Niagen Bioscience Inc (NAGE) 2017 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the ChromaDex Corporation Second Quarter 2017 Earnings Conference Call. My name is Vince, and I will be the conference operator today. (Operator Instructions) And as a reminder, this conference call is being recorded.

This afternoon, ChromaDex issued a news release announcing the company's financial results for the second quarter 2017 and filed their form 10-Q. If you have not reviewed this information, both are available within the Investor Relations section of ChromaDex’s website at chromadex.com, and the form 10-K is also available on the SEC's website.

I would now like turn the conference call over to Andrew Johnson, Director of Investor Relations. Please go ahead, sir.

Thank you, Vince. Good afternoon, and welcome to ChromaDex Corporations' Second Quarter 2017 Results Conference Call. With us today are ChromaDex’s Founder and Chief Executive Officer, Frank Jaksch; Chief Financial Officer, Tom Varvaro; and joining us for Q&A will be Chief Strategy Officer, Rob Fried.

Today's conference call may include forward-looking statements, including statements related to ChromaDex's research and development and clinical trial plans, future financial results, business development opportunities, future cash needs, ChromaDex's operating performance in the future, future investor interest and analyst coverage of ChromaDex, the markets ChromaDex's products will address and the expected revenue growth of ChromaDex's products that is subjected to risks and uncertainties relating to ChromaDex's future business, prospects and opportunities as well as anticipated results of operations.

Forward-looking statements represent only the company's Estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because forward looking statements relate to matters that have not yet occurred, these statements are inherently subject to risk and uncertainties. Many factors could cause ChromaDex's actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These risk factors include those contained in ChromaDex's annual report on Form 10-K most recently filed with the SEC. Please note that the company assumes no obligation to update any forward-looking statements after the date of this conference call to conform with the forward-looking statements' actual results or changes in its expectations.

In addition, certain of the financial information presented in this call references non-GAAP financial measures. The company's earnings release which was issued Thursday afternoon and is available on the company's website presents reconciliations to the appropriate GAAP measures, and an explanation of why the company believes such non-GAAP financial measures are useful to investors.

Finally, this conference call is being recorded via webcast. The webcast will be available at the Investor Relations section of our website at www.chromadex.com.

With that, it is now my pleasure to turn over the call to Frank Jaksch.

Thanks, Andrew. Good afternoon, everyone. Welcome to the ChromaDex Second Quarter Conference Call.

We continue to make significant progress in executing on our business strategy. As expected entering into 2017, the year is shaping up as a pivotal year in the history of our company. This year, we have achieved the completion of additional human clinical trials, one currently under review for publication in a top-tier journal, as well as our second human clinical trial, which has closed, is in the final stages of data analysis and summary.

We have secured the largest investment in our company's history from a highly-accomplished, globally-renowned investor, and we've begun the transition in our go-to-market strategy for NIAGEN.

First, let's discuss the NIAGEN transition that is underway. As we convert from an ingredient supplier to a consumer product company, we have made substantial progress in the second quarter, successfully integrating our consumer product brand through NIAGEN as a new company platform. Since acquiring the assets of ProHealthspan, we have been busy building the platform and recruiting talent. While fine-tuning the strategy, we've captured greater value in the supplement channel for our novel nutrient. As we discussed last quarter, we believe we have a blockbuster ingredient in the anti-aging market, but we'll be more than just an ingredient supplier. We will deliver a consumer product solution directly to the consumer and select resellers with the TruNiagen brand.

As we transition a substantial portion of our supplement-related business to our consumer product platform, we have better control of the messaging while capturing more value, and we expect to be able to hold our NIAGEN sales levels during that transition. This is a very promising new business strategy, which Rob and I will discuss in greater detail over the coming months.

Next, and probably a very important part of our Q2, we closed the second tranche of the $25 million strategic investment, led by Li Ka-shing during the second quarter. As we have discussed, this investment and partnership is a significant milestone for the company, providing substantial capital and relationships to help grow our business globally and on the anti-aging space. This validation by a highly-accomplished investor has enhanced our corporate profile, and we are evaluating several near-term opportunities as a result.

Additionally, the company entered into an exclusive patent license and research agreement with The Scripps Research Institute in June. We are pleased to collaborate with Dr. Brunie Felding and Scripps. The research agreement is expected to yield the data and tools required for the development of a clinical trial evaluating a novel combination therapy consisting of nicotinamide riboside and endocrine therapy in the treatment of breast cancer. This agreement in and of itself is a validation. Scripps is one of the first institutions we signed a material transfer agreement with back in 2013. The success of this early work has sparked the expanded -- the expansion of this collaborative agreement.

