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ChromaDex Corporation (CDXC 1.02%)
Q4Â 2019 Earnings Call
Mar 10, 2020, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by and welcome to the ChromaDex Corporation's Fourth Quarter 2019 Earnings Conference Call. My name is Chris and I'll be your conference operator today.
[Operator Instructions]
This afternoon ChromaDex issued a news release announcing the Company's financial results for the fourth quarter 2019. 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 FP&A and Investor Relations. Please go ahead, Ms. Gerber.
Brianna Gerber -- Vice President of FP&A and Investor Relations
Thank you. Good afternoon and welcome to ChromaDex Corporation's Fourth Quarter 2019 Results Investor Call. With us today are ChromaDex's Chief Executive Officer, Rob Fried; Founder and Executive Chairman, Frank Jaksch and Chief Financial Officer, Kevin Farr. 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, future financial results, business development opportunities, future cash needs, ChromaDex's operating performance in the future and future investor interest that are subject 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 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 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 to changes in its expectations.
In addition, certain of the financial information presented in this call, references non-GAAP financial measures. The Company's earnings presentation and earnings press release, which were issued this afternoon and are available on the Company's website present reconciliations to 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?
Robert Fried -- Chief Executive Officer
Thank you Brianna. Good afternoon everyone and thank you for joining our fourth quarter 2019 investor call. We had another strong quarter with total net sales of $13.1 million, overall sales increased 9% sequentially and 44% year-over-year. TRU NIAGEN net sales were $10.2 million, a 4% increase sequentially and a 57% increase year-over-year.
Let me first briefly comment on the coronavirus. We do not anticipate a significant impact on net sales. However, Watsons represented 15% of net sales in the fourth quarter and we do expect a moderate impact in the first quarter. Tourism and store traffic is down in Hong Kong. We do not anticipate a supply chain impact at this time. As we have said in the past, there are three pillars to our business strategy. Number one, to build a global brand; number two, to own the science and number three, to focus on the fundamentals.
Let's start with the brand. As mentioned, global TRU NIAGEN saw net sales of $10.2 million in the quarter, a 4% increase sequentially and a 57% increase year-over-year. TRU NIAGEN represented 78% of the $13.1 million in net sales in the quarter. E-commerce net sales were $7.9 million, an 11% increase sequentially and a 52% increase year-over-year. For full year 2019, TRU NIAGEN net sales were $36.1 million, roughly double last year's levels. I'm very proud of what we've accomplished in the three short years since we launched this brand. TRU NIAGEN has become truly global with approximately 25% of net sales from international markets in the fourth quarter. This includes sales to Watsons in Hong Kong and Singapore, cross-border sales in China and Japan and sales to our partners in New Zealand and Canada. We are now expanding into the UK and Australia in the first quarter of 2020. Sales to Watsons were $1.9 million in the fourth quarter, a slight decrease versus the previous quarter, primarily due to the protests. Watsons Hong Kong point-of-sale remains strong, largely driven by successful 11.11 promotion.
Our e-commerce business grew 11% sequentially to $7.9 million in the quarter and generated $27.5 million of net sales for the year, an 84% increase. The majority of these sales were from our US business, with a small, but growing contribution from international cross-border sales. We continue to build our business with fitness professionals and healthcare practitioners or HCPs, two influential and proactive groups. In December, we introduced our new TRU NIAGEN PRO 500 at the American Academy for Anti-Aging Medicine, one of the largest HCP trade shows of the year. This represents the largest serving of TRU NIAGEN available worldwide and it is exclusive to healthcare practitioners. We have a growing base of professional athletes and professional fitness trainers taking TRU NIAGEN today as well. Additionally, we are continuing to build our brand with strong global partnerships. First, we signed an agreement with a leading health and beauty retail chain to sell TRU NIAGEN in over 200 stores in the UK. This represents an initial test launch with the potential for broader distribution over time. We will support the launch with PR, social media and influencer campaigns to drive brand awareness and education, as well as optimize our existing Amazon UK product page. We began early market education in the second half of 2019 in London with scientific presentations at both The Health Optimization Summit and the Food Matters Summit. Additionally, we built upon our relationship with Matakana SuperFoods to include distribution rights in Australia. Matakana has done an excellent job in New Zealand and they will launch TRU NIAGEN in Australia this month. Australia has one of the highest per capita consumption of dietary supplements in the world. We are proud to be in business with Nestle Health Science and are excited for its plans to launch TRU NIAGEN this year. Marketing efforts will begin in mid-2020 with an online launch expected in the second half of the year. The initial test launch will be in loose powder format. While this will not have a material impact on our 2020 results, it is foundationally important. We and Nestle believe that cellular nutrition, we're addressing cellular processes within the cell that decline with age and under stress is a growing trend and we are very well positioned by partnering with Nestle to build awareness of TRU NIAGEN and NAD. Nestle had an exit clause in our agreement if technical feasibility or stability in liquid was not achieved by the end of 2019. This clause has expired. We continue to proactively work on liquid stability, although we are uncertain as to if or when this will be achieved. Last month, we expanded our partnership with Nestle by signing a three-year supply agreement with their recently acquired personalized nutrition service Persona Nutrition. Persona launched TRU NIAGEN into its customized vitamin and nutritional supplement delivery service and last month announced Kelly Ripa as its new spokesperson. Like its parent company Nestle, Persona shares our commitment to science and trusted high quality ingredients paired with peer-reviewed research.
