In late August 2012, Gould Partners issued a “strong buy” recommendation on ChromaDex (CDXC). At the time, we encouraged investors to purchase shares based on a belief that the natural products company’s leading ingredients, pterostilbene, cyanidin-3-glucoside (C3G) and nictoinamide riboside (NR), will come to replace vitamins currently found in food and beverages. We are now more optimistic than ever that this belief goes beyond market speculation; it is increasingly inevitable that these ingredients will–and certainly should–find their way into our diets… Here’s why:
Dr. Oz endorses pterostilbene & C3G
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Dr. Oz, a cardiothoracic surgeon and acclaimed TV personality of the talk show that bears his name, just endorsed two of ChromaDex’s products: pterostilbene and C3G. Having authored north of 400 research papers, directed the Cardiovascular Institute and Complementary Medicine Program at New York-Presbyterian Hospital, partnered with the founder of WebMd (WBMD) in co-founding Sharecare, Oz’s recommendations carry significant weight in the marketplace…
Heck, don’t just take my word for it: Time magazine recently ranked Oz amongst its lists of “100 Most Influential People”. Esquire then followed by ranking him amongst its “75 Most Influential People of the 21st Century”. The list goes on: The World Economic Forum named him a “Global Leader of Tomorrow”, Hippocrates magazine listed him as the “Doctor of the Year”, and yet another magazine placed him amongst Harvard’s “100 Most Influential Alumni”.
So, again, Dr. Oz’s opinions carry weight in the marketplace. First, (1) let’s look at why Oz is endorsing these products, and then (2) let’s look at why this is so important to shareholders specifically.
About the Products
PTEROSTILBENE, which is marketed in ChromaDex’s “pTeroPure”, is a phytochemical naturally found in blueberries, and it has indicated an ability to slow the aging process, lower bad cholesterol and triglycerides, improve cognition, and serve chemopreventive, anti-diabetic, and anti-inflammatory functions. As a derivative of resveratrol–the subject that led us to associate red wine with healthy longevity–pterostilbene adds incremental value to an already powerful ingredient.
In regard to pterostilbene’s value in improving cognition, it is important to look at the market context. Pfizer (PFE) and Johnson & Johnson (JNJ) threw in the towel on their supposed blockbuster candidate bapineuzumab, or “bapi”, that was many hoped would stem Alzheimer’s. The firms’s developmental drug targeted beta amyloid, a peptide long known to be associated with dementia. To the extent that “bapi” has disappointed the market, it has also created an extraordinary opportunity for a producer of a low-risk product (eg. pterostilbene) to steal some of the pent-up demand. Certainly, Eli Lilly (LLY) has been riding the wave of investor excitement with its own beta amyloid targeting Alzheimer’s treatment. The pharmaceutical company has very little in the pipeline besides this drug. Yet, it has caused Lilly to rise 32% over the last 12 months off, or, nearly 2,000 bps more than the return on the S&P 500.
There is little reason then to justify ChromaDex’s 2.3% stock decline over the same time period. pTeroPure is the only clinically tested and patented version of pterostilbene that also lowers the risk of dementia. Its inclusion in food, beverages, and dietary supplements makes it a go-to source for other companies afraid of dabbling in untested products.
C3G is an anti-obesity ingredient found in black rice and black beans. By turning on gene expression of cell metabolism and turning off gene expression of fat storage, C3G helps those who want to lose weight without too much of a diet change. As evidenced by obesity rates going up despite greater awareness of the adverse health effects of a lipid-rich diet, consumers do not like changing their eating patterns. They are concerned, however, with losing weight–hence the importance of C3G being an ingredient and not an actual food product. When the FDA approved VIVUS’s (VVUS) anti-obesity drug and then Arena’s (ARNA), the market initially sent shares of both companies soaring until the market excitement died for the former. C3G, which is much less experimental, lacks the risk with all the reward of targeting a large market.
