Neptune Technologies & Bioresources, Inc. (NEPT) as covered by Catalyst Research

1. C atalyst
Equity Research
NEPTUNE TECHNOLOGIES
& BIORESSOURCES INC.
Company Update
June 18, 2012
(TSX : NTB $3.96 NASDAQ : NEPT $3.86)
Recommendation: BUY
Target Price: C$8.75 Share Price Target Increased to $8.75
Prior Target Price: C$7.00 Leveraged to Clinical Trials For CaPre™ - The Next Blockbuster!
Risk: High
Nutraceutical Outlook is Positive Driven by Sales & Solid Margins
Market Data
Current Price $3.96 Neptune Technologies & Bioressources Inc. (Neptune) develops and commercializes products for
52-Wk Range $2.25-4.02 the nutraceutical, medical food, functional food and over-the-counter (OTC) markets. Neptune’s
Mkt. Cap. (mm) $197 products are based on Omega-3 fatty acid phospholipids extracted from Antarctic krill, a tiny crusta-
Dividend $0 cean. Pre-clinical and initial clinical testing have shown NKO™ (Neptune Krill Oil) to be beneficial
Yield 0% in LDL & triglyceride reduction as well as HDL elevation, all of which are essential in treating
chronic cardiovascular conditions. In addition, Neptune focuses on inflammatory and neurological
Financial Data
disease management. Neptune has two subsidiaries, Acasti Pharma Inc. (Acasti, APO – TSX.V) and
Fiscal Y/E February 28 NeuroBioPharm Inc. (NeuroBioPharm). Acasti (57% owned) is developing a product portfolio
S/O Basic (mm) 49.7 focused on treatments for chronic cardiovascular conditions within the OTC, medical food and pre-
Shares O/S f.d. (mm) 52.8 scription drug markets. Acasti’s drug candidate, CaPre™, leverages off NKO™ and is conducting
Total Debt (mm) $5.7 a Phase II clinical trial in Canada. NeuroBioPharm (100% owned) is pursuing pharmaceutical
2012 Sales (mm) $19.1 and medical food neurological applications aimed to improve the cognitive and emotional health of
2013 Sales Est. (mm) $28.0 children and adults.
2014 Sales Est. (mm) $36.0
Estimates (f.d.)
Conclusion – Strong Buy Maintained
Neptune’s management has made significant progress in increasing shareholder value. In addition
Year 2012A 2013E 2014E to having a strong cash position, Neptune has: (i) initiated a Phase II clinical trial and an open label trial,
Adj. EBITDA/Shr.(1) $0.06 $0.12 $0.16 through its subsidiary Acasti, for the drug candidate CaPre™, (ii) secured distribution agreements in the
EPS $(0.04) $(0.06) $(0.14) U.S. and Canada which have placed Neptune’s nutraceutical products in major retailers such as Walmart,
Walgreen, CVS and Shoppers Drug Mart, (iii) aggressively pursued its Intellectual Property rights, (iv)
Valuations initiated construction to double the Sherbrooke plant capacity, (v) secured orders to almost fully uti-
lize the additional capacity, (vi) initiated management changes clearly addressing it’s future as a global
Year 2012A 2013E 2014E competitor, including adding valuable human resources such as Dr. Harlan Waksal, founder of ImClone
Adj. P/EBITDA Mult. 65.0x 32.9x 24.6x Systems, as well as NFL football legion, John Elway, and (vii) generated positive nutraceutical cash flow
EV/Revenue Mult. 10.2x 7.0x 5.4x
at higher than expected margins with even better results expected over the next two years.
(1) Adjusted EBITDA - see Financial Forecast
We have revised Neptune’s 12-month share price target to $8.75 from $7.00. This increase is driven
largely by our recent de-risking of Acasti’s potential success in its clinical trials for its drug candidate,
Neptune Technologies & Bioressources Inc. CaPre™. By marginally lowering our discount rate to 30% from 35% in our discounted cash flow model,
our Acasti share valuation increased to $4.50 from $2.75. Furthermore, strong global demand for krill oil
is expected to generate increased sales for Neptune’s nutraceutical business which has resulted in a higher
valuation for that business as well.
