ChromaDex Corporation
Q2 2017 Earnings Call Transcript

Published: 11 Aug 2017

[Operator:]

Ladies and gentlemen thank you for standing by and welcome to the ChromaDex Corporation's Second Quarter 2017 Earnings Conference Call. My name is Vince, and I'll be the conference operator today. At this time, all participants are in a listen-only mode and as a reminder this conference call is being recorded. This afternoon ChromaDex issued a news release announcing the Company's financial results for the second quarter 2017 and filed their form 10-Q. If you have not reviewed this information both are available within the Investor Relations section of ChromaDex's website at chromadex.com and the form 10-K is also available on the SEC's website. I would now like turn the conference call over to Andrew Johnson, Director of Investor Relations. Please, go ahead sir.

[Andrew Johnson:]

Thank you, Vince. Good afternoon and welcome to ChromaDex Corporations' first quarter 2017 results conference call. With us today are ChromaDex's Founder and Chief Executive Officer, Frank Jaksch, and Chief Financial Officer, Tom Varvaro, and joining us for Q&A will be Chief Strategy Officer, Rob Fried. Today's conference call may include forward-looking statements, including statements related to ChromaDex's research and developments and clinical trial plans, future financial results, business development opportunities, future cash needs, ChromaDex's operating performance in the future, future investor interest and analyst coverage of ChromaDex, the markets ChromaDex's products will address and the expected revenue growth of ChromaDex's products that are subject to risks and uncertainties relating to ChromaDex's future business prospects and opportunities, as well as anticipated results of operations. Forward-looking statements represent only the Company's estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because forward looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause ChromaDex's actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These risk factors include those contained in ChromaDex's annual report on Form 10-K most recently filed with the SEC. Please note that the Company assumes no obligation to update any forward-looking statements after the date of this conference call to conform with the forward-looking statements actual results or changes in its expectations. In addition, certain of the financial information presented in this call references non-GAAP financial measures. The company's earnings release which was issued this afternoon is available on the company's website presents reconciliations to the appropriate GAAP measures, and an explanation why the company believes such non-GAAP financial measures are useful to investors. Finally, this conference call is being recorded via webcast. The webcast will be available at the Investor Relations section of our website at www.chromadex.com. With that, is now my pleasure to turn over the call to Frank Jaksch.

[Frank Jaksch:]

