Exhibit 99.1
ANNUAL INFORMATION FORM
Fiscal Year Ended February 28, 2011
May 27, 2011
TABLE OF CONTENTS
1.CORPORATE STRUCTURE | 4 |
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1.1NAME, ADDRESS AND INCORPORATION | 4 |
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1.2INTERCORPORATE RELATIONSHIPS | 4 |
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2.DESCRIPTION OF THE BUSINESS | 5 |
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2.1GENERAL | 5 |
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2.3THREE YEAR HISTORY | 6 |
2.3.1 Fiscal Year Ended February 28, 2009 | 6 |
2.3.2 Fiscal Year Ended February 28, 2010 | 8 |
2.3.3 Fiscal Year Ended February 28, 2011 | 9 |
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2.4PRODUCTS AND BRANDS | 15 |
2.4.1 NKO®- Functional Food Grade | 15 |
2.4.2 OPA3TM- Optimal for Life | 15 |
2.4.3 NKO®- Neptune Krill Oil | 16 |
2.4.4 NKATM- Neptune Krill AquateinTM | 16 |
2.4.5 EKOTM– ECOKRILL™ OIL | 16 |
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2.5CLINICAL STUDIES | 16 |
2.5.1 Skin Cancer | 16 |
2.5.2 Premenstrual Syndrome | 16 |
2.5.3 Hyperlipidemia | 17 |
2.5.4 Chronic Inflammation and Osteoarthritis | 17 |
2.5.5 Attention Deficit Hyperactivity Disorder (ADHD) | 17 |
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2.6DEVELOPMENT OF NEPTUNE’S AND SUBSIDIARIES’ PORTFOLIO PRODUCTS | 18 |
2.6.1 Research and Product Development Programs | 18 |
2.6.2 Internal Research, Subcontracted Research or Alliance Research | 18 |
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2.7STRATEGIC BUSINESS DEVELOPMENT | 20 |
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2.8PRODUCTION | 20 |
2.8.1 Neptune Krill Extraction Process Platform Family | 21 |
2.8.2 Plant | 21 |
2.8.3 Krill | 21 |
2.8.4 The Virtues of Krill | 22 |
2.8.5 Availability of Krill | 22 |
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2.9INTANGIBLE ASSETS | 23 |
2.9.1 Exclusive License/Option | 23 |
2.9.2 IP Protection | 24 |
2.9.3 Economic Dependence/Litigation | 25 |
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2.10 EMPLOYEES | 26 |
2.10.1 Number | 26 |
2.10.2 Skill Knowledge | 26 |
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2.11 SALES/DISTRIBUTION | 27 |
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2.12 COMPETITION | 27 |
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2.13 COMPETITIVE ADVANTAGES | 28 |
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2.14 MARKETS | 30 |
2.14.1 Nutraceutical | 30 |
2.14.2 Pharmaceutical | 32 |
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3.RISK FACTORS | 33 |
3.1 Risks related to Neptune’s business | 33 |
3.2 Risks related to Neptune’s Industry | 35 |
4.DIVIDENDS | 37 |
5.DESCRIPTION OF CAPITAL STRUCTURE | 37 |
5.1. COMMON SHARES | 37 |
5.2PREFERRED SHARES | 38 |
6.MARKET FOR SECURITIES | 38 |
7.DIRECTORS AND OFFICERS | 39 |
8.CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES OR SANCTIONS | 42 |
9.LEGAL PROCEEDINGS AND REGULATORY ACTIONS | 43 |
10.INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS | 43 |
11.TRANSFER AGENTS AND REGISTRARS | 43 |
12.MATERIAL CONTRACTS | 43 |
13.INTEREST OF EXPERTS | 43 |
14.REPORT ON AUDIT COMMITTEE | 43 |
15.ADDITIONAL INFORMATION | 44 |
SCHEDULE “A” | 46 |
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As used in this annual information form, unless the context otherwise requires, the terms “we”, “us”, “our”, “Neptune” or the “Corporation”, mean or refer to Neptune Technologies & Bioressources Inc. and, unless the context otherwise requires, its subsidiaries, the terms “Acasti” or “Acasti Pharma” refer to Neptune’s subsidiary Acasti Pharma Inc. and the terms “Neuro”, “Neurobio”, “ NeuroBioPharm” refer to Neptune’s subsidiary NeuroBioPharm Inc .
Certain statements contained in this annual information form, other than statements of fact that are independently verifiable at the date hereof, may constitute forward-looking statements. When used in this annual information form the words “believe”, “anticipate”, “intend”, “estimate” and “expect” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words. Such statements, based as they are on the current expectations of management, inherently involve numerous risks and uncertainties, known and unknown, many of which are beyond our control. For information identifying known risks and uncertainties relating to the Corporation, please refer to the heading Risk and Uncertainties in the Corporation’s Management’s Discussion and Analysis for the year ended February 28, 2011, which can be found at www.sedar.com. Consequently, actual results may differ materially from the anticipated results expressed in these forward-looking statements. The reader should not place undue reliance, if any, on the forward-looking statements included in this annual information form. These statements speak only as of the date made and we are under no obligation and disavow any intention to update or revise such statements as a result of any event, circumstances or otherwise, except as required under applicable law.
Unless otherwise noted, in this annual information form, all information is presented as of February 28, 2011. All references in this annual information form to “dollars” and “$” refer to Canadian dollars, unless otherwise expressly stated.
1. CORPORATE STRUCTURE
1.1 NAME, ADDRESS AND INCORPORATION
Neptune Technologies & Bioressources Inc. (“Neptune”) was incorporated on October 9, 1998 pursuant to a certificate of incorporation issued under Part 1A of theCompanies Act (Quebec). On February 14, 2011, theBusiness Corporations Act (Quebec) came into effect and replaced theCompanies Act (Quebec). Neptune is now governed by Business Corporations Act. On May 30, 2000 the articles of the Corporation were amended in order to proceed with the restructuring of the Corporation’s capital stock and to convert its then issued and outstanding shares into newly-created classes of shares. The Corporation’s articles were also amended on May 31, 2000 to create Series A Preferred Shares. On August 29, 2000 the Corporation converted all its issued and outstanding Class A Shares into Class B Subordinate Shares. On September 25, 2000, the Corporation further amended its share capital to eliminate its Class A Shares and convert its Class B Subordinate Shares into Common Shares. On May 11, 2001 the Corporation amended its articles of incorporation to repeal the restrictions with respect to closed companies. It is anticipated that during over the course of the next few months, the Corporations articles of incorporation will be amended in order to increase the maximum of directors from seven (7) to ten (10) directors, to allow the directors to appoint additional directors to hold office for a term expiring not later than the close of the next annual shareholders meeting, and to allow the directors to be elected for a mandate that does not exceed three years
Neptune’s head office and registered office is located at 225 Promenade du Centropolis, Suite 200, Laval, Québec H7T 0B3. The Corporation’s website address is www.neptunebiotech.com. The Corporation is also the owner of the websites www.mynko.com and www.neptunekrilloil.com.
1.2 INTERCORPORATE RELATIONSHIPS
Neptune has one wholly-owned subsidiaries, and Neptune Technologies & Bioressources USA Inc. (“Neptune USA”) and two partially-owned subsidiaries, Acasti Pharma Inc. and NeuroBioPharm Inc.
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Neptune USA was incorporated on June 1, 2006 under the laws of the State of Delaware. Neptune USA does not carry on business at this time.
Acasti Pharma was incorporated on February 1, 2002 pursuant to a certificate of incorporation issued under Part IA of theCompanies Act (Quebec), under the name 9113-0310 Québec Inc.
NeuroBioPharm was incorporated on October 15, 2008 pursuant to a certificate of incorporation issued under Part 1A of theCompanies Act (Quebec), under the name NEUROVIMER PHARMA INC.
Corporate structure diagram
As of the date of this AIF, with the conversion of the Class B and Class C Shares into Class A Shares on a 1:1 basis which occurred on March 21, 2011, Neptune owns 38,617,733 Class A Shares, representing approximately 60% of Class A Shares issued and outstanding of Acasti Pharma. Acasti Pharma Class A shares are voting, participating, with no par value.
NeuroBioPharm Inc. (“NeuroBioPharm”), a company involved in the pharmaceutical industry, is 99% owned subsidiary by Neptune.
2. DESCRIPTION OF THE BUSINESS
2.1 GENERAL
Neptune is a biotechnology Corporation that researches and develops novel extraction technologies, potent biological therapeutics agents and intellectual property for highly prevalent chronic conditions still lacking safe and definitive treatment solutions. The main focus of the Corporation is:
- To identify marine biomass that is pure of toxins, abundant and underexploited;
- To research and develop novel technology for the extraction and stabilization of potent marine biological therapeutic agents; and
- To research and develop the safety and therapeutic efficacy of compounds for highly prevalent atherosclerotic conditions like cardiovascular diseases as well as for neurodegenerative and inflammation related conditions.
Neptune, in the decade of 1990, initially identified krill as its first marine biomass resource to develop and exploit mainly because of its abundance, the nature of its components and its specific expected potent human health benefits.
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Since inception, Neptune has developed a family of extraction process platforms for krill (1998-2000), has built a production plant (2002) and has produced and commercialized Neptune Krill Oil (NKO®), a trademark within the OPA3TM brand portfolio, and Neptune Krill Aquatein (NKA™) (since 2003), while continually pursuing basic and clinical research efforts and intellectual property protection since 2000. In 2010, the Corporation launched ECOKRILL™, a new product within the Neptune Krill Oil family of products.
In August 2008, Neptune granted a license to Acasti Pharma relating to cardiovascular pharmaceutical applications for high-concentration products. Acasti Pharma is developing safe and effective pharmaceutical and medical applications with an initial focus on cardiovascular diseases by leveraging the intellectual property, clinical data and know-how developed by Neptune. Acasti Pharma is advancing a portfolio of bioactive ingredients of (proprietary novel) omega-3 phospholipids through the pharmaceutical development pathway which includes prescription medical foods, over-the-counter products and prescription drugs.
In October 2008, Neptune granted a license to NeuroBioPharm relating to cognitive and neurological pharmaceutical applications for high-concentration products. 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, autism, Alzheimer ’s disease at its different stages and cognitive decline. NeuroBioPharm is advancing its product portfolio of bioactive ingredients through the pharmaceutical development pathway which includes prescription medical food, over-the-counter products and prescription drugs.
2.3 THREE YEAR HISTORY
2.3.1 Fiscal Year Ended February 28, 2009
Neptune’s financial year-end was modified from May 31 to February 28; therefore, Neptune’s fiscal period ended February 28, 2009 was for a period of nine months only.
During the nine-month fiscal period ended February 28, 2009, Neptune continued to pursue the commercialization in the American, European, Asian and Australian markets. In February 2009, the European Food Safety Authority (EFSA) approved NKO®as a Novel Food for commercialization in the European Union for dietary supplements and functional food. Neptune has already built substantial marketing visibility and recognition in Europe through its longstanding annual presence at Vitafoods International, the Global Nutraceutical Event, in Geneva, Switzerland, and Health and Food Ingredients in Paris, France. Based on these continuing marketing efforts, the proprietary status of its ingredients and the Novel Food approval, Neptune expects to accelerate market penetration and increase its market share of the omega-3 health ingredient market. Neptune also maintains its new commercial approach aimed at building strategic alliances with potential industrial partners as well as potential commercial partners in the nutraceutical and functional foods markets.
During the nine-month fiscal period, Neptune granted license rights to two of its subsidiaries, Acasti Pharma and NeuroBioPharm.
Acasti Pharma and the Exchange Offer
During the nine-month fiscal period ended February 28, 2009, the Corporation granted an exclusive worldwide license to its wholly-owned subsidiary, Acasti, to develop, validate health benefits by way of clinical studies and market new pharmaceutical products (OTC, medical food, Rx) that target the cardiovascular system using the Corporation’s technology and intellectual property. Acasti will finance its research and development activities as well as its clinical studies. The products developed by Acasti are expected to require the approval from the U.S. Food and Drug Administration before clinical studies are conducted as well as the approval from similar regulatory organizations before sales are allowed.
The Corporation has established Acasti in order to segregate its cardiovascular pharmaceutical activities from its nutraceuticals activities, which in the opinion of Corporation’s management will allow the financial community to differentiate Acasti’s cardiovascular pharmaceutical activities from the Corporation’s core nutraceuticals business and will also enable Neptune and Acasti to attract separately pharmaceutical and nutritional companies to enter into strategic alliances.
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On July 17, 2008, the Corporation’s Board of Directors declared a dividend to its shareholders. The Board of Directors approved a dividend of $0.00025 CDN per share on the outstanding common shares of the Corporation for payment to shareholders on record at the close of business on July 28, 2008. This dividend was paid on August 11, 2008 by the issuance of an aggregate of 9,380,355 transferable, non-convertible notes, each note having a principal value of $0.001, such notes maturing two years after the date of issue, bearing interest from the first anniversary date of their issuance at a rate of ten percent (10%) per annum, and being redeemable at all times by the Corporation, either in cash or in kind (the “Notes”).
On August 21, 2008, the Corporation’s and Acasti’s Boards of Directors approved an Exchange offer to be offered by Acasti to all of the holders of Notes, to purchase the Notes at a price equal to the Notes’ value, payable by the issuance by Acasti of a maximum of 9,380,355 units, being one Class A shares and one Series 2 warrants of Acasti (“Acasti Unit”). On August 25, 2008, Acasti proceeded with the exchange offer to Neptune’s Note holders, each Note holders had until October 3, 2008 to accept to exchange their Notes against Acasti units on a one for one basis. The approval for the Exchange offer by the Corporation’s shareholders was obtained on September 25, 2008.
On November 27, 2008, Acasti issued to Notes holders of 9,246,935 units in consideration of 9,246,935 Notes payable by Corporation following the choice by the shareholders on the exchange offer as well as the outstanding notes prepayment. A cash payment of $133 was made to Notes holders not qualifying for the prepayment in securities due to of regulatory issues.
NeuroBioPharm Inc.
On October 15, 2008, the Corporation granted an exclusive worldwide license to its renamed, on December 24, 2008, wholly-owned subsidiary NeuroBioPharm to develop, validate and commercialise new pharmaceutical products (OTC, medical food, Rx) that target cognitive and neurological pharmaceutical applications using the Corporation’s technology and intellectual property. Each product will be developed and financed by NeuroBioPharm. The products developed by NeuroBioPharm are expected to require the approval from the U.S. Food and Drug Administration before clinical studies are conducted as well as the approval from similar regulatory organizations before sales are allowed.
The Corporation established NeuroBioPharm in order to segregate its neurological pharmaceuticals activities from its nutraceuticals activities, which in the opinion of Corporation’s management will allow the financial community to differentiate NeuroBioPharm’s neurological pharmaceutical applications activities from the Corporation’s core nutraceuticals business and will also enable the Corporation and NeuroBioPharm to attract separately pharmaceutical and nutritional companies to enter into strategic alliances.
On October 15, 2008, the Corporation also transferred to NeuroBioPharm a development project and clinical study conducted under an agreement with a multinational Corporation. NeuroBioPharm substituted itself to Neptune in this new agreement signed in 2008 between Neptune and the multinational. The purpose of this agreement is to target applications as a medical food. The results of this clinical study should be known before the end of summer 2010.
During the nine-month fiscal period, Neptune obtained $6,500,000 in debt financing, of which $3,500,000 was allocated to the repayment of outstanding long-term debts, allowing Neptune substantial savings on financial expenses, and $3,000,000 to finance a 50% capacity increase in the production at its plant facilities. Neptune also obtained a credit facility of up to $2,000,000.
On October 9, 2008, the Corporation completed a private placement of $2,750,000 by the issuance of convertible debentures through tranches of $1,000, bearing interest at 8% per annum, payable annually in cash or in kind and expiring on October 9, 2011. Several financial instruments were attached to the debenture and various choices are offered to the debenture holder with respect to conversion in share capital of Neptune or Acasti.
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2.3.2 Fiscal Year Ended February 28, 2010
The Corporation continued to expand its customer base worldwide and is expecting revenue growth driven by repeat demand from existing customers and incoming demand from new customers from North America, Europe and Asia. Neptune also completed its plant expansion and the scaling up its production capacity at its Sherbrooke plant during the first and second quarter providing for more than 50% increase of yearly output from 60,000 kilograms to close to 100,000 kilograms. The integration of new technical equipment into the manufacturing line and the completion of the capacity expansion were completed on schedule, at the end of the first quarter. The ramp-up of the facility, which took place during the second quarter, impacted the financial results in the second quarter but the Corporation has managed to catch up with the production in the third and fourth quarter to surpass last year annualized revenues. During the third quarter and fourth quarter, the production plant ran at a steady rate of over 90,000 kg annually. In order to respond to increased demand and deliver on its volume commitments, Neptune is currently working to further expand its production capacity from 90,000 kg to an estimated 110,000 to 120,000 kg annually. This additional expansion is expected to take place during the first two quarters of fiscal 2011. This expansion should take place without production interruption and represents a marginal investment financed by cash flow from current operations. Neptune’s additional industrial plant project discussions are on schedule, with the target for the new industrial plant realization to take place during the course of calendar 2012.