Neptune has many moving parts. The important message for investors to understand is that each of
Neptune’s operating components has the potential to add exceptional leverage to its valuation. Look-
ing out 6 to 12 months, investors will no doubt continue to focus on Acasti’s clinical trials. Assuming
successful CaPre™ clinical trial results that we expect to be released later this year, our discount rate
assumption, as illustrated in Figure 2, could drop even further to potentially 20% from 30% currently.
Chart Courtesy Big Charts This lower discount rate would impute an additional $3.25 per Neptune share and would put our expected
valuation target for Neptune closer to $12.00 per share.
Robin Cornwell
416-910-7985
Figure 1: Neptune Share Valuation
rcornwell@catalystresearch.ca Neptune Major Components Enterprise Value % Ownership Assumed Per Neptune Share
Notes: Nutraceutical Operations $200 million 100% $4.00
All figures in Canadian dollars, unless otherwise specified. Acasti Pharma Inc. $325 million 57% $3.75
NeuroBioPharma Inc. $50 million 100% $1.00
Please see the final pages of this document for important
disclosure information. $8.75
Catalyst Equity Research Inc. 99A Walmer Road, Toronto, ON Canada M5R 2X6
Tel: (416) 910-7985 rcornwell@catalystresearch.ca www.catalystresearch.ca

2. Page 2 Neptune Technologies & Bioressources Inc.
VALUATION
Neptune has evolved into many moving components. After reassessing the potential of each component, we have revised our 12-month share price target
for Neptune to $8.75 per share, up from $7.00 per share. Our valuation is broken into three principal areas as follows and discussed in more detail below.
1. Nutraceutical – Implied Value of $4.00 Per Neptune Share
There are few comparable companies for valuing nutraceutical operations. Martek Biosciences Corp. was acquired by Royal DSM NV in 2010 for
US$1.1 billion which approximated 2.5 times LTM sales and 11.0 times LTM EBITDA. In earlier stages of growth, Martek’s valuation approached
4.0x and 25.0x revenue and EBITDA respectively. Aker BioMarine (AKBM), which is Neptune’s closest peer, based out of Norway, is not profit-
able.
In order to value the nutraceutical business, we have performed a discounted cash flow (DCF) analysis. We have assumed revenues from the sales
of NKO™ will increase to approximately $100 million by fiscal year end 2017 (a CGAR of 38%) and beyond 2017, we have assumed a CGAR of
15%. We have also factored in EBITDA margins ranging from 20% to 25%. Assuming a discount rate of 12% for the commercial risk associated
with the business, we arrive at a Net Present Value (NPV) of $4.00 per share.
Based on our fiscal 2014 revenue forecast of $36.0 million and our adjusted EBITDA forecast of $8.0 million, our Neptune NPV implies a valuation
of 5.5 times and 25.0 times revenue and adjusted EBITDA respectively.
2. Acasti Pharma Inc. – Imputed Value of $3.75 Per Neptune Share
Acasti’s one-year share price target has been increased to $4.50 from $2.75 (refer to the Catalyst Research updated report on Acasti Pharma
Inc. dated June 18, 2012). This target for Acasti reflects a minimum value for its drug candidate, CaPre™ of $4.40 per Acasti share. In addition,
we place a valuation of $0.10 per Acasti share on Onemia™, an FDA approved medical food. In total, this valuation for Acasti amounts to over
$330 million and when factored into Neptune’s share ownership imputes a value of $3.75 per Neptune share.
We justify this new valuation on our higher degree of confidence that indications from several areas of testing will result in increasingly positive
results in reducing triglyceride levels as well as improving total cholesterol (TC). Acasti is currently well into its Phase II, double blind, placebo
controlled clinical trial for its principal drug candidate CaPre™. Although we do not expect results from this trial until early 2013, investors may not
have to wait quite that long as there are two other indications underway that could give important guidance as to the potential outcome of the Phase II
clinical trial; namely, a parallel open label study on CaPre™ and the ongoing demonstrated efficacy of its FDA approved medical food Onemia™.
