WASHINGTON/NEW YORK (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.
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 some of them collapsed and led to riots by angry consumers who had not received their purchased goods. China banned direct-selling firms in 1998, including U.S.-based group Amway, though it lifted the restriction seven 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.
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