Neptune Technologies: It's All About the Krill Oil

| About: Neptune Technologies (NEPT)
An omega-3 phospholipid isolated from shrimp-like krill that ply the waters of the Antarctic Ocean may hold the key to a breakthrough cardiovascular therapeutic that helps reduce levels of serum triglycerides and “bad” LDL cholesterol, while helping to boost “good” HDL cholesterol.

Neptune Technologies & Bioressources (NASDAQ:NEPT), which has been focused on commercializing patented krill oil-based products since 1998, already has those three health claims from Health Canada for its Neptune Krill Oil (NKO) dietary supplement used in conjunction with conventional statin therapy. NKO health claims from Health Canada also extend to helping relieve symptoms of premenstrual syndrome, helping to reduce pain associated with osteoarthritis and helping to reduce a clinical protein marker of inflammation.

Now, Neptune’s 60% owned Acasti Pharma unit is taking CaPre, a highly purified formulation of NKO, into a Phase 2 clinical trial in Canada as a treatment for patients with dyslipidemia, or triglycerides and low HDL. The study, set to begin this quarter, will also measure the CaPre’s effect on LDL and glucose.

“To our knowledge, there is no product known to science that mediates these four parameters, which speaks to the strength of our krill oil,” CFO André Godin, says in an exclusive interview with

Versant Partners analyst Doug Loe agrees. “Neptune’s approach is unique among most of its peers in that omega-3 acids in Neptune’s krill products seem to have superior bioavailability in part because they are phospholipid-bound and not triglyceride-bound or as free fatty acids,” he writes in a research report.

NKO a Precious Human Health Resource

Referring to the difference between NKO and triglyceride-bound fish oil, Godin points to the phospholipid carrier molecule in krill oil. “The main difference is that omega-3 in fish oils need to be further metabolized, while krill oils move directly into the cell membranes of red blood cells, brain cells and joint tissue.”

As a result, he contends that with fish oils, people need to take four grams to have an effect, compared with only 500 mg of NKO, which is 1/8th of the dosage of the fish oil products. “Even with 1/8th of the dosage, the health benefits are even greater with our product,” he adds.

Loe points out that, based on preclinical studies, NKO seems to have “broad activity in modulating multiple blood lipid classes, including lowering serum triglycerides and low-density lipoprotein (LDL)-bound cholesterol, while elevating high-density lipoprotein (HDL)-bound cholesterol, plus engender positive effects on blood glucose homeostasis.

“No product we have reviewed to date has potential in human trials to influence blood lipid profiles and metabolic elements in this way,” he adds.

Loe initiated coverage of Neptune in May with a “buy” rating and a 12-month price target of $6 (Canadian). The stock closed at $3.75 on Friday. “The spin-out of Neptune’s Acasti Pharma as a separate company was a key value driver, stimulating our interest in the story,” he says in an interview.

Acasti’s Phase 2 study is designed to assess the safety and efficacy of CaPre in patients with triglyceride levels ranging from “moderately high to very high”, which differentiates CaPre from prescription drug fish oils labeled only to treat patients with very high levels of triglycerides.

In early testing with 120 patients, NKO reduced triglycerides by 11.5% and LDL cholesterol by 33.9%, while raising HDL cholesterol by 43.3% after three months.

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Difference in Digestion and Absorption of NKO vs. Fish Oils

Godin says data from the trial should be available in 12 to 18 months. And while the trial is underway, the company plans to submit an investigational new drug application with the FDA, he says, adding that “our pre-IND meeting with the FDA was very positive.”

Neptune is hoping to have the FDA accept the Canadian Phase 2 trial; Acasti has had very positive feedback and guidance from the FDA. “We have an aggressive plan to reach our ultimate objective, which is to have CaPre approved in the U.S.,” he contends.

