I agree that Ohad knows more than Cramer, but if I'm right and T-DM1 grows to not only replace Herceptin, but expand on it, even 5% of say $10 B is a huge number for a company as small as IMGN.
Also, recently a redacted partnership agreement was posted on IV as I remember it. While no numbers were available, it was clear that several royalty adjustments were included at increasing annual sales figures. This is something I've contended for over a decade, but it was the first time I'd seen it in black and white.
Here's what I believe. I believe the initial royalty rate was 5%, but when IMGN agreed to assist with developing the production capability for the drug, it was moved up to 6%, that's why Cramer indicated 6% after having Junius on the show perhaps a year ago. I believe the initial agreement incrementally moved up to at least 8%, so with the added percent it's now at least 9%. This really becomes substantial if say $5 billion is the goal for the last sales based increase.
Something else I believe is that patients who discover their breast cancer early, before its metastasized, who's cancer is Her2 positive based on needle biopsy's will get their Oncologists to try T-DM1 prior to surgery. I hope the result will be many won't require the surgery at all, as the tumor vanishes, but for those who do the tumor will be dramatically shrunk, and perhaps just necrotic matter. I also believe that T-DM1 will eventually be tried for patients with any tumor having sufficient Her2 identifier, and some benefits will be seen.
In that with something under 30% of current breast cancer patients getting Herceptin and generating $5 billion in sales annually, I believe that the percentage with benefit in breast cancer will rise to say 35 to 40%. In addition, because the drug is effective far longer, patients will live far longer, and thus revenue for breast cancer alone could rise to perhaps $10 billion or more. Now if we added say 20% of colon cancer patients additional billions would be added.
If over time I'm right about this, and if as I believe IMGN's greatest royalty is 9%, it's possible that IMGN could see over a billion in earnings from T-DM1 alone annually. I'm speaking of late this decade at the earliest, but how high would you put IMGN's price based on T-DM1 alone if I'm right about this.
By the way, I also think that by next ASCO, we may see one or more Phase II Trials that are far enough along to gain a commitment to Phase III.
Perhaps when approval is actually obtained we'll learn more precisely what the initial royalty rate will be. I have no idea if annual sales are based on sales from the anniversary date of approval, or most likely either calendar year or fiscal year for Roche. Fiscal year is most probable as I believe that's when they report annual sales for each drug, after some delay processing the data. I would suspect that for at least a few years after approval we'll learn of new milestone payments and royalty rates for IMGN. Remember, there will be milestone payments with each royalty increase, even if the precise figure is never specified, they'll have to announce the milestone payment.
It's now been well over a decade since Mitch announced that this partnership was weighted to provide milestone payments balanced throughout the partnership. Back then most thought Approval would be the last milestone, and we were shocked the payments for things like starting Phase II and III were so low. Now we should realize that over a dozen years into the partnership we might finally reach the half way point on milestone money, with the remainder perhaps taking most of this decade. The good news is that the success in this partnership has led to newer partnership that have milestones and royalty figures that are fair sized multiples of these figures, and even better, many have buy in clauses.
Gary |
