EpiTan Ltd. - Clinuvel Pharmaceuticals

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.
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