Our second core objective is to own the science. We continue to be confident in the science behind nicotinamide riboside with several new studies registered and published since our last update. Frank will summarize these in a moment as well as explain why NR is superior to the ingredient NMN. We also continue to build upon and protect our intellectual property, which includes our ongoing litigation against Elysium Health. There were several positive developments and momentum in early 2020. We are on offense in all cases. First, in January, at the hearing on the motions for summary judgment in California, Judge Carney allowed our broader claims regarding theft of trade secrets and confidential [Technical Issues] duty by Elysium and Mark Morris. We will ask the jury for an award of roughly $13 million in compensatory damages, along with the request for punitive damages. The trial is set for May 12. Second, Judge Connolly granted our motion to lift the stay in our patent infringement case with Dartmouth against Elysium in Delaware. The scheduling conference is taking place today and we look forward to an update from our attorneys. Third, Judge McMahon recused herself [Phonetic] from the New York case and it was reassigned to Judge Lewis J. Liman. We are also very confident in this case as we complete discovery and move forward to trial. We engage new council in the New York case, LTL our respected trial attorneys and who have been representing ChromaDex on Lanham Act and other matters for some time. And late last week, the Federal Court of Appeals affirmed the decision of the US Patent and Trademark Office, which upheld the validity of Dartmouth's isolated NR patents. These composition of matter patents on NR are held by the trustees of Dartmouth and licensed exclusively by ChromaDex. With that Federal Court of Appeals affirmation, we will continue to vigorously pursue our legal claims against Elysium and are now proceeding with our patent infringement action against Elysium in Delaware. This Court of Appeals decision is important because the Federal Court of Appeals [Indecipherable] triggers a statutory estoppel that will prevent Elysium from raising any patent invalidity arguments in the District Court that it raised or reasonably could have raised during the IPR. We are increasingly confident in the facts of all three cases and are eager to get to trial.
Our third strategic pillar is to focus on fundamentals. As mentioned earlier, we secured regulatory approvals from the EU and Australia, which includes five year and two year exclusivity respectively. This continues an unprecedented streak of any successful regulatory acceptance of NR, a key point of differentiation from any other novel NAD precursor. The recent pace of regulatory approvals is a testament to our commitment to science, quality and consumer safety which we continue to champion in the industry. We also placed much focus on our internal operations in the fourth quarter, including some changes in personnel, improvements in management processes, improvements in IT and supply chain systems. While this requires some investment that contributed to higher G&A expense in the quarter, the changes should allow us to grow our business more effectively over time. It is our mission to lead by example in this industry. Frank is a board member of the Natural Products Association and this quarter. I became a board member of the Council for Responsible Nutrition. There is an opportunity to influence others in this industry with our quality, our messaging and our science.
In summary, we are very proud of our accomplishments in the fourth quarter and full year 2019. Science continues to build. The market opportunity is tremendous and TRU NIAGEN is going global. We are grateful to our consumers who put their trust in our brand and to our investors who put their trust in this management team to deliver shareholder value.
Now, I will pass the call over to our Chairman, Frank Jaksch for an update on scientific research.
Frank L. Jaksch -- Co-Founder, Executive Chairman of the Board
Thank you, Rob. As Rob stated, one of our core objectives is to own the science and we are committed to remaining a global scientific authority on NR and NAD research. It is an exciting time to be at the forefront of this growing body of research and we are proud to partner with the world's leading scientists. There are 39 ongoing completed and published clinical trials currently registered on clinicaltrials.gov to investigate the pharmacokinetics and therapeutic effects of NR. This is three more than our last update. An additional seven clinical trials are registered to test NR in combination with other ingredients for a total of 46. We finished the quarter with more than 185 signed research collaborations, up by approximately 10 compared to last quarter. As Rob said, we believe NAD awareness is reaching a tipping point, with interest growing around the world beyond the core scientific and biohacker communities. NR is the only NAD precursor that is clinically proven to be safe, well tolerated and efficacious in boosting NAD in humans. Six peer-reviewed clinical trials using NIAGEN have already been published in top tier peer-reviewed scientific journals, showing an increase in NAD. Another NAD precursor that has recently gained attention is nicotinamide mononucleotide or NMN.
In contrast to the six clinical trials on NIAGEN that I previously mentioned, the first clinical study of NMN was recently published in which researchers administered three single doses to 10 healthy male subjects. While this established tolerability of single oral doses of NMN in humans, it did not measure the tolerability of daily oral supplementation. Furthermore, it did not measure NMN's effect if any on NAD levels. In addition, we have reason to believe that NMN is less efficient as an alternative to NR. As demonstrated by multiple peer-reviewed published studies, NMN must convert to NR before entering the cell. This is due to the presence of a phosphate group on NMN, which prevents it from entering the cells directly. Previously published research has suggested that there are no known transporters for phosphorylated compounds such as NMN. However in a recent study, researchers claim that they have identified an NMN transporter in the small intestine of mice. We believe there are flaws in the study design, and we'll be interested to see if it can be replicated. In the meantime, the pathway for NR is well established and beyond refute. Furthermore, the regulatory acceptability of NMN as a dietary ingredient for use in dietary supplements is uncertain.
ChromaDex successfully filed two NDI notifications for NIAGEN with the FDA, which is virtually unprecedented in the industry. In contrast, no such notification has been filed with the FDA for NMN. We have been following the research on NAD precursor since 2006. Beginning in 2010, we chose to license the patents and build our business around NR rather than NMN because NR was supported by the science. Our understanding then is the same as it is today, which is that there are no scientifically proven reasons for our consumers to take NMN over NR. I'll highlight an interesting recent published study on NR since we last spoke. In January, a preclinical study demonstrating the effects of short-term NR supplementation in preventing hearing loss in a mouse model for Cockayne syndrome was published in the journal Aging and Mechanisms of Disease, a member of the Nature Partner Journals.
The study was a collaboration between scientists at NIH's National Institute on Aging and the National Institute on Deafness and Other Communication Disorders and the University of Copenhagen. It demonstrated a dose-dependent reduction in hearing loss from NR supplementation in these mice by aiding auditory interpretation and neuro transmission of sounds to the brain. These results reinforce earlier preclinical findings which suggest NR may help in delaying or reducing age related hearing loss. No further studies are required to confirm these findings in humans. The hearing loss experienced by Cockayne syndrome patients is similar to the age related hearing loss that is experienced by approximately one-third of adults between the ages of 65 years and 74 years old. There are no preventative measures available today. So NR represents an intriguing area of future research with potential public health implications. Finally, I'll briefly touch on our newly registered clinical trials since we last spoke.
