Ann: Release of Scheme Booklet , page-12

Okay, let's take a moment, take a deep breath and examine all the relevant sections out of the annexure and what we know, in order to try to work this out.

From the annexure:

i/ "Biota and Daiichi Sankyo are required to use their best efforts and work together to seek, on a worldwide basis, third party licensees to develop a finished product...to maximise the commercial returns to the parties. ...Biota and Daiichi Sankyo have formed a licensing committee to oversee the selection of third party licensees and the negotiation of license terms. All milestone, license, royalty, equity and other payments received from third party licensees of a LANI compound outside of Japan are required to be divided equally between Biota and Daiichi Sankyo."

Comment:
Okay, so that is 50:50 between Biota and DS on all payments from a licensee - not just royalties. The grey area here is that this does not clarify whether this cover stockpile or retail sales, or both.

ii/ "If ultimate registration approval in the United States and other western markets is obtained, Biota would aim to
become a significant supplier of neuraminidase inhibitors to the global stockpile market (excluding Japan)."

Comment:
This info comes from the 2011 Annual Report - it is nothing new. Note the bold section and in particular "global stockpile market (excluding Japan)."
My reading from this and from comments by mgt in the past is that Biota will be supplying the Stockpile market, particularly because it has the BARDA contract (not DS). We have also been told by mgt (and it makes sense) that the selling to Stockpile market requires far less effort than retail sales and so Biota will be effectively taking the low hanging fruit.

However, the grey area is point i/ vaguely implies that everything is shared - to repeat "All milestone, license, royalty, equity and other payments received from third party licensees of a LANI compound outside of Japan are required to be divided equally between Biota and Daiichi Sankyo", but point ii/ specifically implies that Biota will effectively be the Stockpiling licensee as opposed to a third party.

Can someone who has direct and cordial relations with either JF or PC or DL, please put the above confusion to them and seek/demand some clarity in an answer on this.

Anyway, in the meantime, assuming point ii trumps point i, let's continue.

Does anyone have any estimates on the proportion of revenue earned from stockpile sales versus retail sales? Obviously the timings of the two vary and are "lumpy", but I believe stockpile sales form the clear majority of the two.

So 3 scenarios should cover this:

a/ Sales of Inavir inside Japan [THIS IS HAPPENING NOW]
- DS develops and sells to the Stockpile and Retail market and retains approx 88% to 92% for cost of manufacturing, sales and profit.
- Royalties of say, 8% to 12% of sales to be shared by Biota and DS.
End result - DS gets 94% to 96% of the pie from all Japan sales. Note, they are the manufacturer too.

b/ Stockpile sales of LANI (outside of Japan)
- Company X (e.g. AMRI) manufactures LANI and is paid approx 30% (of the pie) of the final sales price per unit.
- Biota sells to the Global Stockpile market in a similar way that DS sells Inavir in Japan (note that DS do the manufacturing). Cost of sales and profit margin will be between 50% to 62% - retained by Biota. Perhaps a net profit of not much less than this due to the straightforward channel.
- Royalties of between, 8% to 12% (like the Japan agreement), or to be conservative, up to 20% of sales, to be shared by Biota and DS.
End result - Biota gets between 54% to 66% of the pie from global stockpile sales (outside of Japan).

c/ Retail Sales (outside of Japan)
- Agreed licensee/s to develop and sell LANI to the Global Retail market market in a similar way that DS develops and sells Inavir in Japan. Milestones, Royalties and other payments from these third-party licensees might vary. Excluding bonus milestones etc from this estimate (for now) and just focusing on an average license % to cover licensee manufacturing and cost of sales and profit, let's assume 70% to 80% of the final sales price per unit.
- Royalties of say, 20% to 25% to be shared by Biota and DS.
End result - Biota gets between 10% to 12.5% of the pie from global retail sales (outside of Japan).

These scenarios are all fine by me. We can see that Biota will get the majority of the revenue (on the basis that Stockpile sales far outweigh retail revenue on average and this has been implied the whole time by Biota mgt).

The key to all of this is to get clarity on whether the earlier point ii (Biota selling to the stockpile market and therefore getting the majority of the profits from these sales) is 100% agreed upon by both Biota and DS. One would think this would be the case on the basis that Biota has done the hard yards in getting LANI to market (by sourcing the BARDA grant).