EpiTan Ltd. - Clinuvel Pharmaceuticals

Oct. 07, 2004 7:04
EpiTan Ltd.
Pharmaceuticals
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Lead Drug „Melanotan“ sizzles with
Blockbuster Potential
Rating:
Speculative Buy since: 07 Oct 2004
Share price target: AUD 3.50
since: 07 Oct 2004
Current price: AUD 0.87
High/Low 52W: AUD 1.08/0.57
Figures per share in AUD
2004 2005e 2006e
EPS -0.07 -0.02 -0.02
P/E n.m. n.m. n.m.
CashFlow -0.11 -0.01 -0.01
P/CF n.m. n.m. n.m.
Dividend n.m. n.m. n.m.
Yield n.m. n.m. n.m.
Book Value 0.08 0.05 0.03
Cash 0.05 0.07 0.13
Fiscal Year as of 30.06.
Source: www.bigcharts.com
Analyst: Kamini Rambausek, B.Sc. (Hons.)
Phone: (+49) (0) 621 / 43061-32
Email: kamini.rambausek@midas-research.de
Basic Information
Number of shares mn: 125.7
Market Cap. AUD mn: 109.4
Free Float: 66.6%
Reuters Symbol: EPT.AX
German XETRA Symbol: UR9.ETR
WKN: 580 874
ISIN:
AU000000EPT3
ADRs:
EPTNY
Cusip Number: 29427H205
Main Index:
Australian SE
(ASX)
Ø Volume 3M:
267,258 shares
Ø Volume 250 Days: 667,837 shares
Info: www.epitan.com.au
Australian based EpiTan Ltd. is a drug development company focussing mainly on its lead
product, Melanotan, a synthetic copy of a naturally-occurring hormone, alpha-MSH, which is
responsible for the colour or tanned appearance of the human skin. Potentially, the product
should not only treat patients with certain UV-associated skin diseases and disorders but could be
used as a biologic protection of the skin against sunburn and, hence, ultimately skin cancer.
Furthermore it has the potential as a “Life Style” drug for those millions of people who prefer just
a tan. Market research has shown that the product has blockbuster potential in particular when
used as a “Life Style” drug, which draws a strong comparison to Botox or Viagra, two products
with booming sales today. Apart from normal OTC sunscreen creams and lotions, there are no
ethical products currently available to protect against sunburn injury. Furthermore, there are no
comparable drugs in clinical development. Clinical trials to date have already established
Melanotan’s safety and efficacy profiles. Significant global phase III trials are now scheduled for
2005 and the market launch of the product is to be expected thereafter. For this, the Company is
currently looking for one or more co-development and marketing partners which should be
announced by early 2005. However, EpiTan has sufficient cash reserves following a recent

financing round, to at least initiate further clinical studies should they have difficulty finding an
appropriate pharmaceutical partner in the next 12 months.
EpiTan - Corporate Profile
Based in Melbourne (Australia) and listed on the Australian Stock Exchange (Melbourne) since February
2001, EpiTan Limited is a pharmaceutical company with its primary focus on the development and
commercialisation of its lead product, Melanotan. The product was originally developed in the 1980’s at
the University of Arizona, USA. In 1995, the Melanotan Corporation Inc. was formed to seek a pharma
company to further develop and commercialise Melanotan and EpiTan began negotiating with this Group
to obtain the exclusive rights to the drug. EpiTan successfully acquired the exclusive rights to Melanotan
and Melanotan Corporation became a major shareholder of the Company. It currently holds a 12.1% share.
EpiTan has a strong Intellectual Property position, worldwide marketing rights, and has taken further
steps to ensure commercial exclusivity preventing a likely competitor from gaining any market share.
Australia has the highest rate of skin cancer in the world, and this was the case even before the hole in
the ozone layer became a matter of concern. There is widespread interest and rigorous campaigning to
promote public awareness of the effects of excess exposure to the sun. The geographical location of
EpiTan provided the ideal conditions for rapid development of the Company and formed the basis for the
alliance with Melanotan Corporation.
