The situation is far more advanced than your estimate Mike. GSK has far more orders on the list than that. The CEO has been saying that the orders received are already stretching out 3 years. He has already announced that they are increasing production from the current 20 million courses being produced in France that will be delivered around May/June next year.
He has also announced that other factories (note plural) are being readied for expanded production. This indicates that besides Boronia, the Montrose plant will be brought up to speed. There may well be others.
He has also announced that they will be able to deliver a 30 million course production run in 2006 and at least 30 million in 2007. By that stage the production will be doubled to at least 60 million. Again, these are the GSK CEO pronouncements.
The average price for stockpile orders appears to be as little as $1.80 to BTA/course. So the BTA income is $5 M in arrears (sales made) plus a further $40 M due on sales from the current run by May/June, up to $60 M due by the end of 2006, a further minimum $90 M due in 2007 and perhaps $180 M in 2008.
The settlement is unlikely to yield a dollar payment. GSK will seek a face saver so I expect an announcement in which no details are released but that "both parties have agreed to acceptable terms" ie there will be an additional royalty of perhaps 2% (still less than Gilead receives from Roche).
Thus the income stream may well be 35% higher than the above figures. To these of course one must add about $5-10 M pa in diagnostic income due to a likely increase in testing. Underlying costs are likley to average around $20 M pa so the development of LANI and the other research products may well be fast tracked with the bonus income and demand (especially for LANI) to supplement Peramivir.
As to the share price, the recent French order is just the tip of the iceberg. This follows guidance from the influenza pandemic expert advisory committee who recommended 30% of antivirals be Relenza. The US order was made before GSK agreed to a production increase and before the committee's findings were released. Expect the US order to increase to 25 million courses in dribs and drabs, mostly from the State govts. The German sale of 1.7 million courses was interim (ie that was all that was available in the warehouses). Expect a further 10 million order from them. Indeed, it may have been the German Health Minister who offered to buy the current 20 million order during the meeting inWashington.
Just to place these apparently large orders in context.
A total of 80 million prescription units in the US sounds a lot. It is actually a drop in the ocean. The US consumes 3000 million prescription drug units pa. This is just a week's worth of drug orders. In a pandemic it will go nowhere as up to 10 courses are needed/person so there are only 2.5% to cover the whole population. GSK will have to dramatically increase third party licensing to India, China and elsewhere in order to help meet demand. Mark von Itztein (a co-inventor of zanamivir) says they can cut production time to a few weeks. Most of the current 9 month production time is mucking about with packing and delivery. It is much easier to make than Tamiflu. It is also a much better fit in the virus binding site so you need a tenth as much to be effective and because it fits as designed rather than being forced as Tamiflu is, it does not induce mutational spread. Tamiflu induces resistance because it is a dodgy fit that overlaps a region of the viral protein that is variable while Relenza sits in an invariant region.
What will the share price be in a week, month, year? I personally don't care much because my net BTA price after all the tarding over the years is actually negative (after tax). I can afford to be relaxed at any price. I do however believe that there will be a steady increase (with superimposed wild swings induced by traders and others who are surprised by announcements that some of us will have seen coming with bells and whistles). This will provide excellent trading opportunities on an inexorable climb in the underlying price. Work out yourselves what a $100 M + profit is likely to do to a company with 178 million shares on issue and $20 M pa costs as well as new products on the way.
Bye the way. Some still say Relenza and the others are a joke and don't work or don't cure and so are not worth supporting. Let me tell you that for $50 it is well worth obtaining 1-2 days relief from a mild flu lasting 5-7 days. Some of my relatives have benefited from this and so have not missed additional down time at work. Economically sound decision to make. But what people don't tell you is that some of the virulent flus can knock some people about much worse than 5-7 days. These can last 2 weeks or more. I've suffered from 3 bouts of these over the years and there is no way I would want to face another one. Relenza reduces even these to just a mild feeling of being a bit "off" for a couple of days after starting the treatment. Once this becomes well known then the pharmacies will sell a lot more to the general public, after supplies are replaced in a few years time. In the meantime just don't sneeze anywhere near me if you don't mind!
BTA Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