During the first quarter, the Corporation signed an agreement with Bayer Heathcare LLC for the commercialization of Neptune proprietary products in the United States. Also in the first quarter, Neptune entered into a new distribution agreement with Inno-Vite, a Canadian leader in innovative health products focusing on research-proven ingredients. Inno-Vite launched Neptune Krill Oil NKO® under the brand name Inno-Krill™ in health food stores across Canada. During the second quarter, Weifa, a leading pharmaceutical Corporation also launched NKO® for the first time in the Norwegian market in drug stores for women’s health.
The Corporation presented novel innovative product opportunities customized for dietary supplements, functional and medical foods at Vitafoods International 2009. Neptune launched a new pipeline of novel formulations containing its proprietary marine omega-3 phospholipids enhanced with validated bioactive ingredients targeted to specific health applications. The Corporation is also testing the industry’s reception of a new biomass extract generated from Neptune’s research and development program targeting new vascular and affective health indications. The Corporation will also be presenting pilot commercial products for functional food applications including juice, fruit berries, fruit paste and protein bars.
The Corporation also sustained its clinical research initiatives. As a result, Neptune is able to leverage scientific results demonstrating health benefits specific to the proprietary composition of Neptune Krill Oil (NKO®) on prevalent human conditions, such as premenstrual syndrome, high cholesterol, inflammation, osteoarthritis and attention deficit hyperactivity disorder. Similarly, the clinical trials for functional food applications with the multinational corporations Nestlé and Yoplait are progressing in a satisfactory way.
During the second quarter, the Corporation received a complaint filed by Schiff Nutrition Group Inc. ("Schiff"), a former distributor of Neptune’s products, in the United States District Court for the District of Utah, Central division, alleging that Neptune failed to meet certain delivery thresholds. As a result, Schiff is seeking monetary damages in the minimum amount of US $1 million from Neptune.
After careful review of this complaint and having sought legal advice, The Corporation filed a response and counterclaims early in the third quarter to the Schiff complaint in federal district court in Utah. The Corporation denies all material allegations and the requested monetary compensation in the complaint and asserts federal and state law claims against Schiff, including that Schiff failed to pay the Corporation for shipments of NKO® accepted by Schiff, and that Schiff caused its contractor to encapsulate NKO® despite the Corporation’s objections that the resulting product would not meet specifications after encapsulation by Schiff’s contractor.
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Despite the Corporation’s warning to Schiff Nutrition Group Inc. to cease directly and indirectly using the Corporation trademarks including NKO® and clinical support, Schiff Nutrition Group Inc. continued to use the Corporation trademarks and claims, as it could be seen on websites of multiple Schiff Nutrition Group Inc. distributors.
In the third quarter, the Corporation announced that convertible debentures with a fair value of $2,250,000 were converted. Holders of $84,000 of debenture capital converted capital and accumulated interest into Neptune units resulting in the issuance of 69,783 common shares and 34,891 warrants of Neptune. Neptune warrants are exercisable until October 9, 2011 at various prices ranging from $2.15 to $2.25 depending on the market price of Neptune shares at their date of conversion. Holders of $2,166,000 of debenture capital chose to convert into Acasti units resulting in the transfer from Neptune to the former debenture holders of 9,455,867 Acasti shares and the issuance of 9,455,867 Acasti call options by Neptune. Acasti call options are exercisable at $0.50 and expire one year after their issuance. At as February 28, 2010, $496,000 of convertible debentures remains outstanding.
In the third quarter, Neptune also converted all of its 38,240,000 Acasti Class C shares into Acasti Class A shares as per the terms of the shares. After all conversions and transfers Neptune owned 28,784,133 Acasti Class A shares and 4,950,000 Acasti multi-voting Class B shares.
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. Recently, certain of Neptune’s competitors have been deceptively 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, being determined to enforce its rights, has thus filed suits against some of those companies in order to protect its intellectual property.
The Corporation has also decided to exercise its right to appeal the decision of the European Patent Office regarding the European composition of phospholipids and use patent. The Corporation does not agree with the decision that states that Neptune’s Patent does not sufficiently disclose the invention. With the filing of an appeal, the decision to revoke the patent is suspended and until then the patent remains enforceable.
In the third quarter, the Corporation also filed a patent infringement lawsuit against Aker Biomarine ASA, Jedwards International, Inc., and Virgin Antarctic LLC. The complaint, which was filed in the U.S. District Court for the District of Massachusetts, alleges infringement of U.S. Patent No. 6,800,299. The patent is directed to a method of extracting total lipid fractions from krill.
2.3.3 Fiscal Year Ended February 28, 2011
The Corporation continued to expand its customer base worldwide and is expecting revenue growth driven by repeat demand from existing customers and incoming demand from new customers from North America, Europe and Asia. Following the rising demand, the Corporation managed to increase its original plant expansion from a maximum of 100,000 kilograms per year to a maximum of 130,000 kilograms per year, simply by optimizing the use of actual manufacturing equipments. Neptune’s additional industrial plant project discussions are on schedule, with the target for the realization of a new industrial plant to take place during the course of fiscal 2012.
During the first quarter, the Corporation was named as one of the TSX Venture 50, a ranking of strong performers listed on TSX Venture Exchange. Again in the first quarter, following a PCB contamination worldwide, the Corporation reassured its customers that it had been unaffected by the PCB contamination observed in marine oils and confirmed NKO®’s safety and quality. In addition to this comfort, Neptune was recognized by industry peers as the gold standard for krill oils.
During the first quarter, 1,068,000 Debenture warrants and 1,086,400 Debenture Call options of Neptune were exercised for total proceeds of $1,607,000.
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The Corporation presented novel innovative product opportunities customized for dietary supplements, functional and medical foods and introduced a new pipeline of novel formulations containing its proprietary marine omega-3 phospholipids enhanced with validated bioactive ingredients targeted to specific health applications. Neptune pre-launched its new product, ECOKRILL™ (“EKOTM”), a new member of Neptune Krill Oil’s family of products, to its clientele at Health Ingredient Europe 2010 in Madrid. The pre-launch was well received by the market. EKOTM is a product similar to NKO® with slightly lower specifications and a lower selling price. Moreover, EKOTM sells at a lower price than competing krill oil products and presents better specifications than these products. The Corporation is also testing the industry’s reception of a new biomass extract generated from Neptune’s research and development program targeting new cognitive health indications. The Corporation will also be presenting pilot commercial products for functional food applications including juice, fruit berries, fruit paste and protein bars.
The Corporation also sustained its clinical research initiatives. As a result, Neptune is able to leverage scientific results demonstrating health benefits specific to the proprietary composition of Neptune Krill Oil -NKO® on prevalent human conditions, such as premenstrual syndrome, high cholesterol, inflammation, osteoarthritis and attention deficit hyperactivity disorder. Similarly, the clinical trials for functional/medical food applications with the multinational corporations Yoplait and Nestlé are progressing and should conclude before the end of our 2012 fiscal year at the latest. In accordance with its scientific strategy, Health Canada approved, exclusively for NKO®, therapeutic and risk reduction claims, corroborating aspects of Neptune’s clinical research and substantiating NKO® safety and effectiveness on cardiovascular health, inflammation and women’s health.
During the second quarter, Neptune appointed two investor relation firms, The Howard Group and CEOcast, in order to increase Neptune’s visibility toward the investment community in Canada and the United States respectively. This increased awareness of Neptune combined with various determining factors has already translated into higher trading volume on NASDAQ and TSX-V.
During the third quarter, the Corporation realised a non-brokered private placement of $2,647,000 through the offering of common shares at a price of $1.85. Two important institutional investors participated in the financing. Also, toward the end of the third quarter, 2,418,481 Conversion Call Options, issued to debenture holders who had previously decided to convert their debenture into Acasti shares in accordance with the debenture terms and conditions, were exercised at $0.50, resulting in the transfer of 2,418,381 Class A shares of Acasti. As the carrying amount of the Acasti net assets, after accounting for the Corporation’s preference share, was negative at the time of the transaction, the cash collected on exercise of Conversion Call-Options in the amount of $1,209,000, as well as their ascribed value of $42,000, was recognized as a gain on dilution and no amount was allocated to non-controlling interest.
Also during the third quarter, after two years of rigorous review of NKO® safety and clinical research data, the Canadian Minister of Health has approved therapeutic and risk reduction claims exclusively for NKO®. In June 2009 Health Canada approved health claims for omega-3, among the strongest of which was the claim that products providing 1g - 3g EPA + DHA, per day (amounting to 3-10g of fish oil per day, or 6-20 softgels) help to reduce serum triglycerides, compared to 4 NKO® 500mg softgels recently approved for the same indication. Contrary to fish oil, Health Canada approved a stronger claim for NKO® for cholesterol with a decrease of LDL (bad cholesterol) and increase of HDL (good cholesterol) using only two softgels per day as well as an anti-inflammatory claim using only one softgel per day and a specific claim for premenstrual syndrome (PMS). All this information is available on www.mynko.com.
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.Since last year, certain of Neptune’s competitors have 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, being determined to enforce its rights, has thus taken action against some of those companies in order to protect its intellectual property.
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ABOUT THE SUBSIDIARIES
Acasti Pharma Inc.
Acasti is a Canadian-based biopharmaceutical, subsidiary of Neptune (NASDAQ: NEPT - TSX.V: NTB). Acasti is dedicated in the research, development and commercialization of proprietary active pharmaceutical ingredients (API) for the management of cardiometabolic disorders, from prevention to treatment. Acasti develops first-in-class and best-in-class anti-dyslipidemic prescription drugs (Rx), medical foods (MF) and over-the-counter (OTC) products.
In March 2011, Acasti completed its listing application on the TSX-Venture Exchange, as a result Acasti had its share listed on the TSX-Venture Exchange on March 31, 2011 under the symbol APO. In connection with the listing of Acasti’s shares, Acasti appointed to new directors: Mr. Marc Lebel, President of Glaciel, and Mr. Martin Godbout, Director of Methylgene, AmorChem, AngioChem, Asmacure, BioQuébec and the Ataxia Charlevoix Foundation. Both were appointed in March 2011 in replacement of Mr. Perry and Mr. Debard.
During 2011 fiscal year, Acasti has completed the development and launched its first medical food, “Onemia™”, on October 21, 2010 at the Cardiometabolic Health Congress in Boston as an initial introduction to health care practitioners. Onemia™ is an omega-3 phospholipid targeting omega-3 phospholipid deficiency related to cardiometabolic disorders, a multibillion dollar market. As a medical food, Onemia™ is regulated by the FDA and can only be administered under medical supervision. Onemia™ has been very well received by the medical community in the United States; the first distribution agreement was signed in March 2011 and the first purchase order received during the same time..
Acasti’s OTC product, Vectos™, is developed as a platform technology for fixed dose combinations with existing OTC products. The Vectos™ platform has been designed to improve drug activity and safety profile; ideal for co-development ventures and partnerships with a fast to market opportunity. The Corporation has advanced its negotiations to commercialize Vectos™ with potential partners.
The Corporation completed the non-clinical program required for the Clinical Trial Application (CTA) submission demonstrating that CaPre™, the Corporation’s prescription drug candidate, is safe and effective for the management of mixed dyslipidemia and cardiometabolic disorders by significantly increasing HDL, reducing triglycerides and LDL, and managing glucose intolerance.
The cardiometabolic effects of CaPre™ were also compared with prescription drug Lovaza®. The results of these comparative studies demonstrated a clear superiority of CaPre™ on a gram to gram omega-3 basis. According to IMS Health, global sales of Lovaza® topped $1 billion in 2009, with $758 million of those sales originating in the U.S. Moreover, in 2007, GlaxoSmithKline PLC (LSE/NYSE: GSK) acquired the USA rights to Lovaza® by its acquisition of Reliant Pharmaceuticals Inc. for $1.65 billion.
Moving forward towards the clinical stage with CaPre™, Acasti submitted to Health Canada a CTA for a Phase II clinical trial in October 2010, following a very positive pre-CTA meeting. The Chemistry Manufacturing and Control (CMC) section of the CTA has been completed. Acasti is looking forward to the acceptance of the CTA and the initiation of the clinical study within the near future.
Acasti expanded its Scientific Advisory Board (SAB) with four new members: Dr. Jean Davignon, Dr. Jacques Genest, Pr. Ruth McPherson and Pr. William Harris. Acasti has worked closely with its SAB members and other scientific and clinical advisors to finalize the design of the upcoming clinical trial by correlating preclinical data with efficacy in patients through an efficient clinical study design. The SAB has indicated their strong support of Acasti’s research and development efforts towards the next stage of development.
Increasing public and industry awareness, Acasti was a sponsor and presenter at the 7th Annual Alliance Management congress and the 2nd Annual Combination Drug Therapies Conference, both organized by the Cambridge Healthtech Institute (CHI) and the BioPharmaceutical Strategy Series held April 13-14, 2010 in Philadelphia, PA. Acasti presented its unique positioning in the field of Cardiometabolic disorders and its action plan for successful collaboration with worldwide pharmaceutical industry leaders. The Corporation was well received and multiple important leads were generated. On April 2010, Acasti presented its preclinical results at the council for Arteriosclerosis, Thrombosis and Vascular Biology (ATVB) 2010 Scientific Sessions Meeting of the American Heart Associationheld April 8-10 in San Francisco, CA.
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In accordance with the strategic plan initially established in 2008 for the development of Acasti, a total of 11,703,911 Acasti warrants have been exercised, during years ended February 28, 2011 and 2010, for total proceeds of $4,382,000 detailed as follows: 3,285,530 Series 2 Acasti warrants exercised at $0.40; 5,418,381 Series 3 Acasti warrants exercised at $0.40 and 3,000,000 Series 5 Acasti warrants exercised at $0.30. From the preceding transactions Neptune exercised 2,418,381 Series 3 Acasti warrants in order to deliver shares following the exercise of options it had issued on Acasti shares and exercised 3,000,000 Series 3 Acasti warrants and 2,970,000 Series 5 Acasti warrants. Following those transactions and the conversion of Class B and C shares in Class A shares, described in the subsequent events section of this document, Neptune has a 60% participation in Acasti.
Acasti’s goal is to obtain, maintain, and enforce patent protection for its products, formulations, methods and other proprietary technologies, preserve its trade secrets and operate without infringing on the proprietary rights of other parties, both in the United States and in other countries. Acasti will actively seek to obtain the broadest intellectual property protection possible for its product candidates in the United States and abroad
A number of preclinical studies have demonstrated the safety and efficacy of Acasti’s prescription drug (Rx), medical food (MF) and over-the-counter (OTC) products, starting from the early prevention and management to the treatment of dyslipidemia, glucose intolerance and metabolic disorders.
Acasti Products:
Acasti addresses the worldwide multi-billion dollar cardiometabolic and cardiovascular disease markets. Cardiometabolic disorders are considered among the leading health problems worldwide arising from the combined impact of obesity and cardiovascular disease. According to the American Heart Association 2006 to 2010 statistical fact sheets’ updates, 102 million Americans have been diagnosed with hyperlipidemia, 34 million with low HDL (good cholesterol), 17 million with coronary artery disease and 145 million are overweight or obese. Amongst others, these cardiometabolic risk factors lead to 1.2 million new myocardial infarctions diagnosed each year of which only 1 of 3 survive. According to the 2009 Heart Disease and Stroke Statistics Update, the estimated direct and indirect costs of cardiovascular disease and stroke in the United States totaled USD 475 billion of which, USD 52 billion was spent only on medications1.
Acasti develops highly concentrated phospholipids (principle constituents of HDL) which carry and functionalize EPA and DHA stabilized by potent antioxidant esters and which are customized to respond to the physiological pathway of HDL production and cholesterol excretion. Evidence has shown that an increase in HDL-C of 0.026mmol/L equates with a 2% relative risk reduction in the incidence of coronary events in men and 3% in women2.
Recent studiesindicated that the prime component of HDL modulatingcholesterol efflux was HDL-phospholipids and not necessarily apolipoprotein apoA-1. The reduced efficiency in cholesterol effluxin rats expressing high concentrations of human apoA-I has been shown to be dueto a marked decrease in the HDL-Phospholipid:apoA-I ratio in the serum.
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1.American Heart Association, 2006 to 2010 statistical fact sheets’ updates
2. T. Gordon, W.P. Castelli, M.C. Hjortland, W.B. Kannel And T.R. Dawber, High Density Lipoprotein As A Protective Factor Against Coronary Heart Disease. The Framingham Study,Am J Med 62 (1977), Pp. 707–714.
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Vectos™: platform technology for the development of OTC pipelines
Vectos™ has an intrinsic biological activity on triglycerides and LDL-cholesterol allowing the formulation of a variety of active principle ingredients (API) needing to be accentuated or complemented to improve either the API’s activity or safety profile.
