Danone Nutricia's 20-Year Journey in China's FSMP Market: Pioneering Medical Nutrition and Leading the Special Medical Purpose Formula Sector

Enteral nutrition formulations have been circulating in the domestic market for nearly 40 years as pharmaceutical products providing clinical nutritional support to patients. However, in fact, if classified according to their functional role, enteral nutrition formulations should be categorized as foods for special medical purposes (FSMP) rather than pharmaceutical drugs.

Enteral nutrition formulations are a collective term for all pharmaceutical products that provide nutritional support to patients via enteral nutrition. Foods for Special Medical Purposes (FSMPs) also provide nutritional support to patients through enteral nutrition and share the same indications and methods of administration as enteral nutrition formulations. In essence, enteral nutrition formulations are FSMPs that have obtained National Medical Products Administration (NMPA) drug approval numbers.

Danone Nutricia’s medical nutrition business entered the Chinese market as early as 1995, launching the whole-protein enteral nutrition powder “Nutrison” and the short-peptide enteral nutrition powder “Peptisorb,” thereby introducing the concept of enteral nutrition to China.

Subsequently, building on its two core pillars of adult and pediatric medical nutrition, Danone Nutricia has primarily engaged in the production and operation in China of enteral clinical nutrition (ECN) products under the Nutricia brand, the Flocare enteral nutrition infusion system (Medical Device), and foods for special medical purposes (FSMP). Its products and business have achieved substantial growth in China.

Enteral nutrition (EN) is a form of nutritional support that provides metabolically required nutrients and various other essential substances via the gastrointestinal tract. The primary components of enteral nutrition formulations include carbohydrates, proteins, fats, and their breakdown products, as well as electrolytes, vitamins, and trace elements in amounts sufficient to meet physiological needs, thereby fully aligning with the body’s natural physiological routes of nutrient delivery.

Enteral nutrition support not only avoids the risks associated with central venous catheterization but also helps restore intestinal function, accelerate patient recovery, and shorten hospital stays. It offers the advantages of being simple and safe, cost-effective and efficient, physiologically appropriate, and providing a variety of enteral nutritional formulations to choose from.

In the late 1980s, driven by clinical needs, foods for special medical purposes (FSMPs) entered China in the form of enteral nutrition formulations. They were regulated as chemical drugs and could only be marketed and sold after obtaining drug registration approval. Nutricia entered the Chinese market in 1995, introducing its whole-protein enteral nutrition powder, Nutrison, and its short-peptide enteral nutrition powder, Peptisorb, to China. This also brought the concept of enteral nutrition to the country, leading to a gradual increase in domestic awareness and emphasis on clinical nutrition.

Nutricia, a healthcare company founded in 1901 and headquartered in the Netherlands, was granted the “Royal” designation in recognition of its outstanding contributions to human nutrition research and therapy. Acquired by Danone in 2007, Nutricia focuses on medical nutrition, providing comprehensive medical nutrition solutions for patients with various diseases and across different age groups. The company has achieved significant success in enteral nutrition and foods for special medical purposes (FSMP), establishing well-known medical nutrition brands such as Nutrison MF, Peptisorb Liquid, Neocate, Diason, Nutrison Powder, Flocare, and Infatrini.

In 2000, Nutricia established Nutricia Pharmaceutical (Wuxi) Co., Ltd. in China and set up the Nutricia Wuxi Plant. As the first facility in China to manufacture a comprehensive range of enteral nutrition products, the Nutricia Wuxi Plant has become one of Nutricia’s three major global production bases. It has successfully obtained ISO 9001 and EN ISO 13485 quality management system certifications, becoming the first Chinese manufacturer of enteral nutrition products and associated infusion devices to export to European and American markets.

In May 2001, localized production of enteral nutrition formulations was achieved, enabling Nutricia’s products to better meet the needs of the local market, and a maintenance base for enteral nutrition infusion pumps was established.

Since then, Danone Nutricia embarked on the path of research, development, and market launch of enteral nutrition formulations in China. In 2002, Peptamen, a peptide-based enteral nutrition suspension, was launched in China. In 2009, Nutrison Energy and Nutrison Protein Plus were introduced to the market.

As one of Danone’s three major global production bases, the Wuxi factory reported a pharmaceutical output of 25 million bottles/bags in 2016, with half allocated to the local market and the other half exported overseas. Its medical device output reached 45 million bags, 90% of which were exported worldwide. In recent years, Danone products manufactured in Wuxi—including Nutrison, Peptisorb, Nutridrink, and Fresubin—have been distributed across Europe, Asia, South America, Oceania, and other regions.

