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					  Bioactive Marine Ingredients
    and Supplements for the
    US Nutriceuticals Market


An Introductory Report Prepared by Innovation Norway Boston




                       Sander J. Tufte
                       Bente Bogaard
                         May 2008
Table of Contents
Introduction ................................................................................................................................ 3
The Cosmeceuticals Market ....................................................................................................... 4
   Trends Concerning Cosmeceuticals ....................................................................................... 4
The Nutriceuticals Market.......................................................................................................... 6
   Trends in Nutriceuticals Market............................................................................................. 7
   The U.S. Nutriceutical Market ............................................................................................... 7
      Functional Foods ................................................................................................................ 9
   Marketing and Distribution Channels for Stand Alone Nutriceuticals and Functional Foods
   in the US............................................................................................................................... 13
      Natural Health Food Retailers.......................................................................................... 13
      Mass Market..................................................................................................................... 13
      Mail Order ........................................................................................................................ 13
      Multi-Level/Network ....................................................................................................... 13
      General Practitioners ........................................................................................................ 13
      Internet ............................................................................................................................. 13
The Case of Omega 3 ............................................................................................................... 14
   Background .......................................................................................................................... 14
   Omega 3 in the US ............................................................................................................... 14
The Case of Carotenoids .......................................................................................................... 16
   Background .......................................................................................................................... 16
   Nutriceuticals and Carotenoids in the US ............................................................................ 16
   Different types of carotenoids applied in the US ................................................................. 17
Sources ..................................................................................................................................... 19
APPENDIX - Case Studies ...................................................................................................... 20
   EPAX AS ............................................................................................................................. 20
   CYANOTECH Inc. .............................................................................................................. 24




Valuable Bioactive Marine Ingredients and Supplements for the US Nutriceuticals Market                          02/06/2008                    2
Introduction

As a marine environment, the high Norwegian Arctic Sea is unparalleled with respect to its
combination of temperature and light regimes. This implies evolution of a variety of
organisms with unique physiological and biochemical adaptations, and with correspondingly
good prospects for finding novel lead compounds and bioactives. Furthermore, by-products
from Norwegian fisheries, included fish farming consist of viscera (liver, roe, stomachs, etc.),
heads, backbones, cuts and rejected fish from processing. The Norwegian fisheries produce
more than 615.000 tons of by-products annually (2004), which is more than 20 % of all the
fish caught and farmed in Norway. Today most of the by-products are used as raw materials
for feed production; such as fish meal, silage and feed for fur animals. About 180.000 tons are
still dumped into the sea, mainly from the fishing fleet. The total value adding represents
NOK 1 billion (2003). If we succeed to utilize more of the by-products as food for humans
and as ingredients in foodstuff, health foods, nutriceuticals, pharmacy, cosmetics etc., the
value adding may increase by 5 folds.

Innovation Norway in Boston has been asked by the Innovation Norway office in Tromsø to
give a brief overview of the market for valuable bioactive marine ingredients and products in
the US. We have identified the following list of relevant products and ingredients:


Bioactive peptides
Amino acids
Taurin
DNA salts
Nuclotids
Glucocamin
Chitosan
Pure omega 3 oils
Marine phospholipider
Minerals
Carotenoids
DHA
Fish meal
Protein concentrate
Oils

In this report and context we have decided to focus on the Nutriceuticals (mainly) and
Cosmeceuticals market highlighting certain products and ingredients and their applications
in the Nutriceutical market. We have made case studies highlighting the application of Omega
3 fish oils and Carotenoids.




Valuable Bioactive Marine Ingredients and Supplements for the US Nutriceuticals Market   02/06/2008   3
The Cosmeceuticals Market

The world cosmetics market is worth USD 201 billion with the US taking the largest part with
a turnover of USD 45,4 billion in 2003 (see tables on next page). Skincare is the second
largest cosmetic sector (after hair care) at USD 38 billion and the third fastest cosmetic
growth sector (not including sun care products). Sun care products has the greatest % growth
but with an annual turnover of just USD 4 billion.

Of the total cosmetics market the functional sub segment Cosmeceuticals accounts for the
majority of the cosmetic products and it is also the fastest growing sector of all the cosmetic
sectors. A Cosmeceutical refers to a product which is marketed as a cosmetic, but which
contains biologically active ingredients that have an effect on the user. Examples are anti-
wrinkle creams, baldness treatments, moisturisers and sunscreens. Other terms with same
meaning are:

• Functional cosmetics
• Dermaceuticals
• Performance cosmetics
• Bio-functional materials
• Treatment ingredients

The world Cosmeceutical market is about US USD 20 – 30 billion with the following
breakdown per region:

• USA
2001: USD 3 – 10 billion
2007: USD 5 – 14 billion

• EU
2001: USD 2 – 8 billion
2007: USD 4 – 10 billion

• Japan
2001: USD 7 – 12 billion
2007: USD 8 – 17 billion


Trends Concerning Cosmeceuticals

Cosmeceuticals are ever more present on the mass market and especially products promoting
youthful looks. Both prevention and arresting signs of aging in the skin attracts much
attention from baby boomers and younger consumers. The negative effects from excess
exposure to sun light is often referred to as a major contributing factor and there is a growing
concern and awareness among consumers about accumulation of sun exposure as an
important factor resulting in aging of the skin and development of cutaneous malignancy.
However, majority of Caucasians especially in the Northern hemisphere are not looking for
systems that prevents them from acquiring a ‘tanned and healthy looking’ skin complexion.

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Most people think of sun tanning as a healthy, natural process, and damaging effects of the
sun are not experienced until 15-20 years after the initial damage has been done. In Asia on
the other hand skin whitening products and total sun block systems are in demand.
Concerning cosmecueticals, product formulations with added value features such as natural
and organic ingredients are increasingly demanded and customers are prepared to pay more
for specific claims: consumers expect demonstrable, visual, sensory or functional benefits
from cosmeceuticals.