• CaPre™ Open Label Trial: In addition to the Phase II clinical trial, Acasti initiated a smaller Open Label trial on CaPre™. Results from this
trial are expected before the end of 2012.
• Onemia™: An FDA approved medical food (administered under the supervision of a physician), is being marketed for sale in the U.S. Initial
results from physicians in the U.S. have demonstrated success in reducing triglyceride levels as well as improving TC. Additional results over
the next several months could further substantiate these indications.
To recap, CaPre™, in a preclinical animal study, has already outperformed two serious players in the same arena; namely, Lovaza™ (fish oil
derived FDA approved drug with over US$1 billion in sales) and Amarin’s ARM101 Phase III drug candidate (also fish oil based). Lovaza™ low-
ers triglycerides but negatively affects LDL. Amarin goes one better than Lovaza™ by lowering triglycerides with little impact on LDL levels.
CaPre™ has been shown to not only lower triglycerides substantially more than Lovaza™ but have a positive impact on cholesterol management
by lowering LDL & increasing HDL.
We have reassessed our discounted cash flow (DCF) model for Acasti and its prescription drug candidate CaPre™. Based on our higher degree
of confidence that indications from multiple areas of testing will report positive results, we have lowered the discount rate in our DCF model to 30%
from 35%. We believe this valuation is still very conservative and not out of line with valuations achieved for the likes of Amarin at the same stage.
Furthermore, this valuation does not take into account the prospects of milestone payments from a prospective partner after completion of the Phase
II clinical trials. Amarin’s market cap recently hit US$1.6 billion while Acasti’s is only slightly above $150 million.
Our discounted cash flow model indicates a present value of $4.40 per Acasti share for its principal product CaPre™ and $0.10 per share for its
functional food product Onemia™. We have, therefore, increased our one-year share price target for Acasti to $4.50 from $2.75.
Figure 2: Acasti Valuation Target
Projected Acasti Share Price
Assumed Discount Rate 15% 20% 25% 30% 35%
PV Attributed to CaPre™ $ 9.25 $ 8.00 $ 6.65 $ 4.40 $ 3.00
PV Attributed to Onemia™ $ 0.25 $ 0.20 $ 0.15 $ 0.10 $ 0.05
Acasti Implied Share Value $ 9.50 $ 8.20 $ 6.80 $ 4.50 $ 3.05
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3. Neptune Technologies & Bioressources Inc. Page 3
3. NeuroBioPharm – Minimum Value of $1.00 Per Neptune Share
NeuroBioPharm’s net present value has been maintained in the range of $1.00 to $2.00 per Neptune share. NeuroBioPharm is developing products
targeting neurological applications and is somewhat of a hybrid vehicle like Acasti whereby it is focused on developing omega-3, OTC, medical
food and pharmaceutical products.
• NeuroBioPharm is developing a prescription drug candidate with neurological applications including Alzheimer’s Disease and ADHD.
• A recently completed pre-clinical study showed a significant effect strongly resembling the activity of methylphenidate or Retalin®, a drug
recognized as the gold standard for the treatment of Attention Deficit Hyperactivity Disorder (ADHD).
• Management has indicated that it is presently considering re-submitting another non-offering prospectus to security authorities in Canada. This
may lead to issuing shares of NeuroBioPharm directly to Neptune’s shareholders in the near future.
REVIEW OF RECENT EVENTS
Neptune recently reported financial results for the fiscal year ended February 29, 2012. In addition, management recently hosted an investor forum review-
ing the financial results as well as addressing other key issues.
