Happy winter solstice to all.
billkirn, re your note, including: "At this time AGPH is on its own. This considerably increases the risk, and it also increases the payoff if successful."
Seems to me that one of the advantages of the collaborations between biotech startups and established pharmaceutical companies is that it allows the taxman to subsidize the research and development money spent. By my calculations, a successful drug development project that produced 20% after tax returns for a taxpaying company (or collaboration) would only produce about 15 1/2% after tax for a startup that had to accumulate tax losses during the development stage. The collaboration permits the total return to increase to nearly 20%, since most of the research and development money is paid out by the taxpaying pharmaceutical company.
One of the reasons that the total return of a collaboration likely would be less than that of a single taxpaying company is the cost of the negotiation and of maintaining the joint effort. Also, there is inefficiency introduced when the collaborators have differing goals and philosophies. In the case of Roche/Agouron, it appears these costs were significant, as reportedly Roche wanted shared control, which Agouron resisted. Also, because of the timing of the thymitaq announcement and the Roche announcement, there is the appearance that Agouron might have continued the thymitaq investigation beyond the time Agouron would have chosen to cut it off, just because Roche was paying the freight. If this is the case, it is one of the inefficiencies of the deal relating to differing goals and philosophies.
Agouron is approaching taxpaying status, and so will soon not need the tax subsidy juice provided by the collaborations. This removes one of the major reasons for doing the collaborations. Another benefit of the collaborations is that they allow Agouron to spread its bets around more, and so provide reduced volatility. The cost of this is the inefficiency mentioned above. From an investor point of view, we can spread our bets very efficiently by spreading our investments around, and hardly need the company to do so.
I am willing to learn that the collaborations provide other benefits (access to patents, cross fertilization of ideas, economies of scale perhaps), but until then I don't see a big problem with Agouron proceeding alone, so long as I spread my investments around. |
