Key Quotes from Chromadex's Q4 2019 Earnings Call $CDXC

Chromadex (ticker: CDXC) reported Q4 2019 results yesterday. The following are key earnings call quotes from CEO Rob Fried, CFO Kevin Farr and Executive Chairman Frank L. Jaksche:

Coronavirus Impact

“We do not anticipate a significant impact on net sales…do not expect any supply chain disruption….have sufficient safety stock of finished goods and have contingency plans in place for upcoming production.

…full year, it's really difficult to predict. So at this point, our forecasts are that it isn't going to impact the full year, but that could change over time. 

We also candidly don't know if it, in the long run, has an impact positively or negatively.

NR & Viruses

"We understand that TRU NIAGEN elevates NAD levels. We understand further that when a cell is under physiological stress that it uses that NAD to combat that stress, not only through energy metabolism but elevating the repair enzymes within the cell. 

So we understand the importance of this and other viruses. We understand the importance of this particular trend, and we are working on it with important researchers around the world. And we are committing resources to studying and investigating the impact of TRU NIAGEN on this and other similar viruses presently.

NR vs NMN

"Another NAD precursor that has recently gained attention is nicotinamide mononucleotide, or NMN. 

In contrast to the 6 clinical trials on NIAGEN (NR) that I previously mentioned, the first clinical study of NMN was recently published in -- which researchers administered 3 single doses to 10 healthy male subjects. 

While this established tolerability of single oral doses of NMN in humans, it did not measure the tolerability of daily oral supplementation. 

Furthermore, it did not measure NMN's effect, if any, on NAD levels. 

In addition, we have reason to believe that NMN is less efficient as an alternative to NR. 

As demonstrated by multiple peer-reviewed published studies, NMN must convert to NR before entering the cell. This is due to the presence of a phosphate group on NMN, which prevents it from entering the cells directly. Previously published research has suggested that there are no known transporters for phosphor-related compounds such as NMN. However, in the recent study, researchers claim that they have identified an NMN transporter in the small intestine of mice. 

We believe there are flaws in the study design, and we'll be interested to see if it can be replicated. In the meantime, the pathway for NR is well established and beyond refute. 

Furthermore, the regulatory acceptability of NMN as a dietary ingredient for use in dietary supplements is uncertain. 

ChromaDex successfully filed 2 NDI notifications for NIAGEN with the FDA, which is virtually unprecedented in the industry. In contrast, no such notification has been filed with the FDA for NMN. 

We have been following the research on NAD precursor since 2006. Beginning in 2010, we chose to license the patents and build our business around NR rather than NMN because NR was supported by the science. 

Our understanding then is the same as it is today, which is that there are no scientifically proven reasons for consumers to take NMN over NR.

International Expansion – UK

"We are now expanding into the U.K. and Australia in the first quarter of 2020. 

...we signed an agreement with a leading health and beauty retail chain to sell TRU NIAGEN in over 200 stores in the U.K. This represents an initial test launch with the potential for broader distribution over time.

International Expansion – Australia

…we secured regulatory approvals from the EU and Australia, which includes 5- and 2-year exclusivity, respectively. 

…we've built upon our relationship with Matakana Superfoods to include distribution rights in Australia. Matakana has done an excellent job in New Zealand, and they will launch TRU NIAGEN in Australia this month. Australia has one of the highest per capita consumption of dietary supplements in the world.

…Matakana will begin their launch later this month. It will initially be an online launch. Our expectation is that it will later evolve into retail distribution.

International Expansion - China

"We are selling cross-border into China presently with Tmall. We are talking to partners about helping guide us and creating a partnership to help lead us in China. We're having those conversations even in advance of getting regulatory approval in China. This is the strategy that we have adopted for entering into new territories. It's a careful, vigilant, cost-efficient, aggressive approach.

Nestle

"…excited for its plans to launch TRU NIAGEN this year. Marketing efforts will begin in mid-2020, with an online launch expected in the second half of the year. 

The initial test launch will be in loose powder format. 

While this will not have a material impact on our 2020 results, it is foundationally important. 