Suppliers of ingredients for the pharmaceutical and food industries, offer ever more
cosmeceutical ingredients and there is an increasingly scientific approach to active ingredients
that demonstrate the efficacy of cosmeceuticals. Bio-functional ingredients are particularly in
demand as new technology allows stabilization of natural ingredients and their availability in
highly concentrated or chemically pure forms. The world wide market for active ingredients
in Personal Care Products was USD 516 mill in 2003 and is expected to reach USD 725 mill
in 2010.

U.S. Sales of Cosmeceutical Skin Care Products (USD Mill)


                         Year 2000                                          Year 2005
                         Skin care                whereof                   Skin care           whereof
                                                  Cosmeceuticals                                Cosmeceuticals
Total                    5518,8                   2730                      7192,4              4820
Moisturizing             1231,8                   815                       1724,5              1300
Creams
Hand Lotions             790                      395                       942,6               710
Cream                    884,3                    300                       1149,5              575
Foundation
Sunscreens               320                      160                       428                 410

Source: Leading Edge Group Reports



The World‘s Largest Cosmetic Markets in 2003

Country                     USD billion                 Increase % ’03              Increase % ’97
USA                         45,4                        0,7                         24,3
Japan                       21,9                        3,2                         8,1
France                      12,1                        5,0                         33,6
Germany                     11,6                        1,4                         22,8
UK                          10,1                        4,7                         21,6
Italy                       8,5                         2,5                         27,4
Brazil                      7,3                         12,2                        113,7
China                       6,0                         7,8                         63,2
Spain                       5,7                         5,6                         56,7
Russia                      5,3                         14,3                        31,3

Source: Euromonitor

Valuable Bioactive Marine Ingredients and Supplements for the US Nutriceuticals Market      02/06/2008       5
The Nutriceuticals Market

The Nutrition Business Journal (NBJ) defines Nutriceuticals as ‘a food or part of a food that
offers medical and/or health benefits including the prevention or treatment of disease’.
Products range from isolated nutrients, dietary supplements and diets to genetically
engineered designer foods, functional foods, herbal products and processed foods such as
cereal, soup and beverages. NBJ quantifies Nutriceuticals as all natural/organic foods, all
functional foods, all dietary supplements, approximately 62% of lesser evil foods and
approximately 8% of market standard foods.

World demand for nutriceutical chemicals will advance 6.1 percent annually from today’s
USD 7.1 billion to USD 9.6 billion in 2008, serving a USD 173 billion nutritional products
industry. Advances will reflect rising consumer income levels, increasing investment in bulk
and endues product industries, and trends promoting preventive medicine. The developing
nations of Asia/Pacific, Latin America, Eastern Europe and Africa/Middle East will provide
the fastest growth for nutriceuticals, with China remaining the fastest growing national
market. Nonetheless, the US, Japan and major West European countries will remain the
largest global producers and consumers due to greater economic prosperity, healthier
lifestyles and widespread consumer awareness of nutritional requirements. Nutrients, minerals
to remain dominant World demand for nutrients and minerals will reach USD 4.8 billion in
2008, up 5.4 percent annually from 2003. Soy proteins and isoflavones, psyllium fibers,
omega-3 fatty acids, probiotics and lycopene will generate the fastest gains based on
applications in meal substitutes, energy drinks, and functional foods and beverages. Natural
forms of vitamins A and E will provide the best growth opportunities among bulk vitamins
due to performance and cost-effectiveness advantages over synthetic versions. Sales of
vitamin C and folic acid will continue to raise moderately based on breadth of product
applications and strong evidence of disease prevention benefits. Due to widespread
deficiencies, calcium and magnesium will continue to hold the largest share of world
nutriceutical demand among minerals. Herbal/non-herbal extracts to grow the fastest. The
strongest growth opportunities worldwide will remain in herbal and non-herbal extracts,
which will grow 9.9 percent annually to USD 2.4 billion in 2008.

Increasing scientific evidence of health benefits, widening worldwide acceptance by
consumers and health professionals, and improving raw material quality will boost sales of
natural and alternative medicines. This trend will impact favourably on demand for herbal
extracts such as ginkgo biloba for enhanced cognitive properties, saw palmetto for benign
prostate hyperplasia, ginseng for energy boosting and black cohosh for post-menopausal
symptoms. Glucosamine (in combination with chondroitin) will generate the fastest sales
gains among non-herbal compounds due to proven benefits in arthritis management. Although
subject to periodic market volatility, herbal and non-herbal extracts will fare well in most
countries based on health cost-saving advantages and the introduction of new, improved end-
use products produced according to upgraded quality standards.




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Trends in Nutriceuticals Market

The following factors will ensure growth for nutriceuticals the coming years:

    •    Governments’ tendency toward a preventive approach with regards to public health
    •    Health costs increasingly higher
    •    Aging of population in the industrialized countries
    •    Baby-Boomers (desire to maintain their health and their activities)
    •    Consumer attraction for alternative products
    •    Increased consumer awareness and healthier way of life (the self-care movement)
    •    Better quality products supported scientifically, and a more effective marketing
    •    Increased interest from large companies associated to this industry’s development



The World’s Market for Nutriceuticals




Source: Nutrition Business Journal 2001



The U.S. Nutriceutical Market

Food sales in the United States totalled over USD 544 billion US in 2004. By NBJ’s latest
compilation of 2004 sales, healthy foods or nutriceuticals (natural and organic foods,
functional foods and lesser evil foods) accounted for USD 102 billion of US food sales.
Reaching 20% of total food sales from 13% in 1995 represents a substantial shift for healthy
foods, and notably nearly USD 50 billion in additional annual sales in the food industry that
has only grown 1-3% per year.

