Second Amended Complaint in NY
ChromaDex's new law firm in New York, LTL, got RIGHT down to work and yesterday (that's right, Sunday) asked the court's permission to file a revised complaint in New York.
In its brief in support of its motion, LTL noted that in the proposed new complaint,
"ChromaDex does not add any causes of action. It merely identifies additional instances of false advertising by Elysium regarding the effect of its product in treating cancer, expanding lifespan, and improving cognition, as well as allegations that Elysium sold product with high levels of a known carcinogen, contradicting Elysium’s advertisements regarding the safety and purity of its product and the quality of its supply chain. These new allegations are largely premised on documents and information that have come to light in the related litigation between the parties in the Central District of California (8:16-cv-02277-CJC- DFM) and Elysium’s public statements. The C.D. Cal. documents and information were recently made available for use in this action through an amendment to the relevant protective order and unsealing of court records...
So, now that all the discovery in California is available to the litigation in New York, the complaint itself can be bolstered.
The new allegations being added to the complaint involve acetamide and unsubstantiated advertising claims:
"ChromaDex’s proposed SAC identifies additional false and misleading claims made by Elysium. Specifically, the proposed SAC includes allegations that Elysium (1) introduced high levels of acetamide, a known carcinogen, into its Basis product despite promoting itself as setting a new standard for quality and purity for consumer products; and (2) makes unsubstantiated disease prevention, cognitive benefit, and longevity claims.
"The first category of allegations expand upon false advertising statements in the FAC regarding the safety and purity of Basis. The second identifies additional Elysium advertising touting the positive benefits from the PT in Basis, an issue that is already part of this litigation. These new allegations thus fit within the claims already asserted against Elysium and provide further important support for ChromaDex’s contention that Elysium’s shortcuts in development and testing of Basis has serious consequences for consumers."
This appears to be an uncontroversial motion -- it's within the deadline, and ChromaDex could not have acted much earlier because Elysium insisted on litigating the modification of the protective order in California. So we'll get an early indication of whether Elysium's new counsel is as litigious as Skadden and Baker Hostetler were based on whether Kaplan Hecker opposes this motion.
But let's get to the substance. What's new in the complaint? You can read the red-line version yourself:
The first 26 pages are mostly unchanged, except fixing typos, and then comes mostly new material:
98. Elysium has marketed itself as having a mission “different than anything else in the market.” Exhibit DD. Part of what would set Elysium apart is “set[ting] a new standard for quality and purity for consumer products.” Exhibit EE; see also Exhibit G. According to Elysium’s CEO, Eric Marcotulli, “[c]reating Basis was contingent” upon “develop[ing] the supply chain so that we have the highest quality material possible and in the purest form possible.” See Exhibit P. “This is important,” according to Marcotulli, “because if you want to deliver a positive health benefit to customers, you need to deliver a reliable product to them each and every month.” Id. Marcotulli has claimed that Elysium had “in place” the supply chain and reliable product. Id.
99. Elysium’s high-minded public representations are false. Instead of adhering to cGMP or ensuring it was selling “the highest quality material possible,” Elysium cut corners to chase profits, forcing its manufacturer to deliver product as quickly as possible without completing the purification process. Elysium’s direction to its manufacturer caused high levels of acetamide, a known carcinogen, to be present in Basis shipped to consumers.
100. As described in paragraph 55 above, Elysium obtained a stockpile of NR and PT from ChromaDex in 2016, and planned to use the profits from selling those ingredients to help finance the development of a new commercial supply of NR, independent of ChromaDex (and in violation of ChromaDex’s intellectual property rights).
101. Elysium initially set a safety specification for NR pursuant to which the maximum acceptable amount of acetamide was 40 parts per million (“ppm”).
102. However, in mid-2017, Elysium was informed that the NR of its new manufacturer had levels of acetamide over 40 ppm, and that the new manufacturer was still developing an additional step in the manufacturing process to meet Elysium’s safety specification.
103. With its stockpile of ingredients from ChromaDex dwindling, Elysium decided that rather than wait for the additional purification process, it would dramatically loosen its safety specifications by raising the permissible level of acetamide to 200 ppm, a five-fold increase, and directed the manufacturer to “pull the NR batch from the reactor.”
104. When testing showed the batch contained over 200 ppm of acetamide, Elysium once again loosened its own safety specification, this time to 275 ppm, so that it could accept and sell to consumers NR with high levels of acetamide.
105. Elysium, however, faced a conundrum. Pursuant to pProposition 65, California, the largest market, requires that a finished product that would expose a person to more than 10 micrograms of acetamide a day (which Elysium and its manufacturer translated to approximately 40 ppm) prominently display a warning that notifies consumers that the product contains chemicals known to the State of California to cause cancer. To avoid the labeling requirement, Elysium deliberately sold Basis with NR supplied by ChromaDex into California and shipped Basis made with the high-acetamide NR from its new manufacturer into the rest of the country, including New York.
