My latest thoughts on earnings:
The following Earnings Model is based on Sepracor's ICE Pharmaceutical Rollout information provided in their ?Fact Sheet?. I?ve added the annual sales of the Parent Drug for 1999. A safety factor (ie. 50%) is included to account for the fact that the drug may not reach the market and may not take the entire market share of the Parent Drug. If applicable, an estimated royalty % is indicated and if Sepracor will market the product on their own, the Royalty is indicated as 100%. Using these factors the Estimated Annual Revenue for each drug candidate is calculated.
Because the pharmaceutical market is continually growing, the model applies an 8% annual growth rate to the sales of each product. Products that Sepracor is bringing to the market in stages (ie. Xopenex) are adjusted upwards in the years following their initial launch. The estimated sales for Fiscal Years 2003, 2006 and 2009 are indicated on the lower line of each product analysis and are in [$ million]. These numbers are intended to account for market growth and the staged launch of certain products.
Following the individual product Annual Sales projections I?ve summarized Sepracor?s Estimated Total Revenue Per Year and subtracted estimated costs for SG&A, R&D, Miscellaneous (ie. product costs, license fees, patent fees, interest) and Tax @ 32%. The Net Earnings Per Share are the end result, and are indicated for Fiscal Years 2003, 2006 and 2009. If you are interested and have time, please review this information and comment on any part of the model that you feel needs alteration.
Sepracor Product... Parent Drug... Rollout Date?..
1998 Sales of Parent? Safety Factor? Estimated Royalty? Revenue $
Allegra (Fexofenadine).. Seldane.. 1995
$.8 billion.. 100%.. 5%.. $40 million
[2003 $54 million] [2006 $68 million] [2009 $86 million]
Xopenex (Levalbuterol).. Ventolin/Proventil.. 1999
$1.4 billion.. 8%.. NA.. $112 million
[2003 $152 million] [2006 $492 million] [2009 $620 million]
Desloratadine (DCL).. Claritin.. 2000
$2.7 billion.. 80%.. 5%.. $108 million
[2003 $147 million] [2006 $185 million] [2009 $233 million]
Noricisapride.. Propulsid.. 2001
$1 billion.. 90%.. 14%.. $126 million
[2003 $171 million] [2006 $216 million] [2009 $272 million]
Norastemizol.. Hismanal.. 2001
$600 million.. 50%.. 40%.. $120 million
[2003 $163 million] [2006 $205 million] [2009 $259 million]
(S)-oxybutynin.. Ditropan.. 2002
$130 million.. 40%.. 100%.. $60 million
[2003 $82 million] [2006 $103 million] [2009 $130 million]
(R)-fluoxetine.. Prozac.. 2002
$2.8 billion.. 70%.. 14%.. $274 million
[2003 $373 million] [2006 $470 million] [2009 $592 million]
(R,R)-formoterol.. Foradil/Atock.. 2002
$140 million.. 60%.. 100%.. $84 million
[2003 114 million] [2006 $144 million] [2009 $181 million]
(S)-doxazosin.. Cardura.. 2002
$700 million.. 50%.. 10%.. $35 million
[2003 $0 million] [2006 $60 million] [2009 $76 million]
(-)-cetirizine.. Zyrtec.. 2002
$800 million.. 70%.. 8%.. $45 million
[2003 $61 million] [2006 $77 million] [2009 $97 million]
Desmethylsibutramine.. Meridia.. 2002
$1 billion.. 50%.. 8%.. $40 million
[2003 $0 million] [2006 $68 million] [2009 $86 million]
(R)-ketoprofen.. Orudis/Actron.. 2002
$200 million.. 30%.. 8%.. $5 million
[2003 $0 million] [2006 $8 million] [2009 $10 million]
Desmethylvenlafaxine.. Effexor.. 2002
$500 million.. 30%.. 8%.. $12 million
[2003 $0 million] [2006 $21 million] [2009 $26 million]
(R)-bupropion.. Zyban.. 2003
$650 million (?).. 70%.. 8%.. $36 million
[2003 $0 million] [2006 $62 million] [2009 $79 million]
(+)-zopiclone.. Imovane.. 2003
$150 million.. 50%.. 8%.. $6 million
[2003 $0 million] [2006 $11 million] [2009 $13 million]
Nefazodone metabolite.. Serzone.. 2004
$230 million.. 50%.. 8%.. $9 million
[2003 $0 million] [2006 $16 million] [2009 $20 million]
(-)-pantoprazole.. Pantozol.. 2005
$300 million.. 70%.. 8% .. $17 million
[2003 $0 million] [2006 $29 million] [2009 $36 million]
(R)-ondansetron.. Zofran.. 2006
$600 million.. 70%.. 8%.. $34 million
[2003 $0 million] [2006 $58 million] [2009 $147 million]
Hydroxyitraconazole.. Sporanox.. 2007
$600 million.. 70%.. 8%.. $31 million
[2003 $0 million] [2006 $0 million] [2009 $66 million]
(-)-amlodipine.. Norvasc.. 2007
$2.7 billion.. 50%.. 8%.. $108 million
[2003 $0 million] [2006 $0 million] [2009 $233 million]
(S)-salmeterol.. Serevent.. 2008
$700 million.. 70%.. 8%.. $39 million
[2003 $0 million] [2006 $0 million] [2009 $85 million]
(S)-Iansoprazole.. Prevacid.. 2009
$1.8 billion.. 70%.. 8%.. $39 million
[2003 $0 million] [2006 $0 million] [2009 $218 million]
"Partial list"
Totaling the above numbers results in Total Annual Revenue for 2003, 2006 and 2009 as follows (see below). When the sales are royalty based, the only direct costs involved is Tax and the cost of counting the money. With products that are brought to market by Sepracor themselves, there will be considerable sales, marketing, administration and product costs to take into account. There will also be significant R&D costs as they continue to add to and develop their pipeline. These costs were estimated by reviewing the financial reports of a number of pharmaceutical companies. The % cost vs. revenue for the comparable companies was applied in proportion to the ratio of products Sepracor licenses vs. markets on their own. SG&A, R&D, Miscellaneous (ie. product costs, license fees, patent fees, interest) and Tax are subtracted from the Total Sales resulting in an Estimated Net Earnings Per Share.
