In the scheme of things, a license royalty is but a pittance. That is what Seymour used to say when he believed it was 15% of earnings. (I don't know where he got the idea that net revenue was the same as earnings.) I had a long email exchange with him, and he came to realize net revenue was revenue minus refunds, a very different number from earnings.
For perspective, if you took a 15% net revenue royalty from the Dow 30 stocks at the beginning of this year, 13 of the 30 of these established companies would immediately become money-losing companies.
Despite Seymour's misinformed claims that 15% was a "tiny" royalty, it is enough to sink almost any young company that will be struggling to transition itself from an R&D company to a drug company (adding departments for manufacturing, legal, medical, regulatory compliance, etc.). Even after the company is established (if it ever becomes so) it would likely be around 50% of earnings under pretty optimistic assumptions.
When I pressed Seymour about this misunderstanding of what "net revenues" really are, he informed me that the licensing deal was being re-written to benefit the shareholders. Shortly thereafter he was apparently fired.
In short, it's an issue...and not merely a pittance.
Do all youse guys have red hair and wear red hats??? No, but I do love red (smoked) herring! |
