Excerpts from B Riley's Report on Chromadex

B Riley published research on Chromadex (ticker: CDXC) in mid February. The following are some key excerpts:

Nestle Deal

"CDXC recently announced a supply agreement with Nestle Health Science (NHSc) to exclusively purchase NIAGEN from the company, along with exclusive license to manufacture, market, and sell medical-specific categories of nutritional products for human use in certain territories worldwide, including North America, with a launch planned for mid 2020. The NIAGEN in the Nestle product will be branded as TRU NIAGEN, which should substantially enhance brand presence and exposure. This agreement represents a significant TAM expansion, as we believe Nestle’s first product containing NIAGEN will likely be a medical foods product similar to its meal replacement beverage Boost, with CDXC noting that the medical foods market and the meal replacement beverage market in the U.S. have sales of ~$12B and ~$88B, respectively. CDXC estimates that Boost has sales of ~$350M based on IRI data. Given the limited scope of products included in the Nestle agreement, we expect CDXC deals for other products to be forthcoming, especially as Nestle has success with TRU NIAGEN. 

Importantly, the agreement excludes supplements and sports nutrition products— we believe that the latter especially has the potential for a TRU NIAGEN deal with another consumer products company."

Litigation

"On January 16, 2019, the Patent Trial and Appeal Board (PTAB) denied Elysium’s request to invalidate the patent covering the use of NR as a supplement and upheld the most significant claim of the main drug patent. We believe that CDXC’s claim is now effectively stronger and expect a court decision in the near future that should bring an end to litigation expense of ~$3M per quarter. We expect that if Elysium is prevented from unlawfully selling NIAGEN, rightful market share will likely revert to CDXC. 

In our opinion, the full potential of the TRU NIAGEN product is currently impeded by Elysium...."

TRU Niagen Prospects

"We believe that CDXC has several years of strong growth ahead with TRU NIAGEN, while current research on next-generation products has the potential to provide growth in later years."

Revenue

"We expect near-term revenue growth to be driven by U.S. e-commerce, followed by the international business provided by the partnership with A.S. Watson in Asia and the launch of TRU NIAGEN in certain new international markets. CDXC sells TRU NIAGEN in the U.S. through direct sales and specialty retail and recently added healthcare practitioners, but it has no plans for mass retail distribution."

Marketing

"The company had previously focused its marketing on women over 40 years of age, but the market potential has proven to be much broader. 

Younger males represent another target market. 

CDXC is aggressively pursuing the sports market since it has shown particularly strong interest."

Delivery Methods

"The company is aggressively developing various forms of delivery methods as an alternative to capsules. A recent effort involved testing product at Bulletproof Coffee and Pressed Juicery and resulted in a powder form available in stick packs that could be added to beverages or food."

Canada

"The company is pursuing deals with distributors in Canada and is considering a television strategy"

Singapore

"Remarkably, sales in Singapore are growing despite a lack of marketing."

Hong Kong / China

"Sales of TRU NIAGEN in Hong Kong are already strong at ~$5M, growing at ~10% with 250 stores as of December 2018 in this more mature market. Success in Hong Kong, where TRU NIAGEN has become one of the best-selling supplements, has spurred interest within China, which has more than 300M people over age 55. The approval process in China is in transition, and the country is in the process of transforming the China Food and Drug Administration (CFDA). The company’s relationship with Horizons Ventures should prove helpful in navigating the appropriate relationships in China. CDXC also signed a memorandum of understanding to create a strategic partnership for aging research in Jiangxi Province in China that includes a new partnership with the first affiliated hospital of Nanchang University. Approval in China typically requires a new study, but the company is in the early stages of obtaining approval and has strong preliminary relationships, including a meeting with the governor of Jiangxi. Watson intends to offer the product in its stores in other countries and is interested in expanding the product line in its current stores."

Patents

"NIAGEN is protected by three patents from Dartmouth College that are scheduled to expire beginning in 2027, with two of these, patents 8,197,807 and 8,383,086, being the most important to the company and around which the current litigation centers."

Regulatory

"Obtaining regulatory approval is critical to growing the international business, and the company is currently upgrading the entire regulatory team. We expect improvements in this area with approvals forthcoming in China, Taiwan, Singapore, and Turkey"

More CDXC analysis HERE.

Disclosure: Long CDXC

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