Upcoming Dividend Leak Spurs More Buying For Neptune

Shares of Neptune Neptune Technologies & Bioressources NEPT broke-out and closed +4.55% higher after trading 317% more shares than the daily average volume on Wednesday. This, after we alerted premium subscribers that a Preliminary Prospectus filing indicates that Neptune is finally preparing to announce a pending stock and warrant dividend for their 99% owned subsidiary NeuroBioPharm Inc. (“NeuroBioPharm”).

According to the filing, the Dividend will consist of: one (1) Unit for each lot of approximately 24.90 Neptune Common Shares held. Each Unit will consist of one (1) Class A Share and two (2) Warrants. The company has not yet officially announced details to the market, but the reason investors have begun to get so excited about this long rumored development is because investors are hoping profitable history is about to repeat.

A few years ago, Neptune issued a very similar stock and warrant dividend to all shareholders of their other subsidiary, Acasti Pharma (TSX-V.APO), which trades on the TSX Venture exchange. It appears from details in the public filing that the NeuroBioPharm structure will be similar to the one seen by Neptune shareholders when they were awarded the dividend of Acasti warrants-- and which to this point, have provided several hundred percent returns from the original $0.47 exercise price for investors who were lucky enough to get them. Historically speaking, Acasti warrant holders ended up exercising their warrants prior to the listing on the TSX Venture Exchange as the strike date for the warrants was reached before APO was publicly listed.

We have written and even interviewed company management about this pending distribution of a stock dividend in NeuroBioPharm before (see the segment at the 4:11 mark of my video interview with Wael Massrieh, VP of Scientific Affairs at Neptune). This is a highly anticipated event that has been known to be coming since the management circular for the June 22, 2011 Annual General Meeting was distributed — a significant part of that circular dealt with issues related to this dividend. Again, a similar dividend of Acasti units was executed in the fall of 2008 and given the success of the Acasti dividend (and the large financial benefit enjoyed by those who received the Acasti dividend) we would expect the announcement of a record date for the NeuroBio dividend to be a very big catalyst for investors to buy NEPT shares. In doing so, they would ensure that they can benefit from the NeuroBio dividend, too. This catalyst is currently overdue and while we have been able to communicate with Neptune management, which is in Boston this week for a series of meetings with institutional investors, the only thing they have told us and others is that the Dividend Record Date will be announced "very soon".

On the leak of this pending news catalyst alone, shares of the stock have broken out and the stock has seen tremendous volume during the last two sessions. We would anticipate that shares and buying pressure in the stock will be much higher after the official announcement is made.

Again, while Neptune's Acasti Pharma is advancing a portfolio of bioactive ingredients of (proprietary novel) omega-3 phospholipids through the pharmaceutical development pathway, in October 2008, Neptune granted a license to NeuroBioPharm relating to cognitive and neurological pharmaceutical applications for high-concentration krill oil products.

NeuroBioPharm is now researching and developing (novel proprietary active) pharmaceutical ingredients for those cognitive and neurological conditions—ranging from brain development applications to various neurodegenerative diseases including attention-deficit hyperactivity disorder, autism, Alzheimer’s disease at its different stages and cognitive decline.

Biotech investors are gravitating towards companies involved in the research and development of novel and potent biological therapeutics agents for the treatment of high cholesterol and other prevalent, cardiovascular chronic conditions. We notice the nearly identical, bullish trading patterns in both the Neptune and Amarin Corporation AMRN stock charts. Granted, NEPT shares are still just a fraction of the AMRN share price, but shares of both have been on the move since the first quarter and are now trading mere fractions under their 52-WK Highs.

Investors in Amarin Corporation AMRN are watching their shares trade at only -4.86 % from their 52-Wk High after an analyst from Jefferies & Co. reiterated a buy rating on the stock and set a price target of between $24 and $26/share. This after Jefferies was very positive on the possibility of a patent award for AMR101 (the prescription-only fish oil drug), which may protect the firm's drug formulation through 2030.

Recently, after strengthening their own IP, ROTH Capital Partners reiterated their Buy rating and $9 target for Neptune shares, stating that based on the revenue growth potential for the multiple krill oil initiatives, NEPT warranted a higher valuation. The firm also believes that the Neptune/Acasti story has been significantly de-risked based on the success of the overall omega-3 market, with both Lovaza and AMR101 as well as multiple published studies setting the stage for Neptune’s anticipated success.

In similar fashion, last week Catalyst Equity research revised Neptune’s share price target to $8.75 stating that their increase was driven largely by the recent de-risking of Acasti’s potential success in its clinical trials for its complete lipid management drug candidate, CaPre™. The firm's Acasti share valuation increased to $4.50 from $2.75 and since strong global demand for krill oil is expected to generate increased sales for Neptune’s nutraceutical business, that resulted in a higher valuation for that business as well.

The average current price target for NEPT shares stands at $7.00 with at least two strong buy recommendations. Technical trend spotters also have Short, Mid and Long Term indications rating the stock as a strong buy as of the date of this report.

Disclosure: Long NEPT