As a regulation expert at P&G, Jon Spinner (l.) spends his days minding olestra, a role once delegated to Charles Lieppe. WHATEVER HAPPENED TO OLESTRA? HOW P& G'S HOPES FOR FOOD DIVISION'S FUTURE GOT MIRED IN FDA QUICKSAND

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Imagine a food ingredient that provides all the taste and cooking benefits of fat but has absolutely no calories. Imagine the possibilities of no-fat french fries, ice cream, desserts, snacks and salad dressings in a market hungry for guilt-free eating.

For more than 25 years, Procter & Gamble Co. has been imagining the potential for such an ingredient, a man-made sucrose polyester fat substitute called olestra.

The miracle molecule, meant to revolutionize the food industry by replacing much of the fat in the country's diet, looked to become another $1 billion P&G business, like Tide laundry detergent, Crest toothpaste and Pampers disposable diapers.

But so far, mighty P&G has been unable to turn olestra into the marketing coup it has been imagining; instead, olestra has become a frustrating, multimillion-dollar adventure in bureaucracy.

The ingredient still awaits approval by the Food & Drug Administration, seven years after P&G filed a food additive petition for use in shortening, oils and snacks and 19 years after its ill-fated drug application.

Since its discovery in 1968 by P&G scientists Fred Mattson and Robert Volpenhein, olestra has consumed nearly $300 million in development costs. Many people inside and outside the company wonder if P&G will ever reap the financial benefits from its enormous investment-thanks in part to the fact there are only two to four years left on its core patent.

What happened? And why?

After collecting more than 100,000 pages of research on olestra from P&G, FDA still isn't convinced of the ingredient's safety. So far, the government agency says, olestra has raised more questions than answers.

Unlike other fat substitutes that already have come to market (see story on Page 18), P&G's ingredient is a completely new food molecule that has had to stand up to lifetime safety studies on two types of animals-mice and rats-and a third study on pigs. And its uniqueness demanded a new set of testing procedures at FDA, which has prolonged the process by putting P&G through an unexpected series of detours.

Olestra's circuitous path through the FDA labyrinth illustrates the difficulties new food technologies pose for the U.S. government, and how one of this country's-indeed the world's-premier companies underestimated the laborious process.

Government approval under the best of circumstances takes time. But FDA delays notwithstanding, P&G made what in hindsight has proved to be an embarrassing, uncharacteristic mistake: The methodical master marketer overpromised on a product it couldn't successfully get to market.

When P&G announced on May 7, 1987, that FDA had accepted its petition for use of a new calorie-free fat substitute, people-including those at the government agency-believed it would take about two years to review olestra's safety as a new food ingredient.

Few would have imagined then that olestra would plunge the Cincinnati company into a regulatory morass, with one delay after another. After all, nearly 20 years of scientific studies-requiring a moving van to cart the data to Washington-already had confirmed the ingredient's safety in P&G's mind.

Company management seemed almost giddy with excitement over the prospect of its patented fat substitute propelling its lackluster Food & Beverage Sector out of the doldrums.

Lavish spreads of food made with olestra were prepared for sampling by the consumer and business press. The "best and the brightest" P&Gers were recruited to work in a newly created Olestra Division. Some even thought olestra was such a big idea there might be an Olestra Co., similar to what Monsanto Co. did with NutraSweet, the ubiquitous sugar substitute.

P&G's hopes were high. It wanted olestra to replace 35% of fat normally used in shortening and oils such as the company's Crisco line, and up to 75% of fat in salted snacks and deep-fried products used by restaurants, fast-food chains and other institutions.

Unbridled enthusiasm for the ingredient's potential swirled in and around the company, creating enormous expectations and an unusual openness by P&G about a product still years away from being marketed.

Then the noise stopped.

"It disappeared into Washington, D.C.," laments Mr. Mattson, the former P&G scientist who discovered olestra by accident as part of a fat digestion and absorption study. (He recently retired as professor of medicine at the University of California at San Diego.)

