NEPT Report - 8-21-12

BURRILL INSTITUTIONAL RESEARCH
INITIATING COVERAGE Biotechnology August 21, 2012

s
Neptune Technologies & Bioressources, Inc. (NEPT) Elemer Piros, Ph.D.
Senior Biotechnology Analyst
epiros@b-c.com
Rating: Market OutPerform / Speculative Risk Target Price: $7 415-591-5453

Healthy Living: “Krilled”, Not Fried

MARKET DATA INVESTMENT OPINION We are initiating coverage of Neptune
Technologies & Bioressources with a Market Outperform rating and 12-
Price $4.79 month price target of $7/share. We’ve determined the target price based on
52 Wk Hi - Low $5.14 - $2.02 a sum of the parts analysis of Neptune’s core business plus an equity stake
Market Cap (MM) $240 in a spinoff company. We believe Neptune’s differentiated product NKO®
Shares Out (MM) 50 has the potential to capture a significant share in the vastly expanding
Avg. Daily Vol. 361,900 omega-3 fatty acid nutraceutical and pharmaceutical markets.
Short Interest 739,400

EARNINGS DATA ($)
BETTER THAN FISH OIL Neptune’s pipeline is based on phospholipid
FY - Feb 2012A 2013E 2014E omega-3s extracted from Antarctic krill, a tiny crustacean. The company
Q1 (May) (0.03) (0.03) N/A
Q2 (Aug) (0.04)
plans to take advantage of the higher absorption and potential superior
(0.06) N/A
Q3 (Nov) (0.01) (0.06) N/A efficacy of krill omega-3 compared to fish oils.
Q4 (Feb) (0.01) (0.04) N/A
Full Year EPS (0.04) (0.19) (0.02)

BALANCE SHEET MULTIPLE MARKETS Neptune is addressing several markets: dietary
supplements, functional foods, and drug development. The entire omega-3
Cash (MM) $13 consumer product market has already reached $13B worldwide. Globally,
Long Term Debt (MM) $3 sales of omega-3 dietary supplements grew from $1.8B in 2007 to $2.8B in
Cash / Share $0.26 2009. We believe that Neptune could capture a sizeable portion of the
EV (MM) $230 market due to its differentiated krill based omega-3 platform enabling
diverse opportunities.
CHART

$6

BLOCKBUSTER THROUGH A SUB Neptune’s majority-owned
$5
subsidiary, Acasti Pharma (APO, Not Rated), is pursuing a potentially
$4 blockbuster indication in cardiovascular disease. CaPre®, a concentrated
form of NKO®, is in Phase 2 clinical trials targeting the large
$3
hypertriglyceridemia market. Lovaza™, an omega-3 fatty acid approved
$2 for lowering triglycerides, recorded 2011 sales of ~$1.1B in the U.S. alone.
The company that initially introduced Lovaza™ was acquired for $1.7B in
$1
2007. Amarin (AMRN, Not Rated), with recent FDA approval for the
$0
8/18/11 11/18/11 2/18/12 5/18/12 8/18/12
same indication (Vascepa), is valued at ~$1.7B. In our view, CaPre® could
become an important value driver for Neptune.
Source: Yahoo Finance

Burrill Merchant Advisors
One Embarcadero Center Suite 2700
San Francisco, CA 94111

Please refer to pages (43-45) for important disclosures, price charts, and Analyst Certification.

Neptune Technologies & Bioressources, Inc. August 21, 2012

INVESTMENT SUMMARY

Neptune Technologies & Bioressources commercializes its flagship nutraceutical product Neptune Krill Oil (NKO ®)
through a distributor network in more than 30 countries. In recent years, the Company also established higher value
product lines for:
The pharmaceutical market, represented by two subsidiaries:
 Acasti, which is developing the lipid-lowering drug CaPre®
 NeuroBioPharm, which is pursuing neurological applications
Medical food ingredients, represented by partnerships with Yoplait (Private, Not Rated) and Nestle (NESN, Not Rated).
Neptune’s pipeline is based on omega-3 fatty acid phospholipids extracted from Antarctic krill, a tiny crustacean,
considered the most abundant biomass on earth. The company is generating cash flow from the sales of its nutraceutical
omega-3 product, NKO®. Neptune is taking advantage of the higher bioavailability and potential superior efficacy of krill
oil in providing omega-3 fatty acids for human consumption. Krill oil is the only source of omega-3 fatty acids that
contains phospholipids; which appears to make krill omega-3s more bioavailable and efficacious than fish oil or flax oil
omega-3s. Additionally, NKO® is the source of omega-3s that naturally carries a high amount of astaxanthin, a powerful
antioxidant attached to omega-3s. Given the increasing demand for NKO®, Neptune is expanding its capacity to address a
market that is expected to grow on average 12% annually1.

Preclinical and initial clinical trials have demonstrated that NKO® decreases LDL and triglycerides, while increasing HDL
(the perfect lipid trifecta - critical in the management of chronic cardiovascular disorders). Acasti - Neptune’s subsidiary -
is in Phase 2 trials with the clinical candidate CaPre® targeting the large hypertriglyceridemia market.

A Japanese firm, Mochida (Private, Not Rated), markets an omega-3 drug – Epadel - in Japan for managing triglycerides.
Annual sales of Epadel in Japan were ~$433MM in F2010 and they are forecasted to be similar in F2011 2. Another
omega-3 product approved by the FDA for triglyceride lowering is marketed in the U.S. as Lovaza™, and as Omacor ® ex-
U.S. Lovaza™ was initially marketed by Reliant Pharmaceuticals, which was acquired by GlaxoSmithKline (GSK, Not
Rated) for $1.7B. Lovaza™/Omacor® is manufactured by Pronova BioPharma (PRON.OL, Not Rated) and sold by
several licensing partners worldwide. Lovaza™ achieved blockbuster status in 2009. The drug reached $1.2B in sales in
2011 in the U.S. alone. Finally, Amarin (AMRN, Not Rated) just received FDA approval for Vascepa, an omega-3 fatty
acid, as a prescription drug to treat severe hypertriglyceridemia. The company is currently valued at ~$1.7B, even though
the product may not have the strongest IP protection. Therefore, we believe the upside potential for Neptune could be
significant.

VALUATION

We value Neptune shares, based on a sum of the parts analysis: (1) probability-adjusted NPV model for CaPre®, which
yields $120MM (58% ownership), and (2) a DCF valuation on the nutraceutical business, which contributes $230MM
plus $26MM projected cash to our model. The combined value of these two programs is estimated at $370MM, or
$7/share, factoring in fully diluted shares. Upon completion and successful outcome of CaPre® Phase 2 development, the
value attributed to this program could rise from $120MM to $240MM, boosting Neptune’s target value from $7 to
$9/share, in our view.

EXPECTED NEWSWORTHY EVENTS/MILESTONES FOR 2012 / 2013

Nutraceutical Business
 Quarterly sales and EBITDA growth
CaPre®
 Phase 2 data readouts (4Q12/mid-2013)

1
Frost & Sullivan, 2010.
2
EvaluatePharma Worldwide Product Sales.

BURRILL INSTITUTIONAL RESEARCH 2
2


RISK ANALYSIS

We ascribe a Speculative Risk rating to Neptune shares. In addition to development, manufacturing, marketing, and
financial risks associated with emerging biotechnology companies, specific additional risk factors to be considered are as
follows:

Highly Competitive Nutraceutical Business
There is already a large number of different formulations of omega-3 fatty acids available on the market. Most of these
products are not approved as drugs; they are mainly marketed as nutraceuticals. The omega-3 market has become highly
competitive. Enhanced competition and pressure on margins drive cost competitiveness among established brands.
Building market awareness of the differentiated profile of krill oil may entail a significant marketing effort, in our view.
In addition, the company faces meaningful competition from other krill oil manufacturers, such as Aker Biomarine
(AKBM, Not Rated) and Enzymotec (Private, Not Rated).

Patent Challenge
Neptune has issued U.S. patents of omega-3 phospholipids and krill extracts on both composition of matter and method of
use in cardiovascular disease. However, Aker BioMarine filed for patent reexamination request in the U.S. against two of
Neptune’s patents – U.S. Pat. No. 8,030,348 (also known as 348 patent) and U.S. Pat. No. 8,057,825 (also known as 825
patent). The 348 patent covers novel omega-3 phospholipid compositions suitable for human consumption, while the 825
patent is directed to methods of using krill extracts to reduce cholesterol, platelet adhesion and plaque formation.

Should both of these patents be overturned, damage to the manufacturing business would be minimal. However,
maintenance of the claims on these patents could represent a significant upside to Neptune: the company could become
the only source of krill oil and derived products in the U.S.

Regulatory Risk
Drug development is an inherently risky business. Acasti’s drug development projects could fail to generate positive
results from current or future clinical trials. Even if trials are successful, the FDA could reject the firm’s regulatory filings
for unforeseen reasons, or require additional studies prior to granting approval. However, we believe that negative
outcomes from cardiovascular trials would have a minor impact on Neptune’s nutraceutical business compared to the
sizable upside that a potential FDA approval could bring to the company.