Thanks Andrew. Good afternoon, everyone. Welcome to the ChromaDex's second quarter conference call. We continue to make significant progress in executing in our business strategy. As expected entering into 2017, the year is shaping up as a pivotal year in the history of our company. This year we have achieved the completion of additional human clinical trials one currently under review for publication in a top tier journal, as well as our second human clinical trial which has closed, is in the final stages of data analysis and summary. We've secured the largest investment in our company's history from a highly accomplished globally renowned investor and we've begun the transition in our go to market strategy for NIAGEN. First, let's discuss the NIAGEN transition that is underway. As we convert from an ingredient supplier to a consumer product company, we've made substantial progress in the second quarter successfully integrating our consumer product brand TRU NIAGEN as a new company platform. Since acquiring the assets of Pro Healthspan, we've been busy building the platform and recruiting talent. While fine tuning the strategy, we've captured greater value in the supplement channel for our novel nutrient. As we discussed last quarter, we believe we have a blockbuster ingredient in the anti-aging market, but we'll be more than just an ingredient supplier. We will deliver a consumer products solution directly to the consumer and select resellers with the TRU NIAGEN brand. As we transition, a substantial portion of our supplement related business to our consumer product platform will have better control of the messaging while capturing more value and we expect to be able to hold our NIAGEN sales levels during that transition. This is a very promising new business strategy, which Rob and I will discuss in greater detail over the coming months. Next, and probably a very important part of our Q2, we closed the second tranche of the $25 million strategic investment led by Li Ka-Shing during the second quarter. As we've discussed this investment and partnership is a significant milestone for the company providing substantial capital and relationships to help grow our business globally and [own] [ph] the anti-aging space. This validation by a highly accomplished investor has already enhanced our corporate profile and we are evaluating several near-term opportunities as a result. Additionally, the company entered into an exclusive patent license and research agreement with the Scripps Research Institute in June. We're pleased to collaborate with Dr. Brunie Felding and Scripps. The research agreement is expected to yield the data and tools required for the development of a clinical trial evaluating a novel combination therapy consisting of nicotinamide riboside and the current therapy in the treatment of breast cancer. This agreement in and of itself is a validation. Scripps is one of the first institutions we signed a material transfer agreement with back in 2013. The success of this early work has sparked the expansion of this collaborative agreement. I'm also excited to announce that Dr. Rudy Tanzi has joined our scientific advisory board. Dr. Tanzi is the Chair of Neurology and Director of Genetics and Aging research unit at Massachusetts General Hospital and the Joseph and Rose Kennedy professor of neurology at Harvard Medical School. His leadership in the fields of Alzheimer's research in neurology will be instrumental in helping to identify and execute opportunities to study NIAGEN nicotinamide riboside and its impact on brain health. In June, Dr. Charles Brenner was appointed our Chief Scientific Adviser. There's no one more experienced designing and conducting studies that measure the unique impacts of NR on NAD dependent processes in the human body. And we're pleased that he's accepted this expanded role and will contribute his expertise to drive the success of future research on NR. We are also very excited about the developments that occurred last month at the FASEB Conference. Dr. Christopher Martens of the Integrative Physiology of Aging Laboratory at the University of Colorado in Boulder presented findings from his recently completed human clinical trial of chronic NR supplementation in middle aged and older adults to a closed meeting of elite scientists in the field of NAD research. Given that this process was not well understood by those of you who saw the press release we put out announcing the event I want to take a moment to clarify that when results are under review for publication, they often are permitted to be shared with the scientific community. However, they remain under strict media embargo and cannot be shared or summarized until they have been published. Again, this is the first chronic dose clinical trial of NIAGEN, which makes its completion particularly exciting. I'd also like to update you on our clinical progress and promising pharmaceutical opportunities. As you're well aware, the true value of NIAGEN will come from the body of peer reviewed published preclinical and clinical research validating NR's impact on the way we age. The process for clinical research is lengthy and some of our investors and stakeholders have been asking why does it take 18 months for an 8-week study to be completed. Well, of course it takes many months of preparation before the first participant is even enrolled. For example, a typical clinical trial begins with the determination of a sponsor and contracting a research organization. Trial design is set to determine the measurement of an end point, the targeted study participants are determined along with the number of participants. How many arms will be studied, the length of the study and the location must be determined. Then the independent review and the design for safety is performed before the first participant is even recruited. Recruiting can often be performed in a rolling enrollment process. For example, if 120 participants are deemed necessary for a four arm study to be conducted over 8-weeks, so there are 30 participants in each arm, it could take several weeks to recruit the 120 participants. Not all 120 participants have to be recruited at once and upfront for the study to begin. The study could start with the first 10 participants and then the next ten, and then the next ten and so on. So, this will depend on the facility at the CRO, the end points measured, and the complexity of what's being tested. In our example of -- if 10 participants were recruited each week, and upon commencement of that study it would take 12 weeks to recruit 120 total participants with the last participant completing the study at week 20. Once completed there is still process of analyzing the results, this may be - this may include lab testing of blood, urine, muscle biopsies, special instrumentation may be needed depending upon the complexity of the end points that were measured. There may be some surprising findings that need to be reevaluated or validated. This phase of the study could take several months, only then can a study manuscript be written for submission. And finally, there's the submission to a journal for review and publication. So, I just and I know that took a little while for me to go through this with you, but we've been - I get so many questions about this. I thought it was a good idea to at least take some time in a call here to kind of go over for those of you who may not understand the process for why it may take so long. ChromaDex's second study with KGK, a 140 participant trial that is evaluating the effective repeated doses of NIAGEN on NAD metabolic concentrations in blood, urine and muscle of healthy adults will analyze the impacts of three dose levels of NIAGEN compared to a placebo. The recruitment and dosing portions of this trial have been completed. We are finalizing the analysis of the data from this trial and we are working on the timing of the release of the top line data which we expect to report over the coming months. As you know, we've been very active over the past 3 years working on developing the science and research validating the importance of NIAGEN as an effective NAD precursor. We have over 120 collaborative agreements in place for NIAGEN with highly prestigious universities and research institutes all over the world and this number continues to grow. They're also 14 human clinical trials on NR that are in varying stages that can be found on clinicaltrials.gov and we expect additional clinical studies to be added to this list during 2017. It is increasingly evident that the number of studies of NIAGEN showing positive effects are approaching an inflection point, where peer reviewed published preclinical and clinical data are likely to result in additional commercial opportunities for NIAGEN. Let me speak briefly on the pharmaceutical opportunity for NIAGEN. As reported in May of this year, ChromaDex continues to make significant progress in the development of our first pharmaceutical opportunity. ChromaDex completed our pre-IND meeting with the US FDA back in November 2016 for the development of NIAGEN as a drug in the treatment of Cockayne syndrome, which is a rare pediatric orphan disease that results in a significantly shortened lifespan for the affected children. During that pre-IND meeting, we mapped out a plan with the agency to complete the final IND enabling work. Subsequently ChromaDex completed a pilot trial needed to execute the additional safety study required by the FDA. We communicated the findings from that study to the agency as well as our plan to utilize the results and the design of our final IND enabling preclinical study. We address several important points with the FDA relevant to our development plan and consequently we have initiated the final study needed to support safety of drug administration in the proposed clinical protocol for Cockayne syndrome in children. The draft of the final preclinical study needed for INR submission is scheduled to be complete in November and our goal is to submit the IND by the end of the year. We are clearly excited to embark on this next clinical phase of pharmaceutical development path for NIAGEN. Finally, I'd like to take a minute to comment on a few points related to Elysium. As previously disclosed we are currently in litigation with Elysium for breach of contract and we're seeking to recover damages including nearly $3 million in unpaid invoices. This dispute occurred in the second half of 2016 and is a matter of continuing litigation. During this time, Elysium recruited and hired two of our employees, Elysium continues to misrepresent their role in this discovery and development of nicotinamide riboside in the media, positioning themselves as the innovator of NR. In fact, it was Dr. Charles Brenner at Dartmouth in 2004 that discovered NRs and NAD precursor. Elysium has stated that they have incorporated a new source of NR into their basis product. Only ChromaDex's nicotinamide riboside has been proven safe supported by a robust safety and toxicology dossier and earning it FDA's regulatory status of NDIN and GRAS. Additionally, they continue to tell the efficacy and performance of their product based off previously completed but unpublished clinical trial, which was conducted with ChromaDex and are in pterostilbene. ChromaDex nicotinamide riboside is the only material currently backed by a human clinical trial published in the top scientific peer review journal. Today ChromaDex has a comprehensive global patent portfolio of 16 patents and applications spanning the processing use and composition of nicotinamide riboside. We will vigorously defend this estate. Additionally, the FDA status we hold will continue to reinforce and protect our position. With that I'll turn the call over to Tom Varvaro to discuss the Q2 2017 financial results. Tom?

