ChromaDex’s TruNiagen sales rise, but legal costs, higher operating expenses drive bigger loss
ChromaDex, based in Irvine, CA, is a laboratory services provider and regulatory consulting company. But in recent years the company has increasingly focus on its Niagen ingredient, which has an anti-aging positioning, having been researched for its role in supporting NAD+ activity within the cells.After licensing the technology for the ingredient from Dartmouth College, the company first acted as a straight supplier of the ingredient.
Efforts to commercialize the ingredient with brand partner stalled, however. That development culminated with a high profile legal struggle with its erstwhile biggest customer, Elysium Health. In the wake of the unraveling of that relationship, ChromaDex attracted a big investment from Hong Kong billionaire Li Ka-Shing and embarked on a new strategy of becoming a fully integrated supplement manufacturer. Through itermediaries, Li is reportedly now the company’s largest shareholder.
ChromaDex inked a distribution deal with Watsons, the largest health care and beauty store chain in Asia. In addition to selling TruNiagen though that company’s outlets, ChromaDex also has a direct-to-consumer ecommerce business in the US.
TruNiagen sales soar
In its 2018 third quarter earnings statement, ChromaDex reported that the strategy is bearing fruit. The company reported net sales of $8.1 million, up 33% compared to $6.1 million from continuing operations in the third quarter of 2017. Sales of the TruNiagen brand were up 97%, and sales of the supplement now account for 60% of overall revenue.
But managing that growth in retail distribution necessitated hiring more executive suite help. Sales and marketing expenses almost quadrupled from the third quarter of 2017 and general and administrative expenses rose by almost 60%. The net result was a loss of $8.6 million in the quarter, or 16 cents per share.
This was more than analysts had been expecting. In the trading since the company since the company announced the results yesterday the stock price has declined by almost 10% to about $3.45 a share. The company’s share price has declined about 50% from its recent high of almost $8 a share in late November 2017.
ChormaDex spent $2.7 million on legal expenses in the quarter. The litigation with Elysium now includes both breach of contract lawsuits as well as a patent infringement complaint.
“We continue to feel very confident about the facts of these cases and expect to see a return on this litigation investment,” CEO Rob Fried said in an earnings call with analysts. The full transcript of the call can be viewed on the site seekingalpha.com.
Asia Pacific strategy
ChromaDex says it is working with Watsons, which is based in Hong Kong, to increase the distribution footprint for its supplement, with regulatory approval expected soon in Taiwan. China continues to be a market of interest for ChromaDex, but regulatory hurdles have delayed market entry there. Like many other dietary supplement companies seeking to enter that market, ChromaDex has pursued both a province-based and a national strategy.
“In China, we announced signing a memorandum of understanding for the creation of a strategic partnership for aging research in the Jiangxi Province. This will include a new partnership between Chromadex and First Affiliated Hospital of Nanchang University. We're taking a determined yet deliberate approach to China given the enormous opportunity this market represents. There are more than 300 million people over the age of 55 in China,” Fried said.
“There's quite a bit of transition going on in the China regulatory authorities right now. Obviously, the relationship is pretty strong with the Jiangxi Province, but in terms of the Central Government, we have no insights as to when that approval will be given, if at all,” he said.
