ChromaDex Corporation

ladies and gentlemen thank you for standing by and welcome to chromadex corporation first quarter 2022 earnings conference call my name is stephanie and i will 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 first quarter of 2022. if you have not reviewed this information Those 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, Ms. Berger.

Thank you. Good afternoon and welcome to Chromadex Corporation's first quarter 2022 results investor call. With us today are Chromadex's Chief Executive Officer, Rob Freed, Chief Financial Officer, Kevin Farr, and Chairman and Co-Founder, Frank Jacks. Today's conference call may include forward-looking statements, including statements related to Chromadex's research and development and clinical trial plans 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 reconciliations to be 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?

Thanks, Diana, and good afternoon, everyone, and thanks for joining our first quarter 2022 investor call. Since the beginning of this year, we've made some very important strides in building our True Nottingham brand. Our new TV commercial, which many of you have seen, began airing in late March, and it was followed by the U.S. launch of our new product, True Niagen Immune, in April. And we're very encouraged by the recent trends in the second quarter and have other brand-building activities on our roadmap later this year. Beyond the near-term brand-building initiatives, but strategic to our long-term plan, We were granted yet another U.S. continuation patent that significantly reinforces Chromadex's intellectual property portfolio, which now is over 40 patents. The scientific momentum on Niagen has never been stronger. As many of you have seen, we recently announced the results of a peer-reviewed study on Parkinson's disease patients, and there are now two additional clinical studies underway on Parkinson's. Importantly, the growing body of evidence on niogen suggests with great consistency that metabolically active tissues are heavily NAD dependent, including the brain, muscle, heart, liver, skin, among others, which continues to validate the tremendous market opportunity for niogen. The science continues to show that true niogen is certainly among the most important dietary supplements that people concerned about the way their bodies age should be taking. We began to scale the new TV campaign in the second quarter, so it did not have a material impact on the first quarter results, which Kevin will discuss in a moment. Our new commercial is now aired on major networks, including Fox News, Fox Business, CNN, the Science Channel, MSNBC, ABC, Bloomberg TV, and certainly SPN channels. As I said last quarter, this commercial is intended to educate a broader group of potential consumers about the benefits of taking TruNiagin. Our marketing team took great care to distill the deep science behind our ingredient into a 30-second spot based on extensive testing. While it is early, we believe the message is resonating with consumers and sales trends are encouraging in the second quarter. Later on the call, Kevin will discuss some of the leading indicators of TV performance that we are tracking for our e-commerce business. As expected, this campaign is also improving brand awareness and sell-through at Walmart. Although the timing of the campaign is a little later than we had initially anticipated, the results are promising. Another exciting moment was seeing TrueNiogen featured on the April 25th episode of Dr. Phil during his interview with Brooke Burke. Brooke, as many of you know, is a celebrity health and fitness expert as well as one of our original True Believers. The segment was highly impactful, reaching over 2 million viewers and re-aired across several markets, driving an increase in sales and exposure for the brand. As I said, we also launched TrueNiogen Immune in April. Our very loyal community asked for a holistic, all-in-one daily immune supplement versus taking individual supplements. Based on that feedback, our launch of TrueNiogen Immune was targeted to existing U.S. subscribers as a companion to TrueNiogen Immune. with the recommendation that both products be taken together. TruNiogen Immune is the first of its kind combination of proven immune-boosting nutrition with NAD support via Niogen. Our team of scientists were meticulous and strategic in creating this formula to ensure high bioavailability and efficacy of the ingredients and selected from the highest of quality suppliers. In addition, there's a larger market opportunity with TruNiogen Immune, It helps us target consumers who are focused on a clear benefit, like immune health. And importantly, Niagen is the hero ingredient, so the emphasis is on healthy aging, which reinforces the True