NEPT Catalyst Research | June 18, 2012
- 1. C atalyst Equity Research NEPTUNE TECHNOLOGIES & BIORESSOURCES INC. Company Update June 18, 2012 (TSX : NTB $3.96 NASDAQ : NEPT $3.86) Recommendation: BUY Target Price: C$8.75 Share Price Target Increased to $8.75 Prior Target Price: C$7.00 Leveraged to Clinical Trials For CaPre™ - The Next Blockbuster! Risk: High Nutraceutical Outlook is Positive Driven by Sales & Solid Margins Market Data Current Price $3.96 Neptune Technologies & Bioressources Inc. (Neptune) develops and commercializes products for 52-Wk Range $2.25-4.02 the nutraceutical, medical food, functional food and over-the-counter (OTC) markets. Neptune’s Mkt. Cap. (mm) $197 products are based on Omega-3 fatty acid phospholipids extracted from Antarctic krill, a tiny crusta- Dividend $0 cean. Pre-clinical and initial clinical testing have shown NKO™ (Neptune Krill Oil) to be beneficial Yield 0% in LDL & triglyceride reduction as well as HDL elevation, all of which are essential in treating chronic cardiovascular conditions. In addition, Neptune focuses on inflammatory and neurological Financial Data disease management. Neptune has two subsidiaries, Acasti Pharma Inc. (Acasti, APO – TSX.V) and Fiscal Y/E February 28 NeuroBioPharm Inc. (NeuroBioPharm). Acasti (57% owned) is developing a product portfolio S/O Basic (mm) 49.7 focused on treatments for chronic cardiovascular conditions within the OTC, medical food and pre- Shares O/S f.d. (mm) 52.8 scription drug markets. Acasti’s drug candidate, CaPre™, leverages off NKO™ and is conducting Total Debt (mm) $5.7 a Phase II clinical trial in Canada. NeuroBioPharm (100% owned) is pursuing pharmaceutical 2012 Sales (mm) $19.1 and medical food neurological applications aimed to improve the cognitive and emotional health of 2013 Sales Est. (mm) $28.0 children and adults. 2014 Sales Est. (mm) $36.0 Estimates (f.d.) Conclusion – Strong Buy Maintained Neptune’s management has made significant progress in increasing shareholder value. In addition Year 2012A 2013E 2014E to having a strong cash position, Neptune has: (i) initiated a Phase II clinical trial and an open label trial, Adj. EBITDA/Shr.(1) $0.06 $0.12 $0.16 through its subsidiary Acasti, for the drug candidate CaPre™, (ii) secured distribution agreements in the EPS $(0.04) $(0.06) $(0.14) U.S. and Canada which have placed Neptune’s nutraceutical products in major retailers such as Walmart, Walgreen, CVS and Shoppers Drug Mart, (iii) aggressively pursued its Intellectual Property rights, (iv) Valuations initiated construction to double the Sherbrooke plant capacity, (v) secured orders to almost fully uti- lize the additional capacity, (vi) initiated management changes clearly addressing it’s future as a global Year 2012A 2013E 2014E competitor, including adding valuable human resources such as Dr. Harlan Waksal, founder of ImClone Adj. P/EBITDA Mult. 65.0x 32.9x 24.6x Systems, as well as NFL football legion, John Elway, and (vii) generated positive nutraceutical cash flow EV/Revenue Mult. 10.2x 7.0x 5.4x at higher than expected margins with even better results expected over the next two years. (1) Adjusted EBITDA - see Financial Forecast We have revised Neptune’s 12-month share price target to $8.75 from $7.00. This increase is driven largely by our recent de-risking of Acasti’s potential success in its clinical trials for its drug candidate, Neptune Technologies & Bioressources Inc. CaPre™. By marginally lowering our discount rate to 30% from 35% in our discounted cash flow model, our Acasti share valuation increased to $4.50 from $2.75. Furthermore, strong global demand for krill oil is expected to generate increased sales for Neptune’s nutraceutical business which has resulted in a higher valuation for that business as well. Neptune has many moving parts. The important message for investors to understand is that each of Neptune’s operating components has the potential to add exceptional leverage to its valuation. Look- ing out 6 to 12 months, investors will no doubt continue to focus on Acasti’s clinical trials. Assuming successful CaPre™ clinical trial results that we expect to be released later this year, our discount rate assumption, as illustrated in Figure 2, could drop even further to potentially 20% from 30% currently. Chart Courtesy Big Charts This lower discount rate would impute an additional $3.25 per Neptune share and would put our expected valuation target for Neptune closer to $12.00 per share. Robin Cornwell 416-910-7985 Figure 1: Neptune Share Valuation rcornwell@catalystresearch.ca Neptune Major Components Enterprise Value % Ownership Assumed Per Neptune Share Notes: Nutraceutical Operations $200 million 100% $4.00 All figures in Canadian dollars, unless otherwise specified. Acasti Pharma Inc. $325 million 57% $3.75 NeuroBioPharma Inc. $50 million 100% $1.00 Please see the final pages of this document for important disclosure information. $8.75 Catalyst Equity Research Inc. 99A Walmer Road, Toronto, ON Canada M5R 2X6 Tel: (416) 910-7985 rcornwell@catalystresearch.ca www.catalystresearch.ca