First, in November, a study was registered by Virginia Commonwealth University to examine whether the use of any oxidant supplements impacts exercise intolerance in individuals with cystic fibrosis. This placebo controlled study is comparing the use of NR and resveratrol in both cystic fibrosis patients as well as healthy individuals. In December, a study was registered by Children's Hospital of Philadelphia and NIH to measure the effect of combining NR and exercise in aerobic capacity in Friedreich's Ataxia. Friedreich's Ataxia leads to increased risk of diabetes, therefore, a key secondary objective is to measure the effect of NR and exercise in glucose homeostasis in this population. Glucose homeostasis is of critical importance for human health due to the central importance of glucose as a source of energy. We've recently seen increased interest in studying the effects of NR on exercise in ongoing and published preclinical studies, and this is an interesting study on this specific population. Lastly, in February, a pilot study to evaluate the effective NR on immune activation in psoriasis was registered by the NIH National Heart, Lung, and Blood Institute. Psoriasis causes chronic inflammation. In this study, the researchers aim to investigate whether NR supplementation can improve immune system function in blood and skin of people with mild to moderate psoriasis.
In summary ChromaDex is committed to remaining a leader in the NR, NAD and cellular health conversation. We believe that NR or NIAGEN is the safest and most efficacious NAD precursor to elevate NAD. There is growing interest in NAD among the scientific community, doctors, sports teams and other influencers. We have a tremendous opportunity to educate the general public about this incredible molecule which has the potential to positively impact human health. I look forward to sharing more in future updates. With that, I'll pass the call to Kevin Farr. Kevin?
Kevin Farr -- Chief Financial Officer
Thank you, Frank. Let's look at our financial results for the fourth quarter and full year 2019 which reflect continued progress against our key financial objectives. We delivered on our latest 2019 financial outlook across all metrics for the fourth quarter and full year, including strong sequential top line growth in gross margins, significant improvements in advertising efficiency year-over-year and controlled growth in G&A excluding a $2.2 million write-off of our outstanding receivables with Elysium. This reflects conservative accounting treatment and does not impact our litigation strategy or our assessment of the potential return on our investment in all three cases. The determination to write off the entire receivables made based on Elysium' Thank you, Frank. Let's look at our financial results for the fourth quarter and full year 2019 which reflect continued progress against our key financial objectives. We delivered on our latest 2019 financial outlook across all metrics for the fourth quarter and full year, including strong sequential top line growth in gross margins, significant improvements in advertising efficiency year-over-year and controlled growth in G&A excluding a $2.2 million write-off of our outstanding receivables with Elysium. This reflects conservative accounting treatment and does not impact our litigation strategy or our assessment of the potential return on our investment in all three cases. The determination to write off the entire receivables made based on Elysium's recently unsealed financial statements through year-end 2018. They subsequently announced a $40 million capital raise, but since we have no substantiation of the financial impact, we took the conservative accounting approach. Overall, our underlying business performance for the fourth quarter as measured by adjusted EBITDA, excluding legal expense was a loss of $2.1 million, which reflected substantial progress year-over-year. The decline on a sequential basis due to planned investments in marketing and R&D. Lastly, we ended the year with $18.8 million in cash, roughly equal to the third quarter and strengthened our balance sheet by securing a $7 million committed line of credit to help manage working capital investments. We did not draw on the line of credit in the quarter. For the three months ended December 31, 2019 ChromaDex reported net sales of $13.1 million, up 9% compared to $12.1 million in the third quarter of 2019. Year-over-year sales were up 44% compared to the fourth quarter of 2018. TRU NIAGEN net sales were up 4% sequentially and grew by 57% year-over-year with diversified growth across US e-commerce, Watsons and international cross-border launches year-over-year. Watson sales remained solid at $1.9 million in the quarter, but were down slightly versus the last quarter. Sales to Watsons in the third quarter reflected strong consumer takeaway, as well as restocking from low inventory levels in anticipation of the holiday selling season. In the fourth quarter, we continued to see solid consumer takeaway driven by successful 2019 11.11 and 12.12 promotional programs. Total NIAGEN related sales were up 16% sequentially and 63% year-over-year with strong demand from our customers. Turning to the rest of the P&L, on a sequential basis, our gross margins was up 100 basis points from 56% in the third quarter of 2019 to 57% in the fourth quarter of 2019. Year-over-year gross margins increased by 510 basis points to 57% compared to 52% in the fourth quarter of 2018. Increased TRU NIAGEN consumer product sales and product cost savings initiatives drove the improvement in gross margins. We believe both of these factors represent a tailwind to gross margins in 2020. On a sequential basis, our total operating expenses for the fourth quarter of 2019 was $16.3 million, up $2.7 million compared to the third quarter of 2019. This includes a one-time non-cash bad debt charge of $2.2 million related to the write-off of our Elysium receivable. Our selling and marketing expenses were up $0.5 million to $5.1 million in the fourth quarter of 2019, compared to $4.6 million in the third quarter of 2019. As a percentage of net sales, this expenditure was up 60 basis points in the fourth quarter versus the third quarter of 2019. We made continued progress improving marketing efficiency in our TRU NIAGEN business driven by strong returning customer growth while investing in initiatives to drive new customer growth, both in the US and internationally. In the fourth quarter 2019, G&A expenses were roughly flat with the third quarter of 2019 excluding the $2.2 million bad debt expense related to Elysium Health. Including the bad debt write-off, as reported, G&A was up $2.1 million to $10.1 million versus $8 million in the third quarter of 2019. As expected, legal expense was lower in the current quarter due to delays in the California trial. We completed most of the preparation, but we will incur higher trial related costs in the second quarter of 2020 with the trial scheduled for May 12. Excluding bad debt of $2.2 million, legal fees of $2.2 million and equity compensation expense, fourth quarter 2019, G&A expense was higher by $0.6 million versus the third quarter of 2019. The higher G&A expense included higher royalties resulting from the sequential growth in our TRU NIAGEN business as well as investments in process improvement initiatives. These include the implementation of a new ERP system that will reduce manual processes, derive efficiencies in 2020 and beyond. For the fourth quarter of 2019, our operating loss was $6.7 million, excluding bad debt expense of $2.2 million versus $6.9 million in the third quarter of 2019, a slight sequential improvement. As reported, our operating loss was $8.9 million. The net loss