Neptune Reports Strong Sales Growth Ahead Of Phase II Results

| About: Neptune Technologies (NEPT)

Neptune (NASDAQ:NEPT) is focused on the development and marketing of over-the-counter (OTC)/nutraceutical products based on its patent-protected Neptune Krill Oil (NKO). In addition the company's majority-owned subsidiary (Acasti Pharma) is developing a prescription-grade version of NKO that is summarized below.

CaPre (NKPL66) (Neptune Krill Oil or NKO-derived, purified omega-3 phospholipid fatty acid) is being evaluated in a pair of ongoing Phase II Clinical Trials ( IDs NCT01455844 and NCT01516151) being conducted by Neptune's 57%-owned subsidiary Acasti Pharma, which has an exclusive license for prescription NKO-based products in addition to Neptune's growing manufacturing capacity. The open-label and randomized double-blind Phase II (TRIFECTA) (expected last around year-end) clinical trial results are expected during 2H12 to support the planned start of pivotal Phase III U.S. trials in 2013.

Last summer, Acasti Pharma announced the nomination of Dr. Harlan Waksal [Imclone co-founder who worked on the clinical development of cancer drug ERBITUX; Imclone was acquired by Eli Lilly (NYSE:LLY) for $6.5 billion in 2008] as Executive Vice-President, Business & Scientific Affairs. Dr. Waksal will lead the clinical development program, including a planned IND filing to begin Phase III clinical trials next year and more recently Neptune announced that he was nominated to serve on the company's board of directors.

Below is a summary of the most recent financial and operating highlights for Neptune.

  • In early June, Neptune provided preliminary results for 1Q Fiscal Year 2013 (FY13) for the three months ended 5/31/12 including projected revenue of $6-6.2 million, which represents an increase of 40-45% from year-ago revenue of $4.3M.
  • In early June, Neptune announced that the U.S. Patent & Trademark Office allowed one of the company's continuation patent applications (U.S. Patent No. 8,030,348 or '348 Patent) related to the composition of phospholipid-based krill oil extracts for human consumption.
  • In late May, Neptune reported 4Q and full-year FY12 financial results including record nutraceutical revenue of $19.1M for FY12 which represents an increase of 15% from FY11 revenue of $16.6M.
  • Neptune reported net income from nutraceutical operations of $2.4M for FY12 compared to $1M in FY11.
  • Neptune reported consolidated results for FY12 that included a net loss of ($4.6M) vs. ($1.7M) during FY11, which includes a ($6.5M) net loss for Acasti during FY12 including ($3.1M) in research and development (R&D) expenses for ongoing Phase 2 clinical trials of CaPre.
  • As of 2/29/12 (end of FY12), Neptune reported $16.5M in cash and investments with 48.2M shares of common stock outstanding and total debt of $2.9M.
  • In MAR 2012, Neptune announced that it finalized expansion plans for its Sherbrooke, Quebec plant, which includes over $20M invested and is expected to generate at least 40 new jobs w/ expected completion by NOV 2012. The manufacturing plant expansion project will triple the company's annual NKO production capacity and also included significant financial support in the form of grants, tax credits and interest-free loans from Quebec government that exceed $17M with the balance paid by Neptune's working capital.
  • In FEB 2012, Neptune agreed to a stay of litigation with Aker BioMarine and Schiff during an ongoing patent re-examination process (which commonly lasts 2-3 years) at which time Neptune's patents surrounding krill oil remain valid and enforceable.
  • In FEB 2012, Acasti Pharma completed a $2M private placement including $1M invested by Dr. Harlan Waksal (Acasti's Executive Vice-President, Business & Scientific Affairs) and $1M invested by Neptune.

With the recently issued strong sales guidance for 1QFY13 and positive patent news, Neptune appears poised to hold its recent stock price gains trading near the 52-week high ahead of key Phase II results expected later this year to support the planned start of pivotal Phase III trials next year. Also, Neptune is in a unique position compared to most development-stage companies with a growing OTC health supplement business for NKO and a majority-owned subsidiary as a distinct business entity for research and development activities.

However, it should be noted that success in the Phase II trials will require improved results and a differentiated product profile (i.e. the ability to lower triglycerides, lower bad cholesterol and possibly improve good cholesterol) compared to the current leader in the prescription-grade omega-3 fatty acid space Amarin (NASDAQ:AMRN) with AMR101, which has demonstrated an improvement (i.e. neutral effect on bad cholesterol while lowering triglycerides for AMR101) over the only approved drug in the space (LOVAZA) marketed by GlaxoSmithKline (NYSE:GSK) and is likely to receive FDA approval this year.

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