TSX: NTB - NASDAQ: NEPT
Basic Shares: 48.2 million
Fully diluted: 53.9 million
Top Rodman & Renshaw Biotech Analyst Elemer Piros, Ph.D. issued an update report today based on news that came from Neptune Technologies about a recent Australian krill oil patent dispute with its main competitor, Aker Biomarine.
Here is a copy of the circular, which reinforces Rodman’s $7.00 price target for NEPT and summarizes Neptune’s position.
Remaining Confident in Neptune’s Patents
• On April 29, 2012 Aker Biomarine (AKBM.OL, Not rated) was granted an Australian krill oil patent
• Neptune has developed a defense strategy
• Aker's patent is probably unenforceable in relation to Neptune Krill Oil
• Neptune is the exclusive licensee of a foundational patent for krill oil extraction granted in 2004
• We maintain our Market Outperform rating and $7 Target Price on Neptune
On April 29, 2012 Aker Biomarine announced that the company was granted an Australian patent (2008231570) containing claims covering a krill oil composition containing (1) astaxanthin in the range from about 400mg/kg to about 2,500mg/kg and (2) ether phospholipids (3%-10%).
Neptune has developed a defense strategy based on prior use. The company was exploiting its krill oil prior to the earliest claimed priority date of Aker's patent application. Therefore, Neptune might have a complete defense to infringement due to prior use, meaning Aker's patent would be probably unenforceable in relation to Neptune Krill Oil. In addition, Aker’s patent could be invalid due to prior publications by Neptune and others.
Neptune is the exclusive licensee of a foundational patent for krill oil extraction (AU1999064552) granted in January 2004. Aker filed for Australian patent protection only in March 2008. Additionally, Neptune has also filed for a patent application with krill oil claims (AU2002322233) in July 2002, well before Aker’s application.
Neptune is aggressively defending its position with the Australian Patent Office. The company remains confident in the strength of its Australian krill oil patents.
We value Neptune shares, based on a sum of the parts analysis: (1) probability-adjusted NPV model for CaPre®, which yields $120MM (58% ownership), and (2) a DCF valuation on the nutraceutical business, which contributes $230MM plus $26MM projected cash to our model. The combined value of these two programs is estimated at $370MM, or $7/share, factoring in fully diluted shares. Upon completion and successful outcome of CaPre® Phase 2 development, the value attributed to this program could rise from $120MM to $240MM, boosting Neptune’s target value from $7 to $9/share, in our view.
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