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spk07: This conference call is being recorded. This afternoon, Chromadex issued a news release announcing the company's financial results for the third quarter of 2021. If you have not reviewed this information, both are available within the Investor Relations section of Chromadex, website at www.chromadex.com. I would now like to turn the conference call over to Brianna Gerber, Vice President of Finance and Investor Relations. Please go ahead.
spk06: Thank you. Good afternoon, and welcome to Chromadex Corporation's third quarter 2021 results investor call. With us today are Chromadex's Chief Executive Officer, Rob Freed, Founder and Executive Chairman, Frank Jacks, Chief Financial Officer, Kevin Farr, and Chief Marketing Officer, Fadi Karam. Today's conference call may include forward-looking statements, including statements related to Chromadex's research and development and clinical trial plan and the timing and results of such trials, the timing of future regulatory filings, the expansion of the sale of TruNiagen in new markets, business development opportunities, future financial results, cash needs, operating performance, investor interest, and 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 quarterly report on Form 10-Q, most recently filed with the SEC, including the effect of the COVID-19 pandemic on our business, results of operations, financial condition, and cash flows. 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 statement's actual results or to changes in its expectations. In addition, certain of the financial information presented in this call references non-GAAP financial measures. The company's earnings presentation and earnings press release, which were issued this afternoon and are available on the company's website, present reconciliation to the appropriate GAAP measures. 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, it's now my pleasure to turn the call over to our Chief Executive Officer, Rob Freed. Rob?
spk02: Thank you, Brianna. Good afternoon, everyone, and thank you for joining our third quarter 2021 investor call. This quarter marks an inflection point for Chromadex. The litigation is largely behind us and we look forward to receiving the approximately two and a quarter to two and a half million that was awarded to us by the California jury. This is an important milestone because we can now devote more resources, both human and financial, to the important tasks of building our global true nitrogen brand, developing our science, and furthering our relationships with the global partners. Today, in addition to hearing from Kevin on the financial results and Frank on the significant scientific achievements this quarter, our Chief Marketing Officer, Fadi Karam, will briefly discuss what we can expect in 2022. As I said, the scientific developments this quarter have been significant, and Frank will outline in greater detail. But we now have 15 completed and published clinical trials involving Niagen and over 40 additional clinical trials in progress. Our industry-leading Chromadex External Research Program, SERP, has now amassed over 240 collaborative research agreements. Our focus going forward is to translate this extensive and growing body of science into compelling marketing messages, including aging and heart health and muscle health, cellular health, and others. We're also investing in clinical trials to support future marketing plans and to build our product pipelines. As many of you know, the Chromadex intellectual property portfolio and scientific expertise goes well beyond nicotinamide riboside chloride, still by far the best and safest way to manage NAD levels. But it also includes NRH, NRT, and NAR. All have interesting, unique properties and potential applications, and all could be important to the company's long-term plans. Of our 40-plus total NAD-related patents, 19 of these relate to NRT, NRH, and NAR, with maturity dates ranging from 2026 to 2040. We recently announced results of the first clinical study of NR in children with ataxia telangiectasia, or AT. This study is particularly interesting because AT is an orphan disease characterized by premature aging. We believe the fact that supplementation with NR showed a benefit in this patient population is further evidence of Niagen's impact on age-related health issues. Previously, we've discussed the Phase III COVID-19 study on NR as part of a cocktail of ingredients in turkey. To the best of our knowledge, ScandiBio's submission for drug approval of this cocktail is still being reviewed by the Ministry of Health in Turkey. We have no further updates at this time. Finally, I'd like to highlight three of our strategic partnerships, Sinopharm Xingsha, Walmart, and Roe. Perhaps the most strategic event this quarter was our deal with Sinopharm. Sinopharm Xingsha is a subsidiary of Sinopharm Group, a state-owned enterprise, and one of China's largest domestic pharmaceutical companies. This is possibly the most strategic partner for Chromadex to have in China. We're very excited about the potential for true nitrogen, given high consumer awareness of NAD boosting products among Chinese consumers presently. While the Chinese market is currently led by NMN, nicotinamide mononucleotide, we believe it should be led by NR, based off the clinical evidence and safety data available to date. China Farm will initially focus on accelerating true nitrogen sales across our existing cross-border marketplaces. We are currently in discussions on new product formulations. We anticipate sales of a new product formulation in 2022. Additionally, the companies will collaborate to secure health food registration in China. This is a multi-year process, but would open up a much larger market given Sinopharm's 10,000-plus pharmacies and broad distribution network in China. We believe this agreement is a significant milestone for Chromadex because this partnership has the potential to be transformative over time. Our Walmart launch earlier this year marked another strategic milestone for the company as our first U.S. mass retail launch for True9G. recently had our first line review with Walmart and were encouraged by their team's continued commitment to building the category. Our future plans include education programs, a packaging refresh, and of course, as we've discussed, a national TV campaign. Fadi will discuss this further shortly. Finally, Roman Life, the product from our new partnership with Rowe, was launched in September. Roman Life's packaging prominently features that it is supercharged by true nitrogen. Roe is taking a phased launch approach with Roman Life, beginning with their subscribers. We will support them in maximizing awareness, consistent with their phased launch strategy. As many of you know, Chromadex is unique as a company operating in the dietary supplement space. We do the scientific research. We develop proprietary compounds. and we obtain regulatory approvals. We work with selective valued partners worldwide, including Sinopharm, Chincha, Walmart, H&H, W.R. Grace, the fast-growing Startup Row, and we are currently developing a pipeline of products featuring True Niagen alongside their best-in-class R&D and commercial teams. We believe these companies have partnered with us and chosen Niagen because of our reputation as pioneers in the industry and our relentless focus on the science, which dates back over 20 years. We understand that true nitrogen has tremendous potential. And as I said, we believe we're at an inflection point for this company, and we are just getting started. I'd like to thank our shareholders, partners, employees, and customers as we enter this next phase of growth. And now I will pass the call over to our chairman, Frank Jax, for an update. on the scientific research.