- 2. Page 2 Neptune Technologies & Bioressources Inc. VALUATION Neptune has evolved into many moving components. After reassessing the potential of each component, we have revised our 12-month share price target for Neptune to $8.75 per share, up from $7.00 per share. Our valuation is broken into three principal areas as follows and discussed in more detail below. 1. Nutraceutical – Implied Value of $4.00 Per Neptune Share There are few comparable companies for valuing nutraceutical operations. Martek Biosciences Corp. was acquired by Royal DSM NV in 2010 for US$1.1 billion which approximated 2.5 times LTM sales and 11.0 times LTM EBITDA. In earlier stages of growth, Martek’s valuation approached 4.0x and 25.0x revenue and EBITDA respectively. Aker BioMarine (AKBM), which is Neptune’s closest peer, based out of Norway, is not profit- able. In order to value the nutraceutical business, we have performed a discounted cash flow (DCF) analysis. We have assumed revenues from the sales of NKO™ will increase to approximately $100 million by fiscal year end 2017 (a CGAR of 38%) and beyond 2017, we have assumed a CGAR of 15%. We have also factored in EBITDA margins ranging from 20% to 25%. Assuming a discount rate of 12% for the commercial risk associated with the business, we arrive at a Net Present Value (NPV) of $4.00 per share. Based on our fiscal 2014 revenue forecast of $36.0 million and our adjusted EBITDA forecast of $8.0 million, our Neptune NPV implies a valuation of 5.5 times and 25.0 times revenue and adjusted EBITDA respectively. 2. Acasti Pharma Inc. – Imputed Value of $3.75 Per Neptune Share Acasti’s one-year share price target has been increased to $4.50 from $2.75 (refer to the Catalyst Research updated report on Acasti Pharma Inc. dated June 18, 2012). This target for Acasti reflects a minimum value for its drug candidate, CaPre™ of $4.40 per Acasti share. In addition, we place a valuation of $0.10 per Acasti share on Onemia™, an FDA approved medical food. In total, this valuation for Acasti amounts to over $330 million and when factored into Neptune’s share ownership imputes a value of $3.75 per Neptune share. We justify this new valuation on our higher degree of confidence that indications from several areas of testing will result in increasingly positive results in reducing triglyceride levels as well as improving total cholesterol (TC). Acasti is currently well into its Phase II, double blind, placebo controlled clinical trial for its principal drug candidate CaPre™. Although we do not expect results from this trial until early 2013, investors may not have to wait quite that long as there are two other indications underway that could give important guidance as to the potential outcome of the Phase II clinical trial; namely, a parallel open label study on CaPre™ and the ongoing demonstrated efficacy of its FDA approved medical food Onemia™. • CaPre™ Open Label Trial: In addition to the Phase II clinical trial, Acasti initiated a smaller Open Label trial on CaPre™. Results from this trial are expected before the end of 2012. • Onemia™: An FDA approved medical food (administered under the supervision of a physician), is being marketed for sale in the U.S. Initial results from physicians in the U.S. have demonstrated success in reducing triglyceride levels as well as improving TC. Additional results over the next several months could further substantiate these indications. To recap, CaPre™, in a preclinical animal study, has already outperformed two serious players in the same arena; namely, Lovaza™ (fish oil derived FDA approved drug with over US$1 billion in sales) and Amarin’s ARM101 Phase III drug candidate (also fish oil based). Lovaza™ low- ers triglycerides but negatively affects LDL. Amarin goes one better than Lovaza™ by lowering triglycerides with little impact on LDL levels. CaPre™ has been shown to not only lower triglycerides substantially more than Lovaza™ but have a positive impact on cholesterol management by lowering LDL & increasing