Capacity Expansion Risk
In March 2012, Neptune announced completion of expansion plans in its Sherbrook plant (Canada). Expansion could cost
$20MM and could generate at least 40 new jobs. The company intends to triple its current production capacity from
150,000kg to 450,000kg per year by the end of F2014. Neptune is expecting a higher demand for its product. However,
unexpected decrease in anticipated demand could have a negative impact on Neptune’s business model.

3


COMPANY OVERVIEW

Neptune Technologies & Bioressources (NEPT, Market Outperform) is a biotechnology company engaged in the
manufacturing and formulation of marine omega-3 phospholipids. The company develops and commercializes its
products for multiple nutraceutical and medical markets. Neptune’s products are mainly proprietary krill oils marketed
under the trademarks NKO® and EKO™. The company also exploits various protein concentrate formulations extracted
from the different marine biomass.

The company has a 58% ownership in the pharmaceutical spin-out Acasti Pharma (APO, Not Rated), which is developing
CaPre® as a prescription drug for cardiovascular diseases. Results from CaPre ® Phase 2 open-label clinical trial are
expected in late-2012. In parallel, Acasti is also conducting a CaPre® Phase 2 double-blind study, with data expected in
mid-2013.

Additionally, Neptune supervises its CNS subsidiary NeuroBiopharm that is expected to develop krill oil prescription
drugs in neurological disorders. Neptune was founded in 1998 and is headquartered in Laval, Canada.

Nutraceutical Market
In its manufacturing plant (Quebec), Neptune develops and produces a range of marine health ingredients grouped under
the OPA™ trademark. The products are composed of different concentrations and ratios of omega-3 containing
phospholipids and antioxidants. The Neptune krill oil products NKO® and EKO™ are marketed either by distributors or
by different private labels in the dietary supplement and functional ingredient markets.

Neptune Krill Oil (NKO®)
Neptune Krill Oil (NKO®) is naturally sourced from Antarctic Krill (Exhibit 1). It contains a patented blend of omega-3
fatty acids bound to phospholipids as well as astaxanthin, an antioxidant. The main components of NKO ® are
phospholipid esters of the widely-known nutritional fatty acids DHA (docosahexaenoic acid) and EPA (eicosapentaenoic
acid). DHA and EPA have been linked to a broad spectrum of health benefits in:
 Chronic inflammation and arthritis3
 Hyperlipidemia4 (high cholesterol blood levels)
 Premenstrual syndrome5
 Cognitive disorders, and many other inflammatory conditions6

Exhibit 1: Antarctic Krill

Source: Neptune website.

The antioxidant astaxanthin has been investigated in a large number of studies related to the cardiovascular and
cerebrovascular systems. The NKO® formulation appears to have a positive impact on blood lipid profile, at a lower dose
than alternative omega-3 formulations. Superior bioavailability has been suggested for phospholipid-bound omega-3 fatty
acids in krill oil.

3
Deutsch L. American College of Nutrition (2007) 26(1):39-48.
4
Bunea R. et al., Alternative Medical Review (2004) 9(4):420-428.
5
Sampalis F., et al., Alternative Medical Review (2003) 8(2):171-179.
6
Calder P.C., et al., European Journal of Pharmacology (2011) 668: S50–S58.

4


Neptune continues to expand its customer base worldwide and is expecting revenue growth to be driven by repeat demand
from existing customers and incoming demand from new customers from North America, Europe, Asia, South America,
and Middle East.

Prescription Drug Market
Neptune is also developing products for the prescription drug markets through its two subsidiaries, Acasti and
NeuroBioPharm. Acasti is developing a pipeline focused on treatments for chronic cardiovascular disorders within the
OTC (over-the-counter), medical food and prescription drug markets. Acasti’s drug candidate, CaPre ®, is a concentrated
form of NKO® and recently received approval to enter Phase 2 clinical trials from Health Canada. NeuroBioPharm is
pursuing pharmaceutical neurological applications.

INFLAMMATION AND MARINE N-3 FATTY ACIDS (OMEGA-3)

Inflammation is a normal defense mechanism that protects the host from infection and other injuries; the process triggers
pathogen death, as well as tissue repair and wound healing, and helps to restore homeostasis at infected or injured sites.
However, pathological inflammation may occur when there is a loss of tolerance and/or of regulatory processes. Where
this becomes excessive, irreparable damage to host tissues and disease can occur7.

Inflammatory disorders are characterized by markedly increased levels of inflammatory markers and high concentration of
inflammatory cells at the site of injury and in the systemic circulation (rheumatoid arthritis, inflammatory bowel diseases,
asthma). Inflammatory diseases have been long recognized, yet it is only more recently that chronic low-grade
inflammation has received attention, particularly in relation to obesity, metabolic syndrome and cardiovascular disease.
Chronic low-grade inflammation is characterized by raised concentrations of inflammatory markers in the systemic
circulation.

Fatty acids (FAs) are naturally occurring constituents that have extensive metabolic, structural and functional roles within
the body. They are important sources of energy, major components of all cell membranes, and precursors to signaling
molecules. All fatty acids have a generic structure being based on a hydrocarbon chain with a reactive carboxyl group at
one end and a methyl group at the other.

Fatty acid chain lengths vary from 2 to 30 or more carbon atoms, and the chain may contain double bonds 8. Fatty acids
containing double bonds in the acyl chain9 are referred to as unsaturated fatty acids, and a fatty acid containing two or
more double bonds is called a polyunsaturated fatty acid (PUFA). The systematic name for a fatty acid is determined
simply by the number of carbons and the number of double bonds in the acyl chain (Exhibit 2). There are two principal
families of PUFAs: the n-6 (omega-6) and the n-3 (omega-3) families. In our report, the keen interest lies on PUFAs,
especially the longer-chain ones, the omega-3 family.

7
Calder P.C., et al., International Reviews of Immunology (2009) 28:506-534.
8
A double bond in chemistry is a chemical bond between two chemical elements involving four bonding electrons instead of the usual two. Double bonds are stronger
than single bonds.
9
An organic radical derived from an organic acid via removal of the hydroxyl group from the carboxyl group. It is a generic term for fatty acid groups.

5


Exhibit 2: Fatty Acid Naming
Systematic name Trivial name Shorthand notation

Octanoic Caprylic 8:00
Decanoic Capric 10:00
Dodecanoic Lauric 12:00
Tetradecanoic Myrsitic 14:00
Hexadecanoic Palmitic 16:00
Octadecanoic Stearic 18:00
cis 9-Hexadecenoic Palmitoleic 16:1n-7
cis 9-Octadecenoic Oleic 18:1n-9
cis 9, cis 12-Octadecadienoic Linoleic 18:2n-6
All cis 9, 12, 15-Octadecatrienoic α-Linolenic 18:3n-3
All cis 6, 9, 12-Octadecatrienoic γ-Linolenic 18:3n-6
All cis 8, 11, 14-Eicosatrienoic Dihomo-γ-linolenic 20:3n-6
All cis 5, 8, 11, 14-Eicosatetraenoic Arachidonic 20:4n-6
All cis 5, 8, 11, 14, 17-Eicosapentaenoic Eicosapentaenoic 20:5n-3
All cis 7, 10, 13, 16, 19-Docosapentaenoic Docosapentaenoic 22:5n-3
All cis 4, 7, 10, 13, 16, 19-Docosahexaenoic Docosahexaenoic 22:6n-3

Source: Calder P.C., et al., International Reviews of Immunology (2009) 28:506-534.

Polyunsaturated Fatty Acids (PUFAs): Omega-6 and Omega-3

Both omega-6 and omega-3 fall under the category of polyunsaturated fatty acids. The simplest members of each family -
linoleic acid (LA, omega-6 family) and α-linolenic acid (ALA, omega-3 family) - cannot be synthesized by mammals.
They are considered "essential" since the body is not able to make significant enough amounts.

LA is found in significant quantities in many vegetable oils, including corn, sunflower and soybean oils, and in products
made from such oils, such as margarines. ALA is found in green plant tissues, in some common vegetable oils, including
soybean and rapeseed oils, in some nuts, and in flaxseeds (also known as linseeds) and flaxseed oil. Between them, LA
and ALA contribute over 95%, and perhaps as much as 98% of dietary PUFA intake in most Western diets.

The intake of LA in Western countries increased considerably in the second half of the 20th Century, following the
introduction and marketing of cooking oils and margarines10. Typical intakes of both essential fatty acids are in excess of
the required amounts. The increase of consumption of LA has resulted in a marked increase in the ratio of omega-6 to
omega-3 PUFAs in the diet. This ratio is typically between 5 and 20 in most Western populations11.

Although LA and ALA cannot be synthesized by humans, they can be metabolized to other fatty acids. LA can be
converted to arachidonic acid. By an analogous set of reactions catalyzed by the same enzymes, ALA can be converted to
eicosapentaenoic acid (EPA). Both arachidonic acid and EPA can be further metabolized, EPA giving rise to
docosapentaenoic acid (DPA) and docosahexaenoic acid (DHA) (Exhibit 3).

10
Blasbalg, T.L., et al., American Journal of Clinical Nutrition (2011) 93:950-962.
11
Burdge G.C., et al., Nutrition Research Reviews (2006) 19:26-52.

