Biotech Values

[mcbio]

Question on royalty splits involving three parties

As noted in the release, KERX in-licensed perifosine from AEZS in the U.S., Canada, and Mexico. Page 56 of AEZS' FYE 2008 audited financials (http://www.aeternazentaris.com/pdfdyn/2008%20Finanacial%20Stmt_FINAL.pdf ) notes, among other things, that AEZS is entitled to "scale-up royalties (from high single to low double-digit) on future net sales in the United States, Canada, and Mexico."

For sake of discussion, let's assume that KERX further enters into a large partnership with a big pharma for perifosine rights in these territories for double-digit (10%) royalties. For simplicity, let's also just assume that the net sale royalty split for AEZS referred to above is also 10%. Finally, let's assume peak annual sales of $500M for perifosine.

Is AEZS' cut of these royalties 10% of the $50M received by KERX, or just $5M annually? Or would it be 10% of $450M (annual sales less the royalties due KERX)? The latter arrangement would be much less favorable for big pharma, which is why I would be surprised if that is the case. Or is the split unclear by the language in the financial statements?