merial deal

From Huntleys......
Merial, a Merk and Aventis Company, has a
confidential call option for a license covering the
poultry productivity enhancer. The license covers all
international markets except Australasia where IMU
will have sole right. Details of the call option are
confidential but we expect Merial to take up its rights in
the next 3 to 6 months once the masterseed has been
manufactured. If Merial exercises its right it will pay an
upfront payment and a royalty rate to IMU. Merial will
effectively fund IMU's poultry product launch in the
international marketplace. Merial will take on the risk
and expenditure of manufacturing, marketing and
distribution in each geographic location. Going by past
agreements we expect IMU to receive an initial upfront
payment in the region of $1m to $2m, a royalty rate of
between 3 to 6% on international sales and further
milestone payments on international regulatory
approvals.
The market size for a non antibiotic growth enhancer
is potentially more than US$500m. In determining a
rough estimate of how much revenue this could
generate we have to make some assumptions.
Assume that Merial exploits the first mover advantage
and takes a 30% share of the market. On annual
sales of US$150m and using a 5% royalty rate this
translates to an after tax profit of around A$8m per
year until expiry of the patent. The present value of
this over a 15 year period represents a value of $60m.
Subtracting a 20% risk premium translates to a figure
close to the current market capitalisation. Note this
rough calculation adds no extra value for IMU's other
products under development.