attributable to common stockholders for the fourth quarter of 2019 was $8.9 million or a loss of $0.15 per share as compared to a net loss of $7.2 million or a loss of $0.12 per share for the third quarter of 2019. The fourth quarter net loss per share includes the $0.04 per share bad debt expense. As we've said, we believe it's important to focus on sequential trends in our business to demonstrate progress toward cash flow breakeven. To help investors better gauge the underlying financial performance of our business, last year we introduced a new non-GAAP measure, adjusted EBITDA, excluding total legal expense. We've included a reconciliation to the appropriate GAAP measure in our earnings slide presentation. Litigation expense represents the majority of our legal spend today. We're excluding total legal spending from adjusted EBITDA since we expect it to decline significantly after the trials are completed. In the fourth quarter of 2019, we began excluding severance and restructuring expenses that delivered measurable sustainable net cost savings. We believe these investments will contribute to our bottom line results in late 2020 and beyond. These include an end-to-end evaluation of our supply chain as well as headcount realignment actions to reduce redundancies. The accrual of the majority of severance and restructuring expenses per headcount related activities will be incurred in the first quarter of 2020 including severance related to these organizational changes. The majority of cash payments related to these charges will be paid over the next 12 months. We'll provide more details on our full-year cost savings targets and associated investments on next quarter's call. We are only excluding severance and restructuring expenses that are tied to specific projects. These accounted for $200,000 in the fourth quarter. As I mentioned, we also incurred slightly higher G&A expenses in the quarter related to process improvement initiatives such as implementing an ERP system that automates manual processes across the company. These expenses are not being excluded from adjusted EBITDA. We also exclude the one-time non-cash Elysium related bad debt expense. In summary, ChromaDex defines adjusted EBITDA excluding total legal expense as net income or loss, which is adjusted for income tax, interest, depreciation, amortization, non-cash stock compensation costs, bad debt expense related to Elysium, severance and restructuring expenses and total legal expenses. Adjusted EBITDA, excluding total legal expenses was up slightly to a loss of $2.1 million in the fourth quarter of 2019 compared to a loss of $1.9 million in the third quarter of 2019. The current quarter includes planned investments in marketing strategic R&D projects and process improvement initiatives. Year-over-year, we delivered a $1.8 million improvement in the fourth quarter of 2019 versus a loss of $4 million in the fourth quarter of 2018. The improvement in the fourth quarter of 2019 was primarily driven by higher sales and gross margins and improved marketing efficiency year-over-year. Moving to the balance sheet and cash flow. We ended the fourth quarter of 2019 with a solid balance sheet, with cash of $18.8 million, roughly flat to the third quarter cash balance. In the fourth quarter of 2019, our net cash used in operating activities was $0.6 [Phonetic] million loss versus $7.8 million in the third quarter of 2019. Consistent with our expectation, the lower cash outflows from operations this quarter were driven by working capital, which was at $3.9 million source of cash in the fourth quarter of 2019 compared to a $2.9 million use of cash in the third quarter of 2019. The source of cash in the fourth quarter was related to an increase in accounts payable, largely due to higher NIAGEN ingredient purposes as we invested in inventory for 2020 and lower legal payments. Now let's look at our P&L expectations for full year 2020 versus full year 2019. We expect strong growth in topline driven by our US e-commerce business, new international markets such as the UK and Australia and new platforms such as Persona Nutrition. We anticipate a slight moderation in the growth rate from the 47% growth in 2019 due to the larger base revenues. The impact of coronavirus on our Watsons business in the first quarter and the impact of divesting our Spherix regulatory consulting business. This business accounted for roughly $700,000 of 2019 net sales, which was included in our analytical reference standards and services segment. Gross margin expansion due to favorable mix from growing e-commerce business, the product design changes implemented late 2019, and additional supply chain cost savings initiatives and an increase in selling and marketing expenses of $3 million to $5 million including investment in brand awareness and new market launches. We expect continued improvement in selling and marketing expenses as a percentage of net sales, driven by strong customer retention. Lastly, we expect G&A excluding severance and restructuring expenses and legal expense will be up by $1 million to $2 million year-over-year comparable 2019 G&A expenses, excluding the Elysium bad debt expense in 2019. Consistent with our plan to scale the company in the second half of 2019 for the longer term, we invest in key personnel and IT, finance and HR, which increased our run rate expense for 2020. As I mentioned, we expect our new systems and processes to enable us to scale more efficiently going forward. Severance and restructuring expense will be included in reported G&A. We are excluding severance to restructuring expense from our financial outlook. But as I've previously indicated it will be weighed to the first quarter, driven by our organizational realignment initiative. We estimate the first quarter severance and restructuring charges to be approximately $700,000. We're also excluding legal expense from our outlook since two of the three trial dates have not yet been set, which makes it difficult to predict. Adjusted EBITDA, excluding total legal expense remains a key metric. We expect this to improve throughout the year. We continue to believe we can achieve cash flow breakeven at $17 million to $19 million of revenues if the litigation ends and legal costs decline. Total operating expense will be higher in the near term, driven by the higher litigation expense. So we're working on cost savings initiatives to deliver gross margins that are slightly better than the 60% to help offset this. If legal costs do not decline, our breakeven sales may be closer to the upper end of the $17 million to $19 million range. In short, the overall framework is unchanged and we will continue to manage all levers of the P&L to deliver on this important objective. Based upon our current financial outlook, we believe we have enough cash to reach cash flow breakeven, including our $7 million line of credit. However, as I said last quarter, litigation expenses are unpredictable in terms of timing and magnitude and could change our cash needs. As previously mentioned, we're currently anticipating impact in first quarter sales from the coronavirus. We currently do not expect any supply chain disruption. We have sufficient safety stock of finished goods and have contingency plans in place for upcoming production. As you can see, we continue to focus on the fundamentals, which include building a sound operation for the long term. We are a much stronger company today, we have a highly motivated team who is acting with greater urgency to capitalize on the market opportunity in front of us. We remain committed to achieving cash flow breakeven as soon as possible, and delivering on our mission of building a global brand. Operator, we're now ready to take questions.
