$NEPT  Initiation Report - 04-25-12
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$NEPT Initiation Report - 04-25-12 Document Transcript

  • 1. Neptune Technologies & Bioressources, Inc. ® (NEPT) INITIATING COVERAGE Elemer Piros, Ph.D. 212-430-1754 epiros@rodm.com LIFE SCIENCES Suy Anne Martins, M.D., Ph.D. 212-430-1778April 25, 2012 smartins@rodm.com Market Outperform / Speculative Risk Healthy Living: “Krilled”, not Fried Initiation of CoverageMARKET DATA 4/25/2012 We are initiating coverage of Neptune Technologies & BioressourcesPrice $3.08 with a Market Outperform rating and 12-month price target of $7/share.Exchange NASDAQTarget Price $7.00 We believe Neptune’s differentiated product NKO ® has the potential to52 Wk Hi - Low $4.66 - $2.02 capture a significant share in the vastly expanding omega-3 fatty acidMarket Cap(MM) $153.0 nutraceutical and pharmaceutical markets.EV(MM) $142.9Shares Out (MM) 49.7Public Mkt Float (MM) 42.6 Better than Fish OilAvg. Daily Vol 63,816 Neptune’s pipeline is based on phospholipid omega-3s extracted fromShort Interest 308,022 Antarctic krill, a tiny crustacean. The company plans to take advantage of the higher absorption and potential superior efficacy of krill omega-3BALANCE SHEET METRICS compared to fish oils.Cash (MM) $17.7LTD (MM) $4.0Total Debt/Capital 0.1%Cash/Share $0.04 Multiple MarketsBook Value(MM) $29.5Book Value/Share $0.60 Neptune is addressing several markets: dietary supplements, functional foods, and drug development. The entire omega-3 consumer productEARNINGS DATA ($) market has already reached $13B worldwide. Globally, sales of omega-3FY - Dec 2010A 2011A 2012E dietary supplements grew from $1.8B in 2007 to $2.8B in 2009. WeQ1 (Mar) (0.04) 0.01 (0.03)A believe that Neptune could capture a sizeable portion of the market dueQ2 (Jun) (0.06) 0.01 (0.04)A to its differentiated krill based omega-3 platform enabling diverseQ3 (Sep) 0.05 0.04 (0.01)A opportunities.Q4 (Dec) (0.00) (0.04) (0.03)Full Year EPS (0.04) 0.01 (0.10)Revenue (MM) 12.7 16.7 19.8 Blockbuster through a Sub Neptune’s majority-owned subsidiary, Acasti Pharma (APO, Not Rated), is pursuing a potentially blockbuster indication in cardiovascular disease.INDICES CaPre®, a concentrated form of NKO ®, is in Phase 2 clinical trialsDJIA 13,090.0 targeting the large hypertriglyceridemia market. Lovaza™, an omega-3SP-500 1,389.6 fatty acid approved for lowering triglycerides, recorded 2011 sales ofNASDAQ 2,707.9NBI 1,278.9 ~$1.1B in the U.S. alone. The company that initially introduced Lovaza™ was acquired for $1.7B in 2007. Amarin (AMRN, Not Rated), with 1 Year Price History positive pivotal data for the same indication, is valued at ~$1.4B. In our 5 view, CaPre ® could become an important value driver for Neptune. 4 3 2 Upside to Current Valuation 1 Q1 Q2 Q3 Q1 Q2 2012 0.8 We value Neptune shares, based on a sum of the parts analysis: (1) 0.6 0.4 probability-adjusted NPV model for CaPre®, which yields $120MM (58% 0.2 0 ownership), and (2) a DCF valuation on the nutraceutical business, Created by BlueMatrix 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.For definitions and the distribution of analyst ratings, and other disclosures, please refer to pages 45 - 46 of this report.
  • 2. Neptune Technologies & Bioressources, Inc. April 25, 2012 INVESTMENT THESIS ................................................................................................................................. 3 RISK ANALYSIS ........................................................................................................................................... 3 COMPANY OVERVIEW ................................................................................................................................ 5 INFLAMMATION AND MARINE N-3 FATTY ACIDS (OMEGA-3) ................................................................ 6 OMEGA-3 FATTY ACIDS IN CARDIOVASCULAR INDICATIONS............................................................ 12 HYPERTRIGLYCERIDEMIA ....................................................................................................................... 13 ® WHY NKO , WHY KRILL? .......................................................................................................................... 15 POTENTIAL MULTIPLE BENEFITS ........................................................................................................... 18 GLOBAL OMEGA-3 MARKET POISED TO GROW ................................................................................... 24 EXPANDING THE NEPTUNE PORTFOLIO............................................................................................... 28 TAPPING CHINA, THE FASTEST GROWING OMEGA-3 MARKET ......................................................... 29 KRILL OIL: A PRESCRIPTION DRUG? ..................................................................................................... 30 NUTRACEUTICAL COMPETITION - AKER BIOMARINE ......................................................................... 35 INTELLECTUAL PROPERTY ..................................................................................................................... 35 INCREASING MANUFACTURING CAPACITY AND DISTRIBUTION ....................................................... 36 VALUATION ................................................................................................................................................ 37 EXECUTIVE BIOGRAPHY ......................................................................................................................... 38 FINANCIALS ............................................................................................................................................... 42RODMAN & RENSHAW EQUITY RESEARCH 2
  • 3. Neptune Technologies & Bioressources, Inc. April 25, 2012 INVESTMENT THESIS Neptune Technologies & Bioressources began operations in 1998, by developing a process for the extraction of oils from marine biomasses. The company commercializes its flagship nutraceutical product ® Neptune Krill Oil (NKO ) through a distributor network in more than 30 countries. In recent years, the Company also established higher value product lines for: The pharmaceutical market, represented by two subsidiaries: ® o Acasti, which is developing the lipid-lowering drug CaPre o NeuroBioPharm, which is pursuing neurological applications Medical food ingredients, represented by partnerships with Yoplait (Private, Not Rated) and Nestle (NESN, Not Rated) Neptune’s pipeline is based on omega-3 fatty acid phospholipids extracted from Antarctic krill, a tiny crustacean, considered the most abundant biomass on earth. The company is generating cash flow from ® the sales of its nutraceutical omega-3 product, NKO . Neptune is taking advantage of the higher bioavailability and potential superior efficacy of krill oil in providing omega-3 fatty acids for human consumption. Krill oil is the only source of omega-3 fatty acids that contains phospholipids; which appears to make krill omega-3s more bioavailable and efficacious than fish oil or flax oil omega-3s. ® Additionally, NKO is the source of omega-3s that naturally carries the highest amount of astaxanthin, a powerful antioxidant attached to omega-3s. It is important to note, that fish oil does not contain any ® astaxanthin. Given the increasing demand for NKO , Neptune is expanding its capacity to address a 1 market that is expected to grow on average 12% annually . ® Preclinical and initial clinical trials have demonstrated that NKO decreases LDL and triglycerides, while increasing HDL (the perfect lipid trifecta - critical in the management of chronic cardiovascular disorders). ® Acasti - Neptune’s subsidiary - is in Phase 2 trials with the clinical candidate CaPre targeting the large hypertriglyceridemia market. A Japanese firm, Mochida (Private, Not Rated), markets an omega-3 drug – Epadel - in Japan for managing triglycerides. Annual sales of Epadel in Japan were ~$433MM in F2010 and they are 2 forecasted to be similar in F2011 . Another omega-3 product approved by the FDA for triglyceride ® lowering is marketed in the U.S. as Lovaza™, and as Omacor ex-U.S. Lovaza™ was initially marketed by Reliant Pharmaceuticals, which was acquired by GlaxoSmithKline (GSK, Not Rated) for $1.7B. ® Lovaza™/Omacor is manufactured by Pronova BioPharma (PRON.OL, Not Rated) and sold by several licensing partners worldwide. Lovaza™ achieved blockbuster status in 2009. The drug reached $1.2B in sales in 2011 in the U.S. alone. Finally, Amarin is also developing AMR101, an omega-3 fatty acid as a prescription drug to treat severe hypertriglyceridemia. The company is currently valued at ~$1.4B, even though the product is not on the market, yet. Therefore, we believe the upside potential for Neptune could be significant. RISK ANALYSIS We ascribe a Speculative Risk rating to Neptune shares. In addition to development, manufacturing, marketing, and financial risks associated with emerging biotechnology companies, specific additional risk factors to be considered are as follows: Highly Competitive Nutraceutical Business There is already a large number of different formulations of omega-3 fatty acids available on the market. Most of these products are not approved as drugs; they are mainly marketed as nutraceuticals. The omega-3 market has become highly competitive. Enhanced competition and pressure on margins drive cost competitiveness among established brands. Building market awareness of the differentiated profile of krill oil may entail a significant marketing effort, in our view. In addition, the company faces meaningful 1 Frost & Sullivan, 2010. 2 EvaluatePharma Worldwide Product Sales.RODMAN & RENSHAW EQUITY RESEARCH 3
  • 4. Neptune Technologies & Bioressources, Inc. April 25, 2012 competition from other krill oil manufacturers, such as Aker Biomarine (AKBM, Not Rated) and Enzymotec (Private, Not Rated). Patent Challenge Neptune has issued U.S. patents of omega-3 phospholipids and krill extracts on both composition of matter and method of use in cardiovascular disease. However, Aker BioMarine filed for patent reexamination request in the U.S. against two of Neptune’s patents – U.S. Pat. No. 8,030,348 (also known as 348 patent) and U.S. Pat. No. 8,057,825 (also known as 825 patent). The 348 patent covers novel omega-3 phospholipid compositions suitable for human consumption, while the 825 patent is directed to methods of using krill extracts to reduce cholesterol, platelet adhesion and plaque formation. Should both of these patents be overturned, damage to the manufacturing business would be minimal. However, maintenance of the claims on these patents could represent a significant upside to Neptune: the company could become the only source of krill oil and derived products in the U.S. Regulatory risk Drug development is an inherently risky business. Acasti’s drug development projects could fail to generate positive results from current or future clinical trials. Even if trials are successful, the FDA could reject the firm’s regulatory filings for unforeseen reasons, or require additional studies prior to granting approval. However, we believe that negative outcomes from cardiovascular trials would have a minor impact on Neptune’s nutraceutical business compared to the sizable upside that a potential FDA approval could bring to the company. Capacity Expansion Risk In March 2012, Neptune announced completion of expansion plans in its Sherbrook plant (Canada). Expansion could cost $20MM and could generate at least 40 new jobs. The company intends to triple its current production capacity from 150,000kg to 450,000kg per year by the end of F2014. Neptune is expecting a higher demand for its product. However, unexpected decrease in anticipated demand could have a negative impact on Neptune’s business model.RODMAN & RENSHAW EQUITY RESEARCH 4
  • 5. Neptune Technologies & Bioressources, Inc. April 25, 2012 COMPANY OVERVIEW Neptune Technologies & Bioressources (NEPT, Market Outperform) is a biotechnology company engaged in the manufacturing and formulation of marine omega-3 phospholipids. The company develops and commercializes its products for multiple nutraceutical and medical markets. Neptune’s products are ® mainly proprietary krill oils marketed under the trademarks NKO and EKO™. The company also exploits various protein concentrate formulations extracted from the different marine biomass. The company has a 58% ownership in the pharmaceutical spin-out Acasti Pharma (APO, Not Rated), ® ® which is developing CaPre as a prescription drug for cardiovascular diseases. Results from CaPre ® Phase 2 open-label clinical trial are expected in mid-2012. In parallel, Acasti is also conducting a CaPre Phase 2 double-blind study, with data expected in early 2013. Additionally, Neptune supervises its CNS subsidiary NeuroBiopharm that is expected to develop krill oil prescription drugs in neurological disorders. Neptune was founded in 1998 and is headquartered in Laval, Canada. Nutraceutical Market In its manufacturing plant (Quebec), Neptune develops and produces a range of marine health ingredients grouped under the OPA™ trademark. The products are composed of different concentrations ® and ratios of omega-3 containing phospholipids and antioxidants. The Neptune krill oil products NKO and EKO™ are marketed either by distributors or by different private labels in the dietary supplement and functional ingredient markets. ® Neptune Krill Oil (NKO ) ® Neptune Krill Oil (NKO ) is naturally sourced from Antarctic Krill (Exhibit 1). It contains a patented blend of omega-3 fatty acids bound to phospholipids as well as astaxanthin, an antioxidant. The main ® components of NKO are phospholipid esters of the widely-known nutritional fatty acids DHA (docosahexaenoic acid) and EPA (eicosapentaenoic acid). DHA and EPA have been linked to a broad spectrum of health benefits in: 3 Chronic inflammation and arthritis 4 Hyperlipidemia (high cholesterol blood levels) 5 Premenstrual syndrome 6 Cognitive disorders, and many other inflammatory conditions Exhibit 1: Antarctic Krill Source: Neptune website. The antioxidant astaxanthin has been investigated in a large number of studies related to the ® cardiovascular and cerebrovascular systems. The NKO formulation appears to have a positive impact on blood lipid profile, at a lower dose than alternative omega-3 formulations. Superior bioavailability has been suggested for phospholipid-bound omega-3 fatty acids in krill oil. 3 Deutsch L. American College of Nutrition (2007) 26(1):39-48. 4 Bunea R. et al., Alternative Medical Review (2004) 9(4):420-428. 5 Sampalis F., et al., Alternative Medical Review (2003) 8(2):171-179. 6 Calder P.C., et al., European Journal of Pharmacology (2011) 668: S50–S58.RODMAN & RENSHAW EQUITY RESEARCH 5
