| | | Sorry for not getting back to you on this subject any sooner. I had a death in the family, had to go on a trip abroad as a result of that, and honestly didn't feel like doing much of anything following my personal situation.
A few things have happened since we last were debating this subject ( they changed our P.R. firm and therefore our way of contacting management or vice versa. Guess we shouldn't continue waiting for Rich Pascoe to get back to us on this subject, huh? ).
Alright. Let's review David Collin's understanding on the subject.
He did say his [David} understanding was that Vitaros was sold for an average of 15 dollars per unit, the royalty rate was 10 to 15 percent, royalties averaged between 2:00-2:25, and sales were priced in dollars. He went on to say that there was no currency effect on our sales but the pricing would be more expensive on the cost of the product to the buyer and could have an effect on demand.
If Vitaros is sold for an average of $15 dollars per unit and the royalty rate is 10%-15% and we know that the royalties are tiered. It would be safe to assume that $15 x 10%= $1.50.
I doubt that we are hitting the higher tiers in any of the launched countries as of yet ( an assumption on my part ).
Also, I believe that there was some confusion on behalf of David in regards to what he said regarding the currency effect. Let me explain what I mean ( and I'm saying this based on what you wrote his answer was on this subject ).
He went on to say that there was no currency effect on our sales but the pricing would be more expensive on the cost of the product to the buyer and could have an effect on demand.
It seems to me that when he spoke to you about this subject, he was referring to the transfer price that we receive for every Vitaros Unit. ( I say transfer because we buy it from Therapex / Parima for a price and sell it to the Licensees for another. Small margin, per management, if any ).
Theoretically there would be no currency effect on this sale if we sell in dollars and they pay us in dollars for each unit. This is where his remark would be right, in regards to currency effect, if the dollar is stronger it would possibly have an effect on demand. As it would cost the Licensee more Euro's per Unit.
In regards to the Royalties. The sales are done in Euro's. Therefore the Royalty would be based on a sell price that was finalized in Euro's. In my opinion, when it comes to royalties, there would be a currency effect.
Let me try and put this in a way a clearer way.
Let's say:
Mirror Image = Apricus
Mokelumne River = Takeda
Old Coach = U.K. Pharmacy
Eicoman = End User ( sorry Eico )
Phoenix = Parima
Example 1 - Product Supply reorder from Mokelumne River :
- Mokelumne River orders 100K units of Vitaros for a resupply ( Mokelumne River is billed for 100K units in U.S. dollars ).
- Mirror Image instructs Phoenix that he needs to produce and ship 100k units of Vitaros to Mokelumne River ( Mirror Image is billed by Phoenix for the 100K unit order in U.S. dollars ).
- Orders are shipped by Phoenix to Mokelumne River.
* No exchange effect if it is handled in this manner. Other than it might cost Mokelumne River more Euro per dollar to pay for the 100k Order if the Dollar is getting stronger. But no effect to Mirror Image.
Example 2 - Eicoman buys Vitaros from Old Coach
- Mokelumne River re-supplies Old Coach with Vitaros units as he was out of stock ( Mokelumne River will bill Old Coach in Euro's once the doses of Vitaros are sold. The equivalent of $15 dollars per Unit is the wholesale price ).
- Eicoman buys a month supply of Vitaros from Old Coach ( he has to pay in cash as he has NO Credit, he pays in Euro's ).
- Old Coach pays Mokelumne River for the Order of Vitaros ( in Euro's ).
- Mokelumne River consolidates all his sales and then pays Mirror Image - a quarter after the sales are realized - his royalty percentage in U.S. dollars.
Recap.
Old Coach was paid in Euro's by Eicoman. It would be very likely that Old Coach would therefore pay Mokelumne River in Euro's for the product sales. Now Mokelumne has to pay Mirror Image his royalty percentage in U.S. Dollars. There has to be a currency effect. It would affect either Mokelumne River or Mirror Image ( and lately it would be a NEGATIVE effect as the dollar is getting stronger ). Unless the price to Old Coach changes by the currency effect.
I can see 3 scenarios.
1 - Mirror Image always gets a percentage based on $15 U.S. dollars per unit, as the currency effect is passed on to Old Coach by Mokelumne River ( in the form of a higher Wholesale price per unit ).
2- Mirror Image always gets a percentage based on $ 15 U.S. dollars per unit, and the currency effect is taken on my Mokelumne River. Mokelumne gets paid in Euro's and then has to convert the Euro's to U.S. dollars every quarter to pay for the Units based in Dollars. Any exchange loss/gain will be covered by him.
3- Mirror Image gets paid a percentage based on the Wholesale price of Vitaros sold in Euro's. The price fluctuates with the currency. Stonger Dollar = less royalty for Mirror Image. Mokelumne River consolidates all sales made in a quarter, then is allowed to pay Mirror Image a quarter after ( per the contractual agreement ). An exchange rate is agreed upon ( end of quarter - exchange rate - for example ). And in this case, Mirror Image is directly impacted by the currency effect.
I hope I didn't lose you all with my lengthy post.
Also. I have been doing some internet searches. I came up with a Research Report from Taglich Brothers. I am not the only one that believes that the royalty rate for each Vitaros unit is $1.50. Juan Noble also has the royalty rate at $1.50.
I will post a shortcut to the report below.
taglichbrothers.com
He doesn't say the royalty rate. But it's only a matter of doing some math.
On May 5, 2014, the company disclosed that
from the start of Vitaros distribution through
March 31, 2015, approximately 580,000
commercial doses of Vitaros were sold to
licensees. These shipments represent an
estimated $870,000 in future royalty revenue.
Distributors are beginning to purchase Vitaros
directly from Apricus’ contract manufacturers.
Eventually, such sales will no longer be
reflected on Apricus’ income statement.
Revenue earned on sales will be reflected as
royalties paid one quarter in arrears based on product sales reported by licensees.
Page 6.
Just divide $870,000 by 580,000 units. Result: $1.50
Doesn't mean that he is 100% right. But I would think ( hope ) he has a little more insight than us. |
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