30 May Tipping Point Stock Report- Chromadex (CDXC) $3.28
Editors Note: As of November 17th 2017, in 5.5 months the stock rallied near 112% from our report.
CDXC- Chromadex $3.28
12-18 Month Target $8 or 400 Million Market Cap
Corporate Presentation (April 2017 PDF)
ChromaDex leverages its integrated business units to discover, acquire, develop and commercialize patented and proprietary ingredient technologies that address the dietary supplement, food, beverage, skin care and pharmaceutical markets. In addition to our ingredient technologies unit, we also have business units focused on natural product fine chemicals, chemistry and analytical testing services, and product regulatory and safety consulting. As a result of our relationships with leading universities and research institutions, we are able to discover and acquire early stage, ingredient technologies that are protected by intellectual property.
Our focus in this report though is on one of their Ingredients, Niagen…
ChromaDex’s NIAGEN® is the only commercially-available form of nicotinamide riboside (NR) and is supported by five patents (several more are pending).
Discovered in 2004 and commercially launched in 2013 by Chromadex, it has rapidly progressed to being used and sold in Capsule form and now as an ingredient in Functional Foods and more with a pipeline of products ahead. Multiple human trials are ongoing and two of them are reporting top line and or peer reviewed publication shortly. Anti-Aging therapies and treatments are the fastest growing area of supplements, and Niagen is at the forefront or Tipping Point we think and now is the time to invest before this becomes more apparent.
The story is rather fascinating so please read carefully and see if you can understand how all these puzzle pieces are lining up.
“A new vitamin or ingredient of this magnitude doesn’t come along that often and NIAGEN has the potential to be perhaps the largest nutritional ingredient ever. And because of this, we need to focus our strategy on the tremendous opportunity we have with NIAGEN.”- Frank Jaksch, CEO
Shares Outstanding: 48 Million
(After placement with Li Ka-Shing, Hong Kongs wealthiest investor and entrepreneur and philanthropist)
Market cap: 154 Million Cash 26 Million (After placement with current large investor, more below), Sales 27 Million in 2016.
Chromadex has seen revenues grow 27% per year since 2013 after they launched what is considered to be potentially the biggest “Ingredient” discovery in quite some time. Their product or ingredient is called NIAGEN.
Ingredients revenue though is the crux of the story, exploding from 2.4 million in 2013 to 17 million in 2016 and we think 80 million in 2018 is possible as license deals are created with multi nationals and they expand into Europe and Asia via Li Ka-Shing holding companies.
There are currently 103 Universities and Institutions working on collaborations and or studies involving Niagen and its benefits for anti-aging, nutritional benefits, and more. Science takes time, but now with 3 years of buildout of studies, the Tipping Point is here.
There are 12 current human trials ongoing. The company has the results of one trial and has been analyzing the data and expects to release it anytime in the 2nd quarter or possibly early 3rd quarter. This release of data could begin to catalyze multi-national companies licensing Niagen for various uses.
There is also a completed trial as noted below:
“The other study I like to highlight is the University of Colorado trial. This study has assessed the efficacy of supplementation with NR for improving physiology and vascular function in healthy middle aged and older adults. This trial has been completed and a manuscript summarizing the study is being prepared for presentation at a technical conference, as well as a submission to a peer reviewed journal.” Frank Jaksch- CEO, Conference Call May 2017
What is the big deal with Niagen? Its also known as nicotinamide riboside (NR), is a very unique member of the vitamin B3 family. The body converts NR into Nicotinamide Adenine Dinucleotide (NAD+) which is an essential molecule found in every living cell. If NAD+ levels are low, then communication may be impaired and mitochondria dysfunction may result.
When this occurs, everything begins to breakdown. NAD+ levels are highest at birth and decrease dramatically with age. Also, certain lifestyle choices such as over-eating or a sedentary routine deplete NAD+ levels. In a recent human study, one serving of NIAGEN® increased NAD+ levels by 33% in 8 hours.
The company is building a platform of Ingredients, currently 5, with Niagen being the possible Holy Grail:
Niagen Benefits- Currently being used in Sports Nutrition, Functional Foods, and Dietary Supplements (170 Million Americans take them).
- Supports cellular health in the brain (Alzheimers studies underway for example)
- May improve cognitive function*
- Protects against axonal degeneration associated with aging*
Athletic Performance and Metabolism–
- May improve muscle endurance*
- Promotes healthy cellular metabolism*
- Enhances thermogenesis*
- Increases NAD+ levels in cells and tissues*
- Supports healthy skin*
- Promotes mitochondrial function which is an important component of aging*
- Promotes beneficial effects on blood lipids by maintaining healthy cholesterol levels already within normal range*
Tru Niagen in capsule form is now being sold directly to consumer by CDXC as a result of acquiring all of the interests of Healthspan (More on that in our report below).
