Neptune reports losses, rebuilds

Neptune reports losses, rebuilds

Company outlines strategic plan for the coming months.

Neptune Technologies & Bioressources Inc. announces its consolidated financial results for the three and six-month periods ending Aug. 31, 2013 and provides update on action plan to resume operations.

On Nov. 8, 2012, an explosion destroyed the Corporation’s sole production plant located in Sherbrooke, Quebec, Canada. While operations are being re-established, revenues to date have largely been generated from the sale of krill oil acquired by the Corporation through short-term temporary arrangements. Neptune has been able to maintain a large portion of its pre-incident client base through margin concessions. The Corporation recently announced a renewable Manufacturing and Supply agreement with Rimfrost USA LLC, which significantly strengthens its on-going production capacity. In addition, Neptune will soon be able to offer customers its premium krill oil product, NKO®, with production of its Sherbrooke facility expected to resume before the end of this fiscal year.

Financial results: three months ended Aug. 31, 2013

Nutraceutical business results

  • Nutraceutical revenues were $5,080,000 for the three-month period ended Aug. 31, 2013, compared to $7,860,000 for the three-month period ended Aug. 31, 2012.
  • Adjusted EBITDA was negative ($4,058,000) for the current quarter, versus $504,000 for the corresponding prior-year quarter.
  • Net loss was ($1,779,000) for the current quarter, compared to net loss of ($2,797,000) for the quarter ended Aug. 31, 2012.

The lower year over year net loss is largely due to the receipt of $5.0 million in incident related insurance recoveries during the current quarter. This was reduced by margin concessions on lower revenues resulting from the plant incident, higher stock based compensation expenses and additional legal fees to defend and reinforce the Corporation’s intellectual property.

Consolidated results

  • Consolidated revenues totalled $5,346,000 for the three-month period ended Aug. 31, 2013, down from $8,097,000 for the quarter ended Aug. 31, 2012.
  • Adjusted EBITDA was negative ($6,027,000) for the current quarter, versus negative ($704,000) for the corresponding prior-year quarter.
  • Net loss was ($5,052,000) for the current quarter, versus a net loss of ($4,684,000) in the corresponding prior-year quarter.

The higher year over year consolidated net loss is mainly explained by margin concessions on lower revenues resulting from the plant incident, higher stock based compensation expenses, additional legal fees to defend and reinforce IP and an increase in R&D expenses associated with clinical programs in the Corporation’s subsidiaries. This was partially offset by insurance recoveries received during the current quarter.  

The consolidated net loss for the quarter ended Aug. 31, 2013 includes a $3.3 million loss associated with Neptune’s subsidiaries, who are actively engaged in clinical studies and research and development. Consolidated adjusted EBITDA for the current quarter includes negative $2.0 million associated with Neptune’s subsidiaries.

“We continue to build on past successes and are making considerable progress in our efforts to rebuild and strengthen our business,” highlighted Mr. Henri Harland, president and CEO of Neptune. “We recently signed a third party Manufacturing and Supply Agreement with Rimfrost which significantly improves our production capacity and creates a hedge against future supply disruptions. As well, we reached a favourable settlement with a number of respondents named in the U.S. International Trade Commission’s (ITC) investigation into alleged composition of matter infringements. On the pharmaceutical side we also continued to make good progress, with our subsidiary Acasti Pharma, announcing positive clinical results in their recently completed open-label clinical trial. It has been a difficult period in the Corporation’s history, but we remain confident in Neptune’s strategic direction and ability to execute to emerge stronger and drive future growth to create shareholder value.

Financial results: six months ended Aug. 31, 2013

Nutraceutical business results

  • Nutraceutical revenues were $11,163,000 for the six-month period ended Aug. 31, 2013, down slightly from $13,995,000 for the six-month period ended Aug. 31, 2012.
  • Adjusted EBITDA was negative ($6,721,000) for the six-month period ended Aug. 31, 2013, versus $1,793,000 for the corresponding prior-year period.
  • Net loss was ($5,158,000) for the six-month period ended Aug. 31, 2013, compared to net loss of ($2,749,000) for the corresponding prior-year period.

Consolidated results

  • Consolidated revenues totalled $11,436,000 for the six-month period ended Aug. 31, 2013, compared to $14,246,000 for the corresponding prior-year period.
  • Adjusted EBITDA was negative ($9,965,000) for the six-month period ended Aug. 31, 2013, versus negative ($562,000) for the corresponding prior-year period.
  • Net loss was ($10,467,000) for the six-month period ended Aug. 31, 2013, versus a net loss of ($6,379,000) in the corresponding prior-year period.

Update on action plan to resume operations
Neptune continues to make good progress in implementing its action plan for restoring and enhancing its long-term supply chain. The rebuild of the Sherbrooke plant remains on track and upon completion, which is expected before the end of the current fiscal year, the plant is expected to have the ability to produce more than 150 metric tons of Neptune’s premium NKO krill oil annually.

In addition, the krill oil Manufacturing and Supply Agreement with Rimfrost, gives Neptune the right to purchase, at a preferred price, up to 800 metric tons of krill oil over the three-year term of the renewable agreement. The oil purchased from Rimfrost will be further processed by Neptune in order to meet its Eco krill oil “EKO™” standards.

“This marks a significant milestone for the Corporation,” added Mr. Harland. We have successfully secured supply while our Sherbrooke facility is under construction and on a longer-term basis we have brought overall production capacity to a level which allows us to meet increasing customer demand in a fast growing market. Furthermore, we have strengthened and safeguarded Neptune’s operations by moving from a centralized production model to a more diversified arrangement. Going forward the Corporation intends to focus its in-house production efforts on Neptune’s premium krill oil, NKO®, while meeting the demand for good quality krill oil through third party manufacturing and supply agreements.

Insurance coverage

Neptune has insurance in place covering, among other things, property damage, business interruption and general liability up to specified amounts and subject to limited deductibles and certain exclusions. Since the destruction of the Corporation’s production facility in November 2012, Neptune received insurance recoveries totalling $11.7 million, representing only part of the total potential compensation of $15 to $20 million. This amount includes $5.0 million received during the second quarter ended Aug. 31, 2013. Neptune is pursuing the balance of its insurance claim and will record any additional recovery if and when received.

Patent infringement settlements reached

On Oct. 2, 2013 the Corporation announced that it had reached a settlement with Rimfrost USA LLC; Olympic Seafood AS; Olympic Biotec Ltd.; Avoca, Inc.; and Bioriginal Food & Science Corp. (collectively the “Settling Respondents“) resolving the U.S. International Trade Commission’s (ITC) investigation related to infringement of Neptune’s composition of matter patents by the settling Respondents. The investigation was instituted earlier this year by Neptune and Acasti in a complaint filed with the ITC.

As part of the settlement, Neptune granted a world-wide, non-exclusive, royalty-bearing license to the Settling Respondents, allowing them to market and sell within the nutraceutical market products containing components extracted from krill. The Settling Respondents also agreed to pay Neptune an additional royalty amount due for the manufacture and sale of krill products prior to the effective license commencement date. In addition, Neptune agreed to dismiss a related patent infringement case against Rimfrost, Olympic Seafood AS and Avoca, Inc.

To date, Neptune and Acasti have not reached a settlement with the remaining Respondents in the ITC investigation, including Aker BioMarine AS; Aker BioMarine Antarctic USA, Inc.; Aker BioMarine Antarctic AS; Enzymotec Limited and Enzymotec USA, Inc.

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