Investor takes Cyanotech to task over astaxanthin supply

By Hank Schultz contact

- Last updated on GMT

Cyanotech grows its spirulina and Haematococcus pluvialis algae strains in open ponds on Hawaii's Big Island.  Cyanotech photo.
Cyanotech grows its spirulina and Haematococcus pluvialis algae strains in open ponds on Hawaii's Big Island. Cyanotech photo.

Related tags: Company, Dietary supplement

An investment firm that now owns almost 13% of the stock of Cyanotech is announcing an effort to push the company to speed up the process of bringing additional astaxanthin supply capacity online.

Scott Shuda has a law degree from Georgetown University and is a principal in the firm Meridian OHC Partners. Shuda filed two Schedule 13D forms with the Securities and Exchange Commission earlier this week detailing the new ownership stance and the purposes for the move. In an interview with NutraIngredients-USA, Shuda said that he’s bullish on the company and its products, but has a hard time wrapping his head around the current strategic direction, which he characterizes as overly sluggish.

Consumers connect to brand

Cyanotech, based on the Kona Coast of Hawaii’s Big Island, was one of the seminal companies in the algae cultivation business. The company grows spirulina and Haematococcus pluvialis​—the organism that produces astaxanthin—in open ponds situated along the shore. The pristine environment and access to water with the right chemistry has been one of the company’s value propositions and seems to be resonating with consumers, Shuda said.

“I think we’re almost at a point now where when you say ‘astaxanthin,’ consumers respond, ‘You mean Hawaiian astaxanthin?’ ”​ Shuda said.

Shuda’s 13-D filing calls on other investors in the company to join in an effort to put new board members in place who would change the company’s strategic direction. “Cyanotech is a small public company with great products, leading brands, and a stable and profitable operating business. On top of this, Meridian believes the Company has tremendous growth and value-creation potential in its emerging astaxanthin product line.  Meridian is confident that many followers of the Company believe, as it does, that Cyanotech has the ability to deliver truly exceptional returns to its stockholders. Yet, the Company has of late been pursuing actions that are both inexplicable and unexplained,” ​the filing reads.

Vertical integration

Cyanotech started out as an ingredient supplier. Several years ago the company started to move into becoming a vertically integrated finished goods manufacturer marketing spirulina and astaxanthin dietary supplements under its Nutrex brand name. Shuda said he believes this strategy has been successful, but the company is not pursuing it vigorously enough, leaving the field open to competitors. Nutrex has a powerful brand position now, he said, but as more astaxanthin capacity comes online this can’t be taken as a given. In recent years almost every astaxanthin supplier has brought additional astaxanthin capacity online or has announced plans to do so, and new suppliers, such as China’s BGG, have arisen.

“The company has done yeoman’s work to get a 57% market share in the natural foods channel,”​ Shuda said. “They have a relationship with Costco and they have started shipping into China.”

Supply bottleneck

But Shuda said the brand’s expansion is being constrained by a supply bottleneck. He said he has tried to have in-depth discussions with the company’s leadership about the possibility of raising more capital to either expand the existing Kona site if that’s possible, or to bring a new site online. And he said recent statements by the company lead him to believe that Cyanotech has looked into transitioning its astaxanthin production into some sort of completely enclosed system or a hybrid one, making it more similar to its competitors in that regard. But he said he can’t be sure, because Cyanotech has chosen to operate in a closed manner. 

“The company’s big problem is that they are not able to produce enough to satisfy all of the demand. I have been close to the company and have made multiple offers that if the company needs additional funds to expand production we can help with that. But they don’t seem interested. They seem mostly interested in remaining mostly hidden; a little, hidden public company. I don’t like the idea that they don’t seem to want to pursue the opportunity,”​ he said.

Shuda said he was also disturbed by the abrupt recent departure of CEO Brent Bailey. Shuda credits Bailey, who he said has significant experience in the dietary supplement industry, with much of the brand’s recent growth.

Gerry Cysewski, founder of Cyanotech who assumed the CEO position after Bailey’s departure, declined to comment when contacted by NutraIngredients-USA.

Related news

Show more

Related products

show more

Botanicals & Immunity: Trends & Research

Botanicals & Immunity: Trends & Research

Layn Natural Ingredients: Innovate With Our Botanical Extracts | 17-Jun-2020 | Research Study

Google Trends shows consumer searches of “Immunity” are up more than 700% in 2020 - and nutraceutical consumers are looking to botanicals. Find out everything...

Natreon Immunity White Paper

Natreon Immunity White Paper

Natreon Inc. | 09-Jun-2020 | Technical / White Paper

Read through Natreon’s White Paper on Immunity Support to learn more about how Ayurvedic ingredients, Sensoril® Ashwagandha, Capros® Amla, and PrimaVie®...

Enzyme-Powered, Plant-Based Antioxidant Ingredient

Enzyme-Powered, Plant-Based Antioxidant Ingredient

Deerland Probiotics & Enzymes | 21-Apr-2020 | Product Catalog

An innovative and totally unique process breaks down the cell wall of organic spinach – something the body struggles to do-- while still preserving the...

Related suppliers

Follow us

Products

View more

Webinars