Niagen brand message. It's time to launch. Brooke Burke participated in several interviews highlighting True Niagen Immune for publications, such as Swimsuit Illustrated and Daily Mail. It's early in the launch, and we look forward to sharing updates as it progresses. Finally, we are working on initiatives to educate and consistently engage our consumers, including an expanded loyalty or brand ambassador program. We anticipate this will roll out later in the year. The science on Niagen is very promising, which Frank will discuss in a moment. I mentioned the recently published clinical study on Parkinson's, which will include two additional studies by the same group of researchers. In the phase two study, 400 patients will be given a gram of NR per day. Well, the Phase III study will administer the highest daily dose of NR in any clinical study to date at 3,000 milligrams per day. We also made significant progress strengthening our patent portfolio this quarter. Our two recently granted NRT patents add protection of the manufacturing process of NR in its various salt forms through 2037. In short, the process to manufacture NR chloride or nitrogen requires the manufacturing process for NRT as an intermediate step. The same is true for other salt forms of NR. We now have over 40 patents on NR and other NAD precursors, and we continue to strengthen this portfolio. I'd like to also give a brief update on our new strategic partnerships. First, Sinopharm Xinjiang. We continue to finalize the commercial plans and supply agreement for initial cross-border sales, as well as our approach to pursuing Blue Hat approval in parallel. While we and Sinopharm are eager to progress toward launch, Recent lockdowns due to COVID have slowed the progress. We've been impressed by their comprehensive plan to differentiate our science-based brand from NMN, a large and growing category in China. We remain optimistic about the future. Of course, another strategic partner in Asia is H&H Group, and they're close to launching a Swiss product formulation for nitrogen for the China cross-border market and Australian market. It's early in the relationship, and we're already in discussion about how to make the partnership more impactful over time. And, of course, we are having similar conversations with established strategic partners like Nestle. In the U.S., our strategic partnership with Designs for Health, a premium dietary supplement supplier in the healthcare practitioner channel, is off to a strong start. And they will offer specially formulated products with Niagen exclusively to these HCPs. As I said last quarter, designs for health will complement our internal sales team and help us leverage the tremendous body of preclinical and clinical research on this amazing ingredient. And as many of you know, another U.S. partner, Rho, launched Roman Life and True Niogen in late 2021. We're engaged in discussions with their marketing team to share insights on how best to articulate the benefits of this incredible ingredient to our respective consumers. All of our new partnerships are in various stages of product development, but we expect them to contribute to increase sales in 2022. As I look at the biz dev team and the pipeline, I'm excited about the recent energy and initiative to grow the B2B side of our business. In particular, there's a renewed focus on building relationships with professional sports teams and athletes, as well as ongoing focus on healthcare practitioners. two key influencer groups that are important to our long-term strategy. The changes we are making internally are not designed to deliver short-term growth, perhaps, but I believe they position us very well for an inflection in growth long-term. As I think about how far the company has come and where it is headed, I am very proud of our execution and more confident than ever about the market opportunity for True Niogen. Before I hand the mic over to Frank to talk about the scientific developments. I just want to make one quick comment about the macroeconomic environment in which we live. Chromadex has shown in the past an ability to control costs and show financial discipline. We've been cash flow break-even without legal for several quarters in the past. Our existing customer base is extremely loyal. Our retention rates are very, very high. People who take TruNiogen continue to take TruNiogen. If you take it for two to three months, you understand the benefits are there. Should the company need to put more focus and attention into the bottom line, we feel that we have shown that we can do that and we will do that, and we feel that the customers that we have established will be there with us. Now I'd like to pass the call to Frank Jacks, our chairman and co-founder, to share more about the promising research on Niagen.

