I wanted to look into a few things, get clarification on a couple of issues from the Company and think it through for a few days before finally deciding what I thought of POH’s settlement agreement with Mylan and Strides.
Two main conclusions I've arrived at are
that Ross Murdoch has negotiated a very clever settlement, despite having been under extreme pressure and, according to some, holding no bargaining chips.
that the way in which the agreement has been constructed tells me that Mylan and Strides both attribute potential value to TPM technology. If they didn't, the agreement would make no sense for either of them.
As for Strides, in its last Annual Report (FYE 31/03/18) Strides stated that it had paid the equivalent of AU$4.4m in related legal and professional costs during the 12 months from 01/04/17 to 31/03/18. This does not account for the further costs Strides would have incurred during the previous 17 months or so since Mylan first filed claims with Strides which were related to this dispute.
So, I conclude that if neither Mylan nor Strides had interest in TPM products, and if they truly believed that they were “sold a pup” (swindled into buying something worthless), as claimed by someone on this forum, then they wouldn’t have any interest in further deals with POH and POH would have successfully settled these substantial legal costs for just AU$180,000. One could only dream of POH’s legal fees being that cheap….
I also conclude that if Mylan was wanting to punish and crush POH, as suggested by someone on this forum, it wouldn't be willing to negotiate an agreement such as this.
One obvious downside to the settlement agreement is that, if POH decides to run with TPM/Daptomycin itself or license it to someone other than Mylan, 5% of net sales will need to be paid as royalties to Mylan (but remember, if Mylan believed TPM had zero credibility factor, as suggested by someone on this forum, it would be knowingly agreeing to 5% of zero.)
Another obvious downside is that if Strides is interested in licensing any of POH’s existing human TPM assets, up to AU$9m could eventually be payable by POH via discount on future upfront, milestone and/or royalty payments.
One upside of the agreement is that if Mylan does decide to license/ market or sell TPM/Daptomycin, it has agreed to source TPM exclusively from POH, pay up to 25% above cost for TPM supply, and also pay 5% of net sales as royalties to POH.
Another upside is that POH is free to outlicense to another company any existing TPM human asset that Strides isn’t interested in, and in such case, no payments would be due at any stage to Strides.
A further upside is that any incomes derived from the current TPM/Propofol agreement with Terumo, any incomes derived from animal health and any incomes from any future TPM products are all exempt from repayment to Strides.
This suggests to me that Strides is interested in POH’s current TPM assets. The majority of these (8 in number) are injectables, including TPM/Daptomycin, if POH decides to outlicense it and TPM/Propofol ex- Japan, Aus/NZ. There are also the topical and transdermal TPM/opioid patches as well as 3 gels, including ROW TPM/Diclofenac gel. What I find intriguing is that Strides Pharma Science manufactures tablets, capsules and sachets at its Bangalore facility and semi-solids, ointments and creams at its Milan facility. It doesn't currently manufacture injectables, patches or gels.
It is also apparent that Strides’ CEO, Arun Kumar, does things differently. Fortune India describes Kumar as a “maverick thinker” who has a track record of “generally confounding the market again and again”. Kumar says he doesn’t have a strategy, just a perspective. He previously focussed on developing and manufacturing injectibles at a time when large players were avoiding the area. Kumar’s reasoning was that it was better to be a big fish in a small pond. Choosing injectibles also meant he could ensure stability in pricing, unlike in the large-volume generics market which is dictated by discounting. As we know, that injectibles business, Agila, was sold in 2013 to Mylan for US$1.6bn…
On the same day last month that Strides announced its deal with SUDA, an interview with Arun Kumar was published by Business Today India. Describing 2017-18 as a “difficult year” for Strides, Kumar stated that his focus for 2019 would be on improving growth: “A business needs to constantly course-correct and focus on building the right enablers to move forward.... “
Almost six years after exiting injectibles, it wouldn’t surprise me if Kumar confounds the market yet again with a re-entry into injectables.
POH Price at posting:
0.5¢ Sentiment: Hold Disclosure: Held
(20min delay)
