Neptune Wellness gets price target raise at Echelon Wealth

The resolution to “years of barbed interaction” between Neptune Wellness (Neptune Wellness Stock Quote, Chart, News: TSX:NTB) and its largest krill oil manufacturing peer Aker Biomarine has Echelon Wealth Partners analyst raising his target on the former.

Yesterday, Neptune announced that it had entered into a broad patent cross-licensing agreement with Aker BioMarine that would end all outstanding litigation between both companies. The agreement means Neptune will have the right to use Aker’s krill oil-related patent portfolio for a royalty payment of (U.S.) $4-million over 15 months, and that Aker would have access to Neptune’s composition patents for a royalty payment of (U.S.) $10-million payable over the same period.

“We are pleased that, through this agreement, the integrity of each company’s intellectual property (IP) is recognized and puts an end to all legal challenges,” said Neptune CEO Jim Hamilton. “Our collective focus can now be even more directed to the growth and development of the omega-3 krill oil market.”

Loe says the development is an immediate positive for Neptune.

“(The) net impact of Aker royalty revenue agreement provides upside to our existing forecasts even before considering any additive economics that a parallel deal with Enzymotec could infuse,” says the analyst. “So starting with the terms as described this morning, terms that by their magnitude alone imply that Aker agrees with the underlying strength of Neptune’s NKO/EKO patent estate (specifically US#8,278,351 but presumably all prior art and follow-on art that were described before and since), Neptune will receive US$2.0M/quarter in royalty payments for the next five quarters in recognition of ‘351s impact on Aker’s freedom-to-operate in the US market.”

In a research update to clients today, Loe maintained his “Buy” rating on Neptune, but raised his one-year target price on the stock from $2.50 to $2.75, implying a return of 97.8 per cent at the time of publication.

Loe believes Neptune will generate Adjusted EBITDA of $10.2-million on revenue of $52.1-million in fiscal 2017, numbers he expects will climb to EBITDA of $17.4-million on revenue of $59.4-million the following year.