  • 6. Neptune Technologies & Bioressources, Inc. April 25, 2012 Neptune continues to expand its customer base worldwide and is expecting revenue growth to be driven by repeat demand from existing customers and incoming demand from new customers from North America, Europe, Asia, South America, and Middle East. Prescription Drug Market Neptune is also developing products for the prescription drug markets through its two subsidiaries, Acasti and NeuroBioPharm. Acasti is developing a pipeline focused on treatments for chronic cardiovascular disorders within the OTC (over-the-counter), medical food and prescription drug markets. Acasti’s drug ® ® candidate, CaPre , is a concentrated form of NKO and recently received approval to enter Phase 2 clinical trials from Health Canada. NeuroBioPharm is pursuing pharmaceutical neurological applications. INFLAMMATION AND MARINE N-3 FATTY ACIDS (OMEGA-3) Inflammation is a normal defense mechanism that protects the host from infection and other injuries; the process triggers pathogen death, as well as tissue repair and wound healing, and helps to restore homeostasis at infected or injured sites. However, pathological inflammation may occur when there is a loss of tolerance and/or of regulatory processes. Where this becomes excessive, irreparable damage to 7 host tissues and disease can occur . Inflammatory disorders are characterized by markedly increased levels of inflammatory markers and high concentration of inflammatory cells at the site of injury and in the systemic circulation (rheumatoid arthritis, inflammatory bowel diseases, asthma). Inflammatory diseases have been long recognized, yet it is only more recently that chronic low-grade inflammation has received attention, particularly in relation to obesity, metabolic syndrome and cardiovascular disease. Chronic low-grade inflammation is characterized by raised concentrations of inflammatory markers in the systemic circulation. Fatty acids (FAs) are naturally occurring constituents that have extensive metabolic, structural and functional roles within the body. They are important sources of energy, major components of all cell membranes, and precursors to signaling molecules. All fatty acids have a generic structure being based on a hydrocarbon chain with a reactive carboxyl group at one end and a methyl group at the other. Fatty acid chain lengths vary from 2 to 30 or more carbon atoms, and the chain may contain double 8 9 bonds . Fatty acids containing double bonds in the acyl chain are referred to as unsaturated fatty acids, and a fatty acid containing two or more double bonds is called a polyunsaturated fatty acid (PUFA). The systematic name for a fatty acid is determined simply by the number of carbons and the number of double bonds in the acyl chain (Exhibit 2). There are two principal families of PUFAs: the n-6 (omega-6) and the n-3 (omega-3) families. In our report, the keen interest lies on PUFAs, especially the longer-chain ones, the omega-3 family. 7 Calder P.C., et al., International Reviews of Immunology (2009) 28:506-534. 8 A double bond in chemistry is a chemical bond between two chemical elements involving four bonding electrons instead of the usual two. Double bonds are stronger than single bonds. 9 An organic radical derived from an organic acid via removal of the hydroxyl group from the carboxyl group. It is a generic term for fatty acid groups.RODMAN & RENSHAW EQUITY RESEARCH 6
  • 7. Neptune Technologies & Bioressources, Inc. April 25, 2012 Exhibit 2: Fatty Acid Naming Systematic name Trivial name Shorthand notation Octanoic Caprylic 8:00 Decanoic Capric 10:00 Dodecanoic Lauric 12:00 Tetradecanoic Myrsitic 14:00 Hexadecanoic Palmitic 16:00 Octadecanoic Stearic 18:00 cis 9-Hexadecenoic Palmitoleic 16:1n-7 cis 9-Octadecenoic Oleic 18:1n-9 cis 9, cis 12-Octadecadienoic Linoleic 18:2n-6 All cis 9, 12, 15-Octadecatrienoic α-Linolenic 18:3n-3 All cis 6, 9, 12-Octadecatrienoic γ-Linolenic 18:3n-6 All cis 8, 11, 14-Eicosatrienoic Dihomo-γ-linolenic 20:3n-6 All cis 5, 8, 11, 14-Eicosatetraenoic Arachidonic 20:4n-6 All cis 5, 8, 11, 14, 17-Eicosapentaenoic Eicosapentaenoic 20:5n-3 All cis 7, 10, 13, 16, 19-Docosapentaenoic Docosapentaenoic 22:5n-3 All cis 4, 7, 10, 13, 16, 19-Docosahexaenoic Docosahexaenoic 22:6n-3 Source: Calder P.C., et al., International Reviews of Immunology (2009) 28:506-534. Polyunsaturated Fatty Acids (PUFAs): Omega-6 and Omega-3 Both omega-6 and omega-3 fall under the category of polyunsaturated fatty acids. The simplest members of each family - linoleic acid (LA, omega-6 family) and α-linolenic acid (ALA, omega-3 family) - cannot be synthesized by mammals. They are considered "essential" since the body is not able to make significant enough amounts. LA is found in significant quantities in many vegetable oils, including corn, sunflower and soybean oils, and in products made from such oils, such as margarines. ALA is found in green plant tissues, in some common vegetable oils, including soybean and rapeseed oils, in some nuts, and in flaxseeds (also known as linseeds) and flaxseed oil. Between them, LA and ALA contribute over 95%, and perhaps as much as 98% of dietary PUFA intake in most Western diets. th The intake of LA in Western countries increased considerably in the second half of the 20 Century, 10 following the introduction and marketing of cooking oils and margarines . Typical intakes of both essential fatty acids are in excess of the required amounts. The increase of consumption of LA has resulted in a marked increase in the ratio of omega-6 to omega-3 PUFAs in the diet. This ratio is typically 11 between 5 and 20 in most Western populations . Although LA and ALA cannot be synthesized by humans, they can be metabolized to other fatty acids. LA can be converted to arachidonic acid. By an analogous set of reactions catalyzed by the same enzymes, ALA can be converted to eicosapentaenoic acid (EPA). Both arachidonic acid and EPA can be further metabolized, EPA giving rise to docosapentaenoic acid (DPA) and docosahexaenoic acid (DHA) (Exhibit 3). 10 Blasbalg, T.L., et al., American Journal of Clinical Nutrition (2011) 93:950-962. 11 Burdge G.C., et al., Nutrition Research Reviews (2006) 19:26-52.RODMAN & RENSHAW EQUITY RESEARCH 7
  • 8. Neptune Technologies & Bioressources, Inc. April 25, 2012 Exhibit 3: The Biosynthesis of Polyunsaturated Fatty Acids Methyl Carbon Group Double Carboxyl bond Group Source: Calder P.C., et al., International Reviews of Immunology (2009) 28:506-534. Dietary intakes of the longer-chain omega-3 PUFAs, such as EPA and DHA, are typically much lower than the intakes of LA and ALA. EPA and DHA are found in fish, especially so-called “oily” fish (tuna, 12 salmon, mackerel, herring, sardine) and krill, a small red-colored crustacean (similar to shrimp) that 13 flourish in the extremely cold waters of the Antarctic Ocean . Omega-3 PUFAs Modify Fatty Acid Composition of Inflammatory Cells PUFAs are important constituents of the phospholipids of all cell membranes (Exhibit 4). Laboratory animals that have been maintained on standard chow have a high content of the omega-6 PUFA arachidonic acid and low contents of the omega-3 PUFAs EPA and DHA in the bulk phospholipids of 14,15 16;17;18,19 20 21 tissue lymphocytes , peritoneal macrophages alveolar macrophages , Kupffer cells and 22 alveolar neutrophils . 12 Calder P.C., et al., International Reviews of Immunology (2009) 28:506-534. 13 Krill oil. Monograph. Alternative Medicine Review (2010) 15(1):84-86. 14 Calder P.C., et al., Biochemical Journal (1994) 300:509-518. 15 Yaqoob P., at al., Cellular Immunolology (1995) 163:120-128. 16 Brouard C., et al., Biochimica et Biophysica Acta (1990) 1047:19-28. 17 Chapkin R.S., et al., Journal of Nutritional Biochemistry (1992) 3:599-604. 18 Lokesh B.R., et al., Journal of Nutrition (1986) 116:2547-2552. 19 Surette M.E., et al., Biochimica et Biophysica Acta (1995) 1255:185-191. 20 Fritsche K.L., et al., Lipids (1993) 28:677-682. 21 Palombo J.D., et al., Journal of Parenteral and Enteral Nutrition (1997) 21:123-132. 22 Careaga-Houck M., et al., Journal of Lipid Research (1989) 30:77-87.RODMAN & RENSHAW EQUITY RESEARCH 8
  • 9. Neptune Technologies & Bioressources, Inc. April 25, 2012 Exhibit 4: Cell Membrane: Phospholipids, Fatty Acids and Antioxidants Source: Kidd P.M. Alternative Medicine Review (2007) 12(3):207-227. Feeding laboratory animals a diet containing fish oil, which provides EPA and DHA, results in a higher 23 24 25 26 content of these fatty acids in lymphocytes , macrophages , Kupffer cells and neutrophils . Typically enrichment in marine omega-3 PUFAs is accompanied by a decrease in content of arachidonic acid. Blood cells involved in inflammatory responses (neutrophils, lymphocytes, monocytes) collected from humans consuming typical Western diets contain about 10 to 20% of fatty acids as arachidonic acid, 27 about 0.5 to 1% as EPA and about 2 to 4% as DHA in their membranes , although the content of these 28 fatty acids varies in different phospholipid classes . The fatty acid composition of these cells can be modified by increasing intake of marine omega-3 fatty 29 30 31 acids . This occurs in a dose response fashion and over a period of days to weeks , with a new steady-state composition reached within about four weeks. Typically the increase in content of omega-3 PUFAs occurs at the expense of omega-6 PUFAs, especially arachidonic acid. Exhibit 5 shows the time course of changes in EPA and DHA contents of human blood mononuclear cells in subjects consuming fish oil. Healthy subjects supplemented their diet with fish oil capsules providing 2.1g EPA plus 1.1g DHA per day for a period of 12 weeks. Blood mononuclear cell phospholipids were isolated at 0, 4, 8 and 12 weeks and their fatty acid composition determined by gas chromatography. Data are mean from eight 32 subjects . 23 Yaqoob P., et al., Biochimica et Biophysica Acta (1995) 1255:333-340. 24 Brouard C., et al., Biochimica et Biophysica Acta (1990) 1047:19-28. 25 Palombo J.D., et al., Journal of Parenteral and Enteral Nutrition (1997) 21:123-132. 26 James M.J., et al., Journal of Nutrition (1991) 121:631-637. 27 Caughey G.E., et al., American Journal of Clinical Nutrition (1996) 63:116-122. 28 Sperling R.I., et al., Journal of Clinical Investigation (1993) 91:651-960. 29 Lee J.Y., et al., Journal of Biological Chemistry (2001) 276:16683-16689. 30 Rees D., et al., American Journal of Clinical Nutrition (2006) 83:331-342. 31 Faber J., et al., Journal of Nutrition (2011) 141, 964-970. 32 Yaqoob P., et al., European Journal of Clinical Investigation (2000) 30, 260-274.RODMAN & RENSHAW EQUITY RESEARCH 9
  • 10. Neptune Technologies & Bioressources, Inc. April 25, 2012 Exhibit 5: Changes in EPA and DHA in Mononuclear Cells from Humans Taking Fish Oil Source: Yaqoob P., et al., European Journal of Clinical Investigation (2000) 30, 260-274. Omega-3 Mechanisms of Action A high ratio of omega-6 to omega-3 can alter cell membrane properties and increase production of inflammatory mediators because arachidonic acid, an omega-6 fatty acid found in cell membranes, is the 33 precursor of inflammatory eicosanoids, such as prostaglandins and thromboxanes . In contrast, omega- 3 fatty acids are anti-inflammatory. Therefore, a high dietary ratio of omega-6 to omega-3 fatty acid could promote inflammation. Increased omega-3 fatty acid concentration in the diet may also act by altering cell membrane fluidity and phospholipid composition, which may alter the structure and function of the proteins embedded in it. All in all, omega-3 fatty acids appear to act through the enrichment of membrane phospholipids with EPA and DHA. Once these long chain omega-3 PUFAs are resident in cell membranes, they have at least four separate effects: First, because of their highly unsaturated nature, they may alter membrane properties. This can have the secondary effect of changing the microenvironment of transmembrane proteins (e.g., receptors) altering the manner in which they interact with their ligands. Altering membrane fatty acids composition can also affect the ability of proteins to actually associate with the membrane and consequently interact with other multi-protein complexes involved with cell signaling systems In addition, a variety of cell stressors (e.g., inflammatory mediators) interact with transmembrane receptors and subsequently initiate intracellular G-protein linked responses, one of which is the activation of phospholipase A2 (PLA2). This enzyme hydrolyzes long-chain omega-6 and omega-3 fatty acids esterified to inner leaflet phospholipids, liberating them and making them available for conversion to a wide variety of eicosanoids via cyclo-oxygenase, lipoxygenase, and cytochrome P-450 monooxygenases. These molecules powerfully influence cellular metabolism. PLA2-liberated omega-3 fatty acids may directly modify ion channel activity themselves, resulting in altered resting membrane potentials. Finally, intracellular omega-3 fatty acids are also able to serve as ligands for a variety of nuclear receptors [e.g., peroxisome proliferation activated receptors (PPARs), sterol receptor element binding protein (SREBP)-1c, retinoid X receptor, and the farnesol X receptor] which impact inflammatory responses and lipid metabolism (Exhibit 6). 33 Simopoulos A.P. Journal of the American College of Nutrition (2002) 21:495-505.RODMAN & RENSHAW EQUITY RESEARCH 10
  • 11. Neptune Technologies & Bioressources, Inc. April 25, 2012 Exhibit 6: Overview of Mechanisms by Which Omega-3 PUFAs Can Influence Inflammatory Cell Function Source: Calder P.C., et al., International Reviews of Immunology (2009) 28:506-534. Anti-Inflammatory Effects of Omega-3 Fatty Acids Suggest Therapeutic Value Inflammation is an element of numerous human conditions and diseases (Exhibit 7). Although inflammation may affect different body compartments, one common characteristic of these conditions and 34 diseases is disproportionate production of inflammatory mediators including eicosanoids and cytokines . Exhibit 7: Diseases and Conditions with an Inflammatory Component Disease/Condition Rheumatoid arthritis Crohns disease Ulcerative colitis Lupus Type-1 diabetes Cystic fibrosis Childhood asthma Adult asthma Allergic disease Chronic obstructive pulmonary disease Psoriasis Multiple sclerosis Atherosclerosis Acute cardiovascular events Obesity Neurodegenerative diseases of ageing Systemic inflammatory response to surgery, trauma and critical illness Source: Calder P.C., et al., International Reviews of Immunology (2009) 28:506-534. Note: this list is not exhaustive. The role of omega-3 PUFAs in shaping and regulating inflammation imply that exposure to these fatty acids might be important in determining the development and severity of inflammatory diseases. The recognition that omega-3 PUFAs have anti-inflammatory effects has led to the notion that dietary supplement of patients with inflammatory diseases may be of clinical benefit. Each of the diseases or conditions listed in Exhibit 7 is a possible therapeutic target for marine omega-3 PUFAs. Supplementation trials have been conducted in most of these diseases. Rheumatoid arthritis’ trials 34 Calder P.C., et al., International Reviews of Immunology (2009) 28:506-534.RODMAN & RENSHAW EQUITY RESEARCH 11
  • 12. Neptune Technologies & Bioressources, Inc. April 25, 2012 35 appear to be the most successful with most studies reporting several clinical benefits . These benefits 36 are supported by meta-analyses of the available data . Studies in patients with inflammatory bowel diseases (Crohns disease and ulcerative colitis) provide 37,38 equivocal findings with some showing some benefits and others not . Likewise studies conducted in patients with asthma do not provide a clear picture. Most studies conducted in adults do not show a clinical benefit, while there are indications of benefits of marine omega-3 PUFAs in children and 39 adolescents, although there are few studies in those groups . In most other inflammatory diseases and conditions there are too few studies to draw a clear conclusion of the possible efficacy of omega-3 PUFAs as a treatment. Exceptions to this may be related to cardiovascular disease morbidity and mortality, and 40 attention deficit hyperactivity disorder (ADHD) . 41 There is evidence that omega-3 PUFAs slow the progress of atherosclerosis , which has an 42,43 inflammatory component . Moreover, omega-3 PUFAs decrease mortality due to cardiovascular 44 45 46 disease , ; this may be, in part, due to stabilization of atherosclerotic plaques against rupture , which 47 again has an inflammatory component . Thus, the anti-inflammatory effects of marine omega-3 PUFAs may contribute to their protective actions towards atherosclerosis, plaque rupture and cardiovascular mortality. We are going to discuss omega-3 PUFAs and cardiovascular diseases (CVDs) in more detail in the next section. OMEGA-3 FATTY ACIDS IN CARDIOVASCULAR INDICATIONS The omega-3 fatty acids found in fish, fish oils and krill oils – principally EPA and DHA – have been 48,49 reported to have a variety of beneficial effects in cardiovascular diseases . Ecological and prospective cohort studies as well as randomized, controlled trials have supported the view that the effects of these fatty acids are clinically relevant. They operate via several mechanisms, all beginning with the 50 incorporation of EPA and DHA into cell membranes , as we discussed before. Because blood concentrations of omega-3 PUFAs are a strong reflection of dietary intake, it is proposed that an omega-3 biomarker - the omega-3 index (erythrocyte EPA + DHA) - be considered as a potential 51 risk factor for coronary heart disease mortality, especially sudden cardiac death . The omega-3 index fulfills many of the requirements for a risk factor including consistent epidemiological evidence, a plausible mechanism of action, a reproducible assay, independence from classical risk factors, modifiability, and most importantly, the demonstration that raising tissue levels will reduce risk for cardiac events. Due to this, the omega-3 index compares very favorably with other risk factors for sudden cardiac death. The increased intake of omega-3 PUFAs has been recommended by several health agencies and professional organizations including the American Heart Association, the European Society for Cardiology, and the Australian Health and Medical Research Council. These recommendations are based on evidence from a number of reports linking dietary deficiency of long chain omega-3 PUFAs with 35 Calder P.C., et al., Proceedings of the Nutrition Society (2008) 67:409-418. 36 Goldberg R.J., et al., Pain (2007) 129:210-223. 37 Calder P.C., et al., Molecular Nutrition & Food Research (2008) 52,:885-897. 38 Calder P.C., et al., International Reviews of Immunology (2009) 28:506-534. 39 Calder P.C., et al., American Journal of Clinical Nutrition 83 (2006) 1505S-1519S. 40 Bloch, M.H., et al., Journal of American Academy of Child and Adolescent Psychiatry (2011) 50(10):991-1000. 41 Calder P.C., et al., Clinical Science (2004) 107:1-11. 42 Glass C.K., et al., Cell (2001) 104:503-516. 43 Ross R. New England Journal of Medicine (1999) 340:115-126. 44 Bucher H.C., et al., American Journal of Medicine (2002) 112:298-304. 45 Studer M., et al., Archives of Internal Medicine (2005) 165:725-730. 46 Cawood A.L., et al., Atherosclerosis (2010) 212:252-259. 47 Glass C.K., et al., Cell (2001) 104, 503-516. 48 De Lorgeril M. Sub-cellular Biochemistry (2007) 42:283-97. 49 Bunea R., et al., Alternative Medicine Review (2004) 9:420-428. 50 Sinclair A.J., et al., Allergy and Immunology (Paris) (2000) 32:261-71. 51 Harris W.S., et al., American Journal of Clinical Nutrition (2008) 87(6):1997S-2002S.RODMAN & RENSHAW EQUITY RESEARCH 12
