Wednesday, June 19, 2019 7:29:52 AM
What amount do you envision when you write “huge upfront fee” above? And what exactly is meant by “high double digit”?
This type of licensing deal would at most reach a high of ~18% in tiered royalties. Upfront approx $80 mil for a market that will peak in the EU just shy of $1B in revenue (our model) with a like amount at reaching certain sales milestones. Of course, all of that is contingent upon EMEA approval, which affects the above if the licensee submits the app for MA.
The primary reasons they are waiting in the EU are funding and time. Because of severe constraints in both, they have been desperately trying to negotiate a licensing deal for the EU territories, and have guided as much. They are already set up in the US and it is far simpler to ramp up here than to break new ground overseas. However, we think the feedback has been poor, with current royalty offers in the single digits and relatively low upfront and milestone under $40 mil. These will change if they get FDA approval (huge sign of confidence), and will of course change if they get EMEA approval, but either is far from a given. And then there is the patent litigation actions that also need resolution.
So you have a variety of things currently going on:
-partners want approval in at least US to be confident enough in an EU approval. Terms are very unfavorable until then.
-partners will offer better terms if US approval, and these will be subject to two further breakdowns, each with terms of its own:
-the licensee submits for MA in EU, and the licensor submits for MA in EU, and additional terms according to each after potential approval
-and all of the above further contingent upon a win in the courts in Jan 2020
If the data were extremely clean and there was very high confidence amongst larger pharma cos a deal would have been done by now. But they are dubious, clearly.
There is another problem that we elaborate on in our greater report, in that even if they should get EU approval and the 8+2 data exclusivity (forget the +1, not going to happen), there is a loophole that will cause them to lose the entire market to multiple generics producers within 3 years. And so what really needs to happen for a deal is a win in the courts in Jan.
An approval in the US and EU is far from a given, but has promise. Perhaps 40-50% chance. But a win in the patent litigation actions in Jan has very poor odds in our view. Perhaps <15%.
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