“The science is indicating that NIAGEN has a positive impact on the way our cells metabolize energy and therefore how we age and that is a significant opportunity of which ChromaDex plans to take full advantage”.- Rob Fried, Chief Strategy Officer
The Internet is filled with stories of people who have used Niagen in various forms and have seen incredible results. The company controls the product and re-sells Niagen to other vendors who produce their own capsules or supplements with the ingredient. The IP (Patent) portfolio is rock solid and the potential for the ingredient for numerous uses going forward is in the Billions.
However, besides the science and sales growth and worldwide potential going forward, what got us interested were a few recent developments that caught our eye… these investors for one:
Read on and wait till you see who is invested and now investing in the company…
A 10 million share $25,000,000 investment by Li Ka-Shing, Hong Kong’s wealthiest businessman, philanthropist, and amazing entrepreneur. With a net worth of 33 Billion and one of the 20 wealthiest people in the world. He has recently been completing two of three investment tranches, with the most recent one closing on May 27th. Li Ka-Shing and his entities will control about 20% of the outstanding shares.
Phillip Frost, the Pioneer and Billionaire in Healthcare. He owns 8.7% of the outstanding shares. He made shareholders fortunes by selling IVAX and later Teva Pharmaceuticals to larger companies. He is the Chair and CEO of Opko health where he buys shares in the open market nearly daily.
Barry Konig, considered by insiders of Frost to be his right hand man, he purchased about 6% of the outstanding stock of CDNX in 2015 and 2016 at various levels, some about 50% higher than current. On June 3, 2016, the Company entered into securities purchase agreements with Barry Honig, a beneficial owner of over 5% of our common stock, to raise $5,250,000 in a registered direct offering. Pursuant to the SPAs, the Company sold a total of 1,117,022 shares of the Company’s common stock at a purchase price of $4.70 per share
Item #2: Acquistion of Healthspan Research and removing vendors of Niagen Supplements
“Through the acquisition of Healthspan Research and TRU NIAGEN we are now selling a NIAGEN product direct to the consumer.”
Recently the company almost quietly decided to start to rein in the number of vendors who are using Niagen in their supplement pill forms that they sell direct to consumers. In fact, on the most recent conference call the CEO essentially says by the end of 2017 they will have dramatically reduced the number of vendors, taking this ingredient largely in-house for direct product sales to consumers by CDXC, and thereby controlling supply and price and distribution. This will increase margins and profits, and revenues perhaps dramatically. (We are talking in terms of the actual supplement business, not the ingredients business which they are licensing)
“In the coming months we will dramatically reduce the number of companies selling NIAGEN. We will also launch a campaign focusing on the importance of NAD levels for healthy aging and NIAGEN is the safest and most efficient way to increase NAD. … So consumer demand is strong but growing dramatically. We expect that during this pivot, during this transition in the coming months that a significant portion if not most of that revenue is going to come to us directly. And of course the margins are – the gross margins are far better when we sell our own brand.” – Rob Fried
Originally, privately held Healthspan agreed to purchase NIAGEN® ingredient from the Company and the Company granted to Healthspan worldwide rights for resale of specific dietary supplements containing NIAGEN® in certain direct response channels.
The reason this is interesting is that in March they closed on acquiring the remaining 91% interest in Healthspan this spring for restricted stock shares to those founders and then brought them in house as upper management. We find that their sudden change in business plans seems to be occurring at the same time as the acquisition of Healthspan which sells the Tru Niagen supplement.
The whole thing we are seeing is the taking of more direct sales control of Niagen, indicating to us that there are probably some big relationships in the works.
Upon further digging we see that Healthspan is made up of the chief scientist who discovered the compound in 2004 and two others, one of whom is now President and Chief Strategy Officer of Chromadex. Healthspan also happened to have worldwide distribution rights to Niagen and royalties due as well in the future. Now that CDXC has acquired them with locked up stock, they have taken yet another step to take back full control of Niagen removed the need to pay royalties, and can now sell this ingredient wherever they wish.
Following that, we see Li Ka-Shing and his entities coming on board with a 20% stake in the company… interesting for sure. Li Ka-Shing controls the largest health and beauty retailer in Asia and Europe. Specifically the CEO said on the May 11th conference call that they plan to leverage this relationship overseas.
