PAR - DEAL ME IN
Paradigmers,
Tonight we visit the interesting topic of a Big Pharma Deal.We have of course directly and indirectly covered this in numerous threads over the last year or so but let's try and summarise it and pull together a couple of Mozz prior posts for some of our newer HC PAR investors that have joined us since.
WHAT IS A DEAL?Now I'm certainly
not talking about a take-over deal. Take overs are exciting for a lot of small Pharma companies not unlike us. BUT that wouldn't be good for us. I know a few of you are saying but wait, I got in for $1....I bought it for $2...I bought in for $3 and now someone is offering me $5 (as an example) and I should be upset about it? Mozz, are you crazy? I will take that offer any day of the week --- Wrong!
No Paradigmers, even an all cash offer of $5 for each of our shares would be a
tragedy. Yes that's not a typo from Mozz...I mean it. In fact in my books anything under $20 today...and perhaps $30 in a year or so would simply be a
disaster. I say this because the future is that bright for us ....in my views we have something the
world simply does not know about, yet. Of the around 8000 shareholders of PAR, I doubt even 600 would really
truly know what we have..and to you guys reading this, you are in the top 7% in terms of individual knowledgeable numbers of shareholders. We really have gone to the n
th degree to research and you know what? I am
not done. I still have a good list of topics I want to cover and to tell you about, to inform you on just what we exactly have! There is more to come from Mozz.
OK SO YOU WANT A TIE UP?Well I actually want a partnership deal...think of it as a distributional deal. Yes we can do this ourselves on our own-some and yes it is probably prudent for us to do this in
some jurisdictions, eg perhaps in Aus. but trust me, for the global scene, it makes so much more sense to do this with a big sister (or brother) Pharma.
CASE STUDYOvernight we get a deal and we get access to a VAST network of distribution, the sheer size of it will blow you away. I just know you want an example;
Ok let's take a Large Pharma and delve a little into what is involved and you'll start getting an idea of how vast a distribution network actually has to be to catered for what we are attempting to solve (OA for instance). Johnson and Johnson
1 employs some 114,000 employees world wide. They had some $73 Billion USD sales themselves in 2014. They have had a whopping 52 consecutive years of earnings increases. Number of countries they operate in? You do know what time it is right? Quiz time please Mr Mozz:
A) 14 separate countries?
B) Well obviously Answer A) wasn't going to be right..let's try a touch higher 25 ?!
C) 40?
Well as per usual it's more..no surprises here....they are present in 60 plus countries!
How many Distribution Centres do they have?
A) 11
B) 87?
C) 150 !
D) Bah..I give up, why don't you just tell me...
Yes, D) was correct. Some
365 Distribution Centres...mate !
Now my logical next question for you is how long do you think it would take little ol' PAR to set something like that up....yes, years and years, now you are getting the idea why we couldn'tsimply take our time and set up such a vast global network up ourselves, it would take ages. It would consume so much time. It would necessitate us having to employ hundreds even thousands of employees worldwide....think regional offices, think sales people with cars and travel budgets, hotel expenses...it is too much, simply not worth it.
Give a large pharma a clip/cut and be done with it and we can basically sit back, put our feet up and watch that revenue come in....20, maybe 25% maybe more...Ok Mr Mozz, how about some examples of such deals that have taken place...
EXAMPLE1) 47Ummmmmm ...Mozz, why are you quoting me random numbers? 47? Nahh I meant Forty Seven the Pharma...ok this was an all cash offer, it's not the sort of deal we want, but I mention it here as an example, more details can be found be clicking this link:
https://hotcopper.com.au/threads/par-and-an-example-of-47.5271185/?post_id=43363190 EXAMPLE 2) Galapagos!
Ooooh when can I go snorkeling again in the warm tropical waters? Have you guys been to the Maldives? I havent been to the Galapagos Islands but Maldives was bewdiful! (sorry I digress). No no I'm not talking about the Galapagos Islands silly...I mean Galapagos the Pharma Company!Hey, if we get to $400 a share like some of the huge projections being thrown up...we could actually have our annual Hot Copperian Celebratory Shareholder party
at the islands, we'll just rent it and each chip in a few thou. each?
Pool-ViceRoy 3 (He pretends he folds towels but we know better just what he does and what he owns) could use his many contacts to rent it for a weekend. The deal between the giant Gilead and Galapgos
2 was worth a cool $5.1 Billion USD!