The Vectos™ platform enables the combination of active ingredients addressing therapeutic gaps and allowing the development of new OTC products or product lines. The features below summarize the commercial advantages of Vectos™:
Improves drug activity profile (Clinical trial completed ± statin)
Generates new intellectual property
Allows fixed dose combinations:
Low Daily Recommended Intake
Solubilizing properties improving pharmacokinetics
High stability
Versatile vector
Enhance and synergize biological activities
Allows co-development deals and partnerships
Fast to market opportunity generating possible licensing deal
Onemia™: medical food product
Medical Foods (MF) are at the intersection of food/functional food (FF) and prescription products (Rx). MF are regulated by FDA-CFSAN[Sect 5b 21 USC 360ee(b)(3)] and intended for specific dietary management of a disease with “distinctive nutritional requirements”.Under the supervision of a physician, the MF contains ingredients that are generally recognized as safe (GRAS). Onemia™ was designed and intended for the dietary management of omega-3 phospholipid deficiency in metabolic disorders and illnesses associated with cell membrane disturbance. The consequence of this deficiency leads to a variety of conditions such as hyperlipidemia, atherosclerosis, diabetes, rheumatoid arthritis, gastroenterology disorders. Onemia™ is an original and a proprietary formulationwith clinically proven ingredients Neptune krill oil being the main ingredient but 25% and 200% more concentrated in omega-3 and astaxanthin, respectively. Preclinical research has proven the superior bioavailability and efficacy of Onemia™ as compared to the leading prescription omega-3 Lovaza®. The animal study demonstrated that 0.5g of Onemia™ achieve similar lipid triglyceride lowering as 4g of Lovaza® thus increasing compliance and reducing the probability of side effects. The following are the milestones met so far by Onemia™:
- Successful manufacturing of Onemia™, a novel omega-3 phospholipid formulation
- Compliance of Onemia™ with FDA Medical Food regulations
- Implementation of commercial & operational strategies to generate short-term revenues
- FY2010/11-Q3 Market launch of Onemia™ for the management of cardiometabolic disorders.
CaPre™ Prescription Drug:
CaPre™ has been tested in several preclinical models, such as mice (4 sub-species) and rats (2 sub-species). Various daily doses and durations of treatment were administered orally to assess the safety and efficacy of given compositions and to determine the pharmacokinetic profile.
Data has demonstrated that CaPre™ dose-dependently and significantly reduced the blood concentration of triglycerides and simultaneously elevated HDL while normalizing glucose intolerance in some animal models. Most importantly, these effects were achieved without the common side-effect of other traditional treatments, such as an increase in LDL.
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Such studies were reviewed by Pr. Daniel Rader, M.D. (Professor of Medicine, Pharmacology, and Pathology and Laboratory Medicine, University of Pennsylvania School of Medicine and Director, Preventive Cardiovascular Medicine and Lipid Clinic) toward defining the safety, efficacy and the mechanisms of action of CaPre™.
In October 2010 Acasti submitted to Health Canada a CTA for a Phase II clinical trial, following a very positive pre-CTA meeting. The first part, CMC section, has been completed successfully.
From a business development, Acasti showcased its platform and products to a variety of pharmaceutical companies through international business development meetings (Annual Alliance Management congress and Annual Combination Drug Therapies Conference, both organized by the Cambridge Healthtech Institute (CHI) and the BioPharmaceutical Strategy Series). Acasti presented its unique positioning in the field of Cardiometabolic disorders and its action plan for successful collaboration with worldwide pharmaceutical industry leaders and its strategy for implementation. Acasti intensified its position on its corporate strategy in seeking alliances for its new product lines, while providing opportunities for in/out licensing agreements. Acasti is establishing itself with international and strategic industrial partners who are seeking the next best product to manage the complexity of mixed dyslipidemia associated with the ever-increasing problems of obesity and diabetes.
NeuroBioPharm Inc. (“NeuroBioPharm”)
During 2011 fiscal year, the Corporation made significant progress in its scientific research and development programs. NeuroBioPharm announced the results of preclinical research performed by 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. Three different preparations were tested on a rat model for the purpose of understanding their dose and time dependent effects on the electrical brain activity recorder on an electropharmacogram over four brain areas. According to analysis, the NeuroBioPharm APIs were projected in close neighbourhood to stimulatory and cognition enhancing drugs like Ginkgo extract and metanicotine, a potential treatment for senile dementia, and methylphenidate (MPD) or Ritalin, a drug used for treatment of attention deficit hyperactivity disorder (ADHD) in children. Furthermore, the Corporation has completed initial non-GLP preclinical toxicity and pharmacokinetic studies and has initiated a preclinical efficacy evaluation of the two new preparations.
The clinical trial evaluating the effect of the medical food in early stage Alzheimer disease has now completed the treatment phase. The trial was conducted in multiple sites in different provinces in Canada. The purpose of this study is to evaluate the efficacy of NKO™ softgels in reducing decline of global cognitive function as measured by the Neuropsychological Test Battery (NTB), in patients diagnosed with early stage Alzheimer's disease when compared to fish oil and a placebo after 24 weeks of treatment. The primary outcome measure is the change in Neurological Test Battery (NTB) between baseline and 24 weeks of treatment. Secondary outcome measures include the change in Disability Assessment in Dementia (DAD) at 24 weeks of treatment, the change in GDS NTB, DAD, and MMSE at 12 weeks. Safety and tolerability was assessed by the incidence of treatment emergent adverse events.
NeuroBioPharm is establishing itself with international and strategic industrial partners who are seeking safe and effective products for the maintenance of cognitive health for the OTC market, the clinical dietary management of cognitive decline and neurodevelopmental problems as medical foods and finally, prescription drugs for the treatment of neurodevelopmental and neurodegenerative disorders. In relation to the latter, upon receipt of the final clinical report for the Alzheimer study, NeuroBioharm intends to negotiate the terms of a License Agreement with the multinational Corporation transferred to NeuroBioPharm by Neptune. The terms to be negotiated will include the agreed commercialization deal defining milestone payments and minimum annual royalty conditions.
On February 28, 2011 NeuroBioPharm proceeded with the recapitalization of its share capital through a Reverse-Split and consolidation. On April 12, 2011, following the Reverse-Split, NeuroBioPharm purchased by mutual agreement the resulting Class A Shares payable by the issuance of new Class A Shares, of class H Shares and Series 2011-1 Warrants. This transaction was carried out in accordance with the rollover provisions allowed under tax legislation and based on an independent appraisal prepared for the Corporation. On the same date, following the Reverse-Split, NeuroBioPharm exchanged, by mutual agreement, the resulting Class C Shares, the Series 4 Warrants and the Series 5 Warrants paid by the issuance of Class G Shares, Series 2011-2 Warrants and Series 2011-3 Warrants.
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The number of exchanged warrants was adjusted in accordance with the clauses of adjustment of the warrants according to the percentage of dilution so that the Corporation would not more, or less, be diluted following the exercise of warrants, before and after the reorganization and the rollover. Moreover, following all the exercises of the warrants, the potential financial contribution of said warrants, proportional to the full value, remains the same after the reorganization and the rollover, and this, by making sure that the market value calculated for these new warrants by using the method of evaluation Black & Scholes, remains lower for the holder after reorganization and post rollover, when compared to its commercial value pre-reorganization and rollover.
In 2011, NeuroBioPharm intends on proceeding with the filing of a prospectus with the Securities Regulatory Authorities in each province and territory in Canada in order to allow NeuroBioPharm to become a reporting issuer.
2.4 PRODUCTS AND BRANDS
2.4.1 NKO® - Functional Food Grade
In 2011, Neptune continued to achieve major advancements in the research and development of Neptune Krill Oil (NKO®) suitable for incorporation into functional foods of different matrixes by masking and/or eliminating the characteristic krill odour and taste of the original oil.
a) | Continues working with a new functional bar manufacturer. The new bars provide Neptune more flexibility and better market positioning since they can be produced at lower minimum quantities and are produced with all natural ingredients and have no artificial additives. This is more in line with the product positioning Neptune is targeting. Three new excellent bar flavours were developed (Cherry Chocolate, Chocolate Nut Pie and Chewy Ginger). | |
b) | The new healthy functional bars including a full therapeutic dose of NKO®(300mg and 500mg) per bar continue to be displayed in all the major industry international tradeshows that Neptune has participated in. | |
c) | New options of functional fruit juices and functional bars are still in development. |
2.4.2 OPA3TM- Optimal for Life
In 2011, Neptune continued the marketing of the new OPA3™brand and established it as the trademark for the Corporation’s growing family of products. This new brand represents products composed of three essential elements (omega-3s, phospholipids and antioxidants) and effectively illustrates Neptune’s product portfolio strategy and positioning of its initial dietary supplement - NKO®. This unique patent composition allows long-term stability while it delivers increased bioavailability ensuring improved effectiveness in smaller doses. The OPA3™ brand will allow Neptune to better communicate its distinct advantage and to create a new class of ingredients for the functional food and biopharmaceutical markets. NKO®and two new formulations of the OPA3™ brand were evaluated and proven effective for neurological disorders in animal models.
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2.4.3 NKO®- Neptune Krill Oil
A marine oil extracted from Antartic Krill (Euphasia superba) that provides a unique blend of nutritional elements; the first product in the OPA3TMfamily to be developed and commercialized. NKO® pioneered the use of omega-3 phospholipids and krill oil for human health, opening the door of today’s krill industry. Its elevated content in phospholipids rich in omega-3 and omega-9 and antioxidants such as astaxanthin, vitamin A and vitamin E and flavonoid, offer a proprietary safe and effective product free of preservatives with exceptional health benefits and superior stability. In 2009, NKO® further distinguished itself by proving it superior bioavailability in a clinical study comparing the most commonly known formats of omega-3 on the market.
2.4.4 NKATM - Neptune Krill AquateinTM
Neptune Krill Aquatein (krillprotein concentrate) is a product that features the complete range of marineamino acids, including the eight essentialamino acids. Thisprotein concentrate contains pre-digestedproteins that are an important source of short-chainamino acids in the form ofpeptidesthat facilitate digestion by more effective assimilation. New market trends searching for new and unique amino acid profiles increased the potential value of NKATM. More complete analyses of the composition of NKATM were performed and different methods for improving quality and efficiency of production were also investigated. NKATM is being positioned to be sold for both human and animal nutrition.
2.4.5 EKOTM – ECOKRILL™ OIL
In 2010, Neptune pre-launched its new product, ECOKRILL™Oil (“EKOTM”), a member of the Neptune Krill Oil family of products, to its clientele at Health Ingredient Europe in Madrid. The pre-launch was well received by the market. EKOTM is a product similar to NKO® with slightly lower specifications and a lower selling price in line with the needs of the commodity market. Moreover, EKOTM sells at a lower price than competing krill oil products and presents better specifications than these products.
2.5 CLINICAL STUDIES
Neptune is continuously investing in medical research aimed at demonstrating the benefits of its products on human health. In 2010, Neptune entered into new medical research and clinical trials in the field of joint care with strategic partners, the results of which are still pending. It is anticipated that preliminary results for these studies will be available in late 2012 and should be completed in 2013. The final results should enable Neptune to further its reputation as a leader in the krill oil industry, and should also allow Neptune to obtain new claims and approvals in various jurisdictions.
In 2009, Neptune completed a clinical trial entitled “Evaluation of the bioavailability and steady state assessment of EPA and DHA of Neptune Krill Oil compared to pharmaceutical grade EPA & DHA esters, combination of bioactive ingredients simulating NKO® and fish oil”.
- This study was completed September 2008 and final results were submitted by the CRO in February 2009. Preliminary results were presented in the Supply Side West trade show and conference in Las Vegas (October 2008) and Health Ingredients Congress in Paris (November 2009).
2.5.1 Skin Cancer
The results of a pre-clinical animal study on the effects of NKO® on the prevention of skin cancer caused by UV radiation indicate that NKO®can prevent skin damage caused by chronic exposure to UV radiation.
2.5.2 Premenstrual Syndrome
The results of a double blind clinical study on assessing the effects of NKO® on the management of premenstrual syndrome (PMS) were published in May 2003 in a peer review medical journal - the Alternative Medicine Review – (Sampalis et al., 2003; 8(2): 171-179), The study demonstrates with high degree of certainty, that NKO® can significantly reduce both the physical and emotional symptoms associated with PMS (premenstrual syndrome), and that it is significantly more effective than fish oil (omega-3 18:12) in the management of physical and emotional dysmenorrheal symptoms.
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2.5.3 Hyperlipidemia
The results of a double blind clinical study on the effects of NKO® on hyperlipidemia (high cholesterol) demonstrate with high degree of certainty that:
- NKO®is safe and effective in controlling hyperlipidemia by significantly reducing LDL (bad cholesterol) and triglycerides, while increasing HDL (good cholesterol) without adverse effects. These effects were evaluated on patients who were either treatment naive or on statins, who had failed to attain their target LDL levels after at least six months on a low dose statin regimen.
- NKO®(1 - 1.5 g/day) was shown to be safe and significantly more effective than fish oil in the management of hyperlipidemia. In the same study, NKO®was shown to achieve a significantly greater reduction of LDL levels and increase of HDL levels as compared to fish oil (3g/day). These results were generated among statin-resistant patients, who failed to attain the target LDL levels after at least six months of low dose statin treatment.
Cardiovascular Risk Modification Analysis
- The results of an independent risk modification analysis of the hyperlipemia study data based on the Framingham model have shown that patients treated with NKO®can achieve a significantly reduced risk for cardiovascular events and significantly higher chance to prevent cardiovascular events over a 10-year period when compared to those treated with fish oil or for the statin resistant patients treated with low dose statin.
Health Economics Analysis
- An independent health economics analysis of the hyperlipidemia data showed that NKO® monotherapy as well as NKO®co-administered with a low dose statin was significantly more cost- effective than all other interventions studied for all types of cardiovascular events aggregated.
- With respect to death and cardiac arrests that are rare events, the cost-benefit ratio is positive indicating the acquisition cost is higher than the benefits derived. However, NKO®remained the least expensive alternative for these rare events.
2.5.4 Chronic Inflammation and Osteoarthritis
A Phase II clinical study on the effects of NKO® on conditions relating to chronic inflammation and osteoarthritis, published in May 2007 in the peer-reviewed medical journal - Journal of the American College of Nutrition - demonstrated that NKO® within a short treatment period can significantly reduce the C-reactive protein and osteoarthritic symptoms in patients diagnosed with a chronic inflammatory disease.
2.5.5 Attention Deficit Hyperactivity Disorder (ADHD)
The clinical results obtained during an open label pilot study demonstrated that NKO®may significantly improve cognitive function (among others concentration, planning skills and focus) of adults suffering from ADHD. The recorded observations were indicative of the neurological advantages of using Neptune Krill Oil over a controlled period of time. These results corroborate the short-term direction of the Corporation in terms of its clinical research initiatives.
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2.6 DEVELOPMENT OF NEPTUNE’S AND SUBSIDIARIES’ PORTFOLIO PRODUCTS
2.6.1 Research and Product Development Programs
Pharmaceutical drug development: In 2009 the Corporation completed the experimental phase of the drug precursor required for the development of prescription medical foods and drugs. Acasti completed the non-GLP phase of research and development of CaPre™ and ONEMIA™, the Company’s two first active pharmaceutical ingredients (API) Targeting cardiometabolic disorders as a prescription drug candidate and a medical food respectively. IND-enabling preclinical studies were initiated with CaPre™ as scheduled.
CaPre™ and ONEMIA™ are new generation cardiovascular products in the Acasti pipeline.
CaPre™ is in preparation for a Clinical Trial Application (CTA) review by Health Canada and investigational new drug application (IND) by the US FDA aimed for the development of a prescription drug that safely and effectively reduce triglycerides and increase HDL.
ONEMIA™ for commercialization as a medical food for the dietary management of omega-3 phospholipid deficiency
MPL VI, MPLVII, MPL VIII and MPL IX are new products in the pipeline of NeuroBioPharm in the process of research and development as prescription drugs, OTC and medical foods for the safe and effective management of cognitive, behavioural and neurodegenerative disorders.
NPK-D is in the process of research and development for the management of the organoleptic properties (odour and taste) of NKO® to facilitate its incorporation in flavourful daily functional food products. Neptune has achieved significant advancement in the development of NPK-D for dairy products such as yogurts and beverages. NPK-D has succeeded organical stability and is in the process of testing organoleptic stability. Clinical evaluation of safety and effectiveness of NPK-D in various matrixes will be ongoing in fiscal year 2012.
2.6.2 Internal Research, Subcontracted Research or Alliance Research
Neptune and its Subsidiaries - Funded Internal Research
ONEMIA™: a series of preclinical testing was initiated in the fiscal period ended February 28, 2009. Study results from initial toxicity, pharmacokinetics and efficacy testing Demonstrated the safety and efficacy of ONEMIA™ allowing the further development of the product as a medical food.
For NeuroBioPharm, a medical candidate and a drug candidate for non-GLP development and chemical analyses were initiated in fiscal period ended February 28, 2009. Initial medical candidate batches were standardized within allowed deviation limits. Preclinical testing has been initiated evaluating toxicity and pharmacokinetics.
NPK-D organoleptic management of NKO®for implementation of NKO®in daily functional food and specialized medical food. Incorporation of a functional NKO® dose in 100g yogurts has been successfully and the functional food is evaluated in a clinical study.
CaPre™: non-GLP development and analytical testing in multiple batches has been completed successfully within the allowed standardization of active pharmaceutical ingredients. GLP production has been initiated. Nonclinical testing required for the CTA has been completed demonstrating the safety, bioavailability and efficacy of CaPre™ allowing its progression into the clinical phase.