spk03: Brian? Thank you, Rob. Since our last update, there were several exciting preclinical publications on NR. I'll briefly highlight two. First, a study found that systemic treatment with NR is protective in acute and chronic models of retinal ganglion cell survival and builds upon the growing body of preclinical evidence on NR's role in eye health. Second, a study demonstrated that Administration of NR in a mouse model of Alzheimer's disease increased brain NAD levels and reduced neuroinflammation, DNA damage, and cellular senescence. NR also improved learning and memory in mice with Alzheimer's. In addition, as Rob mentioned, we announced promising findings from a first-of-its-kind clinical study on NR in children. highlighting improvements for prematurely aging patients with ataxia telangiectasia, or AT. The study included 24 AT patients with 17 of them under the age of 18. The effects of NR on ataxia, which is a group of disorders that affect coordination, balance of speech, quality of life, and standard blood laboratory parameters were analyzed. NR improved ataxia scores in patients in increased serum immunoglobulin G, or antibodies, which are important for protection against pathogens. Patients with AT are known to be immunodeficient with decreased serum immunoglobulin level concentrations. And on October 25th, results from a Phase II clinical trial of patients with non-alcoholic fatty liver disease were published in a peer-reviewed journal, Molecular Systems Biology. The results found a 10% reduction in liver fat and improved liver function and inflammation in participants who received a nutritional protocol of four ingredients, including NR. This is one of several human studies exploring the benefits of this nutritional protocol through our research collaborator, Scandi Biotherapeutics. We are excited to share the results of several additional completed studies in the coming months and are committed to remaining the leader in the growing NAD market. With that, I'll pass our call to our Chief Financial Officer, Kevin Farr. Kevin?
spk04: Thank you, Frank. Chromanex delivered a solid quarter with total net sales of $17.3 million, up 22% year-over-year, and a gross margin of 61.1%. The underlying business is measured by adjusted EBITDA, excluding legal expense. A non-GAF metric posted a loss of only $621,000 in the third quarter. We believe adjusted EBITDA, excluding legal expense, remains an important metric to gauge our progress towards cash flow breakeven, and we included reconciliation to the appropriate gap measure in our earnings release slides. Furthermore, with the significant litigation expense behind us, we're prioritizing investments in a larger brand campaign to drive overall growth and support our Walmart launch. Our larger national TV campaign is currently planned for early 2022. I'll begin by reviewing the sequential P&L results, and then we'll discuss the year-over-year trends. For the three months ended September 30, 2021, Chromadex reported net sales of $17.3 million, down 2% compared to $17.7 million in the second quarter of 2021. True nitrogen net sales were down 4% sequentially. As expected, the largest driver was lower sales to Walmart following the initial shelf stocking in the second quarter to support the launch of 3,800 stores, as well as to build safety stock at their 42 distribution centers. Watson sales were $2.6 million this quarter, compared to $2.9 million in the second quarter. the catch-up in shipments from the first quarter supply chain disruption is complete. And we expect slightly lower sales to Watson's in the fourth quarter compared to the third quarter, which is more aligned with recent base demand. We've seen some recent improvement in sell-through as the Hong Kong economy recovers from the impact of COVID-19. The recovery has not been steady. Watson's store traffic is still down year over year. and sales from Chinese tourism and local resident traffic have yet returned to pre-COVID levels. We believe this is due to social distancing measures, travel restrictions, and concerns over the COVID-19 Delta variant that may remain a headwind through at least the end of 2021. We're working with Watson's and marketing programs to drive improved sell-through while they manage through COVID-19-related headwinds. Our e-commerce business was down 1% sequentially. While the underlying business remains strong, we faced a challenging comparison with Amazon Prime Day sales last quarter. We are optimistic entering the fourth quarter, which is seasonally strong, driven by promotions in the U.S. and China. Our nitrogen ingredient sales were up 30% versus the prior quarter, driven by sales to Life Extension and a shipment to Nestle Health Science. Our gross margins were roughly flat at 61.1% in the second quarter of 2021 and the third quarter of 2021. We are tracking well to our full-year goal of slightly better than 60% gross margins due to supply chain product cost savings initiatives, overall scale, and product mix, and are currently offsetting inflationary pressures across global supply chains. Total operating expenses for the third quarter of 2021 were 19.4 million, up 3.1 million compared to the second quarter of 2021. Selling and marketing expenses increased to 7.2 million in the third quarter of 2021, compared to 6.2 million in the second quarter of 2021. As a percentage in net sales, this expenditure was up 650 basis points in the third quarter of 2021 versus the second quarter of 2021. We've experienced higher costs for new customer acquisitions driven by broader industry trends that are impacting advertising costs on social channels. In addition, we're investing more in top-of-funnel brand advertising that does not immediately drive conversion. This includes incremental spend on television advertising as we test networks and messaging ahead of our larger brand campaign rollouts. As I previously said, this ratio would generally decline over time as sales ramp, but the investments may fluctuate as a result of our marketing campaigns. As reported, G&A expense was up $2.1 million to $11.2 million in the third quarter of 2021 versus $9.1 million in