U.S. & Canada Distribution and Marketing Agreements
• Neptune’s U.S. distributors have launched both NKO™ and EKO™ products in major U.S. stores including Walmart, Walgreens, and CVS. These
distributors collectively represent close to 30% of the U.S. mass market nutraceutical business accessing over 100 million Americans with nation-
wide coverage in over 54,000 retailers. It is estimated that the demand will be 50,000 kg per year.
• Distribution agreement with Jamieson in Canada under the label “Omega Super Krill Oil” to reach 7,000 stores.
• Recent exhibition in Europe yields potential new orders of 150,000 kg/yr.
• Multi-year partnership and marketing agreement concluded with the former NFL Super Bowl Champion and Hall of Fame quarterback,
John Elway.
• Neptune received a sustainability certification of marine products from an international organization known as “Friends of the Sea”. This certifica-
tion or “eco-label” can be extended to Neptune’s distributors.
Plant Expansion
• Management indicated that the Sherbrooke, Quebec Phase I plant expansion is scheduled for completion in the first quarter of calendar 2013. This
expansion is expected to double the current 150,000 kg per year capacity to 300,000 kg per year and will be completed without any interruption of
the current production facility.
• Phase II of the expansion is expected to commence in calendar 2014, enabling production to increase to 500,000 kg/yr supporting annual sales of
approximately $80 million.
• The $14.0 million financing for Phase I will consist of $6.5 million of debt, $3.0 million of an interest-free loan, $2.5 million from a grant and $2.0
million financed by Neptune’s cash flow.
Neptune’s Intellectual Property (IP) Strategy
• Neptune obtained U.S. Patent 8,030,348 (‘348 Patent) from the U.S. Patent & Trademark Office (USPTO) covering omega-3 phospholipids com-
prising of polyunsaturated fatty acids, one of the main bioactive ingredients in all recognized Krill Oils. The patent, which covers marine phospho-
lipids to which the omega-3 fatty acids EPA and DHA are bound, was granted for the U.S. market and is valid until 2025. At the request of Aker
Biomarine, Neptune’s major competitor, the USPTO has agreed to a re-examination of the patent. This occurs with 95% of all patents issued and
was anticipated. The process is expected to take 2 to 3 years. Meanwhile the patent awarded to Neptune remains valid and enforceable.
• Management further announced that the USPTO has allowed one of its continuation patent applications which contains claims to further support the
invention disclosed in the ‘348 Patent. This is specific to krill extracts comprising a phospholipid suitable for human consumption. These claims
cover a variety of krill oil products presently sold in the U.S. market. The fact that the USPTO has allowed this continuation of the ‘348 Patent after
the Aker re-examination request is positive for Neptune’s position. We believe these indications will make distributors of competitor krill oils very
nervous about the longevity of their brands in the U.S.
• Neptune recently filed for re-examination of an Australian patent (AU2008231570) granted to its competitor Aker BioMarine of Norway. Neptune
believes that the claims of Aker’s patent are not valid given previous opinions of the USPTO and European Patent Office. Neptune positions itself
that its activities do not infringe Aker’s IP and is confident that the Australian Patent Office will agree that Aker’s patent is invalid.
Chinese Joint Venture
• Neptune is now reviewing the IP evaluation recently completed by Ernst & Young. This evaluation will need to be agreed to by both Neptune and
its potential 50%/50% joint venture (JV) partner Shanghai KaiChuang Deep Sea Fisheries (SKFC).
• The JV is to be named Neptune-SKFC Biotechnology. The intent of the JV is to supply Asia with Neptune’s products.
• Neptune will receive upfront payments and royalty payments. Expected sales are estimated at 300,000 kg/yr. Neptune expects that their share of
the investment will be largely covered by the up-front payments.
• We have not factored any of this JV into our projections for Neptune. The JV is expected to be fully operational by the end of calendar 2014.
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4. Page 4 Neptune Technologies & Bioressources Inc.
Functional Foods vs Nutraceutical Market
• Yoplait: Clinical trials for functional/medical food applications have been completed and the results were positive. Yoplait will not be collaborating
with Neptune, however, Neptune is conducting another clinical study on Joint health with a new partner following Yoplait’s recommendation.
