The additional losses were attributed to startup costs for the company’s rebuilt plant in Sherbrooke, Quebec. That plant was destroyed by an explosion and fire in Nov. 2012 and the company has been struggling to maintain market share in the intervening period.
Lower grade krill oil
One of the ways in which Neptune, based in Laval, Quebec, survived was a supply agreement signed with the newest entrant to the krill oil sector, Norwegian company Rimfrost. Andre Godin, interim president and CEO of Neptune, said during an earnings call with analysts that of the company’s $3.4 million in nutraceutical revenues in the quarter came from material supplied through this agreement.
But that revenue figure was a steep drop from the $5.6 million in revenue recorded a year previously. This reflects the fact that the krill oil supplied through the Rimfrost agreement was a lower grade product than the NKO-branded krill oil that Neptune was supplying before it lost its own production capacity. Increasing numbers of customers were deferring purchases in order to receive NKO from the restarted Sherbrooke plant. Putting a positive spin on this development, Godin said, “customers are willing to wait for NKO.”
Royalty payments from its competitors have helped to counteract this slide, Godin said. Neptune ended its IP battle with Aker BioMarine of Norway and Enzymotec of Israel earlier this year (Rimfrost was already on board) and received $1.5 million in royalty payments in the quarter. Part of that agreement rests on a review of Neptune’s composition of matter patent in the US. Godin said that review is scheduled to be completed in the first calendar quarter of 2015.
As for the Sherbrooke plant, the company expects to regain full production capacity within the next quarter. There is a backlog of orders for the plant’s production, said Mike Timperio, vice president of global sales, but he said it was “premature” to say how much of the plant’s near-term production was pre-sold. Much of that depends on developments in emerging markets, such as Latin America and elsewhere. In the past few quarters the company forged ahead with NKO product registrations in these markets even when it had no product to sell, and a number of these markets will now be open once the Sherbrooke plant regains full capacity, he said.
“We are expecting a ramp up of three months,” Godin said. “We are expecting to be close to historical margins at the end of that period.”
Neptune has also announced plans to launch three condition-specific products this year: NKO Beat, which incorporates coQ10 for heart health, NKO Flex, which adds vitamin D for a bone and joint health positioning, and NKO Focus, which includes lutein, thiamine and vitamin A for brain and vision health benefits.
“We have laid the foundation for growth and our goal is clear: to focus on strong execution in order to regain our position as a premium krill oil supplier,” Godin said.