Actually, in the beginning, olestra-then called just sucrose polyester-generated both excitement and concern in P&G's Miami Valley Labs in Cincinnati.

The excitement stemmed from its fat-like properties-tasting, smelling and cooking like natural fat-that would pass through the body without being digested or absorbed.

Concern arose because FDA had no clear testing procedures for an additive like olestra. Olestra is a macro-ingredient, meaning it would be present in food in greater amounts than other additives.

"The thing about olestra is that it gets into an area where there's not a lot of experience," says George Pauli, director-Division of Product Policy-Premarket Approval in FDA's Center for Food Safety & Applied Nutrition. "Typical food additives-even big-ticket sweeteners-can go through a series of animal feeding studies that are 100 or 1,000 times human consumption and still be a small part of the diet. With something like olestra, we're getting into a testing scheme in which there isn't a long-standing tradition."

By all accounts, P&G recognized FDA's lack of established protocol to test olestra as a food additive.

"Back in 1971, we talked with the general management of the company about the difficulty of doing with olestra what we originally wished," says one former P&G,researcher involved with olestra for 10 years. "We were concerned the FDA would dig their heels in because of olestra's ubiquitous use. They are petrified of a new compound going out in the world. We were predicting ... `you're not going to get this thing approved."'

Still, P&G management was licking its chops. Olestra offered such huge product potential that the company began extensive studies. And at about that time, in 1971, the company began talking informally with FDA.

Several months later, P&G was granted its first patent on sucrose polyester.

"Early on, we made a very conscious decision that P&G would work with the FDA hand-in-glove," recalls Walt Meyer, a retired P&G executive who served as associate director of product development. He worked closely with FDA officials from the early 1970s and continued as a consultant through last year.

Then the company discovered something unexpected: olestra lowered blood cholesterol levels. Recounts Mr. Mattson: "The FDA said, `it sounds like a drug."'

Since drug testing guidelines were clear, P&G thought it might get speedier approval if it took that path-at least it would have an established test route and could conduct clinical studies on people.

So, in 1975, P&G filed an Investigational New Drug Application. Observers now say that was one of P&G's strategic errors, contributing to the long period of time olestra has been mired in FDA's approval machinery.

But at the time, no one-at P&G or FDA-was clear on the best legal classification for olestra. Was it a drug or was it a food?

During this detour period, the company concentrated on olestra's drug properties, although it kept up its efforts with FDA food representatives as well.

In 1978, scientists including Mr. Mattson and Dr. Charles Glueck, then director of the University of Cincinnati General Clinical Research Center, presented to the American Heart Association human studies showing the new substance helped reduce cholesterol in healthy men and overweight patients.

P&G envisioned a special dietary margarine, an idea that soon had late-night TV's Johnny Carson quipping that sucrose polyester would be the world's only "wash-and-wear" fat.

P&G still wanted to get olestra approved as a food. But FDA in 1980 was expressing more doubt. A P&G report from that time, following a meeting with FDA officials, concluded again that food approval data would have to be much more extensive than that needed for drug approval.

Then came the turn. In 1985, the drug-or-food classification dilemma ended when further research showed olestra did not reduce serum cholesterol levels in people by at least 15%-the minimum requirement for approval as a drug.

So P&G again, following FDA's recommendation, decided to pursue food-additive approval exclusively.

It turned out that during these years, FDA had loosened existing policy on making limited health claims about food products. P&G saw that as an opportunity for olestra approval.

So on April Fools' Day 1987, P&G filed a food-additive petition, accepted for review by FDA on May 7. The company was ready to tell the world about its remarkable fat substitute.

Within two days of P&G's announcement, its stock price jumped 10% to 93 5/8. Wall Street analysts were certain there was a potentially new $1.5 billion business for the company. Hercules Segalas, then a noted analyst at Drexel Burnham Lambert, predicted olestra would become "P&G's most important product by the year 2000."

Unbeknownst to P&G at the time, however, the real olestra drama was about to begin.

In those heady days of the mid-'80s, P&G felt a welcome sense of optimism about its long-troubled food & beverage business. Those categories had been huge disappointments: Duncan Hines cookies alone were said to have experienced losses of more than $100 million through manufacturing and marketing expenses.

