Submitted by Frank Rollins as part of our contributors program.
Several important things have happened since I wrote an article in June about a fund manager who profited millions of dollars in BroadVision’s (NASDAQ: BVSN) controversial yet eye-boggling 600% rally from $8 to $56. Most notably, this fund manager has earned a another sizable return on a new investment called ChromaDex (OTC: CDXC), which I flagged in my past article.
I have been monitoring Honig’s SEC filings as ChromaDex has rallied on increasing volume, more block purchases by insiders, and a slew of press releases.
He has not sold a single share.
Instead, insiders have acquired 2.3 million more shares. Why? Well, according to Stone Street Advisors, ChromaDex’s September 20th clinical presentation and its associated business implications could increase ChromaDex’s stock price by hundreds of percentage points. Before we get too far ahead of ourselves, however, let’s talk about the man who already predicted a similar rally last year.
In the unlikely event that you recognize the name Barry Honig, it is probably because you are familiar with interCLICK (NASDAQ: ICLK). Barry Honig’s only significant media coverage occurred during the years 2009 through 2011, when he served as Director of interCLICK. Honig helped interCLICK grow rapidly and eventually helped secure its $270 million acquisition by Yahoo (NASDAQ: YHOO). After earning a small fortune in that deal, Honig left traditional executive roles and transitioned into his new career of strategic investing.
If you search Honig’s name at the Security and Exchange Commission’s (SEC) website, you will quickly discover his involvement with a large number of investments. Although he is very active, one investment (that I noted in my previous article) is particularly interesting for one, enormously simple reason. In September 2011, Honig’s investment firm bought 5.5% of BroadVision’s stock at $8.50 per share. Within six months, BroadVision hit $56 per share.
Many journalists have attempted to explain BroadVision’s perplexing 600% rally. It is widely known, for example, that a special interest group known as the National Inflation Association was spreading awareness about BroadVision stock in late 2011 and early 2012. Nevertheless, for whichever of the many reasons that BroadVision rallied 600%, we know with certainty that Honig bought millions of dollars at precisely the right time. His investment went largely unpublished before I dug through SEC filings myself.
While digging, my shovel hit a new investment.
Now, I will admit, it took quite a bit of filtering to narrow my investigation to a single company. Honig and his related investment vehicles are buying and selling various securities on a daily basis. His SEC record is extensive, to put it mildly, and sorting through the noise of his thousands of filings was no easy task. Perhaps (I laughingly thought in exhaustion), Honig hides his footprints on purpose, or perhaps it is simply standard practice to trade this often. Regardless, it took me a while to figure out where the majority of Honig was ultimately routing his money.
So, I dug. Finally, I discovered a small company called ChromaDex.
Before I get into Honig’s infatuation with ChromaDex, I will provide an orientation on the ho-hum background of the company. This (uninteresting) foundation helped me to understand how ChromaDex was able to attract millions of Honig’s personal dollars with a new story, which I will explain later.
ChromaDex was established in 1999 and spent 12 years testing chemicals and publishing laboratory reference manuals about natural compounds. In 2011, ChromaDex launched its first commercial product–a vitamin line called BluScience–featuring an ingredient called pterostilbene. BluScience vitamins sold well at Drugstore.com, and soon Walgreens and GNC invited the vitamins onto nationwide shelves. When ChromaDex reported first quarter results, BluScience’s “initial launch achieved sales of more than 125,000 units, more than 50 percent higher than the Company’s initial forecast.”
As sales numbers rose, ChromaDex pursued additional testing of the pterostilbene ingredient. Through a partnership with the USDA and the University of Mississippi, researchers administered an eight-week clinical study of pterostilbene consumption in 80 humans. Although ChromaDex has so far only been permitted to announce that pterostilbene is safe for human consumption, ChromaDex will release efficacy data (i.e. pterostilbene’s health benefits) on September 20. This was the first human study of pterostilbene in history. Data released on September 20 will prove whether or not the substance has any major health benefits.
The New ChromaDex
With the obvious success of BluScience, the natural products supplier hit an “inflection point.” It had spent less than $1M on pterostilbene and generated over $4M from selling it (with tens of millions more in expected sales). So, previously occupied with over a decade of laboratory tests and quality assurance services, ChromaDex decided to put these operations in the legacy portion of its business. Proven by the success of BluScience, ChromaDex now intends to make a name for itself with as an owner and seller of natural products.
Put simply, it has been practicing for 13 years to predict the sales potential of new natural ingredients, and it just said, “Put me in coach, I’m ready.”
Fascinatingly, it plans to develop these products based on the inside information it obtains from the legacy business. ChromaDex has built an information factory (its laboratory), and the infrastructure to act on that information (its vitamin department). The laboratory provides real-time orders from around the nation for chemicals. ChromaDex will continue fulfilling these orders like normal, but when it senses an unusual amount of interest in a particular chemical, it will evaluate its sales potential. Like pterostilbene, if ChromaDex believes that it can commercialize the chemical as a salable product, then the company will acquire the licenses necessary and begin the commercialization process.