The United States constitute the world’s largest nutriceutical ingredients market. This country
represented 36% of the world market in 2000 equal to USD 49.5 billion. In 2005 the figure


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has grown to USD 74.5 billion. There are more than 85 ingredients manufacturers in the
United States and 20% of them monopolize 70% of the income on the American market.


2004 U.S. Food Sales of USD 544.14 billion




The US Market for Nutriceuticals




Source: Nutrition Business Journal 2001




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Functional Foods

NBJ quantifies functional foods as those with added ingredients or that are concentrated
specifically for health or performance purposes. They include enriched cereals, breads, sports
drinks, sports bars, vitamin-enhanced snack foods, baby foods, prepared meals, etc. Overall
functional foods accounted for 4.5% of total US food sales in 2004 (excluding food service)
with considerable variation by category. Growth of functional foods in 2004 was 6.8%
compared to only 1.6% for total food sales. NBJ’s forecast has 2005 growth near 9%,
reflecting the re-surgence in juice, the momentum of sports and energy drinks and the ongoing
conversations in cereals. Beyond 2005, NBJ’s annual growth forecasts are 5-7% range
through 2010. In 2004 the total market in real terms was estimated to USD 27,5 billion and is
expected to grow to USD 34,2 billion in 2010.



2004 US Functional Food Sales in USDm and Penetration by Category




By major category in functional foods, beverages accounted for 54% or USD 13.2 billion of
the USD 24.3 billion 2004 US total. Beverage sub sectors reflected notable variances, with
sports and energy drinks together posting 20% growth and both frozen and fresh juices
declining in 2004. Breads and grains remain the second largest functional food subcategory at
22% with cereals as its largest contributor. But cereals’ overall decline in sales over the past
decade has caused the share of breads and grains in functional foods to drop eight points from
over 30% in 1995. Snack foods accounted for 10% of the US functional food sales in 2004,
but now the well chronicled fall of nutrition bars, mostly due to low-carb, lead to a sales
decline in 2004 and likely also in 2005. Rounding out the major categories are prepared foods,
which accounted for 8% of functional food sales in 2004 and diary at 6%. The top 25
functional food companies show equal variety in 2004 growth, and also demonstrate the
relatively consolidated nature of the business as these firms account for 70% of functional
food sales.




Valuable Bioactive Marine Ingredients and Supplements for the US Nutriceuticals Market   02/06/2008   9
Top Five Functional Food Companies 2004




Source: Nutrition Business Journal


US Suppliers and Buyers of Nutriceutical Ingredients


        Advanced Nutra LLC
        AIDP Inc.
        AIE Pharmaceuticals
        AIGI - MDH Natural Products Co. Ltd.
        Alfa Chem
        Algatechnologies
        All American Pharmaceutical
        Allied Biotech Corp.
        American Color Research Center Inc.
        Amitco International
        Artemis International Inc.
        Asiamerica Ingredients Inc.
        Atria BPH Inc.
        B & D Nutritional Ingredients Inc.
        B.I. Nutricueticals
        Barrington Nutritionals
        BASF Corp.
        BattleChem Distribution Inc.
        BCH America Inc.
        Beijing Gingko-Group Biological Technology Co. Ltd.
        BioActive Technologies International Ltd.
        BioChroma Life Science Co. Ltd.
        BioNaturalle
        Blue California
        BILLIONP Ltd.
        CarboMer Inc.
        Carotech Inc.
        Charles Bowman & Co.
        Chemphar Organic (India) Pvt. Ltd.
        Chr. Hansen Inc.
        Cognis Nutrition & Health
        Colorado Therapeutic Enterprises
        Davos Life Science Pte. Ltd.
        Derquimica Oro Soc. Ltda.
        Dews Research Laboratories LLC
        Divi's Laboratories USA Inc.
        DKSH North America Inc.


Valuable Bioactive Marine Ingredients and Supplements for the US Nutriceuticals Market   02/06/2008   10
        DNP International
        Dr. Herbs India Avenue
        DSM Nutritional Products Inc.
        Du-Hope International Group
        DYNADIS
        East-West Imports
        Enorbis LLC
        EVESA
        Falcon Trading International
        Farbest-Tallman Foods Corp.
        Fenchem Enterprises Ltd.
        Food Ingredient Solutions LLC
        Fortitech Inc.
        Fraken Biochem Co. Ltd.
        Freeman Industries LLC
        GMP Laboratories of America Inc.
        GNT USA Inc.
        Green Biochemicals US Inc.
        Hawk Biopharma
        Health Chemical Co. Ltd.
        Hebei Sanxin Industry Group
        Helm New York Inc.
        HNZ Portlink Inc.
        Icon Pharmaceutical Inc.
        Inca Health S.A.
        Inno Pharm Chemicals Ltd.
        InovoBiologic
        IRMA Corp.
        Ji'an Natural Plant Extraction Factory
        JLM Industries Inc.
        Kaden Biochemicals GmbH
        KAZ International Inc.
        Kingchem LLC
        MAK Wood Inc.
        Marco Hi-Tech JV LLC
        Marine Nutriceutical Corp.
        Mauves Laboratories Inc.
        Maypro Industries Inc.
        Modern Natural Products
        MTC Industries Inc.
        NanJing Phyto-Spring I/E Co. Ltd.
        Nantong Foreign Trade Medicines & Health Products Co. Ltd.
        Natraceutical Group
        Nature's Thyme LLC
        Naturex Inc.
        NHK Laboratories Inc.
        Novepha Co. Ltd.
        Nutriland Group Inc.
        NutriScience Innovations LLC
        O.C. Lugo Co.
        OmniActive Health Technologies Inc.