[Tom Varvaro:]

Thanks Frank. For the 3 months ended July 1, 2017 ChromaDex reported net sales of $5.3 million as compared to $8.8 million for the quarter ended July 2, 2016. As Frank previously mentioned, the decline is largely due to significant sales during the second quarter of 2016 to a since terminated customer. The ingredients segment generated net sales of $3 million during the second quarter 2017 as compared to $6.2 million a year ago. The core standards and service segment generated net sales of $2.3 million for Q2 2017 as compared to $2.6 million for Q2 2016. Gross margin for the quarter was 43% versus 47% for the quarter last year. The net loss attributable to common stockholders for the second quarter was. $2.8 million or minus $0.07 per share as compared to a net loss of $83,000 or $0.00 cents per share in the prior year. EBITDA adjusted for non-cash charges associated with share-based compensation which is a non-GAAP measure was negative $2.1 million during the second quarter of 2017. Compared to adjusted EBITDA of $0.5 million in 2016. I next want to highlight some of the expenses incurred in the second quarter that were discussed in our recently quarterly report filed with the SEC on our form 10-Q. The company incurred $850,000 in research and development expenses for the second quarter 2017, an increase of 13% as compared to $752,000 in 2016. These charges included human clinical trial fees and new ingredient development costs. Subject to available financial resources, the company plans to continue to increase research and development efforts with a focus on our ingredient segment. Sales and marketing expense increased to approximately $728,000 for 2017 versus $698,000 in 2016. This is largely due to marketing expenses related to our recently acquired consumer product business through Healthspan Research LLC. Subject to available financial resources we plan to increase our marketing efforts in our consumer products business in 2017 and beyond. There was also a one-time loss of $746,000 in the second quarter of 2017 from an ongoing litigation. The company in relation to this ongoing litigation incurred a write-off of approximately $746,000 in gross trade receivables from Elysium Health Inc. related to royalties. Our cash on hand at the end of the quarter was $14.1 million. With that, I will now turn the call back to Frank so he can wrap us up.

