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NKO awareness builds strong results for Neptune

By Jess Halliday and Greg Roumeliotis , 30-Jan-2006

Increasing sales of NKO and a tight hold on the purse strings are helping Neptune Technologies on its way to profitability. The Canadian biotech reduced its loses in the second by 25 percent to $380,000, while sales rose 22 percent to $1.45 million.

Against this the cost of sales and operating expenses rose by just 12 percent to $1.18 million.

"Neptune is a very tightly run ship," director of investor relations Serge Comeau told NutraIngredients.com.

He said that the most impressive result for the latest quarter ended November 30 2005 is in EBITDA (earnings before income tax, depreciation, amortization), which rose 106 percent to $245,000, compared to $119,000 for the same period of 2004.

Neptune krill oil (NKO) was first launched to the US dietary supplements market in 2003, but company has not yet emerged from the commercialisation stage into profitability - often a long process in the biotech field. Nonetheless, the signals are positve and it seems more and more people are getting know about NKO.

"It takes a long time for companies to switch over," he said.

NKO is derived from the planktonic family of crustacean and, as well as omega-3, it is also rich in phospholipids and antioxidants. Although Neptune believes it has no direct competitors, the general chatter about the benefits of fish-derived omega-3 has helped raise awareness of its core product.

"We are getting more market recognition for our products and in a year from now you'll see more growth and our sales increase," he said.

Sales in FY2005 reached $5.1 million, in the first half of 2006 they have already surpassed the $3.2 million mark. What is more, the company is currently running its plant at around 40 per cent capacity but plans to reach full capacity within the next 12-18 months.

The latest results represent the sixth consecutive quarter of positive EBITDA, and come the back of a two major financial announcements earlier this month - a $87,000 interest-free loan from the Canadian government and capital restructuring that has increased its credit line $200,000 to $1 million.

Having this extra capital to hand give the company leverage to build up its inventory, where previously it had worked on a just-in-time model.

The loan, which must be paid back in seven years, is particularly indicative of Neptune's potential since it was granted under a programme designed to help Quebec-based SMEs working in innovative areas to develop export markets.

The company announced at the end of last year that it is planning to enter the European marketplace, where it expects its primary use will be in functional food products.

"Europe is more open-minded than the United States about functional foods," VP R&D and business development Tina Sampalis told NutraIngredients.com in November.

To this end, the company has entered into an alliance with Germany's Degussa over two concurrent projects, one involving improvements to NKO to make it suitable for functional foods, and the other to extract, purify and isolate the phospholipids from the mass at the heart of the oil.

Sampalis predicts that eventually there will be a geographical usage split, with more functional foods containing the ingredient in Europe and more dietary supplements in the US.

Neptune is also involved in discussions over the use of NKO in infant formulas.

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