* Stanford says researcher should not be cited in marketing
materials
* Nu Skin target of new allegations from short seller firm
* Shares fall 4 percent
(Adds background on China in paragraphs 8 & 9)
By Anna Yukhananov and Phil Wahba
WASHINGTON/NEW YORK, Aug 16 (Reuters) – Stanford University
has sent a “cease and desist” letter to Nu Skin Enterprises Inc
asking the company to stop using a university
researcher’s name in its advertising, adding new scrutiny to the
skin product maker’s business claims and practices.
According to a copy of the letter emailed to Reuters,
Stanford geneticist Stuart Kim is listed as a “Nu Skin Partner”
in developing its ageLOC anti-aging products, though he has
nothing to do with the company. Nu Skin touts its skin creams
and pills as using innovative technology to “reset” genes that
promote a more youthful look and feel for its clients, according
to its website.
“Neither Dr. Kim nor Stanford is a ‘Nu Skin Partner’ and
neither has anything to do with the company,” states the letter,
signed by Steven Rosen from Stanford’s Office of the General
Counsel.
Stanford asks Nu Skin to remove all references to Kim from
its website by Friday. Kim told Reuters he had previously
collaborated with Nu Skin but stopped the relationship in 2011,
and that he had never received any money from the company.
The news comes hours after short seller Andrew Left’s Citron
Research issued a new report critical of Nu Skin, saying the
firm had misrepresented its relationship with Kim and had never
funded any of his research. Citron also argues the company’s
products could come under greater U.S. regulatory scrutiny.
Citron repeated its allegation that Nu Skin operated an
illegal multi-level marketing scheme in mainland China, the
fastest growing market in direct-selling. It first aired this
accusation last week, hurting Nu Skin shares [ID :nL4E8J7679]
Nu Skin has rejected the accusation. Chief Financial Officer
Ritch Wood said on Wednesday that Nu Skin’s sales model complied
with Chinese regulations.
China’s commerce ministry did not respond immediately on
Friday to requests for comment on Nu Skin’s sales model.
Direct selling has a turbulent history in China. Beijing
cracked down on illegal pyramid-type marketing schemes in the
late 1990s, after so me of them c ollapsed and led to riots by
angry consumers who had not received their purchased goods.
China banned d ir ect-selling firms in 1 998, in cluding U.S.-based
group Amway, though it lifte d the restr iction seve n years later.
Shares of Nu Skin closed down 4 percent on Thursday at
$40.82 on the New York Stock Exchange, as investors questioned
whether it had been misrepresenting the science behind its
anti-aging skin products that make up 40 percent of sales.
A Stanford spokesman said the university’s dermatology
department has a separate, long-standing relationship with Nu
Skin, including a clinical trial in progress.
Nu Skin said its relationship with Stanford began in 1999.
In 2009, it gave $1.5 million to a study on human skin aging
with Kim and other scientists. Kim later left the study, but two
dermatologists, Dr. Anne Chang and Dr. Alfred Lane, continue to
work on the study, Nu Skin said.
“During the past 13 years, Nu Skin has funded multiple
research studies at Stanford, which have resulted in papers
published around the world,” a company spokesperson said.
SCIENCE BEHIND THE CLAIMS
On Thursday, Citron also accused Nu Skin of exaggerating the
scientific claims of its anti-aging products and said that would
make them vulnerable to scrutiny by the U.S. Food and Drug
Administration.
In a regulatory filing last week, Nu Skin said the FDA had
recently stopped shipments of the company’s Galvanic Spa facial
treatments, which use an electric device to deliver a purifying
skin gel. The agency now believes the product could require
clearance as a medical device. These facial treatments made up
less than 1 percent of revenue in 2011, Nu Skin said.
In a further update on Thursday, the company said it has
stopped all imports of the Galvanic treatments and was prepared
to register the product as a medical device. The FDA clearance
could take 6 to 9 months, the company said.
But Citron Research said FDA clearance may be required for
other Nu Skin ageLOC products, and could potentially lead to
their recall in the United States if the FDA decides they could
be considered drugs.
The FDA treats all products that make medical claims as
drugs, and a company would have to conduct trials to prove the
claims before they could sell their products. Cosmetic products
do not require clinical trials or FDA approval before they are
sold.
Nu Skin CFO Wood on Thursday told analysts at a conference
in Boston that the company expects sales of the ageLOC family of
products to reach $800 million, or roughly 40 percent of what
Wall Street analysts think the company will take in this year,
according to a webcast of the meeting.
(Additional reporting by Daniel Bases in New York, Yan Huang in
Beijing and Donny Kwok in Hong Kong; Editing by Michele
Gershberg, Steve Orlofsky, Richard Chang and Mark Bendeich)
