FDA Forces Drink Maker to Can Health Claims

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First pomegranate juice, now a ginger-based energy drink.

One year after the Food and Drug Administration cracked down on health claims made by POM Wonderful LLC, the federal agency has warned Reed’s Inc., an L.A. maker of ginger ale and natural supplements, to take the fizz out of the supposed benefits of one of its products or risk having them seized.

In a warning letter sent in May, the FDA singled out Reed’s Natural Energy Elixir, saying the product’s labeling and information on Reed’s website claimed that ingredients would lower cholesterol, increase resistance to disease and act as an antidepressant.

Those claims, according to the letter, make the drink a drug – one that isn’t approved to treat anything.

That’s the same charge the FDA leveled last year at POM, the pomegranate-juice maker owned by Beverly Hills billionaires Stewart and Lynda Resnick. In both cases, said Northridge food marketer Steve Stallman, companies got into trouble because they didn’t follow well-defined FDA rules.

“It’s kind of ridiculous,” said Stallman, who helped develop products for Monrovia fruit-juice maker Naked Juice Co. “It’s very clear what you can do and what you can’t do.”

In general, the FDA has to approve and have scientific evidence before a company can say a product has a specific health benefit, such as lowering cholesterol or reducing the risk of heart disease. Food products can’t make claims that they fight diseases or symptoms.

Reed’s founder and Chief Executive Chris Reed said it’s not that the company wasn’t paying attention to the rules. Rather, Reed’s was paying attention to what other supplement makers were getting away with.

“We were just copying from other people,” he said.

Greater enforcement

Debra Topham, director of Knowledge Bank, a Huntington Beach consulting firm that helps businesses meet food labeling requirements, said the FDA’s crackdown on health claims in the natural foods and supplement industries has been a boon.

“That’s why my business has picked up,” she said. “We are seeing an enhanced enforcement of everything in food and dietary supplements. They’re doing a lot of the enforcement by making examples out of people.”

In February 2010, the FDA told POM to remove claims – even ones backed up by studies, in some cases funded by the company – that pomegranate juice could help with medical conditions from high blood pressure to erectile dysfunction. POM was later sued by the Federal Trade Commission over claims made in advertisements for its juices.

But while POM has fought the feds on the issue citing free-speech rights, Reed said his company is bending over backwards for the FDA – and will not fight.

“Only the Resnicks, whom I consider gods in the marketing world, have the kind of guts to do that,” he said.

Reed’s has changed the elixir’s labeling and updated information on its website, pulling back on health claims. For instance, instead of saying green tea has powerful antioxidants and lowers bad cholesterol, the label now says only that green tea is a natural source of caffeine.

Reed’s submitted the changes to the FDA and is waiting to hear back from the agency. Agency officials said the case is being reviewed and said they can’t comment.

Though the warning letter was sent in May, Reed’s didn’t mention it until an Aug. 25 press release that downplayed the warning letter, describing it as an “FDA inquiry.”

“The FDA seems to be increasing pressure to improve labeling and ingredient descriptions,” Chief Operating Officer Terry Foucaut said in the statement. “We applaud the push toward increased disclosure.”

Reed said his company released the statement because rumors about the letter were circulating among investors.

“We didn’t realize just how many people were aware of our FDA complaint,” he said. “I was getting calls from institutional investors who were asking if we were going out of business.”

To be sure, it’s not. The warning letter focuses on the energy elixir, which represents less than 1 percent of the company’s sales, Reed said. The elixir is distributed nationwide but is only in about 700 stores.

The soda maker has seen sales and revenue rise substantially over the past few years, though it has continued to lose money every year. For the six months ended June 30, the company reported a loss of 4 cents per share, or $464,000, on sales of $11.3 million.

The announcement didn’t seem to affect the price of the company’s lightly traded stock on Nasdaq. It closed down 2 cents to $1.85 the day after the announcement and still was at $1.85 on Aug. 31.

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