I recently had a routine physical exam; it was done in a clinic and I had to fill out a standard information sheet. One of the questions related to medicines I take regularly. Well, strictly speaking the answer is “none,” but doctors had advised me to take Flax Seed Oil, Vitamin B12, Folic Acid and Vitamin D, so I put those down. Those are not medicines, but they are what is called nutraceuticals, AKA food supplements. Nutraceuticals include the seeds from the female gingko biloba tree whose yellow cherrylike fruits fall on the sidewalks of New York in the late autumn and smell vaguely bathroom-ish (they are said to boost all kinds of bodily functions, including memory) — and nutraceuticals also are the basis of an enormous industry that accounts for billions of dollars annually in sales. In fact the ingredients in nutraceuticals are projected to account for $24 billion in sales this year (http://nutraceuticalsworld.com/contents/view_breaking-news/2011-12-05/global-sales-for-nutraceutical-ingredients-to-reach-24-billion-by-2015/). Those are essentially wholesale or industrial sales, and the retail sales would be several times that amount.
Some nutraceuticals have found the mainstream to the extent that they are considered staples instead of supplements. That would include multivitamins certainly, and most recently some nonvitamins such as omega-3 oils (like my flax seed or the oils found in oily fish like salmon, tuna, sardines and mackerel). Some regular foodstuffs have taken on the properties of nutraceuticals as well: chocolate, coffee, horseradish, red wine and all the juices and nuts that advertise themselves as antioxidants. Those are NOT included in the nutraceutical figures quoted above, but they are part of the same trend.
Any category that includes gargantuan worldwide sales such as these ought to be happy hunting grounds for investors as well. So we thought we’d take a look at some nutraceutical companies, to see whether there are some out there that are interesting. In the past, a lot of vitamin and food-supplement companies were structured as multilevel marketing companies, and we have tried to avoid those because of the cloud of doubt that hangs over such schemes (they seem like chain letters or pyramid schemes).
Oslo-based Pronova BioPharma (www.pronova.com) might be a good place to start. They actually straddle the nutraceutical and medicine markets, because it is their fish oil that is the principal ingredient in Lovaza (R), whose widely seen television commercial has virtually made it a household name. Pronova is traded on the Oslo exchange under the ticker symbol PRON; there is an unsponsored ADR that trades on the Pink Sheets, but it settles in Oslo and in Norwegian Krone. The shares closed at 6.53 NOK on Jan 26, which is about US$1.12. Their market cap is 1.964 million NOK, or about US$337 million. Volume was about 30,000 shares. The US is an important market for Lovaza, so it could be that eventually Pronova will list its shares for trading here at some point.
Kailua-Kona, HI-based Cyanotech Corp (Nasdaq: CYAN; http://www.cyanotech.com/) is a cultivator and supplier of natural products, most notably Spirulina Pacifica, a refined algae nutraceutical product that is said to strengthen the immune system. It is grown in shallow ponds adjacent to the Pacific Ocean in the 80-acre CYAN facility. They are producing Spirulina at the rate of 350 tons per year, which is a lot of microscopic algae. CYAN also produces BioAstin, an immune system booster and antioxidant that, among other things, supports skin health during sun exposure (seems appropriate for Hawaii). For the quarter ended Sept 30, 2011, revenues were $6.0 million, up substantially from the year-earlier revenue for the same period of $3.8 million. Net income was $0.16 per share, also nothing to sneeze at. CYAN shares are trading at $6.44 vs a year-high of $9.36, on average volume of more than 50,000 shares per day. The market cap is within reaching distance of $35 million.
San Marcos CA-based Natural Alternatives International Inc (Nasdaq: NAII; http://www.nai-online.com/) provides private-label manufacturing services for food supplement and vitamin companies. It also sells its own products under its Pathway to Healing brand, primarily over the internet. NAII products tablets, capsules, chewables, powders — a variety of ways of delivering nutraceutical products. NAII recently announced litigation against some competitors, which could mean a combination of legal costs and potential awards: http://finance.yahoo.com/news/Natural-Alternatives-prnews-4218831226.html?x=0. NAII shares are trading at $9.19 vs a 52-week high of $9.47, on relatively low daily volume of just over 20,000 shares. The market cap is about $64 million.
Provo UT-based Nature’s Sunshine Products Inc (Nasdaq: NATR; http://www.naturessunshine.com/) manufactures and markets nutritional and personal-care products: herbs, liquid herbs, vitamins and minerals in tablets and chewable tablets. They also provide aloe vera gel, natural shampoos and toothpastes, and real range of homeopathic products. Their market cap is $235 million, and the stock is selling for about $15.11 vs a high of $21.16 in the past year. Volume is pretty good at 72,000 shares per day. For the quarter ended September 30, 2011, sales were up nearly 6% to $91 million. The quarter was a bottomline loser due to termination costs of a contractual relationship, but for the 9 months earnings including all charges & noncash items were about $10 million.
Salt Lake City-based Schiff Nutrition International Inc (NYSE: WNI; http://www.schiffnutrition.com/) manufactures and sells a variety of nutritional supplements, including products under the Tigers Milk brand. For the 3 months ended November 30, 2011, sales were $61 millon vs $53 million in the year-earlier period, with EPS of $0.08 vs $0.06 the previous year. The balance sheet is solid, with a current ratio of roughly 2:1. The stock is selling for about $10.90 vs a high during the last 52 weeks of $13.02, on average daily volume of about 56,000 shares. Market cap is about $320 million.
Another Norwegian entry in the Omega-3 race is Aker BioMarine (http://www.akerbiomarine.com/) , which trades on the Oslo exchange under the ticker AKBM. Like Pronova, there is an unsponsored ADR that settles in Oslo in Krone, and it trades on the Pink Sheets. Aker seems to have set its sights on a bigger potential market than the US, and has recently signed several deals with China for its omega-3 fish oils, which are known under the brand name Superba (also its Qrill fish meal and oils are meant for aquaculturists). Smaller than Pronova, revenues are around 229 millon NOK for the first 9 months of 2011, and the year-end results are expected mid-February. There are some corporate changes being implemented at Aker, which is now owned largely by Aker Seafood, and is in the process of merging with another supplier. Have a look at their news flow to sort it out.
Please do your own research — we only write about companies we find interesting, and we make no recommendations. None of these companies is a client, and we do not own any of the stocks.