EpiTan Strategy
EpiTan currently envisages three target markets for Melanotan: prophylactic, therapeutic and cosmetic
applications. Market research has shown that the product has blockbuster potential and could earn
millions of dollars worldwide for the co-development partner, and ultimately for EpiTan. Furthermore, a
potentially huge “latent market” may exist – comprising people who would request prescription drugs for
the sake of vanity or to just “feel good” about themselves. This market draws a strong comparison to that
of Botox or Viagra, two products with booming sales. The erectile dysfunction market was valued at
approximately USD 100 million before Viagra reached the market – now the market is soaring at USD 2.2
billion.
EpiTan’s current strategy is to find a suitable partner or partners to co-develop, market and sell
Melanotan in the USA, Europe and the Rest of the World, while marketing the product in Australia and
New Zealand on its own. The Company may seek separate partners, each having market dominance in
either one of the regions (Europe, USA, Rest of World). Clearly, the US and European markets have the
greatest potential given their large fair-skinned population.
We understand that the Company is actively progressing talks with prospective pharmaceutical
companies and we expect an announcement at least by Q2/2005. With the new partner, EpiTan expects to
receive a one-off signing fee, milestones, financing of remaining clinical studies, marketing and sales
(USA, Europe), and a double digit royalty fee on the marketed product. By any standards, the funding of
clinical trials, marketing and sales is challenging for any biotech company. Supposing EpiTan were to be
granted these benefits, it would be just as likely that they would need to give up control of Melanotan at
least partially. In other words, the pharma partner could demand complete control of the clinical trials and
set the timelines for development according to the rest of its pipeline. This is probably a topic of great
discussion with potential pharma partners, and we look forward to the final agreement. In any event,
EpiTan expects to maintain the Australia/New Zealand region, and the worldwide IP rights to Melanotan.
The partner/s will receive full exclusive rights to market and distribute Melanotan in other regions.
- 2 -

EpiTan plans to take Melanotan into a phase II clinical study as a therapeutic agent to treat PMLE
(Polymorphous Light Eruption), with trials set to begin during this coming European Winter, mainly in
Germany and the UK. It is believed that between 10-20% of the population in the UK, Scandinavia and the
USA suffer from PMLE. Also called sun poisoning, PMLE is a UV-induced skin allergy. As part of the
trial, PMLE will be induced in patients at the outset. After allowing some time for the symptoms to
develop, patients will receive Melanotan (as a sustained-release solid implant), and PMLE induction will
occur again. Pigmentation (levels of melanin) will be measured one or two months later. The efficacy
endpoint will be the reduction in symptoms (skin rash or patient discomfort). It is possible that the trials
progress faster as there is a clearly defined clinical endpoint for this trial. Furthermore, there is a chance
that there will be a quicker regulatory acceptance for this unmet medical need.
Melanotan - the Drug
Melanotan is a synthetic copy of a naturally-occurring hormone, alpha-MSH, which stimulates the
production of melanin in the skin. Melanin is the pigment that gives the skin its dark colour or tanned
appearance. Studies have shown that Melanotan is many times more potent than the naturally occurring
alpha-MSH. Increased levels of melanin protect the body from skin damage as a result of sunburn and
are associated with reduced incidences of skin cancer.
An important issue for the application of Melanotan as a drug for the “mass market” is the right drug
delivery formulation. Originally, Melanotan was developed to be administered as an aqueous
injection, where patients were treated on an “out-patient” basis. This form of treatment was not patientfriendly
as it meant that the patient would need ten daily injections to get an effective Melanotan dose.
EpiTan has since explored alternative forms (see chart) of delivering Melanotan and has generated
additional IP protection with these new formulations.
EpiTan: Melanothan – Delivery Formulations
Source: EpiTan
In collaboration with the Southern Research Institute (Alabama, USA), EpiTan has successfully developed
a sustained-release solid injectable implant – this is an implant so small and thin that it can be injected
into the patient using a normal blood transfusion needle. Future clinical trials and commercialisation will
focus on this solid implant as the first generation product. The implant will be delivered via a single
injection, delivering the implant under the skin (most likely in the region of the upper arm). The solid
implant will, over 15-20 days, release a steady supply of Melanotan into the blood stream. It is made from
the same material as self-dissolving stitches and does not have to be removed at the end of the treatment.
- 3 -

EpiTan is currently conducting a dose-escalation study in Brisbane with this solid implant. We anticipate
that the study will be completed by December 2004, with results expected in early 2005. The next clinical
study, phase II PMLE in Europe, will use this solid implant. A separate phase II study, in sunburn injury,
will be conducted in the USA – this news was published at the AGM held on 1 st October 2004. This trial
will also commence as soon as possible after the dose-escalation results have been established.