the second quarter of 2021. Legal expense was up by $1.5 million compared to the second quarter of 2021 to $5.6 million in the third quarter of 2021. As expected, litigation-related activity increased in the third quarter due to the California trial, and we saw a corresponding increase in legal expense. However, it was lower than expected for the quarter since the Delaware trial did not take place in September. I'll discuss our preliminary outlook for 2022 legal expense in a moment. Excluding legal fees, severance, restructuring, and equity compensation expense, third quarter 2021 G&A was higher by 0.1 million versus the second quarter of 2021 comparable G&A. For the third quarter of 2021, our operating loss was 8.8 million versus 5.6 million in the second quarter of 2021. The net loss attributable to common shareholders for the third quarter of 2021 was $8.9 million, or a loss of $0.13 per share. That's compared to a net loss of $5.6 million, or a loss of $0.08 per share for the second quarter of 2021. Moving to the year-over-year financial results. Total net sales were up 22% year-over-year compared to a third quarter of 2020, with 24% growth in true nitrogen, including 21% growth in e-commerce and 31% growth in combined Watsons and other B2B sales. Our nitrogen ingredient net sales were up 89% year-over-year, and gross margins increased by 150 basis points to 61.1% compared to 59.6% in the third quarter of 2020. Selling and marketing expenses a percentage in net sales increased 490 basis points to 41.7% compared to 36.8% in the third quarter of 2020. The drivers of this year-over-year increase were similar to the sequential drivers I discussed earlier. As reported, general administrative expense was higher by $4.6 million, primarily due to higher legal expense of $3.7 million as well as investments in technology and headcount and key functional areas to support growth. Finally, our operating loss increased by $4.6 million year-over-year as higher sales and gross margins and cost savings across the organization were more than offset by higher legal expense and investments in selling and marketing. Moving to the balance sheet and cash flow, our balance sheet remains strong. We ended the quarter with $33.1 million in cash and we did not access their $7 million committed line of credit. In the third quarter of 2021, our net cash used in operations was a negative $5.9 million versus a negative $7.9 million use of cash in the second quarter of 2021. The difference this quarter was primarily driven by the increase in accounts payable and accrued expenses due to the timing of payment to our vendors and a decrease in accounts receivable due to the timing of collections from business-to-business customers. As it relates to our 2021 full-year outlook, we have provided details on key P&L metrics in our earnings press release along with the slide presentation. Consistent with our prior outlook, we expect to invest more in marketing, brand awareness, customer acquisition, and R&D to maintain our position as a leader in the growing NAD market. The underlying business is essentially break-even for year-to-date 2021 as measured by adjusted EBITDA excluding total legal expense. This remains a key metric for the organization, and we will focus on achieving similar performance in the fourth quarter of 2021, but we may choose to invest more ahead of our larger 2022 brand campaigns as we balance investments in growth and profitability. As it relates to full-year net sales, we continue to expect steady revenue growth consistent with our previous financial outlook. Our e-commerce business has grown fairly consistently quarter to quarter, but a growing portion of our sales are coming from new partners, including Walmart, H&H, and Rowe, which may cause quarterly volatility until they ramp up to more steady, consistent growth. Roe launched their new product featuring TruNiagen in September, and we expect H&H will launch later this year or in early 2022. As such, we expect to benefit from sales to Roe and H&H in the fourth quarter and beyond. As we look ahead to 2022, we expect a more meaningful revenue contribution from our new partners, including Walmart, Roe, H&H, and Sinopharm, as well as other potential strategic partnerships in the pipeline. Our U.S. partnerships and our own e-commerce business should benefit from the True Niagen national TV campaign next year, and we are excited about the potential with strong players in China, notably Final Farm and H&H Group, in 2022 and beyond. We look forward to sharing more about our plans and theirs on the next earnings call. Finally, I'd like to address our preliminary outlook for total legal expense in 2022. We expect that baseline legal expense, which consists primarily of patent, general corporate expense, and headcount expense will be around $4 million in 2022. Ongoing litigation expense, including the New York case, Delaware appeal, and the Thorne IPR should each cost less than $1 million. we'll continue to look for ways to optimize these budgets and conclude the outstanding litigation. In short, with litigation largely behind us, our legal expense would decline significantly beginning in the fourth quarter of 2021. We believe this marks an important milestone for shareholders, as well as our team at Chromadex, since it enables us to prioritize additional investments that will accelerate growth in the businesses. In summary, I'm very proud on how the company continues to execute, balancing the long-term market opportunity and the near-term profitability objectives. As I said last quarter, I believe our strategic pipeline, including business development and R&D, is much more robust, and our internal team is the strongest I've worked with during my time at Chromadex. I'm particularly excited about the global brand-building experience that Fadi brings to the company. Under his leadership, the marketing team has continued to build their capabilities and, importantly, use concept testing to refine their messaging across all channels. I'm very optimistic about our potential to accelerate growth as we enter 2022. With that, I'll turn the call over to Fadi. Fadi?