[Frank Jaksch:]

Thanks Tom. And with that we'll as usual we'll open up the call for a few questions.

[Operator:]

Our first question is from Ram Selvaraju of Rodman & Renshaw. Your line is open.

[Ram Selvaraju:]

Have you confirmed the timeline with which you expect to receive the final tranche of investment under the Li Ka-Shing transcation? Secondly, if Tom, maybe you could comment on the aggregate cost of IND filing that you expect to show us on the P&L before the end of this year? And then Frank if you could maybe comment on the status of the clinical trial protocol in Cockayne Syndrome and whether you have already obtained the necessary IRB approval for that clinical trial that takes place and what do you expect the timing of first patient in to be once the IND has been filed and hopefully authorized by the FDA?

[Frank Jaksch:]

Tom, do you want to answer the first part?

[Tom Varvaro:]

Yes, I'll take the first two. We had our special meeting today to get the necessary shareholder approval to close the third tranche once we announce the results of that as long as those are positive, we could expect to close on the third tranche within a few weeks after that occurrence. In regards to future IND filing costs, most of the work has been done for the IND as well as all the clinical and necessary safety studies around those. So, we would not expect a see anything out of the ordinary in our R&D expense lines through the remainder of the year as it relates to IND filings.

[Frank Jaksch:]

Okay. And Ram your call was hard for me to hear, the last portion of it. But your question was around IRB approval for the clinical study related to the IND for Cockayne syndrome, is that -- could you repeat that so I am clear on what your question was?

[Ram Selvaraju:]

Yes, that's correct and also with respect to timing of first patient in once the IND is authorized.

[Frank Jaksch:]

Okay. No, we haven't really released any details about what's going to happen post the IND. We haven't started the IRB approval regarding the Phase I trial that would result. The clinical design of the Phase I study is pretty much done, but we haven't begun to or we haven't started yet to seek the IRB approval for that study yet.

[Ram Selvaraju:]

Okay. And then just one very quick clarification. The standards and services business, do you expect that to continue to remain a core component of the overall business strategy as a company or do you expect that to potentially change and possibly be divested as you focus more and more on the development of NR whether that as an ingredient or as a pharmaceutical? Thank you.

[Frank Jaksch:]

Right. Okay, well it's hard for me to comment on that specifically, but we have alluded in the past that we are in the middle of evaluating what I'll call strategic options for portions of the business that were very helpful in getting us to where we are today but may not be core to our business model moving forward. And I think you'll see something coming from that or at least more news about that perhaps in the next few coming months.

[Ram Selvaraju:]

Great. Thank you very much.

[Operator:]

Thank you. Our next question is from John Lemak of Sandor Capital. Your line is open.

[John Lemak:]

Obviously, we're excited about the large $25 million investment that's being led by horizon ventures. I've also noticed that they own A. S. Watson which has approximately 13,000 pharmacies in Asia and Europe. Are there any potential strategic relationships that can occur with ChromaDex and A. S. Watson? And if so, when do you think there could be some financial benefits to ChromaDex? Thank you.

[Frank Jaksch:]

Okay. Interesting question indeed, you've done your homework on our new shareholder. No, we haven't gone - we haven't made any specific comments about exactly what we're going to be doing on that front. But we have even on my call today alluded to that our new investor is a strategic investor and we intend on working with them closely on some international expansion efforts and I think that you'll see that the results of and I think I said this on the call at least at one portion as well that we are making there is some movement there and you should be seeing the signs of those results sometime over the coming months.

[John Lemak:]

Thank you.

[Operator:]

Thank you. Your next question is from [Virginia Day of C Star Ventures] [ph]. Your line is open.

[Unidentified Analyst:]

My question was about TruNiagen and what your new distribution channel is if you can highlight the timing, the sales ramp and any other clarity or insight you could give us with regard to it?