In September 2003, EpiTan entered into collaboration with pSiMedica Ltd., a subsidiary of Australianbased
pSivida to develop a liquid based slow release formulation of Melanotan using pSivida’s BioSilicon
nanotechnology. The microscopic porous structure of BioSilicon, with its “honeycomb” structure, will
allow easy uptake of Melanotan. The slow release formulation will also be administered with a single
liquid injection. EpiTan may develop this formulation as a future generation Melanotan product.
In collaboration with Monash University, EpiTan has assessed the possibility of an oral formulation of
Melanotan. We imagine that this would be a challenge considering that the drug (which is a peptide)
might lose its potency once in contact with the acidic environment of the stomach. It is worth noting:
there is yet to be a successful oral formulation for Insulin developed.
Presenting a more immediate challenge to EpiTan would be getting a topical formulation developed,
which would be more patient-friendly and easier to market and sell that an implant. Following agreements
with several transdermal companies, including CollaGenex Pharmaceutical (USA), Thomas Sköld (Sweden)
and Transdermal Technologies Inc., the development of a topical formulation of Melanotan, i.e. a lotion,
spray or patch is currently underway with pre-clinical studies having just been completed – the results of
which sound promising and further details should be released in the next few weeks. A phase I clinical
trial in humans is planned to start by the end of 2004.
EpiTan has prepared an Investigational New Drug (IND) application. Following expert regulatory advice
and discussions with the FDA, EpiTan will lodge the IND with the FDA as soon as the dose-escalation
studies are completed to allow clinical trials to begin in the USA. By waiting for the Australian doseescalation
study to complete, EpiTan will save by avoiding a duplicate dose study in the USA and will
begin trials in the USA at the phase II level. This phase II is expected to roll into a phase III study and
should commence in 2005.
Following initial talks with the FDA (November 2003), EpiTan believes that the most likely indication for
Melanotan will be for the prevention or reduction in skin damage caused by UV exposure in people with
high risk genetically. The slow-release implant is likely to receive approval first as there are similar
products already on the market, such as Zoladex (AstraZeneca) for the treatment of prostate cancer.
Melanotan is expected to be considered a “prescription sunscreen” in the form of this implant.
Melanotan – the Market Potential
A recent independent study by PharmaVentures (Oxford, UK) identified three main markets for
Melanotan. It is worth noting that PharmaVentures was unable to find a comparable product either on the
market or in development. This makes pricing of the drug particularly difficult. Nevertheless,
assumptions were made on the price based on other dermatology products.
The Prophylactic market targets people who do not tan well and are at increased risk of developing skin
cancer. This refers to those who wish to be protected from sunburn and damaging UV radiation, which
increases the risk of skin cancer, particularly people with Fitzpatrick’s Type I and II, with very fair skin.
- 4 -

A word on the Fitzpatrick classification
Melanin determines a person’s skin colour. The quantity of melanin produced by a person’s
melanocytes is determined by genetics. Melanin helps protect the skin from sunburn. For instance,
pale skinned or fair persons have little melanin and dark skinned persons have more melanin.
Fitzpatrick devised a description of skin types known as the Fitzpatrick skin type classification. This
classification denotes 6 different skin types, skin colour, and reaction to sun exposure.
• Type I (very white or freckled) - Always burn
• Type II (white) - Usually burn
• Type III (white to olive) - Sometimes burn
• Type IV (brown) - Rarely burn
• Type V (dark brown) - Very rarely burn
• Type VI (black) - Never burn
Source: www.emedicine.com
Skin cancer is the most prevalent of all cancers. The World Health Organisation claims that there are 2-3
million non-melanoma skin cancers and over 130,000 malignant melanomas occurring globally each year.
Australia has the highest incidence of skin cancer in the world with an average of 750,000 new cases
diagnosed each year. The Australian government spends million of dollars each year trying to increase
awareness of the destructive nature of UV exposure. Accordingly, the market for sun care products
(sunscreens, sun block, etc.) has thrived. In the US, between 1997 and 2000 sun care product sales grew
36% to reach USD 547 million (Source: www.marketresearch.com). In 2002, Australian sales were
approximately AUD 26 million. Research shows that the European market for sun care products was
valued at USD 1.4 billion in 1996.