Frank? Thank you, Rob. It's a pleasure to speak to you all today. I hope you enjoyed hearing from Dr. Andrew Hsiao last quarter about the exciting strides that our Chromadex External Research Program, or SERP, has made to help produce the trusted science behind Niagen. as well as to advance the understanding of NAD in health, diseases, and aging. I'm grateful to Andrew and his entire team for accelerating SERP's mission, which I began 10 years ago. As we recently announced, SERP has amassed over 250 collaborative agreements with over 235 researchers globally. This includes over 185 institutions in 33 countries, representing over 85 million in estimated total research value. This is a remarkable milestone for any ingredient. Our SERP program was recently awarded the 2022 European Nutri-Ingredients Award in the Nutrition Research Project category for pioneering research behind Niagen and NAD. It is a testament to SERP's dedication to quality research and how we are pushing the boundaries of healthy aging science. According to their website, the Nutri-Ingredients Awards focus on true innovation, long-term market success, and cutting-edge research. We are honored to be recognized by Nutri-Ingredients along with other industry leaders. Moving on to new and exciting research, I'll briefly highlight two clinical NR studies that were registered recently. These built on a recent peer-reviewed published clinical study on Parkinson's disease or PD patients. that Andrew reviewed in detail last quarter. The phase one study, or NADDPARC study, showed NR supplementation significantly increased cerebral NAD levels, improved some measures of motor function, and decreased inflammatory cytokines in PD patients. The results of this study nominate NR as a potential neuroprotective therapy for PD patients, warranting further investigation in larger trials. A second study, the NOPARC study, is underway with the same group of researchers. This study will recruit 400 PD patients and administer 1,000 milligrams of NR daily for 52 weeks, the same daily dose as the smaller Phase I study. Finally, a third study, the NR-SAFE study, began recruiting a couple weeks ago. The objective is to determine the safety and tolerability of NR at a daily dose of 3,000 milligrams in 20 individuals with PD to enable clinical studies assessing higher doses. The safety and tolerability of NR doses up to 2,000 milligrams daily have been tested in healthy humans with no signs of toxicity, so this is the highest dose tested in a clinical study to date. All three clinical trials are randomized, double-blinded, placebo-controlled, and parallel-designed studies. This is an exciting area of research on NR, and we look forward to learning more. In summary, Chromadex's foundation is in science. It is in our DNA. SERP's 250th Collaborative Agreement speaks to the great scientific interest in our ingredient, NR, NAD, and its role in human health and aging. Importantly, beyond the academic research, we embed science and quality into all of our products, since we believe that trusted brands, like TrueNiagen, start with trusted ingredients. With that, I'll pass the call on to our Chief Financial Officer, Kevin Farr. Kevin?

