A Global Overview of Herbal/Traditional Products

A Global Overview of Herbal/Traditional Products February 2011

Introduction A Review of Herbal/Traditional Medicine Expansion of Herbal/Traditional Products in the World Regional Analysis Competitive Insight Case Studies Convincing Consumers About Herbal/Traditional Products Challenges Ahead Summary: SWOT Analysis

Introduction Scope • This global briefing analyses trends and developments shaping the category of herbal/traditional products, including their implications in the Consumer Health industry across the globe.

Introduction Objectives and parameters Objectives • To provide an overview of the influence of traditional medicine in the category of herbal/traditional products. • To offer a perspective on trends that shape the performance of herbal/traditional products in the marketplace. • To analyse current global and regional developments. • To present country case studies relevant to the category. • To explore the consumer perception of herbal/traditional products. • To define challenges ahead. Parameters • All values expressed in this report are in US dollar terms, using a fixed exchange rate (2010). • 2010 figures are based on part-year estimates. • All historical data are expressed in current terms; inflationary effects are taken into account. • Forecast data are expressed in constant value terms. • Herbal/traditional products are also referred to as H/T to differentiate them from standard categories tracked in Consumer Health. • CCAs is the acronym used for the sub-category cough, cold and allergy (hay fever) remedies. • VDS is the acronym used for the sub-category vitamins and dietary supplements. • DS is the acronym used for the sub-category of dietary supplements • SWOT is the acronym used for strengths, weaknesses, opportunities and threats.

Introduction Key findings Traditional medicine makes a strong comeback as the industry experiences rising competitive pressure and consumers seek “safer and natural” alternatives. Growth disparity in the category Increasing regulatory activity in North America, Western Europe and Australasia constrains sales as more recalls and warnings emerge for questionable products. New packaged options fuel sales in Asia Pacific, Latin America and the Middle East. Asia Pacific leads retail value sales in the world Traditional Chinese medicine (TCM) and Ayurveda (India) gain momentum in Eastern Europe and Latin America. Health practitioners in those regions are training in TCM and Ayurveda to expand traditional healing in their countries. The category remains highly fragmented Convincing consumers is getting easier Awareness of self-care initiatives on prevention and early treatment benefits sales of herbal/traditional products. The purchasing behaviour of some consumers drifts towards “gentler” products as opposed to “toxic” conventional drugs. Increased regulation will clean up questionable products Enforcement of good sourcing and manufacturing practices to meet quality and safety standards is anticipated to increase. Governments and regulatory agencies are crafting enhanced regulation to protect consumers. Rising interest in alternative or integrative medicine to boost sales Healthcare budget constraints and rising insurance premiums make patients seek alternative treatments to cure their ailments, especially chronic diseases. Complementary Alternative Medicine (CAM) promotes herbal/traditional products. Science to secure success in future sales Herbal/traditional products backed by scientific research proving efficacy is the next key challenge. International initiatives to recognise and formalise traditional medicine will create sales opportunities for products with proven scientific evidence. Only a handful of international companies have an important presence. Competition is defined by the presence of many small regional and domestic producers selling artisanal variants of herbal/traditional products that cater to specific local demand. Traditional medicine to be formalised

A Review of Herbal/Traditional Medicine Understanding herbal/traditional medicine Reasons Behind the Popularity of Herbal/Traditional Medicine • As defined by the World Health Organization: • “Traditional medicine is the sum total of knowledge, skills and practices based on the theories, beliefs and experiences indigenous to different cultures that are used to maintain health, as well as to prevent, diagnose, improve or treat physical and mental illnesses. • Traditional medicine that has been adopted by other populations (outside its indigenous culture) is often termed alternative or complementary medicine. • Herbal medicines include herbs, herbal materials, herbal preparations, and finished herbal products that contain parts of plants or other plant materials as active ingredients”. • Definitional issues are a major challenge to be addressed by the industry since herbal/traditional products may be classified as standard or functional foods and beverages, dietary supplements or herbal medicines. Key Point: At the Congress on Traditional Medicine held in 2008, the World Health Organization (WHO) produced the “Beijing Declaration”. It invites member states: • to formulate regulatory policies that ensure the safety and effectiveness in the use of traditional medicines; • to create systems for licensing practitioners, and; • to promote communication between Western health practitioners and traditional healers. WHO estimates that 80% of the population in Asia Pacific and Africa uses traditional medicine on a regular basis, while two thirds of people in developed regions have purchased a herbal/traditional product at some point.

A Review of Herbal/Traditional Medicine The evolution of herbal/traditional medicine • Overlooked, and almost lost in some parts of the world, traditional medicine is making a strong comeback across the globe. The health benefits and long-established use of traditional medicine make herbal/traditional products an attractive option in times when many consumers mistrust the “toxic” effects of conventional OTC drugs, or cannot afford their high prices. • In drug discovery the artificial synthesis of molecules derived from herbal/traditional ingredients has translated into millions, if not billions of US dollars in revenues for many pharmaceutical companies. Smaller manufacturers of herbal/traditional products, many of them with limited financial resources, have exploited the use of “natural” ingredients opposed to “synthetic” options to reinvigorate this category. In many markets, the lack of official recognition or missing regulatory procedures allow herbal/traditional products to face less scrutiny and regulation when compared to conventional medicines. Examples of Traditional Medicine in the World