‣ PharmaVentures estimates the prophylactic market to be approximately USD 1 billion in
annual sales.
The Therapeutic market focuses on people with skin disorders such as PMLE (polymorphous light
eruption), psoriasis, rosacea, solar uticaria, porphyria, vitiligo, and albinism. PharmaVentures has assumed
that the sustained-release solid injectable implant will be the first generation product, to be developed for
the therapeutic, prophylactic and cosmetic markets.
‣ PharmaVentures has identified the therapeutic market to be in excess of USD 500 million in
annual sales.
The Cosmetic market is made up of people who want to look good, with no specific health reasons. These
are mainly the people who go to tanning salons or solariums. The market for tanning salons in the US
alone is estimated at USD 2 billion per annum, with a further USD 100 million spent on self-tanning
products. EpiTan’s main focus is to develop an ethical drug to reduce the incidence of skin damage. By
tapping into the “sunless” tanning market, the use of Melanotan will greatly reduce the need to use
tanning salons or the need for sunbathing, thus reducing exposure to harmful UV radiation.
- 5 -

‣ PharmaVentures estimates the cosmetic market to be in excess of USD 3.7 billion in
annual sales.
Aside from this cosmetic market, PharmaVentures has also identified a potential “latent
market”, which describes people who do not currently use any artificial tanning methods.
Melanotan will introduce a new method of feeling and looking better. Ethical products including
Botox injections (“to smooth away wrinkles”) and Viagra (to treat erectile dysfunction) have
given millions of people a better quality of life. Based on these newly created markets,
PharmaVentures believes that Melanotan could target an USD 7 billion potential.
Intellectual Property
Source: EpiTan
EpiTan currently holds 34 granted patents, and is currently lodging patent applications for new IP that
is being generated with the new formulations: slow release implant, lotion, patch, etc. These patents are
expected to offer market protection beyond 2020.
The original patents from the University of Arizona expire in 2008, with Melanotan due to be launched in
2006/2007. However, according to regulatory law (1984 Hatch-Waxman Act), EpiTan (or its partners) will
have commercial exclusivity for an additional 5 years in the USA once the product reaches the
market. Similarly, Melanotan will enjoy such exclusivity in Europe for 8 years following its launch.
Source: EpiTan
- 6 -

Competitors for Melanotan (for the ethical market) have not been identified. To the best of our (and
EpiTan’s) knowledge, there are no products in clinical development for this indication. At best, tanning
lotions and tanning salons (solariums) have been identified as competitors. Even if an ethical product was
to begin clinical development now, it would need at least 8 years to reach the market. Melanotan, and
therefore EpiTan, remain way ahead of the pack.
Furthermore, EpiTan does hold the intellectual property that covers hundreds of analogues of alpha-
MSH (molecules with a similar chemical structure as the naturally occurring hormone) for melanogenesis,
the process of melanin production. These analogues were originally synthesized at the University of
Arizona.
Other Products
In July 2004, EpiTan announced that it had acquired three products as part of its strategy to specialise
in prescription dermatology products.
Linotar (eczema) and Exorex (psoriasis) have been acquired from Transdermal Pharmaceuticals Australia
Pty Ltd. These two products are currently on sale in Australia and are generating roughly AUD 0.5 million
in turnover. EpiTan is furthermore awaiting news of Exorex being added to the Pharmaceutical Benefits
Scheme listing in Australia, which would boost sales.
The patents for both products are owned by a South African company (undisclosed). EpiTan is currently
finalising the contract, in particular, the supply arrangements. As a result, the Company has not seen
any revenues from these products yet. We expect some news on this deal by the end of 2004. A sales team
for these two products is already in place (out-sourced), so EpiTan will not need to invest heavily in
training new staff.
A third product, Zindaclin (acne), has been in-licensed from Strakan Pharmaceuticals (UK). Financials
were not disclosed. Zindaclin is awaiting TGA (Therapeutic Goods Administration) registration in
Australia.
All three products will be marketed initially in Australia and New Zealand only and are expected to reach
sales of AUD 3 million for the period 2005/2006.
The Company also revealed at the AGM on 1 st
October 2004, that Management were actively seeking
more in-licensing opportunities for dermatology products, particularly to treat psoriasis, acne and skin
cancer. Further details were not announced. We believe that EpiTan is speaking with companies in the UK
and the USA. We would be curious as to whether these potential products are already on the market and
eagerly await news on this. Until now, we believe that EpiTan will end this current fiscal year with at
least six dermatology products, including the three mentioned above.
