Tuesday, March 22, 2011

Readers Respond: Titan Receives $3 Million Up-Front for Deerfield's Fanapt Royalty Rate

"Readers Respond" is a forum where VFC interacts with the readers of VFC's Stock House.  Readers can leave comments on posted material at either of the blog sites, through Seeking Alpha or via email, vfc@vfcsstockhouse.com.  All stock opinions, tips and questions are welcomed, whether agreeable with VFC's opinions or not.  Thanks for the comments, because without interaction - this wouldn't be fun.

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A comment posted to VFC's ORIGINAL Stock House in response to my post regarding Titan Pharmaceuticals' latest credit facility:

I'm not sure you have had a chance to read the detailed 8-k filed, but in short Titan received $3 million from Deerfield for their percentage rights to Fanapt. (See page 1, Royalty Agreement, Exhibit 10.3)

You said you didn't like the loss of part of the Fanapt revenue. With this new information, I'm curious to see if this changes your opinion? To me, Titan immediately brought forward almost 2 years of Fanapt sales. (I used $400K a quarter times 8 quarters and got $3.2 million.) I understand sales could increase, but this seems like a decent trade off given the size of the credit facility?

Your thoughts are appreciated.
Thanks,
C.C.

VFC's Take:  Thanks for the comment, although I still don't like the royalty give-away UNLESS Titan is planning to not be around long enough to have it matter.  Even with a $3 million up-front payment, there's no telling how long it is going to take before we have a chance to assess the deal as worth it or not worth it. 

Essentially, it's a limitless condition in the agreement that could turn out becoming a great caveat for Titan if Fanapt sales remain at the current sales levels, but indications are that Novartis is starting to pick up sales momentum and the deal could turn out to hurt Titan in the mid term, three million dollars or not.

Had the deal been written to state that the three million dollars is an up-front fee in order for Deerfield to receive nine or ten quarters worth of Fanapt sales, I would like it a little more, but I don't like the fact that there is no limit, and if Titan exercises the $40 million buy-back, then that means Fanapt is selling well enough on the market that Deerfield got WAY more in return than the three million they initially dished out.

A man's got to know his limitations, and with this deal we don't know the limits, so I see it as free money for Deerfield because Fanapt is gaining steam on the market place, not losing it.

Again, and I emphasize, I'm not sure Titan is going to be around long enough as a stand-alone for us to find out if this deal is a good one or not.

Once the Phase III data are out, it's either buyout time or big partner time, in my opinion.

Disclosure:  Long TTNP.

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