6


Exhibit 3: The Biosynthesis of Polyunsaturated Fatty Acids
Methyl Carbon
Group Double Carboxyl
bond Group


Dietary intakes of the longer-chain omega-3 PUFAs, such as EPA and DHA, are typically much lower than the intakes of
LA and ALA. EPA and DHA are found in fish, especially so-called “oily” fish (tuna, salmon, mackerel, herring,
sardine)12 and krill, a small red-colored crustacean (similar to shrimp) that flourish in the extremely cold waters of the
Antarctic Ocean13.

Omega-3 PUFAs Modify Fatty Acid Composition of Inflammatory Cells
PUFAs are important constituents of the phospholipids of all cell membranes (Exhibit 4). Laboratory animals that have
been maintained on standard chow have a high content of the omega-6 PUFA arachidonic acid and low contents of the
omega-3 PUFAs EPA and DHA in the bulk phospholipids of tissue lymphocytes14,15, peritoneal macrophages16;17;18,19
alveolar macrophages20, Kupffer cells21 and alveolar neutrophils22.

12
13
Krill oil. Monograph. Alternative Medicine Review (2010) 15(1):84-86.
14
Calder P.C., et al., Biochemical Journal (1994) 300:509-518.
15
Yaqoob P., at al., Cellular Immunolology (1995) 163:120-128.
16
Brouard C., et al., Biochimica et Biophysica Acta (1990) 1047:19-28.
17
Chapkin R.S., et al., Journal of Nutritional Biochemistry (1992) 3:599-604.
18
Lokesh B.R., et al., Journal of Nutrition (1986) 116:2547-2552.
19
Surette M.E., et al., Biochimica et Biophysica Acta (1995) 1255:185-191.
20
Fritsche K.L., et al., Lipids (1993) 28:677-682.
21
Palombo J.D., et al., Journal of Parenteral and Enteral Nutrition (1997) 21:123-132.
22
Careaga-Houck M., et al., Journal of Lipid Research (1989) 30:77-87.

7


Exhibit 4: Cell Membrane: Phospholipids, Fatty Acids and Antioxidants

Source: Kidd P.M. Alternative Medicine Review (2007) 12(3):207-227.

Feeding laboratory animals a diet containing fish oil, which provides EPA and DHA, results in a higher content of these
fatty acids in lymphocytes23, macrophages24, Kupffer cells25and neutrophils26. Typically enrichment in marine omega-3
PUFAs is accompanied by a decrease in content of arachidonic acid.

Blood cells involved in inflammatory responses (neutrophils, lymphocytes, monocytes) collected from humans consuming
typical Western diets contain about 10 to 20% of fatty acids as arachidonic acid, about 0.5 to 1% as EPA and about 2 to
4% as DHA in their membranes27, although the content of these fatty acids varies in different phospholipid classes28.

The fatty acid composition of these cells can be modified by increasing intake of marine omega-3 fatty acids29. This
occurs in a dose response fashion30 and over a period of days to weeks31, with a new steady-state composition reached
within about four weeks. Typically the increase in content of omega-3 PUFAs occurs at the expense of omega-6 PUFAs,
especially arachidonic acid. Exhibit 5 shows the time course of changes in EPA and DHA contents of human blood
mononuclear cells in subjects consuming fish oil. Healthy subjects supplemented their diet with fish oil capsules
providing 2.1g EPA plus 1.1g DHA per day for a period of 12 weeks. Blood mononuclear cell phospholipids were
isolated at 0, 4, 8 and 12 weeks and their fatty acid composition determined by gas chromatography. Data are mean from
eight subjects32.

23
Yaqoob P., et al., Biochimica et Biophysica Acta (1995) 1255:333-340.
24
Brouard C., et al., Biochimica et Biophysica Acta (1990) 1047:19-28.
25
Palombo J.D., et al., Journal of Parenteral and Enteral Nutrition (1997) 21:123-132.
26
James M.J., et al., Journal of Nutrition (1991) 121:631-637.
27
Caughey G.E., et al., American Journal of Clinical Nutrition (1996) 63:116-122.
28
Sperling R.I., et al., Journal of Clinical Investigation (1993) 91:651-960.
29
Lee J.Y., et al., Journal of Biological Chemistry (2001) 276:16683-16689.
30
Rees D., et al., American Journal of Clinical Nutrition (2006) 83:331-342.
31
Faber J., et al., Journal of Nutrition (2011) 141, 964-970.
32
Yaqoob P., et al., European Journal of Clinical Investigation (2000) 30, 260-274.

8


Exhibit 5: Changes in EPA and DHA in Mononuclear Cells from Humans Taking Fish Oil

Source: Yaqoob P., et al., European Journal of Clinical Investigation (2000) 30, 260-274.

Omega-3 Mechanisms of Action
A high ratio of omega-6 to omega-3 can alter cell membrane properties and increase production of inflammatory
mediators because arachidonic acid, an omega-6 fatty acid found in cell membranes, is the precursor of inflammatory
eicosanoids, such as prostaglandins and thromboxanes33. In contrast, omega-3 fatty acids are anti-inflammatory.
Therefore, a high dietary ratio of omega-6 to omega-3 fatty acid could promote inflammation. Increased omega-3 fatty
acid concentration in the diet may also act by altering cell membrane fluidity and phospholipid composition, which may
alter the structure and function of the proteins embedded in it.

All in all, omega-3 fatty acids appear to act through the enrichment of membrane phospholipids with EPA and DHA.
Once these long chain omega-3 PUFAs are resident in cell membranes, they have at least four separate effects:

 First, because of their highly unsaturated nature, they may alter membrane properties. This can have the
secondary effect of changing the microenvironment of transmembrane proteins (e.g., receptors) altering the
manner in which they interact with their ligands.

 Altering membrane fatty acids composition can also affect the ability of proteins to actually associate with the
membrane and consequently interact with other multi-protein complexes involved with cell signaling systems

 In addition, a variety of cell stressors (e.g., inflammatory mediators) interact with transmembrane receptors and
subsequently initiate intracellular G-protein linked responses, one of which is the activation of phospholipase A2
(PLA2). This enzyme hydrolyzes long-chain omega-6 and omega-3 fatty acids esterified to inner leaflet
phospholipids, liberating them and making them available for conversion to a wide variety of eicosanoids via
cyclo-oxygenase, lipoxygenase, and cytochrome P-450 monooxygenases. These molecules powerfully influence
cellular metabolism. PLA2-liberated omega-3 fatty acids may directly modify ion channel activity themselves,
resulting in altered resting membrane potentials.

 Finally, intracellular omega-3 fatty acids are also able to serve as ligands for a variety of nuclear receptors [e.g.,
peroxisome proliferation activated receptors (PPARs), sterol receptor element binding protein (SREBP)-1c,
retinoid X receptor, and the farnesol X receptor] which impact inflammatory responses and lipid metabolism
(Exhibit 6).

33
Simopoulos A.P. Journal of the American College of Nutrition (2002) 21:495-505.

9


Exhibit 6: Overview of Mechanisms by Which Omega-3 PUFAs Can Influence Inflammatory Cell Function


Anti-Inflammatory Effects of Omega-3 Fatty Acids Suggest Therapeutic Value
Inflammation is an element of numerous human conditions and diseases (Exhibit 7). Although inflammation may affect
different body compartments, one common characteristic of these conditions and diseases is disproportionate production
of inflammatory mediators including eicosanoids and cytokines34.

Exhibit 7: Diseases and Conditions with an Inflammatory Component
Disease/Condition

Rheumatoid arthritis
Crohn's disease
Ulcerative colitis
Lupus
Type-1 diabetes
Cystic fibrosis
Childhood asthma
Adult asthma
Allergic disease
Chronic obstructive pulmonary disease
Psoriasis
Multiple sclerosis
Atherosclerosis
Acute cardiovascular events
Obesity
Neurodegenerative diseases of ageing
Systemic inflammatory response to surgery, trauma and critical illness

Note: this list is not exhaustive.

The role of omega-3 PUFAs in shaping and regulating inflammation imply that exposure to these fatty acids might be
important in determining the development and severity of inflammatory diseases. The recognition that omega-3 PUFAs
have anti-inflammatory effects has led to the notion that dietary supplement of patients with inflammatory diseases may
be of clinical benefit. Each of the diseases or conditions listed in Exhibit 7 is a possible therapeutic target for marine
omega-3 PUFAs. Supplementation trials have been conducted in most of these diseases. Rheumatoid arthritis’ trials
appear to be the most successful with most studies reporting several clinical benefits35. These benefits are supported by
meta-analyses of the available data36.

34
35
Calder P.C., et al., Proceedings of the Nutrition Society (2008) 67:409-418.
36
Goldberg R.J., et al., Pain (2007) 129:210-223.

10


Studies in patients with inflammatory bowel diseases (Crohn's disease and ulcerative colitis) provide equivocal findings
with some showing some benefits and others not37,38. Likewise studies conducted in patients with asthma do not provide a
clear picture. Most studies conducted in adults do not show a clinical benefit, while there are indications of benefits of
marine omega-3 PUFAs in children and adolescents, although there are few studies in those groups39. In most other
inflammatory diseases and conditions there are too few studies to draw a clear conclusion of the possible efficacy of
omega-3 PUFAs as a treatment. Exceptions to this may be related to cardiovascular disease morbidity and mortality, and
attention deficit hyperactivity disorder (ADHD)40.