Financials and Shareholder Information
EpiTan estimates that the remaining clinical trials (global) and marketing and sales costs for Melanotan
(Australia and New Zealand) should cost roughly AUD 35 million. The Company expects to receive this
funding from the prospective co-development partner. One advantage EpiTan enjoys is that costs for
Melanotan clinical studies will be considerably lower than for a typical therapeutic product since the trial
duration is shorter and patients are healthy volunteers, at least for the sunburn injury study. For the
PMLE indication, the high patient numbers (100 million sufferers world wide) point to a fairly swift
recruitment process for the next phase II study (Europe).
- 7 -

EpiTan successfully raised AUD 8.9 million in 2003 and a further AUD 8 million in August 2004. EpiTan’s
current cash position lies at AUD 10.9 million. In the coming fiscal year, it is expected that this money
will be used as follows:
• cost of running business entity approx. AUD 1.5 million
• Melanotan development costs AUD 7 million
• approx. AUD 0.5 million to be spent on newly acquired products
EpiTan does not generate any revenues from product sales as yet. On the other hand, the current cash
burn rate is fairly low at AUD 0.5 million per month.
With EpiTan having 125,699,085 ordinary shares, major shareholders include (30 th September 2004):
• Weighton Pty.(Wayne Millen, CEO of EpiTan): 14.2%
• Melanotan Corporation Inc.: 12.1%
• FM Fund Management (Absolute Return Europe Fund): 7.1%
In July, EpiTan established a Level One American Depositary Receipt (ADR) program and the Bank of
New York was appointed as the depositary bank for this. Each ADR represents 10 ordinary shares of
EpiTan as traded on the ASX (Australian Stock Exchange).
EpiTan also completed a listing on the Frankfurt Stock Exchange (Xetra) on the 1 st September 2004.
Valuation and Stock Assessment
Based on the figures from the PharmaVentures study as commissioned by EpiTan, we have derived a
valuation (Net Present Value or NPV) for Melanotan in the various markets (namely therapeutic,
prophylactic, cosmetic) and for the EpiTan stock in general according to a Discounted Cash Flow
valuation. In addition, we have assessed the potential of the product in the Australia/New Zealand (ANZ)
market separately as EpiTan will market and sell Melanotan on its own in this region and incur separate
costs.
The table below represents our assumptions and results for the NPV analysis of Melanotan. Perhaps
our most significant assumption in our valuation is that the drug will enter phase III clinical trials and be
launched in the USA, Europe and Australia/New Zealand. Equally important is our assumption that the
Company will secure a pharma partner to finance the remaining clinical trials and the launch, marketing
and sales of Melanotan in the USA and Europe. Our valuation is limited to the first generation product,
the solid injectable sustained release formulation being evaluated in current clinical trials. We have
assigned a 15% royalty rate to EpiTan, this being an average industry rate. We keep a conservative view
regarding the market penetration (maximum 15%) – the degree to which Melanotan is able to
penetrate the market will largely depend on the sales and marketing force of the pharma partner.
Following the announcement, we could change our stance on this depending on the partner’s position in
the market. Furthermore, we have factored in a probability of 65% that the product succeeds clinical
tests and enters the market in 2007, based on the assumption that the product is about to enter phase III
trials.
Our discussions with Management combined with our research have led us to the price structure shown in
the table below. Some might argue that it is over-priced at USD 250 per treatment per year – we,
however, believe that it is quite realistic based on current dermatological prescription drugs and the price
of “life style products” such as Botox. As there are no comparable products on the market, it is difficult to
be accurate with the pricing – even PharmaVentures was unable to settle on a number. Once again, we
may have more insight into the pricing once a partner is on board.
- 8 -

We believe that EpiTan stands to receive up to USD 20 million in upfront payments and milestones (for
example phase III, approval, and registration) between 2005 and 2007, the market launch. This cash
would be a significant boost for the Company and will help finance EpiTan’s plans to scale up sales and
marketing efforts in Australia/New Zealand (ANZ) where they plan to market the drug alone.
Market penetration
Price per
treatment
Net Present Value (NPV)
No. of patients
targeted initially
(worldwide, excl.