Acasti completed nonclinical research designed to evaluate the safety and efficacy of its first Active Pharmaceutical Ingredient (API) drug candidate, CaPre™. The efficacy of CaPre™ on dyslipidemia was evaluated on Zucker Diabetic Fatty, a diseased rat phenotype, characterized with established type 2 diabetes, glucose intolerance and severe dyslipidemia, particularly elevated triglycerides and cholesterol. After 4, 8 and 12 weeks of chronic daily treatment with human equivalent daily dosing of 500mg and 2,500mg, CaPre™ was shown to significantly increase High Density Lipoprotein Cholesterol (HDL-C or “good cholesterol”) by 40% at the lower dose and by up to 61% at higher dose after 3 months treatment in those severely affected rats. These results show that CaPre™ could be effectively used in patients with metabolic syndrome and /or lipid disorders which remain a currently unmet medical need.
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- Additional Acasti preclinical research designed to further evaluate the potentially broader spectrum of therapeutic efficacy of its first drug candidate, CaPre™ was completed. The efficacy of CaPre™ was evaluated in the same animal model, the Zucker Diabetic Fatty (“ZDF”) model, with which, as previously reported, CaPre™ demonstrated significant anti-dyslipidemic effects associated with substantial elevations of High-density lipoprotein-Cholesterol (“HDL-C”) or “good cholesterol”. CaPre™ was administered for 3 months at a daily human equivalent dose of 500mg and 2,500mg in both ZDF diabetic (established, severe, type 2 diabetes) and normal healthy rats. Both rat phenotypes were subjected to oral glucose tolerance tests (“OGTT”). In medical practice the OGTT is commonly used to test for diabetes and insulin resistance. It involves the oral administration of high amounts of glucose in order determine how quickly it is cleared from the blood. The test may be performed as part of a panel of tests, such as the comprehensive metabolic panel. Treatment of severely diabetic rats with CaPre™ was shown to significantly reduce impaired glucose tolerance within 1 month of treatment, with the higher dose being only slightly more effective than the lower dose. After 3 months, the ZDF rats had established a normal tolerance to glucose analogous to the healthy rats. Also, the healthy rats continued to tolerate glucose normally, indicating another safety parameter for CaPre™.
Neptune Funded Subcontracted Research
- NKO®(NPK-40) bioavailability testing was completed.
- NPK-D organoleptic management for implementation of NKO®in daily functional food and specialized medical food.
- Acasti has worked with a team of world renowned experts dedicated to functional testing and development of therapeutic candidates for arresting and reversing atherosclerosis through modulation of HDL, Reverse Cholesterol Transport (RCT), and Immune Mediators. The first of a series of experiments undertaken by VascularStrategies LLC, Pennsylvania, to unravel the mechanism of action of the active pharmaceutical ingredients (API) which was conducted in three (3) mouse models reflecting healthy state and moderate to severe dyslipidemia has been completed. After only 6 weeks of treatment at very low doses ranging from 0.5g to 2.0g, Acasti API achieved a statistically significant increase of HDL and reduction of LDL while achieving up to a 60% reduction of triglycerides; a considerably better effect than prescription omega-3 esters.
- 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®. NBP will be advancing its research towards the development of a readily available product aimed to improve the cognitive and emotional health of children and adults, in the near future.
Alliance Funded Research
- Clinical research on indications not disclosed in compliance with the European Food Safety Associations Medical Health Claim criteria and regulations.
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2.7 STRATEGIC BUSINESS DEVELOPMENT
Neptune has successfully established a strong track record of entering and maintaining business-to-business relationships with its partners and continues to strongly support its strategic business development plan by forming partnerships and alliances with worldwide leaders in the nutritional and pharmaceutical industries. Today, these industries are converging into a new consumer health marketplace driven by increasing consumer standards and market power in disease prevention and health management including cardiovascular, bone and joint, and neurological disease. Nutritional and pharmaceutical companies are seeking to penetrate and gain market share in this promising consumer health market place by developing value-added products including dietary supplements and functional food products with specific health claims at therapeutic doses.
Neptune’s business development strategy continues to be focused on developing and commercializing value-added premium products supported by clinical evidence and regulatory approvals in partnership with multinational companies. Our partners, including Nestlé and Yoplait, are investing with us the time and resources into conducting clinical research to demonstrate clinical benefits with the objective of obtaining product-specific health claims, which will ultimately allow them to secure much larger market shares. The investment reward into research and development by our multinational partners is enhanced by Neptune’s strong intellectual property protection with worldwide patents which also creates a real strong market entry barrier to any potential competitor.
General physician acceptance and their willingness to recommend premium products showing clinical evidence, such as Neptune’s products, combined with medical and consumer media responding with massive educational programs accelerate consumer market acceptance, demand and growth. Other nutritional and pharmaceutical companies should likely become attracted by the opportunities provided by Neptune’s growing premium product portfolio and more strategic alliances are being confidentially developed.
Through Neptune’s strategic business development, Neptune anticipates its market share will continue to increase worldwide. In that perspective, Neptune increased its in-house production capacity which was completed in the summer of 2009. In addition, the Corporation is continuously negotiating alliances with multinational industrial partners for high-scale manufacturing to respond to increased demand supported by NKO® Novel Food approval in Europe, Asia, Australia and South America, as well as new incoming customers and raised by growing market penetration generated by already actively committed customers.
On target with its business development strategy and pharmaceutical business plan, Neptune structured its pharmaceutical operations into its pharmaceutical subsidiaries Acasti for cardiovascular applications and NeuroBioPharm for neurological applications in order to fully benefit from the dynamics of the new consumer health market place. Both companies develop products that respond to the changing customer needs in the medical food and over-the-counter markets providing near-term revenue opportunities.
NeuroBioPharm is already conducting a clinical study for a medical food product with a multinational partner. In addition, Acasti Pharma and NeuroBioPharm are developing prescription drug candidates and an investigational drug approval (IND) submission to conduct pivotal clinical trials is currently in progress. The business development strategy is to carry out advanced clinical development and commercialization with multinational pharmaceutical partners.
2.8 PRODUCTION
The Corporation produces all Neptune products at its plan located in Sherbrooke, Quebec (the “Sherbrooke Plant”).
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2.8.1 Neptune Krill Extraction Process Platform Family
Description
Neptune OceanExtractTM is a cold extraction process platform family including the Neptune krill extraction process platforms which enable the extraction of omega-3 polyunsaturated oil, protein concentrates and amino acid concentrates from marine biomasses such as krill, and other constituents of marine biomass. NKO® is extracted from the raw material, i.e. utilizing the Neptune krill extraction process platforms.
Advantages of the Neptune Extraction Process Platforms for Krill
To Neptune’s knowledge, no other industrial krill oil extraction process can currently compete with the Corporation’s extraction process platforms and performance applied to krill. It is the only process platform family, protected by industrial secrets, producing a complete lipid extract of long-chain omega-3 fatty acids (EPA and DHA) functionalized by phospholipid carriers maintaining the antioxidant esters responsible for its long-term stability and antioxidant potency. None of the stages in the transformation process involve heating the raw material. Neptune extraction process platforms for krill preserve the biological activities of the krill substances, the properties of which are widely sought after by the nutraceutical, cosmetics and pharmaceutical industries.
The heat treatment (e.g., pasteurization) used in the agrifood processing industry is often designed to destroy bacteria, thus preserving food safety and product shelf life, and protecting consumer safety. The particular aspects of the Neptune extraction process platforms also allow to destroy bacteria, resulting in products that are safe and healthy for human consumption and with a long shelf life which is important for commercialization.
Compared with the traditional animal or vegetable oil extraction processes generally used in the industry, the Neptune extraction process platforms preserve and enhance the intrinsic food qualities of krill. The conditions governing storage, handling and the extraction processes are such that lipidic alterations over long-term storage are minimal.
The advantages inherent to the Neptune extraction process platforms enable high extraction performance, recycling and salvage of extraction byproducts. The processes thus enable full use of the biomass and bacterial destruction of the extracts obtained. It is also characterized by the absence of preservative use and the stability of long-chain polyunsaturated fatty acids.
The Neptune extraction process platforms from the Neptune Ocean ExtractTM family allows the extraction of high-end products currently sought after by the nutraceutical, cosmetics and pharmaceutical markets.
2.8.2 Plant
The Sherbrooke Plant received a favourable outcome of a GMP (Good Manufacturing Practices) audit performed by Health Canada, Natural Health Product Directorate (NHPD). The Sherbrooke Plant has increased its annual production capacity from 100,000kg for NKO®to 130,000kg, and from 400,000kg to more than 500,000kg for NKA™.
2.8.3 Krill
Krill is a generic term of Norwegian origin designating 86 species of deep and cold water pelagic marine planktonic animal (zooplankton) constituent of the global marine biomass.3,4
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3 | Bernadette Casanova. “Ordre des Euphausiacea Dana, 1852. Crustaceana 76(9): 1083-1121. |
4 | Tony J. Pitcher, Series Foreword, page vi in Inigo Everson editor, “Krill: biology, ecology, and fisheries”, Fish and aquatic resources series 6, Blackwell Science Ltd, 2000. |
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Krill looks like miniature shrimp. The smallest species of krill, found in the Pacific Ocean, measures approximately 1 cm.5 The larger Antarctic krill (Euphausia superba) can grow up to 6cm. Krill is the most abundant animal biomass on the planet and is found in schools that can sometimes cover several square kilometres of ocean.6
2.8.4 The Virtues of Krill
In the opinion of the Corporation, the virtues of krill are being increasingly recognized by the world scientific community.7
Because the krill used by the Corporation feeds on phytoplankton, namely diatoms and dinoflagellates8, its lipid content is a major source of polyunsaturated fatty acids, mainly docosahexaenoic acid (DHA) and eicosapentaenoic acid (EPA), the two major types of essential marine omega-3 fatty acids. Krill also contains proteins offering the complete range of amino acids and very efficient digestive enzymes. In addition, it contains powerful antioxidants (liposoluble A and E vitamins and provitamins, beta-carotene, trans-retinol, astaxanthin, co-enzyme Q10 as well as a unique flavonoid of animal source). Krill contains phospholipids, amino acids and minerals providing numerous benefits in terms of the absorption and digestion of nutrients with proven benefits for human and animal health.9
The organic components that can be obtained from krill are part of the categories of substances actively sought after by the nutraceutical, cosmetics and pharmaceutical industries.10
One major advantage of Neptune’s proprietary knowledge of krill processing lies in the fact that EPA and DHA contained in Neptune Krill Oil are carried on phospholipids and associated with potent antioxidants (vitamins A and E, beta-carotene, trans-retinols, astaxanthin, co-enzyme Q10 and a flavonoid) making them highly bioavailable and resistant to oxidation. The absence of oxidation results from the high natural content of powerful antioxidants in krill oil, namely.
Due to its high stability even at significantly higher temperatures than other omega-3 marine oils, Neptune phospholipid extracts are suitable for integration in various pharmaceutical carriers like hard and gelatin capsules, transdermal patches, and food carriers like fruit beverages, dairy products including yogurt, milk, and spreads, dry matrixes such as fruit nuggets, cereal and nutritional bars.
2.8.5 Availability of Krill
There are two primary ocean regions where krill is harvested: the Southern Ocean (Antarctic krill) and the North Pacific Ocean (Pacific krill, mainly off the coasts of Japan and Canada). The total quantity of krill in these two oceans is conservatively estimated to be at least 500,000,000 metric tonnes (mt).9 From these two oceans, up to 271,000 mt of both krill species is harvested annually.11,12 Of that total from 1997/98 until 2009/10, between 90,000-211,180mt originated from the Southern Ocean (Antarctic krillEuphausia superba)10,13 and an average annual catch of 60,000 mt from the Pacific (Pacific krillEuphausia pacifica).14The catches represent less than 0.1% of the existing resource. In 2010/11 the main countries that will harvest krill are China, Japan, Norway, and South Korea. From 2008/09 to 2010/11, annual quotas for Antarctic Krill have increased by 33%.10 Annual allowable quotas of 6.555 million tons for 2009/10 have been increased to 8.695 million tons for 2010/1110 . The above data supports the following facts: the resource is abundant, accessible and there is a potential for long-term sustainable exploitation12,15 with adequate traceability measures. The average market price for whole frozen krill is around $900/mt. Neptune maintained successful negotiations with major krill suppliers to ensure long-term supply, quality and competitive prices.
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5 | R.D. Kathman et al., “Identification Manual to the Mysidacea and Euphausiacea of the Northeast Pacific”, Canadian Special Publication and Aquatic Sciences 93, 1986, p. 269. |
6 | Stephen Nicol, “Time to Krill?”, Australian Antarctic Division, 1995, pages 2-3. |
7 | Stephen Nicol, Ian Forster & John Spence, Chapter 10. Products Derived from Krill in Inigo Everson editor, “Krill: biology, ecology, fisheries”, Fish and aquatic resources series 6, Blackwell Science Ltd, 2000, pp. 262-283. |
8 | Stig Falk-Petersen, Wilhelm Hagen, Gerhard Kattner, Andrew Clarke, & John Sargent, 2000, Lipids, trophic relationships, and biodiversity in Arctic and Antarctic krill.Canadian Journal of Fisheries and Aquatic Sciences, Volume 57 (Suppl. 3), pp. 178-191. Charles F. Phleger, Matthew M. Nelson, Ben D. Mooney & Peter D. Nichols, 2002, Interannual and between species comparison of the lipids, fatty acids and sterols of Antarctic krill from the US AMLR Elephant Island survey area,Comparative Biochemistry and Physiology Part B, Volume 131, pp. 733-747. |
9 | Stephen Nicol, Ian Forster & Jonh Spence, 2000, op. cit. |
10 | Molyneaux, M. & C.M. Lee, “Food Technology”, The U.S. Market for Marine Nutraceutical Products, June 1998, 52:6, pages 56-57; Stephen Nicol, Ian Forster & John Spence, 2000, op. cit. |
11 | World Health Organization (WHO), “Nutritional Value of Antarctic Krill”, 1995, Bulletin 73; S. Nicol & Y Endo. Krill fisheries: Development, management and ecosystem implications. Aquatic Living Resources 12(2), 105-120. 1999; R. Shotton, B17. Southern Ocean FAO Statistical Areas 48, 58 and 88, Review of the state of world marine fishery resources, FAO, Marine Resources Service, Fishery Resources Division, Fisheries Technical Paper 457, pp. 158-162, 2005. V. Siegel.Distribution and population dynamics ofEuphausia superba: summary of recent findings.Polar Biology29: 1-22, 2005. A. Atkinson, V. Siegel et al. A re-appraisal of the total biomass and annual production of Antarctic krill.Deep-Sea Research I56: 727-740, 2009. |
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2.9 INTANGIBLE ASSETS
It is an important part of our business to obtain intellectual property protection for our technology, products, applications and processes and/or to maintain trade secrets. Our success depends, in part, on our ability to obtain, license and enforce patents, protect our proprietary information and maintain trade secret protection without infringing the proprietary rights of third parties. Our strategic approach is to file and/or license patent applications whenever possible to obtain patent protection. We also rely on trade secrets, proprietary unpatented information, trademarks to protect our technology and enhance our competitive position. We have confidence in our patent and will continue to take all appropriate actions needed to protect our intellectual property rights in the United States and elsewhere as required. As the pioneers of krill omega-3 phospholipids for human health, we have worked very hard over the last 11 years to substantiate our claims, obtain multinational regulatory approvals, establish our brand and protect our intellectual property
2.9.1 Exclusive License/Option
Even though the Corporation uses, for its production, its own process technology, which is protected by trade secrets, the Corporation also strategically exploits, within its intellectual property portfolio, an exclusive, irrevocable worldwide license on a patent related to an extraction process belonging to the University of Sherbrooke, province of Quebec (the “University”). The License Agreement applies to the process of oil extracted from krill and from other marine and/or aquatic biomasses.
The License Agreement clearly stipulates that the Corporation shall remain the sole owner of any improvement and/or modification and/or enhancement of the extraction process done and/or paid by the Corporation. This clause is significantly important. The License Agreement also stipulates that the University shall remain the sole owner of any improvement and/or modification and/or enhancement of the extraction process done and/or paid by the University. Thus, the Corporation, for a period of 24 months following any such improvement and/or modification and/or enhancement by the University, has the right to enter into an exclusive license agreement with the University with respect to any such improvement and/or modification and/or enhancement. No such improvement and/or modification and/or enhancement have been, to this date, reported to the Corporation by the University.
The License Agreement may be terminated (i) by way of agreement between the University and the Corporation; (ii) in the event of a default by the Corporation or the University; (iii) in the event of the insolvency or bankruptcy of the Corporation; or (iv) if the Corporation ceases to carry on its activities in the normal course of business.
12 Commission for the Conservation of Antarctic Marine Living Resources / CCAMLR, “Understanding CCAMLR’sApproach to Management”, May 15, 2000; SC-CCAMLR-XXV Report of the twenty-fifth meeting of the Scientific Committee, October 2006; CCAMLR. Schedule of conservation measures in force 2010/11 Season, 2010. CCAMLR, Statistical Bulletin, Volume 20 (1998-2007) CCAMLR-SB/0820, 2008; SC-CAMLR-XXIX, Report of the Twenty-Ninth Meeting of the Scientific Committee, October 2010 (pre-release version);T. Ichii, Krill Arvesting, 9.3 Japanese northeastern coastal watersEuphausia pacifica Chapter 9, in Krill: Biology, Ecology and Fisheries, Fish and aquatic resources series 6, Blackwell Science Ltd, 200013 CCAMLR op. cit.