And then there’s NR, which has shown to have positive metabolic effects; protect against neurodegeneration; and improve cardiovascular health, cognitive function, glucose levels, and insulin activity. If this sounds familiar to C3G and pterostilbene, it’s because it is. NR’s main market benefit comes from being an improvement off of Abbott Lab’s (ABT) NIASPAN. This precursor vitamin, niacin or “vitamin B3″, is found in everything from energy drinks to milk and meat. The problem, however, is that NIASPAN often leads to “flushing”, a side effect characterized by excessive warmth, redness, tingling, and/or itching of the skin. Yet it generates nearly $1 billion worth of sales each year.
Forbes reported that niacin has been “used for forty years to help millions of patients control their cholesterol levels”. Merck (MRK) had a go at developing a related product that combined niacin with a drug. It rushed to the US to gain approval, and regulators insisted upon a bigger study. Merck then conducted that study and released data indicating that the drug essentially did what it was not supposed to do and more or less everything it was supposed to do. It was a gigantic flop.
But ChromaDex’s NR product has shown an ability to reproduce and even enhance the positive effect of niacin without flushing. That means that all of NIASPAN’s $900 million in annual sales are up for the taking. Yet ChromaDex, as a whole, is valued at just a little under $60 million.
Why Dr. Oz’s Endorsement Matters
As many readers are probably aware, regulators and politicians have been gunning down soda and energy drink producers of late. The FDA is investigating 5-Hour Energy Drink over supposed links to deaths and severe reactions, and NYC Mayor Michael Bloomberg (whose voice goes far in Washington, if I may add), has called on regulators to limit the size of soda drinks. The mayor’s proposal has already been approved by the NYC health board, which has been rather supportive of any proposed food regulation sent its way (a few years back, it voted to ban trans fats at restaurants).
Bloomberg was rather happy about the approval and tweeted: “Six months from today, our city will be an even healthier place. NYC’s new sugary drink policy is the single biggest step any gov’t has taken to curb #obesity. It will help saves lives”.
The point is that the ongoing stream of pro-health messages has been made clear to consumers, food & beverage marketers, and industry suppliers.
For years, food and beverage producers have tried to come up with ways to hide those-not-so-good ingredients. More often than not, these attempts have been unsuccessful. The most recent example came when corn-based sweetener manufacturers petitioned the FDA to allow a name change from “high-fructose corn syrup” to “corn sugar”. Their clients, soda producers, obviously were not happy with the public perception of “high-fructose corn syrup” in an environment where Americans are becoming more health-conscious than ever. Well, the FDA was having none of it and rejected the name change under the belief that it would imply “a solid, dried, and crystallized sweetener obtained from corn” rather than an ingredient that causes dramatic insulin spikes. It certainly wasn’t the best of days for the Corn Refiners Association.
This is also precisely why any food & beverage producer would love to add pterostilbene, NR, and C3G to its list of ingredients. ChromaDex, which is a licenser of reference standards, is the perfect match for food marketers looking to avoid a costly battle with million-dollar PR firms, aggressive regulators, and consequential public opinion. ChromaDex can both supply healthy ingredients that will ensure a stronger market launch coupled with lower regulatory risk. It may be too late for 5-Hour Energy Drinks to change its market perception, but the next wave of products are likely to include pterostilbene and C3G, especially after the release of strong data and the endorsement from Dr. Oz. Since the market is forward-thinking, this adds tremendous upside for ChromaDex investors today.
Disclaimer: The distributor of this research report, Gould Partners, is not a licensed investment adviser or broker dealer. We are a consultant to a third-party representing ChromaDex and have received three thousand five hundred dollars for independent research. Investors are cautioned to perform their own due diligence as information contained within this report has been derived from public sources and cannot be guaranteed by us to be fully accurate. Always discuss investments with a licensed professional before making any financial decision. Statements made herein are often “forward-looking statements” as defined under Section 27A of the Securities Act of 1933, Section 21E of the Securities Act of 1934, and the Private Securities Litigation Reform Act of 1995. Since these statements are uncertain, actual results may be materially different from those expected.