A Review of Herbal/Traditional Medicine Taking herbal/traditional products to market

A Review of Herbal/Traditional Medicine The legality of herbal/traditional products Example of An Herbal Medicine Discovery and Legacy • Improper identification of herbs and ingredients are in part to blame for health risks. Improved clinical studies and use of ethnobotany and pharmacognosy research can support improved databases to help suppliers easily identify the raw inputs used in herbal/traditional remedies. Products with long-established, proven therapeutic effects fare better in consumers’ recognition than those with fashionable, nutraceutical, unproven health claims. • Biotechnology is the current push to advance the knowledge of traditional medicine, but intellectual rights can create conflict. Companies are eager to patent the health benefits of traditional knowledge from developing countries, but protection initiatives may not let this happen. • In many countries a lack of official recognition persists as herbal/traditional products are deemed non-scientifically proven. Consequently, sales are not regulated by health authorities. • A significant disparity exists in the level of importance of herbal/traditional products across countries. About 40% of countries have established a legal framework for these products, but the remaining 60% do not have any type of formal regulation, according to a 2005 World Health Organization (WHO) report. The establishment of registration guidelines with minimum regulatory requirements can help protect intellectual property rights and patents. • The goal of governments is to ensure the quality, safety and efficacy of herbal/traditional products. The International Regulatory Cooperation for Herbal Medicines (IRCH), a network of regulatory agencies responsible for the regulation of herbal/traditional products, was established in 2006 for this purpose. Scientific research, clinical studies, population health trends, standardisation, dosing parameters and labelling are among the most important issues addressed by this organisation. • Herbal/traditional products face a critical problem deriving from false health claims based on non-scientific evidence, clinical evaluation and unproven efficacy. More complications arise as people may be unaware of adverse side effects or risky interactions with other drugs.

A Review of Herbal/Traditional Medicine The parallel of two approaches with the same goal: Health • In the reconciliatory process, conventional medicine has attempted to isolate the medicinal compound of a herb, yet many research studies have failed to replicate the full benefits provided by the herb as a whole. It is believed that an estimated 30% of modern conventional medicines derive directly or indirectly from medicinal plants and herbs. • A mistrust between conventional and traditional healing approaches remains a major challenge. It is difficult to communicate and reconcile their main principles. Joint efforts based on referral programmes to create partnerships can prove effective in the reconciliatory process between herbal/traditional and standard medicine. Integrative medicine or Complementary Alternative Medicine (CAM) is a relatively new term given to the adoption, training and implementation of a combined approach of conventional and herbal/traditional medicine.

A Review of Herbal/Traditional Medicine Current challenges facing herbal/traditional products • The resurgence of herbal/traditional products in consumer health brings higher demand for such products, yet further research to confirm health benefits is needed. In the post-recessionary environment, many research centres have seen their budgets cut as grants and funding move into other areas. For example, government healthcare organisations are more willing to pay for prescription drugs to treat cancer, cardiovascular and AIDS/HIV than to spend more funds in the research of herbal/traditional remedies. • The teaching curriculum of traditional medicine is limited in most medical schools. Courses are often only offered as optional to students interested in that study area. • A weak or non-existent legal framework is exploited to patent herbs and ingredients native to a region for the profit of a few international companies. • Higher demand for herbal products burdens agricultural and animal resources. Sustainable cultivation, harvesting, protection of endangered species, transport and storage are at early stages. • Rapidly growing demand for ingredients also contributes to poor good manufacturing practices (GMPs) jeopardising health. Products may sometimes contain the wrong herb due to misclassification, or be tainted with toxic metals or prescription drugs.

A Review of Herbal/Traditional Medicine The medicinal properties of popular herbs and plants

A Review of Herbal/Traditional Medicine Alcohol, the best-kept secret remedyin traditional medicine • Although alcohol is present in some consumer health products as an ingredient, little formal recognition exists for its sole use as a healing option. The potential abuse often associated with alcohol consumption or proscriptive religious beliefs inhibit further scientific research into its therapeutic benefits. • For centuries, alcoholic drinks such as wine, vodka, whisky, cognac and beer have been attributed medicinal benefits. Folk medicine has led people to believe that small amounts of these drinks can heal some minor ailments. Alcohol changes the chemistry in the body leading to the perception of health improvement. • Alcohol is still widely used as a rub for massage therapy. • The consumption of alcoholic drinks as traditional medicine is highest in Eastern Europe.

A Review of Herbal/Traditional Medicine Cannabis, a controversial traditional remedy • Cannabis has been used as a traditional medicine for the treatment of pain in India, China, the Middle East and Latin America. It is believed that cannabis or medical marijuana is a plant with good healing properties for the management of chronic pain and inflammation. • The International Association of Cannabinoid Medicines (ACM) has been actively promoting the recognition and use of medical marijuana around the world (see inset to the right for regulatory issues.) • For now, non-smoking cannabis is represented by synthetic versions of cannabis sold as prescription (Rx) drugs Marinol and Sativex, available in different countries around the world. These drugs are mostly used to treat pain from cancer. GW Pharmaceuticals, Otsuka Holdings Co Ltd, Bayer AG and Almirall Prodesfarma SA are all active in the distribution of this type of drug. • Pharmaceutical companies are not willing to give up their formal research of cannabis to growers and retailers for the traditional medicine market.

