GSK's 07Q2 results out today, and Relenza sales have fallen for the first time since GSK starting pumping up production 2 years ago. This indicates that Relenza sales probably peaked during 07Q1. Without new clinical trials unambiguously validating Relenza over Tamiflu, or without more H5N1 panic, I'd expect Relenza sales to continue to slowly decline over FY08 (with quarterly sales in the region of GBP40-60mill). And, in around 18 months, Relenza stockpiles will largely be complete, so sales will then drop off very dramatically(=quartely sales in the region of GBP5-7mill). BTA could well be posting losses again as soon as FY09.
The profit forecast BTA released to the market on May31 assumed that 07Q2 (Aust Q4) Relenza sales would be in line with Q1. Since sales have fallen substantially (from GBP92mill to GBP67mill), I predict that BTA pre tax profit will come in at around $14-15mill, and not the $18mill forecast by BTA management (these numbers reflect a fall of approx $4mill in quarterly Relenza licensing revenue between Aust Q3 and Q4). FY08, excluding any potential litigation payout, is likely to be similar to FY07 (unless there is a catalyst in the short term that leads govt's to suddenly attempt to replace Tamiflu stockpiles with Relenza stockpiles). FY09, as stated, is likely see a substantial fall in Relenza licensing revenue.
Once the market digests the recent Relenza sales figures there is likely to be a BTA sell-off. The extent of this sell-off will likely reflect the market's current expectations re a potential litigation payout. Declining Relenza sales, despite increased GSK Relenza production capacity, will help GSK's case (unfortunately). Having said all this, I think the chance of Biota eventually receiving a substantial increase in the percentage of Relenza royalty revenue remains high. More specifically, I think GSK might settle with a modest cash payment in the region of $20mill plus an increase in Relenza royalities from 7% to something like 18%. But without substantial Relenza stockpile orders from FY09 onwards, this increase in royalty percentage will be a hollow victory for BTA.
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