MIN MAX (USD) Estimated
Peak Sales
After tax (30%) per Share
ANZ)
(USD) AUD EUR
USD 623
Therapeutic (PMLE) 20.740.000 0.1% 10,0% 250 million (2010) 0,79 0,45
Prophylactic 44.350.000 1,0% 10,0% 200
USD 1.3
billion (2012) 1,39 0,80
Cosmetic 51.220.000 2,0% 15,0% 100
Source: MIDAS Research
USD 997
million (2011) 1,10 0,63
3,28 1,89
We have come to the conclusion that the prophylactic market holds the largest commercial potential for
Melanotan, with a NPV of EUR 0.80 per share (AUD 1.39), based on a retail price of approximately USD
200 (EUR 160) per patient per year. As explained earlier, the prophylactic or preventative market
encompasses those people “who do not tan well and are at increased risk of developing skin cancer”
(according to PharmaVentures). Society is becoming increasingly aware that excess UV exposure is the
primary cause of skin damage and skin cancer. In the USA alone, sales of sun care products (including
sunscreens) amounted to USD 500 million in 2000. Clinical studies to date have proven that Melanotan has
the ability to reduce the skin cell damage (caused by UV exposure) by 50%. More importantly in this
prophylactic market, EpiTan needs to develop a topical formulation. In the form of a lotion, gel or patch,
Melanotan would carry an even greater market potential, including of course children.
Following closely behind in terms of commercial value is the therapeutic market, consisting of patients
with UV-associated skin diseases or disorders. In our valuation, we looked at PMLE (a sun allergy) as
EpiTan will base future clinical trials on patients with PMLE. Melanotan may initially be marketed as a
treatment for PMLE. In this indication, we assumed that the product will be more expensive, priced at
roughly USD 250 (EUR 200) per patient per year. The resulting NPV of EUR 0.45 (AUD 0.79) per share
shows the therapeutic value of Melanotan compared to the current share price of EUR 0.52 (AUD 0.87).
It is likely that the market penetration in this indication will be small initially as there may be some
barriers to entry. It will take some time for society to warm up to the idea of having this implant,
particularly as it requires a trip to the doctor. Much will depend on changing the mindset of
dermatologists that will be treating and recommending Melanotan as well as marketing efforts. Once
again, the partner’s position in the dermatology market will play a critical role.
The cosmetic market for Melanotan comprises people who wish to have a tan to look good – with no
specific health reasons. In this area, patient numbers could soar based on the solarium industry alone,
worth over USD 2 billion per annum in the USA. Today’s society dictates the importance of striving for a
healthier lifestyle: feeling good is not all – looking good is just as important. We believe EpiTan stands the
chance of earning the highest revenues in this market, based on “off-label” use. This would be
particularly true once the second generation product (topical: lotion, gel, patch) entered the market – such
a product would also be attractive to children or teenagers. However, this could take longer to reach the
market than the solid implant. For this reason, we focused on the solid implant making an entry to the
cosmetic market. We prefer to remain cautious and assume a high barrier to entry, and therefore, low
market penetration resulting in a NPV of EUR 0.63 (AUD 1.10) per share at a price of approximately USD
- 9 -

100 (EUR 80) per annual treatment. If the Botox industry is anything to go by, then our caution could be
over-stated.
Within the cosmetic market, PharmaVentures has also identified a “latent” market for applications in those
who do not use artificial tanning products at present – they may later realise that they actually enjoy the
benefits of such a product. We find it much too speculative to valuate this market at this stage, and
therefore, have not put a price to it at this stage.
As EpiTan plans to market and sell the product in Australia/New Zealand, we conducted a separate
valuation for Melanotan based on population statistics in this region and the following assumptions:
• a larger market penetration, particularly in the preventative market (up to 17% in 2010), as this
would be a “local product”
• marketing costs at 30% of sales
• manufacturing costs of 5%
• 10% of sales to be paid as fees/royalties to Melanotan Corp. and formulation partners
• launch costs of up to 20% of sales for the first year, amounting to approx. AUD 9 million
The resultant after-tax NPV comes in at EUR 0.91 (AUD 1.57) for all three markets (preventative,
therapeutic and cosmetic) in the ANZ region.