Furthermore, Danone is further comprehensively seizing the Chinese market through cross-border e-commerce channels.

According to the Wuxi New Industry Development Report (2019), enteral nutrition formulations from Danone Nutricia and Fresenius Kabi have captured 90% of the domestic market share. Previous data indicated that, prior to 2018, Danone Nutricia held the largest market share for clinical enteral nutrition products in China.

The regulation of special foods in China, encompassing three major categories—health supplements, foods for special medical purposes (FSMP), and infant formula milk powder—has undergone a period of mixed transition, with each category continuously achieving self-development amidst growing pains.

Compared with health supplements and infant formula, foods for special medical purposes (FSMP) started later. Before 2010, they were regulated as drugs in the form of enteral nutrition preparations.

Because China has always regulated enteral nutrition formulations as drugs, some foreign products, despite their long history of use and proven efficacy, have been unable to enter the Chinese market due to their inability to meet drug registration and approval requirements. For domestic products, the high technological demands and stringent barriers associated with drug regulation have also led to sluggish industrial innovation.

In recent years, as China’s healthcare system has gradually matured, the concept of foods for special medical purposes (FSMP), commonly used in developed economies, has been introduced to meet market and regulatory demands. Meanwhile, to ensure the uninterrupted market availability of existing enteral nutrition formulations, these products continue to be distributed as pharmaceuticals in China.

In 2010, the former Ministry of Health issued the National Food Safety Standard—General Rules for Formula Foods for Special Medical Purposes Intended for Infants (GB 25596-2010), stipulating that the formulation of formula foods for special medical purposes intended for infants shall be based on the findings of medical and nutritional research. In 2013, the former Ministry of Health released the National Food Safety Standard—General Rules for Formula Foods for Special Medical Purposes (GB 29911-2013) targeting individuals aged one year and older, classifying such products into complete nutritional formulas, specific complete nutritional formulas, and non-complete nutritional formulas according to the target population. Since then, a series of regulations and guidelines have been issued to further standardize the regulatory oversight of formula foods for special medical purposes in China.

In 2016, the Administrative Measures for the Registration of Formula Foods for Special Medical Purposes brought China’s FSMP sector into a phase of comprehensive scientific regulation.

Nutricia promptly responded to market developments. In 2017, its product Neocate became the first to obtain national food registration approval, marking it as the first specially formulated medical food in China.

Subsequently, in 2018, the Nutricia medical nutrition project commenced construction in Wuxi.

Subsequently, Danone Nutricia products received successive approvals. By July 27, 2021, a total of five Nutricia products had been approved with the Chinese registration number for special medical purpose foods (FSMP), namely Neocate, Periflex, Nutriphenyl, Nutriku, and NutriJunior. Among these, Nutriphenyl and Nutriku are the only two FSMPs in China specifically indicated for phenylketonuria (PKU), covering patients of all age groups.

Phenylketonuria (PKU) is a rare inherited metabolic disorder. Without timely dietary intervention after birth, affected children will develop severe intellectual disability. Currently, the incidence of PKU in China is approximately 1 in 11,000, with around 1,000 new cases diagnosed each year. Danone Nutricia is currently the only manufacturer in China whose full-range PKU formulas have received formula registration approval, and its products serve as a vital lifeline for many children with PKU.

In 2020, Danone made a significant push into the Chinese market, investing nearly RMB 800 million to expand its professional specialized nutrition business in China. It also acquired Mead Johnson’s Qingdao infant formula plant from Canadian dairy company Saputo Group and established a new R&D center in Shanghai.

In March this year, Danone issued an announcement stating that significant changes had occurred in its management, with former Chairman and CEO Emmanuel Faber stepping down immediately. Gilles Schnepp, who had just joined the board of directors at the end of last year, succeeded him as Non-Executive Chairman of the Board.

This professional manager, who spent 25 years at Danone and served as its CEO for seven years, spearheaded dozens of mergers and acquisitions during his tenure, significantly accelerating Danone’s international expansion. In 2006, he helped drive Danone’s revenue in the Chinese market to approximately €1.5 billion, accounting for 10% of Danone’s global business, with a sales growth rate of 20.6%, far exceeding the company’s global average of 9.7%. This year, amid pressures from activist investors, the pandemic crisis, and sluggish performance, the CEO and Chairman stepped down from his executive roles but continues to serve as Non-Executive Chairman.