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        Orcas International Inc.
        Organic Herb Inc.
        P.L. Thomas & Co. Inc.
        Pangaea Sciences Inc.
        Parry Nutricueticals Ltd.
        Pharmachem Laboratories Inc.
        Pharmanutrients Botanical Corp.
        Pharmline Inc.
        Phytoline Inc.
        Phytoremedies Biolabs Pvt. Ltd.
        ProFood International Inc.
        Qingdao Samin Chemical Co. Ltd.
        Raw Deal Inc.
        Ray-Gain International (Shanghai) Co. Ltd.
        RFI Ingredients
        RIA International LLC
        Sabinsa Corp. - UT
        Scandinavian Formulas Inc.
        Seatech Bioproducts Corp.
        Seltzer Ingredients
        Shanghai Sipi Pharmaceutical Co. Ltd.
        Solanova LLC
        Source Connections LLC
        SourceOne Global Partners
        Stauber Performance Ingredients Inc.
        Stryka Botanics - CA
        Stryka Botanics - UT
        Stryka Botanics Headquarters - NJ
        Sunrise Consulting
        Suntec Inc.
        SuperVitamins Sdn. Bhd.
        Syntech (SSPF) International Inc.
        Tharos Laboratories Inc.
        To Your Health
        Union Industry Co. Ltd.
        Universal Preserv-A-Chem Inc.
        Valensa International
        Vidya Herbs Pvt. Ltd.
        Vitamer Labs
        Watson Inc.
        Westco Chemicals Inc.
        WILD Flavors Inc.
        World Actives LLC
        Wright Group, The
        Yangzhou Chemical Import & Export Co. Ltd.
        Yunnan Yuanjiang Evergreen Biological Industry (Group) Co. Ltd.
        Zhejiang Medicine Co. Ltd. - Xinchang Pharmaceutical Factory




Valuable Bioactive Marine Ingredients and Supplements for the US Nutriceuticals Market   02/06/2008   12
Marketing and Distribution Channels for Stand Alone Nutriceuticals
and Functional Foods in the US

The predominant marketing and distribution channels for health foods are are:


Natural Health Food Retailers
The Natural Health Food retail channel represents natural & health food stores supplement
stores and specialty retail sales outlets.


Mass Market
The Mass Market channel represents conventional grocery, drug, mass merchandise, club and
convenience stores. The independent pharmacies and drug stores (30k outlet in the US) are
attracted to natural health foods as differentiating factor for competitive advantage vs. the big
three Walgreens, Brooks and CVS. The big three (50k outlets in the US) demand relatively
large margin and is a less attractive outlet for non-mainstream products


Mail Order
Mail Order sales are defined as consumer purchases of nutrition products from direct-to-
consumer sellers that utilize catalogues, direct mail or infomercials to reach their customers
and facilitate sales.


Multi-Level/Network
Also known as direct selling, the Multilevel Marketing channel consists of products or
services marketed person to person by independent salespeople. Salespeople are commonly
referred to as distributors, representatives and consultants. Products are sold primarily through
in-home product demonstrations, parties and one-on-one selling. Known companies are:
Herbal life, Xango (grown to USD 300 mill over 3 years), Shaklee and Amway.


General Practitioners
Practitioner sales are made up of products to consumers by health practitioners. Included in
the Practitioner channel are: Chiropractors, Traditional Chinese Medicine Specialists,
Acupuncturists, Homoeopathists, Massage Therapists, Naturopaths, Osteopaths,
Aromatherapy Specialists, Faith Healers, Biofeedback Specialists, Meditation/Relaxation
Therapists, Hypnotherapists, Hydrotherapists, Ayurvedic Specialists, and
Mainstream/Conventional Medical Practitioners (M.D.s, G.Ps, etc). A powerful channel it
only carries products with a strong story line and value proposition.


Internet
Internet sales, otherwise known as E-commerce sales, are defined as consumer purchases of
nutrition products from direct-to-consumer sellers that utilize Internet websites to reach their
customers and facilitate sales.

Valuable Bioactive Marine Ingredients and Supplements for the US Nutriceuticals Market   02/06/2008   13
The Case of Omega 3

Background

Omega-3 and omega-6 fatty acids are very important to our everyday life and function.
Omega-3 and omega-6 fatty acids are critical in the structure of our cell membranes and the
development of the nervous system and form the foundation for the synthesis of cell
mediators (prostaglandins and leukotrienies). These cell mediators play an important role in
human physiology and can affect coagulation, inflammation and proliferation of certain cells.


Omega 3 in the US

Within human consumption there is a rising demand for Omega 3, as a nutriceutical
ingredient in functional foods and as a dietary supplement. The 2005 global market for
Omega 3 as ingredient was estimated to be 49000 tonnes annually, worth around USD 700
million dollars, and with an estimated growth per year between 10 to 15%. The European
market constituted 28%, the ROW equalled 42% and the American market equalled 29% or
USD 205 million. 75% of all the Omega 3 was from marine sources (fish), 19% from algae
and the rest from flax seed.

70% of the all the Omega 3 is applied as dietary supplement, 15% goes into functional foods,
%5 goes to baby formulae and finally 10% goes in to pet food.

As feed supplement for farm animals the willingness to pay for high quality fish oil is lacking.
However, lower quality Omega 3 is extensively used in milk and egg production.

Thus the 2005 US market for Omega 3 as an ingredient was estimated to be USD 205 million,
whereby 65% was from marine sources (fish). One of the largest US suppliers (Ocean
Nutrition) claims that the market for Omega fish oil supplement is worth USD 300 million
and will grow by 25% each year.


