Biotech Values

[DewDiligence]

In your example, NVS takes $25M off the top in each of the first four quarters to recoup its $100M of development costs. (NVS can’t take more than $25M per quarter because it is contractually allowed to apply only half of the $50M of quarterly net profits toward its self-repayment.) The $25M of Lovenox net profits left over in each of the first four quarters after NVS takes $25M off the top is then split 55% to NVS and 45% to MNTA, so MNTA ends up with $11.25M in cash flow in each of the four quarters, or $45M in total for the four quarters.

If there had been no obligation by MNTA to reimburse NVS for development costs, MNTA’s take from the first four quarters would have been $200M(0.45) = $90M. Thus, the amount of cash flow MNTA had to forego to reimburse NVS in your example was $90M-$45M = $45M, which is of course 45% of NVS’ $100M of development costs.