I explain this inflection point in my previous article, and a few other writers have begun picking up on the story, as well. It seems to be the main reason that Honig has invested so heavily in the company.
When I first spotted the company, I was shocked that a boring laboratory company was attracting millions from Honig and other institutional investors. However, after seeing the success of BluScience (which will likely sell over $5M this year- just one year after its debut), human clinical data expected this fall, and unusual insider buying, I can see why Honig took an interest in ChromaDex.
The Numbers Speak for Themselves
On July 9th, Honig acquired 500,000 additional shares of ChromaDex, boosting his total direct ownership to 4.5 million shares. He also owns 3.2 million shares in the form of indirect ownership through his company, GRQ Consultants. What I find most interesting is that Honig has been actively purchasing shares of ChromaDex throughout the year in small amounts at open market prices. This unusual activity drew my attention, as most fund managers are able to easily negotiate private placements at a discount to prevailing market prices.
* Purchased 32,500 shares at $0.65 per share on June 13th
* Purchased 74,787 shares at $0.65 per share on June 20th
* Purchased 8,506 shares at $0.67 per share on July 3rd
* Purchased 9,991 shares at $0.67 per share on July 5th
* Purchased 30,000 shares at $0.65 per share on August 13th
* Purchased 15,000 shares at $0.74 per share on August 15th
* Purchased 7,300 shares at $0.62 per share on August 31st
These consistent purchases could have been consolidated into a private placement at much cheaper prices. Honig, however, does not seem to mind paying the premium. He has also never sold a single share, so he is not gaining anything by trading in or out of the stock. As he continues buying more shares by the day, it becomes increasingly obvious that Honig sees something massive in the company’s future.
Personally, I have no position or interest in the stock, but I am nevertheless fascinated by this perplexing behavior. I am considering taking a position, however, but do not want to own stock before publishing this article.
ChromaDex Has Already Started Cheating. Legally.
ChromaDex successfully predicted the market potential of pterostilbene and commercialized that knowledge through BluScience. It has also quietly started licensing rights to two other chemicals: nicotinamide riboside (NR) and cyanidin-3-O-glucoside chloride (C3G). Based on real-time order flow from its laboratory, ChromaDex believes that these two chemicals will be in high demand during coming years.
ChromaDex has only issued a few press releases about this chemical, but NR was the focus of an animal study in Cell Metabolism in which NR prevented obesity, increased muscle performance, and reduced diabetes development, all without any side effects. Other studies indicate NR’s potential for stealing Abbott Labs’ billion-dollar niacin market, repairing damaged nerves, and even treating cancer.
ChromaDex has licensed NR production technology from Weill Cornell Medical College and intellectual property, yeast production, and human use protection from Dartmouth College. It has forecasted a new product based on NR to be available soon, which would be the company’s third product line (after pterostilbene and C3G).
ChromaDex has published even less information about its newest chemical, C3G. We know that C3G is an abundant antioxidant in nature with indicated uses for heart disease, cancer, high cholesterol, and diabetes. Some writers have also discovered tentative plans for a C3G product by late 2013, and ChromaDex has certainly been acquiring plenty of licenses.
Did You Miss the Part About Legal Cheating?
You might have overlooked is that ChromaDex is cheating. Make no mistake- it is. ChromaDex bought licenses and jumped the gun on creating NR and C3G products due to its unique (and unfair) perspective as a laboratory company. It received an unusual amount of orders for both chemicals months ago, performed its own tests, and decided that there was enough potential to begin the commercialization process. It pounced on the licenses and patented as many things as possible before other industry participants could act.
ChromaDex is legally cheating, and a business that can do that is obviously attracting plenty of millionaire investors. Cheating worked for BluScience (to the tune of $4M and growing). Will it work for NR and C3G? Honig certainly seems to think so.
Overall, corporate evenue guidance is also through the roof. After a record year in 2011, ChromaDex has guided nothing but even higher highs.
A Billionaire Keeps Buying ChromaDex, Too
ChromaDex has several other institutional investors, including Dr. Phillip Frost and his multinational holding company, Opko Health (NYSE: OPK). The self-made billionaire of two companies that were acquired for $826M and $7.6B, Dr. Frost’s reputation precedes him.
Dr. Frost owns 16.5% of ChromaDex and recently invested an additional $390,000 at $0.65 per share and $250,000 at $0.75 per share. Including his stake, well over 1/3 of the total company is held by executives and directors.
Both Barry Honig and Dr. Frost are dedicated to staying by the stock’s side until it reaches new heights. Even when the stock rallied over $1 on multiple occasions, Honig never sold a share.
As the September 20 date rapidly approaches, millionaires keep buying ChromaDex. They seem unusually confident in the upcoming human clinical data and the business opportunities it will bring to ChromaDex.