Got an investment in a dietary-supplement company? You may want to be prepared to swallow a bitter pill.
A recent Journal of the American Medical Association study found that vitamin E is not effective in preventing prostate cancer and in fact also raised the possibility that it's tied to prostate cancer. That report is the latest ding to a dietary-supplement business that saw its industry revenues fall to $350 million in the U.S. last year from $650 million in 2004, according to Nutrition Business Journal estimates.
In addition to JAMA's vitamin E report, the Archives of Internal Medicine released a study earlier this month that found a potential increase in the mortality rate among older women using dietary supplements.
As with most reports that question a product's effectiveness or safety, a potential flee factor exists. If the top line of manufacturers and distributors of the products or services in question takes a hit, investors who do stick around can feel the pain.
GNC's already hurting
Just ask investors of GNC Holdings (NYS: GNC) . Following the JAMA report on Oct. 11, GNC's shares fell 4% while the broader markets advanced.
It's understandable that such news would spook GNC's investors. Vitamins account for approximately 25% of GNC's sales, says Connor Link, associate editor at Nutrition Business Journal.
But during GNC's third-quarter earnings announcement Friday, the company's chief financial officer said the impact of the recent vitamin E and dietary-supplement studies has been minimal.
"The media just isn't a big supporter of the dietary supplement industry," Mike Nuzzo said, according to a transcript of a conference call with analysts. "They like sensationalism." He called the study "poorly conducted" and claims "no impact on our business." He continued: "I think we had a one-day blip and then it bounced right back."
GNC isn't alone on this front. Competitors Nature's Sunshine (NAS: NATR) and Perrigo (NAS: PRGO) also sell bottles of vitamin E, while rivals USANA (NYS: USNA) and Herbalife (NYS: HLF) sell vitamin E as part of a multi-vitamin.
Vitamin companies still a good investment?
Dietary supplements are a $28.1 billion industry and grew 4.4% last year over the previous year, according to Nutrition Business Journal estimates. And even during the recession and continued economic upheaval, sales continue to grow for most vitamins.
Vitamin C sales reached nearly $1 billion last year, maintaining its historical 2% annual growth, according to Journal estimates. Vitamin B, meanwhile, continued its strong performance, reaching $1.3 billion in revenues last year, while fast-growing vitamin D is on steroids, growing 120% in 2008 and as much as 30% to reach $550 million in sales last year, the Journal says.
But vitamin E sales have taken a hit over the past decade. In 2005, plummeting 30.7% in 2005 to $450 million in the U.S., the Journal reports. That drop was spurred by medical studies that cast doubt on the health benefits of vitamin E megadoses, including a JAMA study that found megadoses could increase the risk of heart failure, as a USAToday report noted in 2005.
"These kinds of studies usually have an impact on sales and are in the press for about a week and then drop off," Link says. "But consumers who stop taking the vitamins usually don't come back. Consider how far [vitamin E] sales have fallen."
Still, industries that can continue to post growth in even dour economic times are worth considering, providing there's enough diversification in a company's business to counter, say, the effects of having a vitamin score an "F" when it comes to consumer safety.
Vitamin E's JAMA jolt
In the JAMA report, the researchers note that their original findings from the 2001-2004 trial found that vitamin E was not effective in preventing prostate cancer. And in a follow-up study in early July , the researchers stated, "Dietary supplementation with vitamin E significantly increased the risk of prostate cancer among healthy men."
And the researchers don't stop there. They further note in their report: "The lack of benefit from dietary supplementation with vitamin E or other agents with respect to preventing common health conditions and cancers or improving overall survival, and their potential harm, underscores the need for consumers to be skeptical of health claims for unregulated over-the-counter products in the absence of strong evidence of benefit demonstrated in clinical trials."
Other researchers, as noted in a recent Wall Street Journal article, are in essence touting a similar line that supplements don't seem to make folks who are healthy any healthier.
JAMA critics weigh in
Cara Welch, vice president of scientific and regulatory affairs for the Natural Products Association, which represents the natural-products industry, said in a statement: "This particular study does reveal the need for additional research into the link of vitamin E and prostate cancer, specifically clarifying the mechanism of action, before anyone can draw conclusions. I look forward to seeing additional research in order to accurately evaluate the effect of vitamin E supplementation on prostate cancer incidence."
And Duffy MacKay, vice president of scientific and regulatory affairs for the Council for Responsible Nutrition, a trade association for the supplement industry, noted that JAMA's own report cited two other studies that had different results.
"The authors acknowledge other research has demonstrated the benefits of vitamin E for Alzheimer's disease, and age-related macular degeneration. Even with respect to prostate cancer, two other studies (cited within the article) had different results: One demonstrated a 35 percent risk reduction for prostate cancer in men taking 50 mg (75 IU) vitamin E daily for six years and another resulted in no effect on risk," MacKay said in a statement.
Remember that when consumers flee supplemental vitamins over safety concerns, they often don't return -- hurting a company's revenues.
Marketing expenses are likely to increase, as companies need to counter bad publicity with some feel-good spin.
Investors should look for some diversification in their "be-healthy" vitamin-company investments, so one study won't sink the entire investment. For instance, drugstores like Walgreen (NYS: WAG) and CVS Caremark (NYS: CVS) have other things to fall back on besides dietary supplements, and so do their investors.
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