Questions and Answers:
Operator
[Operator Instructions]
Your first question is from Jeffrey Cohen with Ladenburg Thalmann. Your line is open.
Jeffrey Cohen -- Ladenburg Thalmann -- Analyst
Hi, Rob and Frank and Kevin, how are you?
Robert Fried -- Chief Executive Officer
Hey Jeff, good.
Jeffrey Cohen -- Ladenburg Thalmann -- Analyst
Few questions. So as far as the bad debt write-off on Elysium, what's the balance or is there anything behind what was written off for the fourth quarter?
Kevin Farr -- Chief Financial Officer
The balance is zero. So, we wrote off the entire accounts receivable.
Jeffrey Cohen -- Ladenburg Thalmann -- Analyst
Okay, fantastic. And then secondly, can you talk about that NIH study for [Indecipherable], can you talk about the -- besides of the study, perhaps your endpoints, dosing, time frames, etc.?
Frank L. Jaksch -- Co-Founder, Executive Chairman of the Board
Sorry I was on mute. Could you repeat the question?
Jeffrey Cohen -- Ladenburg Thalmann -- Analyst
Yes, could you talk about the [Indecipherable] NIH study for Friedreich's Ataxia as far as number of patient size of study, endpoints, dosing timeframe, et cetera?
Frank L. Jaksch -- Co-Founder, Executive Chairman of the Board
The study is small, the population is small. So you're dealing with like around 10 people in the study.
Jeffrey Cohen -- Ladenburg Thalmann -- Analyst
Okay, got it. Okay. Okay, perfect. And then lastly for me. Could you guys talk about Persona a little bit, Persona Nutrition? Can you talk about the Nestle and the time frame and talk a little bit about, will that be the one channel they'll be using as they come to market this year or will there be a number of channels?
Robert Fried -- Chief Executive Officer
So Persona is already launched. So, it is available, you can buy TRU NIAGEN through their personalized medicine nutrition offering today. They've already placed their first order to us. Now we expect that Nestle will also offer a product for sale to consumers in a small test launch in September. That'll be an online version of a powder form of nicotinamide riboside.
Jeffrey Cohen -- Ladenburg Thalmann -- Analyst
Okay, got it. And then lastly, could you talk about any trends you're seeing as far as stickiness of the online business as far as trends and reorders through your direct channel or Amazon?
Robert Fried -- Chief Executive Officer
We continue to be very impressed with the stickiness. Retention rate is high and seems to be getting higher. The majority of our revenues at this point in time is from repurchases and reorders. But we have not provided specific numbers yet to that effect.
Jeffrey Cohen -- Ladenburg Thalmann -- Analyst
Yes. Okay, got it. That does it for me. Thanks very much.
Robert Fried -- Chief Executive Officer
Sure. Thanks, Jeff.
Operator
Your next question is from Jeff Van Sinderen with B. Riley. Your line is open.
Jeff Van Sinderen -- B. Riley -- Analyst
Good afternoon, everyone. Wanted to just clarify on Nestle, I think you mentioned the technical feasibility clause. Is it fair to say that they -- that's been effectively waived at this point or that you're beyond that at this point?
Robert Fried -- Chief Executive Officer
The clause has been waived, yes. Our efforts to achieve stability in liquid is still ongoing.
Jeff Van Sinderen -- B. Riley -- Analyst
Okay, got it. So you continue to move forward with that albeit timing unknown? Is that how we should look at it?
Robert Fried -- Chief Executive Officer
Yes. There are a number of approaches being taken. There is binding to a whey protein. There is beating -- the process of beating, and there is a process of prilling. All of these are being -- we are experimenting with all of them and combinations thereof.
Jeff Van Sinderen -- B. Riley -- Analyst
Okay, good. And then just turning to the regulatory approval you have in the EU and Australia. And I think you said signed retailers in both regions, I know, you've got the beauty retailer in the EU. Can you speak more about the next steps in launching there in those regions? And I guess how we should anticipate product to roll out there?
Robert Fried -- Chief Executive Officer
So starting with the UK. We are taking the EU in general and UK specifically carefully. We are taking it one step at a time. We started by selling cross-border on Amazon into the UK. Then we supported that with some earned media and PR in the UK, and we received quite a few interesting articles about NIAGEN and ChromaDex there. And then we sought out and made a deal with a very good partner in the UK. And with that partner, we are doing this 200 store test launch. I don't expect it to be material in terms of the financial impact. But we are seeding the market and growing awareness in the UK, much like we did initially in the US. This is our strategy across the Board. We are also selling cross-border into Germany and Spain, and France. And we are talking to various partners in that region and also working to develop earned media press to build awareness of NIAGEN, of NAD, of cellular metabolism, and energy metabolism in those local countries.
It takes a lot of time and resources and attention to launch in these countries. You only have an opportunity to launch once. So we are being -- we are -- we are being very vigilant. We are working quickly, but we are working carefully. The same is true in Australia. We had a partner in New Zealand that did an excellent job called Matakana. They did an excellent job distributing in New Zealand and they have an infrastructure in Australia. We decided to extend the relationship to include Australia. So there were some online sales initially into Australia, and we've done quite a bit of of earned media and press in Australia. There is a fairly high awareness of nicotinamide riboside and NAD in Australia already. So there is some demand already in that country. And Matakana will begin their launch later this month. It will initially be an online launch. Our expectation is that it will later evolve into retail distribution.
The same is true with China by the way. We are selling cross-border into China presently with Tmall. We are talking to partners about helping guide us and creating a partnership to help lead us in China. We are having those conversations even in advance of getting regulatory approval in China. This is the strategy that we have adopted for entering into new territories. It's a careful, vigilant, cost-efficient, aggressive approach.