In 1998 USA and Europe launched 48 new functional food products containing Omega 3. In
2006 745 new products with Omega 3 added was launched.




Valuable Bioactive Marine Ingredients and Supplements for the US Nutriceuticals Market   02/06/2008   14
Markets for Omega 3 and life cycle positions




The European market is relatively mature, but still represents growth potential. The North-
American market has larger potential for growth. The total growth rate for the World market
is expected to be between 8 and 20%, and the US market shows the largest growth. Estimates
for 2010 forecast a World market for Omega 3 worth USD 1 billion, 50% of this will come
from the North-American market.

As seen in the figure below the market for cod liver oil derived Omega 3 is declining, but the
market for or algae oil, and fish oil for supplement and ingredient in functional food is on the
rising.


Sources of Omega 3 and life cycle positions




In terms of price points the market accepts a higher price point for Omega 3 oils to be applied
in functional foods and nutriceuticals. Price is a function of quality.

Source: Frost&Sullivan, Rubin rapporten 2007

Valuable Bioactive Marine Ingredients and Supplements for the US Nutriceuticals Market   02/06/2008   15
The Case of Carotenoids

Background

Carotenoids are an important class of natural fat soluble pigments commonly found in many
plants, algae and photosynthetic bacteria, where they play an important role in photosynthesis.
They are recognized widely as giving many plants, fruits, flowers and vegetables their orange,
red and yellow colors and it is through diet that many animals such as salmon, trout and
flamingos obtain their flesh and feather colorations. In nature, over 620 carotenoids have been
identified and characterized.

Carotenoids in animals, including humans, are widely recognized as having important anti-
oxidant activities, with some acting as a pre-cursor source of vitamin A, helping to protect
against certain types of cancer. There is substantial evidence that anti-oxidants have an
important role to play in protecting the body from oxidative stress induced by a variety of
diseased states, life-style choices, the aging process and exercise.


Nutriceuticals and Carotenoids in the US

More than 60 percent of Americans are aware of the antioxidant carotenoids lutein, up from
50 percent in 2001, according to the Natural Marketing Institutes (NMI) fifth annual Health &
Wellness Trends Study (2004). NMI also found nearly one-third of shoppers thought it was
important for their stores to carry foods and beverages enriched with lutein.

Both synthetic and natural dietary carotenoid supplements are available in the nutriceuticals
industry. Such supplements may be found as synthetic all-trans beta-carotene, beta- and
alpha-carotene from the algae Dunaliella or as mixed carotenes from palm oil. The market for
carotenoids is currently about USD 887 million, according to recent data from Business
Communications Co., which expects the market to reach USD 1 billion by 2009. Leading the
growth spurt, lutein has experienced rapid growth of 6.1%, and astaxanthin is making strides
with a 1.9% growth rate. Carotenoids are most commonly used as nutrients in dietary
supplement applications, colorants in foods and, to a lesser extent, as antioxidants in
cosmetics. Globally, carotenoids are used far more in foods (as colorants and vitamin A) than
in supplements, with cosmetic use only a minor percentage. In the United States, the situation
is nearly reversed, with carotenoid use in supplements exceeding that in foods, due to costs.
Carotenoid product trends appear also to be driven by the increased research findings on
health benefits.

The market value of the carotenoids beta-carotene was estimated at USD 242 million in 2004.
This is an increase of about USD 30 million compared to 1999. Food is still the most
important outlet, where it is widely used as a coloring. The supplement segment is next and
all other applications are still of low importance. The traditional players DSM and BASF
dominate the market. However, increasing competition from Asia has resulted in price
pressure, which will result in a very moderate average accumulated growth rate (AAGR)
through 2009 of 0.9%.


Valuable Bioactive Marine Ingredients and Supplements for the US Nutriceuticals Market   02/06/2008   16
Different types of carotenoids applied in the US

The main categories of carotenoids still are the same; no new types of carotenoids have
entered the market. However, in various product categories, there were developments in
technology, applications and markets, as well as suppliers.

Astaxanthin, the carotenoid widely used to pigment salmon and trout, is the second largest
carotenoid, with a market value of USD 234 million in 2004. Its market grew over the past
five years by less than USD20 million, mainly because of substantial competition.
Canthaxanthin also became very popular in fish pigmentation and took some of the traditional
astaxanthin market away. Upcoming fermentation routes will further put astaxanthin under
price competition, and thus the market value in 2009 is estimated at USD257 million.

Canthaxanthin, traditionally used to give a red shade to egg yolks, became popular in
aquaculture, and that application could offset a diminishing market value in the traditional
segment. Overall market value was estimated at USD 148 million in 2004. For 2009 a slight
recovery to the old level of USD 156 million is seen, mainly because of strong volume growth
and only a moderate price decrease.

The big marketing success of the recent years was, however, lutein. Until the end of the
1990s, lutein was mainly used to color egg yolks and partly for broiler skin. After 2000 a new
application developed in supplements when it was demonstrated that lutein could help to
reduce age-related macular degeneration disease. A new outlet in supplements was created
and pushed lutein's market value up to USD 139 million in 2004, compared to USD 64
million in 1999. It is anticipated that strong growth will continue, and thus, lutein's market
will grow at an AAGR of 6.1% through the forecast period.

All other carotenoids, such as lycopene, zeaxanthin, apo-carotenal and annatto, are of minor
importance. Lycopene also saw substantial growth in past years, while annatto and apo-
carotenal products did not grow much in terms of market value. Zeaxanthin, acting
synergistically with lutein, did see some major market growth, although starting from a very
low level.