[Frank Jaksch:]

Sure. I think probably both Rob and I can probably chime in on that a little bit here. I'll start by saying that over the -- since we are acquired Pro Healthspan back in March and we've been messaging to everybody some pieces of that plan. The first stage of the plan was basically to start eliminating a lot of the previous distribution agreements that we had in place for NIAGEN and we've made a substantial headway on that in eliminating a majority of the people that are out there and we're still working through a more detailed strategy of what to do with those that are remaining right now. And right now, the single biggest focus is really more on after eliminating those there's some inventory left after that and Rob do you want to pick up on that?

[Rob Fried:]

Sure. The primary distribution channel for TruNiagen in the United States will be online distribution. There will be distribution to some third parties but it will always be the TruNiagen controlled consumer brand. I expect it to ramp up fairly dramatically in the next quarter. We have not hit the gas pedal hard on our online marketing efforts for TruNiagen in the US, because there are still many resellers of NIAGEN there's over 20 of them still in place in fact there were less than that at the end of last quarter. So, we have done a good job of no longer supplying the ingredient to resellers but there were many that already had stockpiles and inventory built up and they are still there and in fact a couple of new ones even have emerged so the price of a customer has actually increased over the last few months and until that playing field is clear, is thinner it doesn't make economic sense for us to hit the gas pedal too hard. But we expect in the next couple of months for there to be a thinning of that environment of that ecosystem and we'll be able to begin to more aggressively market online. So, I think the second half of this year you will start to see significant growth in TruNiagen sales.

[Unidentified Analyst:]

Thank you very much that's very insightful. But could you highlight a little bit of what the marketing efforts are going to be online, if possible?

[Rob Fried:]

Well, it's a robust system of obviously SEO and SEM and AdWords and Facebook an affiliate networks and this would be a very -- plus it'll be combined with some PR efforts and even some offline marketing efforts and we also recognize that in addition to what I just described just mostly direct response conversion tactics there also needs to be a general campaign to educate not only the general public but also professionals in the space, physicians and pharmacists, about the importance of NAD. And the impact that NAD has on our general health as we age but also in general, and how NR is the best way to manage NAD levels, so that education campaign that brand general campaign also has to take place and that will involve television, print, and as I said PR. So, we will lead with some of that and we will be aggressive with online direct response conversion tactics. And then there are probably some deals that we will be doing to distribute TruNiagen not directly online as I said before that will be the bulk of the US efforts to distribution for TruNiagen and then there will be some third-party distribution deals elsewhere.

[Unidentified Analyst:]

Thank you.

[Operator:]

Thank you. Your next question is from Bill Dezellem of Tieton Capital. Your line is open.

[Bill Dezellem:]

Thank you. I actually have 3 different questions. First of all, have you decided to move forward with the TRU NIAGEN name or is that just where we're at in the process right now and that may or may not change in the future?

[Rob Fried:]

We are going to go, that may or may not change but for the time being we are staying with TRU NIAGEN as the name of our in-house brand product for NIAGEN. There is a likelihood that we will change the name of the distribution entity that is selling TRU NIAGEN as only it's Pro Healthspan that name will be changed.

[Bill Dezellem:]

That helpful. Thank you. And then Tom I wanted to ask for some clarification on the $700,000 relative to litigation did we hear correctly that the $700,000 was the accounts receivable write-off of Elysium? And then in addition to that, you did not break out what legal fees were this quarter. Do we hear that right?

[Frank Jaksch:]

Tom are you on mute.

[Tom Varvaro:]

Sorry about that, I was on mute. Yes, sorry Bill. Yes, the $750,000 was related to gross AR receivables related to Elysium around their royalties and as far as the break out of the legal expenses as a separate line item, we did not break those out that quarter they've been in line with our previous legal expenses.

[Bill Dezellem:]

I am going to expose my ignorance here. The royalties, I don't understand what those royalties were and are would you help us understand that a little better please.

[Frank Jaksch:]

Yes. The original contract with Elysium has them paying us royalties on their sale of product.

[Bill Dezellem:]

So, you were essentially giving them product at a discount, but when they sold it then they would pay a royalty is that a correct understanding?

[Frank Jaksch:]

That would be a fairly accurate assessment, yes.

[Bill Dezellem:]

Understood. And basically, they are continuing to sell product but given the I guess we could call the same match that they're no longer writing new checks, correct?