Olestra would put P&G on the map as a food company.

Reflecting the new optimism, the marketer tapped rising-star executive Charles (Chuck) Lieppe, then 43, as VP to manage an 80-person team on olestra.

"The company put together the best and the brightest," says a former P&G executive. "The mission was to get FDA approval but also to figure out how to market" olestra.

"Chuck pretty much had carte blanche; it was a nifty assignment," he continues. "It wasn't like figuring out how to get better distribution on Zest soap. We didn't have a product and we didn't have clearance. All we had were a bunch of dreams."

P&G outwardly remained cautious about the timing of FDA approval, but inside the company people had every reason to think olestra would be approved within a few years. After all, millions of dollars had already been spent on more than 100 research studies.

"In 1987, we felt all the [research] work had been done and with little inconsistency along the way," recounts Mr. Meyer. "We were satisfied with the safety of olestra and if there had been any questions in our mind we would not have gone forward."

P&G had already addressed two potential problems. In an earlier form, the substance acted as a laxative-not a pleasant side effect-but P&G solved this problem by making olestra more solid at room temperature.

The company also had identified a question about olestra's affect on vitamin absorption, namely vitamins A and E. It appeared that these vitamins, when already present in the digestive system, would attach themselves to olestra and get flushed out unabsorbed. P&G found that by adding vitamins A and E to olestra, the fortified ingredient would not attract the vitamins from other foods, essentially offsetting the reduction effect.

"Olestra was Procter science at its best," notes Kip Knight, who worked on olestra marketing for 18 months, first as brand manager and then associate advertising manager. Mr. Knight now is Kentucky Fried Chicken Corp.'s managing director for marketing-Western Europe.

But P&G science at its best hasn't been good enough for FDA. Says the agency's Mr. Pauli: "If, after reviewing the entire petition, we thought it was safe, olestra would have been approved a long time ago."

Even without approval, P&G couldn't keep itself from jumping into a marketing mode.

"Procter didn't want to find itself with approval to market olestra and have no marketing plan," says Mr. Knight. "At the time, we had every reason to believe it would be approved within an 18-to-24 month period. It never occurred to us that it wouldn't be approved."

Led by Mr. Lieppe, the division spent a solid 12 months on strategic work-from positioning to brand names to pricing to advertising concepts. N W Ayer, New York, one of P&G's ad agencies, was brought in to develop marketing and ad programs, along with other consultants to identify consumer issues.

Much of the debate centered on whether to take an ingredient or "food brand" approach.

Would a shortening be newly branded or take P&G's flagship Crisco name and highlight olestra as an ingredient? Should the word olestra even be used since it had been used generically for sucrose polyester?

One name under consideration for an olestra shortening was Olean. P&G also was considering a line of associated products called Crisco Country.

"We looked at hundreds of brand names," Mr. Knight says. "There were hundreds of marketing questions we got into. But after a point it becomes academic." P&G, after all, had no product to actually test on consumers.

The company did want to keep the idea of olestra in the public's mind. So the publicity drive continued.

"Fat substitutes were a more salient issue then than they are today and we wanted to get enough public attention for olestra," comments the former P&G executive. "Relatively few companies had made headway in this area, and we wanted to get some kind of franchise on olestra and Procter in the public mind."

In hindsight, this was a catastrophic decision from a PR view. But at the time, it was a bold move supported by P&G's belief olestra would have a relatively unencumbered path to market as a food additive.

"We were trying to be open, and openness is not exactly our middle name," the P&G executive says. "Looking back, the biggest problem we had was runaway enthusiasm for olestra."

P&G had hired Marilyn Harris, a cookbook author and culinary expert, to prepare foods with olestra and develop olestra recipes taste-tested among employees and offered to the media.

Hill & Knowlton was hired to handle public relations. P&G also began marketing olestra to medical professionals to keep them up-to-date on developments.