spk05: Thank you, Kevin. It's a pleasure to speak to you all today and share more about our upcoming plans. I started my career as an engineer at Microsoft. followed by more traditional brand marketing roles at P&G and Nestlé. So my team and I are being methodical and disciplined about how we are building our strategies and plans, basing our work on established marketing science concepts and then aiming to review them at scale. Our vision is that this is a brand that should be present in every household with someone over 35 and even younger in many cases. Delivering on this vision requires a straightforward message, that makes the concept of aging and cellular health and repair more concrete, coupled with mass media presence, including national television. In early 2022, you can expect to see us scale our marketing plans, including the use of TV, which we have started this quarter using spots shot with one of our true believers, Shannon Sharp, the NFL Hall of Famer. Our TV presence this quarter is meant to test our messaging and shape our plans for next year that may include different types of creatives targeting different consumer needs. We are also exploring working with other A-list celebrities who can give us the national reach TrueNiogen deserves. We have a list of criteria meant to ensure that whoever is representing TrueNiogen is authentic, believes in our product, and fits our brand image. I'll briefly touch on how this relates to our plans for Walmart. As this is our first mass retail launch in the U.S., our top priority has been to test and learn what resonates with the retail consumer versus our current e-commerce consumer. Our tests to date have included micro-influencers and point-of-sale efforts. There have been two primary learnings from the early launch results, coupled with very valuable guidance we received from the team we interact with at Walmart. First, education is key when it comes to a brand like ours that has an extensive amount of research to back its benefits, and we have limited real estate to do so on shelf at Walmart. So we're actively exploring ways to enhance our in-store education. Second, given the unprecedented geographical footprint of Walmart, we must use marketing channels with wide reach, such as national TV. As I said, this is our top priority as we enter 2022, and we believe that it will accelerate growth in our Walmart business and accelerate our e-commerce business when we begin to scale. Also, as you know, the consumer education experience with our brand extends well beyond Walmart. So we are working to enhance consumer experience across all channels, from sharing the latest scientific research to increasing our product offers. I'm excited to be part of such great land and look forward to sharing more with you in the future. Now I will pass it back to Rob.
spk02: Thank you, Fadi and Frank and Kevin. Okay, let's turn it over to questions.
spk07: Thank you. At this time, I would like to remind everyone, in order to ask your question, press star, then the number one on your telephone keypad. And your first question comes from Jeffrey Korn from Landenburg. Please go ahead.
spk08: Oh, hello, Brianna, Rob, Kevin, Frank. And Fadi, how are you?
spk02: Hey, Jeff. Good.
spk08: So nice to meet you, Fadi. Just a few questions from our side. So what's now the status, as you know it, at Elysium as far as the company and the sales and the channels?
spk02: We don't know much. They've disclosed their financials as of June of 2021. They don't look so good. There's a significant amount of debt and heavy liabilities, far in excess of current assets, and sales have been flat for three years. We were not privy to their financials until recently. We don't know much about how they're operating. We know that they released a new product recently, which does not contain NR. So this is their third product on the market. Two of the three do not have NR. But we don't see them as an important issue for Chromadex going forward.
spk08: Okay, got it. And then it sounds like legal expenses, big picture for next year, will be going down by 60%, 70%, 80%. So how does that tie into the – the sales and market expense going forward, Fadi, as far as the overall plan and with television included in the plan.
spk02: So, are you asking a financial question?
spk08: Yeah, I guess the, I mean, the G&A will be decreasing by low double digits, millions from legal next year. So, Do we expect that the sales and marketing will further increase more dramatically than what we had currently expected, or how does that work?
spk02: Of course, with regard to the e-commerce business, we pay very careful real-time attention to the return on media spend. But we will be increasing our overall marketing investment, especially in conjunction with Walmart. So you can anticipate a larger investment in overall sales and marketing.
spk04: Yeah, I think if you look at just legal expense this year, year-to-date, it's about $15 million. And when I went over in my prepared remarks, I've indicated, look, the baseline for things like headcount as well as patents and general corporate expenses is about a $4 million run rate for the year. And as we look at the fourth quarter, You know, I think, you know, we do have a court case scheduled. It's not scheduled, but the judge is indicating it may happen in November, December. That could be about $1 million. And we've got, as I mentioned earlier, in addition to that $4 million for the full year, there's three litigation matters outstanding, which is the Thorne IPR, the Delaware appeal, as well as potentially the New York case. And those three would be each less than a million dollars, as I mentioned in my prepared remarks. So there should be a significant decrease in legal spending for 2022 based on that information. And again, I think we're going to then pivot over to marketing and invest in more marketing. We're going to do it in a very disciplined and measured way. And as I think about it, we're going to be doing a lot of testing to make sure it works. And we're likely to start off by crawling and then walking and then jogging. And when we know it's really working, we got the right message, then we will start to run.
spk08: Okay, thanks, Kevin. That's helpful. And then one more, if I may. Could you give us any further color or flavor as far as the additional formulation that it sounds like you're working on? Is that going to be tablets, liquid, powder, sachet? Any ideas there? Anything you want to say further than a new formulation?
spk02: We do anticipate that in 2022 we will release another capsule product of a formulation that includes Niagen.
spk08: Okay, that's helpful, Rob. That does it for us. Thank you very much.
spk02: Sure. Thanks, Jeff.
spk07: Your next question comes from Brian Nigel from OpenArmor. Please go ahead.
spk10: Hi, good afternoon, everyone. Hi, Brian. So a couple questions. First off, I've got one question on the science and one question on marketing, so I'm going to separate that. I guess, Rob, this is supposed to be, I mean, you talk, you open your comments as you do, just talking about all the scientific work that you and your team have done, which has been impressive. The question I have here now, particularly as you embark upon this next stage, so to say, the development of Chromadex and the true nitrogen, is there a missing piece? Is there something, you know, with regard to the science behind the true nitrogen that still needs to be done? Or is it basically complete at this point?