106. Thus, contrary to Elysium’s claim that it had in place a supply chain for “the highest quality material possible and in the purest form possible,” Elysium was shipping product that violated even its own safety restrictions and did not come close to meeting ChromaDex’s quality control and safety parameters.
Elysium Makes Unsubstantiated Cancer and Disease Prevention, Cognitive Benefit, and Longevity Claims
107. Not only was Elysium shipping product with high levels of a known carcinogen, it was actively promoting the PT in Basis as a supplement that could prevent or treat serious disease, including cancer, Alzheimer’s, heart disease, and diabetes; reverse cognitive decline; and increase human life span. Exhibit FF. None of those claims are supported by science.
108. The claims appeared in the “Science 101: Explore the science behind our product” area of Elysium’s website, in the format of an article titled “What is Pterostilbene?,” and include that PT, and by extension, Basis, may: prevent liver, skin and colon cancer; enhance the effectiveness of chemotherapy; reverse cognitive decline; and extend a human user’s lifespan and prevent aging by, among other things, activating a gene that “plays a pivotal role in aging, including in DNA repair.” Id.
109. The Federal Trade Commission (“FTC”) has made clear that such claims must be supported by competent and reliable scientific evidence. Elysium fails to warn consumers that the provide any such evidence or human clinical data to support its claims. Elysium could not possibly do so given the present state of the relevant science.
110. As explained above at paragraphs 82-85, neither stated premise underlying Elysium’s claims—that resveratrol can deliver anti-aging and disease prevention benefits or that PT can deliver benefits once thought to be associated with resveratrol, a close molecular cousin to PT—is supported by science.
111. Elysium not only doubles down on resveratrol’s claimed benefits, but goes a step further and states that the reason “resveratrol hasn’t lived up to its initial promise,” is that “it disappears from the body in roughly 15 minutes—meaning, in scientific terms, it isn’t very bioavailable.” Id. Elysium asserts that because PT has better bioavailability than resveratrol, it will do everything that it was hoped resveratrol would do. Id. (“Pretty much everything you know about resveratrol is true for pterostilbene, Dellinger says. Only it’s more potent.”). In other words, Elysium continues to tout resveratrol’s debunked health benefits, and claims that Basis solves resveratrol’s bioavailability problems.
112. However, the claim that PT is materially more potent than resveratrol from a bioavailability standpoint is unsupported by the relevant clinical studies, which show only slightly better bioavailability in PT and no evidence that this minor increase has positive health outcomes.
113.Further, compounding the misleading and unsubstantiated claims promising extraordinary heart disease benefits is the fact that actual human clinical studies, including Elysium’s own study, have shown that PT, an active ingredient in Basis, elevates LDL cholesterol on a dose-dependent basis. See Exhibits AA, BB.
114. Elysium’s own research, shows that daily administration of NR plus PT (which comprise Basis) produces a statistically significant increase in total cholesterol driven entirely by increased LDL cholesterol. Exhibits AA, BB. Yet, Elysium claims that Basis has no known negative side effects and is “one of the safest products we’ve ever seen.” Exhibit GG.
115. LDL cholesterol leads to a buildup of cholesterol in arteries and high levels of LDL raise the risk of coronary artery disease and may lead to heart attacks. Increased levels of LDL, therefore, present serious health risks for consumers, including the increased risk of cardiovascular disease (a leading cause of death in order Americans).
116. The consumer testimonials from Elysium’s own website show the misleading effect the claims have on consumers, especially when combined with the false veneer of scientific credibility created by Elysium’s stacking of its “Scientific Advisory Board” with a blue ribbon panel of Nobel Laureates and touting its connections to academic and research institutions. See, e.g., Exhibit HH.
117. Elysium’s advertisements contain affirmative misrepresentations and dupe consumers into believing not only that Basis is “safe, “pure, and the result of processes that prioritize “quality, safety, and efficacy,” see Exhibit CC, but that the PT in Basis can treat or prevent serious disease.
118. Egregiously, as with other claims on Elysium’s website, the “Science 101” advertisement promoting PT’s unsubstantiated benefits is combined with prominent marketing text imploring consumers to “BUY NOW,” and “Share free Basis with friends.” Exhibit FF.
