ChromaDex was the target of a negative article posted recently on the investment site Seeking Alpha that was penned by an author that goes under the name “Bleeker Street Research,” that admitted in a postscript that the author was short on ChromaDex stock. The article has now been retracted in full by the poster, who has also apologized.
The article alleged that ChromaDex, which supplies ingredients, offers analytical laboratory services and has a consulting arm, had in effect ‘engineered’ its recent revenue rise that took the company for the first time into profitability via a sweetheart supply deal with a company owned by a board member. The allegations were blasted by ChromaDex CEO Frank Jaksch as baseless and defamatory, but the article nevertheless did have an effect, sending the stock price plunging almost 50% in one day. It has since recovered much of that loss, trading now at close to $4 a share. It could not be determined if Bleeker Street Research achieved its goal of profiting from its short position on the stock.
Crisis communications in the dietary supplement industry is usually couched in terms of how to deal with recalls. There is a plethora of advice available on how to manage these events to both to protect consumer safety, satisfy regulators and prevent damage to a company’s reputation in the process.
Financial risk plan
What is perhaps a little less apparent is how to protect a company’s financial reputation when it is exposed to attacks like the one ChromaDex experienced. Jaksch said ChromaDex learned the hard way that while a company can’t prevent negative statements from being passed around and gaining traction in the financial blogosphere, having a plan in place to deal with it can save some headaches.
“If someone makes a decision to do something like what was done to us I don’t think there is much you can do to prevent it,” Jaksch told NutraIngredients-USA. “Even if you have all your ducks in order, it can still happen to you.”
“We’ve had a lot of articles posted about us on Seeking Alpha, most of them positive. What was disappointing to me was that they are not testing and vetting the accuracy of things like what Bleeker Street Research wrote,” he said.
Jaksch said ChromaDex has survived the episode with minimal damage, though some shareholders, whose positions are still significantly devalued, may still be feeling the sting. Jaksch said the company is treating the episode as a learning experience, and that he thinks they got lucky this time.
“I think we were lucky in that we had the right advisor and the right lawyers and we handled it in a way that we got a result that is not normal. It’s not normal to get a retraction and apology like this. It’s something that could have lingered on for a while. But I think we could have benefited from doing some war room strategy beforehand,” Jaksch said.
Jaksch said that being in the dietary supplement industry at the moment might raise the risk of these events. With all of the high profile negative news that has come from state attorneys general in the eastern US, investors’ antennae seem to be attuned to quickly believing that all is not as it seems with companies in this industry.
“For any company that is a public company, especially ones in our space, it’s prudent to have some sort of strategy in place to manage these events,” Jaksch said.