Meanwhile, another side of the olestra story started to unfold-thanks to the efforts of consumer activists and competitors, namely giant P&G rival Unilever.

The Center for Science in the Public Interest, a Washington-based group, in late 1987 asked FDA not to approve olestra. In a report to FDA, the group charged P&G's testing was inadequate and that P&G's own data showed olestra caused premature death in male rats; pituitary tumors in male and female rats; leukemia in male rats; abnormal and possibly pre-cancerous liver changes in female rats; and deformed and stillborn offspring.

"P&G came to the FDA with completely inadequate data," contends Michael Jacobson, CSPI's executive director. "P&G's been working on olestra for over 20 years, and I think the delays in approval can be put largely in P&G's lap. ... We highlighted the holes in the data."

P&G disagreed with Mr. Jacobson's conclusions from the beginning, says a company spokeswoman. A second rat study, not cited by the advocacy group, showed male rats fed olestra lived as long as, if not longer than, those on a diet without it, she says.

Still, the negative publicity struck at the aura surrounding olestra.

The other hit came in 1988 when a scientific group, financed by Unilever U.S., urged further studies because olestra consumption would be "unprecedented." (Unilever also is developing a synthetic fat substitute.)

When complaints arise, FDA says, further studies typically are required.

"We require whatever studies are necessary to demonstrate the safety of a material," asserts Richard Ronk, director of product policy staff at FDA's Center for Food Safety & Applied Nutrition, who has been involved with olestra from the beginning. "We ask one question and get an answer that leads to another question."

If bad things are said to happen in threes, P&G was now facing the biggest blow.

In 1989, FDA formally advised P&G a long-term study on a second rodent species would be required. That was a big surprise to P&G, since FDA had deemed such a study to be unnecessary in 1982.

But FDA reviewers now said they were convinced of the need for a second rodent study because of "olestra's potential for substantial human exposure and the existing absorption and toxicity data," according to a subsequent General Accounting Office report to Congress.

Bottom line? Another two- to three-year delay. (Results were submitted in May 1992.) Clearly, the exuberant days of olestra recipes and tasting parties were over.

On top of everything that was turning P&G's olestra dream into a nightmare, NutraSweet Co. announced, amid great hoopla, its development of Simplesse, a new, natural, low-calorie fat substitute. And most importantly, it wouldn't require lengthy FDA approval.

Simplesse made it to market in 1990, in frozen dairy desserts. In the end, the line failed to excite consumers, largely because of disappointing taste, but it managed to steal a lot of P&G's thunder and brought more negative publicity to its embattled fat substitute.

Further, in addition to Unilever, PepsiCo's Frito-Lay unit, Arco Chemical Co. and CPC International all acknowledged they were working on synthetic fat substitutes similar to olestra.

"Around 1989, there was the realization that we weren't going to get approval soon," says the former P&G executive who worked on the project. "The good people in the division began to leave."

As Mr. Knight, the former olestra brand manager, puts it: "We were all dressed up and had no place to go."

When Mr. Lieppe left his post as VP-Olestra Division to become president-chief operating officer of WestPoint Pepperell in 1989, the olestra group lost its spark, says one P&G insider. By the end of that year, the stand-alone division had been combined into the Edible Oils Division.

And as Edwin L. Artzt prepared to become P&G chairman-ceo at the start of 1990, all operations came under review. Walker "Jamie" Wallace, P&G general manager-edible oil products, became the hatchet man, says the P&G insider.

"He was really given some strict instructions to reduce the size of the olestra staff," he recalls. "People realized that [P&G] couldn't keep spending on olestra. There was no point in maintaining an agency for advertising or PR work when essentially we were a long way from market approval."

Despite the setbacks, P&G remained committed to olestra. In July 1990, the company agreed to FDA's request to narrow its intended use of olestra to just snacks. Although its original plans had included so much more, P&G felt snacks at least could be a starting point.

And though FDA officials said a narrowed petition would help P&G by removing many safety questions on a variety of usages, more questions arose.