spk02: That's a good question. It's never complete because we are always amazed by this molecule. Of course, remember, there are 40 clinical studies in process right now, and we have 240 collaborative agreements in place. So there's a great deal of research going on presently. some of which we've had some early exposure to, some we have not yet, but our expectation is that we will continue to see good news about how nicotinamide riboside improves health. So I would not say that it's complete. There may be alternative ways for us to take advantage of that research, not just in new claims formulations, but also new products. But we have enough today to get to where we want to get to.
spk10: Okay. That's helpful. Very helpful. Then the second, the question I'm going to mark, I guess, and Fadi, welcome, by the way. Welcome to the company. Thank you.
spk05: Thank you.
spk10: So this is, I guess this is a question for you, and then... kevin probably probably related kevin as well but okay so you know so have now someone having followed your company for a while use your product for a while i guess for with with regard to the marketing plans and you know and recognizing it's still quite early and just to talk about kevin's comment the prior question the kind of the you know call you know the kind of step you know slowly getting towards marketing but the question i have is how is we look over the next say you know few several quarters How much different, from your vantage point, will this new marketing campaign be compared to what we've seen previously? And then, Kevin, I mean, it gets to the follow-up to the prior question, but just from a financial standpoint, recognizing that some of the financial obligations or financial weights upon the company are now being lifted as you move past the litigation, I mean, how much investment will you be willing to throw at this new marketing campaign?
spk05: Yeah. Yeah. So let me start by answering the first part of the question. So as you know, when you have a new molecule like this one, usually in the first few years, you have usually the early adopters, people who don't need really education. They will go seeking the education. They will go seeking the research. And then people like me, I mean, me and my entire family have been using this product for a long time. And that's how I ended up, you know, I reached out to Robb, and then I wasn't looking for a job, and I didn't know they were recruiting, and then one thing led to another. So people like me are the ones that in the first few years are going to come to you. But after that, then to scale, given the wide-ranging effects of this product or of Niogen, We must do the work of education. This is a new category for consumers, and we have so much science behind it. The effects on health are so wide-ranging that our job as a marketing team is to really educate the consumers about the effects. So I think the difference between the previous phase and this phase is that the previous phase was You know, amazing work has been done to make the product available, to have, like, you know, a well-oiled e-commerce machine. And now the next phase is about going to a much larger audience because, as I said previously in my presentation, in the statement I made or I was reading earlier, I truly believe and we truly believe that this product needs to be in every household with anyone above the age of 30 or 35, in many cases even younger people. So to do that, it requires extensive education at scale, and that's what me and my team have been testing methodically day after day using, like, very, very novel, quick research tools to ensure that the message we're going to have is a message that will resonate at scale and that will bring to life the amazing and life-changing benefits of the molecule we have.
spk10: Got it. It's helpful. Thank you.
spk07: And your next question comes from Mitchell Pinero from Sturdivant. Please go ahead.
spk12: Yeah. Hi. Good afternoon. Um, question for you. I just staying, um, on Brian's question. Um, somebody said that you need to make, you know, the benefits around, you know, the aging message to be more concrete. So does that does that mean, um, I mean, you know, you can't make specific, you know, health claims about diseases, but, you know, is there more you can do that you haven't been doing in terms of your messaging around specific and concrete benefits? A lot of the true nitrogen, you know, aging is, In some way, you know, this is a, you know, prophylactic as much as anything. And it's hard to, you know, some people, you know, you don't really know what the benefits are. You may not feel them. You may see them in blood work or other things. But to get a concrete message seems to be the key to unlocking, you know, some faster growth, and I was wondering if you could talk about that.
spk05: Yes, great question. The answer is absolutely okay. So if you, for example, take a look, one of the ways we're testing messaging, some of the testing we do is live testing, some we use tools. So one of the live tests we're doing is the Shannon Sharp copy, you know, the famous NFL copy. football player, Hall of Famer. We have a copy right now on TV, and some of you might have seen it. And then if you see that copy, there are other iterations that are going to come up. He speaks about cellular energy, and then he says it's like beast mode for yourself. So one of the most important hallmarks of aging, according to our research, is energy. So as we age, as we're, you know, I'm on the age of 30, 35, 40 years old, one of the things we feel is, you know, we don't have the same levels of energy during the day. And I think if we go and talk to our subscribers, that's the first thing or the most frequent thing that they report, among other things, of course, which is, I'm not having that same feeling in the afternoon that I need to take a nap. I have more energy to be with my family, to play with my grandkids, and so on and so forth. So energy or cellular energy or feeling more energetic, basically, is something that we have heard consumers reporting. Now, we're working internally, and that's to the question, as you know, that was asked to Rob, we're working to substantiate it more through science so we can make stronger claims around it. Then there are benefits around, you know, as Rob also mentioned in his written remarks earlier, which is, you know, heart health, cognitive health, liver. So all of these are linked to signs of aging. So what we're trying to figure out is how can we, through the funnel, because, you know, you have the top of the funnel, you go on TV and you cannot talk about all of this, but when you go on TV or in more top-of-the-funnel, using top-of-the-funnel tools, you talk about the general message. But once consumers start engaging with you online, how can we understand why they came to us and make the message more personalized to how they are experiencing aging? So this is the kind of work we're doing now. So does this make sense?