The largest outlet will remain feed, mainly because of the outstanding importance of
astaxanthin and canthaxanthin. Supplement use will increase, while food applications will
remain relatively small. It is only beta-carotene and annatto that have importance in foods-all
other carotenoids are either used in feeds or in supplements. Europe was always the largest
market, and this is supposed to remain so in future. North America follows and other regions
of the world are of less importance. Most of the carotenoids are currently produced by
chemical synthesis and partly by extraction from plant material. DSM and BASF remain
leaders in this segment, DSM with a global market share of 54% for all carotenoids. It is
expected that both DSM and BASF will dominate the carotenoid market for the next 5 years.
However, fermentation of natural carotenoids has started to play a role. Due to some
technological breakthroughs in past years, it is expected that fermentation methods will play a
more important role in the future.

See Tables below for World Carotenoid market and US suppliers of carotenoids.




Valuable Bioactive Marine Ingredients and Supplements for the US Nutriceuticals Market   02/06/2008   17
                   Global Carotenoid Market by Product Type, through 2009
                                        ($ Millions)
                                            AAGR%             Percent of Total,          Percent of Total,
 Product                2004      2009
                                            2004-2009              2004                       2009
 Astaxanthin            234.0      257          1.9                  26.4                       25.1
 Beta-carotene          242.0      253          0.9                  27.3                       24.7
 Lutein                 139.0      187          6.1                  15.7                       18.3
 Canthaxanthin          148.0      156          1.1                  16.7                       15.2
 Others*                123.9      170          6.5                  14.0                       16.6
 Total                  886.9     1,023         2.9                  100.0                      100.0
*Includes Lycopene, Annatto, Zeaxanthin, Apo-carotenal and Apo-carotenal-ester.
Source: BCC, Inc.




                   Global Carotenoid Market by Product Type, 2004 and 2009
                                        ($ Millions)




              *Includes Lycopene, Annatto, Zeaxanthin, Apo-carotenal and Apo-carotenal-ester.
              Source: BCC, Inc.




US Natural Carotenoid Manufacturers

Kemin                                  www.kemin.com
Cognis                                 www.cognis.com
Cyanotech                              www.cyanotech.com
Lycored                                www.lycored.com
Carotech                               www.carotech.net
US Nutra/Valensa                       www.usnutra.com
Fuji Health Science, Inc.              www.fujihealthscience.com
H. Reisman Corporation                 www.hreisman.com
Pharmachem Labs Inc                    www.pharmachemlabs.com
O C Lugo Co Inc                        www.oclugo.com

Source: Nutrition Business Journal, Natural Marketing Institute


Valuable Bioactive Marine Ingredients and Supplements for the US Nutriceuticals Market            02/06/2008   18
Sources
Innovation Norway Boston data and information on file

Natural Marketing Institute (www.nmisolutions.com)

Nutrition Business Journal (www.nutritionbusiness.com)

Freedonia (www.freedoniagroup.com)

NutraceuticalsWorld (www.nutraceuticalsworld.com)

The Cosmeticsite (www.thecosmeticsite.com)

Freedonia (www.freedoniagroup.com)

Denzil Phillips (www.denzil.com)

BCC Research (www.bccresearch.com)

Euromonitor International (www.euromonitor.com)

Leading Edge Report Group

RUBIN rapporten: Råvarekilder for omega 3 oljer. Potensialer, ernæring/helse, bærekraftighet
og miljøstatus. Sammenligning norske og utenlandske kilder. 2007

Reports from Frost&Sullivan 2004, 2005, 2006 (www.frost.com)

Joar Opheim, CEO, Nordic Naturals Inc, US (www.nordicnaturals.com)




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APPENDIX - Case Studies


EPAX AS
Aalesund, Norway
www.epax.com



About Epax

EPAX AS is a world leading bulk supplier of ultra-pure, highly concentrated, marine-based
Omega-3 EPA/DHA fatty acids. EPAX AS is a Norwegian company based in Aalesund with
a sales and marketing office in Lysaker/Oslo. EPAX is a wholly-owned subsidiary of the
Norwegian company Austevoll Seafood ASA, a global pelagic fishery specialist which
operates in Chile, Peru and Norway, operating a fleet of fishing vessels with quotas. In 2005
the company’s annual sale was approximately NOK 150 million. In 2006 the annual sale was
approximately NOK 235 million.



Products

EPAX products are individually formulated with varying EPA/DHA ratios and concentrations
designed to target specific health concerns including cardiovascular, cognitive, mood and
mind, eye, joint, pre- and postnatal health, and to support a healthy inflammation response.
Click here to learn more about these health conditions.

EPAX' product portfolio of highly concentrated marine Omega-3 are uniquely formulated
with varying concentrations and ratios of EPA/DHA fatty acids which are designed to address
specific health concerns. These include:

•   Mood and Mind Health
•   Joint Health
•   Pre- and Postnatal Health
•   Eye Health
•   Cognitive Health
•   Cardiovascular Health
•   Healthy Inflammation Response




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Purity

In our manufacturing process, we have dedicated ourselves to producing the world’s purest
Omega-3 fish oils. As a result, we have gone beyond the industry’s method of defining fish
oil purity – simply measuring environmental pollutants – we also include oxidation
parameters and monitor trans fats.

EPAX uses the best raw materials available in order to achieve consistently high product
quality. They are specially selected to give the highest possible content of EPA and DHA, and
the best possible ratio of these two fatty acids in the end product.

As its source of crude oil, EPAX primarily uses fish caught off the Peruvian and Chilean
coasts, one of the cleanest ocean areas in the world. Fish species in this area contain high
levels of EPA and DHA fatty acids. These raw materials therefore provide an excellent basis
for producing EPAX oils.