Reviewers were concerned with the earlier cited adverse nutritional effect-namely the vitamin depletion-based on the estimate of how much olestra would be consumed. At the end of the year, FDA required a third study, this time on pigs, to measure the effects of olestra on the level of fat-soluble vitamins.

Last summer, after testing pigs for nearly three years, P&G submitted results to FDA. "The data essentially confirm earlier work seen in people," says a company spokeswoman, "that under extreme circumstances there is some impact on absorption of fat-soluble vitamins. .*.*. It is possible to supplement with vitamins, if the FDA feels that is required. There were no surprises."

Where is olestra now?

FDA is only at liberty to say olestra is "under review," but Dr. C. Wayne Calloway, who chairs the Olestra Scientific Review Council, believes it "has pretty well cleared safety and biochemical hurdles."

The review council, funded by P&G, was formed to independently analyze olestra data and issues; it meets informally with FDA.

Dr. Calloway believes FDA now is reviewing the nutritional impact olestra will have on the total diet-as the last remaining question.

Still, even though the end may be in sight, with limited resources and a staff of three to four people working on olestra, the FDA process remains slow.

"Typically, once we come to the conclusion of the safety of the material, it could be that we have an advisory committee look at this," explains FDA's Mr. Ronk. "We will have to write a document covering all the issues and why the FDA comes to its conclusion. We'd have to involve the general counsel's office. Then the preamble has to be written. Once we are in the decision-making mode, it's relatively quick-a matter of months rather than years."

But, he continues, "We haven't reached that decision-making mode. But we are nearing the place where we are talking about [getting] finished with this petition."

Peter Barton Hutt, a Washington attorney for P&G and former chief counsel at FDA, maintains there's little incentive for FDA to move quickly.

"It's literally a permanent research project," he says.

He acknowledges FDA is short-staffed and all its resources can't be deployed on olestra. But he's convinced if FDA formed a task force of experts, a decision could be reached in two weeks.

However, Mr. Hutt-who this year taught food and drug law at Harvard Law School-sympathizes with FDA to a degree.

"When you're changing the entire American food supply or looking at an ingredient that 250 million people will eat, in the FDA's view, you ought to be conservative," he says.

In many ways, P&G has served as FDA's guinea pig. By its own admission, the agency has had to work with the company to pioneer testing protocols for a unique type of ingredient.

The process has taken so long that three core patents expire this year, one of which has been extended by Congress (see story below).

After spending nearly $300 million on olestra, P&G will have little time to exclusively market it.

The company is thought to have plans to use its Pringles snack line as olestra's launching pad, if and when approval comes.

But unlike earlier times, a now wary P&G appears to be moving more slowing on the marketing front. An executive with Wells Rich Greene BDDP, New York, Pringles' ad agency, says the shop isn't developing a campaign around Pringles with olestra as an ingredient, but that there have been discussions about the potential of a no-fat chip.

And consider that when-or if-olestra is approved, P&G will have to build a manufacturing plant, which will take around 18 months, by most estimates.

P&G Chairman Artzt already has warned that shareholders won't see a return on all the work and investment for many years.

In congressional testimony during hearings on olestra's patent, he said: "If olestra accounts for only 5% of the replaceable fat in the U.S. diet, an investment of $750 million in new factories, equipment, and property will be needed. This is so significant that our company will not start to recoup its cash invested in olestra until 1999.

"And it will not be until 2005 that our shareholders will receive a return commensurate with recent company results."

So the clock continues to tick. And the dollars continue their outward flow.

"I think olestra will be approved," says Mr. Hutt, the P&G attorney, "but I'm fearful that unless the FDA really takes a SWAT team approach and gang-tackles it with a task force, the thing could drag on for two more years."

P&Gers have been predicting that for years. In fact, "two years" has practically become olestra's motto inside the halls of Cincinnati's twin towers.

"Obviously, we were over-ambitious on our time schedule" all along, remembers the former P&G executive who worked on olestra. "We'd be asked when we thought we'd get approval, and we'd say `in about two years.' Then the next year, we'd be asked the same thing, and we'd say `in about two years.'

"Now we're still saying in about two years."

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