Expansion of Herbal/Traditional Products in the World Herbal/traditional dietary supplements dominate sales • Herbal/traditional dietary supplements is the largest sub-category represented by hundreds, if not thousands, of supplements with strong local roots. The most representative supplements at the global level include combinations (25%), ginseng (15%), ginkgo biloba (5%), and garlic (5%). • Warnings on child-specific OTC drugs in analgesics, cough, cold and allergy (hay fever) remedies, and digestive remedies have prompted many parents to shift their purchases to “safer” alternatives in herbal/traditional products, which have grown at the fastest rates over 2005-2010. • Herbal/traditional medicated skin care recorded a robust global CAGR of 11% in retail value terms derived largely from important sales of antifungals in Asia Pacific, especially China. • Cardiovascular benefits of omega-3, -6 and -9 fatty acids are now supported by scientific evidence. Consequently, rising demand comes from widening recognition among both traditional and conventional medicine practitioners.

Expansion of Herbal/Traditional Products in the World Ginseng is the star in herbal dietary supplements • The immune boosting properties of ginseng continue to attract consumption. China is the largest market with retail value sales of US$504 million in 2010, yet South Korea and Vietnam each showed the fastest growth in value at 33% in 2010. Outside the Asia Pacific region, Venezuela displayed impressive growth of 16%, mostly due to inflationary pressures. • People concerned with cardiovascular health are increasing their consumption of garlic, which reported global retail value sales of US$648 million in 2010. Japan comprised 22% of those sales, but the fastest growth was observed in Venezuela at 20% and China at 14% in 2010.

Expansion of Herbal/Traditional Products in the World Interactions and weak scientific evidence hinder growth • St John’s Wort has been undermined by its negative interactions when combined with prescription drugs such as cyclosporine and selective serotonin reuptake inhibitors (SSRIs). • The efficacy of evening primrose oil and echinacea has not yet been established causing sales to be rather flat over 2008-2010. In spite of this, echinacea still maintains a robust position as a preventative remedy against cold and flu symptoms. • Combination dietary supplements have evolved based on new ingredients or formulations, mostly from strong local roots.

Expansion of Herbal/Traditional Products in the World Herbal/traditional growth – selected countries 2009-2010 • % y-o-y growth • >10% • 6% to 10% • 2% to 5% • 0% to 1% • < 0% Key Point: Contrasts in growth Growth in developed economies remains weak or flat as regulation increases. In contrast, in populous countries in developing regions growth derives from increasing recognition and presence of packaged options.

Expansion of Herbal/Traditional Products in the World Asia Pacific leads sales of herbal/traditional products • Asia Pacific is the dominant player in retail value sales of herbal/traditional sales in the world. H/T dietary supplements comprised 49% of total global retail sales valued at US$14.2 billion in 2010. • The Middle East and Africa posted the fastest growth in retail value sales at 9% in 2010, via strong sales of H/T child-specific products that grew 15%. These products include cough and cold remedies made with honey and other natural ingredients, considered safe for children. The largest category in this region is H/T cough, cold and allergy (hay fever) remedies valued at US$110 million in 2010. • Eastern Europe observed the most impressive CAGR at 13% over 2005-2010. H/T cough, cold and allergy (hay fever) remedies comprised the largest portion of retail sales at US$534 million, or 36% of total H/T sales in that region in 2010. Interestingly, H/T smoking cessation aids grew the fastest at 38% in the same year. • Just four countries, the US, Japan, China and Germany, represented an impressive 53% of retail value sales in 2010. H/T dietary supplements represented 68% of retail value in the US, but H/T medicinal teas grew at the fastest rate of 5% as people moved away from conventional OTC drugs. In Japan, H/T dietary supplements also represented the largest category with a value share of 56%, while H/T cough, cold, and allergy (hay fever) remedies grew at the fastest rate at 2%.

Regional Analysis Herbal/traditional products in Asia Pacific • In 2009, the Council of Scientific and Industrial Research (CSIR) and the Ministry of Health and Family Welfare in India established the Traditional Knowledge Digital Library, a database of more than 230,000 formulations of Ayurveda, Unani, Siddha and Yoga. The intention is to publicly disseminate information about Indian traditional medicine and prevent granting patents to drugs related to traditional medicine already in use. The European Patent Office (EPO) has agreed with the initiative of the Indian government for future trade agreements. • In contrast, China is filing patents for herbal/traditional medicine that are expected to benefit only a handful of companies that can pay for patent protection. • The government in Malaysia established the Traditional Medicine Act in 2007, and now requires compulsory registration of traditional and complementary medicine practitioners with the Malaysian Ministry of Health. • In South Korea, the national complementary and alternative medicine use survey (NCAMUS) of 2006 revealed ginseng as the most common supplement taken by South Koreans. The survey also found that an estimated 60% of people use some type of herbal supplement in a year. • China and Japan dominate 60% of retail value sales. Traditional Chinese medicine (TCM) is transforming from artisanal packaging to formal presentations as the Chinese government standardises regulations for such products.

