EPITAN - Clinuvel Pharmaceuticals

EPITANTEATHER &GREENWOODLIMITEDBeaufort House15 St. Botolph StreetLondon EC3A 7QRTel (020) 7426 9000Fax (020) 7247 0209DX 132300Finsbury Square, Londone-mailtg@teathers.comPre flotation researchHoward Miller 020 7426 3200 howard.miller@teathers.com March 2005

2EPITAN

EPITANInvestment summaryEpiTan is an Australian listed (ticker “EPT”) speciality pharmaceutical company with afocus on dermatology products. Its current market capitalisation is approximately£40m. The key value driver for the company is its developmental drugMELANOTAN, EpiTan’s brand name for [Nle 4 ,D-Phe 7 ]-α-MSH, a synthetic copy of anaturally occurring hormone which stimulates the production of melanin.MELANOTAN is a synthetic peptide which stimulates the production of melanin inthe skin. Melanin, specifically eumelanin, has been shown to protect the skin fromdamage resulting from exposure to ultra-violet (UV) radiation. MELANOTAN hasbeen shown to produce an increased melanin density in the skin (“a tan”) withoutexposure to UV radiation. The initial reaction of fair-skinned individuals (i.e. those witha low-level of starting melanin density) to UV radiation is sunburn, which is associatedwith increased risk of skin cancer. MELANOTAN is therefore being developed byEpiTan for the prevention of sunburn injury and other UV associated skin diseases anddisorders such as Polymorphous Light Eruption (PMLE).The company has announced that it is now seeking an admission to AIM, and lookingto raise approximately £15m to complete the development and commercialisation ofMELANOTAN.Key reasons to participate in this fundraising include:No major safety concerns were identified in early stage clinical trials withMELANOTAN.Effectiveness has been established in trials to date.Positive results from previous trials significantly lessen the likelihood of productfailure in late stage trials.We expect the product to reach market in 2008 with the publication ofsignificant trial results over the next two years driving a substantial increase inthe company’s valuation ahead of the product launch.We do not know of any comparable drugs currently in clinical development andtherefore there is unlikely to be any significant competition to the product forthe foreseeable future.EpiTan is planning to partner the product for commercialisation outside ofAustralia and New Zealand. This is likely to add to news flow over the next 6-18 months and has the potential to generate substantial payments to EpiTanfrom signing fees, milestone payments and royalties on commercialisation.MELANOTAN is likely to be first commercialised as a subcutaneoussustained release implant. However, EpiTan is also developing follow-onformulations, including a transdermal spray which we believe has the potentialto significantly expand MELANOTAN’s potential market.The potential markets for MELANOTAN include its use as a:o Prophylactic – primarily for the prevention of sunburn injury in at riskindividuals. This has the potential to reduce the number of cases ofskin cancer, which is the most prevalent form of cancer worldwide.o Therapeutic – as a preventative treatment for skin-related disorderssuch as Polymorphous Light Eruption (PMLE). This currently affects10-20% of people in the US and northern Europe, and is therefore asignificant market.EpiTan is building an infrastructure to support the sales and marketing of itsdermatology products in Australia and New Zealand. EpiTan currently has fourproducts in its portfolio and plans to expand that further to build a strongdermatology franchise. The infrastructure will allow EpiTan to optimise returnswhen it launches MELANOTAN in the Australian and New Zealand market.Our valuation of the MELANOTAN project suggests a current net presentvalue of £112m, significantly above Epitan’s current market capitalisation.3

EPITANContentsInvestment summary............................................................................3Overview................................................................................................5MELANOTAN .....................................................................................6Target markets 6Partnering strategy 8Trials 8IP position 12Dermatological products business ...................................................13Exorex 13Linotar 13Zindaclin 13OraDisc A 14Financials ............................................................................................15Valuation..............................................................................................17Appendices .........................................................................................22Senior management 22Consultants 23Medical Advisory Panel 23Non-Executive Directors 23Shareholding structure 24Glossary 254

EPITANOverviewEpiTan is a biopharmaceutical company focused on the dermatology market. Thecompany’s key future value driver is MELANOTAN, currently in Phase II trials for theprevention of sunburn injury and Phase I/II trials as a therapy for PMLE. The producthas already demonstrated a strong safety and efficacy profile in the protection fromsunburn injury in its original daily liquid injection formulation, and trials of a moremarket friendly implant are now in progress. A topical formulation is also underdevelopment which has the potential to further enhance the product’s marketpositioning and utility.The company also has rights to distribute four dermatology products in Australia andNew Zealand, two of which are currently on the market and two which are expected tobe launched during 2005 and 2006. These products are Linotar (launched for thetreatment of eczema), Exorex (launched for the treatment of psoriasis), Zindaclin(expected to be launched in September 2005 for the treatment of acne) and OraDiscA(expected to be launched in mid 2006 for the treatment of mouth ulcers). EpiTan islooking to further expand this portfolio with the distribution rights to several moreproducts currently being negotiated. The company has already built a dermatologysales force of three people on the Australian East Coast and has ten Quintiles contractsales representatives supporting Linotar. The company aims to further strengthen itsAustralian and New Zealand sales and marketing presence ahead of the future launchof MELANOTAN which it is planning on marketing itself in these markets. In ourview, while the current portfolio of products licensed for distribution has potential salesin 2007 of approximately $A3.5m, MELANOTAN has potential peak salessubstantially in excess of US$1bn.EpiTan is planning on raising £15m and seeking admission to AIM. The purpose of thefundraising is as follows:To complete the remaining clinical trials and non-clinical studies ofMELANOTAN necessary to gain marketing approval by regulatoryauthorities for the prevention of sunburn injury and the treatment of PMLE.To secure a strong partner for commercialisation of the product outside ofAustralia and New Zealand.To enable EpiTan to in-license further dermatology products for the Australianand New Zealand market, with the aim of building its portfolio andstrengthening its sales and marketing infrastructure ahead of the launch ofMELANOTAN.5