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14 T. Ichii, op. cit.
15 WHO, “Nutritional Value of Antarctic Krill”, 1995, Bulletin 73, page 551.
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The Corporation also benefits from a right of first refusal with respect to any research project for the development of a process to extract and purify oils originating from marine and freshwater biomasses like krill among others and from an option to purchase the intellectual property rights with respect to the results of the research, as it relates to krill, or other crustaceans, conducted by the University. The exercise price for this purchase option has been set at $275,000 by mutual agreement between the University and the Corporation, this price was contested by the researcher but has remained the same based on the decision of the Quebec Court of appeal rendered in January 2010 (see section 2.9.3 entitled “Economic Dependence/Litigation”).
The Corporation has undertaken to pay an annual commission to a corporation controlled by Mr. Henri Harland for services rendered as well as for the transfer in February 2001 to the Corporation of the license rights with the University, including the right of first refusal and of the option to purchase the intellectual property rights. This royalty of 1% on any sales and on other income of the Corporation is for an indeterminate period of time and it shall be paid semi-annually and disbursement of such royalty payment per year will not be superior to the Corporation’s net earnings before interest, taxes, depreciation and amortization (EBITDA).
2.9.2 IP Protection
Brand names and trademarks
Neptune has registered the trademarks OPA3TM and NKO®in over thirty countries. Neptune OceanExtractTMand NKATM are other trademarks of Neptune, while a trade-mark application has been filed in Canada for ECOKRILL™ OIL.
- NKO®distributors apply private label with NKO®logo on it and with names and trade-marks pre- approved by Neptune.
- Licenses: Neptune has licensed worldwide commercialization rights for NKO®in functional food for specific food categories and health indications to Nestle and Yoplait. The Corporation is in negotiations to further expand the functional food market with strategic alliances with other large well known food companies.
Acasti has applied for worldwide trademark protection of CaPre (name given to its prescription drug candidate), as well as for the trade-marks ONEMIA™ and VECTOS™, and is the owner of the trade-marks BREAKING DOWN THE WALLS OF CHOLESTEROL™ in Canada, the United States and the European Community. The trademark CaPreTM is now registered is some jurisdictions.
Patents
Neptune has the following patent portfolio:
| Countries | ||||||||
Category | Description | Issued | Pending | ||||||
Novel Phospholipid/ Flavonoid | Composition of Matter | 24 | 3 | ||||||
Cardiovascular Neurological health | Method of Use | 20 | 0 | ||||||
Health Applications | Method of use | - | 30 | ||||||
Extraction Process | Process | 34 | 1 |
Acasti has initiated its patent portfolio with the first application as a USA provisional of a composition and use patent.
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Trade Secrets
Neptune protects its optimization and extraction processes through industrial trade secrets.
Regulatory approvals
Neptune has obtained the following regulatory approvals, permits and authorizations:
- European Food Safety Authority (EFSA) has approved NKO®as PARNUTS for commercialization in the European Union.
- European Food Safety Authority (EFSA) has approved NKO®as a Novel Food for commercialization in the European Union.
- NKO®has received US-FDA GRAS (Generally Recognized as Safe) notification as food ingredient in the United States.
- NKO®has obtained approval as a Complementary Medicine from the Therapeutic Good Administration (TGA) in Australia.
- NKO®has a natural product number (NPN) issued by health Canada.
- New Patent application for Acasti;
- Health claims in Europe and USA - Ongoing consultation and guidance received;
- Health claims in Europe in the field of joint care;
- Health claims in Canada - Multiple claims approved by NHPD (7 claims);
- Neptune production plant in Sherbrooke accredited as nutraceutical GMP (Good Manufacturing Practices) audit performed by Health Canada, Natural Health Product Directorate (NHPD).
2.9.3 Economic Dependence/Litigation
The Corporation sources its krill used in the manufacturing of its products from three suppliers. The Corporation considers that its relationship with its suppliers is good and that it is not dependent upon these suppliers, as alternative sources of supply are available.
The Corporation is no longer dependent on the license agreement mentioned in section 2.9.1 hereof entitled “Exclusive License/Option” as the Corporation has developed and now manufactures its products with its own proprietary technology process platform “Neptune Ocean Extract”.
As for the exclusive “License/Option”, on August 18, 2004, the Corporation notified the University of its intention to exercise its $275,000 purchase option relating to the intellectual property (see section 2.9.1. hereof entitled “Exclusive License/Option”). As per the licensing agreement reached between the University and the Corporation, the terms of payment are as follows: $100,000 on the transfer date of the intellectual property, $50,000 on the first anniversary date of the transfer, $50,000 on the second anniversary and $75,000 on the third anniversary.
On August 23, 2004, university researchers filed an injunction against the Corporation and the Canadian university demanding cancellation of the purchase option of the intellectual property granted to the Corporation by the Canadian university.
In December 2008, a ruling was rendered against the Corporation. The judge determined that the Corporation had not exercised its option to purchase the intellectual property in August 2004, as claimed by the Corporation, and it had to pay additional royalties in the amount of $1,031,134 in addition to $145,000 in fees. The judge furthermore set at $1,776,000 the purchase price for the intellectual property, although it had been previously established at $275,000. Under the judgment, the Corporation had 45 days to exercise its option and it had to pay $275,000 immediately.
Following the December 2008 ruling, the Corporation appealed the ruling and requested an immediate stay of its execution. The Corporation did not agree with the findings of the ruling and believed that its own arguments were well founded.
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In January 2010, the court of appeal ruled in favor of the Corporation confirming in its ruling the Corporation’s rights to exercise its purchase option relating to the intellectual property at a purchase price of $275,000 plus interests of $36,000, for a total of $311,000. The court also confirmed that the Corporation had exercised its option in August 18, 2004 and rejected all royalty claims to the exception of $36,000 plus interests of $11,000, for a total of $47,000.
In 2010, the Corporation received a complaint filed by Schiff Nutrition Group Inc. ("Schiff"), a former distributor of Neptune’s products, in the United States District Court for the District of Utah, Central division, alleging that Neptune failed to meet certain delivery thresholds. As a result, Schiff is seeking monetary damages in the minimum amount of US $1 million from Neptune.
The Corporation denies all material allegations and the requested monetary compensation in the complaint and asserts federal and state law claims against Schiff, including that Schiff failed to pay the Corporation for shipments of NKO® accepted by Schiff, and that Schiff caused its contractor to encapsulate NKO® despite the Corporation’s objections that the resulting product would not meet specifications after encapsulation by Schiff’s contractor. Despite the Corporation’s warning to Schiff to cease directly and indirectly using the Corporation trademarks including NKO® and clinical support, Schiff continued to use the Corporation trademarks and claims, as it could be seen on websites of multiple Schiff’s distributors. As of the date of this AIF, the case is still pending before the federal district court in Utah.
In 2009, Neptune filed a patent infringement lawsuit against Aker BioMarine ASA, Jedwards International, Inc and Virgin Antartic LLC, in defence of its U.S. method of extraction of total lipids fractions from Krill. Neptune alleges that the Defendants have used solvents for the extraction of their krill oil, which are covered by the patent (US6,800,299) licensed to Neptune. As of the date of this AIF, the case is still pending before the federal district court in Massachusetts.
In 2010, Neptune and Acasti filed a complaint with the Quebec Superior Court claiminginter alia, damages and co-ownership in the applications filed by Valensa. Although Valensa has challenged the jurisdiction of the Quebec Superior Court over this matter, the case is proceeding.
In 2009, Valensa, submitted without Neptune's preapproval, a patent application and refused to add Neptune's name as co-owner of this patent. This was in breach of agreement to file with Neptune for a joint patent protection. Furthermore, Valensa failed to submit its action plan and volume commitments on the agreed upon deadline. For those reasons, Neptune refused to send samples to Valensa until Valensa complies with the terms of the signed agreement. This led to Valensa unilaterally terminating the agreement.
2.10 EMPLOYEES
2.10.1 Number
As at February 28, 2011, Neptune, along with Acasti and NeuroBioPharm, has a total 82 employees, working at its business offices in Laval and Sherbrooke plant.
2.10.2 Skill Knowledge
Neptune employees possess specialized skills and knowledge in the following fields:
- Intellectual property protection;
- Legal matters;
- Marine biomasses;
- Scientific issues;
- Oil extraction processes;
- Quality assurance/quality control;
- Clinical validation of biological therapeutic properties;
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- Regulatory compliance related to the Corporation’s operations;
- Commercialisation/Business development;
which are valuable assets of the Corporation.
2.11 SALES/DISTRIBUTION
Neptune manufactures its products at its Sherbrooke plant and sells NKO® in bulk oil or in capsules to its distributors who commercialize under their private label in multiple market segments including health food stores, mass (food and drug), direct sales (MLM, internet, catalogue, radio) and via healthcare professional recommendation. The NKO® encapsulation is subcontracted by third parties in Canada, USA, Asia and Europe. 100% of Neptune NKO® sales revenues during the fiscal year ended February 28, 2011 were derived from independent companies. Sales of NKO® for the fiscal year ended February 28, 2011 amounted to $16,685,000, from $12,605,587 for the fiscal year ended February 28, 2010. Sales are not cyclical.
During the fiscal year ended February 28, 2011, more than 98% of the Corporation’s sales were made to customers based outside Canada. The Corporation enters into hedging instruments from time to time to partly offset currency risks.
2.12 COMPETITION
The nutraceutical and pharmaceutical markets have continuously grown and are highly competitive. Many companies now carry out research, development and commercialization activities and programs with applications for human health similar to those of the Corporation. Many competitors are also developing new nutraceutical products which are today focusing on pharmaceutical applications based on the specific properties of their products. Some of these companies have greater financial resources, research and development capabilities as well as manufacturing and marketing facilities than those of the Corporation, while others have limited resources but are trying to benefit from the research and promotion done by the major players. Moreover, teaching institutions, government and environmental agencies and other research bodies are conducting research in similar sectors as the Corporation. They are also capable of marketing products, either by their own means or by cooperation agreements.
The Corporation is aware of rising competition in both the nutraceutical and the pharmaceutical markets and is actively monitoring the industry. Biomedical and biotechnology companies, as well as large pharmaceutical companies, are not only active in the same field of nutraceutical-based therapeutics as the Corporation, but are also trying to develop new niche markets. However, the Corporation believes that in its specific field of activity, it maintains certain definitive advantages.
Even though the Corporation is no longer the only manufacturer of marine phospholipids, it remains amongst the market leader due to its exceptional richness in long-chain polyunsaturated fatty acids and antioxidants. In addition, Neptune’s marine phospholipids continue to be the most stable and sought after products for implementation into pharmaceuticals and/or nutraceuticals (dietary supplement, functional food) for human consumption. Knowledgeable consumers are fully aware of the Corporation’s credibility and the quality of the extensive research conducted. Furthermore, the Corporation has demonstrated the positive health benefits proven with all its clinical studies, an achievement yet to be met by its competitors.
2.12.1 COMPETITORS
The Corporation is aware that other companies are developing, have commercialized, and are preparing to commercialize competitive products. Neptune’s advantage is that it remains the only Corporation, within the krill oil manufacturer market, with an ingredient with human health benefits, which has obtained regulatory approvals in countries around the world and achieved worldwide market recognition.
Aker BioMarine ASA, a Norway-based Corporation, is in the business of harvesting and commercializing marine ingredients. Aker BioMarine ASA is serving the aquaculture and animal feed markets with krill derived products, such as oil and meal registered as Qrill™. Aker BioMarine ASA merged with Natural ASA to enter the dietary supplement and functional food markets. Aker BioMarine ASA launched, in Norway, a krill oil product under the brand name SuperbaTM in 2009. Since then, Aker has published several clinical studies most of which were animal studies. The few human studies published demonstrated inferior health benefits than the human clinical studies published by Neptune. Furthermore, Aker has yet to publish any human clinical benefits in cognitive, joint and women’s health.
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Enzymotec Ltd. is an Israel-based biotechnology Corporation developing biofunctional ingredients for human health applications. They claim to have a proprietary complex of marine-derived DHA and EPA -delivered as triglycerides or attached to phospholipids and astaxanthin. In the past, the Corporation has raised awareness about the true nature of those oil which, as per their disclosure, are not derived entirely from Antarctic krill (Euphasia Superba) but a blend of different marine ingredients combined to mimic the composition of NKO®.
Aquasource Products Inc, a Canadian Corporation, also commercialises an artificially enhanced krill oil without any studies, nor regulatory approvals to support their position on the market.
Poissons Tropicaux Gryd Inc., a Canadian Corporation, is commercializing Krilex® which contains a powder preparation composed of the entire krill itself, composed mainly of krill protein with very little omega-3 and antioxidants.
OTHERS
2.13 COMPETITIVE ADVANTAGES
NKO® Competitive Profile
Longest history of commercialization further demonstrates the safety of NKO® for long term human consumption and its commercial viability;
NKO® has a biomolecular profile of phospholipids, omega-3 fatty acids, and diverse antioxidants that surpasses the usual profile of fish oils. The association between phospholipids and long-chain omega-3 fatty acids highly facilitates the passage of fatty acid molecules through the intestinal wall, increasing their bioavailability and ultimately improving the omega-3: omega-6 ratio;
Clinically proven superiority of NKO® versus other omega-3 products for improving the EPA/Arachidonic acid ration and the Omega-3 Index, internationally recognised risk factors for cardiovascular disease.
Clinically proven significantly better and faster absorption of for EPA and DHA in NKO® versus other omega-3 products.
Highest stability and antioxidant potency as compared to competitive marine extracts;
Phospholipids are important in protecting membranes from toxic injury and free radical adverse effect. NKO® contains two main potent antioxidants; a carotenoid (astaxanthin) and a flavonoid (novel due to its animal source);
Astaxanthin has been shown to have a stronger antioxidant activity than alpha-tocopherol, beta-carotene, lycopene and lutein. NKO® contains significantly higher amounts of esterified astaxanthin than all other krill products in the market;
Flavonoids, traditionally extracted from fruits, plants, vegetables or algae have been studied for more than 60 years and their antioxidant activity is undoubted;
First and only krill oil product with clinically proven human health benefits in cardiovascular, joint, cognitive and women’s health;
NKO® has been proven effective to decrease LDL by 33.9% (bad cholesterol), triglycerides by 11.5%, and increase HDL by 43.3% (the good cholesterol).Framingham Risk Score data analysis showing that patients treated with NKO® can significantly reduce RCVD with an attributable-risk-reduction between 52% and 53%;
Cost minimization analysis shows that NKO® is the least expensive intervention for prevention of cardiovascular disease;
Cost effectiveness analysis showed that NKO® prevents more disease for each dollar spent as compared to omega-3;
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The NKO®-statin combination was significantly more effective than statin monotherapy in relation to HDL increase. The treatment with NKO®alone or in combination with a statin provides a cost effective choice for the management of these patients with persistent hyperlipidemia even after treatment with a statin;
NKO®can significantly reduce both the physical and the emotional symptoms of premenstrual syndrome and has been shown to be significantly more effective for the complete management of premenstrual symptoms compared to omega-3 fish oils;
In as quickly as 7 days, NKO®significantly reduced CRP (an important inflammatory biomarker). Furthermore, volunteers in the NKO®group of the study reported significant improvement in all scores of the WOMAC;
NKO®demonstrated a significant improvement in ADHD patients’ focus, concentration and planning skills;
Low daily dose well tolerated for chronic intake;
NKO®has been certified as Halal, which allows it to be commercialised in all Muslim countries. This is not the case for Superba™ which contains ethanol and thus cannot be Halal certified; and
Neptune’s marine derived products within its Neptune Krill Oil family of products (NKO®and EKO™) successfully completed an extensive and rigorous review of key environmental claims by NSF International. NSF is an independent, world-wide recognized not-for-profit organization committed to protecting and improving public health and the environment.
Strategic Position
Intellectual property protection (trademarks, patents, patent pending) and trade secret /know how on processes, applications, and natural and/or synthetic compositions and their use as medications;
Proprietary technology and products
Patented process
Neptune OceanExtract™ platforms
Method of Use Patent for Cardiovascular disease issued in Europe without opposition which preclude competitors from commercialization of any products in the European cardiovascular market with any krill extract other than NKO®.
Neptune’s years of experience on marine health ingredients extraction has achieved a strong platform of proprietary technology and trade secrets to provide products which are:
more cost effective
of highest quality
assured extraction and production yield
patent protected use
clearly differentiated from competitive products
Pharmaceutical, cosmeceutical, nutraceutical and animal nutrition product pipeline extension in development;
Multinational regulatory approvals required for commercialization;
Growing world renowned scientific and medical recognition of NKO® in global markets in North America, Europe, Asia and Australia;
NKO® was approved as a NOVEL FOOD and PARNUTS after successfully passing stringent regulatory review process by all the member states of the European Union. This allows to Neptune to commercialise NKO® in Dietary Supplements, Functional foods, Diet meal replacements and Dietary Foods for Special Medical Purposes;
To meet the increasing demands and its projected massive penetration of the European market, Neptune completed the scaling-up of its production capacity at its Sherbrooke (Quebec) plant in 2009, thereby providing for a greater than 50% increase of yearly output for 2011 from 100,000 kilograms to at least 150,000 kilograms;
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Continued progress in strategic alliances with strategic corporate partners such as Nestle and Yoplait;
Strategic alliances with manufacturers are currently being discussed;
A new alliance with Bayer and Bayer Australia was formed to commercialise a Neptune proprietary product in the United States, Australia and New Zealand. This represented another important milestone in the execution of Neptune’s strategic vision; and
Establishing USP-FCC and USP-NF Krill Oil Monographs that will provide temporary barriers of entry for low grade kill oil competition.