Regional Analysis Herbal/traditional products in Australasia • The Therapeutic Goods Administration (TGA) in Australia has taken a harder stance on the sales of herbal supplements. The Office of Complementary Medicines (OCM) and Complementary Medicines Evaluation Committee (CMEC) are reviewing questionable herbal products that might expose consumers to health risks. The Australian government expects to increase the regulation of herbal/traditional products through stricter requirements and marketing controls. • The National Institute of Complementary Medicine in Australia carried out a cost-benefit study for treatment of some chronic conditions with alternative medicine. The study found St John’s Wort to be cost effective in the treatment of depression, and omega-3 fatty acids from fish oils to improve cardiovascular health. • The Australian Health Workforce Ministerial Council issued a new National Registration and Accreditation Scheme for Health Professions that will mandate the registration of aboriginal and traditional Chinese medicine (TCM) practitioners starting 1 July 2012. • Rongoa Māori is the traditional medicine based on native plants of New Zealand. The New Zealand Association of Medical Herbalists (NZAMH) presented comments to the Ministry of Health on the “Development of a Natural Health Products Bill” in May 2010 to support the safety and efficacy of natural products, and to obtain official status for traditional medicine.

Regional Analysis Herbal/traditional products in Eastern Europe • Deep recession in 2009, slow recovery of personal income in 2010, and high prices for imported standard OTC medicines resulted in increased demand for inexpensive herbal/traditional products in most countries in Eastern Europe. Furthermore, a declining post-Soviet era medical system with fewer services and obsolete facilities promoted distrust in conventional medical treatments. • The use of herbs and minerals has existed for centuries in traditional medicine in Eastern Europe. Rock salt crystals and amber-based tinctures are among the most popular remedies in Poland, while medicinal teas are common in Russia. Siberian ginseng is a well-accepted herb widely used to boost the immune system of Eastern Europeans. • In Uzbekistan, the Ministry of Health partnered with the Association of Traditional Medicine of Uzbekistan to establish a programme aimed to research, preserve and develop Eastern European traditional medicine. • Traditional Chinese medicine (TCM) is gaining wider acceptance in Russia as more Russian health practitioners travel to China to receive TCM training. • Herbal/traditional products in Ukraine can be sold after being registered with the State under the Decree of the Cabinet of Ministers of Ukraine of 26 May 2005 No. 376 medicinal products specified by the Article 2 of the Law of Ukraine “on Medicines”.

Regional Analysis Herbal/traditional products in Latin America • Starting in 2008 the Bolivian government established a programme to foster the use of traditional medicine, in an effort to reduce healthcare costs and provide medical care to people who cannot afford conventional medicine care. • In April 2010, the School of Medicine at the National University of Cordoba in Argentina started an ayurvedic medicine programme to expand the knowledge and application of this traditional medicine in Argentina. Ayurvedic products imported from India have been approved for sale in Argentina, Venezuela, Costa Rica, Nicaragua and Honduras. • H/T cough, cold and allergy remedies are very popular in Latin America, and represented 41% of all retail value sales of herbal/traditional products in 2010. • Argentina reports the highest increase of retail value sales at 30% in 2010 thanks to strong growth in H/T cough, cold and allergy remedies and H/T medicinal teas. In contrast, Chile posts a modest growth of 3% as more Chileans can afford standard medicine as their standard of living improves. • Kraft Foods Inc is the company with the largest retail value share (16%) in 2010 thanks to its popular Halls medicated confectionery brand acquired from Cadbury Plc. GlaxoSmithKline Plc is a distant competitor with an 8% value share, mostly represented by brand Valda sold in Brazil as a herbal pharyngeal remedy.

Regional Analysis Herbal/traditional products in the Middle East and Africa • The Decade on African Traditional Medicine was established in 2001 to foster the formal standardisation and acceptance of safe and efficacious traditional medicine in African countries. Improvements have been reached via the establishment of a legal framework and herbal pharmacopoeias in 40 African countries. The Association for African Medicinal Plants Standards (AAMPS) has published several monographs of medicinal plants in the African Herbal Pharmacopeia (AfrHP). • A humanitarian group in Kirumba, Uganda introduced an herbal medicine first aid kit to address symptoms of minor conditions, and that was distributed to the local community. The effort provided a solution to a healthcare need based on the medicine that the local community trusts the most. • In the Middle East, traditional herbal medicine is an important part of self-care practices. An estimated 200 herbs and plants are currently used as remedies. • Israel is a country of contrast. While a large Arab population uses traditional medicine as an important part of primary care, the more affluent Jewish population gains easier access to conventional medicine treatments. • The Council of Ministers in Saudi Arabia approved the establishment of the National Center for Alternative and Complementary Medicine in 2008 as a way to make traditional medicine an official practice in that country.

