CDXC: Blueberries, Gold Bond, Ovaltine and Obesity: The Makings for a Very Good Story (Part 1)
By Patrick Henderson Benzinga Staff Writer May 23, 2012 5:03 PM
It All Began When Someone Pulled Out a Bottle of Gold Bond...
Like any good story should, this story begins with Gold Bond. Oh yes, we are going there.
Not so very long ago, Gold Bond Medicated Powder was an unimpressive product on the drugstore shelves of Rhode Island. Most readers would have never heard of it, nor ever thought to conceive of their own locker room pranks for its use. Bottles sat quietly in medicine cabinets, mostly in suburban bathrooms or at local apothecaries. Gold Bond's east coast distribution amounted to paltry sales of less than $1 million annually, and life selling Gold Bond was mundane, terribly predictable, and steadily winding down as its salespeople left for more exciting projects. That is, until Jeff Himmel arrived.
In the early 1990s, Himmel was working at his family's marketing business when, one day, it decided to acquire a regional brand, Gold Bond Medicated Powder, from Block Drug Company for $1 million dollars. Consumers were using Block Drug's powder only in rare circumstances, such as baby care or skin injuries. A single bottle was easily lasting over a year, and unsurprisingly, sales were abysmal and going nowhere fast. Himmel started aggressively marketing the brand in 1991 and quickly grew sales over 70% annually.
Gold Bond was the first product Himmel put on his resume, and it became one of his biggest professional accomplishments. He had managed to break Gold Bond's downward sales spiral by expanding its consumer utility to daily hygiene, post-shower use, and most importantly, athletics. Gold Bond soon became the definitive daily-application powder and the go-to product for athletes across the nation for reducing friction, dryness, chafing, and heat. By expanding the brand's utility through creative advertising campaigns, Himmel transformed Gold Bond into a $27 million business by 1995.
Once Himmel's partners had seen his success with Gold Bond, they were ready for more. As Gold Bond was taking off, Himmel very quickly picked up the brand Ovaltine from a company called Novartis (NYSE: NVS). Continuing with his momentum from Gold Bond, Himmel quickly found a similar passion for Ovaltine. He developed its marketing campaign by transforming its utility from a fringe beverage into a leading instant milkshake brand. When his work with the milkshake was finished, "More Ovaltine please!" had become a household phrase and its sales began to threaten the major beverage corporations. By the end of his tenure at Novartis, Himmel had negotiated rights to Ovaltine and ended up selling the brand to Nestlé.
The Doctor Calls
Not long thereafter, long-time friend Dr. Phillip Frost gave Himmel a call. The two businessmen had known each other for decades, and Dr. Frost had a prospect that he thought might interest even a wealthy, retired marketing guru. Dr. Frost invited Himmel to Florida to discuss an opportunity about, of all things, blueberries.
Now, when this story began, there was fair warning that it would start with Gold Bond and only get more interesting from there. Blueberries. Here we go.
See, once Himmel arrived in Florida, Dr. Frost introduced him to one of the companies in which he had made an 19% investment, Chromadex (OTC: CDXC). Dr. Frost was a serial entrepreneur and investor, having led a pharmaceutical company called Ivax from nothing to a billion-dollar sale to Teva (NASDAQ: TEVA). Dr. Frost followed that accomplishment by building another multi-billion-dollar corporation called Opko Health (NYSE: OPK) which had used a growth-by-acquisition strategy to become one of the largest pharmaceutical holding companies in the world. Throughout his career, Dr. Frost was constantly investing in or acquiring small companies, and Chromadex was one of those companies. Dr. Frost thought Himmel might be interested.
He was right. Himmel was immediately fascinated by Chromadex and, counterintuitively, made a $1 million personal investment in the company while joining to become its CEO. (Not often does someone get recruited for a job and end up spending a million dollars for accepting the position.) Despite his wealth and having to leave retirement for the opportunity, Himmel was intrigued about this tiny company that had become known for one thing, but which had potential for something far, far different.