EPITANMELANOTANMELANOTAN is a synthetic peptide which is an analogue of alpha-MelanocyteStimulating Hormone (α-MSH). α-MSH stimulates the production and release ofmelanin by melanocytes in the skin. The release of α-MSH is caused by damage toskin cells as a result of UVA and/or UVB radiation. This hormone then binds toreceptors on melanocytes triggering the production of melanin. Increased levels ofmelanin are responsible for skin darkening (tanning) and increased levels of melaninact as a UV protectant, shielding DNA from further damage by UV radiation. Paleskinned Caucasians who are more prone to sunburn injury have a lower ability toproduce melanin as their melanocyte receptors are less responsive to α-MSH.MELANOTAN has an advantage over naturally occurring α-MSH, asMELANOTAN is significantly more potent than α-MSH in that it binds more stronglyto the melanocyte receptor, therefore more melanin is produced per unit of peptide. Inaddition, MELANOTAN leads to the preferential production of the most protectiveform of melanin, eumelanin.Initial studies were performed on MELANOTAN by the University of Arizona where aseries of daily liquid injections of MELANOTAN were shown to significantly increaselevels of melanin in patients. Melanotan Corporation Inc. was formed in the US in 1995to exploit the potential of this peptide. EpiTan subsequently sub-licensed thetechnology from Melanotan Corporation.MELANOTAN is being developed by EpiTan in two key formulations, a solidinjectable, bio-degradable implant for the sustained release of the drug and a topicalsystemic formulation. The product is being developed for two initial indications: thetreatment of Polymorphous Light Eruption (PMLE) and protection from sunburn injury.However, further indications in which MELANOTAN may be effective includepsoriasis, solar urticaria, porphyria, vitiligo and albinism.Target marketsThe initial target markets of PMLE and protection from sunburn injury for whichMELANOTAN is being developed have been chosen for commercial reasons due tothe size of the target population and the high level of unmet medical need. In additionto these markets there is also the potential for MELANOTAN to be used in thecosmetic arena. The potential target markets can be broadly classified as therapeuticand prophylactic.TherapeuticAlthough this is the smaller of the two markets in terms of value, the potentialtherapeutic indications have highly defined patient populations and are fields of highunmet therapeutic need. This makes these indications the most suitable to pursue forinitial regulatory approval. Trial endpoints are easily defined and therefore the efficacyof the product can be effectively determined. In addition, if the product is shown to beefficacious and safe in the treatment of these conditions the level of unmet need islikely to simplify the approval process from a regulatory perspective. PMLE is the leadtherapeutic indication for which MELANOTAN is being developed. The product islikely to be able to gain a substantial market share in the treatment of PMLE due to thelack of suitable alternative therapies. 10%-20% of people in the US and northernEurope suffer from PMLE and therefore this is a potentially high value market forMELANOTAN.PMLE usually appears as small red, burning or itchy eruptions on sun-exposed skin. Itis the second most common sun-related skin problem after sunburn as seen bydoctors. It is most common during the spring and summer months when the level ofexposure to UV radiation increases.Other skin-related disorders where treatment with MELANOTAN may be of benefitinclude psoriasis, solar urticaria, porphyria, vitiligo or albinism. Currently, many ofthese diseases are treated with narrow band UV therapy. MELANOTAN couldreplace or at least augment UV radiation therapy thereby reducing the amount of UVradiation exposure in these treatments.6