Regional Analysis Herbal/traditional products in North America • Health Canada is closely monitoring Herbal Medicinal Products (HMPs) since more Canadians are using such products. This process will likely include an improved adverse event reporting system to protect consumers. • Retail value sales of H/T products increased in the US as consumers moved away from “toxic” standard drugs, and embarked on a new trend of preventing and treating minor ailments with more “natural” options. Alternative medicine and holistic practices gained popularity due to a strong development of health and wellness lifestyles. • Omega-3-6-9 (fish and non-fish) is one of the most dynamic sub-categories in dietary supplements, which posted strong growth of 24% in retail value sales, followed by tonics and bottled nutritive drinks with 23% in 2010. Many health practitioners are recommending that their patients include an omega fatty acid supplement to promote cardiovascular health, whereas tonics and bottled nutritive drinks are mostly represented by antioxidant formulations to boost the immune system. • Given the disparate amount of information available regarding the health benefits of herbal/traditional products, direct selling is an optimum channel for this product area. Direct selling representatives already have the attention, and usually trust, of their clients. It is easy for such representatives to identify the needs of their clients and communicate the health benefits of less known ingredients

Regional Analysis Herbal/traditional products in Western Europe • The EU Traditional Herbal Medicinal Products Directive (THMPD) faces legal challenges as industry groups do not want stricter regulations on the health claims marketed for their herbal products. These products need to be registered at the respective National Medicine Agencies of the Member States so they can be sold. Otherwise, they must be removed from the market by March 2011. The main problem is that product standards differ within Europe. The UK is currently working to standardise its herbal products regulations with the EU. • The European Medicines Agency (EMA) has increased the number of community herbal monographs and list entries produced by its Committee on Herbal Medicinal Products (HMPC) to 63. More are expected to be approved in 2011. • In the UK, consumer education about herbal/traditional products remains weak. Their packaging often carries greater weight than their actual ingredients. Many consumers respond to packaging, which often highlights the functional properties of a product, such as “calming”, rather than focusing on the active ingredients as many plants and herbs are unknown to consumers. • There is a major trend among Swiss consumers to purchase products at a lower price found in hypermarkets and supermarkets even if the “apparent” quality is not comparable to more expensive products.

Competitive Insight High competitive fragmentation slows growth • The global competitive environment for herbal/traditional products is highly fragmented. The five leading companies only represented a modest 11% share of retail value sales in 2010. The category is typically dominated by regional and local companies that cater to the traditional/herbal medicine system of a particular culture. Only a few multinational companies have been able to stand out. • KT&G Corp has seen a significant increase in sales thanks to its ginseng brand, Cheong-Kwan-Jang. The company has set up an ambitious expansion programme to widen sales in China, Japan and the US. However, Kraft Foods Inc is the leading newcomer in the industry after its acquisition of Cadbury Plc and the brand Halls in 2010. Halls enjoys strong brand recognition around the world as a trusted menthol medicated confectionery option. Wide distribution outside traditional chemists/pharmacies helps support strong sales and brand positioning. • Ricola AG also competes in the profitable medicated confectionery sub-category with eponymous brand Ricola. The company offers a wide array of product options from original hard-boiled candies to chews and medicinal teas. • The Procter & Gamble Co holds a robust position in herbal/traditional cough, cold and allergy remedies through brands such as Vicks VapoRub and VapoDrops made with menthol, eucalyptus and/or camphor, and valued at about US$406 million in 2010.

Case Studies Case study: India evolves through Ayurveda • Overall, herbal/traditional products are viewed as safe, effective and free from side effects in India. Herbal/ traditional products were previously considered old-fashioned and not as effective as conventional products by urban consumers. This perception is changing as more mainstream and multinational brands, such as Eno, Vicks and Strepsils have adopted ayurvedic ingredients or formulations highlighting the health benefits of traditional herbs. • Many Indian consumers have confidence and pride in traditional remedies, particularly in Ayurveda, with the support of a combination of educational public health policies and social factors. The prevalence of home remedies and mistrust of Western conventional medicines remains well-entrenched. • The bulk of consumption of herbal/traditional products in India occurs at home via unpackaged or artisanal forms of dried amla (Indian gooseberry), asafoetida, almonds, garlic cloves, dates, bitter gourd juice, milk, turmeric, fennel and carom seeds, honey, ginger, ghee, cloves and cardamom. • Herbal/traditional remedies are priced on a par with standard products. Branded herbal/traditional products are priced significantly higher than vitamins and mineral supplements, which are considered as essential medicines by the government to prevent and cure nutritional deficiencies.

Case Studies Case study: India and the competitive landscape • The Indian government owns and manages three enterprises that supply ayurvedic medicine to government hospitals, clinics and pharmacies. The Indian Medicines Pharmaceutical Corporation Ltd (IMPCL) manages a portfolio that includes 185 ayurvedic and 100 unani medicines worth an estimated US$4 million in sales in 2010, according to government records. Oushadhi is another enterprise offering a wide selection of 450 ayurvedic products in different formats and delivery mechanisms. Tamil Nadu Minorities Development Corporation Limited (TAMCO) is a micro-lending institution that supports small local producers of ayurvedic medicines. • In the private sector, Dabur India Ltd and Emami Ltd lead retail value sales in the category. Emami Ltd increased its share after the acquisition of competitor Zandu Pharmaceutical Works Ltd in 2009. • The Procter & Gamble Co is the most representative multinational through brands VapoRub and Vicks Cough Drops, while Revital remains the flagship herbal dietary supplement for Japan-based Daiichi Sankyo Co Ltd. • Sales of ayurvedic formulations, such as topical analgesics, digestive enzymes and chyawanprash, through independent grocers and supermarkets are the major contributors to sales. Generic and private label herbal/traditional products have a negligible presence as price-sensitive consumers typically opt to use ayurvedic home remedies, instead of purchasing inexpensive packaged products.