HDL. We have reassessed our discounted cash flow (DCF) model for Acasti and its prescription drug candidate CaPre™. Based on our higher degree of confidence that indications from multiple areas of testing will report positive results, we have lowered the discount rate in our DCF model to 30% from 35%. We believe this valuation is still very conservative and not out of line with valuations achieved for the likes of Amarin at the same stage. Furthermore, this valuation does not take into account the prospects of milestone payments from a prospective partner after completion of the Phase II clinical trials. Amarin’s market cap recently hit US$1.6 billion while Acasti’s is only slightly above $150 million. Our discounted cash flow model indicates a present value of $4.40 per Acasti share for its principal product CaPre™ and $0.10 per share for its functional food product Onemia™. We have, therefore, increased our one-year share price target for Acasti to $4.50 from $2.75. Figure 2: Acasti Valuation Target Projected Acasti Share Price Assumed Discount Rate 15% 20% 25% 30% 35% PV Attributed to CaPre™ $ 9.25 $ 8.00 $ 6.65 $ 4.40 $ 3.00 PV Attributed to Onemia™ $ 0.25 $ 0.20 $ 0.15 $ 0.10 $ 0.05 Acasti Implied Share Value $ 9.50 $ 8.20 $ 6.80 $ 4.50 $ 3.05 Catalyst Equity Research
- 3. Neptune Technologies & Bioressources Inc. Page 3 3. NeuroBioPharm – Minimum Value of $1.00 Per Neptune Share NeuroBioPharm’s net present value has been maintained in the range of $1.00 to $2.00 per Neptune share. NeuroBioPharm is developing products targeting neurological applications and is somewhat of a hybrid vehicle like Acasti whereby it is focused on developing omega-3, OTC, medical food and pharmaceutical products. • NeuroBioPharm is developing a prescription drug candidate with neurological applications including Alzheimer’s Disease and ADHD. • A recently completed pre-clinical study showed a significant effect strongly resembling the activity of methylphenidate or Retalin®, a drug recognized as the gold standard for the treatment of Attention Deficit Hyperactivity Disorder (ADHD). • Management has indicated that it is presently considering re-submitting another non-offering prospectus to security authorities in Canada. This may lead to issuing shares of NeuroBioPharm directly to Neptune’s shareholders in the near future. REVIEW OF RECENT EVENTS Neptune recently reported financial results for the fiscal year ended February 29, 2012. In addition, management recently hosted an investor forum review- ing the financial results as well as addressing other key issues. U.S. & Canada Distribution and Marketing Agreements • Neptune’s U.S. distributors have launched both NKO™ and EKO™ products in major U.S. stores including Walmart, Walgreens, and CVS. These distributors collectively represent close to 30% of the U.S. mass market nutraceutical business accessing over 100 million Americans with nation- wide coverage in over 54,000 retailers. It is estimated that the demand will be 50,000 kg per year. • Distribution agreement with Jamieson in Canada under the label “Omega Super Krill Oil” to reach 7,000 stores. • Recent exhibition in Europe yields potential new orders of 150,000 kg/yr. • Multi-year partnership and marketing agreement concluded with the former NFL Super Bowl Champion and Hall of Fame quarterback, John Elway. • Neptune received a sustainability certification of marine products from an international organization known as “Friends of the Sea”. This certifica- tion or “eco-label” can be extended to Neptune’s distributors. Plant Expansion • Management indicated that the Sherbrooke, Quebec Phase I plant expansion is scheduled for completion in the first quarter of calendar 2013. This expansion is expected to double the current 150,000 kg per year capacity to 300,000 kg per year and will be completed without any interruption of the current production facility. • Phase II of the expansion is expected to commence in calendar 2014, enabling production to increase to 500,000 kg/yr supporting annual sales of approximately $80 million. • The $14.0 million financing for Phase I will consist of $6.5 million of debt, $3.0 million of an interest-free loan, $2.5 million from a grant and $2.0 million financed by Neptune’s cash flow. Neptune’s Intellectual Property (IP) Strategy • Neptune obtained U.S. Patent 8,030,348 (‘348 Patent) from the U.S. Patent & Trademark Office (USPTO) covering omega-3 phospholipids com- prising of polyunsaturated fatty acids, one of the main bioactive ingredients in all recognized Krill