How to cash in on this $6m health conscious market

In the search for a competitive edge in sports, more and more supplements have been developed to increase performance. Tom Bulford looks at the 'functional food' market, and some of the small-cap companies operating in it.

At the very earliest Olympic Games in the 6th Century BC, the legendary Milo of Croton was dominating the wrestling world. He was a five times undefeated wrestler with almighty strength, but he also had a strict pre-game regime.

His preparations included demolishing nine kilogrammes of meat andnine kilogrammes of bread, glugged down with 8.5 litres of wine. You won't find many athletes indulging themselves like that today, but the principle is the same; trying to sneak a competitive edge through their diet.

As technology has improved our understanding of how the body works, more supplements have been developed to increase performance. If you want to win at sports you had better get used to a joyless diet.

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But there are thousands who are determined to excel at sport, and that is creating a nice opportunity for food and drink companies.The global market for sports foods and supplements is worth some $6m. And, boosted by the Olympics, the UK market alone has been forecast to grow at 30% per annum until 2015.

The rise of the research led functional food companies

In fact, sports nutrition is just one example of a new category called 'functional foods'. The food and beverage industry, spying new marketing opportunities and millions of largely idle and gullible people, are seizing upon this. Nestle is no longer a food and drink business, but an "R&D-driven nutrition, health and wellness company". All of the major food companies, especially in the USA are leaping on the bandwagon, helping the functional food sector to far outpace the broader market.

The context is highly favourable. Americans especially are becoming more health conscious, while health authorities and insurers are emphasising the merits of good diet and exercise, seeking to prevent medical conditions before they occur. In this column on 5 April, I mentioned Fitbug (AIM:FITB) which is doing its best to promote the exercise part of the equation, while in the research laboratories of the major food and drink companies work is pressing ahead on the dietary side.

There is room for some cynicism here. For years we have known that certain foods have certain effects. A glass of red wine is good for the heart; milk is good for the bones; up to a point, anything that we eat is good for us and if we have a balanced diet and plenty of exercise there is not much more that we can do.

Penny share companies exploiting this hugely rewarding sector

But the industry is now moving beyond mere old wives' tales and trying to get to grips with exactly how we are affected by what we eat and drink. The food industry and the pharmaceutical industry are meeting to design nutraceuticals' foods that provide medical or health benefits, including the prevention or treatment of a specific disease category.

One example of a company operating in this area is Oxford Pharmascience (AIM:OXP), a real penny share business that wants to deliver medicine in the form of soft chewable tablets. Another company that has been getting some attention of late is Provexis (PXS). Although this too is a penny share, it has a stock market value of £29m, which is asking a lot of a business with minimal revenues.

However, Provexis has high hopes for Fruitflow, a tomato extract that inhibits platelet aggregation, a known cause of heart attack, stroke and venous thrombosis. This has been approved by the European Food Safety Agency and the Food and Drug Administration of the USA, and is being commercialised in a joint venture with DSM. Provexis also owns Science in Sport (SiS), a maker of sports nutrition products for professional athletes, notably cyclists. John Clark, who made a great success of Lucozade while at GlaxoSmithKline has recently joined the Board of Provexis and when I spoke to him recently he expressed plenty of confidence for both Fruitflow and SiS.

This article is taken from Tom Bulford's free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.

Information in Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Penny Sleuth is an unregulated product published by Fleet Street Publications Ltd.

Tom worked as a fund manager in the City of London and in Hong Kong for over 20 years. As a director with Schroder Investment Management International he was responsible for £2 billion of foreign clients' money, and launched what became Argentina's largest mutual fund. Now working from his home in Oxfordshire, Tom Bulford helps private investors with his premium tipping newsletter, Red Hot Biotech Alert.