EPITANProphylacticThis is potentially the largest pharmaceutical market for MELANOTAN with the keyindication being the prevention of sunburn injury in the at risk population. The targetpopulation can be broadly defined as Caucasians with fair skin. However, using theFitzpatrick skin type classification (classifying individuals by their skin sensitivity tosunlight) the target population can be further defined as people with Fitzpatrick types Iand II. These people are at the highest risk for photoaging effects, including wrinkles,and are more importantly at most risk of developing skin cancer. Therefore protectionof this population from sunburn injury during periods of the highest exposure to UVlight should produce a major clinical benefit. This indication is less well defined thanthe therapeutic indications, and late stage clinical trials to demonstrate efficacy willhave to be larger in terms of patient numbers in order to convince regulatory authoritiesof the clinical benefits. EpiTan is attempting to further define the target population bygenotype which should be of benefit when regulators are assessing the product forapproval. Peak sales in this market have the potential to be in excess of $1bn, makingthe commercial rationale for developing the product in this field clear.Skin cancer is a major global health issue affecting millions of lives and costingeconomies billions of dollars in treatment and loss of production. Data from the WorldHealth Organisation published in 2003, estimates that between two and three millionnon-melanoma skin cancers and over 130,000 malignant melanomas occur globallyeach year, and predicts that these numbers are rising.Rates of incidence of melanoma are continuing to increase throughout the EuropeanCommunity. In Germany alone the incidence of skin cancer has increased twenty-foldsince 1930 according to the European Society of Skin Cancer Prevention.Australia has the highest rate of skin cancer in the world. One out of every twoAustralians will develop skin cancer at some stage during their lives. On average,740,000 new cases of skin cancer are diagnosed in Australia every year.7

EPITANPartnering strategyEpiTan’s stated strategy is to complete Phase III trials of MELANOTAN in PMLE andprotection from sunburn injury to maximise the potential returns to the company. Thecompany plans to partner the product ahead of commercialisation for all territoriesoutside Australia and New Zealand. We believe this is the most suitable strategy tomaximise returns to EpiTan from this product. EpiTan is currently building a sales forceto market and distribute its dermatological portfolio in Australia and New Zealand, andtherefore by the time MELANOTAN is launched in 2008 EpiTan should be in aposition to optimise sales of the product in these markets. However, EpiTan does nothave the resources or infrastructure to effectively commercialise MELANOTANoutside of its home markets and therefore a strong marketing partner is essential. Webelieve that the most likely partners for the product are major pharmaceuticalcompanies, which are continually searching for novel high sales potential products tobring to market. EpiTan’s aim to retain rights for Australia and New Zealand is unlikelyto prove to be an obstacle in licensing the remaining commercialisation rights to amajor pharmaceutical company as the majority of players view these territories as noncore.By completing Phase III trials itself EpiTan decreases the developmental risk a partnerhas to take on and should significantly increase the value of the licensing deal toEpiTan. In our view the deal is likely to be structured along the lines of other drugdevelopment licensing deals, involving an upfront licensing fee, a milestone paymenton filing the product for approval, a milestone payable on approval or launch androyalty payments based on sales levels. Our expectations for the deal terms aredetailed in the valuation model.There exists the possibility that if favourable deal terms are on offer EpiTan wouldpartner the product before the completion of Phase III trials and potentially even beforePhase III trials begin. EpiTan’s strong dataset from completed clinical trials could beviewed as attractive enough for a major pharmaceutical player to be willing to take onthe risk of funding and conducting Phase III trials in order to gain exclusivecommercialisation rights to the product. If the product was to be partnered early wewould expect the deal terms to change. However, we would not expect EpiTan to enterinto a deal that would significantly lessen returns on the product.TrialsEpiTan is currently pursuing development of MELANOTAN in two lead indications:protection from sunburn injury and treatment of PMLE. In addition, the product is beingdeveloped in two distinct formulations: a subcutaneous sustained release implant anda topical formulation. The subcutaneous implant is likely to be the first formulation tomarket. The obvious benefits of a topical formulation have the potential to significantlyexpand the market for the product. However, as the topical formulation is only justabout to enter clinical trials, we do not believe it will reach market until some time afterthe launch of the subcutaneous implant.The following table outlines EpiTan’s completed and planned clinical trials forMELANOTAN. It is clear from the table that EpiTan has been successful indeveloping the product at a relatively low cost compared with the standard cost ofclinical trials for developmental pharmaceuticals. The low cost of conducting clinicaltrials has resulted from the short time necessary for recruitment of individuals for thetrials and the relatively short time necessary to complete a trial. As regards thesunburn injury trials, recruitment of healthy volunteers is far easier than recruitment ofpatients suffering from a specific disease and less medical supervision is requiredduring the trial.8

