core business. But about 20 percent of those products will make it all the way to OTC. Generic companies don't like and don't do store brand OTC products. So, we would say our opportunity is to partner with generic drug companies, take those products where they have invested time, money and research to license with them or partner with them to allow our distribution, our packaging and manufacturing to take them to the retail trade and handle the complexities of multiple SKU's, multiple sizes, multiple labels to 15-20 of the nations leading retailers. We have done that in several occasions and that we don't compete with the drugs in generic drugs. So, we make an excellent partner for the generic drug companies to take products to the mass-market trade. So our strategy is to partner with the drug development companies to take them OTC.

Frost and Sullivan: Collaboration and strategic alliances have been crucial for growth of pharmaceutical companies. Can you tell us more about alliances and collaborations Leiner has made in the last couple of years?

Mr. Bensussen: I can talk about our collaboration with Dr. Reddy's Laboratories in India. As you know the Active Pharmaceutical Ingredients is the core competence and expertise in India. It is just an exploding business. Well, several years ago when we realized that our expertise is dealing with several of the leading retailers and manufacturing, packaging and distributing for them, we said we don't have the genetics to be a research and development company. We need to partner with somebody that has the expertise. So, we have partnered with Dr. Reddy's Laboratories to take the products that they have developed to take them all OTC on behalf of Dr. Reddy's. So Dr. Reddy's has become to us a highly valued API supplier for Ibuprofen, Ranitidine, and Famotidine and a couple of others as well as the R&D engine for Leiner to make applications for taking products OTC and for bringing products OTC. So GV Prasad, who is the president of Dr. Reddy's actually sits on our board and helps us take these products over the counter. Now our relationship with Dr. Reddy's is exclusive on the items that they develop that go OTC, but we are still free and we still partner with others in the generic drug or drug development area to bring OTC to fill the holes that are in Dr. Reddy's portfolio. We have got some great alliances out there. We have had an alliance with GenPharm on Loratidine, an alliance with Impax on several other products. So our goal is to be a great partner for the drug development people and a great partner for the retailer. We stand in the middle of bringing the two close together.

Frost and Sullivan: Could you expand on some of the unique selling points of Leiner Health Products, which have been instrumental in making it a market leader in this business? What does this mean to the patient?

Mr. Bensussen: Well I would say, in looking at it from the patient standpoint or the consumer standpoint, our biggest point of differentiation is our consistently high quality. That's important to us because that's what qualifies us to be the leading supplier as store brand to all these retailers. As you can well understand the first obstacle is to prove yourself to these retailers from a quality standpoint.

The last thing that Wal-Mart wants to see is a headline that has their name on it, not our name, having a recall or a potency issue or have a contamination issue or a mislabeling issue. So we have established ourselves as the premier supplier of these products to the retail trade and they in turn have been able to build their private brand business based on the premise that the quality of these products is as good as or I would tell you better than the leading national brands. So quality is the key, quality and confidence in the store brand is really our key to success. So when you look at comparative sales at many of these leading retailers, you will see that store brand sales growth is taking significant share from the national brand leaders. Its put the retailer in the leading, if you will, brand within the store.

Frost and Sullivan: What is the market potential for your products and what is your company doing to increase penetration?

Mr. Bensussen: We would say that our market potential is directly related to the aging population and the trend towards self-care. With access to physicians becoming more difficult, if not difficult, certainly more costly, with more of the population finding themselves, as they age, on fixed incomes, the interface with the pharmacist at the retail level and the ability to self medicate becomes more important. So we believe that having the right product mix and making them available at retail puts us in a strong position to grow our sales. We are looking at top line growth in the teens as we go forward in what we would characterize as ever changing product mix, both from an OTC standpoint and nutritional supplement standpoint.

The issue on penetration is an interesting question and there are two ways to address that issue. The traditional question on penetration is how many retail doors are you going to get your product into? With the consumer concentration in these big stores like Costco, Wal-Mart and Sam's and the other big chains, we are seeing an ever-increasing share of market with these retailers with whom we already do business.

You have a double-edged sword here. On one hand we have heavy retailer concentration in the top 12-15 retailers. I would counter that by saying that these top retailers are gaining bigger share of the market everyday from the independents in the smaller chains. If you want to be a billion dollar company, which we plan to be in the next two-three years, we have to gain penetration of more new products in the customer base we have and we won't find growth by adding new smaller customers to our penetration base. So, we let our retailers deal with gaining more consumers at their stores by complementing what they do and not competing with them as a competitor by selling on the internet and every other which way. We focus on new product development as our means of gaining additional penetration of our products.
When you have people like Wal-Mart, Costco taking 40-50 percent of the market, what do you do, you service them pretty well.

Frost and Sullivan: Can you tell us about the challenges that lie ahead of Leiner? What is your strategy for growth as you look ahead?

