By Jennifer Barrett

Newsweek

June 27 issue - Agidermatics has a promising skin-cancer drug now in trials. That's the good news—the bad is that the FDA hasn't approved it yet. But while the pharmaceutical company awaits the government's OK, it's found a quicker way to bring in money—boosting revenues 20 percent in each of the past three years. Its strategy? In a word, "cosmeceuticals"—an increasingly lucrative product that blurs the line between cosmetics and pharmaceuticals. "Clinical trials are expensive, so we started to explore commercial opportunities," says founder Daniel Yarosh. "We thought, 'Why not take science-based standards... and apply them to cosmetic products?' "

His timing was excellent. Consumers spent roughly $12.4 billion last year on cosmeceuticals: beauty products like wrinkle creams and hair-growth treatments that have druglike benefits. That's a 22 percent increase since 2000, according to Packaged Facts, a consumer-research firm. Many of the buyers are baby boomers in their 40s and 50s. As boomers age, cosmetics companies believe they'll spend more and more to look younger. For example, L'Oreal's budget for cosmetic and dermatological research has tripled in the past 10 years, and the company boasts several innovations—from a molecule called Ceramide R, which may repair damage to hair cuticles, to Mexoryl SX, another synthesized molecule that filters out UV rays.

 

Procter & Gamble says it spends more than $5 million a day developing products like Olay's Regenerist, which uses an "exclusive Amino-Peptide Complex" to minimize fine lines and age spots. Dermatologists are also scrambling to develop their own lines, inspired by doctors like Nicholas Perricone, who has three best-selling books and a popular skin-care line. By 2010, Packaged Facts predicts cosmeceutical sales could top $16 billion.

 

While they may incorporate the same ingredients, cosmeceuticals are not considered drugs by the FDA and therefore aren't regulated or subject to rigorous standards of scientific review. That's because cosmeceuticals aren't used in the diagnosis or treatment of disease; nor, in FDA parlance, are they intended to affect the "structure" or "function" of the human body. It's that kind of vague language that makes the FDA's regulatory job tricky at times: what's a drug and what's only druglike? Cosmetic companies have long made health-related claims. But the risk these days is that if they become too aggressive in making the claims, their cosmeceutical products could result in an FDA reprimand or even a recall. Independent retail consultant Annette McEvoy, a former Bath & Body Works executive, describes cosmeceuticals as "one step down" from prescription strength. But the main difference seems to be in the marketing. That's why so many beauty products promise to reduce "the appearance" of fine lines, not to alter the skin.

 

More than 100 cosmeceutical products, from Bath & Body Works' sunscreen to Bobbi Brown's "revitalizing" eye gel, now contain ingredients developed by AGI Dermatics. Based in suburban New York, the company holds more than two dozen patents on various technologies, but its focus is on synthetic liposomes (or microscopic sacs), developed to penetrate the top layer of skin, then release proteins and other ingredients to help repair sun damage. The company is private, but Yarosh says annual sales are approaching $20 million. While it's not yet profitable, commercial revenues have helped finance testing of its cancer-fighting drug, Dimericine, which in clinical trials was shown to reduce the formation of cancer-causing mutations in skin cells.

 

AGI emphasizes that it doesn't endorse, or even examine, the cosmetics products in which its ingredients are placed. But there's no doubt AGI's scientific pedigree makes it attractive to the growing number of companies that want to launch more-sophisticated cosmetics products. Still, as Norman Leaf, a Beverly Hills plastic surgeon who uses AGI ingredients in some of his Leaf & Rusher products, observes, "It's a very fine line between a drug claim and a cosmeceutical claim. And the FDA is watching." For AGI and other companies, it's a line to tread very carefully.