Oils. The patent, which covers marine phospho- lipids to which the omega-3 fatty acids EPA and DHA are bound, was granted for the U.S. market and is valid until 2025. At the request of Aker Biomarine, Neptune’s major competitor, the USPTO has agreed to a re-examination of the patent. This occurs with 95% of all patents issued and was anticipated. The process is expected to take 2 to 3 years. Meanwhile the patent awarded to Neptune remains valid and enforceable. • Management further announced that the USPTO has allowed one of its continuation patent applications which contains claims to further support the invention disclosed in the ‘348 Patent. This is specific to krill extracts comprising a phospholipid suitable for human consumption. These claims cover a variety of krill oil products presently sold in the U.S. market. The fact that the USPTO has allowed this continuation of the ‘348 Patent after the Aker re-examination request is positive for Neptune’s position. We believe these indications will make distributors of competitor krill oils very nervous about the longevity of their brands in the U.S. • Neptune recently filed for re-examination of an Australian patent (AU2008231570) granted to its competitor Aker BioMarine of Norway. Neptune believes that the claims of Aker’s patent are not valid given previous opinions of the USPTO and European Patent Office. Neptune positions itself that its activities do not infringe Aker’s IP and is confident that the Australian Patent Office will agree that Aker’s patent is invalid. Chinese Joint Venture • Neptune is now reviewing the IP evaluation recently completed by Ernst & Young. This evaluation will need to be agreed to by both Neptune and its potential 50%/50% joint venture (JV) partner Shanghai KaiChuang Deep Sea Fisheries (SKFC). • The JV is to be named Neptune-SKFC Biotechnology. The intent of the JV is to supply Asia with Neptune’s products. • Neptune will receive upfront payments and royalty payments. Expected sales are estimated at 300,000 kg/yr. Neptune expects that their share of the investment will be largely covered by the up-front payments. • We have not factored any of this JV into our projections for Neptune. The JV is expected to be fully operational by the end of calendar 2014. Catalyst Equity Research
- 4. Page 4 Neptune Technologies & Bioressources Inc. Functional Foods vs Nutraceutical Market • Yoplait: Clinical trials for functional/medical food applications have been completed and the results were positive. Yoplait will not be collaborating with Neptune, however, Neptune is conducting another clinical study on Joint health with a new partner following Yoplait’s recommendation. • Nestle: Clinical trials for functional/medical food applications achieved positive indications. However, Nestle officially informed Neptune that it would not enter into formal negotiations to proceed with product development based on internal reasons. Nestle indicated that it would be interested in future developments. • Krill Oil Demand: Management indicated that it will focus on its success in the escalating demand for its EKO™ and NKO™ krill oils. We believe that the consumer products market is so intensely competitive that companies such as Nestle are having difficulty offering enhanced products at the necessary price points. On the other hand, Krill oil, in capsule form as a nutraceutical, is just at the forefront of capturing a larger market share particularly at the expense of fish oils. Management Changes and Restructuring Initiatives • Dr. Harland Waksal was appointed to the Board of Directors. Dr. Waksel was founder of ImClone Systems which was acquired by Eli Lily for US$6.5 billion. • Dr. Tina Samplais has been designated as Chief Global Strategic Officer of Neptune, Acasti and NeuroBioPharm. • Wael Massrieh has been appointed Vice President Science Affairs responsible for Neptune’s R&D program. • Eric Simard has been appointed Vice President Science & Development responsible for all innovation of manufacturing processes as well as clinical research. • Michel Timperio has been appointed Vice President Global Sales responsible for sales & business development. Figure 3: Neptune Sales Distribution Year-Ended February 29, 2012 Other, 1.6% Australia, 22.5% Canada, 11.5% Europe, 23.6% United States, 40.8% Review of Operating Results for Q4/12 & Fiscal Year-End Feb. 29, 2012 Fiscal 2012 Review • For the year ended February 29, 2012, revenue was reported at $19.1 million, up 15% Y/Y and in line with our forecast of $19.3 million. Sales in