POZN got a good deal. They agreed to a minimum $5M annual royalty in 2014 (that will be greatly exceeded due to HZNP sales success to date), and that gets increase 50% in 2015 and all subsequent yrs barring generic.
So unless there is a perception that HZNP will walk away from V and it's contract entirely (for which there seems no basis), POZN is not at great risk here. Ultimately, it's PA, the prospects of which have not changed.
" Pozen will receive a 10% royalty on any of Vimovo's U.S. sales, or a minimum royalty payment of $5 million in 2014, and $7.5 million annually until generics reach the market."
The wisdom of POZN having secured a minimum annual royalty (of $5M) is now also evident.
POZN shares are not going to sink or swim with VIMOVO, but they will with PA.
you're missing the boat.
The strategy of the miners in Brazil and Australia is to drive Chinese production out of the market by driving their costs of production and shipping down. ON the latter, they are now convinced that the only way to take the shipping cost down is via their own VLOC fleets. These will continue to be built.
Your math is also wrong. One 400,000 dwt VLOC on a long haul displaces the need for 4 Capes. The Capes will need to make their business increasingly with shorter hauls.
The interesting question comes in 2016 when the Panama Canal will take Capes....not sure if they can take VLOCs. If not, then suddenly the Capes (from SA) will have new life...
Fortescu Metals.....read their vision....it clearly is one of building their own fleet, to drive shipping costs down, which acts to reduce volumes for current shipowners...
Perth-based Fortescue Metals Group has signed a US$275 million contract with a Chinese shipyard for the construction of four 260,000 dead weight tonnage iron ore carriers.
The vessels are much larger than the traditional capesize vessels that dominate the seaborne market and will incorporate design specifications ideally suited to Port Hedland tidal conditions in Western Australia and its shallow natural harbor.
Fortescue CEO Nev Power said the contract represents a strategic decision to secure long term, low cost freight on vessels that will complement infrastructure at Herb Elliot Port and maximize shipping volume. “These vessels are a natural extension of our supply chain and will plan a significant role in increasing efficiencies at the port and lower costs,” he observed. “They also reflect and strengthen our close relationship with China, our largest customer.”
“Owning and managing vessels especially designed to complement conditions at the port and to maximize shipped volume is expected to reduce our costs below benchmark rates,” he added.
Here is just one small example...from 18 June 2014 piece....Aussie miners building VLOC to haul their ore.
Yangzijiang to Build Huge Ore Carriers for Australia
By Eric HaunWednesday, June 18, 2014
File Hanjin Ami, Yangzijiang’s fourth 10,000TEU delivered June 16
Hanjin Ami, Yangzijiang’s fourth 10,000TEU delivered June 16
Chinese shipbuilder on the SGX Main Board Yangzijiang Shipbuilding Holdings Limited announced that it has secured a shipbuilding contract for four 260,000DWT very large ore carriers (VLOC).
The shipbuilding contract was secured from an Australia based ore company listed on the Australian Securities Exchange and the contract is the first of its kind in Yangzijiang’s orderbook. Yangzijiang’s ability to break into Australia, a new geographical reach, continues to demonstrate shipowners’ growing confidence in Yangzijiang’s shipbuilding competency, the builder said. Yangzijiang expects to deliver the VLOCs from 2016-2017.
Commenting on this contract win, Ren Yuanlin, Executive Chairman of Yangzijiang, said, “Yangzijiang is emboldened to have secured its first ever 260,000DWT VLOCs order. The group has observed that shipowners are enhancing their focus on vessels’ operational efficiencies and as a result, the shipbuilding industry is experiencing a rise in demand for larger vessels that provides higher carrying capacity. The demand uptrend for these cost effective and higher efficiency vessels is in line with the Group’s goal to scale the shipbuilding value chain."
from Reuters Today...
(Reuters) - Rates for very large crude carriers (VLCCs) on key Asian freight routes could hold steady or gain next week as charterers seek to complete their vessel chartering programme for the first 20 days of August, brokers said on Friday.
The pause would come after charter rates from the Middle East to Asia jumped this week to their highest levels since February 27 after falling on Monday as owners resisted charterers' attempts to push prices lower, brokers said.
"It's been quite busy this week," fuelled by charterers rushing to charter ships before next week's Eid holiday, said Kevin Sy, freight derivatives broker at Singapore's Marex Spectron.
"I expect them to stay around the current level and might even move up a bit," Sy said on Friday, although he questioned if the gains are sustainable.