EPITANTrialEP001 – Phase I/II Safety/EfficacyA Randomised, Placebo-Controlled,Double-Blind Study to Assess thePharmacokinetics and Tanning Effects ofMELANOTAN in Healthy Adult SubjectsEP002 – Phase II Sunburn InjuryA Double-Blind, Randomised, Placebo-Controlled Comparative Study to Evaluatethe Safety, Tolerability and Efficacy ofMELANOTAN in Healthy CaucasiansEP004 – Phase II Dose EscalationA Dose Escalation Study Of A SingleDepot Injection Of MELANOTAN ToAssess The Pharmacokinetics AndTanning Effects In Healthy Adult SubjectsEP003 – Phase II GenotypeA Comparative Study To Evaluate TheConsequences Of Polymorphism WithinThe Melanocortin-1 Receptor Gene InHealthy Caucasian Individuals On TheSafety, Tolerability And Tanning Ability OfA One-Month Course Of MELANOTANEP005 – Phase II PMLEA Pilot, Phase II, open, controlled Study toevaluate the Safety, Tolerability andEfficacy of a subcutaneous Implant ofMELANOTAN in Patients suffering fromrecurrent PMLEEP007 – Phase II TopicalA Dose-Escalation study of topicalapplication f TDS MELANOTAN toAssess the Pharmacokinetics and skinmelanin density in Healthy Adult SubjectsEP008 – Phase II Endpoint StudyA Double-Blind, Randomised, Placebo-Controlled Study to Evaluate thePhotoprotective Effect of a Sustained-Release dose of MELANOTAN in FairSkinned Healthy CaucasiansDate/LocationCompletedJan 2002AustraliaCompletedSept 2003AustraliaCompletedJan 2005AustraliaJun/Jul2005AustraliaJan 2005ResultsexpectedJun 2005Germany,FinlandApr 2005UKApr 2005AustraliaEP009 – Phase III Sunburn Injury 2006Multi-CentreEP010 – Phase III PMLE 2006EuropeSource: EpiTanTotalsubjects(placebo)16(4)81(20)30(0)95(0)20(5)30(0)48(24)~1600(~500)~200(~100)Formulation/dosing10 consecutivedaysSC daily liquid0.16mg/kg/day3 (10 day) monthlycoursesSC daily liquid0.16mg/kg/day20 daysSC implant5-40mg30 daysSC implantUndisclosed dose8 weeksSC implant(20mg)4 weeksTopical Spray(10-400mg)12 weeksSC implantUndisclosed dose9 monthsSC implant9 monthsSC implantCostCompleted /Estimated(E)£0.2m£0.3m£0.2m£0.4m (E)£0.3m (E)£0.1m£0.2m (E)£8.1m (E)£1.2m (E)EpiTan has already completed a significant number of trials where there were no majorsafety concerns and effectiveness was demonstrated. In total over 110 patients havebeen administered MELANOTAN in trials that EpiTan has conducted. In addition, alarge number of preclinical studies have been conducted in which MELANOTAN hasdemonstrated an acceptable safety profile.Of the completed studies EP001 and EP002 were completed using the subcutaneousdaily liquid injection for 10 consecutive days, while the EP004 trial used thesubcutaneous implant. The implant benefits from delivering a significantly lower dose9

EPITANof MELANOTAN than the subcutaneous injection and this resulted in there being asubstantially reduced level of side effects. All studies produced a significant increase inskin melanin density.Clinical trial EP001 summaryClinical trial EP001 used a subcutaneous liquid injection of MELANOTAN at a doseof approximately 10mg/day (0.16mg/kg) for 10 consecutive days giving a total dose ofapproximately 100mg. The trial’s aim was to assess the pharmacokinetics and tanningeffect of MELANOTAN in healthy adults. There were no serious adverse eventsreported and the drug was generally well tolerated with the main adverse reactionsbeing mild facial flushing and nausea. In terms of efficacy, MELANOTAN caused astatistically significant increase in skin melanin density for all subjects that received theactive.Clinical trial EP002 summaryClinical trial EP002 used a subcutaneous liquid injection of MELANOTAN at thesame dose as for EP001 for 10 consecutive days per month for three months giving atotal dose of approximately 300mg. The trial’s aim was to compare the safety andtolerability in Fitzpatrick types I and II versus Fitzpatrick types III and IV populations. Interms of efficacy, MELANOTAN caused a significantly greater increase in skinmelanin density for subjects in types I and II compared to types III and IV.The general trend was for a shift of these subjects from melanin levels in the normalrange of Fitzpatrick types I and II to melanin levels in the normal range for types III andIV. The following figure shows a plot of the starting melanin density versus the changein melanin density following treatment for individual patients in the trial.1.6Change in Melanin Density (% skin area) .1.20.80.401 1.5 2 2.5 3 3.5 4 4.5 5 5.5Starting Melanin Density (% skin area)Source: EpiTanThe trial measured melanin density at eight different anatomic sites and assessedwhether MELANOTAN reduced the incidence of sunburn cells after controlled UVexposure. The trial suggested that the number of sunburn cells was significantlyreduced in type I and II subjects. In addition, the number of cells exhibiting DNAdamage was also shown to be significantly reduced (following MELANOTAN) inFitzpatrick types I and II.Clinical trial EP004 summaryClinical trial EP004 investigated four increasing doses of the subcutaneous sustainedrelease implant formulation of MELANOTAN to assess safety, pharmacokinetics and10

