FDA approval was all it needed

Who would think the combination of two amino acids would have such an impact. But NutraSweet, the sweetener accidentally discovered and then marketed by G.D. Searle & Co., is causing the soft-drink industry to modify its product line. It will also carry Searle ''into a tremendous growth phase,'' comments David Saks, an analyst with A.G. Becker, the brokerage house. Searle is a drug company based in Skokie, Ill.

Since the Food and Drug Administration approved NutraSweet for soft-drink use in July, the sweetener has been introduced in Diet Coke, Diet Rite Cola (which has the new twist of being salt free), and Diet Squirt - a citrus-based drink made by Squirt and Company. The reformulated products are in limited areas now, but by year's end will have spread to all their markets, say company officials.

In spite of lingering health concerns about the sweetener as well as higher costs, analysts see the whole soft-drink industry shifting to aspartame (the generic name for NutraSweet) in the next year or two.

''It's a necessity. You can't afford to let your competitors have the edge,'' says Allan Kaplan, a beverage analyst at Merrill Lynch. The Washington Post recently reported that the makers of Seven-Up, Pepsi, and Dr. Pepper soft drinks are now negotiating with Searle.

Why are these soft-drink makers so hot on NutraSweet? Because it's a low-calorie sweetener that tastes good. ''For taste, we believe it's very desirable. It mitigates the aftertaste (from saccharine),'' says Robert Martin, a spokesman for Coca-Cola USA.

And because it is low in calories, aspartame applies to the fastest growing segment of the soft-drink market - diet drinks. Some analysts say aspartame will give diet drinks 50 percent of the soda market. Now they run at around 19 percent. This growth may also cause the entire industry to grow by about 4 percent annually, compared to a present growth rate of 21/2 to 3 percent, some analysts believe.

NutraSweet is new to the US but not to the rest of the world. Canada has been using it in diet drinks since 1981 to replace cyclamates and saccharine, both banned there. Europe uses it too.

While Canada uses only NutraSweet to sweeten diet drinks, this is not the case with Diet Coke and Diet Rite Cola. NutraSweet makes up 20 to 30 percent of the sweetener in these drinks, analysts believe, and the rest is saccharine. Saccharine keeps NutraSweet's shelf life stable, since the sweetener is found to break down over time and in warm temperatures. And NutraSweet is expensive: $90 per pound vs. $4 for saccharine. Fred Adamany, president of Royal Crown Cola, says NutraSweet will mean an added cost of about ''5 to 6 cents per six-pack'' of Diet Rite.

Despite NutraSweet's cost, Diet Squirt's sweetener will be 100 percent NutraSweet, says Dennis Eade of Michigan-based Squirt and Company. Consumers have concerns, ''whether verifiable or not, about saccharine as a sweetener.'' The saccharine warning label, connecting it to cancer in laboratory animals, keeps some people away, he says.

Mr. Eade also comments that the company has solved aspartame's shelf-life problem after four years of research. And cost increases will be partially offset by higher volume, which the privately held company expects will double this year.

George Thompson, a beverage analyst at Prudential-Bache, believes the soft-drink makers will eventually move to 100 percent aspartame. ''It doesn't take a rocket scientist to cool down a can of Coke,'' he says, implying the shelf-life problem is not a big obstacle. Although no one knows the exact plans of Seven-Up, Mr. Thompson thinks a move to 100 percent aspartame would fit the company's marketing strategy of a natural drink with no caffeine and no artificial colors or flavors. And once Seven-Up moves, the rest of the industry will follow.

''Coke and Pepsi are most frightened by Philip Morris (the cigarettemaker which owns Seven-Up),'' says Mr. Thompson. The subsidiary's ''natural'' marketing campaign has given 7-Up recent market share gains, a feat difficult in this competitive industry. Thompson says cost is the reason Coke and Royal Crown are keeping NutraSweet content under 50 percent.

In all of this, Searle should profit handsomely. With a patent that lasts until 1992, aspartame ''is going to become Searle's aircraft carrier and battleship,'' says analyst Saks at A.G. Becker. ''The market is going to be huge.'' Saks thinks there will be little price change over the next few years because ''it's a seller's market.''

The question most observers seem to be asking Searle, though, is whether it can keep up with demand. ''We have the ability to supply their needs,'' says Robert Shapiro, head of aspartame development at Searle. The company has expanded its production facilities, recently signed an agreement with Genex Inc. to provide amino acids needed to make aspartame, and expects another facility to come on-line in 1985.

The one thing that could throw a damper on all this is a health issue raised by a scientist at the Massachusetts Institute of Technology. Based on tests with rats, the scientist suspects aspartame in soft drinks, combined with starchy foods, could be harmful to some people. But a spokesman from the FDA says this information was known and considered before it approved the sweetener. The FDA has no intention of recalling its approval, the spokesman said. Still, the National Soft Drink Association considers it worthy of further research.

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