Submitted by Mike Anthony as part of our
ChromaDex operates in the
nutraceutical industry. The company has two primary business
divisions: 1) selling dietary supplements and 2) providing
laboratory services for the food and beverage, cosmetic,
pharmaceutical, skin care, and dietary supplement industries. The
former division (sales) is where ChromaDex has experienced rapid
growth and doubled its quarterly revenues. This article will
analyze ChromaDex's recent performance and what investors should
expect from the company in upcoming quarters.
ChromaDex Doubles Revenues and Increases Margins
On November 8, 2012, Chromadex
$3.6 million in third quarter revenues, an increase of 99% from the
third quarter of 2011. Gross margins also improved from 25% to 34%.
ChromaDex has been able to increase sales while managing its cost
of goods. The positive third quarter is not just a fluke;
year-to-date revenues rose to $8.1 million or 28% compared to the
same period in 2011.
ChromaDex's legacy business division of laboratory services
generated $6 million year-to-date, a slight decline of 5% compared
to the same period in 2011 but steadily rising from comparable 2008
revenues of $4.5 million. Although a more mature business division,
ChromaDex' laboratory provides healthy cash flow and maintains
invaluable customer relationships with Kraft Foods Group (
), Nestle (NSRGY.pk), Pfizer (
), Cargill, and nationwide laboratories that use its manual of
3,000 phytochemical and 470 botanical reference standards.
What is the driver behind ChromaDex's growth? Its BluScience®
product line generated $2.1 million of revenues in the first nine
months of 2012 from virtually $0 in 2011. The vitamin line has five
SKUs at Walgreens (
), GNC (
) and Drugstore.com:
- Anti-aging - EternalBlu®
- Heart health - HeartBlu®
- Weight management - TrimBlu®
- Focus and energy enhancement - Blu2Go®
- Cognitive function enhancement - MemoryBlu®
BluScience's products are based on a compound found naturally in
blueberries: pterostilbene. Manufactured under the trade name
pTeroPure®, interest in ChromaDex's nature-identical pterostilbene
has grown due to the compound's benefits for high blood pressure,
its selection as Frost & Sullivan's "Most Promising Ingredient
of the Year," product marketing in Latin America by OPKO Health,
and an exclusive signing with food and beverage giant Glanbia
Nutritionals in North America.
The Future of ChromaDex
Ultimately, ChromaDex may continue to enjoy the double-digit
sales growth of pTeroPure® until the tens or hundreds of millions,
or it might eventually decide to sell the product line to a larger
company with more resources to fully develop the product line.
ChromaDex owns substantially all intellectual property and
manufacturing rights for pterostilbene and will enjoy a licensing
fee or upfront payment in exchange for its rights.
It is worth mentioning that German pharmaceutical conglomerate
Bayer (BAYZF.pk) recently agreed to acquire Schiff Nutrition
), a major nutritional supplements company, for $1.2 billion.
Following Bayer's bid, another global company, Reckitt Benckiser
Group (RB: LN), increased the bid offer to $42 per share or $1.5
billion and is likely to win Schiff. In previous years, Royal DSM
acquired nutritional supplement Martek for $1.5 billion.
A billion-dollar price tag for ChromaDex is unlikely at this
stage However, it is clear that the ChromeDex is operating in an
industry that is receiving increased attention from large
pharmaceutical and consumer product companies with plenty of cash.
In addition, many pharmaceutical companies are eagerly looking for
sources of growth as major pharmaceutical patents will expire in
the near future. A compound like pTeroPure® with no side effects
whatsoever is an attractive acquisition option for big pharma
companies seeking to the raw, natural benefits.
ChromaDex's Two New Products for Future Growth
ChromaDex has proven that it can grow revenues of existing
products by millions of dollars, but it is also developing new
products through partnerships with university laboratories.
ChromaDex's close relationships with research institutions affords
it the unique opportunity to gain free, early-stage knowledge of
developments in the nutritional supplement space.
In particular, ChromaDex is currently developing two additional
intellectual property portfolios because of the early knowledge it
gained from academic institutions: ProC3G and Vitamin NR. If
successful, these two products will further benefit ChromaDex and
its shareholders to pTeroPure's tune of millions of dollars.
The first product, ProC3G (Cyanidine-3-Glucoside), is in the
anthocyanin natural chemical family and could be helpful in
reversing aging, diabetes, and obesity. ChromaDex commercialized
AnthoPure and its retail brand, ProC3G, after licensing the patents
from SUNY Buffalo. The company has already sold a small amount of
the compound and is now working to further commercialize this
product as a dietary supplement.
The second product is Vitamin NR (Nicotinamide Riboside).
ChromaDex acquired the commercial patents related to this natural
compound from Cornell and Dartmouth. Vitamin NR is a nutrient found
in milk in the vitamin B3 family which helps the body maintain
healthy chemical levels. Nicotinamide is improves the body's
metabolism processes and is helpful in countering obesity. In a
recent column, Mark Bittman of The New York Times wrote about the
health risks of consuming milk beyond infancy, generating
. The reason that individuals consume so much milk is for
particular nutrients like protein or Vitamin NR. ChromaDex will be
able to isolate this valuable nutrient and sell it as a dietary
Many people understand the value of natural supplements in their
daily diets (think Vitamin C, omega-3 fatty acids, or protein
powder), not to mention the pharmaceutical and clinical uses of
natural compounds in high potency (think penicilin or Niaspan).
Natural products are relatively inexpensive and seldom have side
effects. They are thus preferred to synthetic drugs whenever
ChromaDex is a company that is exploring this market in an
efficient and innovative way. Sales of the company's BluScience®
product line are growing at an exponential rate, and the company is
pursuing two other products that it believes will share similar
success. By focusing its marketing on a few promising products
while maintaining its cash-generating laboratory services division,
ChromaDex has a scalable business model. As BluScience® revenues
continue to grow alongside the launch of ProC3G and Vitamin NR, a
long-term view will likely be more beneficial for consumers as well
as shareholders in this growth-stage company.