Why did Himmel leave retirement while surrendering $1 million in personal funds to go back to work? The next segment will continue looking at this curious decision and his further odyssey into the world of blueberries, Gold Bond, Ovaltine and obesity- the makings for a very good story, indeed.
In the previous article, we were left with the question of why a retiree who had built Gold Bond and Ovaltine into nationally-recognized brands with millions of dollars of annual sales would leave retirement to join a small laboratory company specializing in botanicals while paradoxically donating $1 million of his personal funds for accepting the job.
Well, this is where blueberries come into the story. Blueberries are healthy -- that much everyone knows -- but precisely why they are healthy is something far more complicated to explain. What are the actual elements of a blueberry that are healthy, on a chemical level? This question is the foundation of an industry called nutraceuticals- the business of selling the health-giving and medicinally-beneficial substances that occur naturally in nature. Chromadex (OTC: CDXC) is a nutraceutical business that specializes in extracting and testing the healthy substances in ordinary food. The company focuses on blueberries but actually has an entire business division that maintains the definitive standards for almost every other nutraceutical in the world.
Nutraceuticals 101
Dr. Phillip Frost taught Jeff Himmel (the millionaire retiree who would soon donate a significant portion of his personal savings to go back to work) about Chromadex. Dr. Frost knew that a basic understanding of its business was necessary before Himmel could understand its more exciting possibilities.
He began by explaining that Chromadex, at its core, provides quality assurance and reference standards for institutions doing research on phytochemicals, or the biologically active compounds found in plants. The company maintains a published manual containing detailed specifications for almost every phytochemical in the world. Chromadex publishes this manual and also provides testing for the phytochemicals listed inside. Every year, dozens of businesses, colleges, and laboratories pay Chromadex to test the authenticity, purity, and consistency of their phytochemicals. Likewise, they sometimes pay Chromadex to produce the substances themselves. This business division of quality assurance and reference standards is Chromadex's legacy. It has been operating out of a large laboratory in Boulder, Colorado for many years and generates plenty of cash flow for the business' other operations.
The sales department for Chromadex is located in Irvine, California. From a standard two-story business complex, Chromadex's employees in Irvine sell testing services, phytochemicals, and custom solutions for various clients in the nutraceutical industry. Universities, government agencies, institutions, and laboratories all rely on Chromadex for expertise in these areas. Chromadex actually defines quality standards for much of the industry itself, and so is known for being the highest-purity provider for many phytochemicals.
Cheating in the Chemical Industry
In fact, Chromadex was interviewed on Dateline about cheating and malpractice in the chemical industry. The TV episode came about when there was a vitamin on the market that was inexplicably causing hair loss. Dateline called Chromadex and asked for a an independent quality check on the vitamin. The vitamin had already received approval from another testing company, but Dateline wanted to see if Chromadex might find anything different. Chromadex completed its testing and found over 1,000% more than the recommended dosage of one of the vitamin's compounds. Moreover, Chromadex exposed the other testing company for rubber-stamping the approval without actually conducting real tests.
As Dr. Frost taught Himmel, so long as it is a phytochemical, Chromadex probably tests its purity and defines the standards for its production. (If you enjoy reading over 350 pages of technical specifications, you can see Chromadex's phytochemical standards here:https://chromadex.com/wpresources/Upload/Files/Cat2011Complete.pdf
For Himmel, this legacy division of the business was fine, but working at a laboratory would not have enticed him to leave retirement. What did entice him to leave was something else- something about blueberries and information flow.
Blueberries. Flow. The Good Stuff.
Put yourself in the shoes of Himmel. You have the opportunity to work at a company that is the nationwide leader in phytochemical standards. What will you learn while working at this company? Certainly, you will learn plenty about testing and quality assurance, but who wants to leave retirement for a job as a chemical tester?
Not Himmel. Dr. Frost paused his story and let Himmel interject. "What's the good stuff, Phil? When does this get exciting?"