2.14 MARKETS
Neptune is pursuing market opportunities in the nutraceutical market (including dietary supplements and functional foods) and, through its two subsidiaries Acasti Pharma and NeuroBioPharm, the pharmaceutical market (including medical food, over-the-counter and prescription drugs) for all its products.
2.14.1 Nutraceutical
Overview
Neptune’s products are currently sold in the nutraceutical market. The nutraceutical market encompasses functional foods and dietary supplements, the latter include a wide range of nutrients such as vitamins, minerals, fatty acids, amino acids and herbal supplements. Functional food is a growing field in food and medical science and includes foods designed with health benefits beyond their usual nutritional value and which may be enriched with health promoting additives such as vitamins, probiotics or omega-3.
The nutraceutical market is growing rapidly driven by the health demands of an aging population. Within the next twenty years, the number of Americans 65 and older will double from 35 million to 70 million then representing 20% of the population.16Similar demographical changes can be observed in other countries resulting in a global trend. Beyond weight management, health issues such as cholesterol, heart health, cognitive function, brain performance and joint health are driving the market expansion. Functional foods such as probiotic yogurt and yogurt drinks, cereals bars and soya milk are experiencing explosive growth.17
Other additional factors have been identified as growth drivers in the nutraceutical markets including:
- Improved understanding and scientific knowledge of the contribution of diet in health and disease prevention;
- Increased consumer demand for products that maintain vitality and prevent disease and its desire for premium products;
- Increased health care costs and the trend towards self treatment with a focus on natural products;
- Technical advances and innovation in the food industry.
Dietary Supplements
The world retail market for dietary supplements is highly fragmented, composed of a large numbers of products and many small manufacturers and estimated at more than $50 billion in annual sales.18 The United States dietary supplement sales amount to approximately $23 billion.19 Europe is capturing approximately one third of this market with sales beyond $15 billion. In Japan, dietary supplement sales of $6 billion have been reported.20 Specialty supplements such as probiotics and omega-3 will be experiencing the most sales growth over the next five years and health issues such as cholesterol, heart health and mental health engender a major impact. Dietary supplements continued to be the largest consumer of marine omega-3 oils in the global market in 2009 with a 59.7 % share. Animal feed and foods and beverages are the next largest consumers of marine oil omega-3 with 23.8 % and 11.2 % shares, respectively.
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16 Demographic Trends in the 20th Century. Census 2000 Special Reports. November 2002.
17 Baby Boomers and the U.S. Food and Beverage Industry: Packaged Facts, 12/1/2005
18 Industry Canada. International Market Research: Dietary Supplements.
19 Idem 14.
20 Idem 2.
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North American market revenues for marine and algae EPA and DHA omega-3 ingredients market were $562.8 million in 2009. The market is likely to grow at a combined annual growth rate (CAGR) of 11.8 % from 2010 to 2015. Global unit shipments were measured at 33,999 metric tons in 2009 and are likely to grow at a CAGR of 11.0 % from 2010 to 2015.
Functional Food
The main functional food categories include dairy products (i.e. milk, yogurt and cheese), confectionary products (i.e. bars, chocolate, snacks), various cereal products and functional beverages. It is difficult to estimate the potential market size of the functional food market and it is probably safe to assume that the market size is underestimated. The total U.S. retail food market amounted to $457 billion in 2004.21 Assuming that 25% of this food market may be used, in the future, for nutraceutical reasons, the functional food market may amount to more than $100 billion in the US alone. Assuming a similar market size in Europe, total combined market potential reaches $200 billion, an enormous foundation for the functional food market.
Calcium, probiotics and omega-3 products are getting the most attention and will be playing a major role in the expanding dairy product category projected to reach more than $15 billion by 2011 in the US.22Omega-3 is also playing a major role in the $23-billion breakfast cereal segment23 and heart-healthy products command more than $19 billion in sales today.24
Poly-Unsaturated Fatty Acids (PUFA)
The polyunsaturated fatty acid (PUFA) market which includes predominantly omega-3 and 6 fatty acids is growing at a very fast pace and the most predominant omega-3 fatty acids are docosahexaenoic (DHA) and eicosapentaenoic acid (EPA) derived from plant and marine sources. Omega-3 sourced from marine oils are the fastest growing sector in the PUFA ingredient market which is a direct result of the media attention pertaining to omega-3 health benefits and the growing need for alternative treatment for a variety of chronic disorders including the heart and the brain.
Extensive research, including Neptune’s clinical trial work, has demonstrated their clinical benefits. Omega-3 fatty acids reduce inflammation and prevent risk factors associated with chronic diseases such as heart disease and arthritis and appear to be particularly important for cognitive (memory and concentration) and behavioural function.
Neptune’s omega-3’s are sourced from krill, a zooplankton, with the advantage that the omega-3 fatty acids are carried by phospholipids and not triglycerides such as in fish oil. Phospholipids, a major component of biological membranes, are more easily digested resulting in a higher bioavailability of Neptune’s products.
The market space is growing with the FDA having issued a qualified heart health claim enabling manufacturers to label products containing omega-3 EPA and DHA as being heart healthy. The market is waiting for additional health claims such as effects on high blood cholesterol and high blood pressure.
Omega-3 ingredient sales continue to increase driven by demand as dietary supplements, functional foods and beverages and pharmaceutical applications. Based on the trends reported in the 2005 Frost & Sullivan market report25, the worldwide omega-3 market will be reaching more than $1.4 billion in annual ingredient sales within the next five years. Higher quality and higher performance omega-3’s providing high amounts of omega-3 are gaining a larger market share of the marine oils industry in terms of revenues, because of their improved safety and health benefits. Omega-3 fortified food launches more than doubled in 2006 to 250 from 120 in 2005, according to Mintel.26 Most product introductions have been in beverages, spreads, dairy products (i.e., yogurt), eggs, nutrition bars and baked goods.
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21 | Progressive Grocers 72nd Annual Report of the Grocery Industry. |
22 | Cultured Dairy Products in the U.S. Packaged Facts, Oct 1, 2006. |
23 | Euromonitor. http://www.euromonitor.com/Cereal_Partners_Worldwide_exploits_developing_markets |
24 | http://www.marketresearch.com/map/prod/1164892.html |
25 | End-user Analysis of the Global Omega-3 PUFA Market, FO23-88. Frosst & Sullivan. |
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Nutricosmeceutical and “beauty from within” Trend
Nutricosmeceuticals are defined as oral nutritional supplements with cosmetic applications and are commercialized in foods, beverages and dietary supplements. This “beauty from within” trend is spreading into the American and European markets. For example, Nestlé® and L'Oréal®, the world's largest companies in food and cosmetics, respectively, created Innéov®, a developer of nutritional supplements with cosmetic applications. Coca-Cola® commercializes a milk-based beverage to be drunk at night to promote beauty during sleep. New and scientifically validated ingredients are entering the market and consumer uptake is driven by the demand to turn back the negative physiological processes associated with aging.
2.14.2 Pharmaceutical
Acasti and NeuroBioPharm were formed to develop and commercialize the Corporation’s Products in the pharmaceutical market.
Cardiovascular Disease
Cardiovascular disease includes a wide range of conditions and treatment is focused on reducing cardiovascular risk factors to prevent an acute cardiovascular event and on preventing or delaying the onset of chronic cardiovascular disease. Important risk factors for cardiovascular disease are abnormal levels of lipids and/or lipoproteins such as triglycerides and cholesterol. Increased serum levels of low density lipoprotein (LDL - "bad cholesterol") and low levels of high density lipoprotein (HDL - "good cholesterol"), the latter being recognized as the most important risk factor for the development of cardiovascular disease, are known as dyslipidemia. Dyslipidemia promotes plaque formation and narrowing of the arteries atherosclerosis leading to myocardial infarction (heart attack), stroke and peripheral vascular and neurodegenerative disease. Over 750,000 Americans die every year due to atherosclerosis related cardiovascular complications.27 Statins, including medications such as Lipitor®, Zocor® and Crestor®28, are used to decrease LDL, but are little effective on raising HDL creating an unmet treatment gap. It is estimated that over 100 million American adults have total blood cholesterol values considered borderline-high (200 to 240 mg/dL) or high (above 240 mg/dL) potentially eligible for a cholesterol lowering agent.29 Even though statins are widely prescribed creating a worldwide $30 billion market, they have less effect than fibrates or niacin in reducing triglycerides and raising HDL-cholesterol ("good cholesterol").30 This unmet medical need creates a growing billion dollar market space for safe monotherapies as well as combination products therapeutics containing a statin and an HDL raising agent.
Cognitive Dysfunction and Neurodegenerative Disease
Neurodegenerative disease includes a large number of disorders such as Alzheimer’s disease, Parkinson disease and Multiple Sclerosis. Deteriorating nerve cells are responsible for the loss of brain function and today only few therapies are available for the wide range of neurodegenerative diseases creating an immense unmet medical need. In the United States, over 5 million patients are suffering from Alzheimer’s disease and 1.5 million patients from Parkinson disease.31 Worldwide, it is estimated that over 24 million people have dementia due to Alzheimer’s disease.32 The neurodegenerative market is estimated at 15 billion dollars and growing at a double digit rate.33
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26 Mintel: www.marketresearch.com
27 Atherosclerosis Research Unit. University of Southern California. http://www.usc.edu/schools/medicine/research/centers_programs/aru/elite.html
28 CNN Money. http://money.cnn.com/2005/09/19/news/fortune500/cancerdrugs/index.htm
29 Centers for disease control and prevention, CDC. http://www.cdc.gov/nccdphp/publications/AAG/dhdsp.htm
30 Nature Reviews Drug Discovery 5, 813-814 (October 2006) | doi:10.1038/nrd2156. Life after statin patent expiries. Jane Kidd
31 Institute for Neurodegenerative Disease, IND, University of California. http://ind.universityofcalifornia.edu/diseases/
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Attention-deficit hyperactivity disorder is a cognitive dysfunction caused mainly by the malfunction of the dopamine transporter system. The most commonly used medication is methylphenidate such as Ritalin®, Ritalin-SR®, Ritalin LA® or Concerta® and Metadate®. Annual sales of Novartis’ Ritalin® product family amounted to $US 440 million in 2008 and are growing at a rate of 17%.34
Chronic Inflammation and Arthritis
Many forms of arthritis such as osteoarthritis and rheumatoid arthritis are inflammatory disorders; and patients suffer from pain, stiffness, swelling and functional impairment. Osteoarthritis is the most common form of arthritis affecting over 20 million people in the United States. 35 It is caused by the breakdown and eventual loss of the cartilage between the bones of the joints.36Non-surgical treatment options for osteoarthritis include analgesic and anti-inflammatory pain medications, nutritional supplementation, physical therapy, exercise, and weight loss. Common types of medications used to reduce pain in osteoarthritis include acetaminophen (Tylenol®) and non-steroidal anti-inflammatory drugs NSAIDS (e.g. Motrin®, Advil®, Aleve®). It is estimated that in the U.S. medical expenditures (direct costs) for arthritis and other rheumatic conditions in 2003 were 80.8 billion dollars.37
3. RISK FACTORS
The business conducted by the Corporation involves numerous risks and uncertainties. The main risk factors and uncertainties facing the Corporation are disclosed below and in the “Risk and Uncertainties” section of the Corporation’s Annual Report for the fiscal year ended February 28, 2011, which is incorporated herein by reference, as supplemented from time to time in the “Risk Factors and Uncertainties” section of the Corporation’s quarterly reports to shareholders. These risks and uncertainties should be considered in conjunction with the other information included in this Annual Information Form. The Corporation’s annual and quarterly reports are filed on SEDAR at www.sedar.com.
3.1 Risks related to Neptune’s business
Prior Losses
Since commencement of its activities, the Corporation had recorded losses each year. It is expected that the Corporation will continue to generate loss until product sales and licensing rights income generate sufficient revenues to fund Neptune’s and its subsidiaries’ continuing operations, including research and product development. Quarterly fluctuations are also anticipated in respect of earnings, expenses and losses.
Reliance on Key Personnel
The Corporation relies on certain members of its management and scientific staff, and the loss of the services of one or more of these individuals could adversely affect the Corporation. The Corporation will be required to continue to implement and improve its management systems and to recruit and train qualified employees. Although the Corporation has in the past been successful in attracting and retaining skilled and experienced personnel, there can be no assurance that the Corporation will continue to do so in the future.
Patents and Proprietary Technology
The Corporation'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. The Corporation has filed patent applications in Canada, the United States, Europe and elsewhere in the world and is actively pursuing these matters. The patent position of pharmaceutical firms is generally uncertain and involves complex legal, factual and scientific issues, several of which remain unresolved. The Corporation does not know whether all of its pending patent applications will be granted and whether the Corporation will be able to develop other patentable proprietary technology and/or products. Furthermore, the Corporation does not have the certainty whether its existing or future patents provide a definitive and competitive advantage or afford protection against competitors with similar technology. Furthermore, the Corporation cannot give any assurance that such patents will not be challenged or circumvented by others using alternative technology or whether existing third-party patents will prevent the Corporation from marketing its products. In addition, competitors or potential competitors may independently develop, or have independently developed products as effective as those of the Corporation or invent or have invented other products based on the Corporation's patented products.
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32 Alzheimer’s Disease International. http://www.alz.co.uk/media/dementia.html
33 Arrowhead Publishers. Leaders in Business Intelligence and Market Research. http://www.arrowheadpublishers.com/news/archives/2007/02/new-website.php
34 Novartis Annual Report 2008.
35 http://www.medicinenet.com/osteoarthritis/article.htm
36 National Center for Chronic Disease Prevention and Health Promotion. USA.
37 Morbidity and Mortality Weekly Report. Centers for Disease Control and Prevention. MMWR 2007;56(01):4-7.
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If third-party licenses are required, there can be no formal assurance that the Corporation will be able to obtain such licenses, or if obtainable, that it would be available on reasonable terms. Furthermore, there can be no assurance that the Corporation could develop or obtain alternative technologies related to third-party patents that may inadvertently cover its products. Inability to obtain such licenses or alternative technologies could delay the market launch of certain Neptune products, or even prevent the Corporation from developing, manufacturing or selling certain products. In addition, the Corporation could incur significant costs in defending itself in patent infringement proceedings initiated against it or in bringing infringement proceedings against others.
The Corporation cannot determine with any certainty if it has priority of invention in relation to any new product or new process covered by a patent application or if it was the first to file a patent application for any such new invention. Furthermore, in the event of patent litigation there can be no assurance that the Corporation's patents, if issued, would be held valid or enforceable by a court of competent jurisdiction or that a court would rule that the competitor's products or technologies constitute patent infringement.
Moreover, a significant part of the Corporation's technological know-how constitutes trade secrets. The Corporation, therefore, requires that its employees, consultants, advisers and collaborators sign confidentiality agreements. However, there can be no assurance that such agreements provide adequate protection in the event of unauthorized use or disclosure of the Corporation's trade secrets, know-how or other proprietary information.
Additional Funding Requirements and Access to Capital
The Corporation may require substantial additional funds to increase production capacity and/or for further research and development, scheduled clinical testing, regulatory approvals and the commercialization of its products. Neptune may seek additional funding for these purposes through public or private equity or debt financing, collaborative arrangements with other pharmaceutical companies and/or from other sources. There can be no assurance that additional funding will be available on acceptable terms to permit successful commercialization of the Corporation’s products. Should the Corporation fail to obtain the necessary capital, it may be required to delay, reduce or eliminate one or more of its various research programs or seek financial support from one of its corporate partners or from third-parties who may require that the Corporation waive significant rights regarding protection of its proprietary technologies or offer it financial support on less favourable terms than those normally acceptable to the Corporation.
Hazardous Materials and Environmental Matters
The Corporation’s research and development processes involve the use of certain hazardous materials. The Corporation is subject to federal, provincial, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products. The Corporation believes that its safety procedures comply with such regulatory requirements, and that it has sufficient insurance coverage in place against this risk; however, the risk of accidental contamination or injury cannot be completely eliminated. In the event of an accident, the Corporation could be held liable for damages, which could exceed the resources of the Corporation. Although the Corporation believes that it complies in all material respects with the applicable environmental legislation and regulations, and currently has no immediate plans for major capital expenditures in respect of environmental protection installations, there can be no assurance that the Corporation will not be required to incur significant costs to comply with regulatory requirements in the future, or that the operations, business or assets of the Corporation will not be materially adversely affected by current or future legislative or regulatory requirements.
