Melbourne, April 2, 2008 AEST (ABN Newswire) - The Directors of Solagran Limited (ASX: SLA)(PNK: SOGRF) are pleased to announce details of the path forward that the Board has adopted for the marketing of Ropren in Russia, and at the same time advise the market that Solagran has terminated discussions with the Menarini Group in relation to a potential strategic partnership.
In deciding to adopt this path forward, the Board took a number of factors into consideration. Foremost among these were three clear goals:
- To maximise cash flows over the period to June 30, 2009 so as to ensure the company would be in a position to pay a substantial dividend to shareholders at that time
- To retain within Solagran the highest possible proportion of the revenues generated by Ropren sales through the distribution channel in Russia
- To minimise the risk of transferring shareholder wealth from Solagran shareholders to a licensee or strategic partner by licensing the rights to Ropren before all of its many potential applications have been proven and valued.
In October 2007 Solagran was approached by the Menarini Group in relation to the licensing of Ropren in Russia - and potentially the CIS countries together with Central and Eastern Europe as well. After a series of preliminary meetings with Solagran representatives in Russia, the Head of Business Development in Russia for Menarini, Dr Victoria Gorbacheva, travelled to Melbourne for the next phase of discussions. Following a week of intense discussions in Melbourne in January 2008, Solagran announced on 31 January that a jointly developed strategic partnership proposal would be put to the Menarini Group by Dr Gorbacheva upon her return to Europe.
Solagran was positive about a potential relationship with Menarini. There were two main reasons for this. The first was that Menarini initiated the contact and had pursued Solagran, with Dr Gorbacheva (an accomplished clinician and medical researcher before entering the pharmaceutical business) demonstrating great knowledge of Ropren, an excellent appreciation of its ability to deal with many different conditions, and a clear understanding of its commercial potential not only in Russia but throughout the world. The second reason was that Menarini is one of the largest players in the Russian pharmaceutical distribution market.
For Solagran, it was important that any deal was right for both parties - particularly given the significant revenues contemplated in Russia in discussions with Dr Gorbacheva. Unlike most pharmaceuticals that have only a narrow band of potential applications, Ropren is multi-faceted. Its efficacy in treating liver disease is proven and it has already been released to the market as a pharmaceutical for that indication. Its potential to treat neurodegenerative disorders, enhance immunity and normalise cholesterol levels is well understood. But initial indications of its ability to deal with conditions as diverse as depression and Parkinson's disease are still being investigated, as are its many very valuable potential applications in the area of oncology.
Since it is not possible under a licensing agreement to restrict the use of Ropren to one or more specific indications (liver disease for example), there will always be a risk that in licensing the product, the value embedded in known but yet to be proven Ropren applications could be lost to Solagran shareholders.
Solagran essentially had two alternative strategies available with which to move forward with Ropren starting with a base in Russia.
The first involved a strategic partnership with Menarini or an equivalent company with good representation in Russia and the CIS countries, as well as in other countries around the world. This would have ceded a significant proportion of the Ropren revenue stream to the partner as part of an exclusive distribution agreement. But it would also have provided an opportunity to build a distribution relationship that would have proven very useful once production volumes were sufficient to supply Ropren beyond Russia. The second alternative was to retain the vast majority of the revenues within Solagran by establishing our own team for the Russian market, and deferring the establishment of any strategic partnership with a pharmaceutical company until we had sufficient production volumes to supply countries outside Russia.
Both strategies have similar intrinsic values or net present values (NPVs). But if executed well, the second alternative generates the greatest short term cash flow - particularly over the next two years while Solagran remains supply constrained.
In view of the economic logic presented above, Solagran has signalled to the Menarini Group that it now has no interest in a commercial relationship with them. We have also made an offer to Dr Gorbacheva to lead Solagran's new team for the Russian market and that offer has been accepted. Dr Gorbacheva has already expressed publicly her view that Ropren is a potential blockbuster on the basis of its efficacy in the liver disease segment alone. She is very much looking forward to helping Solagran achieve rapid penetration in the Russian market by promoting its use for a wide range of indications.
In adopting this strategy, Solagran and its manufacturing partner Galenopharm will now capture approximately 70 percent of the end consumer price for Ropren, rather than around 45 percent under the proposal developed with Dr Gorbacheva when she was representing Menarini. While the associated incremental revenues are not material in terms of long term expectations in relation to revenues from Ropren and other Bioeffectives, they are significant at this stage of the company's development.
The Board wishes to make it clear that Solagran has been approached by other pharmaceutical companies interested in working with us to distribute Ropren outside Russia and the CIS countries, and the Board will consider these proposals in due course.
At this stage, the main priority for the company is to ensure that it has sufficient capacity to satisfy demand in Russia.
Contact
Denis Kilroy
Executive Director
Solagran Limited
Email: Denis.Kilroy@solagran.com
Phone: +61 3 9820 2699
Fax: +61 3 9820 3155
Mobile: +61 411 222 844
Web: www.solagran.com
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