Thank you, Frank. Chromadex delivered a solid quarter with a total net sales of $17.3 million, up 18% year-over-year, and a gross margin of 61%. With a significant litigation expense behind us, we prioritize investments in marketing, including our new TrueNiagen TV campaign that began airing in late March. While this is only one component of our brand-building initiatives this year and is still early, we're encouraged by several leading indicators in our e-commerce channel. This includes increases in organic searches and our new website visitors, growth in new customers on our own site, as well as recent trends on Amazon, where TrueNiogen is now frequently ranked as the bestseller in the broader vitamin B3 category. Moving forward, as we pragmatically increase our investments in TV and other top-of-the-funnel marketing initiatives, we'll be focused on year-over-year rather than sequential trends in the business. In addition, as mentioned in the last call, we'll be focusing in on adjusted EBITDA, including legal expense, going forward, as a proxy for cash used before working capital investments. We provided a reconciliation of the gap measure in our earnings release slides. Total net sales in the first quarter of 2022 were up 18% year-over-year compared to the first quarter of 2021, with growth of 20% in true Niagen, including 13% growth in e-commerce and 43% growth in combined Watsons and other B2B sales. Our nitrogen ingredient net sales were down 6% year over year. Gross margins decreased to 61% compared to 62.9% in the first quarter of 2021. The decline was primarily driven by business mix, since we had lower sales to Watson's last year when shipments were impacted by supply chain disruptions. We also increased headcount in our supply chain to support growth. Overall, this is a solid start to our full-year goal of slightly better than 60% gross margins as product cost-saving initiatives are currently offsetting inflationary pressures across global supply chains. If inflation remains persistent, we'll consider price increases to help offset higher costs. Selling and marketing expenses and percentages at sales increased 510 basis points to 47.7%, compared to 42.6% in the first quarter of 2021. We are experiencing higher costs for new customer acquisitions driven by broader industry trends, including changes in Apple's iOS that are impacting advertising costs and efficiencies, primarily on social channels as well as search. In addition, we're investing more in top-of-the-funnel brand advertising that does not immediately drive conversions. This included incremental spending on television advertising to support our new True Niagen commercial that began airing in late March. We have also more top-of-the-funnel investments in Amazon compared to last year, including streaming television advertising on their platform and tools to prospect to a broader audience of consumers across other supplement categories. For full year 2022, we'll continue to optimize these investments, as we balance brand campaigns with performance or conversion marketing. As reported, general administrative expense was lower by a negative $600,000, primarily due to lower legal spend of $2.7 million, largely offset by higher severance expense, investments in technology, and headcount in key functional areas to support growth. As expected, we incurred baseline legal expense of approximately $1 million in the quarter, as well as nominal expense-related post-trial motions in the California litigation, expenses related to the Delaware appeal, and to the Thorne IPR. We expect the first quarter will have the highest quarterly legal expense of 2022. Furthermore, the judge in New York recently ruled that Elysium should pay Chromadex the $2.5 million negotiated settlement to resolve the California and New York litigations. While it is possible to appeal this decision with no trial planned, we currently expect full year 2022 legal expense to be under $7 million. For the first quarter of 2022, our operating loss was $7.7 million versus $7.4 million in the first quarter of 2021. The net loss attributed to common shareholders for the first quarter of 2022 was $7.7 million or a loss of $0.11 per share. as compared to a net loss of $7.4 million or a loss of $0.12 per share for the first quarter of 2021. Finally, our adjusted EBITDA, including legal expense, was a loss of $4.5 million compared to a loss of $5.7 million in the prior year. Moving to the balance sheet and cash flow, our balance sheet remains strong. We ended the quarter with $21 million in cash. and we did not access our committed line of credit. In the first quarter of 2022, our net cash use in operations was a negative $7.2 million versus a negative $5.4 million net use of cash in operations in the first quarter of 2021. The difference year over year was primarily driven by a larger increase in our inventory to support growth, as well as a decrease in accounts payable due to the timing of payments to our vendors. As it relates to our 2022 full-year outlook, we've provided details on key metrics in our earnings press release along with the slide presentation. There are no changes to our outlook since our last quarterly update. Consistent with our prior year outlook, we expect to invest in marketing, brand awareness, customer acquisition, and R&D to maintain our position as the leader in the growing NAD Plus market. Finally, as it relates to the second quarter of 2022, we see the following headwinds and tailwinds. The primary headwind relates to Watson's. The Omicron variant continues to have an impact on Hong Kong residents, although lessening of late. Due to this backdrop, Watson's is shipped in approximately half of its shipments in the second quarter to the fourth quarter of this year. As a result, we anticipate the second quarter shipments to be approximately half of the first quarter 2022 shipments, but on a full year basis, our outlook for Watson's is unchanged. We've had success with the brand and influencer campaigns as well as store staff incentive programs in the fourth quarter of 2021. We have similar plans for the remainder of 2022 to help Watson's manage through these COVID-19 related headwinds. Importantly, we see emerging tailwinds in our domestic e-commerce business as a result of recent initiatives to drive greater brand awareness. We expect this will partially offset the Watson's headwind in the second quarter. In absence of another large macroeconomic disruption, this momentum should continue through the rest of 2022. In summary, Chromadex is the leader in the global NAD market, which is large and growing, and we expect to invest to maintain our leadership position. We think we're starting to raise awareness of a mass audience with our TV campaign, which requires an upfront investment in consumer education, which should have a near-term payback. I'm excited about our holistic approach to building the True Niagin brand, which emphasizes communication and customer education, including our new TV campaign, a loyalty or brand ambassador program that incentivizes our most engaged customers to recommend TruNiagen, and an expanded product portfolio that caters to different consumer needs, including our recent launch of TruNiagen Immune. We're at various stages of implementing these initiatives, but are confident they will be in place before year-end. We expect to see accelerated growth exiting 2022 when all of these initiatives are in place. We have more work to do to capture TrueNiagin's full market potential, but I'm very proud of the work we've done to position the company for the next phase of growth. Operator, we're now ready to take questions.

Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. Your first question comes from Brian Nagel with Oppenheimer. Your line is open.

Hi, good afternoon. Congratulations. So a couple of questions. First, with the TV ad, how should we think about with TV? Is there a plan here in the near term to increase the frequency, add new ads? And then if you could discuss a little bit more just on how you're tracking you know, TV as a driver of improving demand or brand building here.

So let me take the second question first.

Television is more difficult to attribute than digital media. So it's more challenging to understand the direct relationship between the TV spot and sales, particularly when we're selling in retail. But there are metrics that you can measure. One of the metrics you can measure is traffic to your website or even traffic to Amazon. And you can see the traffic and align that with the timing of the ad. And we're seeing dramatic increases in traffic on the website and on Amazon. And it coincides with when the ads air. You can also track the conversion rate at that time. And we're seeing dramatic improvements in conversion rate as well. So the ads seem to be working, and we're also encouraged by the sell-through that we're seeing since the ads ran at Walmart. So these are the metrics that we're using. There's also over-the-top television, so streaming television, and there are more metrics that you can track. It's easier to attribute the airing of a spot to the conversion to a sale with OTT, and we're seeing that as well. And so what we're doing is we've been dramatically increasing the spend, but we're sort of measuring as we go. And right now we're encouraged and we expect to continue to increase, but there may be points in time where we pause, analyze the data, and then start again. But so far what we're seeing is it was a good move and it's an effective spot. We also are testing other spots. So there may be complementary spots that we have behind it. We're also editing the one spot that we have and optimizing that. There might be some slight changes to the one that we have. So the answer to the question is there are a handful of metrics that you can use, and we're using the ones that exist. So the first question. What was the first question, I guess?

Well, you kind of answered it. What I was asking is basically how should we think about the TV plan from here? Would there be additional ads or that type of thing? But you kind of discussed that, right?

Okay. And I'd add a couple of things. We're seeing increases in organic searches and new website visitors, growth in new customers on our own site, as well as strong trends on Amazon. And as Rob mentioned earlier, with regard to TrueNige, and it's now frequently ranked as the best seller in broad vitamin B3 category, And we continue to monitor these trends in e-commerce and update the outlook. We also saw recent POS trends at Walmart increase substantially. However, the timing of the campaign is a bit later than we initially anticipated for Walmart. But we're seeing good POS lift at Walmart as a result of the TV campaign.

That's perfect. Then my follow-up question is, Just with regard to TruNiagen Immune, is that a new customer, or are you seeing existing TruNiagen customers, so to say, shift over to the new immune product?

It's existing customers, but they're not shifting over. They're taking both. Got it.

We don't think it's cannibalizing TruNiagen sales. Got it. Thanks, guys.

Your next question comes from Mitch Pinheiro with Certivant and Company. Your line is open.

Hello there. Good afternoon.

Hi.

Good afternoon. Hey, Mitch. Hey. So with TV, I mean, so can you talk, can you, I mean, how much are we spending on TV right now? I mean, can we start, can you give us some sort of baseline or is that going to, you're keeping that closer to the vest.

We're keeping it close to the vest. Same with, you know, our KPIs because of proprietary performance measurements. So we, we don't want to disclose that to the marketplace.