  • 13. Neptune Technologies & Bioressources, Inc. April 25, 2012 a risk for cardiovascular events, notably sudden death. The FDA gave “qualified health claim” status to EPA and DHA omega-3 PUFAs on September 8th, 2004. Links between Omega-3 Fatty Acids and Cardiovascular Health A meta-analysis of 13 cohorts including over 222,000 individuals followed for coronary heart disease 52 (CHD) death for an average of about 12 years has been performed . The authors found that the consumption of only one fish meal per week (versus <1 per month) was associated with a statistically significant 15% reduction in risk. When subjects were classified into categories of increasing fish consumption (<1/month, 1–3/month, 1/week, 2–4/week, and ≥5/week), those in the highest intake group enjoyed a 40% reduction in risk. Similar findings were reported for stroke. An inverse relation between 53 54 fish intake and risk for CHD has also been reported in Greek and in Japanese cohorts . The largest and most well controlled intervention study carried out to date was the GISSI Prevenzione study, which tested the hypothesis that relatively small intakes of omega-3 PUFAs (<1g) could reduce risk for death from CHD in high risk patients. More than 11,000 postmyocardial infarction patients were ® randomized to either one capsule of omega-3 FA ethyl esters (Omacor , 850 mg of EPA+DHA) or usual care and then followed for 3.5 years. The risk for death from any cause was reduced by 20% and risk for sudden death by 45% in the supplement group. This study will be discussed in further detail in the next section of this report. The relative reduction in risk for death from any cause in trials of anti-lipidemic drugs and lipid-lowering 55 diets was computed in a large meta-analysis . Over 137,000 patients receiving treatment for lipid disorders were compared to controls in a total of 97 studies. There were 35 trials with statins (the cholesterol-lowering drugs), seven studies with fibrates, eight with bile acid binding resins, 14 with omega-3 fatty acids and 18 examining the effects of global dietary changes. Only two interventions were associated with significant reductions in total mortality: statins (risk ratio 0.87, 95% CI 0.81-0.94) and omega-3 fatty acids (risk ratio 0.77, 95% CI 0.63-0.94). One caveat to the omega-3 group is that it can be argued that these were not strictly omega-3 studies but overall dietary interventions. In these two studies, the active agent(s) cannot be identified with confidence because so many dietary variables differed between groups. Nevertheless, the preponderance of the data suggests that for most individuals, increasing the intake of long-chain omega-3 fatty acids is a safe and inexpensive way to significantly reduce risk for CHD, especially sudden cardiac death. GISSI Study The Gruppo Italiano per lo Studiodella Sopravvivenza nell’Infarto miocardico (GISSI)-Prevenzione trial studied the independent and combined effects of omega-3 PUFAs and vitamin E on morbidity and mortality after myocardial infarction. This randomized, prospective study enrolled more than 11,000 patients, between October, 1993 and September, 1995, who had suffered myocardial infarction within the last three months. Patients were randomized to receive of omega-3 PUFA (1g daily, n=2,836), vitamin E (300mg daily, n=2,830), both (n=2,830), or placebo (control, n=2,828) for 3·5 years. The co-primary endpoints were death, non-fatal myocardial infarction, and stroke. The data showed that treatment with omega-3 PUFA significantly lowered the risk of co-primary endpoints vs. placebo (relative risk decrease 10% [95% CI 1-18]). In contrast, vitamin E did not have a statistically significant impact on the risk of these events. Treatment with both omega-3 PUFA and vitamin E had an impact similar to that of omega-3 PUFA alone. HYPERTRIGLYCERIDEMIA Hypertriglyceridemia (hTG) is a common disorder in the U.S. It is exacerbated by uncontrolled diabetes mellitus, obesity, and sedentary habits, all of which are more prevalent in industrialized societies than in 52 He K., et al., Circulation (2004) 109:2705-2711. 53 Panagiotakos D.B., et al., International Journal of Cardiology (2005) 102:403-409. 54 Iso H., et al., Circulation (2006) 113:195-202. 55 Studer M., et al., Archives of Internal Medicine (2005) 165: 725-730.RODMAN & RENSHAW EQUITY RESEARCH 13
  • 14. Neptune Technologies & Bioressources, Inc. April 25, 2012 developing nations. In both epidemiologic and interventional studies, hTG is a risk factor for coronary disease. Two rare genetic causes of hTG (lipoprotein lipase – LPL - deficiency and apolipoprotein – apo - C-II deficiency) lead to triglyceride (TG) elevations that are astonishingly high. Counter-intuitively, these genetic mutations do not confer an increased risk of atherosclerotic disease, which has fostered the unfounded belief that high TGs are not a risk for that condition. TG levels greater than 1000mg/dL increase the risk of acute pancreatitis. Hypertriglyceridemia is also correlated with an increased risk of cardiovascular disease (CVD), particularly in the setting of low HDL-C (high-density lipoprotein cholesterol, “good cholesterol”) levels and/or elevated LDL-C (low-density lipoprotein cholesterol, “bad cholesterol”) levels. When low HDL-C levels are controlled for, some studies demonstrate that elevated TGs do not correlate with risk of CVD. However, other studies suggest that TGs are an independent risk factor. Since metabolism of the triglyceride-rich lipoproteins and metabolism of HDL-C are interdependent and because of the labiality of TG levels, the independent impact of hTG on CVD risk is difficult to confirm. However, randomized clinical trials using TG-lowering medications have demonstrated decreased coronary events in both the primary and secondary coronary prevention populations. Epidemiology If hypertriglyceridemia was defined as fasting TGs ≥200mg/dL, the prevalence in the U.S. is approximately 10% in men older than 30 years and women older than 55 years. Prevalence of severe hypertriglyceridemia, defined as TGs greater than 2,000mg/dL, is estimated to be to be 1.8 cases per 10,000 adult whites, with a higher prevalence in patients with diabetes or alcoholism. The frequency of LPL-C deficiency is approximately one case per one million individuals, and that of apo C-II deficiency is even lower. The frequency of LPL-C deficiency in Quebec, Canada is significantly higher than the single case per million population reported in the U.S. Apo C-II has a worldwide distribution but is infrequent in all population studies to date. Extreme elevations of TGs, usually greater than 1,000mg/dL, may cause acute pancreatitis and all the sequellae of that condition. A less severe, and often unrecognized, condition is the chylomicronemia syndrome, which usually is caused by TG levels greater than 1,000 mg/dL. Chylomicronemia syndrome is a disorder passed down through families in which the body does not break down lipids correctly. This 56 causes fat particles called chylomicrons to build up in the blood . TGs are lower in African Americans compared to Caucasians. In the Prospective Cardiovascular Munster study (PROCAM), a large observational study, 57 hypertriglyceridemia (TGs >200mg/dL) was more prevalent in men (18.6%) than in women (4.2%) . TGs increase gradually in men until about age 50 years and then decline slightly. In women they continue to increase with age. Mild hypertriglyceridemia (TGs >150mg/dL) is slightly more prevalent in men beginning at age 30 years and women starting at age 60 years. Medical Care Although U.S. cardiologists and primary care physicians have typically concentrated on controlling cholesterol, it is becoming increasingly common to assess triglyceride levels and regard them as an important risk factor and key potential component of cardiovascular disease. When hTG is diagnosed, secondary causes should be sought out and controlled. Direct treatment of elevated TGs should be undertaken after aggravating conditions, such as uncontrolled diabetes mellitus, are controlled as well as possible. In some cases, hTG will resolve completely when the other condition(s) are managed successfully. These conditions include obesity, a sedentary lifestyle, and smoking. Thus, the initial management of hTG should include weight reduction, increased physical activity, and elimination of ingesting large concentrations of refined carbohydrates. 56 http://www.ncbi.nlm.nih.gov/pubmedhealth/PMH0001442/ 57 Assmann G., et al., European Journal of Clinical Investigation (2007) 37: 925-932.RODMAN & RENSHAW EQUITY RESEARCH 14
  • 15. Neptune Technologies & Bioressources, Inc. April 25, 2012 If the secondary conditions that raise TG levels cannot be managed successfully and if TGs are 200- 499mg/dL, the non-HDL cholesterol becomes the initial target of drug therapy using LDL-lowering medication, such as statins. The non-HDL cholesterol is the sum of the LDL and the VLDL cholesterol (total cholesterol - HDL). The goals for non-HDL-C levels, similar to the goals for LDL-C levels, are dependent on risk and are 30mg/dL higher than the corresponding LDL-C goals. If secondary conditions are not present, no specific care is required other than treatment to improve hTG. The importance of obesity, a sedentary lifestyle, and a deconditioned state should not be underestimated in the treatment of hTG. It is important to point out that approximately 25% of patients prescribed statins abandon the treatment within six months due to unpleasant side effects. Muscle complaints constitute the major symptom limiting the use of statins. The clinical features of statin myopathy include symptoms such as 58 muscle aches or myalgia, weakness, stiffness, and cramps . ® Preclinical and initial clinical testing have shown NKO to be beneficial in LDL and triglyceride reduction 59 as well as HDL elevation, all of which are essential in treating chronic cardiovascular conditions . ® WHY NKO , WHY KRILL? Over the last years, natural health products have gathered attention and support of both science and industry. The growing incidence of adverse events with synthetic drugs has given rise to a demand for effective and safe alternative treatments. Frequently, traditional medicine represents a tradeoff between efficacy and side effects. The small number of natural health ingredients that have been carefully researched for safety and efficacy and have passed both peer and regulatory scrutiny could alleviate the ® problem. In our view, NKO could fulfill these criteria by supporting solid scientifically validated research providing safety and efficacy. The Norwegian word “krill” translates into “young fry of fish” and has been adopted as the term used to describe marine crustaceans belonging to the order Euphausiacea. Krill is broadly known as whale food, but is also a source of food for seals, squid, fish, seabirds, and, to a much lesser extent, humans. In 60 appearance, krill resembles shrimp (Exhibit 8) . Exhibit 8: Krill Photograph - Body Structure Stomach Hepatopancreas Heart Intestine Tail Meat GILLS Highest proteolytic Lowest proteolytic activity activity Source: Tou J.C., et al., Nutrition Reviews (2007) 65(2):63-77. 58 Mancini G.B.J., et al., Canadian Journal of Cardiology (2011) 27:635-662. 59 Bunea R, et al., Alternative Medicine Review (2004) 9:420-428. 60 Torres J.A., et al., in: Shahidi F., ed. Maximising the Value of Marine By-Products. Cambridge (UK) (2007):65-95.RODMAN & RENSHAW EQUITY RESEARCH 15
  • 16. Neptune Technologies & Bioressources, Inc. April 25, 2012 61 Krill range in size from 0.01 to 2g wet weight and from 8mm to 6cm length . Despite their small size, krill are capable of forming large surface swarms that may reach densities of over one million animals per 62 cubic meter of seawater , making them an attractive species for harvesting. Furthermore, krill are found in all oceans of the world, making them among the most heavily populated animal species. Despite this abundance, the commercial harvest of krill has mainly focused on its use as feed in aquariums, 63 aquaculture, and sport fishing . From the different species of krill, only Antarctic krill (Euphausia superba) and Pacific krill (Euphausia pacifica) have been harvested to any relevant level for human consumption. The underutilization and abundance of krill make it a quite unexploited food source for humans that, when coupled with a conscientious ecosystem approach to managing krill stocks, should result in its long-term sustainability. Krill Nutritional Value Foods high in saturated fatty acids (SFAs) have been linked to increased risk of CVD, whereas the 64 omega-3 PUFAs, particularly EPA and DHA, have been linked to reduced risk of CVD . Hence, the nutritive value of krill oil was evaluated due to the consumer appeal for foods that are low in fat and SFAs and high in omega-3 PUFAs. 65 Saether et al,. analyzed the lipid content of three species of krill and reported values ranging from 12% to 50% on a dry-weight basis. The wide range in lipid content was attributed to seasonal variations. A drop in lipid content occurred in the spring, when food was scarce, whereas it rose in the autumn and 66 early winter, when food was abundant. Kolakowska reported that the lack of reproductive activity in the winter raises the lipid content of female krill to over 8% of their wet weight. Therefore, the lipid content and profile of krill may vary significantly upon factors such as season, species, age, and the lag time between capture and freezing. It is important to account for these factors when evaluating the consistency of krill oil. Apart from this variability, krill is similar to other seafood in being low in fat compared with other animal foods. The lipid content in krill was analyzed for fatty acid composition. Exhibit 9 shows that krill provides both of the essential fatty acids: α-linolenic acid (ALA) and linoleic acid (LA). Moreover, krill is low (26.1%) in both SFAs and (24.2%) monounsaturated (MUFAs) but high (48.5%) in PUFAs. The PUFAs consist mainly of omega-3 fatty acids. Kolakowska et al., described that omega-3 PUFAs account for 67 approximately 19% of total fatty acids in Antarctic krill caught during the winter . Of the omega-3 PUFAs, EPA and DHA are remarkably abundant. This is not surprising given that krill feed on marine phytoplankton such as single-cell microalgae, which synthesize large amounts of EPA and DHA. As shown in Exhibit 9, the DHA content of krill is equivalent to that of shrimp and fish, but its EPA content is higher than either lean or fatty fish. 61 Nicol S., et al., Krill Fisheries of the World. FAO Fisheries Technical Paper (1997) 367. 62 Hamner W.M., et al., Science (1983) 220:433-435. 63 Nicol S., et al., In: Everson I, ed. Krill: Biology, Ecology and Fisheries (2000):262-283. 64 Hu F.B., et al., Journal of American College of Nutrition (2001) 20:5-19. 65 Saether O., et al., The Journal of Lipid Research (1986) 27:274-285. 66 Kolakowska A. Polish Polar Research (1991) 12:73-78. 67 Kolakowska A. Polish Polar Research (1991) 12:73-78.RODMAN & RENSHAW EQUITY RESEARCH 16
