"Eighty percent of the products that you see in department stores we've created for brands."

There's a common myth in the beauty industry — and it's perhaps even more pervasive among those on the outside of it, looking in — that every brand has its own army of formulators and scientists toiling away in some high-tech lab creating its products. And while that may be true for a handful of them, the reality is that many of those products are researched, created and packaged by private-label companies.

Labs like Englewood, Radical Cosmetics and Mana — to name just a few — are B2B manufacturers that create formulas and packaging that can be marketed by beauty brands without anyone knowing they didn't do it themselves. Consumers might be surprised to learn that some of their favorite lotions and potions came from the same place and potentially have the same formula as other private-label produced products on the market.

The inner workings of these companies are a bit more nuanced than just slapping a label on a bottle and calling it a day. Nik James, president and chairman of YG Laboratories, one of the leading skin-care formulators in the business, explains that the company is divided into tiers. There's what he calls ready-to-wear, in which brands pick a product from YG's stock line. The cheapest option, these RTW products bear the name that YG has given them and its stock packaging but feature the brand's own logo and distribution information.

The next tier also offers product and packaging drawn from the stock options, but YG adds custom labels with the brand's color scheme, chosen product name and logo, making it look like the brand's own proprietary product. Then there's the more premium option — or couture, if we stick with the fashion theme — which is a custom formulation, that could simply be a reformulation of an existing product, a reverse-engineered formula (or to put it more bluntly, a knockoff) or a fully bespoke formulation built from the ground up.

In the past, private-label labs have been more than happy to remain in the industry's shadows, working discretely on formulas for a surprisingly large array of brands. Irena James, YG's vice president of product development (who is also Nik's wife), claims that "80 percent of the products that you see in department stores we've created for brands." And after four decades in the industry spent formulating products for other companies, YG just introduced its very own line. Based on research on the efficacy of topical melatonin for anti-aging, the couple — relying on Irena's biochemistry and skin physiology expertise — dreamed up a formula that features melatonin as its star ingredient.

Constant exposure to light, says Irena, is interfering with our sleep, which in turn affects your skin's ability to heal the daily damage it sustains. The research showed that topical melatonin can offer the reparative function the skin needs, despite a lackluster sleep cycle.

YG knew it had something special on its hands, but worried that sharing it with clients might lead to the innovation being squandered for the sake of cost cutting. And so Evoté was born: A 12-piece line of day and night treatments that deliver the topical melatonin in the optimal formulation, no compromising required.

Says Irena, "The reason we came out from behind private-label industry to work on this as our own brand is because we did not want this message to be diluted — we didn't want to give that away to someone else."

That seems to be a common theme with this burgeoning movement — suppliers and formulators creating something they were loathe to give to brands that would use it in ways that would essentially make it less effective, in their eyes wasting the potential of the innovation they had birthed.

Take ORF Genetics, an Icelandic biotech company whose main business was on developing growth factors for stem cell research, for instance. After perfecting a technology that produced replicas of human growth factors (EGF) in barley plants, the scientists identified that this particular discovery was best suited to skin care. "There are many important growth factors in our skin," explains Dr. Björn Örvar, the executive vice president and chief science officer of ORF's in-house skin-care line, Bioeffect. "EGF is considered the most important one for anti-aging purposes."

The initial plan, says Dr. Örvar, was to sell the pure, plant-based EGF to major cosmetics companies, but they ran into the same misgivings as the James's did.

"Growth factors are extremely unstable proteins — we refer to them as prima donnas," notes Dr. Örvar. "They cannot be mixed with any formulations that contain common skin-care ingredients such as alcohols, emulsifiers, oils/fats and oil-based vitamins such as vitamins A, D and E." They quickly realized that by selling it, they were most certainly increasing the probability of it being used incorrectly. "Many of these companies had limited knowledge of how to formulate these sensitive growth factors," he continues. "This could result in a product that failed to show the amazing, positive effect they have on the skin.”

Which is how a biotech company with zero experience in brand creation found themselves putting their prima donna protein into a range of custom-built products. However, unlike private-label labs, scientific research suppliers are not equipped with the know-how or resources needed to launch a successful line.

