Until a 1996 piece of legislation, the FDA ruled the supplement industry with an iron fist. If a pharmaceutical company developed a drug that performed the same remedy or other function as a supplement or vitamin, the FDA would approve the drug and ban the supplement 9 out of 10 times.

The bill took some of the FDA’s power away, but that didn’t stop the agency from banning certain substances. As one industry insider notes, “With the FDA’s help, drug companies take traditional herbs, extract their main actives and turn it into drugs.”

[Note: By “main actives” she was referring to the chemical or compound that offers health benefits, which is found naturally in the plant.]

The drug company usually does this through synthetically manufacturing the chemical or compound to form a drug. The FDA will ban the source (the plant) and approve the drug.

As Mike Adams of Natural News notes, “It would be like Big Pharma patenting vitamin C, then the FDA claiming that all oranges and lemons were adulterated with drugs because they naturally contain their own vitamin C.”

As ridiculous as this method is, it’s been the agency’s weapon of choice, especially when dealing with herbal and traditional supplement companies.

As recently as February of this year, the FDA banned vitamin B6, or pyridoxamine, by “declaring it to be a drug.” Meaning this naturally-occurring vitamin, which is found in fish and chicken, is illegal unless a (presumably major) drug company develops it. Pyridoxamine, as a supplement, was used to prevent the progression of kidney disease.

This is nothing new; the FDA has been playing this game for years. But as the saying goes, if you can’t beat ‘em, join ‘em. That’s why a new breed of potential drugs is shaping up…

Many supplement companies are commencing clinical trials on their formulas. This recent outburst of new players probably won’t fragment the pharmaceutical industry, but it does give penny stock investors a few more opportunities.

Previously, the only major catalysts for supplement companies were commercialization of its products and earnings reports. Now, they can use the FDA as a benefit instead of a burden. We already know what an FDA approval can do for a company…

The Fastest-Growing Niche Segment in the Supplement Industry

One tiny, but fast-growing, segment of this niche industry is traditional Chinese medicines (TCM). In the western world, the number of countries recognizing TCM as legitimate is increasing. According to People Daily, a China-based newspaper, more than 120 countries have set up TCM institutions or clinics. Just in the U.S. there are 53 schools of TCM.

More specifically, Chinese herbal medicine use is growing at an astronomical rate. Some estimate this growth at 20% in the western world. In the U.S., California is leading the way, with the majority of herbal clinics and practitioners of TCM. Many U.S. health insurers are now recognizing and including TCM into their coverage.

With the fast growth of herbal medicines and the recent moves by the herbal supplement industry, we see large upside for a select few companies… The next big gains from this niche field will no-doubt be a penny stock. We’ll keep you updated…

Source: The “All-Natural” Way to Play Penny Pharma

• The Conference Board’s consumer confidence index fell to 62.3 in April, a five year low, Bloomberg News reported. The Conference Board’s index dropped from a revised 65.9 reading in March that was higher than previously estimated.

• Citigroup Inc. (C) said it would sell about $3 billion of its common stock in a public offering yesterday (Tuesday). Citigroup Inc. says it is has already received “strong interest” in the issuance, the Associated Press reported.

• Denny’s Corp. (DENN) reported first-quarter net earnings of $5 million (5 cents a share), up from 1.16 million (1 cent per share) a year ago. The increase came despite a $40.8 million drop-off in revenue. The stock closed up 1 cent at $3.17, Thomson Financial reported.

• IBM Corp. (IBM) increased its dividend payout 25% yesterday (Tuesday), reflecting the technology company’s confidence that it can thrive even with an uncertain economy, according to the Associated Press. At IBM’s annual shareholder meeting, the board of directors upped the quarterly dividend to 50 cents per share. For the past four quarters it had been 40 cents per share.

• Shares of pharmaceutical firm Merck & Co. Inc. (MRK) shed 10% yesterday (Tuesday) with a decline of $4.30 to close at $37.14. On Monday, the Food and Drug Administration rejected Merck’s cholesterol drug, Cordaptive, and analysts warned it could have an inverse impact on Merck’s bottom line.

• Airline shares soared yesterday (Tuesday) as crude oil dropped below $116 a barrel after reaching a record high on Monday of almost $120 a barrel, Reuters reported. Northwest Airlines Corp. (NWA) had the biggest gain with an increase of almost 23%, adding $1.74 per share to close at $9.36.

• MasterCard Inc. (MA) shares gained 12% yesterday (Tuesday) after the world’s second-largest credit card processing company announced first quarter earnings. First-quarter net income increased to $446.9 million, or $3.38 a share, from $214.9 million, or $1.57, a year earlier, Bloomberg News reported. The stock gained $31.48 to close at $273.98.

• Shares of Canada-based sportswear maker Gildan Activewear Inc. (GIL) plunged yesterday (Tuesday) after management lowered its outlook. The stock dropped $10.99, a decline of over 30%, to close at $24.93, after the company lowered both second-quarter and full-year estimates due to production shortfalls and slow sales, Forbes reported.