EPITANincreased melanin density in healthy adult subjects. The implant dose range used was5mg-40mg. Preliminary results have indicated that only one-tenth of the dose used inthe original daily liquid dosing regime may required to be released by the implant andthat pigmentation is achieved at a quicker rate. Compared to the original dailysubcutaneous liquid injection studies, there were significantly fewer adverse events.Current and future clinical trialsPrevention of sunburn injuryEpiTan has now received ethics committee approval to conduct a Phase II trial(EP008) to evaluate the photoprotective effect of a sustained release dose ofMELANOTAN. The aim of the study is to evaluate MELANOTAN sustainedrelease for the protection of sunburn injury, as a prophylactic drug for people withFitzpatrick types I and II, by establishing a protection rating for MELANOTAN similarto that used in sunscreens. The trial is scheduled to begin in April 2005 in Australia andrun for approximately six months. The results from this trial will be put to regulators forapproval to conduct a Phase III trial (EP009).A further trial (EP003) is planned to begin in June/July 2005 to evaluate the efficacy ofthe implant in individuals with normal and variant genotypes for the Melanocortin 1receptor. These polymorphisms can lead to a loss or reduction in melanin production. Ifpositive results are obtained this would provide supportive information for theprescribing of MELANOTAN for individuals of Fitzpatrick types I and II where a largeproportion of the individuals are likely to have a variant genotype. The trial is likely torun for 12-18 months and will therefore run alongside the planned Phase III trials.The final clinical trial in the development of MELANOTAN for the prevention ofsunburn injury is likely to be the Phase III multi-centre worldwide trial (EP009). Weexpect this trial to begin in 2006 and include approximately 1,600 individuals. Ifsuccessful we expect the product to be filed for approval with regulatory authorities inEurope, US and Australia in 2007, with marketing approval likely in 2008.Treatment of PMLEIn January 2005, EpiTan commenced a Phase II clinical trial (EP005) in Germany toevaluate the safety, tolerability and efficacy of the subcutaneous implant ofMELANOTAN in patients suffering from PMLE. The trial was expanded to Finland inMarch 2005 with the total number of patients in the trial expected to be 20. Dependenton the results of this trial, we expect EpiTan to begin a Phase III trial in PMLE in early2006 in Europe in approximately 200 patients.Topical formulationAlthough EpiTan is currently progressing the sustained release implant as its leadformulation, it is also evaluating further delivery formulations which could easeadministration and potentially expand the market for the product.The lead alternative formulation is a transdermal delivery system (TDS) containingMELANOTAN. TDS has been developed by Transdermal Technologies Inc.,Florida, US. In April 2005, clinical trial EP007 will commence to investigate the safetyand efficacy of this spray formulation and to establish the optimal dosing. The trial willbe conducted by the William Harvey Research Institute at Queen Mary, University ofLondon. If successful we would expect EpiTan to proceed with further trials for thisformulation.An additional transdermal lotion is also under development. In May 2003, EpiTaninitiated a collaboration with CollaGenex Pharmaceuticals (US) and Thomas Sköld(Sweden) to develop a lotion using Restoraderm ® technology for the topical delivery ofMELANOTAN. This could also provide an additional alternative formulation ofMELANOTAN which may further expand the potential market for the product.11

EPITANManufacturing of MELANOTAN for clinical trialsEpiTan is working with an undisclosed European peptide manufacturing company todevelop a scaled-up process for eventual production of commercialisedMELANOTAN. This will be a large-scale, solution-phase process allowingcommercial scale amounts to be produced under cGMP specifications at acommercially viable price. The manufacturing process is currently being validated atmid-scale and will be used to produce MELANOTAN for the implant to be used inphase III trials.IP positionOver the last three years EpiTan has significantly strengthened its patent positionsurrounding MELANOTAN. EpiTan has followed a strategy of enhancing its patentposition by filing patents based on the results of recent clinical trials. The following is alist of the key recent patent applications and a summary of the uses of MELANOTANthat are covered. All the patents run for 20 years from the priority date and thereforeshould provide protection until at least 2022.This broad patent estate significantly strengthens EpiTan’s position. Previous patentsgranted based on the Arizona work covering the MELANOTAN compound and itsuse in melanogenesis will expire in Sept 2006 in the US (and in other internationaljurisdictions, up to 2008) and therefore will not provide EpiTan with IP protection afterthese dates. The strengthening of the company’s IP position through the filing of theseadditional patents has therefore been a key issue for the company in the past.However, with the patent position surrounding MELANOTAN now strengthenedEpiTan is likely to be able to protect the product from generic competition until at least2022.PCT/AU2004/001631 (Priority date 24 Nov 2003)This patent essentially covers the use of MELANOTAN in patients with a loss of orreduced receptor function in the process of melanogenesis. It uses pharmacogenomicdata from the Phase IIb clinical trial, which demonstrate that MELANOTAN iseffective in increasing melanogenesis in patients with variant receptor alleles. 22variant alleles have been found to exist, eight of which are associated with skin cancer.Of Fitzpatrick types I and II, 60% of individuals have been shown to have one of thesevariant alleles. Therefore this patent should provide strong protection in the preventionof sunburn injury indication for individuals with Fitzpatrick types I and II and variantalleles. This is an international patent application.PCT/AU2005/000181 (Priority date 4 August 2004)This patent uses data from the Phase Ib sustained release clinical trial and covers theuse of the drug at a magnitude less than that used in the subcutaneous daily liquidinjection formulation. This promotes melanogenesis with an increased safety andefficacy. This is a use and formulation patent and as with the previously discussedpatents is an international patent application. This should provide strong protection forany sustained release formulations designed to deliver MELANOTAN in a sustainedmanner, whether it be by implant, orally (pill) topically, or other.Topical Formulation Patent (patent number undisclosed) (Prioritydate 7 Oct 2004)This is a US provisional patent application covering the systemic topical administrationof the product using TDS developed by Transdermal Technologies Inc. This patent isa formulation patent and covers MELANOTAN in this formulation.12

