Hot Starts

COMPANY: Medical Foods Inc.

HEADQUARTERS: Cambridge, Mass.

TYPE OF BUSINESS: Medical products with therapeutic and preventive health benefits

FOUNDERS: Bob Jones, 48; Maurice Strong, 66, an environmentalist; and John Preston, 46, the former director of the MIT Technology Licensing Office

CAPITAL: $1 million from investors, including Technology Development Corp.; currently raising an additional $3 million to $4 million

KEY COMPETITION: Baker Norton Pharmaceuticals' Zbar, and potentially every large company with a medical-food product in the works

COMPETITIVE STRATEGY: Get to market first with highly palatable medical foods

"Many of the nutritional products on the market today designed to treat chronic conditions taste like vomit," says Bob Jones, president of Medical Foods, a tiny start-up that, with MIT management skills and Harvard Medical School brains, is taking on the NestlÉ Foods and Bristol-Myers Squibbs of the world with this simple strategy: make clinically proven products that taste good.

Incorporated in 1994, Medical Foods makes foods that act like medicine, to treat conditions from diabetes to arthritis. The market is potentially so vast--estimates of its total worth range from $10 billion to $250 billion a year--that nearly every major food manufacturer and pharmaceutical giant is investigating the field.

NiteBite is the company's first product. It's a chocolate-fudge-flavored snack bar designed to help diabetics manage nocturnal hypoglycemia, caused by low blood sugar (glucose). The company's scientific team, comprising Jones and three Harvard Medical School­affiliated scientists, concocted the mixture of sucrose, protein, and uncooked cornstarch. NiteBite gradually releases glucose into the bloodstream, where it lasts for six hours or more. Of a potential market made up of the country's estimated 2.7 million insulin-using diabetics who are at risk for hypoglycemia, a "5% penetration with NiteBite is quite achievable, and 10% very doable," says Jones, a health-care-industry veteran.

At approximately a dollar a bar, NiteBite has a price point similar to that of its chief competitor, Zbar, but according to Jones, it has a distribution model "totally upside-down" from the traditional, pharmaceutically driven one. Rather than taking the typical approach of first targeting physicians and pharmacists, Medical Foods sells its products directly to the consumer, initially through a toll-free number. It then uses satisfied customers as mini ambassadors for its products by asking them where they would like to see the products carried and then contacting the places they recommend. "It's incredibly grassroots and incredibly effective," says Jones. "As a brand-new, unknown company, ordinarily we wouldn't have a chance of getting into places like Wal-Mart. Now Wal-Mart's calling us."

Current Food and Drug Administration regulations affecting the manufacture and distribution of products like those made by Medical Foods are "a gray area," concedes the FDA's Judy Foulke. But that doesn't deter Jones, who says Medical Foods' products will always "meet or exceed" any FDA requirements. He puts projected 1997 revenues at $10 million, and predicts a breakeven date of late 1997. His confidence isn't shaken by a nasty lawsuit filed by deep-pocketed competitor Baker Norton, the maker of Zbar. In fact, Jones is already looking beyond the suit to Medical Foods' next challenge: this spring it plans to introduce its second product, which will lower cholesterol. Also in development are medical foods designed to alleviate arthritis, combat colon cancer, and assist HIV patients. "I want patients for life," says Jones.