PAR folks, that's the equivalent of 10.7 x our current SP (using market cap to market cap) ie $32.50 odd per share. A very topical deal and highly relevant to us...why? Galapagos has
Filgotinib which is a drug being used for Rheumatoid Arthritis and Inflammatory Bowel Disease. Now Paradigmers, I could easily do a full break out post to cover the story of
Filgotinib but I will try and summarise it here:
There were two doses in the third phase, the lower one (100 mg) failed to outperform Placebo. The 200 mg had good results but "a lack of key information such as the rates of deep venous thrombosis and pulmonary embolism"
4 will need to be further investigated. At any rate it probably stacks up better than Humira. We all know the success of Humira DESPITE AE's, deaths and a black label warning.
(New guys, read this --- >
HUMIRA)
NEGATIVES?Ok I'm not just a one eye'd pirate...I encourage you to think about the negatives.
Nope, not me, I'm not a one eye's pirate when it comes to PAR...need to hear both sides of the argument.
So what are the negatives of doing a deal? Well of course we sacrifice earnings and revenue. In fact we may only garner perhaps 20% of the revenue (hopefully more?). Yes there would typically be up-front milestone payments and don't forget these are large.We could also lose a little control..we'd have to work with our new partner. Again I don't really see this being an issue if the contract is drawn up properly. As Paul said in the AGM last year,
we are the ones in the position of power.
A position of sheer and lovely power? No no, not from the guy's point of view, the GIRL is in control, we guys know it. We guys do anything, and it is that same power that Paul alludes to. WE are the girl...it is the girl that has the power...we are finally on the right side of this deal....They (Boys/Big Pharma) will come to us...but let it not happen too early...ADDITIONAL POSITIVESWell in the last section I mentioned milestone payments. Mozz, dangling a little cash for a 20% cut doesn't seem fair. Think of it this way, some of the deals that have been done are in the low $ Billions. That means up-front we might garner some $ 200 million. We are free to do with this as we want. This would result in some lovely funding for us to pursue
other indications...and we don't necessarily have to share our revenue if we pursue one of these other paths. This will accelerate our overall position over the ensuing months and years. What amazing times we could all be having in just a few year's time. I think I will have to work at PAR HC full time! You guys won't be able to shut me up.
WHEN IS BEST TIME?Paradigmers, perhaps naively I always thought the earlier the better...let's get this show on the road as quick as we can....get a deal done PAR, I'm impatient...I want some money in the bank.Oh no Mr Mozz, how wrong you are! The longer the better...the more we wait, the more compelling we become! Is this the right time to strike a deal? No way... I have since learnt that we become stronger day by day....our data is being added to on a weekly basis. Paradigmers, the Americans will soon know who we are...it won't be JUST our wonderful US Correspondent (
Edski1) that will know about us soon, at scale. The more our news spread, the more data we have to back us up, the richer our equity and future position becomes. Our valuation drivers are at work as we speak.
NOT ONE BUT TWO...Paradigmers, let me assure you I'm buoyed by the fact that we are targeting the mighty US market...but can you imagine the feeling when I read those words that we are changing tact and are actually JOINTLY tackling US AND Europe simultaneously? The European OA market itself is vast...how vast? 40 Million patients vast. This adds much to our story. Now
THAT'S a game of cards I wanna be in.
DISCLAIMERSYes things can go wrong, there are negatives and possible hurdles, you
must do your own research, don't take any of this as advice, it's not. Don't be lazy and rely only on me, research for yourself as well. Be prepared for those hurdles that could strike some day, no one knows what the future holds...but deal me in on this one, I'm certainly in on this round of play and I'm ready to back the
cards shares I've got.
REFERENCES1]
http://onlinepubs.trb.org/onlinepubs/futureinterstate/4_Panel_Freight/5_HarryGeorge.pdf2]
https://www.cnbc.com/2019/07/15/gilead-deepens-galapagos-ties-with-5point1-billion-deal.html#:~:text=In%202015%2C%20Gilead%20signed%20a,stake%20in%20the%20European%20firm.3] A great movie, The ViceRoy's House (not at all related to PAR):
https://www.youtube.com/watch?v=id_ZyNdvXKQ
4]
https://www.fiercebiotech.com/biotech/gilead-s-filgotinib-phase-3-hits-primary-endpoint-but-details-dampen-hopes
(20min delay)