"It was a difficult transition for a biotechnology company to add new skill sets to our competence, such as in sales, marketing, branding and production," admits Dr. Örvar. "Our staff, me included, had to be very flexible in our tasks and ready to adopt new ways of thinking and execution; the guy in the DNA lab had to be ready to test out creams, and the founders had to be ready to talk about beautiful skin." This also meant bringing aboard professionals in those unfamiliar skill sets to "help bring our consumer product to the market without sacrificing our identity engraved in our scientific, biotech background."

The strategy clearly worked, as the brand's EGF Serum is one of the most popular luxury skin-care products in Europe — it is a top-seller at Colette, where the brand claims that 70 percent of women who are given a sample to try come back to purchase a full-size bottle. And at $160 a bottle, that's definitely a feat worth touting. The line just launched in the U.S. and is already generating some major buzz Stateside. Not too shabby for a bunch of beauty novices.

Even traditional manufactures are getting in on action. Engineer and Ayurvedic expert Shrankhla Holecek comes from a long line of essential oil masters — her family's estate in India has been cultivating, growing, extracting and supplying some of the most premium essential oils used in fine fragrances (hi, Tom Ford) for decades.

But, says Holecek, her family's history goes back quite a bit longer than that — generations ago, her ancestors were the physicians’ for India's royal family. Their key contribution was using the essential oils they created to concoct Ayurvedic remedies and treatments. "For hundreds of years, we formulated many, many products," says Holecek. "The formulas of which have passed down from generation to generation in secrecy."

She notes that while her family has supplied their oils to big beauty brands, they have never sold or revealed their formulas. Wanting to share them with the world but deeming those secret recipes too precious to be entrusted to their clients, Holecek launched Uma, a luxurious range of products for the face, hair, body and mind — all pulled from her family's treasure trove of recipes and created using the resources and ingredients from their expansive farm.

Holecek echoes YG and ORF that the impetus behind her undertaking the line was to best share her unique access and expertise. But another key part in her decision was a desire to bring more awareness to an ancient practice that was deeply rooted in her history. "I still believe Ayurveda is largely misunderstood and the hope remains the efficacy and performance of Uma products can help shift mindsets about this 5,000-year-old science."

Irena, too, is on a mission to change perceptions. "In the past there was this stigma of private label being cheaper and not as of high quality as recognized brands," she says. "People didn't understand that most of these brands don't have their own manufacturing and are going to people like us to make their product. We wanted to shatter that stigma, and that's really shown in our formulas."

One thing all three companies have in common is an intimate look into how the sausage is made, if you will, at the beauty behemoths they work with, which gives them a much more pragmatic approach to their business. It's not about competing with them, they say, but rather bringing a new perspective to the market. “Our approach will always be different," notes Dr. Örvar. "Because of our biotech background and a different emphasis on how to deliver product efficacy."

And as more and more companies snap up indie brands or collect them into incubation labs, these three relatively new initiatives signal yet another seismic shift — brands that are able to work with the agility and outsider perspective of a start-up, but with the know-how and resources of an established company.

How well these brands juggle their core businesses with their personal projects remains to be seen — there's an obvious conflict for clients knowing that their suppliers and formulators are seemingly hoarding the best stuff for themselves. Will those companies begin to consider moving their operations (and their money) internally? Holecek doesn't think so: "Start-up costs on some of these things can be staggering — it takes millions and millions to build a good essential oil distillation plant for instance, not to mention the additional investments that will need to go into the farming." She points out that those larger businesses already have the supply relationships and purchasing power to have access to top tier producers. "They probably want to focus energies on the things that sells the products — like sales and marketing," she posits.

The big challenge these new brands will be just that — getting their products out in front of the buying public, a skill that for the most part isn’t in their core repertoire. But, as Bioeffect demonstrates, having the right amount of flexibility to reconfigure the strategy and the foresight to know when more seasoned perspectives are required can translate to a potential blockbuster franchise. These companies quite literally have everything they need at their fingertips — now they just need to learn what to do with it.

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