spk12: It does. I have to sort of see the final work to see what the differences are between what you've been doing and what you plan to do. I'm going to answer the second part of your question.
spk05: Okay. Go ahead. The second part was how do we make people feel it? So as you said, this is not something you feel. immediately the feelings are, you know, what you feel is very subtle, and sometimes it takes a few weeks. So what we do, and this is if you buy our product at Walmart, we've been engaging more and more, whether it's through packaging inserts, communication through email, to tell our subscribers what to expect. So what's happening in the first week that you're taking Niagen? What's happening inside your body? What's happening in the fourth week? What's happening in the first month? What do you expect after six months? What's really happening in terms of what does NAD lead to? One of our most successful blog posts ever was the nine benefits of NAD, where you could see that consumers are really interested to know what's happening inside their bodies. And then we talk about cellular health, cellular repair, and so on and so forth. So we are engaging. One of the most important things we're working on is how to engage with consumers education every brand out there every brand manager CMO in the world wants to engage more with consumers but it's consumers have very little time and will allow only the brand that are most consequential on their lives to engage with them we believe we are potentially one of the most consequential brands that a consumer can be can be using because again from my personal experience Your car stops working, you leave it behind. Your phone stops working, you buy another one. But when your body stops working, you have only one and you cannot change it. So being able to care for your body is very consequential on one's life. And then this is why when we communicate with our consumers, we see them really opening their hands and hearts to listen to what we have to say. Because they know that what we're saying is very important to them. It has an impact on their health, their happiness, you know, how long they will live and how, you know, ultimately health is linked to happiness. So this is why, you know, we're taking advantage of this ability to connect with consumers to explain to them how these subtle changes as we go what to expect first from the first week up to the first year, and then get them to understand more the value of our brand.
spk12: Okay. Well, I look forward to seeing what happens there. I have two more questions. Rob, I ask you this every quarter, but can you give us some color around the commerce growth breakdown, how new customer versus recurring customer looked?
spk02: Yes, I can. The overall growth looks steady and consistent, Mitch, as it always does. Remember, second quarter, there was a big growth from the first quarter. A lot of this has to do with the number of days in the quarter, but also these special events. And there was an Amazon Prime event for three days in June, where the numbers were significantly high. And so I If you normalized it, it was just another steady growth quarter for us on new customers as well as retained customers. But if you put that day back in, it was a slight decrease in new customer acquisition. But we are steady. We are consistent. We have noticed sort of in conjunction with the Apple changes that there's a slight increase in social media marketing costs. So we're seeing a bit of a bump in customer acquisition costs in the e-commerce of late. We're monitoring this on a day-to-day basis. But the quarter was steady and consistent with previous quarters. There's one other thing is that we didn't have an opportunity to answer Brian's question on spend. So, Mitch, do you mind if I quickly ask Kevin to address that, and then we'll come back to see if you have an additional question? Sure. I have one more question. Okay.
spk04: Thanks. Okay. Thanks, Mitch. And, look, with regard to Brian's question, he asked how are we going to manage it and scale it. So, obviously, with 18 years of experience at Mattel, you know, we spent a lot of time looking at advertising and being disciplined about that. And we'll continue to do that here. I think, as I mentioned before, you know, we know, you know, how to scale things. investment, and we know we need to invest at a level that's sufficient to ensure success over time. And we know looking at metrics like frequency and reach is important. And we also know that as we scale, that it's going to, as we mentioned earlier, raise the growth rate on both our e-commerce business as well as on Walmart. And the good news about our e-commerce business is it has 70% margins. So Future funding can be done with the proceeds from increasing in our business, and we'll be working to scale it. And as I said, as we become successful and more competent in the fact that we've got the right message, we'll continue to scale it over time and achieve the metrics over time that will make this a successful marketing program. So, Mitch, you've got another question.
spk12: Okay. Last question on Sinopharm. Can you just – so Sinopharm is going to have a – they'll start selling, I guess, cross-border in the first half of 22. Can you remind me when you think that would start? And – Is that something where you are a supplier or will Sinopharm be doing any, you know, formulation and manufacturing?
spk02: So as you know, we presently operate a cross-border business ourselves, Tmall, Koala, JD.com, and WeChat. So they will be taking over those platforms, right? But they're doing a very heavy, detailed analysis about pricing, about messaging, and about formulation. So we expect that it will be within six months. I don't know for sure, but at a certain point in time, probably within that timeframe, they're going to take over the management of those platforms. And in conjunction with that, there is likely to be a new formulation product in addition to the existing true nitrogen product, and there is likely to be a campaign in connection with that into China.
spk12: All right, well, thank you very much. Appreciate the time. Thank you. Thanks, Mitch.
spk07: Your next question comes from Ron Silverayu from HC Wainwright. Please go ahead.
spk09: Thanks so much for taking my questions. Firstly, I wanted to drill down a little bit on the Sinopharm relationship and specifically ask what you expect to be the process via which you anticipate in the Chinese market specifically, it might be possible to position true niagens as sort of the sole real nicotinamide riboside product and effectively get rid of the saturation currently with respect to NMN-based products that are being sold by other purveyors. And to what extent do you expect Sinopharm to potentially be instrumental in sort of cleaning up that picture?