Case Studies Case study: Germany shaped by tradition • Germany is one of the few developed countries with strong roots in the use of alternative medicine in the forms of herbal/dietary products and homoeopathy. The availability of H/T products varies significantly according to categories. Retail value sales are notably strong in cough, cold and allergy (hay fever) remedies, and dietary supplements. • The trend towards “more natural” products holds considerable sales potential, offering manufacturers the possibility to increase their profile among consumers by adding herbal and/or traditional ingredients to their products or venturing into launching a homoeopathic or “natural” brand extension. Homoeopathic products are a main threat as they are taking sales away from H/T products. • The consumer target for H/T products is moving away from being mostly older women to other adult consumer segments, who support the environment and alternative health practices. • The German Commission E, a regulatory agency, publishes the monographs and a therapeutic guide for herbal medicines that have been adopted by regulatory agencies and international organisations. • The registration for H/T products using the simplified procedure under EU Directive 2004/24/EC reached 13 combination herbal/traditional products in 2009. The transition period for the directive ends in April 2011.

Case Studies Case study: Germany and the competitive landscape • The category remains clearly dominated by small domestic companies and brands that lack financial resources to invest in product innovation, frequent product launches and advertising. • Private label is mainly present across sales of herbal/traditional dietary supplements, as well as H/T calming and sleeping products. Grocery retailers, chemists/pharmacies and parapharmacies/drugstores are the most popular retail channels for H/T products. They continue to win market share using low prices to lure consumers. Drugstore chains Rossmann and dm, grocery discounters Aldi Süd and Aldi Nord and other grocery retailers accounted for a 5% of combined market share in 2010. • German companies have expanded their sales to the Middle East, North and Latin America. For example, Dr Willmar Schwabe GmbH & Co KG‘s brand, Umckaloabo, in herbal cough and cold remedies, can be found in several countries. Tebonin, a ginkgo biloba brand, also has international presence, but in some countries it is registered as a prescription drug. • CFP Brands Süßwarenhandels GmbH & Co KG enjoys high popularity in Western Europe thanks to the good reputation and consumer brand loyalty associated with Fisherman’s Friend, a medicated confectionery. The brand is also present in Asia Pacific and North America.

Convincing Consumers About Herbal/Traditional Products Traditional healers rising in popularity • Traditional healers are the main communicators of the health benefits and properties of traditional remedies and alternative medicine. They are variously referred to as herbalists, osteopaths, chiropractors, naturopaths, shamans, diviners or faith healers. • Licensing and professional requirements vary greatly by country. Developed economies usually require a certification or licence for practising traditional healing. • Paying for conventional health services can be expensive in some countries. For example, consumer health expenditure in North America ranks highest in the world due to expensive medical treatments and medicines. In contrast, subsidised conventional medicine in Western Europe, Latin America and Asia Pacific significantly reduces the healthcare burden on consumers. • Healthcare costs are rising due to a higher financial burden on governments to provide medical services to consumers. Modifications to health plans and reimbursements, and delisting of OTC drugs are pushing people to seek the most affordable options for healthcare. Alternative and traditional medicine is filling this gap. In January 2011, the Swiss government announced that it would start covering some of the costs of alternative medicine treatments. • The use of herbal/traditional products and the practice of Complementary Alternative Medicine (CAM) remains questionable to treat the pediatric population. Reports of adverse events in children are rising important concerns in some countries such as Australia and the US.

Convincing Consumers About Herbal/Traditional Products Consumers’ perception of herbal/traditional products • Many people perceive herbal/traditional products as “natural and risk-free”, unaware that they can also lead to negligent self-medication, especially for the treatment of serious conditions. Some people place so much faith in non-proven treatments that it may be too late to prevent or effectively treat a serious health condition such as cancer.

Convincing Consumers About Herbal/Traditional Products Charm and suspicion of herbal/traditional products The charm of herbal/traditional products • The appeal of a "natural" healing approach motivates many consumers to adopt herbal/traditional products. • A national survey by the National Institutes of Health in the US found that an estimated 18% of adults purchased at least one herbal dietary supplement, excluding vitamins and mineral supplements, in 2007. • Inspired by the “folklore and faith" of traditional medicine, people sometimes naively believe that herbal/traditional products will help prevent or cure a serious disease. Little scientific evidence supports a few products to work within a limit, but difficulty arises when assigning many unproven health claims and benefits to a single product. • Women are the main purchasers and users of herbal/traditional products. Research studies in several scientific journals indicate that many of them find comfort in traditional medicine as they can develop a closer relationship with a healer to discuss health issues such as pain, insomnia, digestive and gynaecological disorders. The suspicion of herbal/traditional products • Some people believe that herbal/traditional products are not effective as they work only due to a placebo effect. • People who rely on scientific evidence will not easily accept the health benefits of unproven herbal/traditional products. Traditional and alternative medicine is disregarded as “quack” or “snake oil” medicine with no medical value.