Okay. And, you know, when, and as you look at TV, you know, when you, when we're coming into, you know, a midterm election year that might get a little more TV, you know, more you know political ads etc is that does that have the potential have you looked at this as the potential to sort of crowd you out a little bit in q3 are you preparing for maybe a rate increase in in ads um any can you talk about that a little bit well there are a lot of factors that affect the rates of ads and that's one of it one of them but we're also seeing

The impact of the economy of late is we're seeing that there is more available remnant ads on television lately. So we think that if we're particular with the buys, certainly in the near term future, there might be an opportunity.

But it's hard to know.

I mean, sometimes like when in the last election cycle, while the remnant and ad rates went up, the eyeballs were way above you know, average. So you sort of get what you pay for, but I was just curious from a budgetary point of view, whether that was included in your, in your thinking for this year. So second question is this around Rob, you talked about, you know, obviously your, your recurring customers, you know, the retention is strong and you're, you're obviously getting growth there. What, Was there new customer growth in the first quarter?

What a surprise question, Mitch. Actually, we had the most dramatic increase in new customers over the last several months than we had seen in a couple of years. And it wasn't just related to the TV campaign, but the TV campaign did show a dramatic increase in new customers. Now, it didn't necessarily have an impact dramatically on the overall new customer revenue, because what we see is a lot of people buying the lower price SKUs, like the single month, and trying that out. But the number of new customer purchases over the last, you know, weeks and months has been higher than we've seen in a very, very long time. The question is, will these new customers have the same retention rate that we've historically had?

Why wouldn't they? I mean, you've had, you know, your new customers and your new, your recurring, you know, has been probably pretty stable. So why would you expect this new cohort of customers be any different? Is there any thoughts around that?

There are a couple of possibilities why their retention rate might not be as high. One is we find that when people take it for two or three months, That's when they seem to notice the impact on their physical performance. And the retention rates there are much higher. So somebody who's just buying it for a month or even trying it for a few weeks, there's a greater likelihood that they're going to not reorder. And then the other is the impact of television. These are people who are, in some cases, less informed. They spend less time researching true nitrogen. So we don't know yet. It's early yet in the game. We will measure and we will see what the retention rates are. But it's a very, very high number of new customers that have come in.

Okay. And then, you know, so are you saying, with respect to the second quarter, I mean, it sounds like, you know, you said you were very encouraged by the recent trends. So, you know, the e-commerce growth is a little slower than I had thought in my estimate. And I was just wondering whether, you know, you might see Q2, you know, maybe see a little acceleration, you know, given all that you've talked about.

Well, let me just say one thing about the first quarter.

There's fewer days in the first quarter. And the way we're averaging per day, if you normalize the number of days in the fourth quarter, the number of days in the first quarter, I think you'd see, you know, it'd probably be closer to what you might have estimated. And then with regard to the second quarter, I'll let Kevin answer.

Yeah, I think, you know, we talked about the second quarter in my discussion, and we see the following headwinds and tailwinds. The primary headwind is Watson. The Omicron variant continues to have an impact on Hong Kong residents, although lessening of late. Due to that backdrop, Watson's is shifting approximately half of its shipments in the second quarter to the fourth quarter of this year. As a result, we anticipate second quarter shipments to be down about half of what it was in the first quarter, but our full year outlook for Watson's is unchanged. We had success with the brand and influencer campaigns, as well as store staff incentive program in the fourth quarter of 2021, and have similar plans for the remainder of 2022 to help Watson's manage through these COVID-19 related headwinds. Importantly, we're seeing emerging tailwinds, as Rob just indicated, in our domestic e-commerce business as a result of the recent initiatives to drive greater brand awareness. We expect that growth in e-commerce will largely offset the Washington's headwind in the second quarter. And absent another large microeconomic disruption, this momentum should continue through the rest of 2022. Okay.

And then just one last question for me is just on the gross margin for the ingredients, it was a little lower. Is 50% the right gross margin Or was there some mix in there that caused the margin to be a little lower in the first quarter?

