Earlier this week a deal was announced in which Israeli supplier Frutarom unloaded the krill oil business of Enzymotec, which it had recently acquired, to Aker for a reported sum of €21.6 million ($26.8 million). Frutarom said the krill oil business did not fit in with Enzymotec’s ‘core activities.’ Also, the company presumably did not want to compete with Aker, which has demonstrated perseverance aplenty. Rather, the new deal will see the two companies form a strategic partnership in which Aker will serve Frutarom’s and Enzymotec’s nutraceutical krill oil customers.
End of litigation phase
The krill oil supply industry for years had consisted of three major players: The pioneer of the category, Quebec-based Neptune Technologies and Bioressources; Aker, a late comer from Norway that was vertically integrated with its own harvesting vessels; and Enzymotec, an Israeli lipid ingredients specialist that pursued the krill oil sector as an accretive activity with its other interests. Neptune vigorously defended its IP turf with a series of actions against the other two, a long battle that came to be known as “the krill wars.” The active litigation phase ended with agreements between the three major players, and last year Aker acquired Neptune’s krill oil supply business and entered into a partnership similar to the one with Frutarom. With the IP hatchet having been buried for several years now, Johansen said he prefers to view the Enzymotec deal as not the closing chapter of that expensive combat but rather as one of the first acts of the new phase.
“I kind of feel like the krill wars have been over for a while. The war now is not about krill oil, it’s about the fact that 90% of all Americans do not have enough omega-3s in their diet,” Johansen said.
Major market share
Johansen has spoken in the past about the need for ‘scale’ in the krill oil business. Aker is the only vertically integrated supplier of this ingredient. It has two operating krill harvesting vessels working in Antarctic waters. It is completing the retrofit of a third that was acquired out of bankruptcy court and is building a fourth vessel from the keel up. Even before the new vessels are fully integrated into fleet operations later this year (the company also has a dedicated supply ship and a base of krill oil fishing operations in Uruguay) the company was bringing in more than 60% of the global krill harvest.
How much of the market does Aker now control? Johansen said it's hard to say, because the remaining supply is flowing into the market from Chinese extractors, companies which sometimes operate within shells of other entities and which are not transparent about numbers. Aker has defended its IP turf against at least one of these companies, but Johansen said it’s hard to know exactly who’s out there and how much business they’re turning over.
“I can say that we are less than 5% of the overall omega-3s market,” Johansen said. “We are leading in the krill niche. The Asian companies don’t report their numbers.”
The benefits and responsibilities of being big
But Johansen said the effort was never about growing just for the sake of being big. While size always implies potential economies of scale and higher margins, Johansen said that’s only part of the story.
Krill oil as a dietary supplement ingredient is still relatively new. To grow this market several things need to be accomplished, Johansen said. More consumers still need to be educated about the benefits of omega-3s in general, and in particular about the benefits of the easier-to-digest phospholipid form of krill oil. Johansen also said more research needs to be done to prove these benefits.
And more development of the ingredient itself needs to occur. After its debut, krill oil languished for a number of years in its original state, while the companies involved spent the cash that could have gone toward development on lawyers. The ingredient did have a ‘one small pill’ and ‘no fishy burps’ message, but it neither smelled nor tasted good. And there was the potential of surrendering some of those palatability and bioefficiency benefits to new, cleaner-tasting and more highly concentrated forms of fish oil that were coming to market.
Scale makes investment possible
All of that costs money. A lot of it.
“We need that scale to be able to afford the kind of investment needed to support research, product development and to develop the supply chain for krill oil,” Johansen said.
Along with the new harvesting vessels, some of those scale benefits have now been poured into product development. Aker has invested in bringing its processing fully in house. From the beginning of its involvement in the krill oil business, Aker had been partnering in the extraction of the ingredient with Naturex, but several years ago embarked on retrofitting a facility in Houston, TX to do its own extraction. Having a dedicated facility enabled the company to invest in new processing technology that yielded a more highly concentrated and cleaner tasting and smelling ingredient.
Aker is also marshaling funds to increase its marketing efforts.
“It always surprises me how much money it takes to make a difference in changing people’s opinions,” he said.
New avenues for krill
Johansen said that these new partnerships with Enzymotec and Neptune mark the start of new chapter for the ingredient. It’s a new phase that he believes will see the ingredient venture far beyond its beginnings as a more palatable alternative to fish oil capsules.
“One thing that won’t change is our commitment to the krill category. We are here for the long run, and I think we have just seen the beginning of what’s possible for krill oil. Krill is the biggest biomass on earth and it is present in all the oceans, which cover 70% of the world’s surface,” Johansen said.
“It sits at the bottom of the food chain and we know all of the nutrients important for human health make their way up that chain. We are researching how krill can help improve the bioavailability of other ingredients. That’s one avenue. Then there was a study from Singapore a couple of years ago that showed phospholipids being vital for transport of EPA and DHA from the blood to the brain. There might be similar functions of phospholipids for other organs. We are committed to going after that and doing other research as well,” he said.