There is evidence that omega-3 PUFAs slow the progress of atherosclerosis41, which has an inflammatory component42,43.
Moreover, omega-3 PUFAs decrease mortality due to cardiovascular disease44,45; this may be, in part, due to stabilization
of atherosclerotic plaques against rupture46, which again has an inflammatory component47. Thus, the anti-inflammatory
effects of marine omega-3 PUFAs may contribute to their protective actions towards atherosclerosis, plaque rupture and
cardiovascular mortality. We are going to discuss omega-3 PUFAs and cardiovascular diseases (CVDs) in more detail in
the next section.

OMEGA-3 FATTY ACIDS IN CARDIOVASCULAR INDICATIONS

The omega-3 fatty acids found in fish, fish oils and krill oils – principally EPA and DHA – have been reported to have a
variety of beneficial effects in cardiovascular diseases48,49. Ecological and prospective cohort studies as well as
randomized, controlled trials have supported the view that the effects of these fatty acids are clinically relevant. They
operate via several mechanisms, all beginning with the incorporation of EPA and DHA into cell membranes50, as we
discussed before.

Because blood concentrations of omega-3 PUFAs are a strong reflection of dietary intake, it is proposed that an omega-3
biomarker - the omega-3 index (erythrocyte EPA + DHA) - be considered as a potential risk factor for coronary heart
disease mortality, especially sudden cardiac death51. The omega-3 index fulfills many of the requirements for a risk factor
including consistent epidemiological evidence, a plausible mechanism of action, a reproducible assay, independence from
classical risk factors, modifiability, and most importantly, the demonstration that raising tissue levels will reduce risk for
cardiac events. Due to this, the omega-3 index compares very favorably with other risk factors for sudden cardiac death.

The increased intake of omega-3 PUFAs has been recommended by several health agencies and professional
organizations including the American Heart Association, the European Society for Cardiology, and the Australian Health
and Medical Research Council. These recommendations are based on evidence from a number of reports linking dietary
deficiency of long chain omega-3 PUFAs with a risk for cardiovascular events, notably sudden death. The FDA gave
“qualified health claim” status to EPA and DHA omega-3 PUFAs on September 8th, 2004.

Links between Omega-3 Fatty Acids and Cardiovascular Health
A meta-analysis of 13 cohorts including over 222,000 individuals followed for coronary heart disease (CHD) death for an
average of about 12 years has been performed52. The authors found that the consumption of only one fish meal per week
37
Calder P.C., et al., Molecular Nutrition & Food Research (2008) 52,:885-897.
38
39
Calder P.C., et al., American Journal of Clinical Nutrition 83 (2006) 1505S-1519S.
40
Bloch, M.H., et al., Journal of American Academy of Child and Adolescent Psychiatry (2011) 50(10):991-1000.
41
Calder P.C., et al., Clinical Science (2004) 107:1-11.
42
Glass C.K., et al., Cell (2001) 104:503-516.
43
Ross R. New England Journal of Medicine (1999) 340:115-126.
44
Bucher H.C., et al., American Journal of Medicine (2002) 112:298-304.
45
Studer M., et al., Archives of Internal Medicine (2005) 165:725-730.
46
Cawood A.L., et al., Atherosclerosis (2010) 212:252-259.
47
Glass C.K., et al., Cell (2001) 104, 503-516.
48
De Lorgeril M. Sub-cellular Biochemistry (2007) 42:283-97.
49
Bunea R., et al., Alternative Medicine Review (2004) 9:420-428.
50
Sinclair A.J., et al., Allergy and Immunology (Paris) (2000) 32:261-71.
51
Harris W.S., et al., American Journal of Clinical Nutrition (2008) 87(6):1997S-2002S.
52
He K., et al., Circulation (2004) 109:2705-2711.

11


(versus <1 per month) was associated with a statistically significant 15% reduction in risk. When subjects were classified
into categories of increasing fish consumption (<1/month, 1–3/month, 1/week, 2–4/week, and ≥5/week), those in the
highest intake group enjoyed a 40% reduction in risk. Similar findings were reported for stroke. An inverse relation
between fish intake and risk for CHD has also been reported in Greek53 and in Japanese cohorts54.

The largest and most well controlled intervention study carried out to date was the GISSI Prevenzione study, which tested
the hypothesis that relatively small intakes of omega-3 PUFAs (<1g) could reduce risk for death from CHD in high risk
patients. More than 11,000 postmyocardial infarction patients were randomized to either one capsule of omega-3 FA
ethyl esters (Omacor®, 850 mg of EPA+DHA) or usual care and then followed for 3.5 years. The risk for death from any
cause was reduced by 20% and risk for sudden death by 45% in the supplement group. This study will be discussed in
further detail in the next section of this report.

The relative reduction in risk for death from any cause in trials of anti-lipidemic drugs and lipid-lowering diets was
computed in a large meta-analysis55. Over 137,000 patients receiving treatment for lipid disorders were compared to
controls in a total of 97 studies. There were 35 trials with statins (the cholesterol-lowering drugs), seven studies with
fibrates, eight with bile acid binding resins, 14 with omega-3 fatty acids and 18 examining the effects of global dietary
changes. Only two interventions were associated with significant reductions in total mortality: statins (risk ratio 0.87,
95% CI 0.81-0.94) and omega-3 fatty acids (risk ratio 0.77, 95% CI 0.63-0.94). One caveat to the omega-3 group is that it
can be argued that these were not strictly omega-3 studies but overall dietary interventions. In these two studies, the
active agent(s) cannot be identified with confidence because so many dietary variables differed between groups.
Nevertheless, the preponderance of the data suggests that for most individuals, increasing the intake of long-chain omega-
3 fatty acids is a safe and inexpensive way to significantly reduce risk for CHD, especially sudden cardiac death.

GISSI Study
The Gruppo Italiano per lo Studiodella Sopravvivenza nell’Infarto miocardico (GISSI)-Prevenzione trial studied the
independent and combined effects of omega-3 PUFAs and vitamin E on morbidity and mortality after myocardial
infarction. This randomized, prospective study enrolled more than 11,000 patients, between October, 1993 and
September, 1995, who had suffered myocardial infarction within the last three months. Patients were randomized to
receive of omega-3 PUFA (1g daily, n=2,836), vitamin E (300mg daily, n=2,830), both (n=2,830), or placebo (control,
n=2,828) for 3·5 years. The co-primary endpoints were death, non-fatal myocardial infarction, and stroke.

The data showed that treatment with omega-3 PUFA significantly lowered the risk of co-primary endpoints vs. placebo
(relative risk decrease 10% [95% CI 1-18]). In contrast, vitamin E did not have a statistically significant impact on the
risk of these events. Treatment with both omega-3 PUFA and vitamin E had an impact similar to that of omega-3 PUFA
alone.

HYPERTRIGLYCERIDEMIA

Hypertriglyceridemia (hTG) is a common disorder in the U.S. It is exacerbated by uncontrolled diabetes mellitus, obesity,
and sedentary habits, all of which are more prevalent in industrialized societies than in developing nations. In both
epidemiologic and interventional studies, hTG is a risk factor for coronary disease.

Two rare genetic causes of hTG (lipoprotein lipase – LPL - deficiency and apolipoprotein – apo - C-II deficiency) lead to
triglyceride (TG) elevations that are astonishingly high. Counter-intuitively, these genetic mutations do not confer an
increased risk of atherosclerotic disease, which has fostered the unfounded belief that high TGs are not a risk for that
condition.

53
Panagiotakos D.B., et al., International Journal of Cardiology (2005) 102:403-409.
54
Iso H., et al., Circulation (2006) 113:195-202.
55
Studer M., et al., Archives of Internal Medicine (2005) 165: 725-730.

12


TG levels greater than 1000mg/dL increase the risk of acute pancreatitis. Hypertriglyceridemia is also correlated with an
increased risk of cardiovascular disease (CVD), particularly in the setting of low HDL-C (high-density lipoprotein
cholesterol, “good cholesterol”) levels and/or elevated LDL-C (low-density lipoprotein cholesterol, “bad cholesterol”)
levels. When low HDL-C levels are controlled for, some studies demonstrate that elevated TGs do not correlate with risk
of CVD. However, other studies suggest that TGs are an independent risk factor. Since metabolism of the triglyceride-
rich lipoproteins and metabolism of HDL-C are interdependent and because of the labiality of TG levels, the independent
impact of hTG on CVD risk is difficult to confirm. However, randomized clinical trials using TG-lowering medications
have demonstrated decreased coronary events in both the primary and secondary coronary prevention populations.

Epidemiology
If hypertriglyceridemia was defined as fasting TGs ≥200mg/dL, the prevalence in the U.S. is approximately 10% in men
older than 30 years and women older than 55 years. Prevalence of severe hypertriglyceridemia, defined as TGs greater
than 2,000mg/dL, is estimated to be to be 1.8 cases per 10,000 adult whites, with a higher prevalence in patients with
diabetes or alcoholism. The frequency of LPL-C deficiency is approximately one case per one million individuals, and
that of apo C-II deficiency is even lower. The frequency of LPL-C deficiency in Quebec, Canada is significantly higher
than the single case per million population reported in the U.S. Apo C-II has a worldwide distribution but is infrequent in
all population studies to date.