I'm also excited to announce that Dr. Rudy Tanzi has joined our scientific advisory board. Dr. Tanzi is the Chair of Neurology and Director of Genetics and Aging Research Unit at Massachusetts General Hospital and the Joseph and Rose Kennedy Professor of Neurology at Harvard Medical School. His leadership in the fields of Alzheimer's research and neurology will be instrumental in helping to identify and execute opportunities to study NIAGEN, nicotinamide riboside and its impact on brain health.

In June, Dr. Charles Brenner was appointed our Chief Scientific Adviser, there is no one more experienced at designing and conducting studies that measure the unique impacts of NR on NAD-dependent processes in the human body. And we are pleased that he has expected this expanded role and will contribute his expertise to drive the success of future research on NR.

We also very excited about the developments that occurred last month at the FASEB Conference. Dr. Christopher Martens of the Integrative Physiology of Aging Laboratory at the University of Colorado in Boulder presented findings from his recent completed human clinical trial of chronic NR supplementation in middle-aged and older adults to a close meeting of elite scientists in the field of NAD research.

Given that this process was not well understood by those of you who saw the press release we put out in announcing the event, I want to take a moment to clarify that when results are under review for publication, they often are permitted to be shared with the scientific community. However, they remain under strict media embargo and cannot be shared or summarized until there have been -- until they have been published.

Again, this is the first chronic dose clinical trial of NIAGEN, which makes this completion particularly exciting.

I'd also like to update you on our clinical progress and promising pharmaceutical opportunities. As you are well aware, the true value of NIAGEN will come from the body of peer-reviewed published preclinical and clinical research, validating NR's impact on the way we age. The process for clinical research is lengthy, and some of our investors and stakeholders have been asking why it doesn't take -- why does it 18 months for an 8-week study to be completed.

Well, of course, it takes many months of preparation before the first participant is even enrolled. For example, a typical clinical trial begins with the determination of a sponsor and contracting and a research organization. Trial design is set to determine the measurement of an endpoint. The targeted study participants are determined along with the number of participants, how many arms will be studied, the length of the study, and the location must be determined. Then the independent review and the design for safety is performed before the first participant is even recruited. Recruiting can often be performed in a rolling enrollment process. For example, if 120 participants are deemed necessary for a forearm study to be conducted over 8 weeks, so 30 participants in each arm, it could take several weeks to recruit the 120 participants. Not all 120 participants have to be recruited at once and upfront for the study to begin; the study could start with the first 10 participants, and then the next 10, and then the next and so on. So this will depend on the facility of the CRO, the endpoints measured and the complexity of what's being tested. In our example of -- if 10 participants were recruited each week, and upon commencement of the study, it would take 12 weeks to recruit 120 total participants with the last participant completing the study at Week 20. Once completed, there's still a process of analyzing the results. This may be -- this may include a lab testing of blood, urine, muscle biopsies. Special instrumentation may be needed, depending upon the complexity of the endpoints that were measured. There may be some surprising findings that need to be reevaluated or validated. This phase of the study could take several months. Only then can a study manuscript could be written for submission. And finally, there is the submission to a journal for a review and publication.

So I just -- and I know that took a little while for me to go through this with you, but we've been -- I've been getting -- I get so many questions about this. I thought it was a good idea to, at least, take some time in a call here to kind of go over it for those of you who may not understand the process or why it may take so long.

ChromaDex's second study with KGK, 140-person participant trial that is evaluating the effective repeated doses of NIAGEN on NAD metabolite concentrations in blood, urine and muscle of healthy adults, will analyze the impact of 3-dose levels of NIAGEN compared to a placebo. The recruitment and dosing portions of this trial have been completed. We are finalizing the analysis of the data from this trial, and we are working on the timing of the release of the top line data, which we expect to report over the coming months.

As you know, we have been very active over the past 3 years working on developing the science and research validating the importance of NIAGEN as an effective NAD precursor. We have over 120 collaborative agreements in place for NIAGEN with highly-prestigious universities and research institutes all over the world, and this number continues to grow. There are also 14 human clinical trials on NR that are in varying stages that can be found on ClinicalTrials.gov, and we expect additional clinical studies to be added to this list during 2017. It is increasingly evident that the number of studies of NIAGEN showing positive effects are approaching an inflection point, where peer review published preclinical and clinical data are likely to result in additional commercial opportunities for NIAGEN.