  • 17. Neptune Technologies & Bioressources, Inc. April 25, 2012 Exhibit 9: Lipid Content and Fatty Acid Composition of Krill, Shrimp, Trout and Salmon Source: Source: Tou J.C., et al., Nutrition Reviews (2007) 65(2):63-77. The fatty acid profile of krill resembles that of shrimp and fish, with krill containing a higher amount of PUFAs. However, it is important to observe that most of the fatty acids in fish are incorporated into 68 triglycerides, whereas 65% of the fatty acids in crustaceans are incorporated into phospholipids . Animal and human studies suggest that omega-3 PUFAs bound to phospholipids, such as those found in krill oil, have superior absorption and release to the brain than their methyl-ester or triglyceride-formed fish 69,70 counterparts . Is There Enough Omega-3 Fatty Acids in Nutraceuticals? Omega-3 molecules have a unique impact on TGs. In large amounts (≥10g/d), omega-3 fatty acids can lower TGs by 40% or more. In order to achieve this dose, purified capsules usually are necessary. Previously, patients have sometimes elected to intake omega-3 fatty acids by increasing their consumption of fatty fish. Those fish highest in omega-3 fatty acids are sardines, herring, and mackerel. To achieve ideal omega-3 levels, daily servings of one pound or more may be necessary. However, if weight gain ensues, TG-lowering will be compromised. The utility of omega-3 fatty acid products has recently been brought into focus by consumer reports highlighting the quality control issues plaguing some omega-3 fatty acid supplements. In one example, th the Consumer Council of Hong Kong disclosed in a report dated October 16 , 2008 that it had discovered significant discrepancies between the claimed and actual contents of the omega-3 fatty acids DHA and 71 EPA in a range of nutraceutical products on the Hong Kong market . 68 Weihrauch J.L., et al., Journal of the American Oil Chemists’ Society (1977) 54:36-40. 69 Goustard-Langelier B., et al., Lipids (1999) 34(1):5-16. 70 Maki K.C., et al., Nutritional Research (2009) 29(9):609-615. 71 Consumer Council of Hong Kong (http://www.consumer.org.hk/website/ws_en/news/press_releases/p38401.html).RODMAN & RENSHAW EQUITY RESEARCH 17
  • 18. Neptune Technologies & Bioressources, Inc. April 25, 2012 The test that formed the basis of the report analyzed 21 fish oil and seven fish liver oil products to assess their fatty acid content (along with vitamin A and D content in the fish liver oil products), as well as the levels of possible contaminants. Given the proven health benefits of DHA and EPA, fish oil products often prominently advertise their omega-3 content. Except for five liver oil supplements, all samples (23) were duly labeled with claims on the levels of DHA and EPA in the products. The test found that a number of samples, however, contained DHA and EPA levels that were significantly lower than their claims. In the most notable case, a fish liver oil supplement was revealed to be as much as 88% short of the level of EPA it claimed. The EPA test result on the product indicated an amount of 29.6mg per capsule compared with 240mg each stated on its label. In another sample, the DHA result of 26mg per capsule fell also 71% short of the claimed value of 90mg in each capsule. 72 In some samples, trans fat was also detected (the sample with the highest amount had 40.6mg per 73 capsule), and saturated fat (the highest amount was 372mg per capsule). Taking into account both the test result (of the highest amount reached) and the maximum recommended dosage, one could take in at a maximum an amount of 162mg of trans fat daily, or 7.4% of the limit recommended by WHO/FAO. In the case of saturated fat, using the same calculation, one may consume a maximum amount of 1,488mg saturated fat daily, or 6.7% of the recommended WHO/FAO limit. Further, the fish liver oil samples were analyzed for contents of vitamins A and D. The results closely followed the claims on the label except for one sample, which was found to contain an amount of vitamin D 37% lower than its claim. On the test to identify the presence of contaminants such as heavy metals, pesticides and industrial wastes polychlorinated biphenyls (PCB), the results were generally satisfactory, especially in pollutants. The Consumer Council subsequently referred its test findings on such label discrepancies to the authorities concerned for follow-up action. Further, as part of the study, the Consumer Council also sought the comments of medical professionals on the health claims of fish oil and fish liver oil dietary supplements. In their opinion, the experts all agreed that the consumption of fish and fish oil could alleviate ones cardiovascular problems. Scientific evidence has shown that intake of omega-3 fatty acids could lower blood pressure, reduce blood triglyceride levels and assist in preventing cardiovascular diseases. However, the experts warned that excessive intake of omega-3 fatty acids could lead to gastrointestinal problems and higher risk of bleeding. The daily recommended intake limit is a total of 3g of DHA and EPA. Further, excessive intake of vitamins A and D could also lead to liver problems. The daily limit of vitamins A and D are respectively 10,000 IU and 2,000 IU. The limits for children, pregnant and lactating women should be lower. For pregnant and lactating women, it was stated that it is not considered necessary for them to consume vitamin A and D rich fish liver oil products if their physicians have already prescribed multi-vitamins. Neptune maintains a quality-assurance process that is QMP certified by the Canadian Food Inspection ® Agency (CFIA) to manufacture NKO . Additionally, the company has obtained Good Manufacturing Practices accreditation from Health Canada. POTENTIAL MULTIPLE BENEFITS ® Neptune Krill Oil (NKO ) is extracted with a patented GMP-accredited process from Antarctic Krill 74 (Euphasia superba), which is considered the most abundant biomass in the planet . 72 Trans fats (or trans fatty acids) are created in an industrial process that adds hydrogen to liquid vegetable oils to make them more solid. Trans fats raise your bad (LDL) cholesterol levels and lower your good (HDL) cholesterol levels. 73 Eating foods that contain saturated fats raises the level of cholesterol in your blood. 74 Kock K.H., et al., Philosophical Transactions of the Royal Society of London Series B Biological Sciences (2007) 29;362(1488):2333-2349.RODMAN & RENSHAW EQUITY RESEARCH 18
  • 19. Neptune Technologies & Bioressources, Inc. April 25, 2012 ® NKO is distinct from other marine oils in that the omega-3 fatty acids are attached to phospholipids, 75 which due to their amphiphilic nature, act as superior delivery systems. Furthermore, naturally inherent potent antioxidants such as astaxanthin, attached to omega-3, confer additional stability and antioxidant ® strength. NKO has been scientifically proven to be safe for chronic use and effective for the management of dyslipidemia, chronic inflammatory conditions and cognitive disorders. Phospholipids – Life Building Blocks Phospholipids are integral to the construction of cell membranes and work cooperatively with omega-3 and antioxidants (see Exhibit 4, Page 9) to assist a variety of processes essential to life. ® The majority of EPA and DHA present in NKO are structurally attached to phospholipid molecules, in the ® same manner they appear in human cell membranes. By weight, NKO is comprised of at least 30% EPA and DHA and 40% phospholipids, mostly in the form of phosphatidylcholines. The EPA and DHA in fish oil are in the form of tryacylglicerols. As we previously discussed, it has been demonstrated that essential fatty acids in the form of phospholipids are superior to those in the form of tryacylglycerols in 76 increasing the bioavailability EPA and DHA . Comparison of animal and human studies demonstrated the absorption of phospholipid-bound long-chain PUFAs is superior to non-phospholipid fish oils. A primate study demonstrated that twice as many 77 phospholipid-bound FAs accumulate in the brain compared to triglyceride-bound FAs . A human trial analyzing the response of both overweight and obese patients to long-chain fatty acid supplementation demonstrated that daily doses of 216mg EPA and 90mg DHA from krill oil provided more profound fatty acid elevations than daily doses of 212mg EPA and 178mg DHA derived from fish oil. At the end of the four-week trial, mean plasma EPA levels were 377µmol/L in the krill oil group, as opposed to 293 µmol/L in the fish oil group. Although the krill oil supplement provided half as much DHA as the fish oil, the plasma DHA was 476µmol/L in the krill oil group, compared to 478µmol/L in the fish oil 78 group at the end of this one-month trial . Astaxanthin – Potential Antioxidant and Anti-Inflammatory Effects Astaxanthin, a member of the carotenoid family, is an oxygenated reddish pigment present in microalgae, fungi, complex plants, seafood, flamingos and quail. It gives salmon, trout, and crustaceans such as 79 shrimp, krill and lobster their distinctive reddish coloration . It is an antioxidant with anti-inflammatory properties, which has been studied as a potential therapeutic agent in atherosclerotic cardiovascular 80 81 disease and renal transplantation . Humans and other animals cannot synthesize them and therefore are required to source them in their 82 diet . Carotenoids are classified, according to their chemical structure, into carotenes and xanthophylls. Astaxanthin, which is a xanthophyll, contains two oxygenated groups on each ring structure (Exhibit 10), 83 which is responsible for its enhanced antioxidant features . 75 Chemical compound possessing both hydrophilic (water-loving, polar) and lipophilic (fat-loving) properties. 76 Cansell M., et al., Lipids (2003) 38(5):551-559. 77 Wijendran V., et al., Pediatric Research (2002) 51(3):265-272. 78 Maki K.C., et al., Nutritional Research (2009) 29(9):609-615. 79 Hussein, G.; et al., Journal of Natural Products (2006) 69:443-449. 80 Fasset R.G., et al., Marine Drugs (2011), 9:447-465. 81 Fasset R.G., et al., BMC Nephrology (2008) 9:17. 82 Sandmann, G. European Journal of Biochemistry (1994) 223:7-24. 83 Guerin, M.; et al., Trends in Biotechnology (2003) 21, 210-216.RODMAN & RENSHAW EQUITY RESEARCH 19
  • 20. Neptune Technologies & Bioressources, Inc. April 25, 2012 Exhibit 10: Molecular Structure of Astaxanthin Source: Fasset R.G., et al., Marine Drugs (2011) 9:447-465. In 1987, the FDA approved astaxanthin as a feed additive for use in the aquaculture industry and in 1999 84 it was approved for use as a dietary supplement (nutraceutical) . Certain marine species, such as shrimp, have a limited capacity to convert closely related carotenoids ® into astaxanthin. The presence of this antioxidant in NKO creates a natural protection against oxidation ® of the oil. Independent analysis performed at Brunswick Laboratories with NKO and published literature 85 suggest that astaxanthin is significantly more effective as antioxidant than vitamin E . Astaxanthin can reduce free radicals and protect the cell membrane phospholipids against free radical damage. When measuring the oxygen radical absorbance (ORAC) – a measure of a compound’s ability ® to block free radicals, NKO was 48 times more effective than fish oil and 34 times more effective than 86 coenzyme Q10 . Oral supplementation with astaxanthin in studies in healthy human volunteers and patients with reflux esophagitis demonstrated a significant reduction in oxidative stress, hyperlipidemia and biomarkers of inflammation. In a study involving 24 healthy volunteers who ingested astaxanthin in doses from 1.8 to 21.6mg/day for two weeks, the LDL lag time, as a measure of susceptibility of LDL to oxidation, was 87 significantly greater in astaxanthin treated participants indicating inhibition of the oxidation of LDL . Plasma levels of 12- and 15-hydroxy fatty acids were significantly reduced in 40 healthy non-smoking 88 Finnish males given astaxanthin suggesting astaxanthin decreased the oxidation of fatty acids. The effects of dietary astaxanthin in doses of 0, 2 or 8mg/day, over eight weeks, on oxidative stress and 89 inflammation were investigated in a double blind study in 14 healthy females . Although these participants did not have oxidative stress or inflammation, those taking 2mg/day had lower C-reactive 90 protein (CRP) at week eight. There was also a decrease in DNA damage measured using plasma 8- hydroxy-2′-deoxyguanosine after week four in those taking astaxanthin. Astaxanthin therefore appears safe, bioavailable when given orally and is suitable for further investigation in humans. Moreover, the safety, bioavailability and effects of astaxanthin on oxidative stress and inflammation that have relevance to the pathophysiology of atherosclerotic cardiovascular disease, have been assessed in a small number of clinical studies. No adverse events have been reported and there is evidence of a reduction in biomarkers of oxidative stress and inflammation with astaxanthin administration. Experimental studies in several species using an ischemia-reperfusion myocardial model demonstrated that astaxanthin protects the myocardium when administered both orally or intravenously prior to the 91 induction of the ischemic event . 84 Guerin M.; et al., Trends in Biotechnology (2003) 21, 210-216. 85 Naguib Y.M., et al., Journal of Agricultural and Food Chemistry (2000) 48:1150-1154. 86 Massrieh W. Lipid Technology (2008) 20(5):108-111. 87 Iwamoto T.; et al., Journal of Atherosclerosis and Thrombosis (2000) 7:216-222. 88 Karppi J.; et al., International Journal of Vitamine and Nutrition Research (2007):77:3-11. 89 Park J.S.; et al., Nutrition & Metabolism (2010) 7:18. 90 Protein found in the blood, the levels of which rise in response to inflammation (it is an acute phase protein). 91 Fasset R.G., et al., Marine Drugs (2011) 9:447-465.RODMAN & RENSHAW EQUITY RESEARCH 20
  • 21. Neptune Technologies & Bioressources, Inc. April 25, 2012 A double-blind randomized placebo-controlled clinical trial (Xanthin study by Fasset et al.) is currently being conducted to assess the effects of astaxanthin 8mg orally day on oxidative stress, inflammation and 92 vascular function in patients that have received a kidney transplant . Patients in the study undertake measurements of surrogate markers of cardiovascular disease including aortic pulse wave velocity, augmentation index, brachial forearm reactivity and carotid artery intima-media thickness. Depending on the results from this pilot study a large randomized controlled trial assessing major cardiovascular outcomes such as myocardial infarction and death may be warranted. Experimental evidence suggests astaxanthin may have protective effects on cardiovascular disease when administered prior to an induced ischemia-reperfusion event. In addition, there is evidence that astaxanthin may decrease oxidative stress and inflammation which are known accompaniments of many diseases. The unique molecular composition of krill oil, which is rich in phospholipids, omega-3 fatty acids, and diverse antioxidants, seems to surpass the profile of fish oils and may offer a superior approach toward the reduction of risk for cardiovascular disease. ® NKO and Hyperlipidemia ® 93 In a recent study, the effect of NKO on hyperlipidemia was investigated . In this double-blind trial, 120 male and female subjects (mean age of 51±9.5 years) diagnosed with mild to high blood cholesterol (194- 348mg/dL) and triglycerides (204-354mg/dL) were enrolled. Subjects were randomly assigned to one of the following treatment groups: 2 (A) low-dose krill oil: 1g/d if body mass index (BMI) was under 30kg/m and 1.5g/d if BMI was 2 over 30 kg/m 2 2 (B) high-dose krill oil: 2g/d if BMI was under 30kg/m and 3g/d if BMI was over 30kg/m (C) 3g/d of fish oil containing 180 mg EPA and 120 mg DHA (D) placebo containing microcrystalline cellulose Assigned treatments were given daily for 12 weeks. The primary endpoints measured were total cholesterol, triglycerides, LDL, and HDL at baseline and at 90 days. Fasting blood lipids and glucose were analyzed at baseline as well as 30 and 90 days after study initiation for all groups, and at 180 days for the 30 patients in Group B. After 12 weeks of treatment, patients receiving 1g or 1.5g krill oil daily had a 13.4% and 13.7% decrease in mean total cholesterol, from 236mg/dL and 231mg/dL to 204mg/dL (p=0.001) and 199mg/dL (p=0.001), respectively (Exhibit 11). Exhibit 11: Results of Krill Oil (1g and 1.5g/day) on Lipids 1g Krill Oil mg/dL % Change p-value 1.5g Krill Oil mg/dL % Change p-value Time (days) 0 90 Time (days) 0 90 Total Cholesterol 235.83 204.12 -13.44% 0.001 Total Cholesterol 231.19 199.49 -13.71% 0.001 LDL 167.78 114.05 -32.03% 0.001 LDL 164.74 105.93 -35.70% 0.001 HDL 57.22 82.35 43.92% 0.001 HDL 58.76 83.89 42.76% 0.001 Triglycerides 120.50 107.21 -11.03% 0.114 Triglycerides 126.7 111.64 -11.89% 0.113 Source: Bunea R., et al., Alternative Medicine Review (2004) 9:420-428. The group of patients treated with 2g or 3g krill oil showed a significant respective reduction in mean total cholesterol of 18.1% and 18%. Levels were reduced from a baseline of 247mg/dL and 251mg/dL to 203mg/dL (p=0.001) and 206mg/dL (p=0.001), correspondingly (Exhibit 12). 92 Fassett R.G.; at al., BMC Nephrology (2008) 9(17). 93 Bunea R., et al., Alternative Medicine Review (2004) 9:420-428.RODMAN & RENSHAW EQUITY RESEARCH 21