"There are a lot of cargoes in the market," a Singapore based VLCC broker said on Friday and thought rates could rise a further two or three points on the Worldscale measure.
There have been 20 VLCC cargoes fixed from the Middle East to Asia in the last week, according to Reuters shipping data.
Charterers have yet to start fixing cargoes for the last 10 days of August, the broker said. Between 120-125 cargoes are forecast to be fixed for the whole of August, the broker said."
very relevant, as the ore producers continue to build VLOC, the tonnage of which doesn't appear on the standard order book for Capes, and so gives a false indication of supply to hit the waters.
Careful not to confuse GROSS vs NET sales. POZN revenues is 10% of NET V sales.
It is almost certain that the April V sales reported by Horizon is gross. Recall from HZNP Q1 report the difference between GROSS and NET V sales figures...
"VIMOVO gross and net sales during the three months ended March 31, 2014 were $50.0 million and $34.0 million, respectively, after deducting sales discounts and allowances of $16.0 million, including co-pay assistance costs of $4.6 million."
Nonetheless HZNP's claim of April sales (likely GROSS) of 20.8M in April suggests that their Q2 GROSS V sales will be in excess of $60M, or 20% greater than Q1. It is plausible that POZN income will increase about 0.02/sh in Q2 vs Q1 from the boast in V sales (an extra $700,000 in income)..
Where do you get the Q2 numbers of $60M for VIMOVO sales?
Street estimates for ALL of HZNP net sales is only $59M in Q2. That is an increase from $52M in Q1.
Even allowing that all the increase comes from VIMOVO, that would indicate net V sales in Q2 of $41M, compared to $34M in Q1. That's about a 20% increase....far less than your suggested 100% increase.
Here is POZN's Q1 breakdown of income:
"For the first quarter of 2014, POZEN reported total revenue of $7.5 million, resulting from $4.5 million VIMOVO®(naproxen / esomeprazole magnesium) royalty and $3.0 million from the amortization of the $15 million upfront fee for the licensing of PA. For the first quarter of 2013, the Company reported total revenue of $1.4 million of VIMOVO royalty."
I think that the HZNP share of Q1 VIMOVO revenues was about $3.4M. So, if that rose 20%, then Q2 VIMOVO would be about $4M. The other sources are likely to be about the same.
The tricky part is how HZNP uses promotions to boast sales of V. Note that their gross sales of V in Q1 were 50% greater than net sales.
"VIMOVO gross and net sales during the three months ended March 31, 2014 were $50.0 million and $34.0 million, respectively, after deducting sales discounts and allowances of $16.0 million, including co-pay assistance costs of $4.6 million. "
First, the order book is constantly expanding. So, that 20% is only thru 2016.
Second, that order book is just for Capes...not for the VLOCs. Numbers are that are regularly reported, but if VALE tactics are any indication, and also looking at the Newcastle orders ( 200,000 dot) by SBLK.....then their is even more pressure from a glut in supply.
As to demand, it all hinges on steel production in China (which is not expected to grow 4% next year at all...) and also on the supply of iron ore in the market forcing more seaborne trade and less Chinese production. But VALE has that covered from their mines, and the Aussies are looking a a similar tactic.
400,000 dwt VALEMAXS , 35 delivered to date and more ordered.
They are severely undercutting the need to use Capes....doing roundabout from shipowners.
I don't expect Capes to recover much thanks to both the huge order book (20%) and the fact that ore producers are building their own fleets.
The question stands....how do ship owners reconcile their expansions knowing that the bulk producers build their own fleets? VLCCF is especially exposed to this . Is there enough business for all? The Cape order book alone, which doesn't include Newcastles and Valemaxs, is 20% of fleet. Scrapping is not going to redress the imbalance since the fleet is now quite modern. Are the new Eco vessels that much more competitive and desire able for hire?
Answers to that would be helpful.....
Vale's decision to build its own fleet (35) of 400,000 dwt "ValeMax" has put a big hurt on shipowners of Capes.
Im wondering what JF and others like SBLK and SALT CEOs, who hold a huge fraction of the current Cape orderbook, are thinking? When the ore producers can also produce the vessel to haul their bulk, what role is there left for the shipowners?
Vale's decision of constructing a fleet of 400,000-ton ore carriers has been widely criticized by other shipping companies. The new Valemax ships, expected to cut the company's transportation costs by 20–25%, are blamed for driving down the freight rates for the entire industry, swelling the already oversupplied bulk transportation market and stalling the recovery of the shipping business after the financial crisis.