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Availability and Sources of Raw Materials
The Corporation depends on third parties for the sourcing of components for its various products. The Corporation believes that alternative sources of supply for its various raw materials exist. However, any change in the Corporation in its suppliers of components for its technology could have a significant impact on the Corporation 's capacity to complete certain of its current research and development projects and, accordingly, would affect its projected commercial and financial growth. While other potential alternative suppliers of raw material have been identified and are in the process of being approached, they must first pass intensive validation tests to ensure their compliance with product specifications. No assurance can be given regarding the successful outcomes of such tests or the ability of Neptune to secure alternate sources of supply at competitive pricing and upon fair and reasonable contractual terms and conditions.
Foreign Currency Fluctuations
The Corporation is exposed to the financial risk related to the fluctuation of foreign exchange rates and the degrees of volatility of those rates. Foreign currency risk is limited to the portion of the Corporation's business transactions denominated in currencies other than the Canadian dollar. From time to time, the Corporation uses derivative financial instruments to reduce its foreign exchange exposure. Fluctuations related to foreign exchange rates could cause unforeseen fluctuations in the Corporation's operating results.
Approximately 65% of the Corporation’s revenues are in US dollars, and 31% are in Euros. A small portion of the purchases, except for the purchase of raw materials, are made in foreign currencies. There is a financial risk involved related to the fluctuation in the value of the US dollar and the Euro in relation to the Canadian dollar.
The Corporation enters into currency forwards to purchase or sell amounts of foreign currency in the future at predetermined exchange rates. The purpose of these currency forwards is to fix the risk of fluctuations in future exchange rates. Significant fluctuations in the rate of exchange could adversely affect the Corporation's financial performance. There is a risk of loss arising from an eventual weakening of the United States dollar or Canadian dollar.
Value of Intangible Assets
The Corporation is required to review the carrying value of its intangible assets for impairment annually or when events change. Intangible assets include net book value of product rights, trademarks and process know-how covered by certain patented and non-patented information. Management reviews the carrying value based on projected future results. If events such as generic competition or inability to manufacture or obtain supply of product occur that may cause sales of the related products to decline, the Corporation adjusts the projected results accordingly. Any impairment in the carrying value results in a write-down of the intangible asset that is charged to income during the period in which the impairment is determined. The write-down of intangible assets may have a material adverse effect on the results of operations in the period in which the write-down occurs.
Litigation
Any unfavourable court judgment following the cases disclosed in this document or other cases could affect the Corporation’s cash flow.
3.2 Risks related to Neptune’s Industry
Pharmaceutical Sector
The pharmaceutical sector 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.
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Government Regulations
The development, production and commercialization of pharmaceutical products is generally subject to comprehensive regulations under Health Canada's Therapeutic Products Program and other regulatory bodies in Canada and various regional, national and local regulatory bodies, including the Food and Drug Administration in the United States. No assurance can be given that the Corporation or its clients and partners will not encounter difficulties or will not incur excessive costs in obtaining the necessary approvals or permits, which could delay or prevent the commercialization and production of its new products.
Distribution of the Corporation's products outside Canada and the United States is also subject to comprehensive government regulation. Regulations, specifically requirements in respect of product releases on the market and the time involved in respect of regulatory assessment and the sanctions imposed in the event of infringement vary from country to country. No assurance can be given that the Corporation will obtain the requisite approvals in the relevant countries or that it will not incur significant expense in obtaining regulatory approvals or maintaining them in effect. Failure to obtain the necessary regulatory approvals, the suspension or revocation of current approvals or any failure to comply with regulatory requirements may have a material adverse effect on the Corporation's operations, its financial situation and its operating results.
Rapid Technological Change
The Corporation operates in a sector that is subject to rapid and substantial change. There can be no assurance that products developed by others will not render the Corporation’s products or technologies non-competitive or that the Corporation will be able to keep pace with technological developments. Competitors may have developed or may be in the process of developing technologies that could be the basis for competitive products. Some of these products may prove more effective and less costly than products developed by the Corporation.
Competition
Competition in the pharmaceutical sector is extremely intense. The Corporation competes with companies that produce similar or identical pharmaceutical products or that proposes different approaches to the separation or purification of components of Krill. Certain of those companies have greater resources than the Corporation. Accordingly, no assurance can be given that products developed by these other companies or that their equivalent technology in the area of separation or purification of components of krill will not affect the Corporation's competitiveness.
Uncertainty Regarding the Outcome of Clinical Studies
In most countries, the use and sale of therapeutic products is regulated by governmental or regulatory agencies to ensure their safety and efficacy. To obtain approval of such agencies for the use, distribution, marketing and sale of such products and to demonstrate their safety and efficacy, pre-clinical and clinical tests must be carried out. There is no assurance that any such study relating to any product will provide satisfactory results. If results are not satisfactory, the Corporation could abandon its commitment to the relevant product or research program.
Potential Product Liability
The development of human therapeutic products involves an inherent risk of product liability claims and associated adverse publicity. Product liability insurance is costly, often limited in scope, and could be unavailable or only available on terms unacceptable to the Corporation. There can be no assurance that the Corporation will be able to obtain or maintain insurance on reasonable terms or to otherwise protect itself against potential product liability claims that could impede or prevent commercialization of the Corporation's future products. A product liability claim against the Corporation or the withdrawal of a product from the market could have a materially adverse effect on the Corporation’s business or its financial condition. The Company has secured a $5,000,000 product liability insurance policy, renewable on an annual basis, to cover civil liability relating to its products. The Company also maintains a quality-assurance process that is QMP certified by the Canadian Food Inspection Agency (CFIA). Additionally, the Company has obtainedGood Manufacturing Practices accreditation from Health Canada.
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Uncertain Market
The Corporation believes that products based on its core technology will have numerous applications and that there is a growing market for the products that it has developed. However, there can be no assurance that these assumptions will prove justified, particularly considering competition from existing or new products and considering the uncertain commercial viability of the Corporation's products.
Volatility of Share Price
Market prices for securities in general, and that of pharmaceutical companies in particular, tend to fluctuate. Factors such as the announcement to the public or in various scientific or industry forums of technological innovations, new commercial products, patents, exclusive rights obtained by the Corporation or others, results of pre-clinical and clinical studies by the Corporation or others, a change of regulations, publications, financial results, public concerns over the risks of pharmaceutical products such as blood and plasma filtration products for the removal of pathogens or over the safety of blood collection systems, future sales of securities by the Corporation or its shareholders and many other factors could have considerable effects on the price of the Corporation’s securities.
4. DIVIDENDS
In April 2011, the Board of Directors of the Company and NeuroBioPharm approved plans for NeuroBioPharm to prepare to file a non-offering prospectus to become a reporting issuer under Canadian securities regulation and as a result allow the Company to declare a dividend payable with a number of shares of NeuroBioPharm that would represent a minority interest. Neither the filing of the prospectus nor the declaration of dividend has occurred prior to the approval of these consolidated financial statements.
The Corporation does not anticipate paying any cash dividend on its common shares in the foreseeable future. We presently intend to retain future earnings to finance the expansion and growth of our business. Any future determination to pay dividends will be at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements and other factors the Board of Directors deems relevant. In addition, the terms of any future debt or credit facility may preclude the Corporation from paying dividends.
5. DESCRIPTION OF CAPITAL STRUCTURE
The Corporation’s authorized capital consists of an unlimited number of no par value common shares and an unlimited number of no par value preferred shares (the “Preferred Shares”), issuable in one or more series. By way of by-law, in accordance with its articles of incorporation, the Corporation created the series A Preferred Shares. Currently, only 48,275,900 common shares have been issued and are outstanding as at February 28, 2011. No preferred shares have been issued.
The following is a brief description of the rights, privileges, conditions and restrictions attaching to the common shares and preferred shares of the Corporation:
5.1. COMMON SHARES
Voting Rights
Each Common Share entitles its holder to receive notice of, and to attend and vote at, all annual or special meetings of the shareholders of the Corporation. Each Common Share entitles its holder to one vote at any meeting of the shareholders, other than meetings at which only the holders of a particular class or series of shares are entitled to vote due to statutory provisions or the specific attributes of this class or series.
Dividends
Subject to the prior rights of the holders of Preferred Shares ranking before the Common Shares as to dividends, the holders of Common Shares are entitled to receive dividends as declared by the Board of Directors of the Corporation from the Corporation’s funds that are duly available for the payment of dividends.
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Winding-up and Dissolution
In the event of the Corporation’s voluntary or involuntary winding-up or dissolution, or any other distribution of the Corporation’s assets among its shareholders for the purposes of winding up its affairs, the holders of Common Shares shall be entitled to receive, after payment by the Corporation to the holders of Preferred Shares ranking prior to Common Shares regarding the distribution of the Corporation’s assets in the case of winding-up or dissolution, share for share, the remainder of the property of the Corporation, with neither preference nor distinction.
5.2 PREFERRED SHARES
The Preferred Shares carry no voting rights. Preferred Shares may be issued at any time, in one or more series. The Corporation’s Board of Directors has the power to set the number of Preferred Shares and the consideration per share, as well as to determine the provisions attaching to each series of Preferred Shares (including dividends, redemption rights and conversion rights, where applicable). The shares in each series of Preferred Shares rank prior to the Common Shares of the Corporation with regard to payment of dividends, reimbursement of capital and division of assets in the event of the Corporation’s winding-up or dissolution. The holders of Preferred Shares shall not be entitled to receive notice of, or to attend or vote at the meetings of the shareholders, except: (i) in the event of a separate meeting or vote by class or by series as specified by law, (ii) where entitled to vote by class or series on amendments to the attributes attaching to the class or series, or (iii) where applicable, in the event of the Corporation’s omission to pay the number of periodical dividends, whether consecutive or not, as applicable to any series.
The Board of Directors of the Corporation has passed a by-law creating the Series A Preferred Shares. Series A Preferred Shares may be issued only as part of an acquisition by the Corporation of other companies or material assets. Series A Preferred Shares are non-voting, and entitle holders thereof to a fixed, preferential and non-cumulative annual dividend of 5% of the amount paid for the said shares.
6. MARKET FOR SECURITIES
On March 31st, 2011, Acasti completed its listing application on the TSX-Venture Exchange, as a result Acasti had its share listed on the TSX-Venture Exchange on March 31, 2011 under the symbol APO. In connection with the listing of Acasti’s shares, The authorised share capital of Acasti is composed of an unlimited number of Class “A”, “B”, “C”, “D” and “E” shares (individually, “Share”; collectively “Shares”). Each holder of Class “A” and Class “B” Shares has the right to vote at any meeting of the shareholders of Acasti.
As at May 17, 2011, there were 64,434,444 issued and outstanding Class A Shares of Acasti, each share entitling its holder to one (1) vote per Class “A” Share. As at the same date, there were no issued and outstanding Class “B” Shares or Class “C Shares of Acasti. All Class “B” Shares and Class “C” Shares of Acasti were converted into Class A Shares on a 1 for 1 basis on March 21, 2011.
Neptune’s common shares are currently listed and posted for trading on the TSX Venture under symbol “NTB” and have been listed and posted on the NASDAQ under the symbol “NEPT” since August 6, 2007.
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Trading Prices and Volumes
Period | TSX (CDN$) | NASDAQ (US$) | ||||||||||||||||
| High | Low | Volume | High | Low | Volume | ||||||||||||
| (daily average) | (daily average) | ||||||||||||||||
February 2011 | 2.65 | 2.05 | 126 500 | 2.68 | 2.02 | 32 800 | ||||||||||||
January 2011 | 2.60 | 2.01 | 330 000 | 2.80 | 2.01 | 31 400 | ||||||||||||
December 2010 | 2.45 | 2.08 | 31 800 | 3.10 | 2.11 | 30 400 | ||||||||||||
November 2010 | 2.41 | 1.92 | 71 000 | 2.27 | 1.80 | 37 300 | ||||||||||||
October 2010 | 2.20 | 1.92 | 40 600 | 2.16 | 1.81 | 27 500 | ||||||||||||
September 2010 | 2.20 | 1.30 | 57 000 | 2.12 | 1.23 | 30 500 | ||||||||||||
August 2010 | 1.44 | 1.16 | 19 800 | 1.42 | 1.09 | 5 500 | ||||||||||||
July 2010 | 1,47 | 1.02 | 31 700 | 1.43 | 0.91 | 10 600 | ||||||||||||
June 2010 | 1.85 | 1.20 | 38 800 | 1.73 | 1.11 | 16 800 | ||||||||||||
May 2010 | 2.15 | 1.52 | 43 300 | 2.30 | 1.41 | 18 900 | ||||||||||||
April 2010 | 2.38 | 2.00 | 58 000 | 2.39 | 1.98 | 17 100 | ||||||||||||
March 2010 | 2.18 | 2.00 | 43 300 | 2.11 | 1.93 | 12 200 |
7. DIRECTORS AND OFFICERS
Name, Occupation and Security Holding of Directors
The following table sets forth each proposed director and executive officer’s name, province and country of residence, his/her principal occupation, including the committees of the Board, the year in which he or she first became a director. All members of the Board of Directors herein below will hold their positions until the next annual meeting of shareholders of the Corporation.
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Name and Province andCountry of Residence | Principal Occupation | Position Within theCorporation | Year of Nominationas a Director of theCorporation |
Henri Harland (4)(5) | President and Chief Executive Officer of the Corporation | Director, President and Chief Executive Officer of the Corporation | 1998 |
Ronald Denis(1)(2)(3)(4) | Chief of Surgery at Hôpital du Sacré-Coeur, Montréal | Director and Chairman of the Board of the Corporation | 2000 |
Daniel Perry(1)(2)(3) | General Manager of Société du Vivier des Landes | Director of the Corporation | 2000 |
Jean-Claude Debard(1)(2)(3) | President of Hyundai Automobile | Director of the Corporation | 2009 |
Michel Chartrand(1)(2)(3)(4) | Vice-President, Retail Partners Solutions of McKesson Canada | Director of the Corporation | 2006 |
Tina Sampalis, M.D., Ph.D.(5) | Chief Scientific Officer of the Corporation and President of Acasti | Chief Scientific Officer of the Corporation | - |
André Godin (5)(6) | Vice-President, Administration and Finance of the Corporation | Vice-President, Administration and Finance of the Corporation | - |
Martin Godbout(8) | Director, Methylgene, AmorChem, AngioChem, Asmacure, BioQuébec and the Ataxia Charlevoix Foundation | Director of Acasti Pharma | 2011 |
Marc Lebel(8) | President, Production Glaciel | Director of Acasti Pharma | 2011 |
Pierre Lemieux(5) | Chief Operating Officer of Acasti | Chief Operating Officer of Acasti Pharma | 2010 |
Xavier Harland(5) (7) | Chief Financial Officer of Acasti Pharma | Chief Financial Officer of Acasti Pharma | 2011 |
(1) | Member of the Audit Committee of the Corporation |
(2) | Member of the Compensation Committee of the Corporation |
(3) | Member of the Corporate Governance Committee of the Corporation |
(4) | Director of Acasti Pharma and NeuroBioPharm |
(5) | Officer of Acasti Pharma and NeuroBioPharm |
(6) | Chief Financial Officer of Acasti Pharma until March 20, 2011 |
(7) | Chief Financial Officer of Acasti Pharma since March 21, 2011 |
(8) | Director of Acasti Pharma |
As of February 28, 2011, the directors and executive officers of the Corporation, as a group, beneficially owned or exercised control or direction over approximately 3,893,577(8%) of the outstanding common shares of Neptune.
In Neptune’s and Acasti’s Management Proxy Circular dated May 27, 2011, all of the above listed directors were nominated by management for election and/or re-election.
Following are brief biographies of Neptune’s directors and executive officers:
Mr. Henri Harland
Mr. Henri Harland has been a director and the President and Chief Executive Officer of the Corporation since its incorporation on October 9, 1998. He is the Founder of the Corporation and has been involved in the krill research project since 1991. For more than ten years he has also held the position of President and Chief Executive Officer of Groupe Conseil Harland Inc., a financial engineering group. Previously, he acted has an independent financial consultant guiding companies from different industrial sectors in both North America and Europe in their capital restructure, financing and business development.
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Dr. Ronald Denis
Dr. Ronald Denis is currently Chief of Surgery and Co-Director of the Trauma Program at Hôpital du Sacré-Coeur in Montréal. Also, since 1987, Dr. Denis has been medical co-director of the Canadian Formula 1 Grand Prix. Dr. Denis sits on several scientific boards and management committees.
Mr. Daniel Perry
Since March 1993, Mr. Perry is General Manager of a Corporation operating a recreation/tourism complex in France. Also, Mr. Perry is a specialist and consultant in the marketing of new products on the European continent.
Mr. Michel Chartrand
Since July 2009, Michel Chartrand is the Vice-President of Retail Partner Solutions at McKesson Canada. From 2004 to 2009 Mr. Chartrand was the President and Chief Executive Officer of Groupe PharmEssor inc. which includes, due to a merger, Gestion Santé Services Obonsoins inc. and Groupe Essaim inc., two important Quebec pharmacy franchisors in Quebec. From 1998 to 2004, Mr. Chartrand was the Executive Vice President of Gestion Santé Services Obonsoins inc.
Mr. Jean-Claude Debard
Mr. Debard has been President of Hyundai Automobile France and FEA Services as well as an officer of Frey Accessories and Parts since 1999 and most recently Executive President of Group Emil Frey France since 2008. Since 1999, Mr. Debard has seated on Surveillance Committees of Holding (SERGESA), SsangYong France and Hyundai Finances.
