Tuesday, 13 August 2013

H.C. Wainwright & Co. Initiates Coverage On Neptune - $9 Target

Neptune Technologies and Biorresources
Basic Shares: 60.0 million
Fully Diluted: 67.5 million

Under the creative title of “License to Krill”, New York based H.C Wainwright & Co. initiated coverage today on Neptune Technologies with a BUY rating and a 12 month price target of $9.

According to H.C. Wainwright Analyst, Andrew Fein, “NEPT offers a singular 2-in-1 long option for investors who want to maintain a presence in the omega-3 market by covering both OTC marine supplements and prescription pharmaceuticals.”

Key points in the report include:

  • Presenting a well-oiled long hedge in the omega-3 space: NEPT and AMRN. 
    • Now that Omthera has been consumed by AstraZeneca’s pipeline, current and new investors in Amarin (AMRN – Buy Rating) are seeking to de-risk their long position by hedging on other omega-3 prescription pharmaceuticals, as well as the ever-popular omega-3 OTC supplements, given the crowded and undifferentiated nature of the omega-3 market.
  • NKO’s composition differentiates it from other OTC marine products. 
    • Although the average fish oil dietary supplement product contains ~2-3x the amount of omega-3 fatty acids, NKO’s DHA and EPA are chemically conjugated to phospholipids which according to a NEPT study increase their bioavailability by ~2.5x.
  • Sales of krill oil and other OTC marine supplements will likely benefit from product awareness and market growth of prescription omega-3 pharmaceuticals. 
    • We believe that Amarin’s current and Omthera’s future (pending Epanova filing and approval) marketing efforts will continue to increase general awareness of the clinical benefits of omega-3 oils. This may lead to growth in OTC sales in the general population (no CV disease or untreated CV disease), as well as potential growth of OTC sales into the CV patient population targeted by prescription omega-3s.
  • With clinical evidence more typical of a pharmaceutical than a supplement, krill oil appears to exert dose-dependent benefit on LDL, HDL and TGs. 
    • Although, the fatty acid component of krill oil is relatively low compared to that of prescription omega-3s (NKO’s 2gr of 15% EPA fatty acid vs. Lovaza’s 4gr of 47% EPA ethyl ester, Vascepa’s 4gr of 96% EPA ethyl ester, and Epanova’s 2-4gr of 60% EPA fatty acid), a 2004 randomized double-blind placebo-controlled 12-week study indicates that even at this low omega-3 composition krill oil was associated with dose-dependent reductions in total cholesterol, LDL and TG, and elevations in HDL (at commercial dietary supplementation dosing).
  • Neptune’s ambitious subsidiaries, Acasti and Neurobio, compound the company’s value proposition by aiming high at the omega-3 prescription market. 
    • Acasti currently holds two NKO-derived assets: The lead experimental pharmaceutical CaPre (see below), and the commercial dietary supplement Onemia. Onemia is a concentrated version of NKO, positioned as a “medical food” (dietary supplement to be administered and consumed under the physician supervision), and currently in the early stages of commercialization (directly to physician’s office or online via physician’s recommendation).
  • Acasti’s CaPre follows in the footsteps of Vascepa and Epanova, but with a twist. 
    • To date, cohort updates from the COLT study have shown statistically and clinically significant reductions in TG (range 23-25%), in addition to decreases in LDL and VLDL and increases in HDL. Depending on the Phase II results and the company’s development strategy, LDL reduction could differentiate this product from existing prescription omega-3s that not only do not reduce LDL but may potentially raise it.
  • Following last year’s infamous and tragic plant incident, NEPT operations and OTC commercial activities are expected to be restored to pre-incident levels by 2014. 
    • Meanwhile, transitional operations during the rebuilding and product growth following the new plant launch would be supported by partnerships for the short-term outsourcing of krill oil production. Management projects that the plant reconstruction could be completed by end-2013 / early-2014.

To view the full report, please click here.

About H.C. Wainwright

H. C. Wainwright & Co., LLC is an investment bank dedicated to providing corporate finance, strategic advisory and related services to public and private growth companies across multiple sectors and regions. The H. C. Wainwright team has been the leader in the PIPE (private investment in public equity) and RD (registered direct offering) transaction markets. According to Sagient Research Systems, the team has been ranked the #1 Placement Agent in terms of the aggregate number of PIPE and RD transactions cumulatively since 1998. H. C. Wainwright was established in 1868 and is headquartered in New York City.