Noting that Pfizer’s (NYSE:PFE) Lipitor is already off-patent, with AstraZeneca’s (NYSE:AZN) Crestor soon to follow, Godin says that if testing is successful, CaPre has the potential to extend the patent life of a blockbuster statin drug in a combination therapeutic with CaPre. “This will be one of our approaches in negotiating with a large pharma company. If everything evolves as expected, the Phase 2 data will create a lot of interest in us.”

In addition to CaPre, Acasti’s pipeline also includes Onemia and Vectos. Onemia is an omega-3 phospholipid manufactured by Neptune that Acasti launched last year. It is classified as a medical food by the FDA to be useful in alleviating symptoms of chronic cardiometabolic disorders. Vectos is an over-the-counter NKO formulation due to be launched this year.

Neptune has also spun out its NeuroBioPharm business into a wholly-owned subsidiary to develop medical foods, over-the-counter products and prescription drugs to treat cognitive and neurological disorders. Clinical trials have demonstrated that NeuroBioPharm’s novel composition of astaxanthin and omega-3 phospholipids significantly improve cognitive disorders caused by developmental, hormonal and/or age related abnormalities. A clinical study for a medical food product with a multinational partner has been initiated, and the development of a prescription drug candidate is in progress.

Neptune first made headlines several years ago with its NKO formulations in functional food alliances with Nestlé (OTCPK:NSRGY) and Yoplait, a unit of General Mills (NYSE:GIS), and a dietary supplement alliance with Bayer (OTCPK:BAYZF) Healthcare.

In March, Bayer formally launched its Arctic Wonder proprietary NKO in the U.S. after extensive test marketing. While Arctic Wonder is not intended to diagnose, treat, cure or prevent any disease, Bayer claims the omega-3 krill oil supports heart health, a healthy immune system and healthy brain function.

Godin says Nestlé and Yoplait are completing functional food trials to validate health claims, with the goal of moving to commercialization in the current fiscal year ending Feb. 29, 2012. While Yoplait is testing NKO in yogurt, Nestlé has not disclosed what food it is testing.

Bayer’s Arctic Wonder is entering a rapidly growing omega-3 market, which has shown a sustained annual growth of 12%, according to a Frost and Sullivan report in 2010. The report values the omega-3 category at $1.7 billion (U.S.), with a forecast of reaching $3.5 billion in 2015.

In fiscal 2011, Neptune generated total revenue of $16.7 million (Canadian), with Loe predicting sales of more than $45 million and net income above $15 million in fiscal 2014.

Last month, Neptune made two moves to significantly enhance the presence of its NKO in the U.S. and India, two deals that Godin characterizes as being “huge for us.”

It finalized agreements with two major U.S. distributors, which together represent close to 30% of the U.S. mass-market nutraceutical business, accessing more than 100 million Americans with nationwide market coverage in over 54,000 retailers. The company estimates that eventual commitments from the pair will be at a minimum volume of 50,000 kg per year out of Neptune’s current production capacity of 130,000 kg.

“This deal pretty much covers us in the mass market in the U.S.,” he says. “Very soon, there will be private labeling of Neptune products in Costco (NASDAQ:COST), Wal-Mart (NYSE:WMT), Walgreen (WAG) and CVS. You will see their brand-name as well as private labeling.”

Neptune also announced the appointment of Raj Nakra Associates as an agent in India, a country with more than 300 million people in the middle class who are becoming increasingly aware of the need for wellness and prevention, rather than treatment, of diseases. Neptune figures India could represent as much as 15% of its overall revenues within the next five years.

To support market growth estimates, Neptune is expanding its manufacturing plant in Sherbrooke, Quebec, in three phases. Initially, capacity is scheduled to double to almost 300,000 kg per year by early 2012 and then expand further to 430,000 kg in 2014. The final phase to bring manufacturing capacity to 550,000 kg per year will require construction of another plant in a joint venture starting in several years, Godin suggests.

“We have other distribution deals in the works, and that makes priority number one increasing plant capacity,” he adds.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.