[Frank Jaksch:]

Correct. Just to add clarification, Bill. The agreement with them was terminated last year and there was a 90-day period after the termination which expired in February of 2017. Just to give you some timing on that.

[Bill Dezellem:]

That is helpful. Thank you very much Frank. And then I actually would like to ask you a question Frank relative to the Li Kai-Shing investment. Now that we are little ways down the path and you had an opportunity to interact with them really as a business partner rather than negotiating money. What are you most excited about relative to that relationship?

[Frank Jaksch:]

To which relationship was that?

[Bill Dezellem:]

The Li Kai-Shing relationship.

[Frank Jaksch:]

Okay. So, I mean that's a great question. The money was great, there is no doubt about that and we didn't view this investment as just a money investor or a cash investor. They were a good strategic fit for us as an investor because of the resource base that they bring and you can see evidence of that from other deals that they've done before and I think that they're going to help us by bringing a tremendous amount of value in terms of what they can bring to the table through their connections meaning both as Horizon's Ventures as well as Chairman Li himself as well. But that was the big part of the reason why we want to do this deal with them.

[Bill Dezellem:]

And how would you be comfortable sharing additional details about what aspects of the strategic interaction that you're now most enthusiastic about maybe in the short term and longer term?

[Frank Jaksch:]

Well, I can't get into any specifics but as you can imagine I think the initial stages of that are going to focus on what I'll call ChromaDex's distribution strategy for the Asian markets which right now is wide open for us. We really don't have much in terms of business relationships and revenue that we're doing in the Asian markets and this is going to be a great expansion for us and be a great help for that in particular.

[Bill Dezellem:]

Great. Thank you all.

[Operator:]

Thank you. Our next question is from Barry Kitt of Pinnacle Fund. Your line is open.

[Barry Kitt:]

Hello, Frank, Rob and Andrew thanks for taking my question. Actually, I have a couple questions. I know several people on the phone today don't really quite understand what NAD is, we've used nicotinamide riboside, NR, NAD. Maybe just take a minute and talk about what NAD or what the importance of NAD is?

[Frank Jaksch:]

So maybe Rob can chime in, but I'll give you my quick version of it. So, NAD is an energy metabolism compound, cellular energy metabolism compound that is critical for cellular health and it happens to be a critical nutrient that is effectively depleted by the aging process itself. Meaning as you age, NAD pool declines and by declining -- but when the NAD pool declines as you age, it's sort of that's what is the trigger for a lot of health-related problems associated with aging. The progression of many of these age-related diseases has linked to the decline of the NAD pool and that's a big deal right now. Not just for me sitting on the phone and telling you that, I'm sure many of you who are on the phone has done your homework at some level on NAD, but NAD has been as publications coming out literally every couple of days every week that basically support the link of the decline of NAD to something along the lines of essentially what I just mentioned at a very high level. NAD is really going to be the sort of the critical story moving forward and that link to the decline of NAD as we age and the one thing that we have that is very effective in fixing that problem is nicotinamide riboside. Nicotinamide riboside is the most effective way of preparing that NAD depletion. Rob do you have any further comments on that?

[Rob Fried:]

Barry do you have a question on that or do you want me to contribute?

[Barry Kitt:]

No, I think that's pretty good. I just - I know the answer, but I know several people on the phone don't really quite understand it yet. So, I thought it might be helpful to say.

[Rob Fried:]