Let me speak briefly on the pharmaceutical opportunity for NIAGEN. As reported in May of this year, ChromaDex continues to make significant progress in the development of our first pharmaceutical opportunity. ChromaDex completed our pre-IND meeting with the U.S. FDA back in November 2016 for the development of NIAGEN as a drug in the treatment of Cockayne Syndrome, which is a rare pediatric orphan disease that results in a significantly shortened lifespan for the affected children. During that pre-IND meeting, we mapped out a plan with the agency to complete the final IND-enabling work. Subsequently, ChromaDex completed a pilot trial needed to execute the additional safety study required by the FDA. We communicated the findings from that study to the agency as well as our plan to utilize the results in the design of a final IND-enabling preclinical study. We addressed several important points with the FDA relevant to our development plan. And consequently, we have initiated the final study needed to support safety of drug administration and the proposed clinical protocol for Cockayne Syndrome children. The draft of the final preclinical study needed for the IND submission is scheduled to be complete in November, and our goal is to submit the IND by the end of the year. We are clearly excited to embark on this next clinical phase of pharmaceutical development path for NIAGEN.

Finally, I would like to take a minute to comment on the few points of related to Elysium. As previously disclosed, we are currently in litigation with Elysium for a breach of contract. And we are seeking to recover damages, including nearly $3 million in unpaid invoices. This dispute incur -- occurred in the second half of 2016 and is a matter of continuing litigation. During this time, Elysium recruited and hired 2 of our employees. Elysium continues to misrepresent the role in discovery and development of nicotinamide riboside in the media, positioning themselves as the innovator of NR. In fact, it was Dr. Charles Brenner at Dartmouth in 2004 that discovered NRs and NAD precursor. Elysium has stated that they have incorporated a new source of NR into their basis product. Only ChromaDex nicotinamide riboside has been proven safe, supported by a robust safety and toxicology dossier and earning it FDA's regulatory status of NDI and GRAS. Additionally, they continue to tell the efficacy and performance of their product based off previously completed but unpublished clinical trial, which was conducted with ChromaDex NR and pterostilbene. ChromaDex nicotinamide riboside is the only material currently backed by a human clinical trial published in a top scientific peer review journal.

Today, ChromaDex has a comprehensive global patent portfolio of 16 patents and applications spanning the processing, use and composition of nicotinamide riboside. We will vigorously defend this estate. Additionally, the FDA status we hold will continue to reinforce and protect our position.

With that, I'll turn the call over to Tom Varvaro to discuss the Q2 2017 financial results. Tom?

Thanks, Frank.

For the 3 months ended July 1, 2017, ChromaDex reported net sales of $5.3 million as compared to $8.8 million for the quarter ended July 2, 2016. As Frank previously mentioned, the decline is largely due to the significant sales during the second quarter of 2016 to a since terminated customer. The ingredient segment generated net sales of $3 million during the second quarter 2017 as compared to $6.2 million a year ago. The core standards and service segment generated net sales of $2.3 million for Q2 2017 as compared to $2.6 million for Q2 2016. Gross margin for the quarter was 43% versus 47% for the quarter last year. The net loss attributable to common stockholders for the second quarter was $2.8 million or minus $0.07 per share as compared to a net loss of $83,000 or $0.00 per share in the prior year. EBITDA adjusted for noncash charges associated with share-based compensation, which is a non-GAAP measure, was negative $2.1 million during the second quarter of 2017 compared to adjusted EBITDA of $0.5 million in 2016.

I next want to highlight some of the expenses incurred in the second quarter that were discussed in our recently quarterly report filed with the SEC on our Form 10-Q. The company incurred $850,000 in research and development expenses for the second quarter 2017, an increase of 13% as compared to $752,000 in 2016. These charges included human clinical trial fees and new ingredient development costs. Subject to available financial resources, the company plans to continue to increase research and development efforts with a focus on our ingredient segment. Sales and marketing expense increased to approximately $728,000 for 2017 versus $698,000 in 2016. This is largely due to marketing expenses related to our recently acquired consumer product business through Healthspan Research, LLC. Subject to available financial resources, we plan to increase our marketing efforts in our consumer products business in 2017 and beyond. There was also a onetime loss of $746,000 in the second quarter of 2017 from an ongoing litigation. The company in relation to this ongoing litigation incurred a write-off of approximately $746,000 in gross trade receivables from Elysium Health, Inc. related to royalties. Our cash on hand at the end of the quarter was $14.1 million.

With that, I will now turn the call back to Frank, so he can wrap us up.

Thanks, Tom.

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

(Operator Instructions) Our first question is from Ram Selvaraju of Rodman & Renshaw.