  • 22. Neptune Technologies & Bioressources, Inc. April 25, 2012 Exhibit 12: Results of Krill Oil (2g and 3g/day) on Lipids 2g Krill Oil mg/dL % Change p-value 3g Krill Oil mg/dL % Change p-value Time (days) 0 90 Time (days) 0 90 Total Cholesterol 247.42 202.58 -18.13% 0.001 Total Cholesterol 250.52 205.67 -17.90% 0.001 LDL 182.86 114.43 -37.42% 0.001 LDL 172.81 105.16 -39.15% 0.001 HDL 51.03 79.25 55.30% 0.001 HDL 64.18 102.45 59.64% 0.001 Triglycerides 160.37 116.07 -27.62% 0.025 Triglycerides 152.77 112.27 -26.51% 0.028 Source: Bunea R., et al., Alternative Medicine Review (2004) 9:420-428. In comparison, people receiving 3g fish oil had a mean reduction in total cholesterol of 5.9%, from a baseline 231mg/dL to 218mg/dL (p=0.001). Those enrolled in the placebo group showed a 9.1% increase in mean total cholesterol, from 222mg/dL to 242mg/dL (p=0.001). A similar effect on LDL levels was observed in all groups. Krill oil at a daily dose of 1g, 1.5g, 2g, or 3g achieved significant reductions of LDL of 32%, 36%, 37%, and 39%, respectively (p=0.001). Results of patients treated daily with 3g fish oil did not achieve a significant reduction in LDL (4.6%) after 12 weeks. Patients receiving placebo showed a negative effect, with a 13% increase in LDL levels. HDL was significantly increased in all patients receiving krill oil (p=0.001) or fish oil (p=0.002). HDL levels increased from 57.2mg/dL to 82.4mg/dL (44% change) at krill oil 1g/day; 58.8mg/dL to 83.9mg/dL (43% increase) for krill oil 1.5 g/day; 51mg/dL to 79.3mg/dL (55% increase) at krill oil 2g/day; and from 64.2mg/dL to 102.5mg/dL (59% increase) at a daily krill oil dose of 3g. Fish oil taken at 3g/day increased HDL from 56.6mg/dL to 59.03mg/dL (4.2% increase). No significant decrease of HDL (p=0.850) was observed within the placebo group. Triglyceride reductions were not statistically significant in the 1g and 1.5g/day krill group (11% and 11.9% reduction, respectively). However, a daily dose of 2g and 3g krill oil resulted in significant 26.7% and 26.5% reduction of triglycerides, respectively (Exhibit 12 and 13). Exhibit 13: Cholesterol, LDL, HDL and TGs - Percentage Change from Baseline 70% 60% % Change from Baseline 50% 40% Placebo 30% 1g Kril Oil 20% 10% 1.5g Kril Oil 0% 2g Kril Oil -10% 3g Kril Oil -20% 3g Fish Oil -30% -40% -50% Total Cholesterol LDL HDL Triglycerides Source: Bunea R., et al., Alternative Medicine Review (2004) 9:420-428 and Rodman & Renshaw. It is clearly demonstrated that krill oil considerably decreased total cholesterol, LDL, and triglycerides. In addition, it also increased HDL levels. At lower and equal doses, krill oil was also more effective than fish oil in lowering glucose, triglycerides, and LDL from baseline levels. Additionally, blood glucose was reduced 6.3% in the 1g and 1.5g krill groups, and 5.6% in those taking 2g or 3g krill daily. In comparison, there was a non-significant decrease in glucose for both the fish oil andRODMAN & RENSHAW EQUITY RESEARCH 22
  • 23. Neptune Technologies & Bioressources, Inc. April 25, 2012 placebo group. It is important to notice that the FDA has recently ordered that statins - the cholesterol- lowering drugs – must carry warnings about increased risks of elevated blood sugar and possible transient memory and cognition problems. Therefore, lowering blood glucose could be seen as a plus for krill oil in managing cholesterol levels as compared to statins. ® Inflammatory Disease Management with NKO Measurement of serum C-reactive protein (CRP) level is in widespread clinical use as a sensitive marker 94 of inflammation . It appears to be a key player in the damaging effects of systemic inflammation and an 95 easy and inexpensive screening test to assess inflammation-associated risk . ® A double blinded, placebo controlled, randomized prospective study examined the effect of 300mg NKO 96 daily on CRP and functional testing scores for arthritis . Ninety subjects with a diagnosis of cardiovascular disease and/or rheumatoid arthritis and/or osteoarthritis, with elevated CRP (>1mg/dL) for ® three consecutive weeks were enrolled in the trial. Group A received NKO (300mg daily) and Group B received a placebo. CRP and Western Ontario and McMaster Universities (WOMAC) osteoarthritis score were measured at baseline and days 7, 14 and 30. WOMAC is a questionnaire used to assess pain, stiffness, and physical function in patients with various inflammatory conditions, such as hip and/or knee 97 osteoarthritis, lower back pain, rheumatoid arthritis, etc . After seven days of krill supplementation, CRP decreased by 19.3% compared to an increase by 15.7% observed in the placebo group (p=0.049). After 14 and 30 days of treatment, CRP further decreased by 29.7% and 30.9%, respectively, in the krill oil group while the placebo group experienced an increase of 32.1% by day 14 and a drop to 25.1% by day 30 (p=0.001). When comparing krill supplementation to the placebo group, differences at day 7 (p=0.049), day 14 (p=0.004) and day 30 (p=0.008) were all statistically significant. ® By day 7, WOMAC results showed that the NKO group significantly reduced pain scores (28.9% reduction, p=0.050), stiffness scores (20.3% reduction, p=0.001), and functional impairment scores ® 22.8% (p=0.008) when compared to placebo. NKO also showed significant reduction in all three WOMAC scores by day 14 and day 30. Premenstrual Syndrome ® Sampalis et al., compared the effectiveness of NKO to fish oil on various functional parameters in premenstrual syndrome (PMS), as well as the total consumption of analgesics for pain and discomfort 98 associated with PMS in a double blind, randomized clinical trial. In this 90-day study, 70 patients of reproductive age were assigned to take 2g krill oil daily (800mg phospholipids, 600mg EPA and DHA, n=36) or 2g fish oil daily (600mg EPA and DHA at a 3:2 ratio, n=34) for the first 30 days of the trial. In the final 60 days, both groups were taking the assigned treatment eight days prior to and two days during menstruation. Questionnaires were completed and analgesic medication intakes were measured at baseline, 45 and 90 days. ® After 45 and 90 days, the NKO group showed significant improvements from baseline (p<0.001 for all parameters) in breast tenderness, joint pain, weight gain, abdominal pain, swelling, and bloating, as well as feelings of being overwhelmed, stressed, irritable, and depressed. The fish oil group demonstrated significant improvements from baseline (p=0.04) only for weight gain and abdominal pain after 45 days. Symptoms of stress, weight gain, abdominal pain and swelling were improved by 90 days of treatment with fish oil. ® The consumption of analgesic medication was decreased by 50% from baseline in the NKO group after 90 days of treatment. A similar decrease in pain reliever consumption was seen in the fish oil group. At 94 Rhodes B., et al., Nature Reviews. Rheumatology (2011) 7(5):282-289. Epub 2011 Apr 5. 95 Johansen J.S., et al., Rheumatology (1999) 38:618-626. 96 Deutsch L. Journal of the American College of Nutrition ((2007) 26:39-48. 97 http://www.rheumatology.org/practice/clinical/clinicianresearchers/outcomes-instrumentation/WOMAC.asp. 98 Sampalis F., et al., Alternative Medicine Review (2003) 8:171-179.RODMAN & RENSHAW EQUITY RESEARCH 23
  • 24. Neptune Technologies & Bioressources, Inc. April 25, 2012 ® the end of the study, the comparative analysis between groups showed that women taking NKO consumed significantly fewer pain relievers during the 10 days of treatment than women receiving fish oil (p<0.03). 99 Previous studies have shown a beneficial effect of omega-3 PUFAs on dysmenorrea (menstrual pain) . This is probably due to the fact that menstrual pain and cramps are caused by inflammation mediated by 100 omega-6 PUFA-derived eicosanoids . ® CNS Effects of NKO ® NKO may also be useful for the treatment of ADHD. Attention deficit hyperactivity disorder is a 101 neurobiological illness, prevalent in about 8% of all children that usually persists in adulthood . Its core symptoms include inattention, impulsivity, and hyperactivity, all of which affect daily living, family interactions, social interactions, and academic achievements. Several studies have indicated reduced blood concentrations of highly unsaturated fatty acids in ADHD 102 ® children compared to controls . The NKO study was designed as a pilot, uncontrolled, open-label ® study to evaluate the safety and effectiveness of NKO in the treatment of ADHD. Thirty patients (mean age of 23±12 years) diagnosed with ADHD were enrolled in the trial. The subjects were administered ® 103 500mg NKO daily and the Barkley executive functions scores were observed. After completing the treatment, patients exhibited a statistically significant improvement in behavioral inhibition, self-control 104 and executive functions . These results are compelling; however, further studies are needed to better understand dosage and long-term safety and efficacy of the treatment. GLOBAL OMEGA-3 MARKET POISED TO GROW Worldwide Omega-3 Consumer Product Market is Worth $13B A report from the Global Organization for EPA and DHA (GOED) suggests that the entire omega-3 market (including raw materials, oil and concentrates, supplements, food and beverage products, beauty 105 products, and pet food) has reached $13B worldwide : About $180MM is derived from raw materials $1.28B is generated from refined oils and concentrates $13.1B is comprised by consumer products: o food and beverage products (excluding fish) o health and beauty care products (including supplements) o pet products The structure of the omega-3 market is fairly complex. There are several companies, many joint ventures and strategic alliances involved at multiple levels within the industry. Throughout the world, the number of consumers who are aware of omega-3 fatty acids and their broad role in health is high (Exhibit 14, 15). The number of people who are specifically consuming omega-3 for health has increased dramatically over the past few years. Nine percent of grocery shoppers buy high omega-3 food or beverage products in a typical grocery shopping trip, and the percentage of adults who 106 take fish oil supplements has risen from 8% in 2006 to 17% in 2011 . Increasing consumption is driven by: 99 Deutch B. European Journal of Clinical Nutrition (1995) 49:508-516. 100 Harel Z., et al., American Journal of Obstetrics & Gynecology (1996) 174:1335-1338. 101 Pliszka S., et al., Journal of the American Academy of Child and Adolescent Psychiatry (2007); 46(7):894-921. 102 Richardson A.J. International Review of Psychiatry (2006) 8:155-172. 103 The Barkley Deficits in Executive Functioning Scale (BDEFS) is an empirically based tool for evaluating dimensions of adult executive functioning in daily life. 104 Massrieh W. Lipid Technology (2008) 20(5):108-111. 105 GOED Report 2008. 106 Omega-3: Global Product Trends and Opportunities. Packaged Facts, 2011.RODMAN & RENSHAW EQUITY RESEARCH 24
  • 25. Neptune Technologies & Bioressources, Inc. April 25, 2012 expanding medical, governmental, and public awareness of omega-3 and its wide range of health benefits continued consumer receptiveness to functional food and supplement products positive mainstream and trade media reports increased market participation by major marketers Exhibit 14: U.S. Consumer Awareness of Omega-3, 1998-2008 80% 70% 76% 71% 60% 57% 55% 63% 60% 50% 55% 57% 49% 40% 46% Awareness 43% 29% 29% Believe Health Benefits 30% 27% 30% 33% 31% 25% 28% 20% 21% 22% 10% 16% 0% 1998 2001 2002 2003 2004 2005 2008 1999 2000 2006 2007 Source: GOED Exhibit 15: Consumer Awareness of Omega-3 by Country, 2009 France 82% 40% United States 88% 33% Germany 90% 31% Total Awareness Italy 93% Believe Health Benefits 39% Sapin 96% 47% United Kingdom 99% 36% 0% 50% 100% 150% Source: GOED More and more, customers consider health and beauty care products an extension of the food/beverage they consume. This attitude has created a new range of nutritional products expanding from whole foodsRODMAN & RENSHAW EQUITY RESEARCH 25
  • 26. Neptune Technologies & Bioressources, Inc. April 25, 2012 107 and fortified/functional foods to nutritional supplements and personal care products . Exhibit 16 shows some of the reasons why people buy health foods and/or beverages. Exhibit 16: Why Do People Purchase Healthy Foods/Beverages 35% 31% 30% 25% 21% 20% 15% 15% 11% 9% 10% 5% 5% 2% 0% Source: Future of Omega-3 Functional Foods GOED Exchange January 2011 Consumer demand for omega-3 products is set to continue to grow steadily over the 2012-2015 period. Growth would influence the activities of manufacturers and marketers worldwide in supplying omega-3 products across various categories and segments of consumer packaged goods. The market for omega- 3 products would remain lively and opportunity-rich for years to come. What is now a $13B industry is 108 probably far from reaching its full potential . Omega-3 Dietary Supplement Industry Has Grown Fast 109 Currently omega-3 is positioned as the number one consumer supplement choice , and its sales have grown exponentially over the years. Globally, sales of omega-3 dietary supplements grew from $1.8B in 2007 to $2.8B in 2009, according to data from GOED. In the U.S. alone, sales in the omega-3 supplements category have increased from $40MM in 1995 to $1B in 2009 - a 26% compound annual 110 growth rate (Exhibit 17). 107 Packaged Facts 2011. 108 Omega-3: Global Product Trends and Opportunities 2011. 109 ConsumerLab.com Survey of Vitamin and Supplement Users 2011. 110 GOED Estimates, Nutrition Business Journal.RODMAN & RENSHAW EQUITY RESEARCH 26
  • 27. Neptune Technologies & Bioressources, Inc. April 25, 2012 Exhibit 17: Omega-3 Supplement Sales in the U.S. from 1995-2009 U.S. Omega-3 Dietary Supplement Sales ($ in Millions) $1,200 $1,000 $800 $600 $400 $200 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: GOED Estimates, Nutrition Business Journal. The market of omega-3 supplements in the U.S. is forecasted to grow to approximately $2.8B in 2015 111 according to Frost and Sullivan . The Nascent Krill Sector Currently, the major source of omega-3 fatty acids is fish oil. However, one of the new products in the industry - krill oil – has already captured 2% of the omega-3 supplements’ market and is forecasted to 111 exceed 5% of the market over the next three years even as public awareness about krill remains relatively low. Antarctic krill is protected by an international treaty. Quotas have been determined for annual limit of capture. The current Convention on the Conservation of Antarctic Marine Living Resources treaty allows 112 6.55 MMT (million metric tons) to be caught in major geographical areas . The average catch over the 113 last 10 years has been about 120,000 MT (metric tons) . Since krill decompose very quickly, it is either dried aboard the vessel and brought back to a land-based plant for oil extraction or enzymatically digested the and then the oil is isolated. For oil extraction, Neptune uses its Neptune Ocean Extract™ process. It is a patented and proprietary cold extraction method for optimal preservation of the bioactive properties of all krill components. Due to this exclusive ® extraction process, NKO is free of heavy metals, PCBs, dioxins and pesticides. Since its stability is ® supported by a high, natural antioxidant, NKO contains no preservatives. While there are no official figures for the value of krill supply for human consumption, this nascent and 114 rapidly growing sector is estimated to be ~$100MM with a 20% annual growth rate . According to the FAO 2009 Yearbook, the amount of krill captured in 2009 corresponded to only 0.14% of the world total fishery and aquaculture production (Exhibit 18). 111 Global Analysis of the Marine and Algae Omega-3 Ingredients Market, Frost and Sullivan. 112 www.ccamlr.org/pu/e/e_pubs/cm/07-08/toc.htm. 113 FAO, 2009. 114 Krill is set for continued omega-3 stardom, 2011.RODMAN & RENSHAW EQUITY RESEARCH 27