• Nestle: Clinical trials for functional/medical food applications achieved positive indications. However, Nestle officially informed Neptune that it
would not enter into formal negotiations to proceed with product development based on internal reasons. Nestle indicated that it would be interested
in future developments.
• Krill Oil Demand: Management indicated that it will focus on its success in the escalating demand for its EKO™ and NKO™ krill oils. We believe
that the consumer products market is so intensely competitive that companies such as Nestle are having difficulty offering enhanced products at
the necessary price points. On the other hand, Krill oil, in capsule form as a nutraceutical, is just at the forefront of capturing a larger market share
particularly at the expense of fish oils.
Management Changes and Restructuring Initiatives
• Dr. Harland Waksal was appointed to the Board of Directors. Dr. Waksel was founder of ImClone Systems which was acquired by Eli Lily for
US$6.5 billion.
• Dr. Tina Samplais has been designated as Chief Global Strategic Officer of Neptune, Acasti and NeuroBioPharm.
• Wael Massrieh has been appointed Vice President Science Affairs responsible for Neptune’s R&D program.
• Eric Simard has been appointed Vice President Science & Development responsible for all innovation of manufacturing processes as well as clinical
research.
• Michel Timperio has been appointed Vice President Global Sales responsible for sales & business development.
Figure 3: Neptune Sales Distribution
Year-Ended February 29, 2012
Other, 1.6%
Australia, 22.5% Canada, 11.5%
Europe, 23.6% United States,
40.8%
Review of Operating Results for Q4/12 & Fiscal Year-End Feb. 29, 2012
Fiscal 2012 Review
• For the year ended February 29, 2012, revenue was reported at $19.1 million, up 15% Y/Y and in line with our forecast of $19.3 million. Sales in
Australia tripled while sales in North America increased 15% Y/Y. New distribution agreements in North America are expected to have a material
impact on sales going forward.
• Adjusted EBITDA for the nutraceutical business was $2.7 million about 20% below our estimate. Management attributed the lower adjusted
EBITDA largely to increased legal fees for Intellectual Property defense costs. Neptune is aggressively defending its U.S. and Australian patents.
• Gross margin was 53% for the year which was slightly higher than expected.
• On a consolidated basis, including Acasti and NeuroBioPharm, Neptune reported an adjusted EBITDA deficit of $2.6 million versus a positive $0.3
million last year. The negative EBITDA was fully expected as Acasti and NeuroBioPharm reported a negative EBITDA of $4.3 million and $0.9
million respectively. The negative EBITDA being attributed to R&D and clinical trial expenses largely in Acasti.
• Neptune is in a strong financial position with $16.5 million in cash and short-term investment as at February 29, 2012. We expect this level to be
only marginally lower at the end of Q1/13.
• Adjusted EBITDA margin for fiscal 2012 decreased to 14.1% from 16.9% last year. If certain expense items were normalized, such as legal fees,
we estimate that the EBITDA margin would have been closer to 20.0% for the latest year.
• For fiscal 2012, Australian sales more than tripled to $4.3 million over fiscal 2011 and represented over 22% of total sales. United States remained
the largest market segment and represented 41% of total sales.
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5. Neptune Technologies & Bioressources Inc. Page 5
• Long-term debt declined to $2.8 million from $3.8 million as at the end of the last fiscal year-end. Total debt at year-end was $5.7 million.
Q4/12 Review
• Q4/12 reported record revenue at $5.4 million, up 32% Y/Y and in line with expectations.
• Q4/12 adjusted EBITDA for the nutraceutical business was reported at $185,000. This was lower than expected, however, as previously noted
was in part the result of higher legal expenses of about $500,000.
• Gross margin was 54% in the quarter which was significantly better than expected.
