Tuesday, 27 November 2012

Summary of Neptune Conference Call & Trading Resumption

Neptune Technologies & Bioressources
Basic Shares: 48.2 million
Fully diluted: 53.9 million

This morning at 9am ET Neptune hosted a conference call to outline its action plan to investors prior to the start of trading this morning. At the point of the posting of this blog Neptune has traded over 2.6 million in the US and 455 thousand in Canada. It appears the share price has established a base in the mid-$2.30’s.

On the call was Henri Harland, CEO, Andre Godin, CFO, and Dr. Harlan Waksal, a member of the Board of Directors. Below is a summary of that call.

-  Quickly following the incident that occurred on November 8th, 2012 at its Sherbrooke, Quebec production plant, Neptune established five committees:

  • HR & Communications
  • Sales and Marketing
  • Plant Reconstruction
  • Finance
  • Strategic Committee overseeing potential strategic opportunities and coordinating efforts of all committees.

-    Neptune’s Strategic Action Plan is aiming to meet the following key milestones:

  • Resuming neutraceutical  operations and certain levels of sales of Neptune Krill Oil in the short term
  • Maintaining customer relationships and market share, until production can reach pre-incident levels
  • Reconstructing an operational plant using the expansion facility that was near completion
  • Outsourcing manufacturing with one or more strategic partners, both in the interim and as a longer-term strategy to diversity sources
  • Prudently managing financial resources while continuing product development and clinical trials

-          Plant Reconstruction and Insurance
  • As a central part of the plan, Neptune intends to rebuild an operational production facility.
  • First step is getting the untouched expansion plant up and running
  • Will cooperate with government authorities, and the Sherbrooke plant reconstruction will be subject to the government supporting the reconstruction plan and obtaining the required permits to allow for the operation of the new plant.
  • The cost and timeline to complete the reconstruction is being determined. However, the following assessments have been made thus far:
    • Insurance coverage – Neptune has property, interruption and general liability insurance
    • It will take several months to determine the settlement
    • Expects insurance will cover most of the reconstruction costs
    • The balance of costs are expected to be funded through a refinancing of its existing credit facility put in place to fund a portion of the previously planned expansion
    • Neptune has already received, in connection with the expansion, an interest free loan and a commitment for a government grant
    • The plan for the new production plant is an annual production capacity of approximately 150,000 kg of krill oil per year
    • Future plans for additional capacity – and it’s expected a significant portion will be provided through partnerships and/or arrangements with third party manufacturers
    • An initial estimate of 6-9 months for the new plant to be operational
-          Operations and arrangements with strategic partners
  • It is a top priority to pursue partnerships and/or arrangements with one or more strategic partners for the outsourcing of production of Neptune Krill Oil products, both as an interim measure to ensure certain levels of production prior to the plant being fully operational and as a longer-term strategy to diversify sources and means of production. Outsourced production is being considered in any one or more of Neptune’s markets, in Canada, the United States, Europe and/or Asia
  • Neptune has a limited inventory of krill oil allowing it to make sales during a limited initial period of time, and intends to work towards a gradual increase of sales over the coming months, mainly through partnerships and/or arrangements with strategic partners as discussed above. Neptune expects to be able to begin generating revenue as early as the fourth quarter beginning on December 1st, 2012
  • All things considered, Neptune expects to yield lower sales margins compared to the usual sales margins prior to the incident
  • Neptune’s strategic aim to outsource some of the production serves a short term strategic solution, but is intended to also mark a longer term strategic shift from a one-plant production model to more diversified sources of production
  • Will continue to defend its patents and our intellectual property rights. Will also continue to maintain and develop our intellectual property portfolio and to protect it against infringement by third parties
-          Human Resources
  • Neptune plans to retain approximately 30 of its Sherbrooke employees (10 full-time and 20 part-time) employed to work on the reconstruction of an operational production facility
  • Temporarily laid off over 70 employees in Sherbrooke and at its Laval head office. The duration of the layoff has not been determined
  • Neptune has set up a charitable fund to provide assistance to the employees and families most affected by the incident.  Neptune is in the process of setting up a not-for-profit organization that will assist in collecting and redistributing donations
  • Senior management and employees of Neptune will be taking salary reductions of at least 20% for an interim period during Plan implementation. Neptune expects the decrease of its workforce and reductions in salary to save approximately 45% of our labour costs while such measures are in place

-          Finance, use of public offering proceeds and investor communication
  • In regards to the recent financing, which brought in $34.1 million - If the execution of the Action Plan is successful, Neptune believes it will have close to the same allocation as it disclosed in connection with the Public Offering, except that the amount of approximately $US5 million initially allocated to the expansion of the Sherbrooke plant, which may now be used towards the reconstruction of its production facility or partnerships and/or arrangements with strategic partners.

-          Incident investigation and environment
  • Continuing to cooperate with governmental authorities in the investigation to determine the cause of the incident.
  • Until the investigation is completed, Neptune can’t provide further information regarding the cause of the incident
  • On November 16, 2012, Neptune received from the Québec Ministry of Environment a notice alleging environmental non-compliance relating to specific equipment acquisitions by Neptune and the plant expansion. Further to wrong assertions in the media that such notice may relate to acetone levels, Neptune clarified in media statements that the notice received had nothing to do with the level or the compliance of the total amounts of acetone stored on the Sherbrooke plant site and indicated that the total amounts of acetone stored inside and/or outside the plant, as of and including the date of the incident, were in conformity with the certificate of authorization issued by the Québec Ministry of Environment in 2002. Neptune is cooperating with the Ministry of Environment with the view to settle the notice alleging non-compliance
  • Neptune has provided to the Ministry of Environment a dismantling and cleanup plan for the remains of the plant, accompanied by an environmental monitoring program for soil, surface water and groundwater

-          Activities of Neptune’s subsidiaries – Acasti Pharma and NeuroBioPharm
  • Day-to-day operations and business of Acasti have not been interrupted
  • CaPre™, Acasti’s lead prescription candidate, is currently being evaluated in two Phase II clinical trials, an open-label and a double-blind study, with scheduled interim reports for the latter. All required material for both studies had already been produced
  • Both CaPre™ and Onemia™, Acasti’s product marketed in the United States as a “medical food”, are stored in U.S. facilities outside Neptune’s affected plant.
  • Inventories of CaPre™ and Onemia™ are adequate, the market supply of Onemia™ will continue as planned and the ongoing clinical trials on CaPre® are not interrupted as a result of the incident. Raw material required to produce additional Onemia™ is available and is stored outside Neptune’s affected plant and future production of Onemia™ will be negotiated with third party manufacturers. Acasti will continue to be dependent on the support of Neptune as its controlling shareholder.
  • Although it is at a much earlier stage of development, NeuroBio will stick to its business plan and research and development activities will continue as planned, although milestones and the start of commercialization may be delayed. NeuroBio will also continue to be dependent on the support of Neptune as its controlling shareholder.

An archive of the call will be posted to Neptune’s website tomorrow. www.neptunebiotech.com