  • 28. Neptune Technologies & Bioressources, Inc. April 25, 2012 Exhibit 18: Krill Capture vs. World Total Fish and Aquaculture Capture 180 93,000 World Total (Tons in Thousands) 160 Krill (Tons in Thousands) 92,000 140 91,000 120 100 90,000 Krill, planktonic crustaceans 80 89,000 World Total 60 88,000 40 87,000 20 0 86,000 Source: Fishery and Aquaculture Statistics Annual Yearbook. FAO (Food and Agriculture Organization) 2009. The fact that currently there is low awareness of krill as a source of omega-3 for human consumption only underscores its prospects for further growth. Krill would probably be a significant source of omega-3 in coming years, as more scientific studies support the health enhancement properties of this tiny crustacean. In addition, the public is being educated about the possible benefits associated with phospholipids and astaxanthin, which differentiates krill from other sources of omega-3. EXPANDING THE NEPTUNE PORTFOLIO Neptune introduced a new pipeline of novel formulations containing its proprietary marine omega-3 phospholipids targeting specific health applications. The company pre-launched its new product, Eco Krill TM Oil (EKO™) in September 2011 at VitaFood (Private, Not Rated) in Paris. EKO™ is a product similar to ® NKO with slightly lower concentrations and a lower selling price. Moreover, EKO™ sells at a lower price than most competing krill oil products and presents better specifications than most of the competitor’s products. Neptune is also testing industry feedback of a new biomass extract generated from the company’s research and development program targeting new cognitive health indications. Functional foods are an exciting current trend in the food and nutrition field. The International Food Information Council (IFIC) considers functional foods to include any food or food component that may 115 have health benefits beyond basic nutrition . Pilot commercial products are also being developed for functional food applications, such as juice, fruit berries, fruit paste and protein bars for both human and animal health. A daily therapeutic dose of 300mg to 500mg is incorporated into a single serving size of these different food products. These clinical trials, performed in Europe by Neptune’s multinational partners Yoplait and Nestlé, have been completed. Results are expected before the end of 1Q13. In the European Union, all health claims for functional foods, whether made in advertising or labeling, are required to undergo pre-market scientific review and approval. Therefore, Neptune is waiting on trial results that could establish valuable claims in neurology, inflammatory disorders or premenstrual syndrome. 115 http://www.foodinsight.org/RODMAN & RENSHAW EQUITY RESEARCH 28
  • 29. Neptune Technologies & Bioressources, Inc. April 25, 2012 Neptune has entered into a multi-year partnership with former NFL (National Football League) Super Bowl Champion and Hall-of Fame quarterback, John Elway. John Elway was the second most prolific passer in NFL history. We believe his addition to Neptune’s team could strengthen Neptune’s krill health claims and increase awareness of the product. TAPPING CHINA, THE FASTEST GROWING OMEGA-3 MARKET China’s consumption of EPA- and DHA-rich oils, which currently is totaling 10,095t, is soon set to overtake Western Europe which accounts for 12,284t, according to research conducted by market analysts Frost & Sullivan and the Global Organization for EPA and DHA (GOED). China is already ahead of Southeast Asia and Australia, and New Zealand which consume 5,853t and 4,951t respectively. The Asian market now represents more than 30% of all omega-3 market worldwide, China being the largest player in Asia. During 3Q11, Neptune announced the conclusion of a Memorandum of Understanding (MOU) with Shanghai KaiChuang Deep Sea Fisheries Co., Ltd. (SKFC, Not Rated) to form a 50%/50% Joint Venture, the Neptune-SKFC Biotechnology. The Joint Venture would manufacture and market Neptune’s krill products in Asia, the worldwide leading market for omega-3 products. SKFC is a publicly listed company in China and is 43% owned by Shanghai Fisheries General Corporation (SFGC), the largest Chinese deepwater fishing company - owned by the Government of China. In total, SFGC is involved with more than 30 wholly-owned or JV companies. They are specializing in pelagic fishing, fishing vessels, fishing machinery, fresh grocery and storage services. Overseas JV companies, cooperative enterprises and representative offices were established in over 10 foreign countries or regions, forming a pattern of oversea-oriented economy. SKFC has also the largest fleet of vessels of krill harvesting in the Antarctic Ocean, which should assure supply to Neptune-SKFC Biotechnology and to Neptune (Exhibit 19). Exhibit 19: Shanghai Kai Chuang Deep Sea Fisheries Co. Ltd. - Shanghai/China Source: http://www.shipspotting.com/gallery/photo.php?lid=1250943 The initial cost of the project is expected to be $30MM. It would include the construction of a production facility using Neptune Proprietary Production Technology in China, as well as the development of a robust commercial distribution network for Asia. SKFC would supply all the raw material and Neptune would provide a license to Neptune-SKFC Biotechnology allowing it rights of use of its Production Technology IP for the Asian Market. Neptune is entitled to receive a significant upfront payment, as well as royalty payments. The MOU is subject to approval by the boards of each party, as well as by Chinese regulators.RODMAN & RENSHAW EQUITY RESEARCH 29
  • 30. Neptune Technologies & Bioressources, Inc. April 25, 2012 In our opinion, Neptune’ strategy to partner with the largest player in the fishing industry, in one of the world’s fastest omega-3 growing market would smooth marketing challenges. Furthermore, krill is already ® an established food source in some Asian regions, which could also play a role in facilitating NKO commercialization. KRILL OIL: A PRESCRIPTION DRUG? Lovaza™ – The First Omega-3 FDA Approved ® Lovaza™/Omacor is a combination of ethyl esters of omega-3 PUFAs, principally EPA and DHA. It is indicated as an adjunct to diet to reduce TG levels in adult patients with severe hypertriglyceridemia (≥500mg/dL). Lovaza™ was developed by Pronova BioPharma (PRON.OL, Not Rated) and marketed in the U.S. initially by Reliant Pharmaceuticals. Reliant was acquired by GlaxoSmithKline (GSK, Not Rated) in 2007. Lovaza™ is the first and only FDA-approved, prescription omega-3 fatty acid product. It is composed of approximately 90% omega-3 PUFAs (465mg EPA, 375mg DHA, and >60mg of other omega-3s), for a total of 900mg of omega-3 fatty acids per 1g capsule. It is naturally derived through a patented process 116 that consistently creates a highly concentrated and purified prescription medicine . The approval was based on the results of two placebo-controlled, randomized, double-blind, parallel- group studies of 84 adult patients (42 on Lovaza™, 42 on placebo) with very high triglyceride levels. The effects of Lovaza™ 4g daily in changing major lipoproteins lipid parameters were assessed for the groups receiving Lovaza™ or placebo. Patients whose baseline triglyceride levels were between 500mg/dL and 2,000mg/dL were enrolled in these two studies of 6 and 16 weeks duration (Exhibit 20). Exhibit 20: Median Baseline and Percent Change from Baseline in Lipid Parameters in Patients with Very High TG Levels (≥500 mg/dL) LOVAZA Placebo Parameter N = 42 N = 42 % Difference Baseline (mg/dL) % Change Baseline (mg/dL) % Change TG 816 -44.9 788 6.7 -51.6 Non-HDL-C 271 -13.8 292 -3.6 -10.2 TC 296 -9.7 314 -1.7 -8 VLDL-C 175 -41.7 175 -0.9 -40.8 HDL-C 22 9.1 24 0 9.1 LDL-C 89 44.5 108 -4.8 49.3 Source: Lovaza™ Prescription Label. % Change = Median Percent Change from Baseline; Difference = LOVAZA™ Median % Change – Placebo Median % Change; TC = Total Cholesterol The median triglyceride (TG) and LDL-C levels in these patients were 792mg/dL and 100mg/dL, respectively. Median HDL-C level was 23mg/dL. In the Lovaza™ group, while VLDL and non–HDL levels decreased (41.7% and 13.8%, respectively) compared with baseline, median LDL cholesterol levels increased by 44.5%. Patients should be monitored to ensure that LDL cholesterol levels do not increase excessively. In persons with hypertriglyceridemia, levels of LDL-C alone do not adequately represent the risk 117 118 associated with atherogenic lipoproteins . Thus, in addition to the primary goal of LDL-C reduction, the National Cholesterol Education Program Adult Treatment Panel III (NCEP ATP III) guidelines have identified non-HDL-C as a secondary target of therapy in persons with serum TG levels ≥200 mg/dL. 116 Lovaza™ Prescription Label. 117 Induces formation of deposits especially in the innermost layer of arterial walls. 118 Third Report of the National Cholesterol Education Program (NCEP). Circulation (2002) 106:3143-3421.RODMAN & RENSHAW EQUITY RESEARCH 30
  • 31. Neptune Technologies & Bioressources, Inc. April 25, 2012 In patients with very high triglycerides (≥500 mg/dL) the NCEP guidelines recommend lowering the very high triglycerides as the primary objective of lipid management, and treating LDL-C and non-HDL-C levels as secondary objectives. Treatment goals may not be reached with statin monotherapy alone. Davidson et al. evaluated the effects on non-HDL-C and other variables of adding Lovaza™ to stable statin therapy in patients with persistent hypertriglyceridemia (COMBOS study). This was a multicenter, randomized, double-blind, placebo-controlled, parallel-group study in adults who had received >8 weeks of stable statin therapy and had mean fasting TG levels >200mg and <500mg/dL and mean low-density lipoprotein cholesterol levels <10% above their NCEP ATP III goal. The main outcome measure was the percent change in non-HDL- C from baseline to the end of treatment. At the end of treatment, the median percent change in non-HDL- C was significantly greater with Lovaza™ plus simvastatin compared with placebo plus simvastatin (-9.0% vs. -2.2%, respectively; p<0.001). Lovaza™ plus simvastatin was associated with significant reductions in TG (29.5% vs. 6.3%) and VLDL-C (27.5% vs. 7.2%), and a significant increase in HDL-C (3.4% vs. - 119 1.2%) . ® Overall, at a typical dose of four capsules/day, Lovaza™/Omacor significantly lowers plasma triglyceride levels either as monotherapy or in combination with 3-hydroxy-3-methylglutaryl coenzyme A (HMG-CoA) reductase inhibitors (statins) or fibrates. However, it is important to note that the FDA did not approve Lovaza™ for use in patients taking statins whose triglyceride levels remain elevated. Pronova BioPharma, the manufacturer, has a global network of license and distribution partners of ® Lovaza™/Omacor that includes: GlaxoSmithKline in the U.S., Takeda Pharmaceutical (4502, Not Rated) in Japan, Prospa (Private, Not Rated) in Italy and Abbott (ABT, Not Rated) in UK, Germany and others. ® The combined sales force from this network, focused on Lovaza™/Omacor , is approximately 2,650 sales representatives. The drug was launched in 2005 in the U.S. and in major European markets. IMS Health reports that global end-user sales of the product have increased from $144MM in 2005 to $1.1B in 2009 globally ($758MM in the U.S. alone), achieving blockbuster status. According to market research firm Wolters Kluwer, U.S. sales of Lovaza™ topped $1B in 2011 (Exhibit 21). Recently, Pronova entered into an agreement with Apotex Corp. and Apotex Inc. (Private, Not Rated) to settle their patent litigation in the U.S. related to Lovaza™. Pronova granted Apotex a license to enter the U.S. market with a generic version of Lovaza in 1Q15, or earlier depending on circumstances. Exhibit 21: U.S. Lovaza™ sales 2007-2011 Lovaza™ U.S. Sales ($ in Millions) $1,400 $1,200 $1,000 $800 $600 Integrated WAC Dollars $400 $200 $0 2007 2008 2009 2010 2011 Source: Wolters Kluwer Prescription Health Database. 119 Davidson M.H., et al., Clinical Therapeutics (2007) 29(7):1354-1367.RODMAN & RENSHAW EQUITY RESEARCH 31
  • 32. Neptune Technologies & Bioressources, Inc. April 25, 2012 Amarin Could be Next Amarin (AMRN, Not Rated) is developing AMR101, an omega-3 PUFA containing >96% EPA ethyl ester and no DHA, as a prescription drug. In September 2011, the company submitted an NDA to the FDA requesting approval of AMR101 for use in the treatment of patients with very high triglycerides (≥500mg/dL), the patient population studied in Amarin’s MARINE trial. The NDA included efficacy and safety data from both the MARINE and ANCHOR Phase 3 trials of AMR101. The Multicenter, plAcebo-controlled, Randomized, double-blINd, 12-week study with an open-label Extension (MARINE) was a Phase 3 study. 229 patients with fasting TG >500mg/dl and <2,000mg/dl (with or without background statin therapy) were randomized to three groups: (1) AMR101 4g/day, (2) AMR101 2g/day, or (3) placebo. The primary endpoint was the placebo-corrected median percentage of change in TG from baseline to week 12. AMR101 4g/day reduced the placebo-corrected TG levels by 33.1% (n=76, p<0.0001) and AMR101 2g/day by 19.7% (n=73, p<0.0051). For a baseline TG level >750 mg/dl, AMR101 4g/day reduced the placebo-corrected TG levels by 45.4% (n=28, p<0.0001) and AMR101 2g/day by 32.9% (n=28, p<0.0016). AMR101 did not significantly increase the placebo-corrected median LDL cholesterol levels at 4g/day (-2.3%) or 2g/day (+5.2%; both statistically non-significant). AMR101 significantly reduced non–HDL-C, apolipoprotein B (apo B), lipoprotein-associated phospholipase A2 (Lp-PLA2), VLDL-C, and total cholesterol (TC). AMR101 was generally well tolerated, with a safety profile similar to that of the placebo (Exhibit 22). Exhibit 22: Change in Lipid Levels, Baseline to Week 12 (Intent-to-Treat Population). Source: Bays H.E., et al., American Journal of Cardiology (2011) 108:682-690. In conclusion, AMR101 significantly reduced the TG levels and improved other lipid parameters in patients with very high TG levels, without significantly increasing LDL-C. As we discussed, the increase in LDL cholesterol can present treatment challenges. According to current treatment guidelines, LDL cholesterol is the main target for cholesterol-lowering therapy for the prevention of coronary heartRODMAN & RENSHAW EQUITY RESEARCH 32