Jeff Van Sinderen -- B. Riley -- Analyst
Okay, great. And then just turning to, I think one of the studies that you talked about in your prepared comments touched on immune system function. And I'm just wondering, I guess, given the potential for improved immune system function for those taking TRU NIAGEN, how are you thinking about consumer awareness around that, given the backdrop of COVID-19?
Robert Fried -- Chief Executive Officer
Okay. We understand that TRU NIAGEN elevates NAD levels. We understand further that when a cell is under physiological stress, that uses that NAD to combat that stress, not only through energy metabolism but elevating the repair enzymes within the cell. So we understand the importance of this and other viruses. We understand the importance of this particular trend, and we are working on it, with important researchers around the world, and we are committing resources to studying and investigating the impact of TRU NIAGEN on this and other similar viruses presently.
Jeff Van Sinderen -- B. Riley -- Analyst
Interesting. Okay. Good to know. Thanks for taking my questions, and continued success.
Robert Fried -- Chief Executive Officer
Any time. Thanks.
Frank L. Jaksch -- Co-Founder, Executive Chairman of the Board
Thanks, Jeff.
Operator
Your next question is from Mitch Pinheiro with Sturdivant & Co. Your line is open.
Mitch Pinheiro -- Sturdivant & Co. -- Analyst
Hi, good afternoon. Couple of questions. First, sort of on the retail strategy in the international markets is -- by the way, have you announced the partner, its name in the UK?
Robert Fried -- Chief Executive Officer
We have not. They have asked us to not yet announce their partner until the day of the launch.
Mitch Pinheiro -- Sturdivant & Co. -- Analyst
Okay. And this retailer have more than 200 stores -- excuse me, more than 200 stores or is that just a test number?
Robert Fried -- Chief Executive Officer
Can both be true? Yes. They have more, and yes, this is a test number.
Mitch Pinheiro -- Sturdivant & Co. -- Analyst
Yeah, OK. So you use retail in Canada with Whole Foods, in EU, [Phonetic] and in the China, this unknown partner here in UK, but how -- what does that -- I mean clearly you'd give up margin if you did that in United States, but wouldn't visibility wouldn't there be an offset? And have you considered at all looking at a retail strategy in the United States?
Robert Fried -- Chief Executive Officer
We also have retail partners in Hong Kong and in Macau and in Singapore. And there is some level of retail here in the United States already. They were in Bristol Farms here in Los Angeles, and we sell to healthcare practitioners on a wholesale basis here in the United States. We sell stick packs to company here in LA called Pressed Juicery. We have very, very carefully and slowly dipped our toe in the water. But there are people here at this Company that have a great deal of experience dealing with large retail chains, and we are waiting till -- it's the right time and the right opportunity, and there is the right level of brand awareness, so that we are not taking too big a risk, when we go in -- and that we are preserving the unique brand identity at such time as we might enter into retail. The opportunities are there, however.
Mitch Pinheiro -- Sturdivant & Co. -- Analyst
Are you getting calls from retailers?
Robert Fried -- Chief Executive Officer
We do get calls from retailers.
Mitch Pinheiro -- Sturdivant & Co. -- Analyst
US retailers. Okay. Second question regarding Nestle. So the clauses waived. You still have ongoing efforts to see to solve the problem. Is it just -- is it a matter of if, I mean, are you -- how confident are you in Nestle in achieving a solution to the issue?
Robert Fried -- Chief Executive Officer
First, let me say that we're not sure that that the deal would be bigger, if it was in liquid form. We're actually quite interested in the powder format. We think a tip in powder format like the stick packs that would be added to a beverage or even as an independent product, is actually an interesting opportunity. So we're very curious on how this test goes, and how this roll-out product goes. But yes, we -- it is -- look, nicotinamide riboside is found in trace amounts in milk. So nature has already solved the problem in trace amounts. And beating has -- encapsulation has worked in the past in other encapsulation stability issues. So we have confidence that eventually the problem that particular problem will get solved. But it is not been solved yet. And of course, there is no guarantee that it will be solved.
Mitch Pinheiro -- Sturdivant & Co. -- Analyst
In the fitness market, they're using that in stick format. Is that -- they're putting in smoothies and shakes and things like that. Is that how that's being taken? Or do you think the fitness market is in capsule form?
Robert Fried -- Chief Executive Officer
Yeah. So we think that -- well, I think the fitness market will be both. I mean it is already both. But many people use it in powder format and added to their smoothie.
Mitch Pinheiro -- Sturdivant & Co. -- Analyst
All right. Any update or you talked about in your remarks, your prepared remarks about the fitness market, the healthcare professionals. Maybe any -- anything tangible you can talk about in that sector besides the launch of Pro 500?
Robert Fried -- Chief Executive Officer
In the healthcare practitioner market? Or in the fitness market?
Mitch Pinheiro -- Sturdivant & Co. -- Analyst
Yeah.
Robert Fried -- Chief Executive Officer
Well, you sort of -- either way. We see those in two separate markets. [Speech Overlap]
Mitch Pinheiro -- Sturdivant & Co. -- Analyst
Okay. I am interested in both.
Robert Fried -- Chief Executive Officer
We see the fitness market as more of a demographic, and we see the healthcare practitioner market more as a wholesale customer base. And no, we have not provided any specific metrics yet in either. I can only tell you that both are growing.
Mitch Pinheiro -- Sturdivant & Co. -- Analyst
Okay. Last question, just Kevin, the breakeven comments, you think you can get the cash flow breakeven in the $17 million to $19 million revenue range. And you mentioned that sort of like, if litigation doesn't end breakeven could still happen at the higher end of that range. Did I hear that correctly?
Kevin Farr -- Chief Financial Officer
That's correct, Mitch. I think what we're working on is to continue to make progress on our supply chain as well as SG&A expense. And we think over time that we can basically get the cash flow breakeven including legal expense. But you know, the one variable is really what is litigation expense in terms of predicting it, in terms of timing and magnitude. So that could impact our cash flow outlook. But at this point in time, we are working very hard with respect to cost savings programs to be able to be cash flow breakeven even with legal expense continuing at that $2 million to $3 million per quarter.