Australia tripled while sales in North America increased 15% Y/Y. New distribution agreements in North America are expected to have a material impact on sales going forward. • Adjusted EBITDA for the nutraceutical business was $2.7 million about 20% below our estimate. Management attributed the lower adjusted EBITDA largely to increased legal fees for Intellectual Property defense costs. Neptune is aggressively defending its U.S. and Australian patents. • Gross margin was 53% for the year which was slightly higher than expected. • On a consolidated basis, including Acasti and NeuroBioPharm, Neptune reported an adjusted EBITDA deficit of $2.6 million versus a positive $0.3 million last year. The negative EBITDA was fully expected as Acasti and NeuroBioPharm reported a negative EBITDA of $4.3 million and $0.9 million respectively. The negative EBITDA being attributed to R&D and clinical trial expenses largely in Acasti. • Neptune is in a strong financial position with $16.5 million in cash and short-term investment as at February 29, 2012. We expect this level to be only marginally lower at the end of Q1/13. • Adjusted EBITDA margin for fiscal 2012 decreased to 14.1% from 16.9% last year. If certain expense items were normalized, such as legal fees, we estimate that the EBITDA margin would have been closer to 20.0% for the latest year. • For fiscal 2012, Australian sales more than tripled to $4.3 million over fiscal 2011 and represented over 22% of total sales. United States remained the largest market segment and represented 41% of total sales. Catalyst Equity Research
- 5. Neptune Technologies & Bioressources Inc. Page 5 • Long-term debt declined to $2.8 million from $3.8 million as at the end of the last fiscal year-end. Total debt at year-end was $5.7 million. Q4/12 Review • Q4/12 reported record revenue at $5.4 million, up 32% Y/Y and in line with expectations. • Q4/12 adjusted EBITDA for the nutraceutical business was reported at $185,000. This was lower than expected, however, as previously noted was in part the result of higher legal expenses of about $500,000. • Gross margin was 54% in the quarter which was significantly better than expected. Figure 4: Neptune Income Statement & Forecast Years Ended February 28 2011 2012 2013E 2014E Total Revenues (1) $16,686,000 $19,137,000 $28,000,000 $ 36,000,000 Cost of Sales $ 7,365,000 $ 9,064,000 $13,700,000 $ 17,500,000 Gross Margin $ 9,321,000 $10,073,000 $14,300,000 $ 18,500,000 Gross % Margin (2) 55.9% 52.6% 51.1% 51.4% Operating Expenses Selling Expense $ 1,410,000 $ 2,090,000 $ 2,400,000 $ 2,800,000 General & Admin. Expense $ 6,682,000 $ 9,804,000 $12,600,000 $ 14,500,000 Research & Development $ 3,026,000 $ 5,841,000 $ 6,500,000 $ 16,500,000 Tax Credits $ (267,000) $ (1,932,000) $ - $ - Total Operating Expenses $10,851,000 $15,803,000 $21,500,000 $ 33,800,000 Operating Activites (Loss) $ (1,530,000) $ (5,730,000) $ (7,200,000) $(15,300,000) Net Finance Income $ (163,000) $ 137,000 Net Income (Loss) Before Tax $ (1,693,000) $ (5,593,000) $ (7,200,000) $(15,300,000) Income Tax Deferred (3) $ (1,000,000) $ - $ - Net Profit (Loss) $ (1,693,000) $ (4,593,000) $ (7,200,000) $(15,300,000) Attributable to Owners $ (410,000) $ (1,928,000) $ (3,200,000) $ (7,000,000) Non-controlling Interest $ (1,282,000) $ (2,665,000) $ (4,000,000) $ (8,300,000) Owners Net Profit (Loss) Per Share $ (0.01) $ (0.04) $ (0.06) $ (0.14) EBITDA Depreciation & Amortization $ 812,000 $ 764,000 $ 800,000 $ 1,000,000 Finance Costs $ 616,000 $ 380,000 Stock Based Compensation $ 737,000 $ 3,449,000 $ 4,000,000 $ 4,000,000 FX Gains & Fair Value Changes $ (157,000) $ (393,000) $ - $ - Income Taxes $ - $ (1,000,000) $ - $ - Other Including Prior Tax Credits $ (57,000) $ (1,200,000) $ - $ - Total EBITDA Adjustments $ 1,951,000 $ 2,000,000 $ 4,800,000 $ 5,000,000 Consolidated EBITDA $ 258,000 $ (2,593,000) $ (2,400,000) $(10,300,000) Subsidiary R&D and Other Expenses Acasti & NeuroBioPharm (4) $ (2,560,000) $ (5,283,000) $ (8,200,000) $(18,300,000) Adjusted EBITDA (Nutraceutical) $ 2,818,000 $ 2,690,000 $ 5,800,000 $ 8,000,000 Per Share $ 0.07 $ 0.06 $ 0.12 $ 0.16 Adjusted EBITDA % Margin 16.9% 14.1% 20.7% 22.2% Basic Average Shares O/S 40,463,000 48,205,000 50,000,000 50,000,000 Est. Ful. Dil. Shares O/S 52,800,000 54,000,000 (1) Includes research contract income and advanced payments of $926,268 and $826,768 in 2011 & 2012 respectively (2) Cost of goods sold as a % of revenues (3) Assumes no taxes payable near-term (4) Estimated R&D & other expenses Catalyst Equity Research