Convincing Consumers About Herbal/Traditional Products The role of media in promoting herbal/traditional products • Mass media such as TV and magazines brings education and awareness about herbal/traditional products to consumers. Advertising and editorial coverage in parenting and health-related magazines, for example, generates strong support for such products. Heavy use of mass media advertising exists in India for ayurvedic medicines. D’Cold Natural Rub (Paras Pharmaceuticals Ltd) is advertised on television. • The use of celebrities and testimonials to endorse products is a common practice. An increasing number of television shows hosting guests who are considered experts in the field of traditional and alternative medicine are being aired in many countries. In another case, the Seven Seas brand (Merck & Co) sponsors 75 year old, Jack Denness, who participates in the International Ultra Marathon competition in the Sahara to inspire ageing consumers. • Alternatively, recommendations by doctors or health practitioners endorsing holistic health and Complementary Alternative Medicine (CAM) are taking deeper roots among consumers. Dr Andrew Weil and Dr Joe Mercola in the US suggest herbal/traditional products play an important role in “natural” healing. • Another approach to promoting herbal/traditional supplements is through partnerships with health associations. For example, Pharmavite (Otsuka Pharmaceuticals) has partnered with the American Academy of Family Physicians' (AAFP) Consumer Product Alliance programme to promote healthy lifestyles. • Products need to have their efficacy scientifically proven in order to advertise specific health claims. Since efficacy is difficult to prove, regulatory agencies request manufacturers to include a disclaimer in their advertising related to health claims. In the UK, for example, the Medicines and Healthcare Products Regulatory Agency (MHRA) requires all advertising of traditional medicine to include the legend: “traditional herbal medicinal product for use in [specify one or more indications for the product consistent with the terms of the registration] exclusively based upon long-standing use as a traditional remedy.” Key Point:The Power of the Internet • Becoming a resourceful tool to find information on products and brands. • Risk comes from questionable manufacturers and retailers. It is difficult for consumers to properly assess the websites that provide reliable information. • Regulatory agencies are setting up comprehensive databases of the most popular herbal medicines as trusted sources available to health practitioners and the general public.

Convincing Consumers About Herbal/Traditional Products Herbal/traditional medicine versus homoeopathy • Sometimes herbal/traditional and homoeopathic medicines may contain the same botanical ingredients leading to apparent confusion, eg calendula, arnica montana, valerian etc. • However, their purpose and action mechanism is quite different. Extreme dilution of ingredients (tinctures) in alcohol and water is the foundation of homoeopathy. • Homoeopathy is very popular in Europe, and it is becoming more accepted in North and Latin America. Its rapid emergence is becoming a concern to pharmaceutical companies as it represents a new source of competition. Recently, advocates and critics have engaged in heated arguments as to the validity of homoeopathy. • In the US, the packaging of herbal/traditional products and homoeopathic remedies look very similar. These remedies are required to state “homoeopathic” in the packaging, but often the font type is so small that it is easy to miss. Moreover, the packaging for herbal/traditional products is almost identical to those of popular OTC brands.

Challenges Ahead The “natural” approach to boost future sales • Herbal/traditional medicinal teas are expected to show the fastest growth over 2010-2015, although their retail sales will only represent 3% of all herbal/traditional products in 2015. • Herbal formulations for hair loss, antipruritics and acne treatments are anticipated to support future sales of herbal/traditional medicated skin care. Particularly in acne treatments, salicylic acid combined with willow bark extract, lavender and jojoba are becoming popular among consumers who seek a more natural approach for treating minor cases of acne. • Recent positive research studies on the benefits of honey as a natural alternative to treat colds will help boost the use of honey granules in herbal/traditional cough and cold remedies. • The implementation of tobacco smoking bans in many countries have pushed people to seek alternatives to quit smoking. Nicotine replacement therapy (NRT) is one of the most popular over-the-counter options; however, an array of herbal dietary supplements are appearing in retailers. For example, Nicoban (Healthy Choice Naturals) is a herbal smoking cessation aid that blends passionflower, echinacea, burdock root, and other ingredients to help reduce tobacco cravings. • Fears of side effects of systemic non-steroidal anti-inflammatory drugs will boost sales of topical analgesics formulated with capsaicin, menthol, and camphor; whereas senna and castor oil are enjoying resurgence as natural laxatives in digestive remedies.

Challenges Ahead Prospects for some herbal/traditional remedies • The quest to reduce cholesterol levels in the blood will benefit products formulated with phytosterols. In December 2010, the Food and Drug Administration (FDA) in the US extended the heart health claim of phytosterols: “the agency determined that there is significant scientific agreement that diets that include plant sterol esters and plant stanol esters may reduce the risk of coronary heart disease (CHD).” • Rising concerns about overdose and abuse of dextromethorphan pushed innovation in cough remedies through plant-based capsaicin (TRPV1 antagonist capsazepine) and traditional honey as “safer” alternatives. A 2010 Cochrane Review found insufficient evidence for or against the use of honey; however, many parents feel more comfortable giving their children honey-based products over dextromethorphan. Suppliers of honey granules have seen a spike in demand for OTC products. • Herbal supplements with negative side effects at neurological and cardiovascular levels such as St John’s Wort and ephedra among others, have prompted stricter regulatory and inspection activities of dietary supplements. Moreover, adverse events with prescription drugs is an important reason for concern. The creation of an effective and standardised global database documenting the interactions of prescription drugs and herbal/traditional remedies is needed to reduce health risks. Herbal/Traditional Options: Positive Outlook Herbal/Traditional Options: Negative Outlook Phythosterols (plant sterols) Honey Spices: ginger, cumin, cinnamon, clove, turmeric, saffron, fennel seeds Capsaicin from chili peppers Garlic Fibre Goldenseal Hawthorn Grape seed extract St. John’s Wort Black cohosh Red yeast rice Ephedra Valerian Kava Comfrey