Mitch Pinheiro -- Sturdivant & Co. -- Analyst
Okay. Thank you very much for the questions.
Robert Fried -- Chief Executive Officer
Sure.
Operator
Your next question is from Brian Nagel with Oppenheimer. Your line is open.
Andrew Chase -- Oppenheimer -- Analyst
Hi, this is Andrew Chase [Phonetic] on for Brian's team. How are you?
Robert Fried -- Chief Executive Officer
Hi.
Kevin Farr -- Chief Financial Officer
Hi, Andrew.
Andrew Chase -- Oppenheimer -- Analyst
If we could just dive a little bit deeper into the marketing. I know you guys talked a little bit about the international expansion, but just thinking domestically, are there any specific commentary that you can add to marketing strategies? Is there going to be a shift in strategy or maybe just an expansion of dollars?
Robert Fried -- Chief Executive Officer
Well, we had a change in leadership in the marketing department over the last several months. But the overall strategy continues to be heavily performance driven, Facebook, online digital marketing, some amount of television. We established a group of influencers that we call true believers, and that is the crux of the creative. It's very, very science-based. But what you're going to see now is greater emphasis on the brand and on the messaging and more consistency across all touch points.
Andrew Chase -- Oppenheimer -- Analyst
Thank you very much.
Operator
And your next question is from Ram, apologies -- Ram Selvaraju with HC Wainwright. Your line is open.
Ram Selvaraju -- HC Wainwright -- Analyst
Thank you very much. Can you hear me?
Robert Fried -- Chief Executive Officer
Yeah.
Kevin Farr -- Chief Financial Officer
Yes.
Ram Selvaraju -- HC Wainwright -- Analyst
Yeah. So just to start with regarding the health benefits of NR. I was wondering if, at this juncture, since there have been a number of studies that have been done, if there is a clear picture emerging on what appears to be the swiftest route to potentially obtaining specific health claims for NR? And if you have a sense of how that might play out? And in what specific area that could potentially occur?
Robert Fried -- Chief Executive Officer
Well, if you look at, I'll answer and then Frank, I'll defer to you to also support the answer. But if you look at our studies that are happening right now, and some of the results that have been published thus far, it does look like liver, kidney, cardiovascular, and some cognition-related. We're starting to see a level of consistency, and we are also seeing studies come to completion, many of which are still unblinded but, some of which we have some insight into the data that are consistent with this. We have high expectations and hopes for studies that will get published in the coming year. Frank, anything you want to contribute to that?
Frank L. Jaksch -- Co-Founder, Executive Chairman of the Board
Yeah, the -- and obviously we're just waiting for peer review to come out on data that we're excited to hopefully share with everybody on that front. But I agree with Rob. The only other one I'll add to would be, broadly which ties into the aging story and it also ties into the others is inflammation broadly. And there is challenges in terms of messaging that as a claim. However, there are ways of doing it appropriately as long as we have data to support it, which we still have to check into. But I think that's an exciting area for us broadly.
Ram Selvaraju -- HC Wainwright -- Analyst
Further to this point, is it possible to envision conduction of a proof-of-concept study specifically in Cockayne syndrome patients that focuses on whether or not NR might be able to attenuate hearing loss, specifically in that group?
Frank L. Jaksch -- Co-Founder, Executive Chairman of the Board
Yes. We could do it. Collaboratively, work on that. That's one potential way of doing it. Doing it under the guise of a formal IND related to clinical trial is different, but the way that you stages as a proof-of-concept would be one good way to potentially look at it. It is -- hearing and vision are the two ways of sort of quantifying in effect by raising NAD, will we see something measurable, and the two things you can really look at are hearing loss, which is a measurable and vision.
Ram Selvaraju -- HC Wainwright -- Analyst
And it would be possible to do this in Cockayne syndrome patients like before their hearing is irrevocably damaged right, that's possible?
Frank L. Jaksch -- Co-Founder, Executive Chairman of the Board
That's a difficult one to answer because the question is, when does the damage start and when to use it, when would you start enrolling somebody in a proof-of-concept trial. And so I -- it's hard to answer, because these kids in particular, these kids even at an early age are so challenged across all areas of health that it's difficult to assess what level of damage and whether or not this recoverable.
Ram Selvaraju -- HC Wainwright -- Analyst
Okay, understood. I wanted to ask about your kind of projections for 2020 and what those assume about the length of time that there might be impact from the coronavirus, minor though it might be. Could you perhaps comment on that?
Kevin Farr -- Chief Financial Officer
Yeah, I think we're right now at this point in time, I think there is an impact in the first quarter. But full year, it's really difficult to predict. So at this point, our forecasts are that it is going to impact the full year, but that could change over time.
Robert Fried -- Chief Executive Officer
We also candidly, don't know if it in the long run, has an impact positively or negatively.
Ram Selvaraju -- HC Wainwright -- Analyst
Okay, that's interesting. Do you anticipate any further near-term restructuring initiatives? And if so what might these look like and what would be the expenses associated with those? Or at this juncture is that not on the cards?
Kevin Farr -- Chief Financial Officer
Well, I think we're looking end-to-end supply chain, and looking for other opportunities to invest, to get a return. So we're currently working with CMOs of blend and encapsulate, and label, our bottles. And we're also looking across the supply chain with regard to our distribution partners 3PLs, and we continue to look at the product. We made a major change in 2019 that was launched in the fourth quarter going from three bottles for a 90-day supply to one bottle. So we're not spending a three bottles, now we're spending a one bottle. The packaging then becomes smaller, and then the distribution expenses becomes smaller, because the package is smaller. So I think as we look across our Company, we're looking for other opportunities to scale our costs and reduce costs. And that will be ongoing this year. And if we're making an investment in restructuring, we expect a good return on that, and a quick payback.