Innovation

The company has a longstanding commitment to investing in research and development of
new applications for Omega-3 concentrated fish oil and remains committed to this endeavor.
They design condition-specific products supported by years of testing and clinical work.
When it comes to innovation, EPAX AS has achieved a number of industry firsts. We were:

•   the first to incorporate an “extra” step in the purification process
•   the first to produce EPA/DHA concentrates
•   the first to create condition-specific formulas
•   the first to commercialize enzyme esterification
•   the first to support our products with clinical trials
•   the first to surpass all global purity standards

Production Process

We produce all the EPAX oils at our plant in Aalesund, on the west coast of Norway. EPAX
AS has extensive experience of producing Omega-3 fish oils.

The EPAX plant holds GMP and HACCP certifications as well as an approval for production
of Active Pharmaceutical Ingredients (API).

Dedicated Facility. EPAX has a facility dedicated solely to the manufacture of Omega-3 fish
oils. No other types of fats, e.g. vegetable fats or animal fats, come into contact with the
production equipment and we thereby eliminate the risk of cross contamination.




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EPAX Complete value chain




.
US Market Efforts

EPAX complete product line is available in North America exclusively through Pharmline
Inc.

Pharmline Inc. is a leading global supplier and manufacturer of high-quality nutritional
ingredients, standardized phytonutrients and fine chemicals. The company specializes in
providing services to the dietary supplements and the food & beverages industries. Pharmline
is committed to providing its customers with the highest level of innovation, technology,
research & development and quality assurance, with strict adherence to GMP standards.

In July 2007 Gadot Biochemical Industries Ltd. (GBI), (http://www.gadotbio.com), a leading
manufacturer of ingredients and fine chemicals for the food & beverage, cosmetic, detergent
and pharmaceutical industries, bought 85% of Pharmaline. Pharmaline’s revenue in 06 was
approx. USD 37 million.

Recent News

Mood/joint targets boost EPAX omega-3 sales

9/8/2006 - Pharmline has reported sales of proprietary EPAX omega-3 fatty acid concentrates
are 40 percent ahead of sales from the same period last year, further evidence - if it were
needed - that nutritional lipids have become a hit in recent years.



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The omega-3 essential fatty acid category has been growing in double-digits for the past five
years and is projected to grow at rates of 8 percent on average leading up to 2010, according
to market analyst Frost & Sullivan.

Website: http://www.nutraingredients-usa.com/news/ng.asp?n=70448-pharmaline-epax-
omega




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CYANOTECH Inc.
Hawaii, US
www.cyanotech.com


About Cyanotech

Cyanotech Corporation, a world leader in micro algae technology and develops and
commercializes natural products from micro algae. The Company is currently producing
micro algae products for the nutritional supplement and immunological diagnostics markets in
addition to micro algae-based products for the aquaculture feed/pigments and food coloring
markets. Cyanotech produces all these products from micro algae grown at its 90-acre facility
in Hawaii using patented and proprietary technology and distributes them to nutritional
supplement, nutriceutical, cosmeceutical, and animal feed makers and marketers in more than
40 countries worldwide. Cyanotech was the first microalgae company in the world to obtain
ISO 9001:2000.

Cyanotech has designed, developed and implemented proprietary production and harvesting
technologies, systems, and processes that eliminate many of the stability and contamination
problems frequently encountered in the production of micro algae. The Company's
technologies, systems, processes and favorable growing location permit year-round harvesting
of its micro algae products in a cost-effective manner.

Cyanotech maintains an environmentally responsible philosophy in the development and
production of its products, using natural production methods and resources that employ
extensive recycling of raw materials and nutrients. The Company believes that these recycling
methods result in substantially lower operating costs. The production system operates without
the use of pesticides and herbicides, and does not create erosion, fertilizer runoff or water
pollution.

Products and Markets

Products                                                  Markets


BioAstin — Natural Astaxanthin                            Human Dietary Supplement
A powerful antioxidant with benefits                      BioAstin addresses varied markets, from
surpassing many of the leading vitamins                   suncare products (est. at $500 million
and beta-carotene, and with indications of                annually) to rheumatoid arthritis (with
health benefits for carpal tunnel                         two million Americans afflicted) to
syndrome,       rheumatoid       arthritis,               Carpal Tunnel Syndrome (with three
protection from sunburn, and immune                       million Americans afflicted) to the
response, among others.                                   general health and sports nutrition
                                                          markets.


NatuRose® Natural Astaxanthin       Aquaculture/AnimalFeed/Pigments
A red pigment used primarily in the The synthetic astaxanthin market is

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aquaculture industry to impart color to                   estimated at $200 million annually.
the flesh of pen-raised fish and shrimp.                  NatuRose competes in effectiveness and
Competes with synthetic astaxanthin,                      has proven benefits in survival rates,
which is made from petrochemicals.                        growth rates and immune response, as
                                                          well as superior pigmentation in several
                                                          species.


Spirulina Pacifica                                        Health and Natural Foods
A nutrient-rich dietary supplement,                       Cyanotech is the world leader in
Cyanotech’s unique strain is a vegetable-                 production of the highest grade Spirulina
based, highly absorbable source of                        product, Spirulina Pacifica. Sales are
phytonutrients, B vitamins, gamma                         spread widely throughout the US and 30
linolenic acid (GLA), protein and                         other countries.
essential amino acids.


Phycobiliproteins                     Immunological Diagnostics
Fluorescent pigments used for medical A small but stable research                                     and
diagnostics.                          diagnostics market.


Marketing and Sale
Cyanotech are actively marketing BioAstin in the United States and more than 40 countries
around the world through consumer, retail and trade advertisements, PR and trade shows
focused on industry customers who will include BioAstin in their retail products. Cyanotech
marketed at the Natural Products Expo West trade show in March 2006 at the Anaheim
Convention Center in California.

Cyanotech sells through multiple channels—from their own branded products sold directly
online and through retailers, to private-label packaged products sold to others, to wholesale
bulk products sold to manufacturers.



