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ChromaDex Lands Strategic Silicon Valley Dollars

ChromaDex Corp. in Irvine will raise $23 million via the private placement on Nov. 17 of 5.6 million common shares at $4.10 apiece, which follows a $25 million investment led by Hong Kong billionaire Li Ka-Shing that concluded in August.

“Of course we haven’t burned through” Li’s investment yet, ChromaDex co-founder and Chief Executive Frank Jaksch said, but “the best time to raise money is when you don’t need [it].”

Jaksch said the new money brought another powerful investor in a relationship that’s “essentially strategic”—and at a higher valuation than Li’s, which came at $2.60 a share.

ChromaDex currently has about 48 million shares outstanding and traded last week at about $4.80 a share.

The ingredients maker sells its nicotinamide riboside as a supplement under the brand name Tru Niagen; it’s said to have anti-aging benefits, boost energy and improve cognitive functions. The brand now has direct access to Asia and Europe; one benefit it derived from the first buy-in this year was access to a global retail chain Li controls.

The strategic benefit Jaksch cites from the second investment could come from the roster of investors involved—and their other relationships.

Iconiq Capital LLC in San Francisco led the most recent round, kicking in about $7 million, Securities and Exchange Commission filings show.

The deal’s other participants include CK Hutchison Holdings Ltd., Horizon Ventures and DZ Capital LLC—all Hong Kong-based and part of the first investment—but it’s Iconiq that appears to be the big fish.

A search for the company online calls up one article from Forbes and one sentence from the company’s website: “Iconiq Capital is a global multi-family office, operating as an independent SEC Registered Investment Advisor.”

The soft-speaking belies a big stick.

The 2014 Forbes piece calls the $1.4 billion-plus entity “an exclusive members-only Silicon Valley billionaires club that operates as a cross between a family office and a venture capital fund.”

Founder and partner Divesh Makan, an Indian from South Africa, was able to cultivate an elite client base through his most famous client, Facebook founder Mark Zuckerberg, whom Makan met in 2004 when he was a broker at Goldman Sachs.

Iconiq’s board of directors includes Henry Kravis, co-chair and co-chief executive of global investment firm KKR & Co., and David Bonderman, co-chief executive and founding partner of private equity firm TPG Capital.

Retail Return

Proceeds of the investment will go to clinical research, the international retail push, and a direct-to-consumer effort in the U.S.

ChromaDex has set up a website for Tru Niagen.

There are other products on the market—ChromaDex previously sold its ingredient to other supplement makers.

ChromaDex is staking out the premium end of the range.

Amazon lists 180 capsules from a third-party maker for $80; a 180-capsule bottle of Tru Niagen lists at $120.

Jaksch said the company is in the process of reducing the number of outside makers of Niagen supplements to four by year-end, down from 20.

Consumer work is a return to an area ChromaDex had previously exited. It sold a product line called BluScience in March 2013 to Canadian ingredient company NeutriSci International Inc. in a deal comprised of $750,000 cash payment, $2.5 million senior secured note, and 669,708 shares of NeutriSci’s preferred shares that are convertible into nearly 2.7 million common shares at $1 per share, according to SEC filings. The company said it incurred loss in its retail dietary supplement products segment—approximately $61,000 for 2013 and $152,000 for 2012—as a result of the launch and subsequent sales promotions and discounts in relation to BluScience products.

BluScience’s main ingredient, pTero Pure—extracted from blueberries and said to provide health benefits, such as anti-aging, lowered blood pressure, and improved focus and energy—was sold in about 15,000 U.S. retail locations, including GNC and Walgreens stores.

ChromaDex needed capital to fund its operations. It first went to Palo Alto-based Hercules Technology Growth Capital Inc. for a $5 million term loan in September 2014. The second $2.5 million of the two-tranche loan was drawn in June 2015.

Jaksch said in a statement at the time that the financing provides “sufficient capital to fund our operations at least until late 2015.”

In connection with the transaction, ChromaDex issued Hercules warrants to purchase 419,021 shares of ChromaDex common stock at an exercise price of $1.062 per share.

Li’s investment was announced in April. ChromaDex said the investment “will be sufficient to meet our projected operating plans through at least August 11, 2018,” according to the latest earnings report.

Tru Niagen is sold in A.S. Watson stores in Hong Kong and Macau. Watson is a subsidiary of Li’s CK Hutchison Holdings and the biggest retail pharmacy player in Asia and Europe. It sold more than $20 billion last year and has more than 12,000 outlets in 25 markets, according to company filings.

Jaksch said Asia could become the company’s largest market.

Thirty-seven percent of global beauty and personal care products claiming anti-aging benefits were launched in the Asia-Pacific region—from Japan and South Korea through the Philippines and Hong Kong to China and Vietnam—up from 28% in 2014, according to a report from London market researcher Mintel Group Ltd.

Europe—where Hutchison Holdings’ Watson chain also has stores—has 40% of launched brands.

Too Tru

ChromaDex Chief Financial Officer Kevin Farr, who came aboard in October from Mattel Inc., said online retail overseas is also an option.

He said the type of strategic partnership that Barbie-maker Mattel struck with Alibaba Group Holding Ltd. and China’s largest online parenting community Babytree could be something for ChromaDex in the future.

ChromaDex bought the Tru Niagen name from its client, Santa Monica-based Healthspan Research LLC in August.

The move back to a business-to-consumer model was also behind the September sale of its analytical service business in Boulder, Colo., to Princeton, N.J.-based Covance Laboratories Inc., a unit of Laboratory Corp. of America Holdings.

ChromaDex reported $6.1 million in sales for its most recent quarter, up 55% compared to the same period a year ago, and a net loss of $3.2 million, about 30% more. It attributed the loss to investment, including marketing and sales, to “capture the global opportunity” of its anti-aging supplement.

Shares of ChromaDex trades at $4.89 per share, compared to about $2.50 a year ago.

ChromaDex retains a 10,000-square-foot research facility in Longmont, Colo., where it plans to pursue clinical trials for Cockayne syndrome, or CS, a pediatric affliction characterized by growth failure, impaired nervous systems, photosensitivity, eye disorders and premature aging.

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