Ram Selvaraju -- HC Wainwright -- Analyst
Okay, great. And then last question is with respect to the May 12 trial. Just wanted to understand what the outlook is in the wake of that trial proceedings being concluded? In other words, what is your expectation regarding the timing with which decision might be rendered? And what avenues, if any, would Elysium have for appeal at that juncture? Also if you could perhaps comment on any indication you're seeing that the way things have been going so far might be making them more inclined to settle, if that's possible to comment on.
Robert Fried -- Chief Executive Officer
We don't know if there are more inclined to settle. And obviously any settlement would have to be one that's satisfactory to us on behalf of our shareholders. We've invested a lot in this. Their behavior has been consistently unconscionable. Of course, the more experience I have, the less surprised I get by people in general. The facts have come out. Many of them are public and can be read. It's hard to imagine that as these facts come out their confidence would be boosted. But again nothing surprises me specifically when it comes to Elysium. Yes, they will have an opportunity to appeal, whatever that jury decides on May 12. The -- it would not surprise me if they try to delay it further by doing that. I mean that has been their primary tactic. And we expect that the trial will last approximately two weeks.
Ram Selvaraju -- HC Wainwright -- Analyst
Okay, great. Thank you very much.
Operator
And our last question is from J.P. Mark with Farmhouse Equity Research. Your line is open.
J.P. Mark -- Farmhouse Equity Research -- Analyst
Hi, good afternoon. Just a couple of quick questions here. You had mentioned about a liquid form. And I was curious to know how hard is it to actually create that liquid form? And how important would it be, if you could -- how important it would be to the long-term growth of the Company? Is this a new opportunity that's much bigger than the current form? Or is it an additive to what you've already got?
Robert Fried -- Chief Executive Officer
So the initial thinking in the relationship with Nestle is that it would be part of the formulation of a product they have called BOOST, which is mostly a liquid-based, protein meal replacement beverage. But in order to do that, we'd have to achieve stability in liquid meaning nicotinamide riboside when exposed to liquid begins to break down over time. The nicotinamide and the ribose separate. So it's not harmful, but it's not as efficacious if you're taking, let's say, half a dose of NR, and the other half is nicotinamide. So Nestle was interested in us trying to solve that problem. We are interested in solving that problem, because there are other beverages out there that are interesting besides BOOST. Again, they only have the right to protein-based meal replacement products. But there are many beverages out there that do not -- are not protein based. So we see it as an enormous opportunity once the problem is solved. However, with the passage of time what we've observed from Nestle is, maybe putting it in BOOST is not the big idea. Maybe just as a separate powder-based product that could be added to BOOST or other beverages is a bigger idea. So we're not sure that we lose that much, but we are continuing to pursue the science here, pursue the stability, because there are potential business opportunities to pursue.
J.P. Mark -- Farmhouse Equity Research -- Analyst
So you're not trying to create necessarily a liquid form, at this point? Is that right or you're still pursuing it, but it's less important than if you have a powder that works well in liquid? Am I getting that right?
Robert Fried -- Chief Executive Officer
Right. We have established that the powder is stable.
J.P. Mark -- Farmhouse Equity Research -- Analyst
Okay.
Robert Fried -- Chief Executive Officer
And Nestle is proceeding forward with the powder product.
J.P. Mark -- Farmhouse Equity Research -- Analyst
Okay. And then second question I have was about pricing. I'm curious to know about how you price online? I guess, there are two major ways of selling online or through Amazon or directly on your website. And there's differences in pricing, and I was curious to know what your strategy was there?
Robert Fried -- Chief Executive Officer
Well, of course, it's important that there is consistency in pricing across the board. And we do supply to some companies, and there is map pricing across the board there. And we -- it's important that there is not an advantage versus buying on Amazon versus buying on the website. Secondly, nicotinamide riboside is not inexpensive to make. There is a lot of complex organic chemistry in that process. So therefore, we do achieve, as you see, close to 60% gross margins as a Company. In order to do that, we do have to price around that level on a retail level. But we are constantly working on reducing our cost of goods. And there are -- that has been a very major initiative at the Company in the last few months, and will continue to be. And if we can continue to bring the price down on the cost of goods, we will experiment with some price testing at a retail level.
J.P. Mark -- Farmhouse Equity Research -- Analyst
It looked to me online that if you go to your website, you actually do get a significant discount versus buying it on Amazon? You mean if you subscribe on Amazon, you're going to get the same discount as you would if you're going direct you and is that -- did I get that wrong?
Robert Fried -- Chief Executive Officer
Yes, I mean it's not. I'm sorry, go ahead. It's not a one-to-one identical product in the cases that you're looking at, in some cases it's a three month supply. Because the products, the shipping costs and the discounts available by Amazon are limited, their subscribe and save is limited, it ends up being an in perfect match, but we try to match it as precisely as possible.
J.P. Mark -- Farmhouse Equity Research -- Analyst
Okay, very good. Thank you very much, I appreciate it.
Robert Fried -- Chief Executive Officer
Thank you.
Operator
Ladies and gentlemen, that concludes our allotted time for Q&A. I'll now turn things back over to Brianna Gerber for any closing remarks.
Brianna Gerber -- Vice President of FP&A and Investor Relations
Thank you, Chris. There will be a replay of this call, beginning at 4:30 PM Pacific Time today. The replay number is 1800-585-8367 and the conference ID is 7665464. Thank you everyone for joining us today and for your continued support of ChromaDex.
Operator
[Operator Closing Remarks]
Duration: 68 minutes
Call participants:
Brianna Gerber -- Vice President of FP&A and Investor Relations
Robert Fried -- Chief Executive Officer
Frank L. Jaksch -- Co-Founder, Executive Chairman of the Board
Kevin Farr -- Chief Financial Officer
Jeffrey Cohen -- Ladenburg Thalmann -- Analyst
Jeff Van Sinderen -- B. Riley -- Analyst
Mitch Pinheiro -- Sturdivant & Co. -- Analyst
Andrew Chase -- Oppenheimer -- Analyst
Ram Selvaraju -- HC Wainwright -- Analyst
J.P. Mark -- Farmhouse Equity Research -- Analyst
