We trade at 2.5 X revenue. The company is relaunching its selling effort under Johnson guided by a new sales VP and the JNJ marketing department for Zytiga. We are seeking EU approval and should get this by Q1 or Q2 of 2013 (about 9 months).
We are seeking a partner for EU. Johnson has said this. Not just a manufacturing partner.
A partnership for the EU could take many forms. The buyer could buy the EU rights up front for the whole business. they could pay an upfront plus a royalty on revenue or they could pay an up front and split the P/L and cash flow at some percent, such as 50:50.
If the Domestic market has very little value, as many shorts believe, then the value of the EU to a buyer is very low. If a buyer is interested in the first cancer "vaccine" and trying to launch the EU correcting the mistakes that were made in the US, this business may have a lot of value.
We don't know that the buyers are looking at the EU partnership, but we do know that the company is looking for partners in EU and that we should expect this to be decided in the next 6 months.
The EU patient pool is larger than the US pool, by about 35% to 50%. Reimbursement is going to be lower. But the cost structure is going to be much lower. COGS will incorporate the lessons learned in the US launch. We should start with COGS in the 50% range if we match our capacity to our demand more closely. We only will need to pay for a selling organization, not the full corporate structure of the US. Depending upon the assumptions, this could be a very interesting partnership. If a buyer sees a potential of $300 to 400 million in revenue, then the EU would be worth more than the current stock price. However the assumptions of the EU value can be all over the map.
The stock does not discount any value for EU or ROW. It probably should. On any given day something could happen in this space. And the scale of the impact is potentially greater than our trading price.
On Q2 outlook and Q3 guidance, we do not know. Johnson is changing the sales force. Accounts keep growing. Expectations are for no growth. The last three ananlyst reports have tripped over themselves to report that the company "could miss guidance" for Q2. Yes they could. or they could match guidance, or if they had the month end seasonality of March and Dec they will beat the guidance. We will know in 6 days.