Challenges Ahead Global support to extend herbal/traditional initiatives • In December 2010, the World Health Organization (WHO) launched “The International Classification of Traditional Medicine Project” to classify herbs, plants and other products used in traditional medicine, with the goal to standardise them according to diagnoses and interventions. Consequently, it is expected that several regulatory agencies will set up new regulations or processes to oversee the approval and sales of herbal/traditional products. • A lack of health practitioner education on herbal/traditional dietary supplements is one of the main challenges for public health policymakers. Health practitioners of conventional medicine usually distrust traditional medicines on the grounds of weak clinical evidence of a health benefit. Yet, the dissemination of scientifically-proven knowledge to inform the medical community of the health benefits of certain herbal/traditional medicines is not effective. There are very few databases cross-referencing the uses, dosages, and adverse interactions related to the combination of conventional drugs with traditional/herbal products. • In Europe, the Health and Consumer Protection Programme 2008-2013 aims to: “recognise the importance of a holistic approach to public health and take into account, where appropriate and where there is scientific or clinical evidence about its efficacy, complementary and alternative medicine in its actions.” This public health effort is anticipated to boost future consumption of herbal/traditional products. • The de-listing of OTC drugs from government reimbursement plans and private insurance will push consumers to become more proactive in the prevention and treatment of chronic diseases. In the US, consumers cannot obtain a tax break from purchases of OTC drugs without a “prescription” under the flexible savings account programme beginning January 2011. So if consumers want to obtain the tax break, they will have to either spend money consulting a doctor to obtain the “OTC prescription”, which may prove more costly; swallow the expense of an OTC drug; or purchase herbal/traditional products, vitamins and dietary supplements to prevent getting sick or to treat minor ailments.

Challenges Ahead Future impact of herbal/traditional products on OTC drugs • An increasing regulatory environment around the world leads many companies and manufacturers to rethink their strategies in consumer health. A rise in the number of recalls, warnings and lingering problems in the supply chain is proving costly to companies in an environment where production and distribution costs keep growing. • A strengthening of the alternative medicine model now influences people to try “natural” treatment options. People are becoming more aware of some of the negative side effects of standard over-the-counter (OTC) drugs, including overdose and abuse. • One of the most representative examples comes from Johnson & Johnson Inc. The company faced numerous recalls due to failures in manufacturing practices leading to a significant loss in retail value sales of popular OTC global brands such as Tylenol in 2010. In a strategic move, Johnson & Johnson Inc introduced a new topical analgesic patch, Precise, formulated with menthol and capsaicin, to move away from the Tylenol scandal and offer consumers a “safer” alternative. Acetaminophen, the main ingredient of Tylenol, has also been tied to liver damage if overdosed. • This is not to say that standard OTC drugs face a particularly negative future; rather companies are including a few herbal/traditional options to cater to the changing consumer demand for “safer and natural” options.

Challenges Ahead Dietary supplements to dominate future sales • Herbal/traditional dietary supplements are anticipated to dominate future sales due to their highly localised influence as a reflection of preferred cultural and belief traits of each country and region. Herbal dietary supplements with scientifically-proven claims will win the most acceptance and retail value in the future as they build trust among regulators, the medical community and consumers. • Prevention and treatment of minor colds and coughs in a more “natural” manner is expected to support future sales of herbal/traditional products. In spite of honey’s rising popularity as an ingredient, current problems with the collapse of bee colonies in several countries may force manufacturers to rely more on the healing properties of menthol, eucalyptus and camphor in their formulations.

Summary: SWOT Analysis Herbal/traditional products SWOT analysis Industry Consumers Industry Consumers • Consumers are paying more attention to novel “safe and natural” options as they become more proactive in their health. • The fear of “toxic” conventional drugs pushes some people to try herbal/traditional products. • Questionable products still exist in the marketplace. The industry is working to denounce illegal or unethical producers and remove deceiving products from reaching consumers. • Many companies are introducing a wider array of products for different consumer segments. • Contaminated and tainted herbal/traditional products lead to mistrust that can affect future purchases. • Consumer watchdog groups and members of the medical community are applying pressure to inform the public on the dangers of “quack” or “fake” remedies tied to herbal/traditional remedies. • Only a few products can rightfully claim health benefits backed by scientific evidence. • Reliable information about the interactions of herbal/ traditional products and conventional drugs is very limited or non-existent. • International programmes are recognising and supporting the use of herbal/traditional products. • Traditional and Complementary Alternative Medicine (CAM) are becoming more common as treatments. • Competitive pressure and heavy advertising can lure consumers back to conventional drugs. • The risk of negative interactions with prescription drugs in ageing populations may slow growth in sales. • Stricter regulation on good manufacturing practice (GMP). • Increasing pressure to provide scientific evidence that supports quality, safety and efficacy. • Consumers may be willing to adopt healthy lifestyles and increase their expenditure on herbal/ traditional products as the economy improves. • Digital media can create positive awareness about alternative treatments. Industry Consumers Industry Consumers

A Global Overview of Herbal/Traditional Products