Niagen Bioscience, Inc. Q1 FY2022 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to ChromaDex Corporation's 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, both are available within the Investor Relations section of ChromaDex's 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. Gerber.

Thank you. Good afternoon. And welcome to ChromaDex Corporation first quarter 2022 results investor call. With us today are ChromaDex's Chief Executive Officer, Rob Fried, Chief Financial Officer, Kevin Farr, and Chairman and Co-Founder Frank Jaksch. 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 Tru Niagen 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 the forward-looking statements to 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 presentation and earnings press release, which were issued this afternoon and are available on the company's website, present reconciliations to the appropriate GAAP measures. Finally, this conference call is being recorded via webcast. The webcast will be available at the Investor Relations section of our website at www.chromadex.com. With that, it's now my pleasure to turn the call over to our Chief Executive Officer, Rob Fried. Rob?

Thanks Brianna, 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 Tru Niagen 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, Tru 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. And 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 Niagen 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 Niagen. The science continues to show that Tru Niagen is certainly among the most important dietary supplements that people concerned about the way their bodies age should take. 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 airing on major networks, including FOX News, FOX Business, CNN, The Science Channel, MSNBC, NBC, ABC, Bloomberg TV and other national channels. As I said last quarter, this commercial is intended to educate a broader group of potential consumers about the benefits of taking Tru Niagen. 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're tracking for our e-commerce business. As expected, this campaign is also improving brand awareness and sell-through at Walmart. Although the timing of this campaign is a little later than we had initially anticipated, the results are promising. Another exciting moment, we're seeing Tru Niagen 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 Tru believers. And 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 Tru Niagen Immune in April. Our very loyal community asked for a holistic all-in-one daily immune supplement versus taking individual supplements. And based on that feedback, our launch of Tru Niagen Immune was targeted to existing U.S. subscribers as a companion to Tru Niagen, with the recommendation that both products be taken together. Tru Niagen Immune is a first-of-its-kind combination of proven immune-boosting nutrition with NAD support via Niagen. Our scientists were meticulous and strategic in creating this formula to ensure high bioavailability and efficacy of the ingredients, and selected from the highest quality suppliers. In addition, there's a larger market opportunity with Tru Niagen 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 NAD support, which reinforces the Tru Niagen brand message. It's time to launch. Brooke Burke participated in several interviews highlighting Tru Niagen Immune for publications, such as Sports Illustrated. It's too 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 a Phase II study, 400 patients will be given a gram of NR per day, while 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 for the manufacturing process for NRT and its various salt forms through 2037. In short, the process for manufacturing our chloride or nitrate forms requires the manufacturing process for NRT as an intermediate step, and 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 Xingsha. 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 towards launch, recent bad debts 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. And we remain optimistic about the future. Another strategic partner in Asia is H&H Group. They are close to launching the Swiss product formulation for Niagen across the China cross-border market and Australian markets. It's early in the relationship and we are already in discussion about how to make the partnerships more impactful over time. And of course, we are having similar conversations with established strategic partners like Nestlé Health Science. 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 specialty-formulated products with Niagen exclusively to these healthcare practitioners. As I said last quarter, Designs for Health will complement our internal sales and help us leverage the tremendous body of pre-clinical and clinical research on this amazing ingredient. And as many of you know, another U.S. partner, Ro, launched Roaming Life and Tru Niagen in late 2021. We're engaged in discussions with their marketing team to share insights and 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 increased 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're 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'm very proud of our execution and more confident than ever about the market opportunity for Tru Niagen. 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 Tru Niagen continue to take Tru Niagen. And 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 Jaksch, 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 Shao last quarter about the exciting strides that our ChromaDex External Research Program, or CERP, has made to help produce the trusted science behind Niagen, as well as to advance the understanding of NAD in health, disease, and aging. I'm grateful to Andrew and his entire team for accelerating CERP's mission, which I began 10 years ago. As we recently announced, CERP 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 CERP program was recently awarded the 2022 European NutraIngredients award in the Nutrition Research project category for pioneering research behind Niagen and NAD. It is a testament to CERP's dedication to quality research and how we are pushing the boundaries of healthy aging science. According to their website, the NutraIngredients awards focus on true innovation, long-term market success, and cutting-edge research. We're honored to be recognized by NutraIngredients along with other industry leaders. Moving onto new and exciting research, I'll briefly highlight two clinical NR studies that we'll register recently. These build on our recent peer-reviewed, published clinical study on Parkinson's disease or PD patients that Andrew reviewed in detail last quarter. The Phase I study or NAD-Park 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 the study nominate NR as a potential neuroprotective therapy for PD patients, warranting further investigation in larger trials. A second study, the NoPark study, is underway with the same group of researchers. The 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 of 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 design 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. CERP's 250-plus collaborative agreements speak 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 Tru Niagen 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 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 are prioritizing investments in marketing, including our new Tru Niagen 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 new website visitors, growth in new customers on our own site, as well as recent trends on Amazon, where Tru Niagen is now frequently ranked as the best seller 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 on adjusted EBITDA, including legal expense, going forward, as a proxy for cash used before working capital investments. We've provided a reconciliation to GAAP 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 Tru Niagen, including 13% growth in e-commerce and 43% growth in combined Watsons and other B2B sales. Our Niagen 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 Watsons 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 expense as a percentage of net 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 Tru Niagen commercial that began airing in late March. We have also made 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 and balance brand campaigns with performance or conversion marketing. As reported, general and administrative expense was lower by $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 to post-trial motions in the California litigation, expenses related to the Delaware appeal and to the Thorne inter partes review. 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's 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 attributable 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 used in operations was $7.2 million compared to $5.4 million net use of cash in operations in the first quarter of 2021. The difference year-over-year was primarily driven by our larger increase in 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 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 Watsons. The Omicron variant continues to have an impact on Hong Kong residents, although lessening of late. Due to this backdrop, Watsons is shifting 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 Watsons 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 Watsons 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 Watsons headwind in the second quarter. In absence of another large macroeconomic disruption, this momentum should continue through to 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 Tru Niagen 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 Tru Niagen and an expanded product portfolio that caters to different consumer needs, including our recent launch of Tru Niagen 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 Tru Niagen's full market potential. But I'm very proud of the work we've done to position the company for the next base of growth. Operator, we're now ready to take questions.