Our DCF-derived fair value for the EpiTan Group as a whole is based on the same revenue assumptions
described above in the NPV per product assessment, and included sales in the three markets together with
ANZ revenues. It also included a small revenue stream from the three additional products (Linotar, Exorex,
Zindaclin) collectively making up AUD 3-5 million per year (on average) in sales from 2007 onward.
Management has indicated that they hope to have 6 products altogether in their product portfolio by the
end of their current fiscal year, all of which are either awaiting registration or are currently on the market.
We will receive more of an update in the coming weeks, and have only factored in the three products
mentioned into our model. The DCF further included some general expenses incurred by the Group which
have not been factored into the NPV analysis by product.
The DCF model generates a fair value of EUR 2.13 per share, or AUD 3.63. This value is comparable with
the first method of valuation: the sum of the NPV analysis by product of EUR 1.89 or AUD 3.29, excluding
the ANZ region, and EUR 2.79 or AUD 4.85 including revenues from the ANZ region.
Considering that all of these projections/estimates depend almost entirely on EpiTan securing a
partner in the next 6 months, the stock is extremely speculative in our view. At the same time, the upside
potential once a partner is announced seems magnificent. Thus, the current share price of EUR 0.50, or
AUD 0.87 presents a clear buying opportunity as the stock stands to make significant gains in the next 6-
12 months based on what Management has promised to be expected news flow: partner deal, phase III
trials, other formulations, etc. Furthermore, at a price of EUR 0.50, a modest risk could be worth taking.
We initiate coverage of EpiTan with a SPECULATIVE BUY recommendation. Our initial target price is
set at EUR 2.00 or AUD 3.50 per share, close to the average of the fair values derived through the DCF
method and the NPV assessment.
- 10 -

Clinical Trials Summary
Clinical phase
Phase I/II
Pharmacokinetic
Initiation/Completion
ended Nov/Dec 2001
Phase II
Sunburn Study
ended Q3/2003
Phase Ib
Implant dose/
Escalation study
Phase II
Genotype
Study
Began Nov 2003
Resumed June 2004
with batch of smaller
Implants
Results Q4/2004
commence late 2004
Phase II
PMLE study
commence late 2004
(European Winter)
Phase III
Sunburn injury
commence mid-2005
Location of the trial
Royal Adelaide Hospital
Royal Prince Alfred Hospital
(Sydney)
Royal Adelaide Hospital
Q-Pharm facility
Clive Berghofer Cancer
Research Centre, Royal
Brisbane Hospital
Queensland Institute of
Medical Research (QIMR)
Germany, UK
Global (Australia, US,
Europe)
Patients/treatment
12 healthy volunteers
Subcutaneous injections for
10 consecutive days
61 Melanotan-treated
20 Placebo
Subcutaneous injections
3 X 10 day treatments (3
months)
Slow-release implant injected
under the skin.
6 patients received implant
Nov 2003
Caucasian subjects with
genetic susceptibility to
sunburn, skin cancer,
skin sun allergy
Patients with Polymorphic
Light
Eruption (PMLE)
Treatment with slow-release
implant
1,000-2,000 healthy
individuals
Objective
Safety and toxicity profile
Efficacy in inducing a tan with
reduced skin cell damage
following controlled UV
exposure
Optimal dosage, safety,
compliance, efficacy of the
implant.
To establish the safety and
degree of tanning in these
genetically predisposed subjects.
Endpoint: reduction in
symptoms (sunburn, rash,
blisters, patches)
Measurement of melanin
increase
Efficacy in inducing melanin
production with reduced skin
cell damage following controlled
UV exposure
Description of trial
Rapid absorption rate, short halflife,
increased levels of melanin in
the skin
Safe and no obvious side effects
Significant increase in melanin.
Melanin density increases 100% in
fair skinned patients.
Amount of skin cell damage,
following controlled UV exposure,
reduced by 50%.
Melanin levels are increased in the
skin by means other than by
damaging the cells with UV
radiation.
In Feb 2004, results showed less
Melanotan needed in implant. New
batch with less drug under
production. Trial was rescheduled
with the smaller implant.
Assays will be developed to detect
melanin receptor deficiencies.
PMLE affects 10-20% of population
in northern latitudes. Study will
determine the individuals to whom
Melanotan can be of most benefit.
EpiTan seeks partner to share
costs, co-develop, market and sell
Melanotan.
Launch planned late 2006/early
2007.
Aktienflash

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Source:
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