  • 33. Neptune Technologies & Bioressources, Inc. April 25, 2012 120,121 disease . Therapeutic interventions that increase LDL-C, such as Lovaza™ and fibrates, might hamper the achievement of lipid treatment targets. The second Phase 3 trial (ANCHOR) was designed to demonstrate that AMR101 is effective in reducing triglyceride levels in patients with moderate-high triglycerides (≥200 and <500mg/dL) without increasing LDL-C levels in patients on statin therapy. 702 patients with mixed dyslipidemia (two or more lipid disorders) were enrolled. The primary endpoint for triglyceride change was achieved at both 4g and 2g per day with median placebo-adjusted reductions in triglyceride levels of 21.5% (p<0.0001) and 10.1% (p=0.0005) for the 4g and 2g per day dose groups, respectively. The NDA for AMR101 for the treatment of patients with very high triglycerides was accepted for filing by the FDA, with a PDUFA date of July 26, 2012. Although the market for high hyperlipidemia is much smaller than mixed dyslipidemia, and despite the company’s setbacks related to its patent, Amarin’s current market capitalization is ~$1B. In addition, we are aware of other pharmaceutical companies that are developing products that, if ® approved, would compete with CaPre . These include a free fatty acid form of omega-3 (Epanova™, comprised of 55% EPA and 20% DHA) which is being developed by Omthera Pharmaceuticals. (Private, Not Rated) and Epax (Private, Not Rated). Omthera completed enrollment in a Phase 3 clinical trial in November 2011 and it expects to disclose initial top-line data by April 2012. Epax has completed a Phase 3 study of the omega-3 based drug candidate AKR963 for hypertriglyceridemia (patients with high tryclycerides). Epax is a 50/50 joint venture between Aker BioMarine and Lindsay Goldberg (Private, Not Rated). ® CaPre – The Perfect Lipid Trifecta? In August 2008, Neptune transferred an exclusive worldwide license to its subsidiary, Acasti, to research and develop new active pharmaceutical ingredients (APIs) based on Neptune’s proprietary omega‐3 PUFAs extracted from krill. This allows Neptune to set apart its cardiovascular pharmaceuticals activities from its nutraceutical business. Acasti initiated research aiming towards IND/clinical trial application (CTA) allowance by the FDA and Health Canada, respectively. The company is developing a pipeline targeting treatments for chronic cardiovascular disorders within the OTC, medical food and prescription drug markets. Hypertriglyceridemia is commonly associated with the highly atherogenic lipid triad: (1) an increase in large triglyceride-rich VLDL particles, (2) a reduction in large HDL-C particles, and increased levels of 122 ® atherogenic small dense LDL-C . Preclinical and initial clinical testing already demonstrated that NKO 123 ® appears to have an effect in reducing LDL and triglycerides, as well as increasing HDL levels . CaPre , ® which is Acasti’s clinical candidate, is a concentrated form of NKO . In preclinical trials, blood lipids were monitored in two animal models to assess and compared the ® efficacy of CaPre and the current marketed drug Lovaza™ over a 12-week treatment period. Results have shown that: ® a low daily human equivalent dose of CaPre 1g seems to reduce LDL-C by 40% and increase HDL-C by 180% in a normal rat model, while 4g of Lovaza™ did not show any significant effect ® a lower daily human equivalent dose of CaPre 0.5g appears to be as efficient as 4g of Lovaza™ in reducing triglycerides levels by 40-50% in obese rats with severe diabetes and high triglycerides 120 Grundy S.M., et al., Circulation (2004) 110:227-239. 121 Third NCEP Report. Circulation (2002);106:3143-3421. 122 Manage Care Dossier of Lovaza. 123 Bunea R., et al., Alternative Medical Review (2004) 9(4):420-428.RODMAN & RENSHAW EQUITY RESEARCH 33
  • 34. Neptune Technologies & Bioressources, Inc. April 25, 2012 ® Therefore, a lower dose (0.5g – 1g) of CaPre might be more effective than 4g of Lovaza™ (Exhibit 23). ® Results are even more remarkable considering the fact that 1g of CaPre contains 8.9x less EPA and 11.1x less DHA than the recommended 4g daily dose of Lovaza™. This difference in activity might be due to the superior bioavailability that has been suggested for phospholipid-bound omega-3 PUFAs in krill oil, as opposed to the omega-3 acid ethyl ester in Lovaza™. ® Exhibit 23: CaPre - Comparative Composition CaPre® Lovaza™ AMR101® omega-3 omega-3 API components (EPA+DHA) (EPA+DHA) ethyl EPA ethyl esters phospholipids esters Total phospholipids per 1000 mg 660mg 0 0 Total Omega-3 per 1000 mg 377mg 900mg 990mg EPA 210mg 465mg 960mg DHA 135mg 375mg 0 Astaxanthin 5mg 0 0 Dosage / day 1-2x 0.5g 4x 1g 2-4x 1g Source: Acasti Presentation 2011 and Rodman & Renshaw. ® These preclinical data suggests that CaPre potentially offers a more complete lipid management in dyslipidemic patients than its competitors Lovaza™ and AMR101: Lovaza™ lowers triglycerides but negatively affects LDL (increases LDL) AMR101 is better than Lovaza™ - it lowers triglycerides with little impact on LDL levels ® CaPre has been shown to not only lower triglycerides substantially more than Lovaza, but to also have a positive impact on cholesterol management by lowering LDL and increasing HDL (the perfect lipid trifecta) ® During the F3Q12, Acasti has initiated a Phase 2 clinical trial to investigate the use of CaPre as a treatment for patients with dyslipidemia. The company enrolled its first patient in October 2011. This is a ® randomized, double blind, placebo controlled trial to assess the safety and efficacy of CaPre in patients ® with high triglyceride levels (200-499mg/dL), which distinguishes CaPre from prescription drug fish oils labeled only to treat patients with severe (very high) levels of triglycerides (>500mg/dL), such as Lovaza™ and potentially AMR101. 124 ® Therefore, the TRIFECTA trial (TRIal For Efficacy of Capre on hyperTriglyceridemiA) is aimed to ® determine whether CaPre , given at doses 1g or 2g for 12 weeks, has an effect on fasting plasma triglycerides in patients with hypertriglyceridemia (200-877mg/dL) as compared to a placebo. The primary endpoint is the percentage change in triglycerides between the baseline and the 12-week assessment. The company estimated to enroll ~400 patients. In order to speed up its development, Acasti has started and advanced its preclinical Good Laboratory Practices (GLP) program. The company has also filed for an open‐label clinical trial in Canada. The objective of this parallel study is to evaluate the dose-dependent effect on fasting plasma triglycerides of ® an eight-week treatment with CaPre given at increasing doses from 0.5g to 1g and from 1g to 2g or a 125 stable dose of 2g in patients with high hypertriglyceridemia as compared to the standard of care alone . The primary outcome is to measure the percent change in fasting blood circulating serum TGs between baseline, and four and eight weeks of treatment. The open-label design and shorter treatment period of this study would enable a faster recruitment and earlier outcome data than the company’s double-blinded phase 2 clinical trial conducted simultaneously. 124 http://clinicaltrials.gov/ct2/show/NCT01455844?term=acasti&rank=1. 125 http://clinicaltrials.gov/ct2/show/NCT01516151?term=acasti&rank=2.RODMAN & RENSHAW EQUITY RESEARCH 34
  • 35. Neptune Technologies & Bioressources, Inc. April 25, 2012 Moreover, it would allow Acasti to prepare to file an IND with the FDA to enter into U.S. clinical trials. Results from the open-label trial are expected by mid-2012. Secondary outcome measures for the open label trial are as follows: Absolute change in fasting plasma TGs between baseline, and four and eight weeks of treatment Percentage of patients achieving target TG fasting plasma levels (TG<1.7mmol/L, or 150mg/dL)) 126 Absolute change in fasting plasma LDL-C, VLDL-C, HDL-C, total cholesterol, hs-CRP and non- HDL between baseline, and four and eight weeks of treatment Percentage change in fasting plasma concentrations of LDL-C, VLDL-C, HDL-C, total cholesterol, hs-CRP and non-HDL between baseline and four and eight weeks of treatment Calculated ratios between baseline, and four and eight weeks of treatment o Total cholesterol/HDL-C o LDL-C/HDL-C o TGs/HDL-C Absolute and percent change in fasting plasma concentrations of biomarkers between baseline and four and eight weeks of treatment o Glycated Hemoglobin (HbA1c) o Glucose o Creatinine phosphokinase (CPK) ® We believe that results from CaPre clinical trials are valuable value drivers for Neptune. If the previous ® preclinical profile of CaPre is confirmed in clinical trials, it would not only further validate Neptune’s ® NKO , but would also foster the launch of new functional/medical food products. We are looking forward to seeing the interim results from the open label trial, expected to be released in mid-2012. NUTRACEUTICAL COMPETITION - AKER BIOMARINE In our view, Aker Biomarine is one of Neptune’s closest competitor in the nutraceutical business. Superba™ is Aker’s brand name for krill oil products for human consumption. The Norwegian firm has generated approximately NOK330MM (~$56MM) in sales from krill oil in 2011, mainly due to Superba™. Sale of Superba™ krill reached a record‐high in 4Q11 (70 MT), which suggests growing demand for global omega-3 phospholipid formulations. Aker has an exclusive agreement with Schiff Nutrition International (Private, Not Rated) to distribute the product in the U.S. INTELLECTUAL PROPERTY On October 5, 2011 Neptune announced that the USPTO had granted Neptune a new patent (8,030,348) covering omega-3 phospholipids comprising polyunsaturated fatty acids, one of the main bioactive ingredients in all recognized krill oils. The patent was granted for the U.S. market and would be valid until 2025. The 348 patent covers novel omega-3 fatty acid phospholipid compositions suitable for human consumption, synthetic and/or natural, including compositions extracted from marine and aquatic ® biomasses (despite the extraction process). The 348 patent protects NKO , as well as oils and powders extracted from krill, containing marine phospholipids linked to EPA and/or DHA, distributed and/or sold in the U.S. market (Exhibit 24). 126 High sensitive C-reactive protein.RODMAN & RENSHAW EQUITY RESEARCH 35
  • 36. Neptune Technologies & Bioressources, Inc. April 25, 2012 Exhibit 24: Neptune Intellectual Property Program Summary Issued Pending Extraction Process Method of extracting lipids from Marine and Aquatic animal tissues 33 2 Krill oil (Europe) Krill and/or Marine extracts for prevention and/or treatment of cardiovascular diseases 20 0 Krill and/or Marine extracts for prevention and/or treatment of arthritis, skin cancer, Marine oil 1 29 diabetes, premenstrual syndrome and transdermal transport Natural marine source phospholipids comprising flavonoids, polyunsatured fatty acids Phospholipids/ Novel flavonoid 25 2 and their applications Source: Neptune 2012 presentation. On October 6, 2011, Neptune filed complaints in the U.S. District Court for the District of Delaware alleging infringement of its issued patent. The action was filed against the Norwegian peer firm Aker Biomarine ASA (AKBM.OL, Not Rated). Neptune has also launched separate infringement actions against Enzymotec Limited. (Private, Not Rated), Enzymotec USA, Inc. (Private, Not Rated), Mercola.com Health Resources, LLC (Private, Not Rated) and Azantis, Inc. (Private, Not Rated). On November 16, 2011, the USPTO issued another U.S. patent (8,057,825) to Neptune that protects and provides Neptune with the exclusive use of krill extracts in the U.S., as a method for reducing cholesterol, platelet adhesion and plaque formation. Aker BioMarine filed for patent reexamination in the U.S. against both Neptune patents – 348 composition of matter and 825 method of use patents. For the 348 patent, the court has ordered a stay of the litigation until the USPTO concludes its reexamination process, which could last 18 months. We are cautiously optimistic that the patents’ claims would be reassured by the USPTO. We see minor business risk from the reexamination process as opposed to a higher upside if the litigation turns out to be favorable to Neptune. Although the USPTO grants approximately 95% of all requests for reexamination, in most cases, it confirms the validity of the claims in the patent or grants amended claims. INCREASING MANUFACTURING CAPACITY AND DISTRIBUTION In March 2012, Neptune announced that the company has finalized its expansion plans at its Sherbooke plant, which at a cost of $20MM would create at least 40 new jobs. Neptune would triple its production capacity with the expansion of the Sherbrooke plant. The first phase is expected to be completed by November 2012. The excavation began in December 2011. For its expansion project, Neptune counted on the financial support from various key players: the Provincial Government, via Investissement Quebec, ($4.1MM in grants + tax credits); the Federal Government, via Canada Economic Development ($3.5MM via an interest-free loan); Desjardins Business Center ($9MM mortgage loan), and Sherbrooke Innopole ($200K grant). All the contributions exceed $17M with the balance being provided by Neptunes working capital. The production capacity would increase from 150,000kg to 300,000Kg per year by the end of FY2013, in order to meet the increasing demand for the company’s products. The project would entail a second Phase, aiming to increase capacity from 300,000Kg to 450,000Kg by the end of FY2014 (Exhibit 25). According to management, expanding capacity to 450,000Kg would mean ~$75MM in revenues.RODMAN & RENSHAW EQUITY RESEARCH 36
  • 37. Neptune Technologies & Bioressources, Inc. April 25, 2012 Exhibit 25: Production Capacity Plans Production Capacity (000 Kg) 500 450 400 350 300 250 Capacity (000 Kg) 200 150 100 50 0 FY2011 FY2012 FY2013E FY2014E Source: Neptune 2012 presentation. On February 15, 2012, Neptune announced that Jamieson Laboratories (Private, Not Rated) is initiating ® commercialization of NKO in the Canadian Food, Drug and Mass Market (FDM) retail channel coast to coast. Jamieson is the number one distributor in Canada with an overwhelming presence in the Canadian mass-market. This new partnership represents a substantial opportunity in Neptune’s growth strategy. Moreover, Neptune secured new distribution agreements in the U.S. The company is introducing nutraceutical products into key U.S. retailers such as Wal-Mart (WMT, Not Rated), Walgreen (WAG, Not Rated), CVS (CVS, Not Rated), Rite Aid (RAD, Not Rated), and others. VALUATION Our valuation yields a Target Price of $7/share, based on a sum of the parts analysis (Exhibit 26): ® (1) Probability weighted NPV model of CaPre , the drug candidate in development by Acasti (Neptune’s subsidiary) (2) DCF valuation on Neptune’s nutraceutical business Exhibit 26: Sum of the Parts Analysis Summary Per share Business Operation NPV (in MM) % Ownership value Acasti Pharma $205 58% $2 Nutraceuticals $251 100% $5 Neptune Target Price $7 Source: Rodman and Renshaw estimates ® CaPre - Potential Blockbuster Product from Acasti ® Part of our valuation of Neptune is based on our probability-weighted NPV model on CaPre , Acasti’s ® clinical candidate for the treatment of severe (very high) hypertriglyceridemia. We assume that CaPre is launched in 2016 and ramps up to approximately $1B in sales by 2019. At steady state, we assume net margins to be approximately 25% of sales. Applying an annual discount rate of 15% for the commercial risk associated with the drug, and a 33% probability of success, we arrive at a total NPV of $205MM for ® CaPre . We calculate a ~$120MM value to Neptune, in order to account for its 58% ownership of Acasti. ® To calculate our NPV/share for this component, we used a fully diluted share count of 55MM. CaPre ’s valuation yields an NPV of approximately $120MM (or $2/share) to Neptune (Exhibit 28, Page 41). ® We believe that CaPre has a potential upside to our valuation due to its differentiated profile compared to fish oil, and the size of the hypertriglyceridemia market in the U.S. More importantly, Acasti may seekRODMAN & RENSHAW EQUITY RESEARCH 37