Thank you. Operator Instructions. Your first question comes from Brian Nagel with Oppenheimer. Your line is open.

Hi, good afternoon. Congratulations on the quarter.

Hi, Brian.

A couple of questions. First, on the TV ad, how should we think about TV? Is there a plan in the near-term to increase the frequency, add new ads? And then, could you discuss a little bit more on how you're tracking TV as a driver of improving demand or brand building?

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 a 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. 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 measuring as we go. And right now, we're encouraged and we expect to continue to increase. But there may be a point 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. The first question, what was the first question again? Or did I cover it?

You answered. I was asking how we should think about the TV plan from here. Will there be additional ads?

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, Tru Niagen is now frequently ranked as the best seller in the broader vitamin B3 category, and we continue to monitor these trends in e-commerce and update the outlook. We also saw recent point-of-sale 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, just with regard to Tru Niagen Immune, are you seeing new customers or are you seeing existing Tru Niagen customers shift over to the new immune product?

It's existing customers, but they're not shifting over; they're taking both.

Got it. Thanks, guys.

Your next question comes from Mitchell Pinheiro with Sovetec and Company. Your line is open.

Hello there, good afternoon.

Hi. Good afternoon.

So with the TV, can you talk about how much you're spending on TV right now? Can you give us some sort of baseline or are you keeping that closer to the vest?

We're keeping it close to the vest, same with our KPIs because of proprietary performance measurements. So we will not disclose that to the marketplace.

Okay. And as you look at TV, coming into a mid-term election year that might generate more political ads, have you looked at whether that could crowd you out a little bit in Q3? Are you preparing for a possible rate increase in ads?

There are a lot of factors that affect the rates of ads, and that's one of them. But we're also seeing the impact of the economy of late. We're seeing that there's more available remnant inventory on television. So we think that if we're particular with the buys, certainly in the near term, there might be an opportunity. But it's hard to know; it's uncertain in the third quarter.

Sometimes in the last election cycle remnant ad rates went up, but the eyeballs were way above average, so you get what you paid for. From a budgetary point of view, was that included in your thinking for this year? Second question: you talked about recurring customers and strong retention. 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 a dramatic impact on the overall new customer revenue, because what we see is a lot of people buying the lower-priced SKUs like the single month and trying that out. But the number of new customer purchases over the last 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? Your recurring customer growth has been pretty stable. Why would you expect this new cohort of customers to be any different?

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 to three months, that's when they seem to notice the impact on their physical performance and the retention rates there are much higher. So if somebody is 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 Tru Niagen. So we don't know yet; it's early. And again, we will measure and we will see what the retention rates are. But it's a very high number of new customers that have come in.

Okay. As it relates to the second quarter, you said you were encouraged by recent trends. Do you expect e-commerce growth to accelerate in Q2 given what you've discussed?

Let me just say one thing about the first quarter: there are fewer days in the first quarter. If you normalize the number of days in the fourth quarter and the first quarter, I think you'd see results closer to what you might have estimated. I'll let Kevin answer the Q2 outlook.