- 6. Page 6 Neptune Technologies & Bioressources Inc. FINANCIAL FORECAST Financial Outlook – Fiscal 2013 & 2014 (years ended February 28) Management recently provided guidance that Q1/13 (ended May 31, 2012) revenues would be in the range of $6.0 to $6.2 million representing a Y/Y in- crease of over 40%. Furthermore, management also indicated that it had secured future orders of about 150,000 additional kg annually. The latter represents virtually the entire additional capacity expected to be in place at the Sherbrooke plant next year. The orders are principally from Asia, Oceania as well as Europe. Of course, we also expect significantly higher sales from the increased distribution network now in place in both the U.S. and Canada. Highlights of our forecast are outlined below: • For fiscal 2013, we forecast revenue to increase to the $28.0 million for a Y/Y increase of 46%. This level of sales is about 5% to 10% higher than our previous estimate. The forecast includes only a modest level of sales from medical foods. • For fiscal 2014, we forecast revenue to increase to $36 million for a Y/Y increase of over 25%. This level of sales reflects further penetration of the global krill oil nutraceutical market which is becoming the fastest growing ingredient of the entire Omega-3 market. • Neptune’s gross nutraceutical margin is expected to average 51% for both years. • For fiscal 2013, our adjusted EBITDA forecast is $5.8 million or $0.12 per share. Although this is more than double the level reported in fiscal 2012, we have assumed lower legal expenses associated with the IP defense. • For fiscal 2014, our adjusted EBITDA forecast is $8.0 million or $0.16 per share. This represents a 35% increase over fiscal 2013. • Our estimated adjusted EBITDA margin is forecast to increase to 20.7% and 22.2% in fiscal 2013 and 2014 respectively. • Consolidated EBITDA for fiscal 2013, including all expenses of Acasti and NeurobioPharm, is estimated at a negative $2.4 million versus a negative $2.6 million reported in fiscal 2012. The improved EBITDA estimate is entirely due to the higher expected nutraceutical EBITDA. Although our forecast does not assume any milestone payments, we nonetheless expect Acasti to enter Phase III clinical trials with a major pharmaceutical partner in fiscal 2014 (calendar 2013) which could generate significant potential payments. • We have assumed that the plant expansion will be complete by the beginning of fiscal 2014 and will ramp up to full capacity of 300,000 kg annually. At this new level of capacity, we expect Neptune could generate almost $50 million of sales. This expansion is expected to be done without any interruption of the current production levels. Adjusted Earnings Defined Neptune restructured its pharmaceutical operations in 2008 into two distinct pharmaceutical subsidiaries, Acasti for cardiovascular applications and NeuroBioPharm for neurological applications. Both subsidiaries are exploiting opportunities in the OTC, Medical Foods and Pharmaceutical Drug market within their respective applications and will incur expenses, largely R&D related, in order to develop commercial applications. In order to better represent the operating performance of Neptune’s nutraceutical business, we have used adjusted EBITDA which excludes the expenses associated with Acasti and NeuroBioPharm. Figure 5: Neptune Balance Sheet Assets Feb 29-12 Feb 28-11 Liabilities Feb 29-12 Feb 28-11 Current Assets: Current Liabilities: Cash $ 3,765,000 $ - Bank Overdraft $ - $ 40,000 Short-Invest. & Interest $ 12,711,000 $ 3,513,000 Loans & Borrowings $ 2,909,000 $ 1,615,000 Accounts Receivable $ 8,621,000 $ 5,627,000 Trade & Other Payables $ 4,971,000 $ 3,258,000 Tax Credits Receivable $ 1,216,000 $ 645,000 Advance Payments $ 813,000 $ 824,000 Inventories $ 6,833,000 $ 4,545,000 Private Placement Warrants $ 574,000 $ - Prepaid Expenses $ 430,000 $ 968,000 Total Current Assets $ 33,576,000 $ 15,298,000 Total Current Liabilities $ 9,267,000 $ 5,737,000 Property & Equipment $ 7,552,000 $ 6,086,000 Loans & Borrowings $ 2,845,000 $ 3,800,000 Gov't Grant Receivable $ 50,000 $ 150,000 Shareholders Equity Intangible Assets $ 1,358,000 $ 1,269,000 Capital Stock $ 45,842,000 $ 31,148,000 Invest. Tax Credits Rec. $ 1,200,000 $ - Warrants $ 743,000 $ 105,000 Deferred Tax Asset $ 1,000,000 $ - Contributed Surplus $ 13,157,000 $ 9,471,000 Deficit $ (31,973,000) $ (28,586,000) Total Shareholders Equity $ 27,769,000 $ 12,138,000 Non-controlling Interest $ 3,179,000 $ 921,000 Subsidiary Options $ 1,676,000 $ 207,000 Total Equity- Non-controlling $ 4,855,000 $ 1,128,000 Total Equity $ 32,624,000 $ 13,266,000 Total Assets $ 44,736,000 $ 22,803,000 Total Liab. & Shr. Equity $ 44,736,000 $ 22,803,000 Catalyst Equity Research
