Benecol: Raisio’s Global Nutriceutical Essay

Raisio, a Finnish grain and chemical company, is the proud owner of a product that has been deemed one of the ten most important nutritional innovations in the world (â€Å"Benecol ®,† 2010). This product is a unique compound composed of plant stanol esters and has been scientifically proven to help lower cholesterol levels in humans. With the prevalence of high cholesterol in the world population and the incidence of mortality associated with a high cholesterol level, it is no wonder that Raisio had a deep desire to share their product with the world. Raisio’s first introduction of Benecol margarine was in November of 1995 in Finland and, even though it cost substantially more than regular margarine, Benecol flew off of the shelves (Moffett & Howard, 1999). Seeing the potential of Benecol, Raisio formed a plan to take it globally. A successful global product roll-out requires an intricate knowledge of the market and careful planning and preparation of all necessary channels. According to the Global Minds Network, there are 10 critical steps to global launch success. They are; 1) evaluate local market opportunities, 2) create a global plan and roadmap, 3) design an effective launch process worldwide, 4) engage launch team across cultures, 5) communicate across functions and cultures, 6) test your message and image, 7) internationalize customer communications, 8) ensure timely and localized deliverables, 9) deliver effective support tools to ensure global readiness, and 10) enable local sales teams through training (â€Å"10 Steps to Global Launch Success,† n. d. ). As Raisio had no prior knowledge of dealing in foodstuffs, they required a global partner who could perform the 10 steps. Johnson & Johnson was to be this partner. Using their McNeil Consumer Products group, they proposed a comprehensive production, promotion, and distribution strategy (Moffett & Howard, 1999). This strategy clearly defined the roles that each partner would perform and be financially responsible for. Raisio would continue to maintain control of the stanol ester including the production of it and the supply of the raw material or plant sterol. Their input of capital was geared toward keeping the supply constant and Raisio was quick to go into joint ventures with DRT (France), Detsa S. A. (Chile), and Westvaco Corporation (U. S. ). Along with building sterol production plants in these countries, Raisio also built another one in Finland (Moffett & Howard, 1999). Raisio would buy the stanols that were produced at the various plants and then turn them into stanol ester using a process that they had patented. McNeil would then purchase stanol ester exclusively from Raisio, make the products containing the ester, and send these products to market and promote them. McNeil had budgeted over US$80 million for the promotional commitment (Moffett & Howard, 1999). Two other items that were covered in the agreement between Raisio and Johnson & Johnson pertained to payments that would be made to Raisio. Raisio would receive royalties on the sales of all products containing Benecol and they would also receive milestone payments. The milestone payments were an incentive for Raisio and an insurance policy for McNeil. If McNeil were to introduce Benecol products into major markets, they needed to make sure that there would be no break in the supply chain regarding the stanol ester because any lag in the production of the ester could have serious implications for McNeil. If Raisio could not keep up with the demand for stanol ester, there would be no payment. As for being an insurance policy, introducing a new product into the market carries with it enormous financial risk, if Raisio only receives a milestone payment if the launch is successful, McNeil has alleviated some of their risk by sharing it with Raisio. Financially, if McNeil was able to get beyond the FDA and other regulatory hurdles, Raisio stood to make considerable gains. This was welcome news as Benecol sales in Finland had gone fairly flat and had only accounted for 2% of the Raisio Group sales just two years after it had been introduced (Moffett & Howard, 1999). Under the agreement with McNeil, Raisio would receive returns in the short-term, on a continuing basis, and over the life of the agreement. In the short-term, Raisio would receive milestone payments for the use of their intellectual property. These payments would start in 1998 and go thru 2001. Their amounts would be (millions of Finnish marks, FIM) 110, 150, 100, and 50 respectively. These payments are an assured inflow of cash and incur no direct expense associated with them. On a continuing basis, Raisio holds the patent on stanol ester so they would be supplying all of the stanol ester to McNeil. The projected amount ranges from 1723 tons in 1999 to 6851 tons in 2005. This gives Raisio continued sales of the ester and because they are partnered with McNeil, Raisio would receive an acceptable sale price. Projected revenues from the sale of stanol ester, for the years 1998 thru 2005, are (millions of FIM) 0, 1, 2, 3, 3, 3, 4, and 4. Over the life of the agreement, Raisio would be the recipient of any royalties from the sale of any products containing Benecol. The royalties are to be paid as a percentage of the retail product price. This is in the favor of Raisio because the royalties aren’t tied to profitability of the Benecol products. Royalty payments made to Raisio are projected to be (millions of FIM) 0, 108, 218, 279, 311, 340, 380, and 428 for the years 1998 thru 2005. In looking at the pro forma income statement, revenues from Benecol are predicted to rise from 2% of the Raisio Group sales to 8% by the end of 2005 thanks to the agreement with McNeil (Moffett & Howard, 1999). The strategy that Raisio needed was indeed partnering with a multinational company as time was of the essence due to possible competition entering the market first. Unilever, Forbes Medi-Tech, and pharmaceutical giant Novartis were on the heels of Raisio also trying to bring their products to market. Raisio had spent immense amounts of money and time formulating Benecol and doing clinical trials and did not want to lose out on any gains to be made (Moffett & Howard, 1999). Raisio was unfamiliar with this line of business so with the experience that Johnson & Johnson’s McNeil division had in the world of pharmaceuticals and consumer products; they were an excellent choice to assist in bringing Benecol to the global market. The only hurdles that now stood between Benecol and the world were regulatory issues. To bring Benecol to the market as quickly as possible would be difficult in Europe but even more difficult in the U. S. Of the three possible classifications that Benecol could be awarded by the U. S. Food and Drug Administration (FDA), qualifying it as a pharmaceutical would mean substantially larger value-margins as Benecol was shown to have as much, if not more, efficacy then the cholesterol-reducing drugs on the market, however, this path also required the most time (Moffett & Howard, 1999).