Figure 4: Neptune Income Statement & Forecast
Years Ended February 28 2011 2012 2013E 2014E
Total Revenues (1) $16,686,000 $19,137,000 $28,000,000 $ 36,000,000
Cost of Sales $ 7,365,000 $ 9,064,000 $13,700,000 $ 17,500,000
Gross Margin $ 9,321,000 $10,073,000 $14,300,000 $ 18,500,000
Gross % Margin (2) 55.9% 52.6% 51.1% 51.4%
Operating Expenses
Selling Expense $ 1,410,000 $ 2,090,000 $ 2,400,000 $ 2,800,000
General & Admin. Expense $ 6,682,000 $ 9,804,000 $12,600,000 $ 14,500,000
Research & Development $ 3,026,000 $ 5,841,000 $ 6,500,000 $ 16,500,000
Tax Credits $ (267,000) $ (1,932,000) $ - $ -
Total Operating Expenses $10,851,000 $15,803,000 $21,500,000 $ 33,800,000
Operating Activites (Loss) $ (1,530,000) $ (5,730,000) $ (7,200,000) $(15,300,000)
Net Finance Income $ (163,000) $ 137,000
Net Income (Loss) Before Tax $ (1,693,000) $ (5,593,000) $ (7,200,000) $(15,300,000)
Income Tax Deferred (3) $ (1,000,000) $ - $ -
Net Profit (Loss) $ (1,693,000) $ (4,593,000) $ (7,200,000) $(15,300,000)
Attributable to Owners $ (410,000) $ (1,928,000) $ (3,200,000) $ (7,000,000)
Non-controlling Interest $ (1,282,000) $ (2,665,000) $ (4,000,000) $ (8,300,000)
Owners Net Profit (Loss) Per Share $ (0.01) $ (0.04) $ (0.06) $ (0.14)
EBITDA
Depreciation & Amortization $ 812,000 $ 764,000 $ 800,000 $ 1,000,000
Finance Costs $ 616,000 $ 380,000
Stock Based Compensation $ 737,000 $ 3,449,000 $ 4,000,000 $ 4,000,000
FX Gains & Fair Value Changes $ (157,000) $ (393,000) $ - $ -
Income Taxes $ - $ (1,000,000) $ - $ -
Other Including Prior Tax Credits $ (57,000) $ (1,200,000) $ - $ -
Total EBITDA Adjustments $ 1,951,000 $ 2,000,000 $ 4,800,000 $ 5,000,000
Consolidated EBITDA $ 258,000 $ (2,593,000) $ (2,400,000) $(10,300,000)
Subsidiary R&D and Other Expenses
Acasti & NeuroBioPharm (4) $ (2,560,000) $ (5,283,000) $ (8,200,000) $(18,300,000)
Adjusted EBITDA (Nutraceutical) $ 2,818,000 $ 2,690,000 $ 5,800,000 $ 8,000,000
Per Share $ 0.07 $ 0.06 $ 0.12 $ 0.16
Adjusted EBITDA % Margin 16.9% 14.1% 20.7% 22.2%
Basic Average Shares O/S 40,463,000 48,205,000 50,000,000 50,000,000
Est. Ful. Dil. Shares O/S 52,800,000 54,000,000
(1) Includes research contract income and advanced payments of $926,268 and $826,768 in
2011 & 2012 respectively
(2) Cost of goods sold as a % of revenues
(3) Assumes no taxes payable near-term
(4) Estimated R&D & other expenses
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6. Page 6 Neptune Technologies & Bioressources Inc.
FINANCIAL FORECAST
Financial Outlook – Fiscal 2013 & 2014 (years ended February 28)
Management recently provided guidance that Q1/13 (ended May 31, 2012) revenues would be in the range of $6.0 to $6.2 million representing a Y/Y in-
crease of over 40%. Furthermore, management also indicated that it had secured future orders of about 150,000 additional kg annually. The latter represents
virtually the entire additional capacity expected to be in place at the Sherbrooke plant next year. The orders are principally from Asia, Oceania as well as
Europe. Of course, we also expect significantly higher sales from the increased distribution network now in place in both the U.S. and Canada. Highlights
of our forecast are outlined below:
• For fiscal 2013, we forecast revenue to increase to the $28.0 million for a Y/Y increase of 46%. This level of sales is about 5% to 10% higher than
our previous estimate. The forecast includes only a modest level of sales from medical foods.