Extreme elevations of TGs, usually greater than 1,000mg/dL, may cause acute pancreatitis and all the sequellae of that
condition. A less severe, and often unrecognized, condition is the chylomicronemia syndrome, which usually is caused by
TG levels greater than 1,000 mg/dL. Chylomicronemia syndrome is a disorder passed down through families in which the
body does not break down lipids correctly. This causes fat particles called chylomicrons to build up in the blood56. TGs
are lower in African Americans compared to Caucasians.

In the Prospective Cardiovascular Munster study (PROCAM), a large observational study, hypertriglyceridemia (TGs
>200mg/dL) was more prevalent in men (18.6%) than in women (4.2%)57. TGs increase gradually in men until about age
50 years and then decline slightly. In women they continue to increase with age. Mild hypertriglyceridemia (TGs
>150mg/dL) is slightly more prevalent in men beginning at age 30 years and women starting at age 60 years.

Medical Care
Although U.S. cardiologists and primary care physicians have typically concentrated on controlling cholesterol, it is
becoming increasingly common to assess triglyceride levels and regard them as an important risk factor and key potential
component of cardiovascular disease. When hTG is diagnosed, secondary causes should be sought out and controlled.
Direct treatment of elevated TGs should be undertaken after aggravating conditions, such as uncontrolled diabetes
mellitus, are controlled as well as possible. In some cases, hTG will resolve completely when the other condition(s) are
managed successfully. These conditions include obesity, a sedentary lifestyle, and smoking. Thus, the initial
management of hTG should include weight reduction, increased physical activity, and elimination of ingesting large
concentrations of refined carbohydrates.

If the secondary conditions that raise TG levels cannot be managed successfully and if TGs are 200-499mg/dL, the non-
HDL cholesterol becomes the initial target of drug therapy using LDL-lowering medication, such as statins. The non-
HDL cholesterol is the sum of the LDL and the VLDL cholesterol (total cholesterol - HDL). The goals for non-HDL-C
levels, similar to the goals for LDL-C levels, are dependent on risk and are 30mg/dL higher than the corresponding LDL-
C goals. If secondary conditions are not present, no specific care is required other than treatment to improve hTG. The
importance of obesity, a sedentary lifestyle, and a deconditioned state should not be underestimated in the treatment of
hTG. It is important to point out that approximately 25% of patients prescribed statins abandon the treatment within six
months due to unpleasant side effects. Muscle complaints constitute the major symptom limiting the use of statins. The
clinical features of statin myopathy include symptoms such as muscle aches or myalgia, weakness, stiffness, and cramps 58.

56
http://www.ncbi.nlm.nih.gov/pubmedhealth/PMH0001442/
57
Assmann G., et al., European Journal of Clinical Investigation (2007) 37: 925-932.
58
Mancini G.B.J., et al., Canadian Journal of Cardiology (2011) 27:635-662.

13


Preclinical and initial clinical testing have shown NKO® to be beneficial in LDL and triglyceride reduction as well as
HDL elevation, all of which are essential in treating chronic cardiovascular conditions59.

WHY NKO®, WHY KRILL?
Over the last years, natural health products have gathered attention and support of both science and industry. The growing
incidence of adverse events with synthetic drugs has given rise to a demand for effective and safe alternative treatments.
Frequently, traditional medicine represents a tradeoff between efficacy and side effects. The small number of natural
health ingredients that have been carefully researched for safety and efficacy and have passed both peer and regulatory
scrutiny could alleviate the problem. In our view, NKO® could fulfill these criteria by supporting solid scientifically
validated research providing safety and efficacy.

The Norwegian word “krill” translates into “young fry of fish” and has been adopted as the term used to describe marine
crustaceans belonging to the order Euphausiacea. Krill is broadly known as whale food, but is also a source of food for
seals, squid, fish, seabirds, and, to a much lesser extent, humans. In appearance, krill resembles shrimp (Exhibit 8)60.

Exhibit 8: Krill Photograph - Body Structure

Stomach
Hepatopancreas
Heart

Intestine
Tail
Meat

GILLS

Highest
proteolytic
Lowest proteolytic activity activity
Source: Tou J.C., et al., Nutrition Reviews (2007) 65(2):63-77.

Krill range in size from 0.01 to 2g wet weight and from 8mm to 6cm length61. Despite their small size, krill are capable of
forming large surface swarms that may reach densities of over one million animals per cubic meter of seawater62, making
them an attractive species for harvesting. Furthermore, krill are found in all oceans of the world, making them among the
most heavily populated animal species. Despite this abundance, the commercial harvest of krill has mainly focused on its
use as feed in aquariums, aquaculture, and sport fishing63. From the different species of krill, only Antarctic krill
(Euphausia superba) and Pacific krill (Euphausia pacifica) have been harvested to any relevant level for human
consumption. The underutilization and abundance of krill make it a quite unexploited food source for humans that, when
coupled with a conscientious ecosystem approach to managing krill stocks, should result in its long-term sustainability.

59
Bunea R, et al., Alternative Medicine Review (2004) 9:420-428.
60
Torres J.A., et al., in: Shahidi F., ed. Maximising the Value of Marine By-Products. Cambridge (UK) (2007):65-95.
61
Nicol S., et al., Krill Fisheries of the World. FAO Fisheries Technical Paper (1997) 367.
62
Hamner W.M., et al., Science (1983) 220:433-435.
63
Nicol S., et al., In: Everson I, ed. Krill: Biology, Ecology and Fisheries (2000):262-283.

14


Krill Nutritional Value
Foods high in saturated fatty acids (SFAs) have been linked to increased risk of CVD, whereas the omega-3 PUFAs,
particularly EPA and DHA, have been linked to reduced risk of CVD64. Hence, the nutritive value of krill oil was
evaluated due to the consumer appeal for foods that are low in fat and SFAs and high in omega-3 PUFAs.

Saether et al,.65 analyzed the lipid content of three species of krill and reported values ranging from 12% to 50% on a dry-
weight basis. The wide range in lipid content was attributed to seasonal variations. A drop in lipid content occurred in
the spring, when food was scarce, whereas it rose in the autumn and early winter, when food was abundant.
Kolakowska66 reported that the lack of reproductive activity in the winter raises the lipid content of female krill to over
8% of their wet weight. Therefore, the lipid content and profile of krill may vary significantly upon factors such as
season, species, age, and the lag time between capture and freezing. It is important to account for these factors when
evaluating the consistency of krill oil. Apart from this variability, krill is similar to other seafood in being low in fat
compared with other animal foods.

The lipid content in krill was analyzed for fatty acid composition. Exhibit 9 shows that krill provides both of the essential
fatty acids: α-linolenic acid (ALA) and linoleic acid (LA). Moreover, krill is low (26.1%) in both SFAs and (24.2%)
monounsaturated (MUFAs) but high (48.5%) in PUFAs. The PUFAs consist mainly of omega-3 fatty acids. Kolakowska
et al., described that omega-3 PUFAs account for approximately 19% of total fatty acids in Antarctic krill caught during
the winter67. Of the omega-3 PUFAs, EPA and DHA are remarkably abundant. This is not surprising given that krill feed
on marine phytoplankton such as single-cell microalgae, which synthesize large amounts of EPA and DHA.

As shown in Exhibit 9, the DHA content of krill is equivalent to that of shrimp and fish, but its EPA content is higher than
either lean or fatty fish.

Exhibit 9: Lipid Content and Fatty Acid Composition of Krill, Shrimp, Trout and Salmon

Source: Source: Tou J.C., et al., Nutrition Reviews (2007) 65(2):63-77.
64
Hu F.B., et al., Journal of American College of Nutrition (2001) 20:5-19.
65
Saether O., et al., The Journal of Lipid Research (1986) 27:274-285.
66
Kolakowska A. Polish Polar Research (1991) 12:73-78.
67
Kolakowska A. Polish Polar Research (1991) 12:73-78.

15


The fatty acid profile of krill resembles that of shrimp and fish, with krill containing a higher amount of PUFAs.
However, it is important to observe that most of the fatty acids in fish are incorporated into triglycerides, whereas 65% of
the fatty acids in crustaceans are incorporated into phospholipids68. Animal and human studies suggest that omega-3
PUFAs bound to phospholipids, such as those found in krill oil, have superior absorption and release to the brain than
their methyl-ester or triglyceride-formed fish counterparts69,70.

Is There Enough Omega-3 Fatty Acids in Nutraceuticals?
Omega-3 molecules have a unique impact on TGs. In large amounts (≥10g/d), omega-3 fatty acids can lower TGs by 40%
or more. In order to achieve this dose, purified capsules usually are necessary. Previously, patients have sometimes
elected to intake omega-3 fatty acids by increasing their consumption of fatty fish. Those fish highest in omega-3 fatty
acids are sardines, herring, and mackerel. To achieve ideal omega-3 levels, daily servings of one pound or more may be
necessary. However, if weight gain ensues, TG-lowering will be compromised.

The utility of omega-3 fatty acid products has recently been brought into focus by consumer reports highlighting the
quality control issues plaguing some omega-3 fatty acid supplements. In one example, the Consumer Council of Hong
Kong disclosed in a report dated October 16th, 2008 that it had discovered significant discrepancies between the claimed
and actual contents of the omega-3 fatty acids DHA and EPA in a range of nutraceutical products on the Hong Kong
market71.

The test that formed the basis of the report analyzed 21 fish oil and seven fish liver oil products to assess their fatty acid
content (along with vitamin A and D content in the fish liver oil products), as well as the levels of possible contaminants.
Given the proven health benefits of DHA and EPA, fish oil products often prominently advertise their omega-3 content.

Except for five liver oil supplements, all samples (23) were duly labeled with claims on the levels of DHA and EPA in the
products. The test found that a number of samples, however, contained DHA and EPA levels that were significantly
lower than their claims. In the most notable case, a fish liver oil supplement was revealed to be as much as 88% short of
the level of EPA it claimed. The EPA test result on the product indicated an amount of 29.6mg per capsule compared
with 240mg each stated on its label. In another sample, the DHA result of 26mg per capsule fell also 71% short of the
claimed value of 90mg in each capsule.

In some samples, trans fat72 was also detected (the sample with the highest amount had 40.6mg per capsule), and saturated
fat73 (the highest amount was 372mg per capsule). Taking into account both the test result (of the highest amount
reached) and the maximum recommended dosage, one could take in at a maximum an amount of 162mg of trans fat daily,
or 7.4% of the limit recommended by WHO/FAO. In the case of saturated fat, using the same calculation, one may
consume a maximum amount of 1,488mg saturated fat daily, or 6.7% of the recommended WHO/FAO limit.

Further, the fish liver oil samples were analyzed for contents of vitamins A and D. The results closely followed the claims
on the label except for one sample, which was found to contain an amount of vitamin D 37% lower than its claim. On the
test to identify the presence of contaminants such as heavy metals, pesticides and industrial wastes polychlorinated
biphenyls (PCB), the results were generally satisfactory, especially in pollutants.

The Consumer Council subsequently referred its test findings on such label discrepancies to the authorities concerned for
follow-up action. Further, as part of the study, the Consumer Council also sought the comments of medical professionals
on the health claims of fish oil and fish liver oil dietary supplements. In their opinion, the experts all agreed that the
consumption of fish and fish oil could alleviate one's cardiovascular problems. Scientific evidence has shown that intake

68
Weihrauch J.L., et al., Journal of the American Oil Chemists’ Society (1977) 54:36-40.
69
Goustard-Langelier B., et al., Lipids (1999) 34(1):5-16.
70
Maki K.C., et al., Nutritional Research (2009) 29(9):609-615.
71
Consumer Council of Hong Kong (http://www.consumer.org.hk/website/ws_en/news/press_releases/p38401.html).
72 Trans fats (or trans fatty acids) are created in an industrial process that adds hydrogen to liquid vegetable oils to make them more solid. Trans fats raise your bad
(LDL) cholesterol levels and lower your good (HDL) cholesterol levels.
73
Eating foods that contain saturated fats raises the level of cholesterol in your blood.

16


of omega-3 fatty acids could lower blood pressure, reduce blood triglyceride levels and assist in preventing cardiovascular
diseases.

However, the experts warned that excessive intake of omega-3 fatty acids could lead to gastrointestinal problems and
higher risk of bleeding. The daily recommended intake limit is a total of 3g of DHA and EPA. Further, excessive intake
of vitamins A and D could also lead to liver problems. The daily limit of vitamins A and D are respectively 10,000 IU
and 2,000 IU. The limits for children, pregnant and lactating women should be lower. For pregnant and lactating women,
it was stated that it is not considered necessary for them to consume vitamin A and D rich fish liver oil products if their
physicians have already prescribed multi-vitamins.

Neptune maintains a quality-assurance process that is QMP certified by the Canadian Food Inspection Agency (CFIA) to
manufacture NKO®. Additionally, the company has obtained Good Manufacturing Practices accreditation from Health
Canada.

POTENTIAL MULTIPLE BENEFITS

Neptune Krill Oil (NKO®) is extracted with a patented GMP-accredited process from Antarctic Krill (Euphasia superba),
which is considered the most abundant biomass in the planet74.

NKO® is distinct from other marine oils in that the omega-3 fatty acids are attached to phospholipids, which due to their
amphiphilic75 nature, act as superior delivery systems. Furthermore, naturally inherent potent antioxidants such as
astaxanthin, attached to omega-3, confer additional stability and antioxidant strength. NKO® has been scientifically
proven to be safe for chronic use and effective for the management of dyslipidemia, chronic inflammatory conditions and
cognitive disorders.

Phospholipids – Life Building Blocks
Phospholipids are integral to the construction of cell membranes and work cooperatively with omega-3 and antioxidants
(see Exhibit 4, Page 9) to assist a variety of processes essential to life.

The majority of EPA and DHA present in NKO® are structurally attached to phospholipid molecules, in the same manner
they appear in human cell membranes. By weight, NKO® is comprised of at least 30% EPA and DHA and 40%
phospholipids, mostly in the form of phosphatidylcholines. The EPA and DHA in fish oil are in the form of
tryacylglicerols. As we previously discussed, it has been demonstrated that essential fatty acids in the form of
phospholipids are superior to those in the form of tryacylglycerols in increasing the bioavailability EPA and DHA 76.

Comparison of animal and human studies demonstrated the absorption of phospholipid-bound long-chain PUFAs is
superior to non-phospholipid fish oils. A primate study demonstrated that twice as many phospholipid-bound FAs
accumulate in the brain compared to triglyceride-bound FAs77.

A human trial analyzing the response of both overweight and obese patients to long-chain fatty acid supplementation
demonstrated that daily doses of 216mg EPA and 90mg DHA from krill oil provided more profound fatty acid elevations
than daily doses of 212mg EPA and 178mg DHA derived from fish oil. At the end of the four-week trial, mean plasma
EPA levels were 377µmol/L in the krill oil group, as opposed to 293 µmol/L in the fish oil group. Although the krill oil
supplement provided half as much DHA as the fish oil, the plasma DHA was 476µmol/L in the krill oil group, compared
to 478µmol/L in the fish oil group at the end of this one-month trial78.

74
Kock K.H., et al., Philosophical Transactions of the Royal Society of London Series B Biological Sciences (2007) 29;362(1488):2333-2349.
75
Chemical compound possessing both hydrophilic (water-loving, polar) and lipophilic (fat-loving) properties.
76
Cansell M., et al., Lipids (2003) 38(5):551-559.
77
Wijendran V., et al., Pediatric Research (2002) 51(3):265-272.
78
Maki K.C., et al., Nutritional Research (2009) 29(9):609-615.

17


Astaxanthin – Potential Antioxidant and Anti-Inflammatory Effects
Astaxanthin, a member of the carotenoid family, is an oxygenated reddish pigment present in microalgae, fungi, complex
plants, seafood, flamingos and quail. It gives salmon, trout, and crustaceans such as shrimp, krill and lobster their
distinctive reddish coloration79. It is an antioxidant with anti-inflammatory properties, which has been studied as a
potential therapeutic agent in atherosclerotic cardiovascular disease80 and renal transplantation81.

Humans and other animals cannot synthesize them and therefore are required to source them in their diet82. Carotenoids
are classified, according to their chemical structure, into carotenes and xanthophylls. Astaxanthin, which is a xanthophyll,
contains two oxygenated groups on each ring structure (Exhibit 10), which is responsible for its enhanced antioxidant
features83.

Exhibit 10: Molecular Structure of Astaxanthin

Source: Fasset R.G., et al., Marine Drugs (2011) 9:447-465.

In 1987, the FDA approved astaxanthin as a feed additive for use in the aquaculture industry and in 1999 it was approved
for use as a dietary supplement (nutraceutical)84.

Certain marine species, such as shrimp, have a limited capacity to convert closely related carotenoids into astaxanthin.
The presence of this antioxidant in NKO® creates a natural protection against oxidation of the oil. Independent analysis
performed at Brunswick Laboratories with NKO® and published literature suggest that astaxanthin is significantly more
effective as antioxidant than vitamin E85.

Astaxanthin can reduce free radicals and protect the cell membrane phospholipids against free radical damage. When
measuring the oxygen radical absorbance (ORAC) – a measure of a compound’s ability to block free radicals, NKO® was
48 times more effective than fish oil and 34 times more effective than coenzyme Q1086.

Oral supplementation with astaxanthin in studies in healthy human volunteers and patients with reflux esophagitis
demonstrated a significant reduction in oxidative stress, hyperlipidemia and biomarkers of inflammation. In a study
involving 24 healthy volunteers who ingested astaxanthin in doses from 1.8 to 21.6mg/day for two weeks, the LDL lag
time, as a measure of susceptibility of LDL to oxidation, was significantly greater in astaxanthin treated participants
indicating inhibition of the oxidation of LDL87.

Plasma levels of 12- and 15-hydroxy fatty acids were significantly reduced in 40 healthy non-smoking Finnish males
given astaxanthin88 suggesting astaxanthin decreased the oxidation of fatty acids. The effects of dietary astaxanthin in
doses of 0, 2 or 8mg/day, over eight weeks, on oxidative stress and inflammation were investigated in a double blind

79
Hussein, G.; et al., Journal of Natural Products (2006) 69:443-449.
80
Fasset R.G., et al., Marine Drugs (2011), 9:447-465.
81
Fasset R.G., et al., BMC Nephrology (2008) 9:17.
82
Sandmann, G. European Journal of Biochemistry (1994) 223:7-24.
83
Guerin, M.; et al., Trends in Biotechnology (2003) 21, 210-216.
84
Guerin M.; et al., Trends in Biotechnology (2003) 21, 210-216.
85
Naguib Y.M., et al., Journal of Agricultural and Food Chemistry (2000) 48:1150-1154.
86
Massrieh W. Lipid Technology (2008) 20(5):108-111.
87
Iwamoto T.; et al., Journal of Atherosclerosis and Thrombosis (2000) 7:216-222.
88
Karppi J.; et al., International Journal of Vitamine and Nutrition Research (2007):77:3-11.

18


study in 14 healthy females89. Although these participants did not have oxidative stress or inflammation, those taking
2mg/day had lower C-reactive protein (CRP)90 at week eight. There was also a decrease in DNA damage measured using
plasma 8-hydroxy-2′-deoxyguanosine after week four in those taking astaxanthin. Astaxanthin therefore appears safe,
bioavailable when given orally and is suitable for further investigation in humans.

Moreover, the safety, bioavailability and effects of astaxanthin on oxidative stress and inflammation that have relevance
to the pathophysiology of atherosclerotic cardiovascular disease, have been assessed in a small number of clinical studies.
No adverse events have been reported and there is evidence of a reduction in biomarkers of oxidative stress and
inflammation with astaxanthin administration. Experimental studies in several species using an ischemia-reperfusion
myocardial model demonstrated that astaxanthin protects the myocardium when administered both orally or intravenously
prior to the induction of the ischemic event91.
A double-blind randomized placebo-controlled clinical trial (Xanthin study by Fasset et al.) is currently being conducted
to assess the effects of astaxanthin 8mg orally day on oxidative stress, inflammation and vascular function in patients that
have received a kidney transplant92. Patients in the study undertake measurements of surrogate markers of cardiovascular
disease including aortic pulse wave velocity, augmentation index, brachial forearm reactivity and carotid artery intima-
media thickness. Depending on the results from this pilot study a large randomized controlled trial assessing major
cardiovascular outcomes such as myocardial infarction and death may be warranted.

Experimental evidence suggests astaxanthin may have protective effects on cardiovascular disease when administered
prior to an induced ischemia-reperfusion event. In addition, there is evidence that astaxanthin may decrease oxidative
stress and inflammation which are known accompaniments of many diseases.

The unique molecular composition of krill oil, which is rich in phospholipids, omega-3 fatty acids, and diverse
antioxidants, seems to surpass the profile of fish oils and may offer a superior approach toward the reduction of risk for
cardiovascular disease.

NKO® and Hyperlipidemia
In a recent study, the effect of NKO® on hyperlipidemia was investigated93. In this double-blind trial, 120 male and
female subjects (mean age of 51±9.5 years) diagnosed with mild to high blood cholesterol (194-348mg/dL) and
triglycerides (204-354mg/dL) were enrolled. Subjects were randomly assigned to one of the following treatment groups:
 (A) low-dose krill oil: 1g/d if body mass index (BMI) was under 30kg/m2 and 1.5g/d if BMI was over 30 kg/m2
 (B) high-dose krill oil: 2g/d if BMI was under 30kg/m2 and 3g/d if BMI was over 30kg/m2
 (C) 3g/d of fish oil containing 180 mg EPA and 120 mg DHA
 (D) placebo containing microcrystalline cellulose

Assigned treatments were given daily for 12 weeks. The primary endpoints measured were total cholesterol, triglycerides,
LDL, and HDL at baseline and at 90 days. Fasting blood lipids and glucose were analyzed at baseline as well as 30 and
90 days after study initiation for all groups, and at 180 days for the 30 patients in Group B.

After 12 weeks of treatment, patients receiving 1g or 1.5g krill oil daily had a 13.4% and 13.7% decrease in mean total
cholesterol, from 236mg/dL and 231mg/dL to 204mg/dL (p=0.001) and 199mg/dL (p=0.001), respectively (Exhibit 11).

89
Park J.S.; et al., Nutrition & Metabolism (2010) 7:18.
90
Protein found in the blood, the levels of which rise in response to inflammation (it is an acute phase protein).
91
Fasset R.G., et al., Marine Drugs (2011) 9:447-465.
92
Fassett R.G.; at al., BMC Nephrology (2008) 9(17).
93
Bunea R., et al., Alternative Medicine Review (2004) 9:420-428.

19


Exhibit 11: Results of Krill Oil (1g and 1.5g/day) on Lipids
1g Krill Oil mg/dL % Change p-value 1.5g Krill Oil mg/dL % Change p-value
Time (days) 0 90 Time (days) 0 90
Total Cholesterol 235.83 204.12 -13.44% 0.001 Total Cholesterol 231.19 199.49 -13.71% 0.001
LDL 167.78 114.05 -32.03% 0.001 LDL 164.74 105.93 -35.70% 0.001
HDL 57.22 82.35 43.92% 0.001 HDL 58.76 83.89 42.76% 0.001
Triglycerides 120.50 107.21 -11.03% 0.114 Triglycerides 126.7 111.64 -11.89% 0.113

Source: Bunea R., et al., Alternative Medicine Review (2004) 9:420-428.

The group of patients treated with 2g or 3g krill oil showed a significant respective reduction in mean total cholesterol of
18.1% and 18%. Levels were reduced from a baseline of 247mg/dL and 251mg/dL to 203mg/dL (p=0.001) and
206mg/dL (p=0.001), correspondingly (Exhibit 12).

Exhibit 12: Results of Krill Oil (2g and 3g/day) on Lipids
2g Krill Oil mg/dL % Change p-value 3g Krill Oil mg/dL % Change p-value
Time (days) 0 90 Time (days) 0 90
Total Cholesterol 247.42 202.58 -18.13% 0.001 Total Cholesterol 250.52 205.67 -17.90% 0.001
LDL 182.86 114.43 -37.42% 0.001 LDL 172.81 105.16 -39.15% 0.001
HDL 51.03 79.25 55.30% 0.001 HDL 64.18 102.45 59.64% 0.001
Triglycerides 160.37 116.07 -27.62% 0.025 Triglycerides 152.77 112.27 -26.51% 0.028

Source: Bunea R., et al., Alternative Medicine Review (2004) 9:420-428.

In comparison, people receiving 3g fish oil had a mean reduction in total cholesterol of 5.9%, from a baseline 231mg/dL
to 218mg/dL (p=0.001). Those enrolled in the placebo group showed a 9.1% increase in mean total cholesterol, from
222mg/dL to 242mg/dL (p=0.001).

A similar effect on LDL levels was observed in all groups. Krill oil at a daily dose of 1g, 1.5g, 2g, or 3g achieved
significant reductions of LDL of 32%, 36%, 37%, and 39%, respectively (p=0.001). Results of patients treated daily with
3g fish oil did not achieve a significant reduction in LDL (4.6%) after 12 weeks. Patients receiving placebo showed a
negative effect, with a 13% increase in LDL levels.

HDL was significantly increased in all patients receiving krill oil (p=0.001) or fish oil (p=0.002). HDL levels increased
from 57.2mg/dL to 82.4mg/dL (44% change) at krill oil 1g/day; 58.8mg/dL to 83.9mg/dL (43% increase) for krill oil 1.5
g/day; 51mg/dL to 79.3mg/dL (55% increase) at krill oil 2g/day; and from 64.2mg/dL to 102.5mg/dL (59% increase) at a
daily krill oil dose of 3g. Fish oil taken at 3g/day increased HDL from 56.6mg/dL to 59.03mg/dL (4.2% increase). No
significant decrease of HDL (p=0.850) was observed within the placebo group.

Triglyceride reductions were not statistically significant in the 1g and 1.5g/day krill group (11% and 11.9% reduction,
respectively). However, a daily dose of 2g and 3g krill oil resulted in significant 26.7% and 26.5% reduction of
triglycerides, respectively (Exhibit 12 and 13).

20


Exhibit 13: Cholesterol, LDL, HDL and TGs - Percentage Change from Baseline
70%
60%
% Change from Baseline
50%
40%
Placebo
30%
1g Kril Oil
20%
10% 1.5g Kril Oil
0% 2g Kril Oil
-10% 3g Kril Oil
-20%
3g Fish Oil
-30%
-40%
-50%
Total Cholesterol LDL HDL Triglycerides

Source: Bunea R., et al., Alternative Medicine Review (2004) 9:420-428 and Merchant Advisors.

It is clearly demonstrated that krill oil considerably decreased total cholesterol, LDL, and triglycerides. In addition, it also
increased HDL levels. At lower and equal doses, krill oil was also more effective than fish oil in lowering glucose,
triglycerides, and LDL from baseline levels.