With this move, Danone has once again entered a state in which the roles of Chairman and CEO are separated. The previous instance of such separation occurred in 2014, when Danone had faced numerous challenges over the preceding two years, including weak performance in its Western European fresh dairy products business and product recalls in the Asian market triggered by the Fonterra contamination scare, all of which placed significant pressure on the company’s sales and profitability.

Danone’s Q1 2021 financial report showed that sales revenue from its Specialized Nutrition business decreased by 7.7% year-on-year; driven by China, the Adult Medical Nutrition business once again achieved strong growth.

In 2020, Danone’s sales revenue decreased by 1.5% to €23.6 billion. Among its business segments, the Specialized Nutrition division saw a slight year-on-year decline of 0.9% in sales revenue. The Waters and Beverages segment experienced a more significant downturn, with sales revenue dropping by 16.8% year on year in 2020; notably, Mizone achieved positive sales growth in the Chinese market only during the fourth quarter of that year. According to a report by China Economic Net, Danone’s stock price fell by 27% in 2020.

Frank Fan became widely known in the Chinese market starting in 2006, when he ignited the three-year “Danone-Wahaha Dispute” between Danone and Wahaha. This “war” was hailed as the most influential international commercial battle over the 30 years of China’s reform and opening-up, drawing in everyone from the companies’ leaders to the heads of state of China and France. The conflict abruptly ended in 2009 when both parties announced a settlement, culminating in Danone’s exit from their joint venture. Throughout this corporate showdown, Frank Fan, then President of Asia-Pacific, vividly demonstrated his hallmark traits of calmness and toughness.

During Franck Riboud’s seven-year tenure as CEO, Danone underwent multiple organizational changes and business adjustments. Having played a leading role in safeguarding Danone’s interests during the “Danone-Wahaha Dispute,” he also profoundly reshaped the company’s operations in the Chinese market.

During his tenure as CEO, he prioritized strengthening relationships with Chinese partners. He acquired stakes in Mengniu, a subsidiary of COFCO, and in Yashili, a subsidiary of Mengniu. He also facilitated the sale of Danone’s China operations for Dumex, which had been severely impacted by the botulism scare, and subsequently introduced international infant formula brands to the Chinese market. Furthermore, assets related to the beverage businesses of Robust and Yi Li were divested during this period, and he continued to adjust the Mizone business.

Internationally, Emmanuel Faber personally spearheaded Danone’s “largest investment in a decade,” acquiring WhiteWave Foods, the largest U.S. producer of organic and non-GMO dairy products, fresh foods, and coffee creamers, for $12.5 billion in 2016. This move significantly strengthened Danone’s competitive edge in its plant-based business. In 2018, Danone further merged its infant and medical nutrition businesses into a new “Specialized Nutrition” division.

In 2019, Danone’s financial report showed that the sales revenue of its specialized nutrition business increased by 5.8% year-on-year, with the profit margin rising by 49 basis points to reach a record high of 25.3%. In the fourth quarter, sales revenue continued its accelerated growth trend, increasing by 10.2% year-on-year, of which 9.3% was driven by higher selling prices and 0.9% by increased sales volume. Thanks to the strong performance of pediatric nutritional products, the medical nutrition business achieved mid-single-digit growth in sales revenue in the fourth quarter. The Early Life Nutrition business in China once again delivered outstanding results in the fourth quarter, achieving growth exceeding 20%.

This May, Danone’s new CEO was officially confirmed. Danone announced the appointment of Antoine de Saint-Affrique as its CEO, effective September 15. Prior to this role, he had served as CEO of the Swiss chocolate company Barry Callebaut since October 2015 and previously held a series of senior positions at Unilever.

In clinical practice, many experts and scholars both domestically and internationally agree that enteral nutrition (EN) is more physiologically appropriate and cost-effective than parenteral nutrition (PN). Therefore, for patients with malnutrition whose intestinal function is not completely lost and in whom EN can be safely administered, EN should be the preferred first-line approach. However, health authorities, hospitals, and healthcare professionals in China lack sufficient awareness of clinical nutrition, particularly EN therapy, resulting in its limited adoption and suboptimal application.

According to statistics, the ratio of enteral nutrition preparations to parenteral nutrition preparations used abroad is 10:1, whereas in China, this ratio ranges from 1:5 to 1:15, representing a nearly inverted proportion. This indicates immense growth potential for the enteral nutrition market in China.