spk02: Thank you for that question. As you know, Ram, NMN is quite popular in China. We don't know exactly how much. We think it's in excess of $100 million. We could be off by a factor of two or three. We could be overestimating, but that's our rough estimate. And it's only been on the market a year, maybe a year and a half. So there's a great proliferation of NMN. And there are a great number of companies that are selling NMN in China, all cross-border. But fairly recently, the Chinese government has cracked down on NMN because it does not have regulatory approval. But worse than that, they're making claims, many of which are actual NR claims, like who's taking it and what it does. But as many of you listening know, NR is significantly superior to NMN. The main scientific spokesperson for NMN is a researcher at Harvard who himself has published a study showing that NMN converts to NR in the bloodstream in order to be taken up into the cells. Indeed, to make NMN, you first have to make NR. So really, all NMN is is very inefficient and very expensive NR, and we're not sure about the level of safety. Sino knows this. This was a big reason why Sino got in business with Chromadex. They're aware of the fact that NMN is popular, and they're aware of the fact that NR is superior. So this is the opportunity that drove them to do the deal. So we are excited to work with them to capture a market that's already been established and then grow well beyond. As you know, it's estimated that there'll be maybe 400 or 500 million people over the age of 60 in China in the coming years. Aging and aging health is a very high priority with the Chinese government. So we see this as a significant opportunity. And so does Sino.
spk09: That's very helpful. And I was wondering if you could also clarify kind of the demarcation between what you expect SinoPharm to be prioritizing doing with their collaboration with you folks, particularly on the product development side, and what you expect to come out of the Nestle Health Sciences relationship. In other words, we all know that SinoPharm is a pretty diversified organization and that It's not solely focused on pharmaceuticals, but obviously pharmaceuticals is a big part of their business. So I wanted to better understand to what extent the Sinopharm relationship is going to be more in the consumer products arena versus, you know, for example, the medical nutrition arena and whether that's going to be solely the purview of Nestle Health Sciences or whether you expect Sinopharm to be doing some of that type of product development work with you guys as well.
spk02: That's another very good question, Ram. Thank you. So China was carved out of the Nestle deal. So in the case of medical foods, Nestle does not have those rights. They, of course, have expressed interest in operating in China, but that was excluded from the deal. Secondly, you know that nicotinamide riboside, as well as NAR and NRH and NRT, have significant potential beyond just the dietary supplement market. And both Nestle and Cyano do operate in the pharma arena, as do other companies who are keenly aware of the potential benefits of these molecules. So it is possible down the road in the future that there will be discussions about developing some sort of either a medical food or a drug-based product with one or both of those companies or other companies for that matter. We have spent a lot of time with the Sino scientists and we expect to spend more time with the Sino scientists. We've spent much time with the Nestle scientists. So all of these things are possibilities. They're not imminent. They're not short-term possibilities, but they are certainly long-term possibilities.
spk09: Great. And then just one more from me. I was wondering if you could provide an update on the situation in Turkey and whether we should expect any near-term additional news, further studies looking at the potential of nicotinamide riboside, specifically in the context of treating COVID-19 infection. I mean, certainly not with respect to making actual medical pharmaceutical claims, but You know, I know that, you know, historically there's been some work published on the combination of nicotinamide riboside, you know, with, for example, drugs like ivermectin. And I was just wondering if you had any additional updates there, you know, if you anticipate any further clinical exploratory work being done in Turkey for the Turkish market.
spk02: Well, before I give an answer, let me ask Frank Jacks, would you like to address that?
spk03: Yeah, I can take that. As you probably saw, Romney, the earlier MedArchive version had been recently published, and that was one piece of it. But, you know, we're still waiting right now in terms of the process on what's going on in Turkey. We don't have any further updates on that in terms of where it's at, but it's underway. And there are no plans for additional clinical studies. I think it's really more of a regulatory waiting game at this point. Thank you.
spk02: Okay. Thank you, Ram.
spk07: Again, if you'd like to ask a question, press star 1 on your telephone keypad. And your next question comes from Jeff Van Cideren from B. Riley. Please go ahead.
spk11: Hi, everyone. Just wanted to follow up a little bit more on marketing. Any color you can, I realize it's early, by the way, but any color you can give us on what's working best and any metrics you might want to share in terms of how TV ads spend, in terms of the testing you're doing, when you run it, is driving sales or any of the other things you're testing. And then sort of curious, especially relevant to Wal-Mart, if you're seeing any response in Walmart sales around that.
spk02: Fadi, do you want to take that?
spk05: Yes, sure. So, yes, as I briefly mentioned earlier, we use two types of testing. One is live, like having the Shannon Sharp copy on TV, and then, you know, of course, looking into we can immediately look at how this is impacting customers anything from Google searches up to acquisition. And then we have offline testing tools where we have tools where we can within a day test messaging with thousands of people and then iterate and test again. So far on the live, so let me start with the latter. On the offline testing, we've been really honing on the right messages. We already see what messages resonate more with people because we have so much to say right we're backed by 175 research studies rob mentioned earlier we're almost at 250 research collaborations we have nobel prize winners behind the brand we have more than you know 25 patents so and then we that's only in in terms of like you know the backing of the science and we we have all the benefits so this is we're trying to figure out how to fit this in a message that takes 15 to 30 seconds on the shannon sharp copy yes we We've been there. We're starting to see results. It's too early to comment, but we're starting to see results. And then this is what Kevin and Rob spoke about earlier, which is now we can learn from this and start to scale, basically. So now to summarize this, I would say in a category that has so much noise, so many competitors making really unsubstantiated claims, when we speak about the science, we can see that it's resonating, and it's resonating really, really well.
