Biotech Values

[DewDiligence]

Mea culpa re net income from LEO:

I just heard from Tom Newberry on the royalty/transfer-price terms of the LEO partnership: ‘wswc123’ on Yahoo was right and I was wrong. The mid-to-high teens-percentage royalty/transfer price is *net* of GTC’s production costs as ‘wswc123’ thought it was.

Since COGS are covered by LEO, in constructing a valuation model the only adjustment one needs to make to this mid-to-high-teens income stream from LEO to GTC is a deduction for royalty payments that GTC must pay to third parties. The rate on these payments has not been disclosed, but I’ve assumed 2.5% to be conservative. If one uses this 2.5% figure, then the net (pre-tax) income GTC realizes on LEO’s sales is in the vicinity of 15% of end-user sales.

In other words, based on the likely range of LEO’s ATryn sales, GTC will realize about $3-4M more per year in net (pre-tax) income than I previously thought.