Dr. Tina Sampalis M.D., Ph.D.
Dr. Tina 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 and for her work on Scintimammography. U.S. and Canadian patent applications have been filed for the development and implementation of innovative micro-invasive and stereotactic robotic surgical techniques for breast cancer. Between May 2000 and June 2007, she has held the position of Vice-President of Research and Business Development and since June 2007 the position of Chief Scientific Officer of the Corporation.
Mr. André Godin
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 Corporation and as a Corporate Controller for a pharmaceutical Corporation in OTC products. Mr. Godin has been Vice-President, Administration and Finance for Neptune since 2003.
Pierre Lemieux Ph.D.
Mr Lemieux holds a post-doctoral degree in Oncology from the Health Science Center, University of Texas, USA, and a PhD in biochemistry from Laval University, Canada, jointly with University of Nottingham, England. Mr. Lemieux joined Neptune’s subsidiary Acasti as the Chief Operating Officer on April 12, 2010. Prior to joining Acasti, Mr. Lemieux was the President, CEO and the Chairman of the Board as well as being the founder of Technologie Biolactis Inc., a late-stage biotechnology Corporation specialized in the valorization of proteins to better serve the nutraceutical, the cosmetical and pharmaceutical industries.
Xavier Harland
Xavier Harland recently joined Acasti Pharma as Chief Financial Officer. He graduated from Laval University in Actuarial Science in 2003. He is also a CFA charter holder since 2007 and FRM holder since 2006. Xavier Harland has been working as Director of Finance for Neptune since 2004. Mr. Harland works full time for the Neptune group, which includes Acasti and NeuroBioPharm.
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Marc Lebel
Marc LeBel is the holder of a Pharmacy Doctor (Pharm.D.) and the founder of Anapharm Inc. At present, he is president of Production Glaciel. He acted as the Executive Vice-president of Pharmanet, company owning Anapharm. Since its inception in 1994 with 8 employees, Anapharm grew to 960 employees in 2007, with business sites in Montreal, Trois-Rivières, Toronto and headquarters in Quebec City. Mr. LeBel was or is currently, a Board member of Université Laval, Festival du cinema des 3 Amériques, SiliCycle, Sinergia, Virocell, TGN Biotech and BCM Biotech. He is the author of 120 publications and 130 communications. He received the following honors: Excelsia 2006 Bio-Quebec, Grand diplômé Université Laval, and leadership from Canadian Society for Pharmaceutical Sciences.
Martin Godbout
Mr. Martin Godbout holds a B.Sc. in Biochemistry (1979) and a doctorate in physiology and molecular endocrinology from Laval University. From 1985 to 1990, he received a postdoctoral fellowship from the Medical Research Council of Canada (MRC) and went to San Diego, California, where he continued research work in molecular neurobiology at the Scripps Research Institute. From May 1994 to May 1997, he was chairman and CEO of Innovatech Quebec, a technology investment fund of 60 million dollars. In May 1997, he became Vice-President of the Company BioCapital, a Canadian venture specialized in private financing of start-up companies demonstrating strong potential in the areas of health and biotechnology. Since 2004, Mr. Godbout is a director of MethylGene, a public company listed on the TSX Exchange. Mr. Godbout is currently a director on several boards of high technology companies, foundations and scientific organizations such as AmorChem, AngioChem, Asmacure, BioQuébec and the Ataxia Charlevoix Foundation.
8. CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES OR SANCTIONS
To the knowledge of Neptune, none of the directors or executive officers of the Corporation:
(a) | is, or has been, within the last ten years, a director, chief executive officer or chief financial officer of any Corporation that: | ||
(i) | was subject to a cease trade order, an order similar to a cease trade order, or an order that denied the relevant Corporation access to any exemption under applicable securities legislation, that was in effect for a period of more than 30 consecutive days (an “Order”), which Order was issued while the director or executive officer was acting in the capacity as director, chief executive officer or chief financial officer; or | ||
(ii) | was subject to an Order that was issued after the director or executive officer ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer; or |
To the knowledge of Neptune, no director or executive officer of the Corporation, or shareholder holding a sufficient number of securities of the Corporation to affect materially the control of the Corporation:
(a) | is, or has been, within the last ten years, a director or executive officer of any Corporation that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver manager or trustee appointed to hold its assets; or | |
(b) | has, within the last ten years, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold his or its assets of the proposed director. |
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To the knowledge of Neptune, no director, executive officer or shareholder holding a sufficient number of securities of the Corporation to affect materially the control of the Corporation has been subject to:
(a) | any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or | |
(b) | any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable security holder in deciding whether to vote for a proposed director. |
9. LEGAL PROCEEDINGS AND REGULATORY ACTIONS
The Corporation is not aware of any legal proceedings or regulatory actions in which it is involved and no such proceedings or regulatory actions are known by the Corporation to be contemplated, except in regards of what is mentioned in section 2.9.3 hereof entitled “Economic Dependence/Litigation”.
10. INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
Except for what is stated below, none of the insiders of the Corporation, the Directors, or any of their respective associates or affiliates, has or has had any material interest, direct or indirect, in any material transaction whether proposed or concluded, since the beginning of the Corporation’s most recently completed financial year and for the three (3) last completed financial years.
The Corporation entered into an agreement with a corporation controlled by Mr. Henri Harland, as of February 23, 2001, calling for royalties to be paid in semi-annual installments equal to 1% of the Corporation’s annual revenues, for an unlimited period. Each year disbursement of royalties cannot exceed net annual earnings before interest, taxes and amortization. (See section 2.9.1. hereof “Exclusive License/Option”.)
11. TRANSFER AGENTS AND REGISTRARS
Computershare Trust Company of Canada, at its offices in Montreal, is the transfer agent and registrar for our Common Shares.
12. MATERIAL CONTRACTS
The Corporation has not entered into any material contract, other than those entered into in the normal course of business, within the most recently completed financial year, or before the most recently completed financial year, which is still in effect except for Technology License Agreement with Acasti Pharma Inc. on August 7, 2008 and Technology License Agreement with NeuroBioPharm Inc. on October 15, 2008. (See section 2.3.3. )
13. INTEREST OF EXPERTS
KPMG LLP, Chartered Accountants (“KPMG”), has audited our consolidated financial statements as at February 28, 2011. KPMG are independent with respect to Neptune Technologies & Bioressources Inc. and Acasti Pharma Inc. within the meaning of the Rules of Professional Conduct/Code of Ethics of the Quebec Order of Chartered Accountants. (See section 2.3.3. )
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14. REPORT ON AUDIT COMMITTEE
Audit Committee’s Charter
The Charter of the Audit Committee is annexed to this circular as Schedule A. The Charter was adopted by the Board of Directors on June 6, 2007.
Composition of the Audit Committee
The Audit Committee is composed of four (4) members of the Board of Directors. Dr. Ronald Denis, Mr. Daniel Perry, Mr. Michel Chartrand and Mr. Jean-Claude Debard are the proposed directors to seat on the Audit Committee. From the experience set forth below, the Corporation believes that these persons have sufficient knowledge and background to actively participate on the Audit Committee.
Under Multilateral Instrument 52-110Audit Committees (“MI 52-110”), a director of an Audit Committee is “independent” if he or she has no direct or indirect material relationship with the issuer, that is, a relationship which could, in the view of the Board of Directors, reasonably interfere with the exercise of the member’s independent judgment.
The following describes the relevant education and experience of each member of the Audit Committee of the Corporation that provides him or her with (a) an understanding of the accounting principles used by the Corporation to prepare its financial statements, (b) the ability to assess the general application of such accounting principles, (c) experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to those that can reasonably be expected to be raised by the Corporation’s financial statements or experience actively supervising one or more persons engaged in such activities and (d) an understanding of internal controls and procedures for financial reporting.
Ronald Denis – Dr. Ronald Denis has been Chief of Surgery and Director of the Trauma Program at Hôpital du Sacré-Coeur since 1997. In his duties, Dr. Denis has to manage Hôpital du Sacré-Coeur Trauma Program budget and staff, also has had to regularly review and analyze financial statements. Dr. Denis’ experience required and contributed to the development of his ability to analyze financial statements and understand GAAP.
Daniel Perry – Since March 1993, Mr. Daniel Perry is General Manager of a Corporation operating a recreation/tourism complex in France. Also, Mr. Perry is a specialist and consultant in the marketing of new products on the European continent Mr. Perry’s experience required and contributed to the development of his ability to analyze financial statements and understand GAAP.
Michel Chartrand – Since July 2009, Michel Chartrand is the Vice-President of Retail Partner Solutions at McKesson Canada. From 2004 to 2009, Mr. Chartrand was the President and Chief Executive Officer of Groupe PharmEssor Inc. From 1998 to 2004, Mr. Chartrand was the Executive Vice President of Gestion Santé Services Obonsoins Inc. Mr. Michel Chartrand is also a member of the Board of Directors of Eureka Lightning. Mr. Chartrand also holds a bachelor degree in Business Administration. His experience required and contributed to the development of his ability to analyze financial statements and understand GAAP.
Jean-Claude Debard– Mr. Debard has been President of Hyundai Automobile France and FEA Services as well as an officer of Frey Accessories and Parts since 1999 and most recently Executive President of Group Emil Frey France since 2008. Since 1999, Mr. Debard has seated on Surveillance Committees of Holding (SERGESA), SsangYong France and Hyundai Finances. Mr. Debard also is a graduate degree in Management and Strategic Management. Mr. Debard’s experience required and contributed to the development of his ability to analyze financial statements and understand GAAP.
EXTERNALAUDITORFEES
(a)Audit Fees
“Audit fees” consist of fees for professional services for the audit of the Corporation’s annual financial statements, help for establishing interim financial statements and related matters. For the fiscal year ended February 28, 2011, KPMG LLP, chartered accountants of Montréal, the Corporation’s external auditors, billed $290,225 to the Corporation, respectively $188 225 for Neptune and $102,000 for Acasti Pharma, for audit fees. For the fiscal year ended February 28, 2010, these fees were $204,446 to the Corporation, respectively $172,446 for Neptune and $31,000 for Acasti Pharma
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(b)Audit-Related Fees
“Audit-related fees” consist of fees for professional services that are reasonably related to the performance of the audit or review of the Company’s financial statements and which are not reported under “Audit Fees” above. The Corporation’s external auditor, billed no fees as to this matter the fiscal years ended February 28, 2011.
(c) Tax Fees
“Tax fees” consist of fees for professional services for tax compliance, tax advice and tax planning. KPMG LLP, chartered accountants, of Montréal, the Corporation’s external auditors, billed a total of $63,814 to the Corporation, respectively $48,151 for Neptune and $15,663 for Acasti Pharma, for tax fees for fiscal year ended February 28, 2011 and a total of $18,800 to the Corporation, respectively $12,800 for Neptune and $6,000 for Acasti Pharma the fiscal period ended February 28, 2010. Tax fees include, but are not limited to, preparation of tax returns.
(d) All Other Fees
The “other fees” include all other fees billed for professional services other than those mentioned hereinabove. KPMG LLP, chartered accountants, of Montréal, the Corporation’s external auditors, billed no fees as to this matter the fiscal years ended February 28, 2011 and February 28, 2010.
15. ADDITIONAL INFORMATION
Additional information relating to the Corporation may also be found on the SEDAR website at www.sedar.com, and on EDGAR at www.sec.gov.
Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of our securities, options to purchase securities and interests of informed persons in material transactions, if applicable, is contained in Neptune’s Management Proxy Circular dated May 27, 2011 and available on SEDAR. Additional financial information is also provided in our financial statements and MD&A for the most recently completed financial year.
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SCHEDULE “A”
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors assists the Board in fulfilling its oversight responsibilities relating to the quality and integrity of the accounting, auditing and reporting practices of the Corporation and such other duties as directed by the Board of Directors or imposed by legislative authorities or stock exchanges.
Structure and Organization
1. | The membership of the Committee will consist of at least three independent members of the Board of Directors, the majority of whom will not be employees, controlling shareholders or executives of the Corporation or of any associates or affiliates of the Corporation. Committee members and the Committee Chairman shall be designated by and serve at the pleasure of the Board of Directors. All members must be financially literate and at least one member must have accounting or related financial management expertise, in each case in the judgment of the Board of Directors. |
2. | The Committee shall meet at least four times per year or more frequently as circumstances require. The Committee may ask members of management or others to attend meetings and provide pertinent information as necessary. The required quorum for the Committee will be the majority of the members forming the Committee. |
3. | The Committee is expected to maintain free and open communication with management and the external auditors. |
4. | The Committee has the authority to investigate any matter brought to its attention and to retain outside counsel for this purpose if, in its judgment, that is appropriate. |
General Responsibilities
The Committee shall:
1. | Meet periodically with representatives of the external auditors, the internal audit manager and management in separate sessions to discuss any matters that the Committee or these groups believe should be discussed privately with the Committee. Provide sufficient opportunity for the external auditors to meet with the internal auditors as appropriate without members of management being present. |
2. | Prepare the minutes of all Committee meetings and report of such meetings to the Board of Directors. |
3. | Review and reassess the adequacy of this Charter annually. |
Responsibilities for Engaging External Auditors
The Committee shall:
1. | Recommend for approval by the Board of Directors and ratification by the shareholders the selection and retention of an independent firm of chartered accountants as external auditors, approve compensation of the external auditors, and review and approve in advance the discharge of the external auditors. |
2. | Review the independence of the external auditors. In considering the independence of the external auditors, the Committee will review the nature of the services provided by the external auditors and the fees charged, and such other matters as the Committee deems appropriate. |
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3. | Ensure that the external auditors are in good standing with the Canadian Public Accountability Board (CPAB) and that the CPAB has not imposed any sanction on them. The Audit Committee is also responsible for ensuring that the external auditors comply with the rotation requirements with respect to partners and staff involved in the audit of the Corporation. | |
4. | Arrange for the external auditors to be available to the Board of Directors at least annually to help provide a basis for the Board’s approval of the external auditors’ appointment. | |
5. | Approve all allowable non-audit related services to be provided to the Corporation or one of its subsidiaries by the Corporation’s external auditors if applicable. | |
6. | Non-audit services of minimal satisfy the pre-approval requirement on the following conditions: | |
a) | that he aggregate amount of all non-audit services that were not pre-approved is reasonably expected to constitute no more than five per cent of the total amount of fees paid by the Corporation and its subsidiaries to the Corporation’s external auditors during the fiscal year in which the services are provided; | |
b) | that the Corporation or its subsidiaries, as the case may be, did not recognize the services as non-audit services at the time of the engagement; and | |
c) | that the services are promptly brought to the attention of the Audit Committee and approved, prior the completion of the audit, by the Audit Committee or by one or more of its members to whom authority to grant such approvals had been delegated by the Audit Committee. |
Responsibilities for Oversight of the Quality and Integrity of Accounting, Auditing and Reporting Practices of the Corporation.
The Committee shall:
1. | Directly review the work of the external auditors engaged for the purpose of preparing or issuing an auditor’s report or performing other audit, review or attestation services for the Corporation. The Committee shall be directly responsible of the resolution of disagreements between management and the external auditors regarding financial reporting. |
2. | Review the Corporation’s financial statements, management’s discussion and analysis (MD&A) and annual and interim earnings press releases together with management and the external auditors before the Corporation publicly discloses this information. This review should cover the quality of the financial reporting and such other matters as the Committee deems appropriate. |
3. | Review with the external auditors and management the audit plan of the external auditors for the current year and the following year. |
4. | Review with the external auditors and financial and accounting personnel, the adequacy and effectiveness of the accounting, financial, and computerized information systems controls of the Corporation. |
5. | Establish procedures for the receipt, retention and treatment of complaints received regarding accounting, internal accounting controls or auditing matters. Such complaints are to be treated confidentially and anonymously. |
6. | Review and approve all related party transactions undertaken by the Corporation. |
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Periodic Responsibilities
The Committee shall:
1. | Review periodically with management any legal and regulatory matters that may have a material impact on the Corporation’s financial statements, compliance policies and compliance programs. |
2. | Review with management and approve transactions involving management and/or members of the Board of Directors, which would require disclosure under TSX Venture Exchange rules. |
3. | Supervise the corporate compliance program and periodically review whether any improvements should be made thereto and make appropriate recommendations to management. |
4. | Perform such other functions assigned by law, the Corporation’s Articles or bylaws, or by the Board of Directors. |
5. | Review services and related fees for work done by the external auditors as well as an updated projection of the total costs for the fiscal year. |
6. | Review and approve the engagement policy of the Corporation with respect to partners, employees, former partners and employees of the current and previous external auditors of the Corporation. |
7. | Implement a process for the identification of the principal business risks and monitor the implementation of appropriate methods of risk management. This process will require consultation with management in order to determine how risks are handled and to solicit the opinion of the internal audit department with respect to the effectiveness of the risk limitation strategies. |
Authority of the Audit Committee
The Committee shall have the authority to:
1. | Engage independent counsel and other advisors as it determines necessary to carry out its duties. |
2. | Pay the compensation for any advisors employed by the Committee. The Committee shall notify the Board of Directors on the extent of the financing required to pay for the compensation of the independent expert advisors retained to advise the Committee. |
3. | Communicate directly with the internal and external auditors. |
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