Dear Robin,
I offer a few points of analysis concerning burn rate, revenue from
sales, and revenues from royalties.
According to the press release
Bernie Landes, Paracelsian's President and CEO. "The agreement covers the cost of developing and running the BioFIT Certification Program, while also providing a continuing, growing, and highly profitable royalty stream," he added.
"R.P. Scherer will pay Paracelsian fees concurrent with the completion of BioFIT assay systems, certification of products, and completion of agreements with new customers. The terms of the agreement call for Paracelsian to receive royalties on the sale of all BioFIT certified products and the establishment of minimum royalty payments. In addition to these fees, Scherer agrees to pay Paracelsian a per batch fee for ongoing certification of products on a batch to batch basis. These fees represent a significant additional source of revenue to Paracelsian."
As I understand it, Paracelsian will develop 10 BioFIT Assay Systems. This will be done by (expensive) scientists, but Paracelsian will receive support from Scherer.
Paracelsian will also be performing batch-to-batch Quality Assurance. This will be performed by (less expensive) lab technicians; Paracelisan will be paid for this service (and presumably make a profit).
And Paracelsian will be paid "royalties" for products certified as BioFIT. We learned from today's 8-K that Paracelsian will receive a minimum of $400,000 in the "initial period," and a minimum of $700,000 in the subsequent 12-month period. And that's from the North American Agreement (18% of the market); we can anticipate significantly higher numbers upon the conclusion of the "worldwide" Agreement, on essentially the same terms, within 90 days.
There is a special significance to revenue from royalties. When an author receives royalties for writing a book, it is a percentage of sales - and it is wholly independent of the costs associated with the production of the book, which are borne by the publisher. The author will receive royalties even if s/he doesn't write another word: it is a "reward" for past achievements. By analogy: Paracelsian will be receiving these "rewards" from the sale of BioFIT certified products, without doing additional work, without incurring additional expenses. Thus revenues from royalties are vastly more "profitable" than revenues from the sale of products or services.
(Recall statements by the new Officers and Directors that Paracelsian had created values not yet recognized. Here is the proof; Scherer has recognized that value.)
Paracelisan's fiscal position is MUCH better than it might seem - i.e., if revenue from royalties is thought of as equivalent to revenue from sales.
And as good as this is, it is only one part of the new Paracelsian. I continue to believe that the greatest financial potential is to be found in the sale of products: those jointly developed by Paracelsian (originating in the TCM Library) and Scherer.
Jonathan |
