McGaw Park, IL (Sept. 16, 1999) -- When last we convened, I began our discussion of the cholesterol-lowering margarine spread Benecol, which is marketed under the McNeil Consumer Healthcare division of our Drip Port healthcare delegate Johnson & Johnson (NYSE: JNJ). We'll continue the series today, this time with less descriptive gobbledygook. Well, maybe less gook. There will still be plenty of gobbledy.

You'll recall that Benecol, when consumed three times daily, has demonstrated the ability to lower blood LDL (the "bad" cholesterol) levels up to 14%, thus decreasing the risk of heart disease. The plant stanol-derived food spread and its competitors represent a new phase in the emerging market of functional foods, sometimes referred to as "nutraceuticals."

The first functional food came about in the 1920s when iodine was added to table salt to prevent goiter. Before long, vitamin D was combined with milk to aid in the absorption of calcium, and eventually vitamin-enriched breakfast cereals became commonplace.

The next generation sprouted up recently in the form of foods and beverages containing a variety of herbal "remedies." Product lines such as SoBe refreshments and Arizona Iced Teas contain additives ranging from Astragalus to Yerba Mate. The explosion of herbal-enriched food products in the late '90s demonstrates the potential market for such functional foods. However, critics in the healthcare industry object to the vague and not-well-researched benefits that are attributed to these added ingredients, particularly in the concentrations present in such products.

The latest wave of cholesterol-lowering functional foods, including Benecol, is unique in that the additives are not only preventive in nature but also indirectly treat a disease state such as hypercholesterolemia, as well as aid in the prevention of related complications such as heart disease. And contrary to herbal supplements, the effects of plant stanols and sterols on cholesterol have been well-studied and documented.

The market for functional foods is already significant. Nielson Media Research estimates that $16 billion in sales were achieved in the U.S. in 1998, with expected growth of 10% annually. It's this latest form of nutraceutical, in my estimation, that will eventually dominate and expand this market by firmly entrenching itself into the everyday diets of people seeking to reduce disease risk while avoiding the need for prescription medications.

Benecol isn't alone on the dance floor, however -- and it wasn't the first to bust a move in the U.S. market. The Lipton division of Unilever NV (NYSE: UN) streamlined the approval process with the FDA by avoiding some of the terminology-related delays that McNeil/Raisio encountered and launched its soy-based version of cholesterol-lowering margarine, Take Control. Aside from the advantages of being first to the market, Take Control also enjoys a more favorable suggested usage regimen of one to two servings a day, compared to three times daily for Benecol.

The guest list isn't complete yet. Joining the party sometime in the near future will be Phytrol, a plant sterol extracted from tall oil soap, which is a byproduct of the wood-pulp making process. Phytrol was developed by Vancouver-based Forbes Medi-Tech and is being co-marketed by Novartis Consumer Health.

Although a product containing Phytrol isn't expected to hit the shelves until late 1999 or early 2000, one significant difference in the product compared to its peers may go a long way toward making up for its late start. The plant sterol extracted from tall oil soap is not restricted to fatty food products such as margarine, salad dressing, and yogurt, and can be utilized in a broader range of food products. Novartis/Forbes Medi-Tech also intends to sublicense Phytrol to already established food brands as an additive.

Competition in the cholesterol-lowing functional food market exists outside the plant sterol/stanol realm. Breakfast cereal giant Kellogg Co. (NYSE: K) recently introduced a full line of products including frozen entrees, bread, dry pasta, ready-to-eat cereal, baked potato crisps, frozen breakfast/dessert mini-loaves, and cookies under the Ensemble brand. Ensemble products are fortified with psyllium husk fiber, which has also demonstrated the ability to lower blood cholesterol.

If the market seems crowded, consider that the effects of the competing products could be used in concert. This will be especially important as different products emerge, leading to greater variety and flexibility and promoting "dosing" compliance. One might use Take Control on their breakfast bagels, enjoy Benecol salad dressing on their lunch salad, and complete the thrice daily optimal usage by snacking on a Phytrol granola bar while reading the Fool later that night. It occurs to me that this certainly isn't a zero-sum game.

When next we meet, I hope to have early sales numbers on the two products that are already on the market. In the meantime, if you have any thoughts on or experiences with Benecol or Take Control, please drop on over to the Drip Companies message board and share them. I'd be very interested in learning the community's perspective, as always.

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