Neptune (NEPT) gave the market a surprise last Monday September 19, with the announcement of a significant joint venture in China (see: this article). The firm's new 50/50 joint venture named Neptune-SKFC Biotechnology will manufacture and commercialize Neptune's krill products in Asia, the world's largest market for such goods.
That news was something that had never been discussed by management as an upcoming milestone, so it was a particularly positive surprise. Unfortunately, the dismal markets limited the stock’s reaction. Although it was minimal, there was still a notable showing within the context of the fear and pessimism out there. If these were "normal markets," we think shares may have spiked significantly higher on the news.
In either case, we suspect that management may have a few more unexpected surprises. As promised we have prepared the following list of upcoming catalysts from a combination of recent investor presentations, Management Discussion and Analysis materials and other statements from the annual general meeting. Wherever possible, we have also tried to obtain clarification from management on some issues. Here is what we came up with:
1) Pending distribution of a stock dividend in NeuroBioPharm to Neptune shareholders. This has been known to be coming since the management circular for the June 22, 2011 Annual General Meeting was distributed — a significant part of that circular dealt with issues related to this dividend. A similar dividend of Acasti units was executed in the fall of 2008. Given the success of the Acasti dividend (and the large financial benefit enjoyed by those who received the Acasti dividend) we would expect the announcement of a record date for the NeuroBio dividend to be a catalyst for investors to buy NEPT to ensure that they can benefit from the NeuroBio dividend, too. This catalyst is currently overdue.
2) From the most recent Management Discussion and Analysis: “… the clinical trials for functional/medical food applications with the multinational corporations Yoplait and Nestle [have concluded] and results are expected to be known by fall 2011.”
Fall of 2011 begins on September 23, so it would make sense that we could see these results any day, too.
3) Also from the recent Management Discussion and Analysis: “… upon receipt of the final clinical report for the Alzheimer study, NeurBioPharm will negotiate the terms of a License Agreement with the Multinational corporation …”
We are hearing that the Alzheimer’s trial results will be out before the end of October; although the identity of the multinational corporation could not be confirmed, some appear to think that the Nestle trial and the Alzheimer’s trial are one and the same. If the results are strong, this alone could add some nice value to the stock. We will explain why after we actually see the results.
4) TSX listing: U.S. investors are most familiar with the NASDAQ listing for Neptune, but in Canada, Neptune currently trades on Canada’s junior exchange, the TSX Venture Exchange. In Neptune’s Annual General Meeting presentation, one of the calendar 2011 objectives was “Neptune migrates from TSX Venture to TSX.”
We asked specifically about the significance of this, and it appears that there are a couple of very clear implications here:
- There are institutional investors in Canada who are restricted from purchasing the shares of companies listed on the TSX Venture Exchange who will be able to buy Neptune shares once the company lists on the TSX;
- A TSX listing should result in Neptune being included in various indices, including the S&P/TSX SmallCap Index, and eventually the S&P/TSX Capped Healthcare Index (which currently only has 4 constituents), meaning that "index demand" will become a factor in the demand for Neptune shares.
5) From the most recent Management Discussion and Analysis: “… plant capacity expansion is now Neptune’s top priority. Neptune plans to expand its production capacity to reach, in the first phase, production of 280,000 kg per year.”
Indeed, at least some portion of the $12.5million raised in April will be used for the expansion.
Note, also from the Management Discussion and Analysis: “The project cost will be up to 70% financed by grants, loans and long-term debt.”
We believe this announcement will be a positive catalyst for the stock, because the announcement of a fully financed capacity expansion means that analysts can factor in greater revenue and cash flows from the sale of NKO, without having to factor in any further dilution/financing. This announcement is also overdue.
6) Finally, Neptune’s cardiovascular-focused pharma subsidiary Acasti Pharma is presenting at the 2011 JMP Securities Healthcare Conference at the St. Regis Hotel in Manhattan on Tuesday, September 27 at 12 noon. We believe this has the potential to be a very significant catalyst for NEPT, as Dr. Harlan Waksal (co-founder of Imclone, which was sold to Eli Lilly (LLY) for $6.5billion in 2008) is making the presentation — it will become clear to an increasing number of institutional investors how deeply involved in the company Dr Waksal has become. Please see our July 26, 2011 update on Neptune for more details on Dr. Waksal’s involvement.
With at least six catalysts for the stock in the coming weeks, we continue to be very optimistic. If management executes and reaches these milestones, NEPT may continue to develop into a winner. As always, we will keep you posted.