Currently, the majority of enteral nutrition formulations available in China are still imported from abroad, with these products accounting for 90% of the Chinese market share. Key players include Fresenius Kabi Huari Pharmaceutical Co., Ltd. (a Sino-Swedish joint venture), Nutricia Pharmaceutical (Netherlands), Abbott Laboratories (USA), and Nestlé. Huari’s clinical nutrition portfolio comprises five products: Supportan, Fresubin Energy Fiber, Diason, Fresubin Original Fiber, and Fresubin Protein Energy. Nutricia offers a wider range of clinical enteral nutrition products, including Nutrison Fibre, Nutrison, Nutripor, Peptisorb, Nutrapur, and Nutrigel. Abbott’s clinical enteral nutrition product line includes Ensure, Glucerna, and Jevity.

As global demand for specialized nutritional products continues to surge, an increasing number of domestic competitors are entering the enteral nutrition formulation industry. Currently, the influential domestic manufacturers in the market mainly include Xi’an Libang Pharmaceutical Co., Ltd., Shanghai Dongze Special Medical Food, Zhejiang Bailisheng, Guangzhou Bangshidi, and Guangzhou Niujian.

Data shows that as of October 2019, there were 9,235 companies in the market related to “Foods for Special Medical Purposes” (FSMP); among them, 4,640 companies had been established within the past three years, accounting for 50%. In addition to small and medium-sized enterprises, numerous multinational giants have also leveraged their existing technological advantages to make a strong entry into the market, determined to secure a dominant position in the FSMP sector.

In June 2020, Fresenius Kabi announced that its specialized medical food project, with a total investment of RMB 800 million, had broken ground in Wuxi. Upon completion and full production capacity, the project is expected to generate an additional annual sales revenue of RMB 3 billion and tax contributions of RMB 350 million. Fresenius Kabi is currently the only manufacturer in China capable of providing a comprehensive portfolio of both enteral and parenteral nutrition products, boasting the most extensive range of clinical nutrition products on the market. Its clinical nutrition business has achieved a growth rate exceeding 14% in the Chinese market.

According to the "Wuxi New Industry Development Report (2019)," in 2018, Fresenius Kabi Huarui’s enteral nutrition products generated sales of RMB 3.91 billion, ranking first in market share nationwide, while its parenteral nutrition products achieved sales of RMB 3.789 billion, ranking second in market share nationwide.

Another industry giant, Abbott, also warrants attention. In the fourth quarter of 2020, Abbott’s global nutrition business saw a 4.4% increase in revenue, reaching $1.93 billion. To date, Abbott has had eight products approved, ranking second only to Nestlé in terms of the number of approvals. Its Ensure Complete Nutritional Formula Powder was among the first batch of products to receive national registration as a complete nutritional formula food for special medical purposes. It is designed to meet the nutritional needs of individuals aged 10 years and older who have limited food intake, digestive and absorptive disorders, or metabolic disturbances.

It is understood that Abbott also offers a comprehensive portfolio of medical nutrition products globally, committed to providing end-to-end medical nutrition support for perioperative patients, individuals in recovery, and the elderly who require nutritional supplementation. Furthermore, to address the specific nutritional needs of special populations, Abbott provides specialized medical nutrition products for diabetic patients and will launch products tailored for other specific disease conditions.

Regarding Danone, in 2019, the Danone Nutricia specialized medical nutrition production base, with an investment of €240 million, was unveiled in the Netherlands. Reportedly, this facility features advanced production technologies and hydrolysis processes, enabling it to manufacture a wide range of cutting-edge foods for special medical purposes (FSMP) to meet the nutritional needs of infants with specific health conditions. Moreover, Danone’s change in leadership this year once caused its stock price to surge by more than 4%. The arrival of the new “helmsman” may inject fresh vitality into Danone, driving performance growth under Emmanuel Faber’s “Local First” strategy.

However, driven by national policy support and promotion as well as the vast market potential of foods for special medical purposes (FSMP), numerous multinational giants have rushed to invest in China’s FSMP sector since 2016. Leveraging their respective strengths, these companies are gearing up and viewing this sector as a new battleground for seeking breakthroughs and pursuing cross-industry transformation.

However, for enterprises to secure a leading position in the new wave of foods for special medical purposes (FSMP), they must possess strong capabilities in product research and development, capital investment, and distribution channels.

Danone Nutricia has extensive experience in the field of medical nutrition, enabling it to rapidly expand into the market for foods for special medical purposes (FSMP). However, faced with strong competition from other enterprises entering the sector, Danone Nutricia needs to further strengthen its distribution channels and increase capital investment.