spk02: And I'd add that we are tracking the TV ads in real time. So we can increase or decrease the investment in television media based on those results.
spk05: Rob, would you like to answer it? Yes, please, please. Rob, would you like to take the Walmart question?
spk02: No, go ahead, Fadi.
spk05: Okay. So for Walmart, as Rob mentioned earlier, we just had a line review with them. You know, we're dealing with, you know, they are very passionate about the category. They really understand the need for education. So as we mentioned earlier, we know that the education cannot only happen on shelves. So besides what we're doing in terms of our plans of mass-scale marketing, which, you know, using TV and other methods, We are also, we discussed with the Walmart team the need for connecting with the consumer beyond the shelf. So we have Walmart and, of course, let's not forget we have Walmart.com. They've been incredibly helpful. We're talking to some of the smartest buyers in the world. So they have a lot of experience and they have been helping us really, you know, figure out how to drive awareness for the Walmart shopper around Niagen and the benefits of Niagen. Okay.
spk11: And then maybe we can shift to – I just wanted to follow up on this idea of sort of inflationary raw ingredient prices, what you're seeing around that, or maybe what W.R. Grace is seeing, and I guess what level of gross margin impact might you anticipate from inflationary ingredient inputs, raw material inputs, and also – Since labor and shipping are components, maybe you can also touch on any anticipated impact on the P&L around kind of labor, shipping, those sort of things going forward.
spk04: Yeah, with regard to 2021, I don't see a major impact on our margins. So I think getting to the slightly higher than 60% is achievable. I think if you look at our year-to-date gross margins through September, It's about 61.9%. For next year, we're focusing on trying to maintain our margins at slightly better than 60%. There's a lot of moving pieces. We are looking at continued supply chain cost savings initiatives. We see overall scale on our business helping us, favorable mix. And ultimately, if costs are going up, we'll look at pricing as something to maintain our margins. But, again, I think it's a pretty dynamic environment, and I think all the things that you talked about are in play. And we'll give you more detail on our plans for 2022 when we provide our outlook on the next earnings call. But, again, I think where we're at, we're going to be looking for things to offset all of those things. And it won't have an impact on our margins that we expect to achieve in 2021 since the product's already made at the end of September.
spk11: Okay, great. And then just kind of a follow-up on Walmart. When you did your line meeting with them, did they indicate or I guess do you perceive that they – would like to have more products from you in other words sort of the i guess the line building idea you know rather than you know more more skews are better for them to kind of have a real brand presence or just any comments around that i don't think we have uh much to comment about that walmart is seems very happy with the product and with chromadex
spk02: We're excited about the future of the relationship, but we don't know if that means there will be further line extensions at this point or not.
spk04: Yeah, I do think at the line review, though, that we presented the 2022 product to them and that they were interested in carrying that.
spk11: Okay, good to hear. Thanks for taking my questions, and best of luck.
spk07: And we have time for one more question. Coming from from Titan Capital. Please go ahead.
spk01: Thank you. I'd actually like to ask two science questions, if I may. The AT that you described in the press release and here today, how does that compare to cocaine syndrome that you all have interacted with in the past?
spk03: Hey Bill, it's Frank. It's a similar genetic abnormality. It's a different genetic defect, basically, that leads to similar sorts of problems. So there is an accelerated aging type component to AT, and it does affect the sort of under 18, if you will, population. But it's not as severe as cocaine. Cocaine is way more severe than... than AT is, but there still is no treatment for AT.
spk01: Great. Thank you, Frank. And then specific to the Alzheimer's study that you referenced, was that done on a prophylactic basis or was it truly in the middle of memory loss and it reversed the effects of Alzheimer's?
spk03: I'd say it's more the latter. It's more of some, I wouldn't say it was, Alzheimer's and prophylactic is kind of tough. You're usually trying to find out whether it's mild cognitive impairment or Alzheimer's or any of them. You're trying to find out whether treatment can be restorative in some way to improve or either improve or lessen the decline, change the curve there on that.
spk01: And you actually, with the mouse study, were able to reverse the decline, at least if I understood the comments correctly. And if that is correct, was that temporary and then it bent the curve, or was there more of a longer-lasting benefit?
spk03: I don't think it went out far enough so that we would have seen whether or not if it continued or how far it would have continued. I think the main thing was really to show, the main intent was really to show whether there were some signs of reversal.
spk01: Great. Thank you. And then one additional question relative to Sinopharm and the studies like this one, that are on mice rather than humans. Is that something that in China that they can use and would be well received? So I guess there's kind of almost two questions embedded. Number one, from a regulatory standpoint, and the second would be from the consumer's view.
spk03: Right. Well, you're actually on to something there. The Chinese government has... and all the regulatory bodies around the world have sort of different ways of regulating claims. In China, they actually have a limited list of approved claims, and some of the claims are actually you can support with just animal studies, not even having human data. So they do have mechanisms that allow claims just based on doing studies following the approved study formats that they have. So you basically have to do the studies in accordance with the way that they would want you to do them. And if you did that, then you'd be able to make a claim.
spk01: Great. Thank you for all the perspective.
spk07: And there are no further questions at this time. I will turn the call back over to Brianna for closing remarks.
spk06: Thank you, Julie. There will be a replay of this call beginning at 4.30 p.m. Pacific time today. The replay number is 1-800-700-2030, and the conference ID is 412-6168. Thank you, everyone, for joining us today and for your continued support of Chromeduct.
spk07: This concludes today's conference call. You may now disconnect.
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