GelTex Pharmaceuticals (GELX) Message Board

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Biotech / Medical : GelTex Pharmaceuticals (GELX)

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To: rkrw who wrote (66)	7/30/1998 3:07:00 AM
From: Robert L. Ray	Read Replies (1) of 127

>>> What you have to remember is that 20% royalties is often roughly equivalent to a 50/50 deal since costs are borne equally between partners.<<< Many thanks to you and Robert Holmes for pointing this out. Here is one thing I'm concerned about however. Biogen, for example; a long time ago started collecting royalties from Schering Plough for Intron A. I really don't know the percentage. As Intron A has nears patent expiration there has been major, major concerns that the flow of royalty payments would totally stop once Intron A goes off patent. I believe recently there has been some news that there's a chance that might not happen, but the whole situation seems to be a complicated mess to me. I know royalty agreements are very common throughout the industry and are neat and clean as far as getting an annual income for a small biotech, but looking at the BGEN situation I worry that royalty payments vs. a partnership would be a ticking time bomb with a long fuse.(hmm mixed a metaphor there:) I suppose a lot would have to do with how the deal was structured and certain provisions could be made as to what happens when Cholestagel goes off patent.... I don't know. But the whole deal about BGEN's royalty flow possibly coming to an end has been a major depressant on it's stock for a couple of years. Recently BGEN has been saying that the royalty flow might continue even past patent expiration date. That (and Avonex) is one reason the stock has done well recently. Looking at things from an ultra long term perspective and having the benefit of learning from the BGEN situation, wouldn't a 50/50 partnership (hey you guys have gotten me down from above 50/50 on this one:) be better than a royalty agreement based on a worst case scenerio of what could happen to a royalty agreement vs. a partnership upon patent expiration? I know that's a long time from now, but such a concern would start being a depressant to the stock many years ahead of patent expiration if the BGEN case is any indication. I of course know that even with a partnership that sales would decline after patent expiration due to generic competition...... but there would still be sales and profits even after generic competition started. So in short given choice between a 50/50 partnership and 20% royalties I would prefer the 50/50 partnership even though the money due GELX in the near to intermediate term would roughly be equal. This looks like it's going to be a great company that I plan on holding for many, many years and I'd hate them to run into all the concerns that BGEN has run into as their Intron A which they collect royalties on from Schering nears patent expiration. >>>> I don't believe that GELX has the desire to create the sales force necessary to support a 50/50 deal with a big partner in such a tightly contested and expensive (marketing) market.<<<<< Hmmmmm. Correct me if I'm wrong but wouldn't this all depend on how the deal was structured? I'll keep using Merck as an example since that's a partner possibility. Merck already has a large salesforce in place. The cost of adding Cholestagel to the arsenal of drugs this sales force is selling would be only an incremental type of cost. Merck wouldn't necessassarily be adding one single additional salesperson to sell Cholestagel so the extra cost to Merck would be minimal. And thats the type of deal GELX should strive for. Figure out what the ADDED cost of selling Cholestagel is to the Merck corporation. And then in a 50/50 partnership GELX pays half that cost. It's not like GELX is building this huge sales force from scratch or anything. It's already there. I mean I can't say for sure because press releases don't go into that much detail, but wouldn't you guess that the above is how the 50/50 partnership with GENZ works in regards to marketing? I'll stick (partially:) with what I've said all along. I believe that GELX is in a position to strike a better than average deal with whoever winds up as their partner on Cholestagel. I may possibly be off base on percentages but I just think this is one case where they have a certain amount of negotiating leverage. >>>>I'm afraid you are setting yourself up for a major disappointment.<<< Well that may be the case but whatever deal is struck will be a deal that will be beneficial to GELX's bottom line and for sure I think the stock will rise on the announcement of the deal. I may be wrong on the percentages but Cholestagel I firmly believe will be a much better selling product than the market is now giving GELX credit for. So I'll be wrong about the deal percentages but rich when the sales roll in and the stock price rises. I'll guess I'll just have to live with that:) >>> although frankly I am kind of hoping to pick up more shares on the very cheap.<<< I wish you none of the luck in the world on this:))))) Hey it's cheap already. But biotechs being biotechs you still might get a shot I guess. I doubled down the other day at 20 so I'm pretty tapped out. I'd have to sell some LGND to buy any more and I'm not about to do that. Geeze..... Sure hope I'm bio-rich and not bio-poor some day:) P.S. I've been enjoying the discussion here the last few days with you and Robert Holmes. Just goes to show that quality will beat quantity every time. I'm only looking forward to the inevitable thread morons showing up someday because that will mean that GELX is becoming a more widely known company:)

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