I had the opportunity to stop by the offices of ChromaDex (CDXC) last week in LA. It was a beautiful day in LA and I was in a good mood. From the Company’s side, in attendance were Robert Fried, president & COO, Kevin Farr, CFO, and Andrew Johnson, director of investor Relations. Nothing I heard did anything to put a damper either on my mood or my enthusiasm for the long-term future of CDXC stock.
I’ve owned shares in ChromaDex for about 9 months. During that time, the stock, despite the Company having accomplished quite a lot, is only slightly higher since from my entry price.
Over the past few months, shares of CDXC have been much higher, though. The strength in the stock a few months ago was primarily the result of funding from a great group of wealthy investors sparking interest in the Company. When Li Ka Shing invested, followed by ICONIQ Capital (a company managing Mark Zuckerberg & friends’ money), investors understandably got excited about CDXC. This was especially true after Watsons, a drug store chain of 10,000 stores and owned by Mr. Li, signed a deal to market Tru Niagen.
However, the gains on the back of this news were short lived. Some of this was due to the broader market weakness. Yet there were two other causes that more directly led to the large correction in the stock. These would be continued selling from a group of legacy shareholders including the not too highly regarded Barry Honig (per SEC filings, he has sold around 2 million shares), and, more recently, guidance for Q1 that disappointed some investors.
The downward movement in share price that started with the Q4 earnings call is primarily related to comments from management. On that call, they stated that Q1 might not be sequentially higher. This would be, of course, related to timing of stocking of the large Watsons rollouts.
Investors were caught by surprise and this has been the root cause of recent weakness; the main issue being that, if Tru Niagen is truly ramping, how could the company suffer a down Q at this early stage of the game?
The answer lies in rolling out new markets and the initial stocking that takes place. It’s very possible for Watsons sales to be increasing sequentially to consumers, yet there to be some lumpiness in initial sales from ChromaDex to Watsons
Management has tried there best to allay these concerns and provide information around the positive sales trends. However, it’s fairly certain that this guidance is why the stock isn’t much higher, especially after the recent Boulder Study was released.
Thus, when I had the chance to sit down with ChromaDex’s management, it was a meeting with a Company that feels there’s a disconnect between what they have accomplished and the share price which reflects little of the recent success.
The meeting itself was very constructive. The Company was forthright in answering all our questions. And, most importantly, the confidence of where they are and where they are going spoke volumes. ChromaDex, and Niagen, is a story that will unfold over years. The Company has a significant opportunity in front of themselves and are taking the right steps to approach it cautiously, yet as quickly as feasible.
During the meeting we covered a myriad of topics. What follows below are my bullet point meeting notes. It’s important to realize that these are not direct quotes from the Company, rather my interpretation and recollection of what was said and the meaning thereof.
- They are in 300 Watsons stores at this time. Singapore, Hong Kong and Macau. They are looking to expand the Watsons relationship to Taiwan, but are awaiting regulatory approval. I can’t believe that would be too far off from now.
- Their stock of Watsons amounted to $2.3M and $1.8 in Q’s 3 and 4 respectively. This included the initial stocking of Hong Kong, Macau and Singapore. Typically, companies in this industry have initial stocking orders for 20 weeks of supply, so one would think that restocking orders should be coming in soon.
- They are very pleased with the initial sales at Watsons, “exceeding expectations.”
- They are working on a cross-border deal with partners to get into China. It’s quite possible that it will be done this year, but timing on partnerships is always uncertain.
- It appears that Canada is a market they will be entering very soon. Possibly, unlike the US where they are marketing Tru Niagen themselves, Canada will involve a major retailer as a partner. Stay tuned to this one.
- Working on Europe. Getting approval for the EU takes time, however a cross-border deal makes sense here…through Switzerland???
Tru Niagen and niagen market in the US…
- Down to only two other resellers under contract in the US. Both expire at year-end. To be determined if they’re renewed, but I got the sense we’ll be down to zero competition next year.
- With the obvious exception of Elysium, who continues to fight a losing legal battle and sell a competitive product that appears to be tainted with toluene.
- As of now, it appears that Tru Niagen has potentially over 50% market share.
- 30% of customers are reordering, which is an exceptional number for a supplement.
- Niagen is not stable in lotions (P&G tried this). However, it works great on skin if used quickly. Possible that in a powder form which gets liquified, it could become quite beneficial topically.
- Baby formula is also possible in the powder form. NAD is found in mother’s milk.
Other random anecdotal tidbits…
- In the company’s opinion, neurological activity is what will drive adoption.
- Works best in heart, brain, skin…areas with the highest cell counts.
- PARP activation and DNA repair are two areas where the benefits need to be further explored.
- Hearing cases of people losing the grey from their hair. Makes sense if you turned grey due to oxidative stress.
- Seeing efficacy in Alzheimers in animal studies – low energy metabolism
- Currently have 75 employees. Expect to be at 90 by year-end.
These notes were taken prior to the University of Colorado, Boulder study that came out last week. The data from that was very positive and would have been good to discuss, but that’s for another day.
In the meantime, there are a lot more studies ongoing. Clinical success will drive adoption of Niagen and it appears that there is no stopping the string of successful trials. Particularly exciting in the near-term was the success shown in the Boulder study for those dealing with high blood pressure. This is a huge market and could really speed up growth of the market.
Meanwhile, the stock remains under a little pressure as we await Q1 results; numbers that will likely weigh on the stock until they are announced. Then, in my opinion, we should have a nice long stretch of good sales and earnings coming at us as long as the clinical results continue to be superlative.
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