The debate between a buy out of RAC by large Pharma or licensing...

The debate between a buy out of RAC by large Pharma or licensing the product to large Pharma with RAC benefiting from the cash flow from sales and ultimately dividends paid by RAC.

One of the benefits from the licensing model, is that as cash and ultimately dividends flow from RAC to shareholders, the share price of RAC will increase. This would allow shareholders who want to exit the share to exit the stock at their preferred price. Whilst remaining shareholders still benefit from the increased cash flow and increasing dividend cash flow as sales increase over future years.

This model is potentially more beneficial overtime than the sell off of RAC to large Pharma. Whilst shareholders who want an immediate big hit would be happy, shareholders looking for annuity dividend flow loss this option. It should noted that the value of the cash flow of dividends may ultimately be higher than the value of a large buy out by big Pharma.

So lets look at the licensing option. My view is as follows:-

As Zantrene may provide benefits to a range of patients across a range of oncology drugs, a number of companies may be interesting in licensing Zantrene to work with their existing drug treatment regime. The cash flow from licensing it multiple companies may be far more lucrative then providing an inclusive licence to one company. In a future buy out, it would also mean that a number of large Pharma companies would be interested in acquiring RAC, not just because of the value of cash flow but also because they may not want their major competition acquiring RAC and controlling the licensing arrangements that they may have with RAC.

The other problem that may arise with the exclusive license is that the acquiring big Pharma company may not want to provide the product to other competitor companies as it may not be in there interest, this may conflict with the interest of RAC who want to maximise sales.

If big Pharma want some exclusively, it may be limited to drugs that target a particular cancer type for example breast cancer. However, in depth consideration would need to be given to how the license agreement manages this risk from a RAC perspective.

It will interesting to see how this plays out!