Submitted by Christopher French as part of our contributors program.
Transparency/Disclosure: I was compensated modestly by ChromaDex Corporation to write this article. While I have vetted each company, researched it thoroughly and I’ve done my own due diligence, my due diligence is not a substitute for your own.
ChromaDex (CDXC) has purchased the rights to a manufacturing process for what could be one of the best-selling supplements of all time. The supplement is nicotinmide riboside (NR), a form of niacin, or Vitamin B-3.
Regular niacin has many beneficial effects, including the ability to lower the amount of bad cholesterol and raise the amount of good cholesterol. NR is a far more potent form of niacin, which could have many health benefits for people. These benefits include weight loss, increased energy, better muscle development, and the prevention of diabetes. There is even a possibility that it could extend the human lifespan.
Nicotinmide riboside has long been known to scientists, but there has been no commercially viable process available for manufacturing it. In fact, NR was first investigated by Arthur Kornberg, a Nobel Prize winning scientist back in the 1950s. In 2007, a Swiss scientist, Dr. Anthony Sauve of the Ecole Polytechnique Federale de Lausanne, discovered that NR speeds up the human metabolism, which increases the body’s ability to turn fat and sugar into energy.
Dr. Sauve also invented a cheap and relatively simple method for synthesizing nicotinmide riboside on a large scale. Now, Weill Cornell Medical College in New York City, which conducted a study that verified Dr. Sauve’s hypothesis, has licensed this process to ChromaDex. The Weill Cornell study also proved that high doses of NR had remarkable health benefits in mice.
The process could give ChromDex a cheap and commercially viable method of manufacturing large amounts of the supplement, ChromaDex’s CEO Frank L. Jaksch Jr. noted in a press release. Mr. Jacksch noted that there are no nicotinmide riboside products currently on the market. This process gives ChromaDex the opportunity to be the first company to manufacture and market an NR supplement.
The news of this deal caused ChromaDex’s stock to go up in value by 1.75% on June 21, 2012. The reason for the increase is obvious – the company may have just purchased the rights to manufacture what could be the best-selling supplement ever. The supplement could help victims of some of today’s most serious health problems, including diabetes, obesity, high blood pressure, and heart disease. It could also be a popular weight loss drug.
It should be noted here that there is no evidence that NR will work in humans yet. All of the experiments so far have been with mice, so ChromaDex is taking a serious gamble. Nor are the potential side effects of this substance known; niacin can cause liver damage and other health problems.
Testing on human subjects will need to be conducted to prove these claims and to identify any potential side effects. That will take time, which could delay NR’s introduction into the market.
Another concern is that the actual production costs of NR are unknown. ChromaDex has not demonstrated that it can actually manufacture the large amounts of this substance that would be needed to make it commercially viable. If it does begin large-scale manufacturing of NR, ChromaDex’s stock could quickly shoot up in value and perhaps even reach the $2 range.
ChromaDex Could be Another Star Scientific
Another manufacturer of natural supplements, Star Scientific (CIGX), has seen its year-to-year revenue grow by an astounding 663% in 2012. This growth is based on two supplements, CigRX, a clinically-backed smoking alternative dietary supplement that safely reduces the urge to smoke, and an anti-inflammatory agent called Anatabloc.
Star’s business model of selling supplements that curb or counter the side effects of bad habits has certainly been successful. ChromaDex could have a far greater seller on its hand because NR addresses an even more widespread problem than tobacco food. Its supplement could actually reverse the effects of obesity.
More than one third of U.S. adults (around 72 million people) are now obese, according to the Centers Disease for Control. Every one of those people is a potential customer for a nicotinmide riboside supplement. Sales for the supplement could skyrocket if people think it could help them lose weight and stay fit without exercise or eating broccoli.
There are also tens of millions of people suffering from the effects of obesity that would like to improve their health. This includes diabetics, infertile women, and heart disease patients.
Like Star, ChromaDex has a track record of successfully marketing supplements. If ChromaDex could tap retail markets, such as General Nutrition Centers (GNC), it could see huge amounts of revenues and major increases in its stock value. Like Star, ChromaDex could quickly be sitting on a huge pile of cash, which could make it one of the biggest players in supplements. This would also propel ChromaDex from the penny stock arena to one of the major exchanges, such as the NASDAQ Star is now listed on the NASDAQ.
ChromaDex’s stock is sure to take a jump if it can release a successful NR supplement. If it can start marketing that supplement through major retailers, such as General Nutrition, Wal-Mart (WMT), Walgreen (WAG), and Target (TGT), its sales could rival that of popular drugs.
NR Could Put a Moat Around ChromaDex
The lack of other nicotinmide riboside in the market could put a moat around ChromaDex that could boost its profits. It would have little or no competition in the market for quite a bit of time. That could give it several years of cashflow and high profits. It would also lead to profitable licensing deals for NR.
No other company has a license for a process to synthesize NR. Nor do ChromaDex’s competitors, such as GlycoGenesys (GLGSQ), which seem to have the resources necessary to develop such a process.
Companies like ONE Bio (ONBI) would face costly litigation if they infringed on ChromaDex’s patents. They would also face litigation from Weill Cornell, which owns the rights to Dr. Sauve’s manufacturing process in the United States.
Any company that wanted to manufacture NR products or supplements would have to pay ChromaDex licensing fees. That, of course, would be another stream of revenue for the company.
The cash flow from NR sales and licensing would give ChromaDex the resources it needs to develop other profitable supplements. That could make it the industry leader and the first in a new area of technology stocks.
ChromaDex could also quickly become a takeover target for larger and better capitalized supplement makers, such as Schiff Nutrition International (SHF). Any acquisition attempt is sure to boost its stock value. Large pharmaceutical houses, such as Abbott Laboratories (ABT) and Pfizer (PFE), could also become interested in ChromaDex if it is able to manufacture and market a successful NR supplement.
Supplement Sales are Up
ChromaDex is certainly in a position to tap a growing market. TheNutrition Business Journal trade publication reported that consumer sales of supplements in the United States grew by 7% in 2011. The same publication noted that mass market channel sales of supplements (retailers like Walgreen) increased by 6% in the same year. Direct channel sales of supplements, such as online retailers, increased by 10% in 2011.
The market is huge and it is growing – the Journal estimates that $30.2 billion was spent on supplements in the United States in 2011. The market is growing because people are more aware of supplements and nutrition than ever before. Celebrities, such as TV star Dr. Oz, are also increasing the aware of supplements.
Some of the best-selling supplements are weight loss products. In fact, sales of weight loss supplements increased by 28% in 2011. Since an NR product would certainly be a weight loss supplement, it would be tapping the fastest growing area of the market. Americans spent $32.3 billion on weight loss products in 2011, according to a research firm called SPINS.
Many of the best sellers are scientifically tested products that claim to boost the metabolism. NR is definitely a metabolism booster, so it is quite likely to be a best seller.
ChromaDex has made a very wise move by buying the rights to this process. If it can use Dr. Sauve’s technology to development a successful supplement, it could have billions of dollars in potential cashflow on its hands.