- 7. Neptune Technologies & Bioressources Inc. Page 7 RISK FACTORS As an emerging company with a relatively short history, Neptune (Company) is faced with a number of risks which could adversely affect its operations, our forecasts and its stock price. We have outlined some of these below: • Neptune has a small management group. The loss of any one of these individuals could have a negative impact on the Company and its develop- ment. Many of the key employees have been with the Company since it was founded. • Neptune is dependent on a major product. Any negative developments related to NKO™ could seriously affect the Company. • Neptune is dependent on, in some cases, lengthy and expensive testing procedures to obtain regulatory approvals for the use of its product, particu- larly in the pharmaceutical area. Delays in receiving approvals could negatively impact the Company’s results. • Neptune is faced with competition by larger and financially stronger companies largely in the pharmaceutical area. • Competitive products may render NKO™ obsolete. Neptune considers the strengthening and defense of its IP protection critical to its develop- ment. • Neptune may not have sufficient funds available to complete intended clinical studies and trials. • Clinical studies and trials may take longer than anticipated to complete or may fail to establish the intended results. • The Company may require further financing to fund its operations including its R&D programs. Definition of Risk Rankings Low: Low financial and operaional risk, high predictability of financial results with stronger than average balance sheet and strong free cash flows. Company may pay substantial dividends or have an active share repurchase program. Medium: Moderate financial and operational risk, moderate predictability of financial results, positive free cash flows and may or may not pay a dividend. High: High financial and/or operational risk, low predictability of financial results. Limited financial history, negative free cash flows, adequate working capital and no dividends. Definition of Research Ratings The Catalyst research recommendation structure consists of the following categories: Buy: The stock’s total return, including dividends paid, is expected to exceed a minimum of 15% on a risk-adjusted basis, over the next 12 months. Hold: The stock’s total return, including dividends paid, is expected to be between 0% and 15%, on a risk-adjusted basis, over the next 12 months. Sell: The stock’s total return, including dividends paid, is expected to be negative over the next 12 months. Speculative: The stock’s total return is expected to exceed 30% over the next 12 months; however, there is material event risk associated with the investment that could result in significant loss. Note: Analysts have discretion within 500 basis points of the upper and lower limit of each rating to maintain the recommendation. Analyst Certification All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of the subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report. The information contained in this report has been compiled by Catalyst Equity Research Inc. (“Catalyst”) from sources believed to be reliable, but no representation or warranty, express or implied, is made by Catalyst, its affiliates or any other person as to its accuracy, completeness or correctness. All opinions and estimates con- tained in this report represent Catalyst’s judgment as of the date of this report and are subject to change without notice and are provided in good faith but without legal responsibility. This report is not an offer to sell or a solicitation to buy any securities. Catalyst and its affiliates may have a relationship or may receive compensation for services with some or all of the issuers mentioned. Catalyst or its affiliates or officers, directors, representatives, associates may have a position in the securities mentioned herein, and may make purchases or sales of these securities from time to time in the open market or otherwise. The securities discussed may not be eligible for sale in all jurisdictions. To the full extent permitted by law neither Catalyst nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of Catalyst. This report is not for distribution in the United States of America. Catalyst Equity Research