Details that have emerged over four-plus years of litigation between ChromaDex and Elysium Health at times read like a Netflix manuscript. Allegations of executive deceit, corporate piracy, drug use and bad-faith negotiations have been lobbed like bombs into legal proceedings opened on no fewer than four separate fronts.
It also happens to serve as a valuable industry lesson about the importance of the relationships that brands have with their ingredient suppliers and their employees.
The story would be run-of-the-mill corporate carnage if not for the stakes involved, namely, control over the promising anti-aging ingredient nicotinamide riboside, or NR.
The ingredient buzz around NR—a form of vitamin B3, introduced in 2013 as NIAGEN—is because of its potential ability to replenish levels of nicotinamide adenine dinucleotide (NAD), critical to energy metabolism and mitochondrial function. Boosting flagging levels of NAD+, the reduced form of NAD, could help resist the metabolic stresses of aging (Nat Commun. 2018;9(1):1286).
ChromaDex, a public company (NASDAQ: CDXC) with the exclusive license to include NR in supplements, fired the first salvo in the legal war with ingredient buyer Elysium in the waning days of 2016, in federal district court in California. Nearly 500 court filings later, the case is set for trial in September, so an inevitable resolution in the primary case between the two may be near.
Road to partnership
Researcher Charles Brenner, while a faculty member at Dartmouth College, happened upon the discovery that NR is a specific vitamin precursor of NAD, while testing the wiring diagram of NAD synthesis in yeast. He and Dartmouth coordinated on obtaining the patents on the use of isolated NR in foods and supplements, and ChromaDex licensed those patents, with sales of NIAGEN-branded NR beginning in 2013. Today, Brenner serves as chief scientific advisor at ChromaDex.
Elysium Health burst forth in 2014, the creation of CEO Eric Marcotulli—a Harvard Business School graduate who joined the famed Silicon Valley venture capital firm Sequoia Capital as its youngest partner, before starting Elysium. For the new venture, he recruited Dan Alminana as chief operating officer, and MIT biologist Leonard Guarente, a heavyweight in the anti-aging research field.
Elysium’s public mission was bold—to bring clinical scrutiny to dietary supplements—and they recruited a star-studded roster for their scientific advisory board, including five Nobel Prize winners, adding certain heft to the upstart company.
Guarente led a team to launch Basis, a supplement with two active ingredients, NIAGEN and pTeroPure, both originally solely supplied by ChromaDex. pTeroPure is a synthetic version of pterostilbene, the polyphenol found in blueberries, and for most of Elysium’s history Basis has been its only product.
Today, ChromaDex’s business model is primarily direct to consumer sales of NR, through the Tru Niagen brand. The company’s original model was essentially business to business, and Elysium was one of many customers for their NR, though at one time one of their biggest.
The previously unremarkable relationship between the two, however, changed dramatically in 2016.
The California complaint
On June 30, 2016, then ChromaDex vice president of business development Mark Morris coordinated a call between top officials at both companies—Marcotulli and Alminana from Elysium, and ChromaDex’s then CEO Frank Jaksch and vice president of sales and marketing Will Black. The call was to resolve issues about two outsized and unusually discounted purchase orders placed by Elysium two days prior, the detailed court record shows (Case No. 8:16-cv-02277-CJC-DFM, requires log in).
Nine days before that call, Morris sent Alminana a text, according to discovery in the case:
“Time to change the world and get rid of the scumbags holding this magnificent technology!”
ChromaDex lawyers contend this text—and many others discovered since filing their original breach of contract complaint in 2016—illustrate a coordinated and nefarious effort between Morris and Elysium Health to destroy ChromaDex.
Attorneys allege Morris acted as Elysium’s inside agent at ChromaDex for nearly two months, and text messages from the personal devices of Morris, Alminana and Marcotulli may support the charge.
Further, ChromaDex attorneys allege Morris fed Elysium critical information about what competitors were paying ChromaDex, information used as leverage in the negotiations running up to the June 30 call. He also allegedly shared a spreadsheet containing the detailed purchasing history of every ChromaDex customer, something ChromaDex didn’t know until Elysium produced the document during discovery.
ChromaDex lawyers say the company was “induced” to accept and fill large discounted orders of NIAGEN and pTeroPure, about US$3 million worth, but when it came time to collect on the oversized orders, Elysium essentially went dark and to this day hasn’t paid.
“Elysium intended to make ChromaDex its unwilling banker and lender, supporting Elysium’s business by supplying Elysium with nine months’ worth of the two essential ingredients required for Elysium’s product, all while Elysium invested the money it owed to ChromaDex into developing its own alternative sources of NR and pterostilbene,” the complaint reads.
Soon after the ingredients shipped, Morris quit ChromaDex, where he had worked since 2007. Similarly, Ryan Dellinger, ChromaDex’s former director of scientific affairs, resigned effective immediately on Aug. 10, 2016—the same day Elysium notified ChromaDex that it refused to pay its past due invoices.
Morris and Dellinger would be instrumental in helping Elysium develop alternate sources of the ingredients, but they used confidential and proprietary documents to do it, the complaint alleges.
Included in what Morris and Dellinger are alleged to have appropriated are GRAS (generally recognized as safe) dossiers for both NR and pterostilbene, which provide step-by-step guides for manufacturing the ingredients along with a description of each step. Each cost ChromaDex millions to produce. Dellinger allegedly leaned on the pTeroPure GRAS report in 2017 to obtain a new dietary ingredient notification (NDIN) submission to FDA to prove that Basis is safe for human ingestion.