The freight rates, down 80% from 2008, are expected to drop further down to the levels of 1977. According to the chief executive of BIMCO, the Valemax vessels could displace up to 168 150,000–180,000-ton capesize bulk carriers, around 15% of the existing fleet, from the long haul voyages and force them to less profitable shorter routes. Vale has responded to the criticism by stating that the company aims to permanently cut the costs of Atlantic-Pacific dry bulk shipping to make Brazilian ore more competitive against iron ore produced in Australia, which is closer to major customers in Asia.
This piece from mid-June 2014....at the time shares trade above their target price, and they were the lowest target. The key is the tone of the piece....
Canaccord Genuity initiates coverage on Knightsbridge Tankers (NASDAQ: VLCCF) with a Hold rating and a price target of $13.00.
Analyst Noah Parquette highlights:
Pure play on attractive Capesize segment of dry bulk: Knightsbridge focuses purely on the Capesize sector of dry bulk, which is highly leveraged to the fast-growing iron ore and coal trades. Knightsbridge is expected to have 39 modern Capesizes on the water by the end of 2016, which would make it one of the leading owners of that class of ship.
Dividend upside as cycle rebounds: VLCCF pays out a substantial dividend, currently at $0.20 per quarter. As the newbuild fleet is delivered and we approach mid-cycle levels later in 2015, we believe there is significant room for the dividend to expand, as the current dividend represents just 32% of our forecasted 2016 operating cash flow.
Backed by one of the biggest names in shipping: The recent acquisition of 25 vessels from Frontline 2012 will ultimately result in Frontline 2012 owning 70% of Knightsbridge. As a result, John Fredricksen, one of the most well-known and successful names in shipping, is a significant shareholder in VLCCF.
This is a useful summary following the announced purchase of JF's remaining VLCC fleet in spring 2014:
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Knightsbridge Tankers: Management Signals Confidence For Future Distribution Increases
May. 12, 2014 10:54 AM ET | About: Knightsbridge Tankers, Limited (VLCCF)
Disclosure: I am long VLCCF. (More...)
VLCCF recent distribution increase to $0.20 from $0.175 is not a singular, opportunistic gesture based on Q1 2014 settlement income.
VLCCF expansion to 39 ships by end of 2016 creates compelling case for rapidly-ascending distributions.
We foresee VLCCF paying out $0.89, $1.64, $2.40 and $2.60 annually in years 2014, 2015, 2016 and 2017, respectively.
We foresee distribution growth providing for 100% upside potential in stock price by 2016-2017.
On May 8, 2014, Knightsbridge Tankers, Ltd. (VLCCF) reported its first quarter 2014 earnings. The market responded favorably to the shipper's financial results and the stock rallied roughly 8% to close at $12.92. In addition to significantly improved revenues, VLCCF declared a $0.20 distribution - a 14% increase compared to the $0.175 distribution VLCCF has paid out over the past seven quarters.
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Over the short term, investors must be cognizant that VLCCF received a $9.7 million settlement during the first quarter and included that figure as part of its net income. This is not an insignificant amount - it is the equivalent of roughly $0.32 per share based on the 30.5 million shares used in calculating the shipper's first quarter earnings. This suggests that VLCCF earned only $0.03 outside of the settlement income, which could be classified as an extraordinary item.
Some VLCCF investors have suggested this $0.025 quarterly distribution increase is an opportunistic bonus distribute
Its quite probable that VLCCF will be paying a substantial dividend in coming years.
Their all cost, break-even on VLCCs is $15,000/day. Even in the current weak spot environment, 12-18 months TCs were being signed (e.g., DSX recently) at near $25,000/day.
The turn in prospects for VLCC will largely hinge on the iron ore trade, the flooding of the market with cheap high quality Brazilian and Aussie ore, and the shuttering of private uneconomical low quality China ore producers.
Also, opening of the Panama canal to VLCC by 2016 will increase transport of ore as a competitive source vs local China/India mining.
There will certainly be a large increase in VLCC supply in the coming 24-36 months, but the indications are that those will be soaked up by this fundamental change in market dynamics on the demand side.
Concerning Capes and Spot......Look at the recent 18-month Cape charter that DSX did for about $24,000/day.
The spot listed is much lower than the various "pools" that the owners use, and fails to reflect the "solid" and stable rates still being set for term charter fixtures.
Obviously, if spot were to dictate the earnings solely, the shares of DSX and others would be much lower....