Mr. Bensussen: One of the biggest challenges that we face in the industry is the lack of leadership from the FDA. You may want to note that in the last ten years or so, for more than 50 percent of the time, we have not had an FDA commissioner but had an interim commissioner waiting for the appointment of a commissioner. And the problem that we have is, while all the people in the FDA are working very hard to do the right thing, we lack leadership and direction. Its very difficult as you plan yourself as a company for the next 3-5-10 years which is what one needs to do in this industry. It's very difficult to plan around in a highly regulated industry around a regulatory agency that has very little direction, if any and lacks leadership. So while support the FDA and are big supporters of increased regulation and clear definition of how to bring new products to the market and how to label products, we would say the whole procedure of bringing more products to the consumer is complicated by the lack of leadership and regulatory direction.

How are we going to deal with that? We don't really know. It's very difficult to gain influence in that arena other than to support initiatives in the table like formal GMP's for nutritional supplements, supporting clarity around Waxman-Hatch and how the bill is interpreted.

The other big challenge that we have is from a completely different arena. We embrace the scientific studies that are being conducted and are being published. But what is complicating and confusing the consumer and is a challenge to us, is the way the media jumps on some of these studies and creates an erroneous conclusion for consumers. Recently, the John's Hopkins university recently published what is known as the Meta study concerning Vitamin-E. It's flawed in many ways. It is a review of previous studies and frankly meaningless in terms of causation and real science as any one of our hundred scientists will tell you. But this little study of very little significance was picked up by the press and greatly exaggerated to the extent of headlines that said, "Vitamin-E causes increased mortality”, which is absolutely ridiculous. But the challenge to us is, once such kind of media is out there, our sales of such products plummets dramatically and there is frankly nothing we can do about it. So, we are in collateral damage from misinformation that gets spread around by certain section of the press. So that's the other big challenge.

The last big challenge comes from the pharmaceutical industry and the big pharma itself. They have a lot of money, lot of resources; good management, good leadership and great vision and they develop a lot of drugs that are hugely beneficial to society. But they also have a huge war chest of money and resources to maintain patent protection for extraordinarily long periods of time. That creates a monopolistic system on these drugs where there is no price competition and you have extraordinarily high prices for these drugs. It's complicated by the fact that these big pharma companies have different pricing policies for different countries. While the US represents about 50 percent of the worldwide prescription drug business, its safe to say that we also pay 20 to 30 to 50 percent more for these drugs than other developed countries. That's why the tip of the iceberg is the Canadian-US border issue on prescription drugs. We pay a lot more for them and the drug companies protect those patents for a long, long time. So we have to find new ways to dealing with getting around the success that the pharmaceutical industry has had protecting their patents and extending the life of their monopolistic marketing.

Frost and Sullivan: Since the global economy is getting integrated are you looking at expanding your business beyond the US borders into Europe or Asia?

Mr. Bensussen: I would like to answer that in two ways. Clearly, our sourcing of raw materials has gone off-shore and we do a great deal of business in India from multiple suppliers, in China from multiple suppliers, in South America from multiple suppliers and some business but not as much as you think from Europe. So on the supply side, we have supplied our purchasing department with suitcases and we are offshore. Now the issue of taking our products to international markets is one that we have thought long and hard about and one in which we have done some investigation.

I want to take the Asian markets first. It is very difficult to gain approval of products manufactured in the US in Japan and in China. Very protective regulatory situation there and I would say not very encouraging. Though things are loosening up in Korea but very difficult. Europe, much the same, made up of 15 or so countries which breaks up the market into a mosaic of smaller markets, each of which have their own regulatory barriers. We would say that the European market place is very interesting to us as an opportunity to leverage our expertise in this area into new markets. But to be successful, one needs to be on the ground in these foreign markets and need to have a management team that is willing to leverage the benefits of our US operations and find ways to leverage them into international markets. So, that is a very interesting opportunity for us. We do have a manufacturing plant of our Vita-Health division in Winnipeg. We are the largest store brand supplier in Canada. You may say Canada-US they are both the same. No, they both are completely different markets, with different products with vastly different regulatory schemes and different retail makeup. We have little experience there.

I would say our strategy would be to follow our retailers as they go international. So for instance with Costco in Japan, we supply products for the Japanese Costco outlets in compliance with Japanese regulations and Japanese labeling. The same for Mexico, the same for other Wal-Mart, Costco and Sam's stores that are abroad where we will do the business in our category and take care of the regulatory issues.

Frost and Sullivan: Is there anything else you would like to add?

Mr. Bensussen: We are in one of the most exciting markets in the world and that there will be more consolidation from the supply side and the supply chain will get closer and closer to the retail consumer and we hope to be a very big part of that.

For further information please contact:

Katja Feick
Corporate Communications
+44 (0) 207 915 7856