I think we talked about the second quarter in my discussion and we see the following headwinds and tailwinds. The primary headwind is Watsons. The Omicron variant continues to have an impact on Hong Kong residents, although lessening of late. Due to that backdrop, Watsons 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 they were in the first quarter. But our full-year outlook for Watsons is unchanged. We had success with brand and influencer campaigns, as well as a store staff incentive program in the fourth quarter of 2021, and have similar plans for the remainder of 2022 to help Watsons manage through these COVID-19 related headwinds. Importantly, we're seeing emerging tailwinds in our domestic e-commerce business as a result of recent initiatives to drive greater brand awareness. We expect that growth in e-commerce will largely offset the Watsons headwind in the second quarter, and in the absence of another macroeconomic disruption, this momentum should continue through the rest of 2022.

Okay. One last question: on the gross margin for the ingredients being a little lower, is 50% the right gross margin, or was there some mix that caused the margin to be a little lower in the first quarter?

I think the mix is around 50% to 55%, so nothing out of the ordinary with regard to the gross margins on that segment of the business.

Your next question comes from an analyst with H.C. Wainwright. Your line is open.

Thanks very much for taking my questions. I was wondering if you could provide some updates on the Sinopharm and Nestlé Health Science fronts. Do 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 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 with respect to pricing, do you think there is potential for a specific percentage price increase without meaningful demand pullback given the current inflationary environment? If so, what might the magnitude look like, and would it be across all SKUs or only some of them?

Yes, we do think that we can increase 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 whether it could be across all SKUs is no — probably not across all, but most.

With regard to gross margins, consistent with Rob, 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 have been looking at other design changes that could help us have incremental savings in 2022. We're seeing overall scale on our business and favorable mix. We are seeing some inflationary pressures across our global supply chain, and if those pressures remain persistent, we are considering a price increase, as I said in my prepared remarks.

Thank you very much.

Your next question comes from Sean McGowan with ROTH Capital. Your line is open.

Thank you. Hi, guys.

I think the increases in R&D will be over the year. You should see a slight increase each quarter. And with regard to which segment, it will be mostly concentrated in the consumer segment.

Okay. And just one clarification: on the Watsons shift, when you say half of what it was for the first quarter, do you mean just the shipments to Watsons? That's what's shifting, right?

Yes, just Watsons.

Sean, I just want to add that we recognize how significant ChromaDex's investment has been and continues to be in R&D, in the science, in the intellectual property, and in protecting our shareholders' intellectual property. We recognize that it is very important for us to monetize that investment. It is quite conceivable that the monetization of that intellectual property and that science will not be a direct consumer product. It is something that we've discussed and are working on.

Okay. Thank you. Appreciate that.

Your next question comes from Bill Dezellem with Tieton. 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 with your comment that it may not be a consumer product. Could you give some indication or examples that might fall under that category, please?

The laws are very clear that if you're a dietary supplement company and you're selling a dietary supplement that treats a disease you cannot make that claim or imply that claim. Everybody who follows the company knows we had studies on COVID and a study on Parkinson's disease. So it is conceivable that there will be some sort of drug approval on one of those indications at some point. If that's the case, there is a business opportunity for ChromaDex either in a licensing arrangement, a joint venture, or a partnership of some sort. But the science continues to impress us and others about the effectiveness of nicotinamide riboside toward various disease states.

That's helpful. Regarding the Turkey COVID study, what's the update there and can the results from that study be used in China by Sinopharm?

The results of that study, when used properly, can be part of a regulatory dossier. If and when a cross-border deal with Sinopharm closes, those results would not be a marketing claim for COVID-19 treatment in China without the appropriate approvals. But the data will be part of their dossier and supports the safety and efficacy profile of nicotinamide riboside.

We have not received a Turkey update. There have been a lot of challenges in Turkey, including very high inflation. We don't have an update for the drug application there.

Thank you. Two more questions: the supply chain headcount increase you referenced to scale the business — when did that happen and why? And second, regarding new partners not included in guidance, how would they fit into your current ecosystem?

We added supply chain personnel in 2021 to keep up with demand, complexity, and supply chain needs as we expand into different territories and introduce a differentiated product lineup. It's not a significant number of people, but it does impact supply chain costs. Regarding new partners, the opportunity for nicotinamide riboside in China is significant. Sinopharm is very interested given the aging population, and there may be additional partners to help execute various parts of the strategy. We're taking our time to put together the right strategy, partners, and infrastructure, and we think we're very close.

Great questions. Thank you, Bill.

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

Thank you, Stephanie. There will be a replay of this call beginning at 4:30 PM Pacific Time today. The replay number is 1-800-700-2030, and the conference ID is 4126168. 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.