Biotech Dividend Has Investors Taking Positions Print E-mail
By M.E.Garza   
Tuesday, 11 September 2012 07:08
icon_MarketCatalystTiming may have been a bit off, but things are finally heatig up as investors take positions ahead of stock dividend date.
Last week, during a slow, low volume period on the Street, Neptune Technologies & Bioresources (NASDAQ:NEPT) (TSX:NTB) told investors about its confidence in the strength of their intellectual property in Australia and its belief that NKO does not infringe on a competitor's patent via a rather colorless news release.

The news may have barely moved the market, but it did prompt analyst Joseph Pantginis, Ph.D at Roth Capital to reiterate his BUY recommendation for the firm. As it goes, Australian Patent authorities have upheld a number of '570 claims upon the re-examination requested by Neptune.

Neptune has registered the trademarks OPA3tm and NKO® in over thirty countries and filed numerous trademark applications in various jurisdictions. Neptune OceanExtracttm and NKAtm are other trademarks of Neptune. In regards to its intellectual property protection, the Corporation has always had a firm policy to protect its intellectual property rights including its patents, trademarks and trade secrets, with every legal means available. Some of Neptune's competitors had been marketing, advertising and selling their finished krill-based products claiming benefits based on Neptune's research or by infringing on patents for which Neptune has exclusive rights. Neptune states they are duly determined to enforceits rights, is taking legal actions against those companies in order to protect its intellectual property.

Writes Pantginis in a note to clients: "As Neptune is confident that Neptune Krill Oil (NKO) does not infringe competitor Aker Biomarine's Australian '570 patent.. Neptune commented on the narrow nature of the upheld '570 claims and reiterated its confidence in the strength of the IP estate related to NKO in Australia. We reiterate our Buy rating and $10.30 price target."

That news was immediately followed by something that many had started to wonder if we had made up during a previous report. Thankfully, on Friday, Neptune officials were finally given clearance to announce that its board of directors (and more importantly regulators) had approved the distribution of a dividend involving shares of NeuroBioPharm Inc. ("NeuroBio") owned by Neptune pro rata to the holders of record of common shares of Neptune as at October 15, 2012 (the "Dividend Record Date") by way of a dividend-in-kind (the "Dividend"). The Dividend will be payable on October 31, 2012.

NeuroBioPharm researches and develops novel proprietary active pharmaceutical ingredients for cognitive and neurological conditions. The conditions range from brain development applications to various neurodegenerative diseases and include:

  • Attention-Deficit Hyperactivity Disorder (ADHD)
  • Autism
  • Alzheimer's disease and its different stages
  • Cognitive decline

According to filings, During fiscal year 2012, NeuroBioPharm made significant progress in its scientific research and development programs. NeuroBiopharm (NBP) completed a pre-clinical study in collaboration with NeuroCode AG, (Wetzlar, Germany), a team of recognized experts dedicated to specific profiling of active pharmaceutical ingredients by means of electroencephalographic (EEG) power spectra of conscious free moving rats. The objectives of the trial were a) to determine the nature and extent of effect of the new NBP medical food candidate NKPL on the electrical activity of the brain, and b) to characterize the EEG effects in relation to standard central nervous system (CNS) drugs. At the lowest daily dose of 250mg, NKPL showed a significant effect strongly resembling (by 80% and 100%) the activity of methylphenidate or Ritalin®, a drug recognized as the gold standard for the treatment of Attention Deficit Hyperactivity Disorder (ADHD).

This data provides evidence that NKPL, a highly concentrated phospholipid extract, may be an effective treatment for children with ADHD and a safe alternative to Ritalin®. NeuroBio and Neptune are advancing research with newly developed products aimed to improve the cognitive and emotional health of children and adults, which will be concluded in the near future.
For NeuroBioPharm, a medical food candidate and a drug candidate for non-GLP development and chemical analyses were initiated in previous fiscal periods. Initial medical candidate batches were standardized within allowed deviation limits. Preclinical testing has been initiated evaluating toxicity and pharmacokinetics.