Collaboration

OceanGrow International

A new direct sales company called OceanGrown International (www.ogilife.com), dedicated
to sustainability and preservation of the environment, will soon be selling several natural
products with BioAstin as a key component. OceanGrown’s executives built their careers with
other multi-million-dollar food supplement companies and are looking to apply their
experience to redefine the MLM (multi-level marketing) channel with a focus on retail sales.

Valensa Internatonal
Cyanotech has also formed an important relationship with Valensa International
(www.valensa.com), the world leader in supercritical CO2 extraction. Valensa’s state-of-the-
art facility is capable of extracting large volumes of Haematococcus microalgae under very

Valuable Bioactive Marine Ingredients and Supplements for the US Nutriceuticals Market   02/06/2008         25
high pressure without the use of solvents to produce a very high quality Astaxanthin
oleoresin. A contract has been signed between Valensa and Cyanotech to guarantee Valensa
supply of Cyanotech’s Haematococcus to produce Valensa’s trademarked Astaxanthin
product, “Zanthin®.” On its part, Cyanotech is availing itself of Valensa’s outstanding
extraction capabilities to produce its “BioAstin®” raw material.

Europe

Since the approval by the European Union of BioAstin as a novel food early in 2007,
Cyanotech has developed a network of distributors and/or brokers in six key markets in
Europe. This network has significant experience and industry contacts, and will offer strong
customer service and technical support in the local languages throughout Europe.

Asia

In China, Cyanotech has received notice that BioAstin is the first astaxanthin product
approved for human consumption and registered in China by the Ministry of Health, where
BioAstin will be marketed through a single, dedicated agent.



Production and Purity
Cyanotech Corporation has been commercially producing microalgal products for over 21
years. During this time they have developed advanced technology which, combined with their
location on the pristine Kona Coast of the Big Island of Hawaii, allows them to produce
unialgal, contamination-free products.

Cyanotech's natural astaxanthin production is registered as an ISO 9001-2000 Quality
Management System, and holds a Food Establishment Permit from the State of Hawaii
Department of Health for manufacturing and processing. Cyanotech are also c-GMP and
operate under US Food and Drug Administration (FDA) guidelines. Each lot of BioAstin
Nautural Astaxanthin goes through rigorous quality control to ensure the highest quality and
purity. In addition to unsurpassed quality and purity, our many years of experience and
proprietary technology allow us to produce far greater quantities of Natural Astaxanthin than
the company’s competitors, and Cyanotech maintain a market share at over 95% of the animal
nutrition market for algae-based Astaxanthin products.


Recent News

January 31, 2008

Cyanotech reports marketing update


Kona-based Cyanotech Corp. announced several marketing developments Thursday.



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The company's natural astaxanthin product, BioAstin, soon will be sold as a component of
several natural products from OceanGrown International. BioAstin, a microalgae product, is a
key ingredient in OceanGrown's OAVE skin-care line, Cyanotech said. Cyanotech also
announced that Valensa International, a leader in carbon dioxide extraction, will extract large
volumes of microalgae under high pressure to produce a high quality astaxanthin oleoresin.
The companies have signed a contract to guarantee Valensa supply of the microalgae to
produce Valensa's Zanthin product.

http://www.bizjournals.com/pacific/stories/2008/01/28/daily41.html?ana=from_rss


November 07, 2007

Cyanotech Reports Improved Financial Results for the Second Quarter of Fiscal 2008

KAILUA KONA, Hawaii--(BUSINESS WIRE)--Cyanotech Corporation (Nasdaq:CYAN), a
world leader in producing high-value nutrition and health products from microalgae, today
announced financial results for the second quarter and first six months of fiscal 2008, ended
September 30, 2007.

Sales for the second quarter of fiscal 2008 were $2,604,000, compared to sales of $2,475,000
for the second quarter of fiscal 2007. Gross profit for the second quarter was $768,000, with
gross profit margin of 29%, compared to a gross profit of $404,000 and gross profit margin of
16% reported for the same quarter of the prior year. Net loss for the second quarter was
$344,000, or ($0.07) per diluted share, compared to net loss of $572,000, or ($0.11) per
diluted share for the second quarter of fiscal 2007.

Cash and cash equivalents were $758,000 as of September 30, 2007 compared to the March
31, 2007 balance of $1,444,000. Working capital was $2,672,000 at September 30, 2007
compared to $3,361,000 at March 31, 2007.

“Revenues increased moderately in the second quarter compared to the same period last year
as our product mix begins to reflect our new marketing orientation to human nutrition
products,” said Gerald R. Cysewski, Ph.D., Cyanotech’s Chairman, President and CEO.
“Sales of spirulina were down slightly while sales of natural astaxanthin were up 18%. Sales
of our branded BioAstin natural astaxanthin products increased 57%.

“During the second quarter, we launched two new condition-specific formulations,
JointAstin™ and CardioAstin™, under our new MD Formulas product line. These will add
breadth to our Nutrex Hawaii consumer products division and increase focus on our human
nutrition initiative.”

Sales for the first six months of fiscal 2008 were $5,187,000, compared to sales of $4,919,000
for the same period of fiscal 2007. Gross profit for the first six months was $1,514,000, with
gross profit margin of 29%, compared to a gross profit of $875,000 and gross profit margin of
18% reported for the same period of the prior year. Net loss for the first six months was
$726,000, or ($0.14) per diluted share, compared to net loss of $919,000, or ($0.18) per
diluted share for the same period of fiscal 2007.

http://www.businesswire.com/portal/site/google/index.jsp?ndmViewId=news_view&newsId=20071107006345
&newsLang=en

Valuable Bioactive Marine Ingredients and Supplements for the US Nutriceuticals Market   02/06/2008   27

				
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