"OK. Let me tell you," Dr. Frost replied.
In the previous article, we were left with the question of what was so exciting about a small laboratory in Colorado that had prompted the investment of a billionaire named Dr. Phillip Frost.
As it turns out, all of that legacy business provides Chromadex (OTC: CDXC) one very important asset: information flow. As Dr. Phillip Frost continued explaining, Chromadex is located at the intellectual intersection of everything happening within the nutraceutical industry. If a laboratory suddenly orders a bunch of Compound A, Chromadex knows. If twenty other laboratories order Compound A, Chromadex knows. If a bunch of secondary testing is completed on an existing product on the market, Chromadex knows. As the nutraceutical industry evolves, Chromadex receives real-time updates and order flow about the essential building blocks for almost every nutraceutical product in the U.S.
Wake-Up Call
That is interesting indeed. Something like that might just be enough to convince a retired millionaire who sold massive brands like Ovaltine and Gold Bond to join the team. Which he did, after giving the company $1 million out of his personal savings.
What would you do? Say you were a business leader who you knew that a chemical compound was suddenly being ordered en masse by major labs around the nation who were also requesting urgent quality tests? Would you scratch your head? Would you, perhaps, walk down to your lab and ask a few colleagues what they thought about the compound and its possible uses?
Without a doubt. See, Dr. Frost knew that Chromadex's legacy business was only exciting for one reason: information flow. It generated cash flow for the rest of the business, sure, but the real-time pulse on the nutraceutical market was the good stuff. Up to that moment, that corporate story had not been told about Chromadex. Every normal investor evaluated the company using conventional metrics like revenue growth or earnings per share. Actually, Chromadex was (and is) something quite different altogether.
Chromadex is an intellectual property investment. Moreover, the intellectual property is not specific ideas, products, services, or patents. It is the continuous ability to know what is happening in nutraceuticals right now.
Oh, and blueberries.
Conclusion
We never got to blueberries, did we? In all this talk about information flow, billionaire Dr. Frost, and information flow, blueberries never made it into the story.
Well, we will have to save blueberries for another time. Blueberries are healthy, and Chromadex is doing some interesting things with blueberries; but alas, the conclusion to this three-part series is already far overdue. You, the reader, have been patient enough by reading this far.
For now, at least you know what is really happening behind the scenes at a little company called Chromadex, a little company that everyone thinks is a basic testing laboratory but is actually an information hub about everything nutraceutical.
In conclusion, what will Chromadex do with its knowledge? What shareholder value can it create? What has its laboratory done with the knowledge that they have collected from insiders in the nutraceutical industry?
For another time, dear reader.
Epilogue
Do you remember when Dr. Oz said that açai berries were good for you and supported weight loss? Remember when açai berry products started popping up all over the place as demand exploded and sales skyrocketed thousands of percentage points? In case you never knew where it all started, the açai really can be traced to Dr. Oz's TV announcement.
Did you also know that a few months later, after no scientific study could prove that açai berries had any significant correlation with weight loss, Dr. Oz retraced his statement and publicly apologized on the Oprah Winfrey TV show?
Wouldn't it be interesting, then, if there would ever be any verified, scientific studies about the weight loss effects of a natural compound within berries? Maybe not as prevalent in açai berries but, perhaps, blueberries?
Pterostilbene is a very interesting derivative of bluberries and is in other clinical trials with product supplied by http://www.biotivia.com/pteromax.html Their product is Pteromax and Pteroactive
I started taking it but suffered an upset stomach because I am somewhat allergic to blueberries.
I now take a product from them I like a heck of alot better http://www.biotivia.com/biospanlongevity.html This product claims to act on the telomeres for anti aging benefit. Significant benefits noted in peer reviewed clinical studies as well.
Like you say Rain, there are some huge markets that can be satisfied by a neutraceutical approach once clinical trials are peer reviewed and marketing begins.
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