You know there's a thing that we learned, all learned in ninth grade biology called the Krebs cycle. Where a process by which mitochondria within each cell in the body manufacturers something called APP, and we all learned that APP was the energy inside the cell and mitochondria is the battery pack in the cell but when we learned it in the ninth grade it just sort of we heard it and then when we got a test question we filled in the right answer or perhaps the wrong answer, but it didn't have actual meaning to us. Now we understand that it actually does mean something. That what the mitochondria taps into in order to create that yield of APP is NAD. We understand now that NAD declines, so it's logical then that means that as the NAD declines the APP declines, and if APP declines that means that cell has less energy to do what, to function as a cell, a heart cells, an eye cell, a liver cell a skin cell to function how is it supposed to function but perhaps more importantly to fight off the stress conditions that we are constantly exposed to in life. Diseases, exposure to the sun, exposure to radiation, chemicals, alcohol that the cell needs lots of energy to fight off these things. Gene mutations, the cell needs APP to fight off these mutations or to fight off these conditions and the thesis is this. Perhaps there is a reason why a 20 year old is so less likely to get arthritis than an 80 year old. Not because they're not exposed to inflammation or joint damage, but because the cells of enough APP and enough strength that they are able to fight the thing off and that was the initial idea and now we've got 100 maybe even 200 studies of cell studies, animal studies now human studies confirming that idea and showing yes. Actually, if you manage your NAD levels you have higher APP and the body, the cells are effective at fighting off these stress conditions. This is an amazing idea and when you take all of those conditions all those metabolic disorders and you add them together, it all ladders up to what we describe as aging. Not really aging per se, it's energy metabolism per se is what it is. You're just essentially strengthening yourself. You're taking cells that are weak or - and you are lighting them up increases the APP level. And by doing that these cells become stronger and more vibrant and more capable of functioning what they primarily do but also fighting off these conditions. So, its equals aging when you add the whole thing up. Combine that with the fact that Charles Brenner discovered that this compound nicotinamide plus ribose, nicotinamide riboside is an incredibly efficient way of increasing NAD with no side effects and test after test after test. You see that the more you take the more effective it is and do we see that when you maintain high NAD levels over a period of time the body has a way of correcting things. This is quite a discovery and ChromaDex has been very very smart and very very careful at working with Dr. Brenner and its other incredible scientists and scientific advisors of testing this thing carefully, slowly, getting the right level of FDA safety studies performed and getting the right patents taken care of and performing it in the right way that's been established for decades in America on the right way to present an ingredient, a molecule like this to the general public. They're not racing around the corner like they are at the Indy 500 and bypassing Patent Law and Employment Law and Contract Law and safety studies like some others are doing. ChromaDex has spent many years doing it the right way, the safe way, the viable way, the way where there is a foundation of actual value upon which one can actually create a meaningful long-term company that yield something to investors and to customers. That's essentially a combination of an answered question A, of what NAD and NR and B, how come we do it better than other guys, which you haven't asked yet.

[Barry Kitt:]

Thank you. You jumped ahead of me. That's good. I actually have 3 more things so don't let them kick me off. So, Rob since we are talking to you, you have an interesting and distinguished career as a film producer as the Chairman of the board of a Chinese company which by the way will help us in structuring any Chinese distribution deals we do which can be very interesting and difficult though you and I both have a lot of experience in that area. So, Rob, you came in the board three years and a month ago I believe and at some point, you decided to start your own direct to consumer company something that get into my - can you discuss that journey how you got here?

[Rob Fried:]

I many many years ago, I began to track the science originally behind I'm talking 20 years ago early internet company that I have been involved with one of the investors in that company that turned me on to another portfolio company called -- which is studying at that time or still is a stem cell company. So for the last 20 years, I've been studying the science of aging and telomeres led to some studying of resveratrol which at the time was believed to be something that would activate something called sirtuin genes which it was thought to believe sirtuin genes were these genes that regulated the longevity process within the body but that was never really fully verified. But it did ignite interesting discussion about NAD and the relationship between NAD and sirtuin genes and somehow in that discussion of NAD and the activation of sirtuin, brilliant scientists instead started looking at NAD per se and what is NAD in itself, maybe the sirtuin story is not that interesting a story. Maybe there is NAD depletion and energy metabolism in general is more interesting and they began to do some studies some of which started coming out in 2012 which were remarkable and dramatic. There still may be an interesting sirtuin story but it's likely that justice energy metabolism story itself is the big story or the big guy and I was tracking it and investing in it and watching it and then when some of those studies came out, which seemed like truly groundbreaking studies, I was quiet around that time, doing an internet venture which is downpour of a hallmark company and I was just thinking about maybe another venture to get involved with and so I invested in ChromaDex, met Frank and some of the other investors and people at the company and perhaps I might be able to make a small contribution in the way the story is told. And in the way this amazing science is optimized. And Frank was nice enough to invite me on the board and I got to meet these other wonderful board members and scientists and as the scientists evolve and come together this is truly a once in a lifetime ingredient and opportunity that ChromaDex which is a great company and Frank Jaksch has done an amazing job over 18 years of developing the science and the expertise and the reputation. In science and in safety and doing things the right way, it seemed as though others that would might have a more developed sense of marketing and internet sales we're taking advantage of ChromaDex. And here you have one company that ChromaDex chose to get into business with that from the time they get into business with them, they buy millions of dollars of ingredient and don't pay for it. They hire away employees from ChromaDex, they do marketing and press that misrepresents their actual contribution to the science and doesn't mention ChromaDex or its great scientists Charles Brenner in telling that story. They fight to challenge the patent and actually go out of their way to try to copy the ingredient and manufacturer it who knows where and put it out in the marketplace. And I looked at that and I said you know ChromaDex is too great, too smart, too valuable nicotinamide riboside is too important an ingredient that could have an impact on billions of people around the world. And that to me looked like something worth doing and worth spending time on and worth trying to help make a contribution to an I am excited and honored to be a part of that. I think we live in an era right now where people think that they can step into an industry and A round, B round, C round exit and not care about decades long safety systems and legislative issues that are designed to help the general public and do things the right way. Disruptive is a fun word but if you can have respect for the process or for the science that exists there you run the risk of doing much more damage than good. And so, to me I find it very compelling and exciting and honored to be part of it to try to help in whatever way that I can to help get this story told the best way.