We continue to proactively work on liquid stability, although we are uncertain as to if or when this will be achieved. 

…we're not sure that the deal would be bigger if it was in liquid form. 

We're actually quite interested in the powder format. We think a tip-in powder format, like the stick packs that would be added to a beverage or even as an independent product, is actually an interesting opportunity. So we're very curious on how this test goes and how this rollout product goes. 

...the initial thinking in the relationship with Nestlé is that it would be part of the formulation of a product they have called BOOST, which is mostly a liquid-based protein meal replacement beverage. But in order to do that, we'd have to achieve stability in liquid… 

So Nestlé was interested in us trying to solve that problem. 

We are interested in solving that problem because there are other beverages out there that are interesting besides BOOST. Again, they only have the right to protein-based meal replacement products. But there are many beverages out there that do not -- are not protein-based. So we see it as an enormous opportunity once the problem is solved. 

...with the passage of time, what we've observed from Nestlé is, maybe putting it in BOOST is not the big idea. Maybe just a separate powder-based product that could be added to BOOST or other beverages is a bigger idea.

NR & Science

"We continue to be confident in the science behind NR with several new studies registered and published since our last update.

There are 39 ongoing completed and published clinical trials currently registered on ClinicalTrials.gov, to investigate the pharmacokinetics and therapeutic effects of NR. This is 3 more than our last update. An additional 7 clinical trials are registered to test NR in combination with other ingredients for a total of 46. 

We finished the quarter with more than 185 signed research collaborations, up by approximately 10 compared to last quarter.

NR & Health Claims

"…if you look at the studies that are happening right now and some of the results that have been published thus far, it does look like liver, kidney, cardiovascular and some cognition-related. 

We're starting to see a level of consistency, and we are also seeing studies come to completion, many of which are still unblinded, but some of which we have some insight into the data that are consistent with this. 

We have high expectations and hopes for studies that will get published in the coming year. 

….we're just waiting for peer review to come out on data that we're excited to hopefully share with everybody on that front.

NR & Athletes

"We have a growing base of professional athletes and professional fitness trainers taking TRU NIAGEN today as well.

Cash

"…we ended the year with $18.8 million in cash, roughly equal to the third quarter, and strengthened our balance sheet by securing a $7 million committed line of credit to help manage working capital investments. We did not draw on the line of credit in the quarter.

Gross Margins

"Gross margin expansion due to favorable mix from growing e-commerce business, the product design changes implemented late 2019 and additional supply chain cost-savings initiatives.

Cash Flow Breakeven

"We continue to believe we can achieve cash flow breakeven at $17 million to $19 million of revenues if the litigation ends and legal costs decline. Total operating expense will be higher in the near term driven by the higher litigation expense, so we're working on cost-savings initiatives to deliver gross margins that are slightly better than the 60% to help offset this. If legal costs do not decline, our breakeven sales may be closer to the upper end of the $17 million to $19 million range.

Customers

"Retention rate is high and seems to be getting higher. The majority of our revenues at this point in time is from repurchases and reorders.

Retail

"We have very, very carefully and slowly dipped our toe in the water. But there are people here at this company that have a great deal of experience dealing with large retail chains. And we are waiting until it's the right time and the right opportunity and there's the right level of brand awareness so that we are not taking too big a risk when we go -- and that we are preserving the unique brand identity, at such time as we might enter into retail. The opportunities are there, however.

Litigation

"There were several positive developments and momentum in early 2020. We are on offense in all cases. First, in January, at the hearing on the motions for summary judgment in California, Judge Carney allowed our broader claims regarding theft of trade secrets and confidential information as well as breach of fiduciary duty by Elysium and Mark Morris. We will ask the jury for an award of roughly $13 million in compensatory damages along with a request for punitive damages. The trial is set for May 12. 

…we will continue to vigorously pursue our legal claims against Elysium and are now proceeding with our patent infringement action against Elysium in Delaware. 

The facts have come out. Many of them are public and can be read.

Full transcript HERE.

More CDXC analysis HERE.

Disclosure: Long CDXC

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