ChromaDex moves forward with transformation to finished goods brand

By Hank Schultz

- Last updated on GMT

Related tags Stock Chromadex

ChromaDex moves forward with transformation to finished goods brand
ChromaDex is making progress on a transformation to a finished goods company based on its Niagen ingredient even as it struggles with continuing losses to shareholders.

In the company’s second quarter earnings call with analysts, company executives detailed the strategy of turning its flagship ingredient Niagen into a consumer brand called Tru Niagen.  The company is working to end supply relationships with resellers.

This comes in the wake of the loss of the company’s major ingredient customer, Elysium Health. In late 2016 ChromaDex sued Elysium, alleging the startup has not paid its bills and has violated trademarks, a move which in retrospect could be seen as the death knell for the ingredient supplier strategy. ChromaDex had supplied Elysium with Niagen, its branded form of nicotinamide riboside, and pTeroPure, its nature-identical form of pterostilbene.

In the most recent earnings statement, filed yesterday, ChromaDex stated that it had spend $746,000 on litigation and write offs relating to Elysium in the quarter, which contributed to a $2.8 million loss in the period. Despite the legal challenge, Elysium has continued to offer products containing nicotinamide riboside and pterostilbene.

Finished product strategy awaits exhaustion of inventories

In March ChromaDex acquired Pro Healthspan, which will act as a platform for the marketing of the finished product in online channels. But ChromaDex president Rob Fried told financial analysts that it will take time for products from third party entities to sell out in the market, and until that happens, Tru Niagen will fly pretty much under the radar.

We have done a good job of no longer supplying the ingredient to resellers but there were many that already had stockpiles and inventory built up and they are still there and in fact a couple of new ones even have emerged. . . . we expect in the next couple months for there to be a thinning of that environment of that ecosystem and we'll be able to begin to more aggressively market online,​ Fried said in the call that was posted in transcript form on the site​.

Being still a relatively small company, ChromaDex is vulnerable to issues with customers.  In July of last year, a blog post on a financial website alleged that the company had been pumping up sales by doing business with a company owned by a board member. The company successfully defended itself against the allegation, earning the unusual response of a full retraction of the post, but the stock price plunged as a result from $5.76 to trading in the $3 range today.

Stock traders did not react negatively to the reports of ChromaDex’s losses, with the stock price barely budging.  This could be as a result of the newly announced strategy and the $25 million in capital poured into the company in April by Hong Kong billionaire Li Ka-Shing.

Earnings details

For the three months ended July 1, 2017, ChromaDex reported net sales of $5.3 million, compared to $8.8 million for the three months ended July 2, 2016.     

The ingredients segment generated net sales of $3.0 million for Q2 2017, compared to $6.2 million for Q2 2016, the decrease largely as a result of the Elysium termination.

The core standards and services segment posted net sales of $2.3 million for Q2 2017, compared to $2.6 million for Q2 2016.  Since the year ended December 31, 2016, ChromaDex has made operational changes to merge its scientific and regulatory consulting segment into the core standards and services segment.

The net loss attributable to common stock holders for Q2 2017 was $2.8 million or ($0.07) per share, as compared to a net loss of approximately $83,000 or ($0.00) per share for Q2 2016.

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