[Barry Kitt:]

Well. Thanks Rob and we sure welcome you to the company as Chief Strategy Office. I am sure you are going to make great impact on the company. So, I have two more questions, I give you both and you can answer them whichever you want to first. So, the first question is I am just worried about the time, the first question is can you discuss Li Ka-Shing's motivation for making a $20 million and soon to be $25 million investment in company? And the second one is, I assume that Li Ka-Shing and Horizon did extensive due diligence on your patent position not to mention what they perceive to be the benefits of NR and boosting NAD. Now having better fund manager and had a Chinese fund, I'm somewhat familiar with the Chinese mentality and I know there were several cases where if something could be used without paying for it, sometimes that happen. Well, here is a situation they obviously must have seen the benefit and said you guys are the guys, we looked at your patents and are your partners so that's my perception can you give me your reality how do you see it?

[Frank Jaksch:]

Some. Sure, I'll start Rob you can chime in if you want along the way. But I mean it's public information that you can view and what we've put down in our press releases. Horizon's Ventures have made, started making strategic investments in other areas beyond what I'll call technology. And they started making investments in food and they have also now started looking at a category what I'll healthy aging and there are quite a few groups out there that are now focused on this category healthy aging. And when it comes down to healthy aging right now as a category, all roads really sort of point to ChromaDex and nicotinamide riboside and what we've created with nicotinamide riboside. And I would say that fundamentally that's kind of at the core of it as to why and like I was said before it wasn't necessarily about money, it's also about the strategic side of the relationship that we're going to be hopefully that we will be working on with Horizons as well along the way. Rob, do you want to add any more to that?

[Rob Fried:]

No, I know that they definitely did diligence on the patents as have we and I think that they are very interested in the anti-aging space in general and I think that if one was interested in investing in the anti-aging space you can't get around the importance of any NAD and NAD precursors and by far the best one is nicotinamide riboside they recognized that opportunity. I would also add that in addition to being very strategic internationally, they are extraordinarily savvy at helping to manage the US-based company. Already they've made wonderful suggestions on how we could tighten the operations. Very impressive investor, we're very honored to be working with and hope that that's the beginning of many similar type of investors to get involved in the company.

[Barry Kitt:]

Well, the Chinese are the biggest supplement takers in the world. Li Ka-Shing is the eighteenth richest man in the world and has a lot of connections and he has 13,000 pharmacies. I don't imagine that now that he is partner, we are partnering he's not going to want to, I am sure he is going to want to put those in his pharmacies. So, I guess it will be fun to watch the future. We look forward to your third quarter call. And thank you guys very much for your time.

[Rob Fried:]

Thanks Barry.

[Frank Jaksch:]

Okay. Thanks Barry.

[Operator:]

Thank you. At this time, I'll turn it to Mr. Jacksch for closing remarks.

[Frank Jaksch:]

Thanks everyone for sticking around, I think the Q&A went a lot longer than we were expecting it to there. But hopefully you have some information you got from that. And we look forward to speaking to you again coming up on our third quarter all. Thanks everyone.

[Operator:]

Ladies and gentlemen, thank you for your participation into their conference this concludes your program. You may now disconnect. Everyone have a great day.