by Jim Letourneau
Few people would suspect that the most successful animal on the planet is only 6cm long. Fewer still have heard of Euphausia superba, a species of krill found in Antarctic waters. But with a total estimated biomass of 125 to 725 million tonnes, they have few rivals. Recent research indicates that the oil squeezed from krill has health benefits that exceed that of fish oil, prized for its omega-3 content. Given that market research firm Packaged Facts projects the retail market for omega-3 enhanced foods will approach $8 billion by 2012, there could be major growth in the nascent krill oil business.
Neptune Technologies and Bioressources Inc. (NTB.V)
Total Shares: 38,172,210
Market Cap: $75.2 million
One might think that crushing Euphausia superba for their oil content would be a relatively straightforward business. After listening to Neptune’s recent management presentation, it is clear that they are making great strides in turning krill oil into multiples streams of revenue. Fortunately for us, the massive upside potential of Neptune Technologies and Bioressources is currently lost in a maze of scientific jargon and pending corporate shifts.
Rising obesity rates in North America are creating a pharmaceutical gold mine for drugs that treat related diseases. The biggest market of all is for a category of drugs that “control” cholesterol. Known as statins, these drugs lower cholesterol and rack up $26 billion in sales annually (This is why I pay very close attention to what is happening with both Neptune Technologies and Resverlogix, they both target the biggest biotech market).
Neptune’s big advantage is that Neptune Krill Oil (NKO®) is not a drug and as such can be sold to consumers immediately. Health Canada has reviewed Neptunes NKO® reasearch and has approved the following claims for cardiovascular health:
* Two soft gels (one gram) per day help to reduce the levels of LDL (low-density lipoprotein) cholesterol (in conjunction with conventional statin therapy);
* Two soft gels (one gram) per day help to increase the levels of HDL (high-density lipoprotein) cholesterol (in conjunction with conventional statin therapy);
* Four soft gels (two grams) per day help to reduce the levels of triglycerides (in conjunction with conventional statin therapy).
Health Canada also recognized NKOs ability to improve the symptoms of inflammation, osteoarthritisis, and PMS.
Neptune created a pharmaceutical subsidiary called Acasti Pharma Inc. to carry out the research, development and commercialization of active pharmaceutical ingredients (API) for chronic cardiovascular disease. A second subsidiary called NeuroBioPharm is pursuing pharmaceutical neurological applications but most of the present attention is on Acasti.
Acasti currently has three NKOTM derived products:
* CaPreTM is a prescription drug currently in Phase II trials
o lipid management, LDL/HDL, trigylceride, diabetes management
o Phase II trial pending in Canada
* OnemiaTM is a medical food
o Accredited scientific committee has approved the claims of the food.
o In USA will require doctor’s recommendation, in the rest of the world can be mass-marketed to consumers
o Onemia will bring in early revenues
o Open the door for Doctors to prescribe CaPreTM in the future.
* VectosTM is an over-the-counter product
o customized to be blended with existing OTC products
Neptune’s short-term objectives include:
1. Approval of Clinical Trial Application (CTA) for Phase II with CaPreTM in Canada
2. Listing with TSX-Venture authorities of Acasti shares
3. Initiation of Phase II clinical study wth CaPreTM in Canada
4. Submission of IND-application for Phase III clinical study in USA
5. Short-term revenues from commercialization of OnemiaTM in the USA
6. Completion of OTC-VectosTM development and manufacturing
7. Out-license the commercialization of OTC-VectosTM to pharmaceutical partner
Neptune plans to spin out Acasti as a stand-alone TSX-Venture listed company early next year. About 60% of Acasti is owned by Neptune and the other 40% by Neptune insiders. The company is expected to have a fully diluted ~86 million shares outstanding and a listing price between $0.50 and $1.00. This transaction could unlock some of the value that is currently bundled within Neptune.
Neptune’s approach to commercializing krill oil is comparable to that of Pronova BioPharma ASA, a Norwegian company which makes pharmaceuticals from fish oil. Pronova IPO’d in October 2007 with a valuation of (US) $1.27 billion.
Pronova has already experienced some interestig success, licensing one of its products, Lovaza to Reliant Pharmaceuticals. GlaxoSmithKline purchased Reliant for US$1.65 billion in December 2007.
If you’re like me, you probably get sick and tired of “me too” comparisons between tiny unknown companies and those that are in the big leagues. What makes me think that Neptune has a chance at joining the Billion Dollar Club?
There is nothing magic about Pronova’s Lovaza. It is simply purified and concentrated fish oil (omega-3-acid ethyl esters). However it is FDA-approved, along with diet, to reduce very high triglycerides. (triglycerides is the chemical name for lipids or fat). Sales of Lovaza have rocketed to US$1.063 billion in 2009 according to IMS Health
Lovaza reduces triglycerides but it does not increase HDL or lower LDL (in fact a side effect of Lovaza is that it increases LDL). Amarin Corporation (US:AMRN) is developing AMR101, a”semi-synthetic omega-d” currently in phase 3 trials that is LDL neutral. Amarin’s market cap is currently US$300 million.
Neptune’s recently announced preclinical results show that CaPre outperformed Lovaza at managing impaired glucose tolerance (IGT), a serious pre-diabetic state associated with increased risk of diabetes and heart disease.
Neptune’s current C$78.6 million market cap is a bargain. They estimate the cost of their Canadian phase II trial to be $3-4 million. The exercise of warrants in Acasti could raise as much as $9.5 million. Neptune also raised $2.64 million in a recent financing. Acasti expects to self-finance much of its operations and R&D expenditures through early commercialization of its medical food and over-the-counter products.
The bottom line is that krill oil has been documented to have several advantages over fish oil and it is a reasonable big picture speculation that Acasti’s commercialization of krill oil will duplicate or exceed the Billion Dollar Club results of Pronova and Reliant.
Click here for a free trial issue of Jim Letourneau’s Big Picture Speculator. The Big Picture Speculator is an educational newsletter that encourages readers to think for themselves and become better speculators. Jim scours the investment universe for strong market sectors and then features individual companies within these sectors.
Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of Cantech Letter. Cantech Letter is is not a registered investment advisor or broker dealer. All content is provided for information and educational purposes only.
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