After that comes the claims for damages and the prayer for relief, which is only slightly changed: ChromaDex prays that:
A. Elysium, its employees, representatives, and agents be enjoined from making false and/or misleading statements about the efficacy, safety, and purity of its Basis (or any other) supplement;
B. Elysium be ordered to cease and desist from selling its Basis product unless or until the product is compliant with applicable federal and state laws and regulations;
C. Elysium be ordered to publish for a period of not less than twelve months corrective advertising in all media cogently explaining that (1) Basis is not the subject of a filed NDIN or a successful GRAS submission to the FDA; (2) Elysium and Guarente were not involved in the development of the science behind NR; (3) the compounds used in both of its clinical studies were purchased from ChromaDex and that those ingredients are no longer used in Basis; (4) Basis was not the first NR supplement to market and was not the first NR supplement clinically proven effective; (5) Elysium does not hold a license to a patent covering uses of NR; (6) Elysium’s scientific advisors were not involved in the development or testing of Basis and do not vouch for its safety or efficacy; (6) there is no clinical support for Elysium’s claims that Basis can prevent or treat cancer, reverse cognitive decline, or extend human life span; (7) Basis creates a risk of causing a substantial increase in LDL-C in consumers; (8) Basis capsules may not contain the stated amount of NR; and (9) certain bottles of Basis contain a high amount of acetamide.
D. The Court grant any and all relief to which ChromaDex may be entitled pursuant to the Lanham Act, 15 U.S.C. §§ 1051, et seq., and New York General Business Law § 349, including but not limited to treble damages and attorneys’ fees, in an amount not less than $200,000,000;
E. The costs of this action be taxed against Defendant; and
F. The Court grant ChromaDex such other and further relief as the Court may deem just and proper.
This feels like old news to investors, because we've known for months that Elysium knowingly tolerated higher levels of acetamide in Basis than their own people specified as safe (and higher than California allows without a warning) and shipped it anyway.
However, the fact that these facts are presented in a complaint in the nation's most important federal court, and not buried in exhibits and briefs, seems like a big deal.
Specifically, paragraphs 101-106 are incredibly damning, and it couldn't be spelled out any clearer.
There comes a time when the newspapers that have been ignoring this story in their own back yard, like the Los Angeles Times and the Boston Globe, and even the New York Times, can't really continue to pretend that a major supplement company with ties to a major academic institution, and ties to prominent scientific luminaries, is not doing things that are entirely inappropriate.
There is arguably a public health issue, but at the very least there is a consumer disclosure issue. When a company that ships millions of dollars worth of health supplements based on a quality promise that is belied by the evidence, that's news.
Given that NAD precursors are also all over the news, and it seems that everybody knows someone who has tried an NAD precursor, and Elysium may be the leading provider in the United States, there's just no way to ignore this story.
So if the New York Times doesn't pick up paragraphs 101-106 and run with it, then somebody needs to freelance a consumer-facing piece and shop it around. The quotes in this complaint offer more than enough substance, even for someone who doesn't want to get tangled up in all the briefs and exhibits.
The reason I call the public health issue "arguable" is because the risk that acetamide residue is still in the Basis product, or whatever dangers there may be from pterostilbene, don't make my top-ten list of reasons why I find Elysium Health despicable.
The way Elysium has done business with ChromaDex is unconscionable, and apparently ChromaDex is not alone in having been misused.
Too, the way Elysium has managed its litigation I find reprehensible, and I am specifically thinking of specious arguments that either skirt the line or cross over into sanctionable behavior.
If every company behaved as Elysium has -- attempting to destroy their competitors and their competitors' business relationships with third parties -- you wouldn't be able to run a business in our economy. That's why we have business law -- it's to discourage this kind of behavior, or, barring that, to punish it.
My biggest worry about Elysium isn't what we know. It's what we don't know.
Based on what we do know, I don't think we should trust them. And if we don't trust them, then why should we believe that the bad behaviors we know about are unique or have ended? We have no idea what kind of financial pressures Elysium is under (for example, did their attorneys withdraw because they weren't getting paid or for some other reason, like the attorneys were being asked to do something unethical, or what?), and if Elysium is under a lot of financial pressure, we don't know what kind of compromises they might be making in response to that financial pressure.
That's different from saying that trace amounts of acetamide scare me, or the possibility of increased LDL from pterostilbene scares me.
I go out for a walk because I want to be healthy, and some old truck pulls up next to me and belches the worst kind of fumes, probably worse than 240ppm of acetamide. I don't like it. It gets me mad. Statistically, someone will eventually die from that if it happens often enough. It's bad behavior that illegally and unnecessarily increases the general public health risk associated with air pollution. But I don't much feel personally threatened.
Same with pterostilbene. All things being equal, I'd rather not increase my LDLs,. But sometimes I eat french fries, which probably increases my LDLs. I do that voluntarily because there are many things I value besides my cholesterol levels, and those values sometimes conflict. So I don't have personal outrage or fear about the effects of pterostilbene, either, if it provides other, greater benefits.
However, public health officials, elected representatives, and news organizations that are looking out for the public interest on a large scale should be alarmed and upset by what they see here, because if one company with enough reach makes enough bad decisions, people will eventually get hurt, even if it probably won't be any particular one of us who suffers.
And despite all the disclosures associated with this litigation, we have yet to see a change in senior management at Elysium.
Here is the proposed new complaint, with exhibits: