Perceptive Advisors increased its Neptune Wellness stake after the cannabis extraction company announced new partnership

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Leading health care-focused hedge fund Perceptive Advisors increased its Neptune Wellness (NEPT) stake by 37%, buying 5,000,000 shares. The fund made the disclosure via a 13G/A “passive” filing yesterday. Perceptive’s purchase comes days after the Quebec-based cannabis extraction company announced a new partnership that will pay Neptune a minimum of $16.5 million over the next six months. The company’s revenue in its most recent quarter was $6.5 million.

Perceptive Advisors first bought a small stake in Neptune in Q2 2011, when NEPT was trading around $4. It’s been a wild ride for the small cap stock since then. NEPT hit $5.14 in July of 2012, then slid all the way to $0.80 in the fall of 2017. The stock’s all time high of $6.56 came in July of last year. NEPT’s low during the coronavirus crash was $0.96 on March 19. The shares closed at $2.85 on May 21.

Previously, in Q3 of 2019, Perceptive Advisors increased its Neptune Wellness stake by 2.25 million shares. NEPT is the fund’s #20 holding.

Perceptive Advisors ownership history of NEPT

Perceptive Advisers’ historical Neptune Wellness Solutions (NETP) holdings. Light green is # shares held, dark green is NEPT stock price.

Meanwhile, the company’s revenues have been sporadic.

In a May 14 press release, Neptune said Q1 fiscal 2021 revenue growth is “expected to accelerate significantly, reflecting YOY growth of 300% to 400% to approximately $18 million to $22 million. Fiscal 2020 revenue is anticipated to increase 15% to 21% to approximately $28.0 to $29.6 million from $24.4 million in the prior year.” It’s not clear if revenue from the new partnership is included in that projection. 

Neptune Wellness Solutions originally focused on Antarctic krill oil production. But in June of 2019 the company announced a multi-year deal to provide extracted cannabis products for Canopy Growth Corp. (CGC). Neptune now operates an industrial-scale licensed cannabis processing plant in Quebec, CA, and a hemp processing facility in North Carolina.

Neptune Solutions is Perceptive Advisors #20 position.

Under the terms of the new deal with the unnamed partner, Neptune will see revenue of at least $16.5 million, processing 44,000 kilos of extract from hemp.

In a news release, Neptune said the extracts will be processed for the derivatives market in Canada. Following the Cannabis 2.0 phase of legalization, the country legalized products such as edibles and marijuana-infused drinks, effective October 2019.

“With this partnership we are in an even stronger position to serve and provide value to our Canadian [licensed producer] customers, while generating high margin revenue opportunities through the processing of hemp or cannabis extracts for a variety of product forms,” the company said.

Joseph Edelman’s Perceptive Advisors is a leading health-care focused hedge fund. Over the last decade, an equal-weighted portfolio of Perceptive’s top 20 13F positions has averaged a 20.49% annualized return. That compares to the S&P 500’s total return of 12.21% annualized.

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