• For fiscal 2014, we forecast revenue to increase to $36 million for a Y/Y increase of over 25%. This level of sales reflects further penetration of the
global krill oil nutraceutical market which is becoming the fastest growing ingredient of the entire Omega-3 market.
• Neptune’s gross nutraceutical margin is expected to average 51% for both years.
• For fiscal 2013, our adjusted EBITDA forecast is $5.8 million or $0.12 per share. Although this is more than double the level reported in fiscal 2012,
we have assumed lower legal expenses associated with the IP defense.
• For fiscal 2014, our adjusted EBITDA forecast is $8.0 million or $0.16 per share. This represents a 35% increase over fiscal 2013.
• Our estimated adjusted EBITDA margin is forecast to increase to 20.7% and 22.2% in fiscal 2013 and 2014 respectively.
• Consolidated EBITDA for fiscal 2013, including all expenses of Acasti and NeurobioPharm, is estimated at a negative $2.4 million versus a negative
$2.6 million reported in fiscal 2012. The improved EBITDA estimate is entirely due to the higher expected nutraceutical EBITDA. Although our
forecast does not assume any milestone payments, we nonetheless expect Acasti to enter Phase III clinical trials with a major pharmaceutical partner
in fiscal 2014 (calendar 2013) which could generate significant potential payments.
• We have assumed that the plant expansion will be complete by the beginning of fiscal 2014 and will ramp up to full capacity of 300,000 kg annually.
At this new level of capacity, we expect Neptune could generate almost $50 million of sales. This expansion is expected to be done without any
interruption of the current production levels.
Adjusted Earnings Defined
Neptune restructured its pharmaceutical operations in 2008 into two distinct pharmaceutical subsidiaries, Acasti for cardiovascular applications and
NeuroBioPharm for neurological applications. Both subsidiaries are exploiting opportunities in the OTC, Medical Foods and Pharmaceutical Drug market
within their respective applications and will incur expenses, largely R&D related, in order to develop commercial applications. In order to better represent
the operating performance of Neptune’s nutraceutical business, we have used adjusted EBITDA which excludes the expenses associated with Acasti and
NeuroBioPharm.
Figure 5: Neptune Balance Sheet
Assets Feb 29-12 Feb 28-11 Liabilities Feb 29-12 Feb 28-11
Current Assets: Current Liabilities:
Cash $ 3,765,000 $ - Bank Overdraft $ - $ 40,000
Short-Invest. & Interest $ 12,711,000 $ 3,513,000 Loans & Borrowings $ 2,909,000 $ 1,615,000
Accounts Receivable $ 8,621,000 $ 5,627,000 Trade & Other Payables $ 4,971,000 $ 3,258,000
Tax Credits Receivable $ 1,216,000 $ 645,000 Advance Payments $ 813,000 $ 824,000
Inventories $ 6,833,000 $ 4,545,000 Private Placement Warrants $ 574,000 $ -
Prepaid Expenses $ 430,000 $ 968,000
Total Current Assets $ 33,576,000 $ 15,298,000 Total Current Liabilities $ 9,267,000 $ 5,737,000
Property & Equipment $ 7,552,000 $ 6,086,000 Loans & Borrowings $ 2,845,000 $ 3,800,000
Gov't Grant Receivable $ 50,000 $ 150,000 Shareholders Equity
Intangible Assets $ 1,358,000 $ 1,269,000 Capital Stock $ 45,842,000 $ 31,148,000
Invest. Tax Credits Rec. $ 1,200,000 $ - Warrants $ 743,000 $ 105,000
Deferred Tax Asset $ 1,000,000 $ - Contributed Surplus $ 13,157,000 $ 9,471,000
Deficit $ (31,973,000) $ (28,586,000)
Total Shareholders Equity $ 27,769,000 $ 12,138,000
Non-controlling Interest $ 3,179,000 $ 921,000
Subsidiary Options $ 1,676,000 $ 207,000
Total Equity- Non-controlling $ 4,855,000 $ 1,128,000
Total Equity $ 32,624,000 $ 13,266,000
Total Assets $ 44,736,000 $ 22,803,000 Total Liab. & Shr. Equity $ 44,736,000 $ 22,803,000
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7. Neptune Technologies & Bioressources Inc. Page 7
RISK FACTORS
As an emerging company with a relatively short history, Neptune (Company) is faced with a number of risks which could adversely affect its operations, our
forecasts and its stock price. We have outlined some of these below:
• Neptune has a small management group. The loss of any one of these individuals could have a negative impact on the Company and its develop-
ment. Many of the key employees have been with the Company since it was founded.