  • 38. Neptune Technologies & Bioressources, Inc. April 25, 2012 ® the mixed dyslipidemia indication with CaPre . The mixed dyslipidemia market is much larger than the very high hypertriglyceridemia market. ® 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. Nutraceutical Business We performed a discounted cash flow analysis (DCF) analysis for the nutraceutical business. We ® assume that revenues from the core business (primarily NKO ) ramps up to approximately $75MM in sales by FY2016 (CAGR=42% between FY2013 and FY2016), supported by Neptune’s manufacturing expansion and increased demand for the company’s products. Net margins are expected to increase from the current 10% to 20% by FY2017, assuming economies of scale through higher operational efficiencies. We assume 15% growth rate between F2017 and F2023. We apply a 5% terminal growth rate beyond FY2023. Applying an annual discount rate of 14% for the commercial risk associated with the business, and assuming a cash position of $26MM by the end of FY2013 (incl. warrant and option exercises), we arrive at a NPV of $250MM for the nutraceutical business, or $5/share. To calculate our NPV/share for the nutraceutical component, we used a fully diluted share count of 55MM (Exhibit 27, Page 40). EXECUTIVE BIOGRAPHY Henri Harland, Chief Executive Officer (CEO) & President Mr. Henri Harland, visionary and founder of Neptune Technologies & Bioressources Inc., has served as a director and the President and Chief Executive Officer of the Company since its incorporation in 1998. He has been involved in the krill research project since 1991 and was a pioneer in foreseeing its nutraceutical and pharmaceutical applications and potential role in nutrigenomics. Mr. Harland’s vision, passion, dedication, creativity and leadership, over an extended period of time, resulted in building Neptune and creating the remarkable product that Neptune Krill Oil is today. Since 1998, he has held the position of President and Chief Executive Officer of Groupe Conseil Harland inc., a financial engineering group. From May 1992 to September 1997, Mr. Harland was a director and acted as Vice‐president of Corporate Development and Chief Financial Officer of SignalGene inc. (SGI, Not Rated) - formerly Société Algène Biotechnologies Inc. - a publicly traded biotechnology corporation. Tina Sampalis M.D., Ph.D., Chief Scientific Officer (CSO) Dr. Sampalis joined Neptune Technologies in 2000 and holds the position of Chief Scientific Officer. Dr. Sampalis is an Oncology Surgeon, trained in Physiology at McGill University, Medicine at the University of Patras (Greece), Dermatology at Göttingen University (Germany) and Marselisborg University (Denmark), Pediatric, General and Oncology Surgery at the University of Athens (Greece), graduate training (PhD) in Surgical Research at the University of Athens and a second PhD in Epidemiology and Experimental Surgery at McGill University. She has received several international scholarships and awards for her work on the clinical implementation of retinols skin and breast cancer including the Helen Hutchison Award for geriatric medicine. Her work on Scintimammography resulted in her appointment at the International Educational Speakers Bureau, the Canadian and U.S. Faculty of Medical Speakers for Breast Imaging. As an international scholar she leads the development and implementation of innovative micro‐invasive and stereotactic robotic surgical techniques for breast cancer, for which a USA and Canadian patent application has been filed. She is a member of the American Association of Naturopathic Medicine. Dr. Sampalis has published in multiple peer reviewed publications. André Godin, Chief Financial Officer (CFO) Mr. André Godin, C.A. has a Bachelor in Administration and is has been a Member of the Canadian Institute of Chartered Accountants since 1988. He has more than 10 years experience in the Biotech/Pharma industry as former President of a Dietary Supplement Company and as a Corporate Controller for a pharmaceutical company in OTC products. Mr. Godin has been Vice‐President, Administration and Finance for Neptune Technologies & Bioressources Inc. since 2003.RODMAN & RENSHAW EQUITY RESEARCH 38
  • 39. Neptune Technologies & Bioressources, Inc. April 25, 2012 Michel Chartrand, Chief Operating Officer (COO) Mr. Michel Chartrand is Chief Operating Officer of the Company. He was from July 2009 to July 2011, the Vice‐President of Retail Partner Solutions at McKesson Canada. From 2004 to 2009, Mr. Michel Chartrand was the President and Chief Executive Officer of Groupe PharmEssor inc. (Private, Not Rated) which regroups Gestion Santé Services Obonsoins inc. and Groupe Essaim inc., two important Quebec pharmacy franchisors. From 1998 to 2004, Mr. Chartrand was the Executive Vice President of Gestion Santé Services Obonsoins inc.RODMAN & RENSHAW EQUITY RESEARCH 39
  • 40. Neptune Technologies & Bioressources, Inc. April 25, 2012 Exhibit 27: Neptune’s NPV Model Nutraceutical Business NPV Model - Nutraceutical Business All figures in thousands (except per share figures) Year F2013E F2014E F2015E F2016E F2017E F2018E F2019E F2020E F2021E F2022E F2023E Product sales1,2 $26,000 $35,000 $50,000 $75,000 $87,000 $100,000 $115,000 $132,000 $151,000 $174,000 $200,000 Revenue growth 36% 43% 50% 15% 15% 15% 15% 15% 15% 15% Operating expenses3 23,130 30,450 42,500 61,500 69,000 79,350 91,253 104,940 120,681 138,784 159,601 Operating expense margin 90% 87% 85% 82% 80% 80% 80% 80% 80% 80% 80% EAT3 2,570 4,550 7,500 13,500 17,250 19,838 22,813 26,235 30,170 34,696 39,900 Terminal value 487,155 NPV of EAT4 94,268 PV terminal value 136,108 NPV nutraceutical business 230,376 Cash by FYE13 26,361 Debt by FYE13 4,000 Total NPV nutraceutical business 252,737 Neptune 58% Ownership Acasti 119,082 Total NPV 371,819 Neptune Price Target 7 Notes 1 Annual growth F2013-F2017 based on manufacturing expansion and product demand (CAGR=34%) 2 Annual growth in F2018-F2023 based on Frost and Sullivan Omega-3 Market Research 2011 3 Operating expense margin for F2013E based on Pronova Biopharma margins; assuming gradual decrease in operating expenses as a % of sales (economies of scale, higher operating efficiency): 87% in F2014; 85% in F2015; 82% in F2016; 80% in F2017 4 Discount rate based on Neptunes WAAC - Bloomberg Source: Company Reports and Rodman & Renshaw estimatesRODMAN & RENSHAW EQUITY RESEARCH 40
  • 41. Neptune Technologies & Bioressources, Inc. April 25, 2012 ® Exhibit 28: CaPre NPV: Neptunes 58% Ownership NPV Model CaPre® All figures in thousands (except per share figures) Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Product sales1 $137,195 $592,841 $683,098 $1,009,049 $1,147,286 $1,160,000 $1,160,000 $580,000 Operating expenses (75% of sales) $102,896 $444,631 $512,324 $756,787 $860,464 $870,000 $870,000 $435,000 Net income (25% profit margin) $34,299 $148,210 $170,775 $252,262 $286,821 $290,000 $290,000 $145,000 Net income*Likelihood of Success = EAT of: $11,319 $48,909 $56,356 $83,247 $94,651 $95,700 $95,700 $47,850 NPV of EAT 205,314 $236,111 271,527 Cash by YE12 Total NPV $205,314 Neptune 58% Ownership $119,082 Note 1 Product sales based on sales of Lovaza™ in the U.S. Source: Company Reports and Rodman & Renshaw estimatesRODMAN & RENSHAW EQUITY RESEARCH 41
  • 42. Neptune Technologies & Bioressources, Inc. April 25, 2012 FINANCIALS Exhibit 29: Neptune Technologies & Bioressources (NEPT) - Historical Income Statements, Financial Projections INCOME STATEMENT $ in thousands (except per share figures) F2012E F2013E FY ends February 2010A 2011A F1QA F2QA F3QA F4QE 2012E F1QE F2QE F3QE F4QE F2013E Revenue from sales and research contracts 12,664 16,685 4,283 4,353 5,120 6,042 19,798 6,000 6,200 6,500 7,000 25,700 Cost of sales and operating expenses (11,156) (13,902) Cost of sales (2,058) (2,130) (2,394) (3,021) (9,604) (3,000) (3,100) (3,250) (3,500) (12,850) Gross profit 2,225 2,223 2,726 3,021 10,195 3,000 3,100 3,250 3,500 12,850 Financial (678) (443) Amortization (768) (923) Stock-based compensation (485) (720) Other income – revenue from research contracts 9 4 14 Selling expenses (648) (419) (519) (500) (2,086) (550) (600) (650) (700) (2,500) General and administrative expenses (1,812) (2,329) (2,369) (2,400) (8,911) (2,600) (2,600) (2,600) (2,600) (10,400) Research and development expenses, net of tax credits (2,744) (2,535) (736) (1,496) (1,707) (1,800) (5,739) (2,000) (2,000) (2,000) (2,000) (8,000) Results from operating activities (EBIT) (3,167) (1,837) (962) (2,021) (1,864) (1,679) (6,527) (2,150) (2,100) (2,000) (1,800) (8,050) Interest income 45 22 15 36 41 30 122 30 30 30 30 120 Other net finance income (costs) 2,222 2,526 (439) 119 117 117 (86) 117 117 117 117 468 Foreign exchange gain (loss) (636) (196) 128 99 273 500 Net finance income 1,632 2,353 (297) 254 431 147 535 147 147 147 147 588 Net (loss) profit and comprehensive (loss) income (1,535) 516 (1,259) (1,768) (1,433) (1,532) (5,991) (2,003) (1,953) (1,853) (1,653) (7,462) Net (loss) profit and comprehensive (loss) to: Owners of the Corporation (839) (1,076) (506) (532) (2,953) (903) (853) (753) (553) (3,062) Non-controlling interest (420) (692) (927) (1,000) (3,038) (1,100) (1,100) (1,100) (1,100) (4,400) Net (loss) profit (1,535) 516 (1,259) (1,768) (1,433) (1,532) (5,991) (2,003) (1,953) (1,853) (1,653) (7,462) Basic earnings (loss) per share (0.04) 0.01 (0.03) (0.04) (0.01) (0.03) (0.10) (0.04) (0.04) (0.04) (0.03) (0.15) Basic weighted average number of common shares 37,913 40,464 48,343 49,038 49,577 49,689 49,162 49,689 49,689 50,072 52,679 50,532 Source: Company Reports and Rodman & Renshaw EstimatesRODMAN & RENSHAW EQUITY RESEARCH 42
  • 43. Neptune Technologies & Bioressources, Inc. April 25, 2012 Exhibit 30: Neptune Technologies & Bioressources (NEPT) – Balance Sheet BALANCE SHEET $ in thousands FY ends February F2011A F1Q12A F2Q12A F3Q12A Assets Current assets: Cash 3,502 3,672 4,317 Short-term investments 3,513 9,931 9,491 13,430 Trade and other receivables 5,627 5,925 7,301 6,143 Tax credits receivable 645 244 498 636 Inventories 4,545 6,683 6,647 7,129 Prepaid expenses 969 256 265 191 Total current assets 15,298 26,541 27,874 31,845 Government grant receivable 150 100 100 100 Property, plant and equipment 7,024 6,009 6,147 6,564 Intangible assets 1,269 1,264 1,273 1,279 Total assets 23,741 33,914 35,394 39,788 Liabilities and Shareholders’ Equity Current liabilities Bank overdraft 40 Loans and borrowings 630 983 972 964 Trade and other payables 3,258 3,895 3,968 3,566 Advance payments 824 844 851 835 Current portion of long-term debt 985 Total current liabilities 5,737 5,722 5,791 5,366 Loans and borrowings 3,800 3,554 3,321 3,078 Convertible debentures Debenture conversion options Private placement warrants 950 740 564 Total liabilities 9,537 10,226 9,851 9,008 Shareholders’ equity Capital stock, warrants and rights 31,292 42,561 46,211 46,616 Contributed surplus and subsidiary options 9,393 9,910 8,281 13,148 Déficit (26,481) (31,616) (32,002) (32,347) Total equity attributable to non-controlling interest 2,833 3,053 3,363 Liabilities and Shareholders’ Equity 29,478 33,914 35,394 39,788 Source: Company ReportsRODMAN & RENSHAW EQUITY RESEARCH 43
  • 44. Neptune Technologies & Bioressources, Inc. April 25, 2012 Exhibit 31: Neptune Technologies & Bioressources Inc. (NEPT) - Financing History Security Date Shares Price Gross Proceeds Shares 05-02-2011 2,722,222 $2.25 $6,125,000 Shares 05-02-2011 3,062,835 $2.15 $6,585,095 Shares 10-13-2010 1,430,541 $1.85 $2,646,500 Shares 11-24-2006 1,500,000 $3.00 $4,500,000 Shares 01-18-2006 4,619,000 $1.00 $4,619,000 Shares 07-14-2004 3,275,922 $0.20 $655,184 Shares 05-30-2003 5,940,675 $0.67 $3,959,673 Shares 07-05-2001 5,000,000 $1.00 $5,000,000 Total 27,551,195 $1.24 $34,090,452 Source: Company Reports Exhibit 32: Neptune Technologies & Bioressources Inc. (NEPT) – Capital Structure Total Cash Number of Expiration FY 2012 - (29th February 2012) Exercise Price Value of shares Date Exercise Price Capitalization Common Stock Outstanding 49,688,843 N/A N/A N/A Options - Outstanding 3,768,000 $2.46 2-28-2014 $ 9,269,280 Options- Available for Grant 2,378,560 N/A N/A N/A Warrants - Employees and Directors - Warrants - Non-Employees - Series E Broker Warrants - Warrant issued to lender - Warrant issued with Private placement (in USD) 680,556 $2.75 11-3-2012 $ 1,871,529 Warrant issued with Private placement 765,709 $2.65 11-3-2012 $ 2,029,129 Other securities: Sum of Shares Outstanding, Outstanding Options, Options Available for Grant, Outstanding Warrants Fully Diluted Shares 57,281,668 Source: Company ReportsRODMAN & RENSHAW EQUITY RESEARCH 44
  • 45. Neptune Technologies & Bioressources, Inc. April 25, 2012 RODMAN & RENSHAW RATING SYSTEM: Rodman & Renshaw employs a three tier rating system for evaluating both the potential return and risk associated with owning common equity shares of rated firms. The expected return of any given equity is measured on a RELATIVE basis of other companies in the same sector, as defined by First Call. The price objective is calculated to estimate the potential movement in price a given equity could achieve given certain targets are met over a defined time horizon. Price objectives are subject to exogenous factors including industry events and market volatility. The risk assessment evaluates the company specific risk and accounts for the following factors, maturity of market, maturity of technology, maturity of firm, cash utilization, and valuation considerations. Potential factors contributing to risk: relatively undefined market, new technologies, immature firm, high cash burn rates, intrinsic value weighted toward future earnings or events. RETURN ASSESSMENT q Market Outperform (Buy): The common stock of the company is expected to outperform a passive index comprised of all the common stock of companies within the same sector, as defined by First Call. q Market Perform (Hold): The common stock of the company is expected to mimic the performance of a passive index comprised of all the common stock of companies within the same sector, as defined by First Call. q Market Underperform (Sell): The common stock of the company is expected to underperform a passive index comprised of all the common stock of companies within the same sector, as defined by First Call. RISK ASSESSMENT q Speculative - The common stock risk level is significantly greater than market risk. The stock price of these equities is exceptionally volatile. q Aggressive - The common stock risk level is materially higher than market level risk. The stock price is typically more volatile than the general market. q Moderate - The common stock is moderately risky, or equivalent to stock market risk. The stock price volatility is typically in-line with movements in the general market. Rating and Price Target History for: Neptune Technologies & Bioressources, Inc. (NEPT) as of 04-25-2012 5 4 3 2 1 0 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 2010 2011 2012 Created by BlueMatrix RATING SUMMARY Distribution of Ratings Table IB Serv./Past 12 Mos Rating Count Percent Count Percent Market Outperform(MO) 81 62.31% 12 14.81% Market Perform(MP) 28 21.54% 3 10.71% Market Underperform(MU) 6 4.62% 0 0.00% Under Review(UR) 15 11.54% 4 26.67% Total 130 100% 19 100% Investment Banking Services include, but are not limited to, acting as a manager/co-manager in the underwriting or placement of securities, acting as financial advisor, and/or providing corporate finance or capital markets-related services to a company or one of itsRODMAN & RENSHAW EQUITY RESEARCH 45
  • 46. Neptune Technologies & Bioressources, Inc. April 25, 2012 affiliates or subsidiaries within the past 12 months. ADDITIONAL DISCLOSURES Rodman & Renshaw, LLC. (the "Firm") is a member of FINRA and SIPC and a registered U.S. Broker-Dealer. ANALYST CERTIFICATION I, Elemer Piros, Ph.D., hereby certify that the views expressed in this research report accurately reflect my personal views about the subject company(ies) and its (their) securities. None of the research analysts or the research analysts household has a financial interest in the securities of Neptune Technologies & Bioressources, Inc. (including, without limitation, any option, right, warrant, future, long or short position). As of Mar 31 2012 neither the Firm nor its affiliates beneficially own 1% or more of any class of common equity securities of Neptune Technologies & Bioressources, Inc.. Neither the research analyst nor the Firm has any material conflict of interest with Neptune Technologies & Bioressources, Inc., of which the research analyst knows or has reason to know at the time of publication of this research report. The research analyst principally responsible for preparation of the report does not receive compensation that is based upon any specific investment banking services or transaction but is compensated based on factors including total revenue and profitability of the Firm, a substantial portion of which is derived from investment banking services. The Firm or its affiliates did not receive compensation from Neptune Technologies & Bioressources, Inc. for any investment banking services within twelve months before, but intends to seek compensation from the companies mentioned in this report for investment banking services within three months, following publication of the research report. Neither the research analyst nor any member of the research analysts household nor the Firm serves as an officer, director or advisory board member of Neptune Technologies & Bioressources, Inc.. The Firm does make a market in Neptune Technologies & Bioressources, Inc. securities as of the date of this research report. Any opinions expressed herein are statements of our judgment as of the date of publication and are subject to change without notice. Reproduction without written permission is prohibited. The closing prices of securities mentioned in this report are as of Apr 25 2012. Additional information is available to clients upon written request. For complete research report on Neptune Technologies & Bioressources, Inc., please call (212) 356-0500. Readers are advised that this analysis report is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data. Past performance is no guarantee of future results.RODMAN & RENSHAW EQUITY RESEARCH 46