A few years ago, Neptune issued a very similar dividend to all shareholders of their other subsidiary, Acasti Pharma (TSX-V.APO), which is Neptune's Canadian-based biopharmaceutical, subsidiary dedicated to the research, development and commercialization of proprietary active pharmaceutical ingredients (API) for the management of cardiometabolic disorders. Acasti develops first-in-class and best-in-class anti-dyslipidemic prescription drugs (Rx), medical foods (MF) and over-the-counter (OTC) products. CaPre® is Acasti's lead prescription drug candidate developed to address the prevention and treatment of cardiometabolic disorders including hypertriglyceridemia, a condition which is characterized by abnormally high levels of triglycerides.

Neptune shareholders were awarded the dividend of Acasti warrants-- and which to this point, have provided several hundred percent returns from the original $0.47 exercise price for investors who were lucky enough to get them.

We have written and even interviewed company management about this pending distribution of a stock dividend in NeuroBioPharm before (see the segment at the 4:11 markof my video interview with Wael Massrieh, VP of Scientific Affairs at Neptune).

This is a highly anticipated event that has been known to be coming since the management circular for the June 22, 2011 Annual General Meeting was distributed - a significant part of that circular dealt with issues related to this dividend. We had started to wonder if this official announcement would ever come, but we kept hearing the same thing. It went something like: "It's coming. Regulators are working hard to get us approval. It's just taking a little longer than everyone hoped."

Now that it is finally here, we would expect this announcement of the record date for the NeuroBio dividend to be a nice catalyst for investors to buy NEPT shares. The technical chart continues to show us steady accumulation of NEPT shares, despite the fact that prices had pulled back slightly recently. If the stock breaks some minor resistance at the $4.80 mark it could easily run higher and break the 52 week high.

In addition, given that NEPT is so closely tied to the fate of Amarin (AMRN), many also anticipate that as AMRN prices continue to show strength ahead of a possible (inevitable? )takeover of that firm, NEPT will also pick up steam. And make no mistake, given the current valuation, there continues to be plenty of room for upside here.

Still, Being in the pharmaceutical sector, NEPT must contend with dramatic scientific and technological developments and regulatory requirements that may, within a relatively short timeframe, render the products and processes developed or planned by the Corporation obsolete. Just as Lovaza is now under pressure from Amarin's Vascepa, some day some new discovery may make Neptune's NKO and CaPre® obsolete. As anyone suffering from cardiometabolic disorders might tell you, that would be a nice problem to have.

Again, we point to what Pantginis reports:

"We continue to be encouraged by the strength of Neptune's patent estate in different territories. Recall that the company benefits from a key U.S. patent with a recently allowed continuation. We also believe that the recent approval of Amarin's Vascepa (AMRN - Buy) is an important win for the Omega-3 space and bodes well for Neptune. The visibility on Amarin should positively affect Neptune, in our belief, based on our continuing thesis that NKO and CaPre® (pharmaceutical grade) > Vascepa > Lovaza with regard to potential clinical benefit. To this end, we have previously highlighted the potential differentiation of a krill oil based Omega-3 as well as Neptune having 1) a strong IP portfolio in hand, 2) growing NKO demand and 3) a potentially differentially product in CaPre® (Acasti subsidiary) compared to Vascepa and Lovaza. We anticipate that CaPre® is poised for a solid entrance into the pharmaceutical Omega-3 space. Results of an open label study of CaPre® are anticipated by year end 2012, while a randomized Canadian Phase II study of CaPre® could read out in 1H13."

Looking at the risks, obviously, Neptune's success depends in part on its ability to obtain patents, protect its trade secrets and operate without infringing third-party exclusive rights or without others infringing the Corporation's exclusive rights or those granted to it under license.

Finally, while Neptune believes that products based on its core technology will have numerous applications and that there is a growing market for those products, there can be no assurance that these assumptions will prove justified, we must wait to see the medical human data and how regulators feel, but in the meantime, NEPT continues to appear to be an excellent candidate as both a short term trade and long term investment poised for growth.

Disclosure: I am long NEPT, AMRN.

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