Destiny Hance: Okay, no problem. I’m excited to see it when it launches, so that’ll be great. I’ll keep an eye out for it in the next couple of weeks. I just want to switch over to Watsons for a second. I’ve heard you, mention it in a couple of other people’s questions or answers to their questions. Has the strategy there changed at all in terms of commercial efforts? Or are things staying pretty consistent? Like now that you €“ some of the restrictions have been lifted, is there more of a marketing push? Is there anything like that, that we should be thinking about going into 2023?
Rob Fried: The tactics are the same. It’s a, they promote it aggressively in store and they do some marketing out of store. The only €“ and the market is very, it’s very popular. There continues to be very popular there. The only strategic shift is that there is interest in Watsons in expanding the product offering from the Tru Niagen brand. So there is the possibility that we’ll see more than just Tru Niagen and sold in store in Hong Kong.
Destiny Hance: Got it. Okay, very interesting. Thank you so much for taking my question.
Rob Fried: Sure.
Operator: Our next question comes from Sean McGowan from Roth MKM. Please go ahead. Your line is open.
Sean McGowan: Thank you. Can you talk a little bit more about the impact of the mix shift that you referenced? Is that due to the strength in Watsons? Is that what’s causing that?
Brianna Gerber: Gross margin, Sean, gross margin and business mix?
Sean McGowan: Yes.
Rob Fried: Thanks, Brianna. Yes, look that is the reason.
Sean McGowan: Okay. And now in €“ when you talked about R&D spend being up, are you talking about it being up as a percentage sales or in dollar or both?
Brianna Gerber: $1000, Sean.
Sean McGowan: Okay. And the brand awareness is all of that, this event that you’ve referenced, and I appreciate you not wanting to give the detail, but is all of that expense going to be shown in sales and marketing?
Rob Fried: Yes.
Sean McGowan: Okay. And I have a question about other brand awareness stuff, but I appreciate you wanting to keep that close to the vest. That’s it. Thanks a lot. Appreciate it.
Rob Fried: Thank you, Sean.
Brianna Gerber: Thank you, Sean.
Operator: Our next question comes from Bill Dezellem from Tieton Capital. Please go ahead. Your line is open.
Bill Dezellem: Thank you. I appreciate it. Would you please give us a more detailed update relative to Sinopharm and where they are at in their cross border strategy and the other strategy initiatives that they have?
Rob Fried: Sinopharm is very methodical. We’re very impressed with the quality of their work and the thoroughness of their work. We’re not that impressed with the speed of their work. They’ve launched on two platforms. I think they’ve plan to launch on two more platforms. They’ve been now at two conferences, presented at two conferences. There was one last week. I can’t really, there’s really not that much more to say about it. The market is fairly large there, and NMN sales in China are still very significant cross-border. Sinopharm is also assisting us in obtaining Blue Hat approval, so we can do in-country sales. But, it’s a conservative estimate that we’re giving them this year. We like them as partners. They’re trusted partners, they’re quality partners, but they’re very methodical in their pursuits.
Bill Dezellem: Rob, would you please highlight what’s happening with NMN in China? I had the impression that the authorities there, were pushing back on some of the marketing practices for NMN. And I’m wondering what, if any window of opportunity is that creating for Sino?
Rob Fried: It’s not just Sino that’s selling, by the way, cross-border into China. H&H is a deal we made that is also selling cross-border in China. And H&H is actually doing quite well with Niagen into China. It’s actually doing better than Sino already. Watsons is also begun selling a little bit of cross-border into China of Tru Niagen. So, we’re seeing overall growth NMN in general? Yes. The most of, there are literally hundreds of sellers in China selling cross-border into China. And the government has cracked down on claims. Initially, they were making a lot of claims that were basically Tru Niagen claims, including, companies advertising that Li Ka-shing was taking NMN, which is obviously not true. He takes Tru Niagen and they have pulled back.
However, the thing to understand is that NMN works. NMN is a precursor to NAD. It’s just very inferior to Niagen. In fact, NMN is Niagen plus a phosphate group attached to the perimeter. So some companies, in order to make NMN, they start with NR or Niagen, and they literally add the phosphate on top of it. The problem with that phosphate is that it blocks transport into the cell. So once it’s in the blood, once you consume NMN and its circulating through the body, it doesn’t have a way to enter cell. So within the body, the phosphate is pulled apart, and what is left is Niagen is nicotinamide riboside, which then gets upregulated into the cell and elevates NAD. So it’s basically inefficient NR, but it does work. We believe that it works. We don’t know, if it’s as safe as NR, there’s some questions about that, but we do believe that it works.
So it just doesn’t work as well. So for that reason, with the passage of time, you are going to see studies come out that show that NMN has a positive benefit. It’s never going to have as positive a benefit is Tru Niagen, but it will have a positive benefit. So yes, there were some problems with claims in marketing in China, but we don’t expect that to be a long-term problem as NMN studies come out. Now NMN is now banned in the United States, and so it’s not an issue for us here, but it is an issue there in China that the market, look the market is already a very big market. The overall NAD market, I expect it to be tens if not even hundreds of billions of dollars in the future. At this point, there’s so much research out there, but if you’re on this call right now and you’re not taking Tru Niagen or you don’t understand the benefits of elevating NAD, when your body is under any kind of physiological stress, you’re not thinking properly, because we now understand that elevating your NAD levels by taking Tru Niagen make you healthier.
So, I expect that NMN is going to be around in China for the long-term. The question is what percentage of the market does it have, right now we have a very small percentage, but a growing percentage of the market there between those three partners. We’re hoping that soon Sino really gets aggressive and starts capturing a big chunk of the market. When they do the upside potential is significant. But as I said, Sino works fairly slowly. They take it one step at a time, and we are planning for very, very low growth in 2023 and hopefully big growth in 2024. I hope that answers your question.