Item #3: Procter and Gamble? Patents filed using Niagen for Skin Care
Remember what we wrote above … Li Ka-Shing controls the largest health and beauty retailer in Asia and Europe. Hmmm… so we have Proctor and Gamble and Li Ka-Shing involved now…
The company has eluded to publicly that they have had ongoing discussions with Major Consumer Brand companies with a worldwide reach. They believe they can close licensing arrangements once a few more publications bubble up for peer review and top line data, both of which are imminent in two cases we noted. 12 Human Trials ongoing and 103 collaborations in various forms. The science is being validated and then the licensing will follow as well as uptake by consumers.
“We have also been actively engaged with numerous large multinational consumer product companies with respect to commercial licensing opportunities for NIAGEN being included and featured in a number of branded consumer products within a large product category such as food, beverage, infant nutrition, medical or clinical nutrition, skin care and also animal health”.- Frank Jaksch, CEO- Conference Call May 2017
We did some digging and found out that none other than Proctor and Gamble in June 2016 filed for 5 separate patent applications on various uses of Niagen with consumer products. Now why would Proctor and Gamble file those applications if they didn’t already have intent to proceed? Why are Phillip Frost and Li- Ka Shing taking large stakes in the company?
Proctor and Gamble 5 patents filed for relating to Skin Products and Niagen (NR):
Citing Patent Filing date Publication date Applicant Title
Apr 29, 2016 Nov 10, 2016 The Procter & Gamble Company Method of improving the appearance of skin and compositions therefor using nicotinamide riboside
Apr 29, 2016 Nov 10, 2016 The Procter & Gamble Company Method of improving the appearance of skin and compositions therefor using nicotinamide riboside
Jun 29, 2016 Jan 5, 2017 The Procter & Gamble Company Encapsulated particles comprising nicotinamide riboside
Jun 29, 2016 Jan 5, 2017 The Procter & Gamble Company Skin care compositions comprising particles with nicotinamide riboside and methods of using the same
Jun 29, 2016 Jan 5, 2017 The Procter & Gamble Company Multi-component skin care product comprising nicoinamide riboside in a multi-chambered container
* Cited by examiner
Item #4: Frost insider joins Board in March 2017
Appointing Steven Rubin to the Board of Directors this March. Rubin is the right hand man and attorney for Phillip Frost…
Steven D. Rubin , 56, has been a director of the Company and a member of the Nominating and Corporate Governance Committee since March 2017. Mr. Rubin has served as OPKO Health, Inc.’s (NASDAQ: OPK) Executive Vice President – Administration since May 2007 and as a director of since February 2007. Mr. Rubin is a member of The Frost Group, LLC, a private investment firm.
- So what we have is a company suddenly acquiring the research arm that discovered the ingredient and had worldwide rights and royalties to the supplement Niagen, Healthspan.
- We see them looking to reduce most of their vendors to take back full distribution control and bring the products in house, at least in capsule form via Tru Niagen. (See above picture)
- We see Proctor and Gamble filing for Skin Care patents last year using Niagen (NR) as the key ingredient
- We have top line data the company is sitting on that could be a catalyst near term
- University of Colorad publication of results due shortly
- Li Ka-Shing investment arm taking a 20% stake May 2017
- We have Steven Rubin joining the board in March.
We have not even discussed the rest of their pipeline which has several other ingredients:
We think the stock could catalyze higher in the months ahead with potential announcement/s of relationships with major consumer product companies. There is a pending peer review publication based on a University of Colorado study, and there is a top line data from a trial of 140 humans due in quarter 2 or 3. The annual meeting is June 20th, and we expect Li Ka-Shing to complete his final tranche of investment by then as well.
We think sales could go from 27 Million in 2016 to 60-80 Million in 2018 and now is the time to invest early. Patience required.
This stock itself is volatile and recent volume spiked on the large Li Ka-Shing investor announcement in late April. The stock has settled back down as traders have left and now in a nice 5-6 week base pattern.
For long term investors who can stomach some upside and downside volatility, we expect a range of $2.80-$5.65 per share in the coming 6 months or so from the roughly $3.30 area today. In the next window of a few months we can see 4.50-5.50 areas possible for a swing up.
With CDXC the market cap is only 150 million but now with fresh cash infusion and a new strategic investor and recent business changes that we could expect long term upside to be substantial from current levels. If we compare to Martek which got taken out for 1 Billion a few years ago, the upside is 6 fold to get to their valuation. We do not think these strategic investors are involved for a 30% gain is what we are saying.
Again, this is a Bonus stock idea and not part of the SRP trading portfolio so invest at your own discretion.
Shorter term with News/Publication pending on University of Colorado trial and another Human Trial of 140 patients we could see a move to 4.50-5.50 on those catalysts if we are right.
We would not pay more than $3.60 per share maximum and then look to build a position on weakness with a 9-18 month holding period likely.