Can you confirm the time line with which you expect to receive the final tranche of investment under the Li Ka-shing transaction. Secondly, if -- Tom, maybe you could comment on the aggregate cost of IND filing that you expect to show up on the P&L before the end of this year? And then, Frank, if you could maybe comment on the status of the clinical trial protocol in Cockayne Syndrome and whether you have already obtained the necessary IRB approval for that clinical trial at this stage, and when to expect the timing of first patient in to be once the IND has been filed and hopefully authorized by the FDA.

Tom, do you want to answer the first part?

Yes, I'll take the first 2. We had our special meeting today to get the necessary shareholder approval to close the third tranche. Once we announce the results of that, as long as it -- those are positive, we could expect to close on the third tranche within a few weeks after that occurrence. In regards to future IND filing costs, most of the work has been done for the IND as well as all the clinical and necessary safety studies around those. So you won't -- we would not expect to see anything out of the ordinary in our R&D expense lines through the remainder of the year as it relates to IND filings.

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

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

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

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

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

Our next question is from [John Lamark] of Sandler Capital.

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

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

Our next question is from [Virginia Day] of [Seastar Ventures].

My question was about TruNiagen and what your new distribution channel is. If you can highlight the timing, the sales ramp. And any other clarity or insights you could give us with regards to it?

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

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

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

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

Our next question is from Bill Dezellem of Tieton Capital.

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

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

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

Tom, are you on mute?

The $750,000 was related to gross AR receivables related to Elysium around their royalties. And as far as the breakout of the legal expenses as a separate line item, we did not break those out that quarter. They've been in line with our previous legal expenses.

I'm going to expose my ignorance here. The royalties, I don't understand what those royalties were. And -- or could you help us understand that a little better please?

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

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

That would we a fairly accurate assessment, yes.

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

Correct.

Understood.

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

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

To which relationship was that? The...

The Li Ka-shing relationship.

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

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

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

Our next question is [Barry Kitt] of [Pinnacle Sun].

Actually, I have a couple of questions. I know several people on the phone today don't really quite understand what NAD is. We've used nicotinamide riboside in our NAD. Maybe just take a minute and talk about what NAD -- what the importance of NAD is.

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

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

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

There's a thing that we learned -- all learned in 9th grade biology called the Krebs cycle, where a process by which mitochondria within each cell in the body manufactures something called ATP, and we all learned that ATP was the energy inside the cell, and mitochondria is the battery pack in the cell. But when we learned it in 9th grade, it just sort of -- we heard it, and then when we got a test question, we filled in the right answer or perhaps the wrong answer, but it didn't have actual meaning to us. Now we understand that it actually does mean something. That what the mitochondria taps into in order to create that yield of ATP is NAD. We understand now that NAD decline, so it's logical then that, that means that as we -- NAD declines, the ATP declines. And if ATP declines, that means that cell has less energy. To do what? To function as a cell, a heart cell, eye cell, a liver cell, a skin cell, to function how it is supposed to function. But perhaps, more importantly, to fight off the stress conditions that we are constantly exposed to in life, diseases, exposure to the sun, exposure to radiation, chemicals, alcohol, that the cell needs lots of energy to fight off these things, gene mutations. The cell needs ATP to fight off these mutations or to fight off these conditions. And the thesis is this, perhaps, there's a reason why a 21 -- a 20-year old is so less likely to arthritis than an 80-year old, not because they're not exposed to inflammation or joint damage but because the cells of enough ATP and enough strength that they're actually able to fight the thing off. And that was the initial idea. And now we've got 100, maybe even 200 studies of cell studies, animal studies, now of human studies, confirming that idea and showing, yes, actually, if you manage your NAD levels, you have higher ATP. And the body, the cells are effective as fighting off distressed conditions. This is an amazing idea. And when you take all of those conditions, all those metabolic disorders. And you add them together, it all ladders up to what we described as aging. Not really aging per se, it's energy metabolism per se, is what it is. You're just essentially strengthening yourself. You're taking cells that are weak or senescent, and you're lighting them -- lying them up, increasing NAD, it increases the ATP level. And by doing that, these cells become stronger and more vibrant and more capable of functioning what they primarily do but also fighting off these conditions. So it equals aging when you add the whole thing up. Combine that with the fact that Charles Brenner discovered that this compound, nicotinamide plus ribose, nicotinamide riboside is an incredibly efficient way of increasing NAD with no side effects. And test after test after test, you see that the more you take, the more effective it is. And we see that when you maintain high NAD levels over a period of time, the body has a way of correcting things. This is quite a discovery. And ChromaDex has been very, very smart and very, very careful at working with Dr. Brenner and its other credible scientists and scientific advisers of testing this thing. Carefully, slowly, getting the right level of FDA, safety studies performed and getting the right patents taken care off and performing it in the right way that's been established for decades in America on the right way to present an ingredient, a molecule like this to the general public. They're not racing around the corner like there at the ND 500 and bypassing patent law and employment law and contract law and safety studies like some others are doing. ChromaDex has spent many years doing it the right way, the safe way, the viable way, the way where there's a foundation of actual value upon which one can actually create a meaningful long-term company that yields something to investors and to customers. That's essentially a combination of an answer to question A, of what's NAD and NR; and B, how can we do it better than other guys, which you haven't asked yet.