EPITANDermatological products businessEpiTan is developing a sales and marketing infrastructure in Australia and NewZealand specialising in prescription dermatology products. We expect EpiTan tocontinue to build this capability ahead of the launch of MELANOTAN in thesemarkets providing the company with the ability to maximise returns by keepingmarketing in-house.EpiTan currently has four products in its portfolio and is in discussions to in-licenseseveral additional products. EpiTan is using its Medical Advisory Panel to evaluatefurther products for in-licensing. This strategy is benefiting from the lack of interest thatEuropean and American pharmaceutical companies express in setting up operations inthe Australian and New Zealand markets. The majority of European and Americanpharmaceutical companies view the potential returns from marketing products in theAustralian and New Zealand markets as too low to justify the substantial investment ininfrastructure that would be required to set up operations, and therefore are open toout-licensing their products for these markets. EpiTan is therefore aiming to capitaliseon this situation by building a profitable portfolio of dermatology products and developa fully integrated dermatology-focussed pharmaceutical company with MELANOTANas its key growth driver.EpiTan currently has three experienced sales representatives to launch Exorex andhas a further ten contract sales representatives supporting the re-launch of one of itsportfolio products, Linotar. We expect EpiTan to continue to strengthen its sales forceas it adds further products to its portfolio and particularly ahead of the launch ofMELANOTAN, which we expect in 2008.EpiTan’s current product portfolio is detailed below.ExorexExorex is a novel formulation of coal tar for the treatment of psoriasis. The product wasacquired from Trans Dermal Pharmaceuticals Australia on 22 February 2005 and issupplied by a South African firm Meyerzall. Exorex uses a liposomal delivery systemwhich improves its physicochemical properties and is used as a topical preparation.Exorex has advantages over other topical therapies for first-line treatment of chronicpsoriasis in that it combines the safety and effectiveness of coal tars with the improvedefficacy, lessened odour and lessened staining of the new formulation.Exorex has been approved for marketing in a large number of countries and is thesecond most prescribed psoriasis treatment in the UK (marketed by Forest Labs UK).However, the product has not been heavily promoted through Trans DermalPharmaceuticals in Australia and therefore we believe EpiTan should be able tosignificantly grow sales. EpiTan will launch Exorex in Australia to GP’s in April 2005.EpiTan has also submitted an application to the Australian government’sPharmaceutical Benefits Scheme (PBS) for medical reimbursement. If reimbursementis achieved we believe peak sales in Australia could reach up to $A2m.LinotarLinotar was also acquired from Trans Dermal Pharmaceuticals in February 2005 and isa similar coal tar based treatment for eczema. It is a topical emulsion and is licensedas an over the counter (OTC) product in Australia and many other countries for thefirst-line treatment of mild eczema. EpiTan re-launched Linotar in March 2005 usingten contract sales representatives. Sales promotion will then be expanded to NewZealand in July 2005. As the only cGMP manufactured coal tar cream specificallypromoted in Australia for the treatment of eczema we expect Linotar to be capable ofachieving sales in the region of $A1.2m in these territories in the first full year of relaunch.ZindaclinZindaclin was in-licensed from Pro-Strakan Pharmaceuticals in March 2004, and is thefirst non-alcohol based, once a day gel treatment for mild to moderate acne. EpiTanhas exclusive rights to sell the product in Australia and New Zealand. The product hasbeen submitted to the Therapeutic Goods Administration (TGA) for approval to marketand we expect approval in Q3 2005.13

EPITANZindaclin is a clindamycin based treatment encapsulated in a ResiDerm intra-dermaldrug delivery system. This drug delivery mechanism enhances the therapeuticperformance of the drug by increasing the penetration and retention of the drug in theskin. We believe that given the product’s advantages over competing products it hasthe potential to achieve peak sales in Australia and New Zealand of around $A2m.OraDisc AOraDisc A was in-licensed from Access Pharmaceuticals for exclusive marketing anddistribution by EpiTan in Australia and New Zealand in January 2005. The product wasapproved by the FDA in September 2004 for the treatment of mouth ulcers. We expectEpiTan to submit the product for registration to the TGA in mid 2005 and the product togain approval in mid 2006. As the product has already gained FDA approval webelieve the risk of failure to reach market in Australia and New Zealand is very low.The product is a microadhesive patch which gradually erodes and releases amlexanoxwhen applied to the ulcer. This enables targeting of the active ingredient to the ulcercompared with competing treatments where a large proportion of the active ingredientfails to remain in the target area. We believe this novel mode of administrationsignificantly differentiates the product from OTC treatments and should enable theproduct to achieve peak sales in Australia and New Zealand of $A1m. This has thepotential to increase significantly if the product is successfully switched to OTC statusonce it has been on market for a couple of years.14