• Neptune is dependent on a major product. Any negative developments related to NKO™ could seriously affect the Company.
• Neptune is dependent on, in some cases, lengthy and expensive testing procedures to obtain regulatory approvals for the use of its product, particu-
larly in the pharmaceutical area. Delays in receiving approvals could negatively impact the Company’s results.
• Neptune is faced with competition by larger and financially stronger companies largely in the pharmaceutical area.
• Competitive products may render NKO™ obsolete. Neptune considers the strengthening and defense of its IP protection critical to its develop-
ment.
• Neptune may not have sufficient funds available to complete intended clinical studies and trials.
• Clinical studies and trials may take longer than anticipated to complete or may fail to establish the intended results.
• The Company may require further financing to fund its operations including its R&D programs.
Definition of Risk Rankings
Low: Low financial and operaional risk, high predictability of financial results with stronger than average balance sheet and strong free cash flows. Company may
pay substantial dividends or have an active share repurchase program.
Medium: Moderate financial and operational risk, moderate predictability of financial results, positive free cash flows and may or may not pay a dividend.
High: High financial and/or operational risk, low predictability of financial results. Limited financial history, negative free cash flows, adequate working capital and
no dividends.
Definition of Research Ratings
The Catalyst research recommendation structure consists of the following categories:
Buy: The stock’s total return, including dividends paid, is expected to exceed a minimum of 15% on a risk-adjusted basis, over the next 12 months.
Hold: The stock’s total return, including dividends paid, is expected to be between 0% and 15%, on a risk-adjusted basis, over the next 12 months.
Sell: The stock’s total return, including dividends paid, is expected to be negative over the next 12 months.
Speculative: The stock’s total return is expected to exceed 30% over the next 12 months; however, there is material event risk associated with the investment that
could result in significant loss.
Note: Analysts have discretion within 500 basis points of the upper and lower limit of each rating to maintain the recommendation.
Analyst Certification
All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of the subject securities or issuers. No
part of the compensation of the responsible analyst(s) named herein is, or will be, directly or indirectly, related to the specific recommendations or views expressed
by the responsible analyst(s) in this report.
The information contained in this report has been compiled by Catalyst Equity Research Inc. (“Catalyst”) from sources believed to be reliable, but no representation
or warranty, express or implied, is made by Catalyst, its affiliates or any other person as to its accuracy, completeness or correctness. All opinions and estimates con-
tained in this report represent Catalyst’s judgment as of the date of this report and are subject to change without notice and are provided in good faith but without legal
responsibility. This report is not an offer to sell or a solicitation to buy any securities. Catalyst and its affiliates may have a relationship or may receive compensation
for services with some or all of the issuers mentioned. Catalyst or its affiliates or officers, directors, representatives, associates may have a position in the securities
mentioned herein, and may make purchases or sales of these securities from time to time in the open market or otherwise. The securities discussed may not be eligible
for sale in all jurisdictions. To the full extent permitted by law neither Catalyst nor any of its affiliates, nor any other person, accepts any liability whatsoever for any
direct or consequential loss arising from any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied
by any means without the prior consent of Catalyst. This report is not for distribution in the United States of America.
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