Hi ABDM
Thank you for your in-depth response to my questions. As usual your research has unearthed interesting comparisons for shareholders/potential holders to digest. I agree that the Corium deals with P&G provide rare insights to the potential revenues available through deals with P&G. However, I am not sure that they relate to potential income for OBJ in the oversimplified way that you suggest. As you are aware, all partnership deals made with P&G are different, in both their revenue structures and their contributory commitments from both parties. Whilst Corium can boast spectacular revenues from their dealings with P&G, it is less clear how much that revenue costs Corium and what percentage of that revenue is due to Corium's financial input. If you read the following section it appears that Corium actually SELL their tech in product form as well as receive royalties:
" Product revenues consist of product sales, royalties and profit sharing from products that have been commercialized and are sold by our partners. Clonidine TDS, Fentanyl TDS and Crest Whitestrips make up the significant majority of our product revenues."
and then....
"Cost of Product Revenues
The primary components of our cost of product revenues are materials, personnel costs, depreciation, facilities costs, other overhead costs and expenses associated with the manufacturing of our products. Our manufacturing overhead costs are significant, and are currently allocated among our products at rates consistent with current unit production volumes. As the number of units we manufacture rises, we expect that our overhead costs would rise less rapidly due to efficiencies of scale, resulting in less costs of producing these higher product volumes. Conversely, if total unit volumes fall, as we expect to be the case in fiscal 2014, the costs of product revenues, measured as a percentage of product revenues, will rise as we lose economies of scale."
This item, "cost of product revenues" suggests that Corium is operating under a very different business model to that agreed by P&G and OBJ, wouldn't you agree. Indeed, Corium's Total revenue amounts to $10.7M and their total costs are $11.5M ($5M of which are from the aforementioned "cost of production revenues"). So, I think extrapolating Corium's P&G revenue to use as a guide for OBJ's royalties for the wand has little relevance. If OBJ had produced the wand themselves and then sold it to P&G then I'm sure OBJ's revenues would be much, much higher - but then so would the costs!
As for comparing Corium's ONE product to OBJ's 8, I think you'll find that your balance needs to be recalibrated somewhat. In the Corium report it states " These marketed products are Clonidine Transdermal Delivery System, or TDS, Fentanyl TDS and four Crest Advanced Seal Whitestrips products." So, let me repeat, "four Crest Advanced Seal Whitestrips products. OBJ has ONE product in the SK-II stable that is just an add-on to the existing cream. Not a fair comparison I'd say. I know that you are talking about a three year projection but as far as I am aware there is only ONE signed licensing agreement so far. I believe that OBJ WILL have many more in the future but the time scale is clearly open to interpretation. After all, Corium started dealing with P&G in 1999 and, despite expectations of further use of the tech, it is still only in Crest Advanced Seal Whitestrips. Unfortunately, OBJ has zero control over the pace at which P&G further introduces collaborative products, or if they go any further. There are no guarantees in this game.
Given the above, I do not see much point in me providing an estimation of how much revenue will be received from P&G for the wand technology - I'd be guessing. However, until we get more information about the business model, percentage of product deemed to be OBJ tech and projected earnings then I would say that OBJ will be happy to get $1 Million pa from this deal. Just my opinion.
Anyway, it seems that we read the same documents in different ways which is always a good thing in trying to critically evaluate the rhetoric that Joe Public is fed in official announcements. I look forward to further interpretations from you and from a few other more analytical posters. Cheers.
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