Innovative branded ingredients for functional foods and dietary supplements

InterHealth is an innovator of branded, patented ingredients that are clinically studied and sold worldwide to manufacturers of dietary supplements and functional foods & beverages.  InterHealth’s products provide condition specific benefits for joint health, sports nutrition, weight management, cardiovascular health, blood sugar control and mood health. These areas address many of the major health needs of consumers today and are especially relevant to our aging  population. The importance of InterHealth’s branded ingredients to its customers’ products is evident from the frequency with which those products include InterHealth’s brands on their packaging and in their marketing materials.

The Value Creation Opportunity

InterHealth’s business model aligned well with Kainos’ investment themes around specialty ingredients and health & wellness.  Due to our activity in the ingredients sector, we were invited to participate in what was largely a strategic buyer-led auction process for InterHealth. Despite strong strategic interest in the business, the management team, led by Paul Dijkstra, was more interested in a value-added partnership with Kainos and the ability to own a substantial equity stake in the business during its next phase of growth. Due to our familiarity with the sector and ability to efficiently conduct due diligence, we pre-empted the auction process and partnered with InterHealth in November 2013.

Kainos shared a vision with Paul Dijkstra to create a strategic ingredient player of scale that provided branded ingredients critical to the identity and functionality of the end products in which they are used. We believed that the efficacy of InterHealth’s proprietary, IP protected, branded ingredient portfolio was supported by extensive clinical data and created a real competitive advantage and barriers to entry. InterHealth was at an inflection point in its business where revenue and profit growth were poised to accelerate with additional key investments in R&D, sales and supply chain.

Change Capital At Work

We supported management and conducted a review of their R&D and innovation pipeline.  As a result, we more than doubled the R&D budget during our first year of the partnership, investing in clinical research to enhance the scientific support for their portfolio of products.  In addition, we built a robust pipeline of new products, including the development of gummy applications for our core joint health ingredient UC-II, powder applications for ZMA, a sports nutrition ingredient that was primarily marketed in tablet form, and a promising anti-inflammatory product.

We worked alongside Paul to build out his management team, particularly in the areas of supply chain, operations and sales, and to realign the sales and marketing functions to better address both domestic and international markets for key products. We also leveraged our network within the nutritional supplement industry to accelerate sales growth and develop new customer relationships including Pfizer, NBTY, and Costco.

Within months of our partnership, we acquired the manufacturing assets for UC-II enabling InterHealth to capture the related manufacturing margin. The Kainos team also proactively sought out and evaluated opportunities to expand the product portfolio through add-on acquisitions and partnerships. We led the M&A efforts for InterHealth and acquired 7-Keto, a weight loss ingredient, in 2014, and Next Pharmaceuticals, a portfolio of branded ingredients serving the stress management and heart health end markets, in 2015.

The Kainos Effect

Working with Paul Dijkstra, we sold InterHealth to Lonza Group, a diversified pharmaceutical, biotech and specialty ingredients company in 2016, less than three years into our partnership, after tripling the profitability of the business. We are proud of achieving the vision we set out for InterHealth and creating an innovative, high-quality, science backed ingredient company that serves leading consumer brands around the globe.