No, I think the mix is around 50% to 55%. So, you know, nothing out of the ordinary with regard to the gross margins on that segment of the business.

Okay. All right. Thank you. Thanks, Benji.

Ladies and gentlemen, to allow time for all questions, we do ask that you please ask one question and one follow-up. Your next question comes from Ron Selva RU with HC Wainwright. Your line is open.

Thanks so much for taking my questions. I was just wondering if you could first of all provide us with maybe some updates on the Sinopharm and Nestle Health Sciences front. if you expect any noteworthy developments with respect to either of those collaborating companies.

We are working closely with both of them. We are in constant discussions with them about ways to expand our business relationship, but we are very precise, as are they, in the terms, and we hope to have something to say, but we don't at this time.

Okay, and then with respect to, you know, the outlook for pricing, do you think that there is potential for specific percentage price increases without seeing meaningful demand pullback? You know, as we look at this ultra-inflationary environment that we're currently in, and if so, you know, what might, you know, the magnitude of those percentages potentially look like, and would they be applicable across all SKUs or only some of them?

I thought you were supposed to ask one question and one follow-up.

You got like four questions in there. The answer is yes. We don't know yet exactly how much, but we do think that we can increase the price without having a meaningful impact on retention or conversion. We're looking at that presently. We don't know exactly what that number will be. And the answer to the question, could it be across all

uh customers and consumers know it probably can't be across all but most yeah i think with regard i think with regard to gross margins you know consistent with rob just said we're trying to maintain our strong gross margins slightly better than 60 in 2022 which is similar to the 2021 levels it's driven by continued supply chain cost savings initiatives we've got those initiatives in flight. And we also most recently have been looking at other design changes that could help us have incremental savings in 2022. We're seeing overall scale in our business. We're seeing favorable mix, which is hot setting. You know, we are seeing some inflationary pressures across our global supply chain. And I think if there are consistent pressure that we are considering a price increase, as I said in my prepared remarks, if inflation remains persistently high.

Thank you very much.

Your next question comes from Sean McGowan with Roth Capital. Your line is open. Thank you. Thank you.

Hi, guys. A couple of questions to clarify things. Can you talk a little bit about the timing of the increases in R&D that you expect to see? And will that be primarily in the consumer segment, or are you looking for increases in other segments as well?

Yeah, I think it's going to be over the year. I mean, I think it's going to be, you know, as we get to each quarter that you should see a slight increase. And then with regard to, I forgot the second question, Sean.

Will it be concentrated in the consumer segment or are you looking for, you know, kind of an outsized increase in any of the other segments?

Yeah, it's the consumer segment mostly.

Okay. And then my other question, sort of follow-up slash clarification question. Just on this Watson shift, when you say half of what it was for the first quarter, do you mean just the shipments to Watson? Like that's what's shifting none of the other? When you say it's half, you mean just Watson's, right?

Yeah, just Watson's. Yeah.

Okay. Sean, I just want to also contribute to Kevin's answer to your previous question, if you don't mind. Please. I just, we recognize... how significant Chromadex's investment has been and continues to be in the R&D, in the science, in the intellectual property, and in protecting others from stealing our shareholders' intellectual property. And we recognize that it is very, very important for us to monetize that investment. And it is quite conceivable that the monetization of that intellectual property and that science that we have will not be

a direct consumer product, and it is something that we discuss and work on.

Okay. Yeah. Thank you. Appreciate that. Your next question comes from Bill DeZellum with Titan.