Elysium now sells Basis with NR and pterostilbene it obtains from sources other than ChromaDex. Morris and Dellinger are both high-level executives at Elysium today.
Drug use, and discredited depositions
With the prospect of a jury trial looming, the personal text messages of Marcotulli and Alminana have been thrust to the fore; they undergird ChromaDex’s assertions about executive poaching and sharing of confidential trade secrets. But, their texts also are being used to discredit the deposition testimony of both Elysium executives.
Marcotulli was grilled during his deposition about texts in 2015 and 2016 that allegedly showed he frequently purchased and used cocaine—including having it delivered to the Elysium office. He denied it under oath, but later admitted “he regularly bought and used cocaine during the period of his employment with Elysium and certain contract negotiations with ChromaDex,” as stated in an April 27, 2021, order from Judge Cormac J. Carney, U.S. District Court, Central District of California, Southern Division (Case No. 8:16-cv-02277-CJC-DFM).
Alminana also admitted that he lied during his deposition, when he said he was not aware of Marcotulli’s drug use. Personal text messages—which Elysium lawyers “inadvertently produced,” and failed to claw back in legal filings—showed Alminana knew the Elysium CEO was using cocaine. The details were central to Carney’s April 27, 2021, order.
Admissions by both Marcotulli and Alminana that they lied during their depositions could prove problematic during a jury trial, which has been set for Sept. 21—Judge Carney ruled some of the text messages and testimony about the depositions would be admissible at trial.
Elysium has vigorously defended itself by filing a flurry of legal countermeasures, including counterclaims alleging patent and royalty misuse by ChromaDex. Elysium has also sued ChromaDex in federal district court in New York, after ChromaDex filed a citizen petition with FDA asking to stop Elysium’s sale of what it says are adulterated health supplements. In addition, Elysium challenged the validity of two ChromaDex patents, though four of Elysium’s five claims were ruled invalid in 2019. While one of those patent challenges was dismissed, the other remains an open question before the U.S. Patent and Trademark Office board.
Despite the court traffic on multiple fronts, the legal freight train that is the California case might be running out of track.
“We look forward to presenting the facts to a jury,” ChromaDex CEO Rob Fried said in a statement.
Elysium spokesperson Whitney Christopher wrote in an email, “Our issues with ChromaDex arose from a simple contract dispute when Elysium discovered that ChromaDex had breached multiple parts of our agreement.”
She continued: “Though ChromaDex has sought to embellish the nature of the dispute, it’s actually quite straightforward, which is reflected in the summary judgment order issued Oct. 9, 2019, by a federal district judge in California. The judge stated plainly: not only that this is a ‘straightforward breach of contract action’ but also that there were ‘huge leaps in [the] causal chain the Court is not sure how ChromaDex can prove.’”
It should be noted that much of the text message evidence was presented to the court, in an effort to prove that causation, after the Oct. 9, 2019, judge’s order cited by Elysium.
Christopher additionally addressed a development in Elysium’s counterclaims in U.S. District Court in Delaware: “The only substantive recent development related to ongoing litigation between the parties that is worth sharing with the public is this: on April 27, 2021, a federal district court judge confirmed that ChromaDex had lost the right to enforce the NR patents it licenses from Dartmouth against Elysium.”
She added, “It is also worth noting that since that time, ChromaDex has become involved in two new lawsuits, both with other former customers.”
ChromaDex is currently in litigation it initiated against Thorne Research, alleging willful infringement of its patents, and is also in a dispute with another customer over payment of a bill.
ChromaDex’s management history and the company’s future outlook have been under some scrutiny lately, in the wake of a short-seller report that described the company as “pure hype.”
The report, by Beijing-based J Cap Research, highlights 2018 SEC action in which a number of former ChromaDex team members were charged with “pumping and dumping” a bevy of microcap stocks. J Cap accuses ChromaDex of also issuing iterative press releases just to temporarily boost its share price, and points to a series of deals that ChromaDex has made over its history that bore little fruit.
It also calls out the circumstances around the acquisition of a company previously owned by current CEO Fried. ChromaDex paid Fried, then a director, about $1 million for Healthspan Research, which had produced just $20,000 in sales to the company up to that point. Healthspan had existed only a few weeks before ChromaDex signed an exclusive supply agreement with it, the report submitted.
The hype charge may be a difficult one to sustain, though, considering the 64 known clinical trials that include nicotinamide riboside. And the fact that Li Ka-shing—one of the world’s most successful investors—is a financial backer of ChromaDex.
A ChromaDex spokesperson said the individuals that were targeted in the SEC lawsuits have not been affiliated with the company in years and were never part of the internal management team, and also, “the [J Cap] report is nothing more than an uninformed attempt to manipulate the price of ChromaDex’s shares for the benefit of a short position.”
ChromaDex’s Jaksch, now the company’s executive chairman, said in a statement that the Healthspan acquisition “has yielded exceptional value” as it brought the Tru Niagen brand in-house.
J Cap says in its June 2021 disclaimer that it is “registered as an investment adviser,” however SEC records show that its registration status was terminated in February 2020.
* Editor’s note: This story has been changed to correct the timing of the litigation and the venue referenced in a response from the Elysium spokesperson. A direct quote from a judge’s order was also added for clarity. (Aug. 6, 2021, 11:52 AM MST)