Do It Yourself Stock Investor

Saturday Night RORC: Neptune Technologies & Bioressources

April 16, 2016

Contrary to some publications, the health communities interest in Omega-3 has not subsided. Although it is more popularly produced from sardines and other fish bologna, alternative sources such as krill are increasing.

The fatty acids EPA and DHA contained in Omega-3 are a focus of the Bill and Melinda Gates Foundation. They have given multiple grants pertaining to these ingredients and the improvement of infant neurodevelopment.

Neptune Technologies & Bioressources (NASDAQ: NEPT) is a leading producer of a patented krill oil.

Neptune Technologies & Bioressources FinViz chart

At last review of Neptune Technologies & Bioressources in April 2015, the patent disputes were in focus. Since then the company has won all court cases. Losing parties have drug their feet in paying the settlement royalties unto NEPT.

They have a unique case in tabulating the Return On Research Capital (RORC) metric. This is for two reasons: 1) irregular settlement payments for royalties; 2) tax credits factored out of the R&D expenditure.

NEPT's R&D expenditure includes cyclical patent enforcement activities. This might be expected for some industries, but they have received more than their fair share of patent infringement and contention. It appears that the exhaustive legal battles are starting to subside.

Saturday Night RORC: Neptune Technologies & Bioressources

For every dollar of R&D spent by Neptune in fiscal 2015 they made $2.17 in gross revenue for fiscal 2016. The fiscal year results for 2016 will be released in May 2016, their fiscal being on an offsetting calendar. They have released preliminary results that support the RORC finding. Total settlement payments have not ben disclosed, but according to the last three quarterly statements, no 2016 settlements have been paid.

Fiscal 2014 showed the best RORC once all settlement money was factored into the gross revenue. Enzymotec Ltd (NASDAQ: ENZY) is the chief violator in failing to pay and putting up frivolous legal actions -- pure stalling. When all royalties are paid on a regular schedule and NEPT no longer has to take extensive legal action, their margins will significantly improve.


Disclosure: I am/we are long NEPT.