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Biotech / Medical : VD's Model Portfolio & Discussion Thread -- Ignore unavailable to you. Want to Upgrade?

To: Merritt who wrote (6332)	1/18/1999 1:06:00 PM
From: Biomaven	Read Replies (1) \| Respond to of 9719

Merrit, It's a big mistake to look at the upfront money they got from SGP - the key issue is the royalty rate down the road. SEPR has the financial strength to trade reduced upfront money for higher royalties where it matters. The SEPR patent for Claritin II goes through 2014, by the way, with SGP's own patent expiring in 2004. By licensing to the original franchise holders, SEPR has sidestepped any patent challenges from them. SEPR can't ever proceed on its own until the underlying composition of matter patent expires anyway, so even if they ever do go it alone, the original patent will have expired, reducing the threat of a suit. Someone like Barr could still sue of course, but I think this is very unlikely. I personally don't think concern about their patents have driven their licensing strategy much, if at all. For drugs that are still under composition-of-matter patent the incentives are all to do the deal with the original patent holder anyway, so as to leverage the existing franchise and advance the time when the new version can be on the market. Peter

To: Merritt who wrote (6332)	1/18/1999 1:16:00 PM
From: rkrw	Respond to of 9719

<<I used to own some SEPR, but when they announced the deal with SGP (with no royalty details), I got nervous about their patent position. My thinking went that Claritin was on schedule to be a $2 bln drug this year, the deal with SEPR would effectively extend their patent by about 4 years...4 year extension on a $2b product for $5mm = chump change.>> The royalty rate ranges between 4-7%. $5M upfront is chump change but 4-7% royalties on a $2B plus drug is not. The DCL patents run quite a bit longer than 4 years beyond claritin patents, more like 10 or so years. <<but I'm still not sure about the strength of their patent positions...and still wonder about the co's own feeling. It may be that they negotiated with the thought of saving themselves a lot of hassle down the road, or maybe not that far down the road...>> Their patent positions are fine and further, the FDA has been encouraging chiral switches to get more effective and safer drugs approved. Sepr is not the only company pursuing a chiral switch strategy. JNJ has an approved antibiotic that is a chiral switch, Astra is planning to file single isomer prilosec this year, Redux was a chiral switch and of course Sepr is in the nice position of owning 50+ use patents for chiral switches. Barr Labs is the best known of companies pursuing patent challenges. Their CEO, Robt Downey was quoted as essentially saying that if there are no advantages to the chiral version then the patents could be weak. In other words, if the sole reason for the drug is to provide a patent extension and there are no benefits over the original drug than the patents will be investigated. There are advantages, some subtle, some not so to all the Sepr products. Some have/will save lives, such as Allegra, norastemizole or the ICE version of Propulsid. Others have more limited side effects, or have stronger efficacy. Its all documented in clinical trials. Challenging an isomer patent will be difficult. The other aspect you need to understand is when a patent is worth more in Sepracor's hands or those of the original drug marketer. Claritin is among the most lucrative of drug franchises and constitutes over $1B a year in net profits for Schering Plough. The ICE patent allows for a potentially more effective drug and a significant patent extension to go with it. So rather than starting at a base of zero, in SGP's hands they start at a base of millions of users and try and effectively switch as many users as possible over to the new version. If SGP can forge this transition, Sepr will be garnering royalties on a $2B plus drug, or $100M a year or more in bottom line profits, with no associated costs. For drugs where the racemate is insignificant; if the isomer version will allow for new indications, or if the racemate is off patent it can make sense for Sepracor to seek co-marketing deals, or self market. Sepr has chosen this with levalbuterol, norastemizole and apparently Meridia.