Your line is open. My question will have parts A through Z, and the follow-up will only be A through M. Let us begin, if we may, with your comment that was pretty tantalizing, what you just said there, that may not be a consumer product. I'm not asking you to disclose earlier than you want to, but could you give us some indication examples

that might fall under that category please so the laws are very clear as most people listening know that if you're a dietary supplement company and you're selling a dietary supplement that is therapeutic or prophylactic for a disease you cannot make that claim or imply that claim everybody here who's followed the company knows that we had studies on covid and now see that we had this fairly interesting study on Parkinson's disease. So it is conceivable that there will be some sort of drug approval on either one of those indications at some point in time. And if that's the case, there's a business opportunity for chromatops, either in a licensing arrangement or a joint venture or a partnership arrangement of some sort. But the science continues to impress us and others about the effectiveness of nicotinamide riboside towards various disease states.

That's helpful, and I'll attribute that question to you, Rob, since you brought it up with the last question. So I do, in all seriousness, have a couple more. First of all, relative to the Turkey COVID study that was so successful, what's the update there, or is there an update relative to Turkey and Can the results from that study be used in China by Sinopharm?

The results of that, when you say can they be used, I'm not sure what you mean exactly. If Sinopharm would be able to market them. No, they will not be able to make that claim. We still have to get, with Sino's assistance, regulatory approval to sell inside of China, and we are working on that. and we think we have a great partner in pursuing that in Sinopharm. In terms of their cross-border initiatives, if and when that deal closes and they take over that, that's still not a claim that they'll be able to make in their cross-border sales into China, COVID. But they will be able to use it in other ways. For example, it will be part of their dossier or their dossier in order to obtain regulatory approval there because it's an example of excellent science that shows that nicotinamide riboside is both safe and has been shown effective.

That is helpful. And then relative to the turkey update?

We have not received the turkey update even still. I know the quarters go by and we don't have an update there. There have been a lot of challenges that have gone on in turkey. I think I read recently they have a 60% inflation rate.

Yeah, I think the same would go for the study on Parkinson's, too. I mean, Sinopharm could use that also.

Yeah, for sure. Great. But we don't have an update in Turkey for the drug application.

Super. Thank you for that. And if you will allow, I would like two more questions, please. The supply chain headcount increase that you referenced in the press release to scale the business, when will that be happening and what's the behind the scenes as to why? And then my second question is you referenced new partners that are not included in the guidance. Relative to those new partners, how would they fit into your current ecosystem?

I'll answer the supply chain first. So we've added those bodies in 2021 to keep up with demand and complexity in the supply chain as we're going into different territories or more customers or a differentiated product lineup. And it's not a significant amount of people, but it is something that is impacting the supply chain costs.

What was the other question? Is there a follow-up?

Yeah, new partners with the ecosystem that you currently have of partners.

Okay. What was the question?

Oh, how will the new partners that you are in discussions with, kind of, that are in the pipeline fit into the current ecosystem of partners?

I'm having trouble tracking the mental gymnastics of that one, Bill.

No worries at all. I know that you're not going to have a new partner that is directly competing with Sinopharm, for example. So there are essentially holes in your partnerships or distribution system that I'm suspecting that you're wanting to build out or fill out. And that's where I'm trying to get some understanding of kind of where you think that these new partnerships that you're evaluating may fit in.

Well, we think the opportunity for nicotinamide riboside in nitrogen, true nitrogen specifically in China, is significant. And you know that we've been saying that for a year now or less. But it is an important initiative by the China government to manage the conditions related to aging. They have a rapidly aging population. They expect in the coming years to have 600 million people over the age of 60. And that's one of the reasons Sinopharm is so interested and has been interested. But in order for us to take advantage of the opportunity, not only will we be partnering with Sinopharm, but there might be other partners that get into the mix as well. We are taking our time and have been taking our time, as many of you have pointed out, to put together the right strategy, the right partners, and the right infrastructure to take advantage of that opportunity. And we think we're very close.

Great. Thank you for taking all the questions and for your patience with my lack of clarity on the last one.

Great questions. Thank you, Bill.

There are no further questions at this time. Brianna Gerber, I turn the call back over to you.

Thank you, Stephanie. 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 Chromadex.

Thank you. This concludes today's conference call. You may now disconnect.