FY 2003 ? $1.26 billion in Sales = $31 per share - $7 per share (SG&A) - $7 per share (R&D) - $2 per share (Misc) = $15 per share in gross earnings ? 32% (Tax) = $10.1 per share in net earnings.
FY 2006 ? $2.22 billion in Sales = $54 per share - $12 per share (SG&A) - $12 per share (R&D) - $4 per share (Misc) = $26 per share in gross earnings ? 32% (Tax) = $17.9 per share in net earnings.
FY 2009 ? $3.40 billion in Sales = $83 per share - $21 per share (SG&A) - $16 per share (R&D) - $7 per share (Misc) = $39 per share in gross earnings ? 32% (Tax) = $26.5 per share in net earnings.
The above earnings estimates are based on the current pipeline only. They do not include new products that Sepracor may place in the pipeline that we are unaware of at this time. On the other hand, they do not include competition from products beyond the ones on the market at this time. The estimates do not include the possibility that because the ICE is improved / safer / longer acting / has lower dosing / etc. the Sepracor product may obtain more of the total market than the parent drug.
The estimate does not include the possibility that Sepracor could bring considerably more of these drugs to market on their own. If they did, the numbers would increase significantly (this will most likely be a factor down the road, beyond 2003). On the other hand, this model doesn't account for the FTC activities which, IMO, are unlikely to amount to anything. The possibility that a challenge of a Sepracor patent may occur is not included, but could happen. Potential costs to defend patents, such as legal fees, are included.
Of course, all of this is only my opinion and there are risks involved with any investment.
Dave
Notes / Revisions:
032499
Increased the Prozac ICE royalty to 14%. Increased safety factor to 70% after learning that they are already in Phase II trials. This has progressed faster than expected.
Increased fully diluted share count to 41 million. Revised the $/share costs of R&D, SG&A and other expenses. With higher share count the model automatically increased these costs since they were formulated on a $/share basis. The $/share numbers were reduced to account for this and to also adjust for the fact that my R&D estimates were higher than they should have been.
Xopenex Final Approval handed to Sepracor yesterday after the close. Press release looked great. Clearly states the fact that there are significant improvements of the single isomer product vs. the racemic product.
042099
Increased 1998 Prevacide sales to $1.8 billion from $1.0 billion based on latest data.
FDA letter regarding Xopenex is a non-factor. Prozac sales slowing 4% is a non-factor already accounted in the earnings model by the conservative safety factor. Note that the Prozac ICE may be a better product and sales may increase because of this. IMO the earnings model remains conservative.
April 29, 1999
Deleted (S)-doxazosin, (-)-cetrizine, Desmethylsibutramine, (R)-ketoprofen and Desmethylvenlafaxine from 2003 revenue projection (an effort to make the earnings model more conservative).
Increased Safety Factor for (R,R)-formoterol to 60% after it passes Phase II Trials with good reports.
Added Nefazodone metabolite (Serzone ICE, parent drug from Bristol-Meyers Squibb) a completely new drug for the earnings model!
Note from 10k: (S)-fluoxetine is still in the works to treat Migranes. The parent drug can be considered to be Imitrex by GlaxoWellcome.
May 15, 1999
JNJ drops Hismanal ICE. Sepracor has complete control of Norastemizol. They will most likely seek another partner. Reduced Royalty to 40% from 50%.
May 31, 1999
Zyrtec ICE (levocetirizine) deal made with UCB. NDA in Europe to be filed in 2000. Sales could start in Europe in 2002. Royalty stated by UCB at 5% to increase w/ sales to a maximum of 12% (estimated).
July 15, 1999
Lowered Safety Factor for Xopenex to 10% to account for potentially slow sales. Lowered Norastemizol royalty to account for JNJ share. Lowered R&D expenses for 2006 and 2009 by $1 and $2 per share respectively.
September 6, 1999
HMR and SEPR resolve the dispute over Allegra. SEPR will receive royalties on Allegra sales outside of the US starting (retroactively) on March 1999. SEPR will receive royalties on Allegra sales in the US starting in mid February 2001. xUS sales are around $300 mm and the royalty should be around 7%. US sales are around $400 mm and the royalty should be around 3%.
Revised Parent Drug sales to show estimated 1999 sales in lieu of 1998 sales. Revised miscellaneous revenue projections and costs based on clinical and business progress. Adjusted expected royalty rates for future partnerships to 8% from 10%. Further reduced Xopenex safety factor to 8% from 10%. |