EPITANFinancialsWe have presented the historical financials and forecasts for EpiTan to June 2007 inAustralian dollars ($A) as this is the currency in which EpiTan has historically reported.However, in the valuation section we have performed the majority of the analysis in USdollars (US$) as most significant end markets for MELANOTAN are likely to be theUS and Europe making it more appropriate to forecast sales in US$. The exchangerates we have used for conversion of various currencies are £1=$A2.4=US$1.9.Historically the majority of EpiTan’s spend has been on clinical trials and drugformulation research and development of MELANOTAN. In Financial year ending(FYE) June 2003 R&D expenditure represented 64% of total costs and in FYE June2004 70%. Total expenditure in FYE June 2004 was $A7.9m (£3.3m) which weconsider a relatively low level of spend for a company with a developmental product inclinical trials. We expect FYE June 2005 to show an increase in R&D spend as thisperiod will include expenditure on several Phase II trials including EP004, EP003,EP005, EP007 and EP008. However, we have forecast a significant increase in R&Dspend for FYE June 2006 and June 2007 as the Phase III trials EP009 and EP010 areconducted. The expected cost of all clinical trials is detailed in the ‘Trials’ section of thisresearch note.In addition to an increase in R&D spend in future years we also expect other operatingcosts to increase primarily driven by an increase in sales and marketing costs for theDermatology products business. However, the increase in sales, general andadministration (S,G&A) costs will largely be offset by revenues from the Dermatologyportfolio. In FYE June 2005 Linotar and Exorex will make initial contributions torevenues following their relaunch by EpiTan in April 2005. This will be added to in FYEJune 2006 by the launch of Zindaclin expected in Q3 2005. We have not includedOraDisc A revenues in forecasts although we expect its launch in mid 2006. The timingof launch will be dependent on approval by Australian regulatory authorities making amovement in the launch timing possible. We have forecast the cost of sales for thedermatology products division to rise from 30% of revenues in FYE June 2005, to 33%of revenues in FYE June 2006, to 36% of revenues in FYE June 2007. This change isdriven primarily by the change in product mix as new products are launched.We expect the most significant item of revenue before June 2007 to be the receipt of asigning fee from a major pharmaceutical partner which we are conservativelyforecasting to fall in early 2007. The timing of this payment may vary but we believethat a partnering deal is most likely to be signed before the publication of Phase III trialresults. We believe that a likely signing fee will be in the region of £5m ($A12m). Thisfigure has been derived from an assessment of deals completed by other drugdevelopment companies for products at a similar stage of development and we believeit is conservative.EpiTan P&L summaryYear to June $A'000 2003A 2004A 2005E 2006E 2007ETurnover 0 0 442 2,500 15,570Dermatology products 0 0 442 2,500 3,570Melanotan milestones/signing fees 0 0 0 12,000Cost of sales 0 0 (133) (830) (1,274)Gross profit 0 0 309 1,670 14,296R&D (2,643) (5,539) (6,612) (13,342) (20,380)S,G&A (1,470) (2,406) (3,946) (5,194) (5,255)Other operating income - - - - -Operating profit (4,113) (7,945) (10,248) (16,866) (11,340)Exceptionals - - - - -Net interest 136 355 411 797 284PBT FRS3 (3,977) (7,590) (9,838) (16,069) (11,055)PBT T&G (3,977) (7,590) (9,838) (16,069) (11,055)Tax charge - - - - -Tax rate % 0% 0% 0% 0% 0%T&G earnings (3,977) (7,590) (9,838) (16,069) (11,055)Source: EpiTan, T&G forecasts15

EPITANBeyond June 2007 we believe R&D expenditure is likely to decline significantlyfollowing the completion of Phase III trials and the partnering of MELANOTAN forterritories outside Australia and New Zealand. In addition, we expect a partnering dealto involve the payment of a milestone on filing of the product with regulatory authoritiesand a further milestone payment on launch, followed by royalties on sales.Upside to revenue forecasts is likely as EpiTan continues to in-license products forsales and distribution in Australia and New Zealand. However, until further deals areannounced it is impossible to forecast sales for future portfolio products.The following table details EpiTan’s historic cash flows and our forecast cash flowprojections. A successful fundraising of £15m ($A36m) and admission to AIM will, inour view, provide sufficient capital to fund EpiTan through to at least June 2007 andthe completion of Phase III trials of MELANOTAN.EpiTan cash flow forecastsYear to June $A'000 2003A 2004A 2005E 2006E 2007EOperating profit (4,113) (7,945) (10,248) (16,866) (11,340)Depreciation, amortisation 794 790 790 790 790Working capital 125 808 (27) (166) (255)Net interest 153 344 411 797 284Tax paid - - - - -Other - - -Gross cash flow (3,041) (6,002) (9,074) (15,445) (10,520)Capex (75) (43) (100) (100) (100)Use of provs. Other - - -Free cash flow (3,116) (6,045) (9,174) (15,545) (10,620)Dividends - - - - -Acqs, disposals - - - - -Shares issued 1,198 9,794 36,000 - -Other 116 (880) (4,200) - -Change: net debt -1,802 2,869 22,626 -15,545 -10,620End net cash (debt) 2,612 5,481 28,108 12,563 1,943Source: EpiTan, T&G forecasts16