Additionally, blood glucose was reduced 6.3% in the 1g and 1.5g krill groups, and 5.6% in those taking 2g or 3g krill
daily. In comparison, there was a non-significant decrease in glucose for both the fish oil and placebo group. It is
important to notice that the FDA has recently ordered that statins - the cholesterol-lowering drugs – must carry warnings
about increased risks of elevated blood sugar and possible transient memory and cognition problems. Therefore, lowering
blood glucose could be seen as a plus for krill oil in managing cholesterol levels as compared to statins.

Inflammatory Disease Management with NKO®
Measurement of serum C-reactive protein (CRP) level is in widespread clinical use as a sensitive marker of
inflammation94. It appears to be a key player in the damaging effects of systemic inflammation and an easy and
inexpensive screening test to assess inflammation-associated risk95.

A double blinded, placebo controlled, randomized prospective study examined the effect of 300mg NKO® daily on CRP
and functional testing scores for arthritis96. Ninety subjects with a diagnosis of cardiovascular disease and/or rheumatoid
arthritis and/or osteoarthritis, with elevated CRP (>1mg/dL) for three consecutive weeks were enrolled in the trial. Group
A received NKO® (300mg daily) and Group B received a placebo. CRP and Western Ontario and McMaster Universities
(WOMAC) osteoarthritis score were measured at baseline and days 7, 14 and 30. WOMAC is a questionnaire used to
assess pain, stiffness, and physical function in patients with various inflammatory conditions, such as hip and/or knee
osteoarthritis, lower back pain, rheumatoid arthritis, etc97.

After seven days of krill supplementation, CRP decreased by 19.3% compared to an increase by 15.7% observed in the
placebo group (p=0.049). After 14 and 30 days of treatment, CRP further decreased by 29.7% and 30.9%, respectively, in
the krill oil group while the placebo group experienced an increase of 32.1% by day 14 and a drop to 25.1% by day 30
(p=0.001).

94
Rhodes B., et al., Nature Reviews. Rheumatology (2011) 7(5):282-289. Epub 2011 Apr 5.
95
Johansen J.S., et al., Rheumatology (1999) 38:618-626.
96
Deutsch L. Journal of the American College of Nutrition ((2007) 26:39-48.
97
http://www.rheumatology.org/practice/clinical/clinicianresearchers/outcomes-instrumentation/WOMAC.asp.

21


When comparing krill supplementation to the placebo group, differences at day 7 (p=0.049), day 14 (p=0.004) and day 30
(p=0.008) were all statistically significant.

By day 7, WOMAC results showed that the NKO® group significantly reduced pain scores (28.9% reduction, p=0.050),
stiffness scores (20.3% reduction, p=0.001), and functional impairment scores 22.8% (p=0.008) when compared to
placebo. NKO® also showed significant reduction in all three WOMAC scores by day 14 and day 30.

Premenstrual Syndrome
Sampalis et al., compared the effectiveness of NKO® to fish oil on various functional parameters in premenstrual
syndrome (PMS), as well as the total consumption of analgesics for pain and discomfort associated with PMS98 in a
double blind, randomized clinical trial. In this 90-day study, 70 patients of reproductive age were assigned to take 2g krill
oil daily (800mg phospholipids, 600mg EPA and DHA, n=36) or 2g fish oil daily (600mg EPA and DHA at a 3:2 ratio,
n=34) for the first 30 days of the trial. In the final 60 days, both groups were taking the assigned treatment eight days
prior to and two days during menstruation. Questionnaires were completed and analgesic medication intakes were
measured at baseline, 45 and 90 days.

After 45 and 90 days, the NKO® group showed significant improvements from baseline (p<0.001 for all parameters) in
breast tenderness, joint pain, weight gain, abdominal pain, swelling, and bloating, as well as feelings of being
overwhelmed, stressed, irritable, and depressed. The fish oil group demonstrated significant improvements from baseline
(p=0.04) only for weight gain and abdominal pain after 45 days. Symptoms of stress, weight gain, abdominal pain and
swelling were improved by 90 days of treatment with fish oil.

The consumption of analgesic medication was decreased by 50% from baseline in the NKO ® group after 90 days of
treatment. A similar decrease in pain reliever consumption was seen in the fish oil group. At the end of the study, the
comparative analysis between groups showed that women taking NKO® consumed significantly fewer pain relievers
during the 10 days of treatment than women receiving fish oil (p<0.03).

Previous studies have shown a beneficial effect of omega-3 PUFAs on dysmenorrea (menstrual pain)99. This is probably
due to the fact that menstrual pain and cramps are caused by inflammation mediated by omega-6 PUFA-derived
eicosanoids100.

CNS Effects of NKO®
NKO® may also be useful for the treatment of ADHD. Attention deficit hyperactivity disorder is a neurobiological illness,
prevalent in about 8% of all children that usually persists in adulthood101. Its core symptoms include inattention,
impulsivity, and hyperactivity, all of which affect daily living, family interactions, social interactions, and academic
achievements.

Several studies have indicated reduced blood concentrations of highly unsaturated fatty acids in ADHD children
compared to controls102. The NKO® study was designed as a pilot, uncontrolled, open-label study to evaluate the safety
and effectiveness of NKO® in the treatment of ADHD. Thirty patients (mean age of 23±12 years) diagnosed with ADHD
were enrolled in the trial. The subjects were administered 500mg NKO® daily and the Barkley executive functions
scores103 were observed. After completing the treatment, patients exhibited a statistically significant improvement in
behavioral inhibition, self-control and executive functions104. These results are compelling; however, further studies are
needed to better understand dosage and long-term safety and efficacy of the treatment.

98
Sampalis F., et al., Alternative Medicine Review (2003) 8:171-179.
99
Deutch B. European Journal of Clinical Nutrition (1995) 49:508-516.
100
Harel Z., et al., American Journal of Obstetrics & Gynecology (1996) 174:1335-1338.
101
Pliszka S., et al., Journal of the American Academy of Child and Adolescent Psychiatry (2007); 46(7):894-921.
102
Richardson A.J. International Review of Psychiatry (2006) 8:155-172.
103 The Barkley Deficits in Executive Functioning Scale (BDEFS) is an empirically based tool for evaluating dimensions of adult executive functioning in daily life.
104
Massrieh W. Lipid Technology (2008) 20(5):108-111.

22


GLOBAL OMEGA-3 MARKET POISED TO GROW

Worldwide Omega-3 Consumer Product Market is Worth $13B
A report from the Global Organization for EPA and DHA (GOED) suggests that the entire omega-3 market (including
raw materials, oil and concentrates, supplements, food and beverage products, beauty products, and pet food) has reached
$13B worldwide105:

 About $180MM is derived from raw materials
 $1.28B is generated from refined oils and concentrates
 $13.1B is comprised by consumer products:
o food and beverage products (excluding fish)
o health and beauty care products (including supplements)
o pet products

The structure of the omega-3 market is fairly complex. There are several companies, many joint ventures and strategic
alliances involved at multiple levels within the industry.

Throughout the world, the number of consumers who are aware of omega-3 fatty acids and their broad role in health is
high (Exhibit 14, 15). The number of people who are specifically consuming omega-3 for health has increased
dramatically over the past few years. Nine percent of grocery shoppers buy high omega-3 food or beverage products in a
typical grocery shopping trip, and the percentage of adults who take fish oil supplements has risen from 8% in 2006 to
17% in 2011106. Increasing consumption is driven by:
 expanding medical, governmental, and public awareness of omega-3 and its wide range of health benefits
 continued consumer receptiveness to functional food and supplement products
 positive mainstream and trade media reports
 increased market participation by major marketers

Exhibit 14: U.S. Consumer Awareness of Omega-3, 1998-2008
80%

70% 76%
71%
60% 57%
55% 63%
60%
50% 55% 57%

49%
40% 46% Awareness
43%
29% 29% Believe Health Benefits
30% 27%
30% 33%
31%
25% 28%
20%
21% 22%
10% 16%

0%
1998

2001
2002
2003
2004
2005

2008
1999
2000

2006
2007

Source: GOED

105
GOED Report 2008.
106
Omega-3: Global Product Trends and Opportunities. Packaged Facts, 2011.

23


Exhibit 15: Consumer Awareness of Omega-3 by Country, 2009

France 82%
40%

United States 88%
33%

Germany 90%
31%
Total Awareness
Italy 93% Believe Health Benefits
39%

Sapin 96%
47%

United Kingdom 99%
36%

0% 50% 100% 150%
Source: GOED

More and more, customers consider health and beauty care products an extension of the food/beverage they consume.
This attitude has created a new range of nutritional products expanding from whole foods and fortified/functional foods to
nutritional supplements and personal care products107. Exhibit 16 shows some of the reasons why people buy health foods
and/or beverages.

Exhibit 16: Why Do People Purchase Healthy Foods/Beverages
35% 31%
30%
25% 21%
20%
15%
15% 11%
9%
10%
5%
5% 2%
0%

Source: Future of Omega-3 Functional Foods GOED Exchange January 2011

Consumer demand for omega-3 products is set to continue to grow steadily over the 2012-2015 period. Growth would
influence the activities of manufacturers and marketers worldwide in supplying omega-3 products across various
categories and segments of consumer packaged goods. The market for omega-3 products would remain lively and
opportunity-rich for years to come. What is now a $13B industry is probably far from reaching its full potential108.

107
Packaged Facts 2011.
108
Omega-3: Global Product Trends and Opportunities 2011.

24

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