You jumped ahead of me. That's good. Actually, I have 3 more things, so don't cut me off. So, Rob, since we're talking to you, you have a interesting and distinguished career as a film producer, as the chairman of the board of a chinese company, which by the way, will help us in structuring any Chinese distribution deals we do, which is -- which could be very interesting and difficult. You and I both have experience in that area. So, Rob, you came in the board 2 years and a month ago, I believe. And at some point, you decided to start your own direct-to-consumer company signing nicotinamide riboside. Can you discuss that journey how you got to here?

Many, many years ago, I began to track the science originally behind -- I'm talking 20 years ago, a early internet company that I had been involved with. One of the investors in that company had turned me onto another portfolio company called Geron, which was studying at that time telomerase, still is, a stem cell company. And so for the last 20 years, I've been studying the science of aging. And the telomerase led to some studying of resveratrol, which at the time was believed to be something that would activate something called SIRT1 genes, which it was thought to believe SIRT1 gene were these genes that regulated the longevity process within the body, but that was never really fully verified. But it did ignite interesting discussion about NAD and the relationship between NAD and SIRT1 genes. And somehow in that discussion of NAD and the activation of SIRT1 genes, brilliant scientists instead started looking at NAD per se and what is NAD in and of itself. Maybe the SIRT1 story is not that interesting a story, maybe the NAD depletion and energy metabolism in general is more interesting. And they began to do some studies, some of which are coming out in 2012, which were remarkable and dramatic. There still may be an interesting SIRT1 story, but it's likely that just this energy metabolism story itself is the big story and the big idea. And I was tracking it and investing in it and watching it. And then when some of those studies came out, which seemed like truly groundbreaking studies, I was, I think right around that time, doing an internet venture, which is now part of the Hallmark Company. And I was just thinking about maybe another venture to get involved with, and so I invested in ChromaDex and met Frank and some of the other investors and people at the company and thought that perhaps I might be able to make a small contribution, and the way the story is told, and the way this amazing science is optimized. And Frank was nice enough to invite me on the board, and I got to meet these other wonderful board members and scientists. And as the science has evolved and come together, this is truly a once-in-a-lifetime ingredient and opportunity that ChromaDex, which is a great company. And Frank Jaksch has done an amazing job over 18 years of developing the science and the expertise and the reputation in science and in safety, in doing things the right way. It seemed as though others that might have a more to our sense of marketing and internet sales were taking advantage of ChromaDex. And here, you have one company that the ChromaDex chose to get into business with that from the time they get in the business with them, they buy millions of dollars of ingredient and don't pay for it. They hire away employees from ChromaDex. They do marketing and press that misrepresents their actual contribution to the science and doesn't mention ChromaDex or its great scientist, Charles Brenner, in telling that story. They fight to challenge the patent and actually go out of their way to try to copy the ingredient and manufacture it who knows where and put it out in the marketplace. And I looked at that and I said, "You know, ChromaDex is too great, too smart, too valuable. Nicotinamide riboside is too important an ingredient that could have an impact on billions of people around the world." And that to me looked like something worth doing and worth spending time on and worth trying to help make a contribution to, and I'm excited and honored to be a part of that. I think we live in an era right now where people think that they can step into an industry and do a-round, b-round, c-round, exit and not care about decades-long safety systems and legislative issues that are designed to help the general public and do things the right way. Disruptive is a fun word, but if you can't have respect for the process or for the science that exists there, you run the risk of doing much more damage than good. And so to me, I find it very compelling and exciting and honored to be part of it to try to help whatever -- in whatever way that I can to help get this story told the best way.

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

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

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

Well, the Chinese are the biggest supplement takers in the word. Li Ka-shing is the 18th richest man in the world and has a lot of connections, and he has 13,000 pharmacies. I don't imagine that out of these partner -- your partner, he's not going to want to -- I'm sure he's going to want to put those in his pharmacies. So I guess it'll be fun to watch the future or look forward to your third quarter call.

At this time, I'll turn it to Mr. Jaksch for closing remarks.

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

Ladies and gentlemen, thank you for your participation in today's conference. This concludes your program. You may now disconnect. Everyone, have a great day.