EPITANValuationWe have performed a valuation of EpiTan by purely focusing on the potential forMELANOTAN in the treatment of PMLE and the prevention of sunburn injury. Thisvaluation ignores other aspects of the EpiTan business, particularly the dermatologyproducts division. This division is currently in start up phase and loss making and in ourview does not currently significantly add to the value of EpiTan as a whole, other thanplaying an essential strategic role in the building of an infrastructure to allow EpiTan tocommercialise MELANOTAN in the Australian and New Zealand markets in thefuture. However, we believe that this division has the potential to significantly add tothe overall value of EpiTan as new products are in-licensed for marketing anddistribution in these markets.In order to value the MELANOTAN business we have performed a risk adjusted netpresent value analysis, using discounted cash flow forecasts based on our view of themost likely progression of the product through development and after launch in majormarkets. As we have based our valuation purely on the PMLE and prevention ofsunburn injury indications for the subcutaneous sustained release implant formulation,the potential for significant upside exists from the product’s launch in new markets(such as the cosmetics market) and in new formulations (such as the transdermalspray). Our valuation of the MELANOTAN project suggests a current net presentvalue of £112m. This is significantly above the current market capitalisation of thecompany.The key geographic markets we have considered in the valuation are the US, EU (UK,France, Germany, Italy, Spain) and Australia and New Zealand. We have assumedthat EpiTan will partner the product for commercialisation outside of Australia and NewZealand, and commercialise the product itself in its home markets.The following three tables detail forecasts in key geographic territories for thetreatment of PMLE, forecasts for the prevention of sunburn injury, and finally a netpresent value analysis based on EpiTan’s future income from these markets.We believe that we have used conservative assumptions for each of the forecastingcriteria and this therefore provides potential upside to our valuation. We have basedour assumptions on generally available market information, using comparable dealsand products as a guide. Additional assumptions included in the models are: The US population is currently 290m, the combined population of the UK,France, Germany, Italy and Spain is 300m and the combined population ofAustralia and New Zealand is 24m. We have also conservatively assumed, formodelling purposes, no increases in the population of these regions to 2023. 10% of individuals in the forecast regions suffer from PMLE. Only 5% of patients with PMLE currently seek treatment. The maximum market penetration of MELANOTAN in these patients seekingtreatment is 10%. MELANOTAN reaches peak sales five years after launch and sales declinefrom 2020 with generic competition being launched in 2022. The price per patient per year for MELANOTAN in the treatment of PMLE isUS$500. The percentage of individuals in these defined populations with Fitzpatricktypes I and II is 50%. This is likely to be a highly conservative estimate. The percentage of these individuals using sunprotection products is currently30%. The maximum penetration of MELANOTAN in this population is 5%. The price per individual per year for MELANOTAN for the prevention ofsunburn injury is US$200. This is significantly lower than for the treatment ofPMLE as we believe this product may not receive reimbursement and17

EPITANtherefore will be priced at a level affordable to consumers on privateprescription. EpiTan will receive a royalty of 20% of sales from its partner selling the productin the EU and US. The deal will also be structured such that EpiTan receivesan upfront signing fee of £5m (US$9.5m), a milestone payment on filingMELANOTAN with regulators for approval of £5m (US$9.5m) and amilestone payment of £5m (US$9.5m) on product launch/approval. EpiTan’s cost of MELANOTAN per patient per year is assumed to beUS$20. Sales and marketing costs for EpiTan in Australia and New Zealandare forecast to be 20% of sales. Pre-launch/launch spend for EpiTan in thesemarkets is forecast to total US$3m. EpiTan’s R&D spend on MELANOTAN is as split out in the financials sectionof this note. However, we assume that EpiTan continues to conduct in-markettrials of the product after launch. An average corporate tax rate of 35% has been assumed. We have made broad assumptions regarding the probability of successfulprogression of the product through late stage development, approval andlaunch. These are detailed in the net present value table. A standard discountfactor of 10% has been applied to risk adjusted earnings.18

PMLEYear 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023US marketPopulation (m) 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0% PMLE patients 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00No. PMLE patients (m) 29.00 29.00 29.00 29.00 29.00 29.00 29.00 29.00 29.00 29.00 29.00 29.00 29.00 29.00 29.00 29.00 29.00 29.00 29.00% Severe PMLE patients 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5No. severe PMLE patients (m) 1.45 1.45 1.45 1.45 1.45 1.45 1.45 1.45 1.45 1.45 1.45 1.45 1.45 1.45 1.45 1.45 1.45 1.45 1.45% Maximum penetration of Melanotan 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0Total patients treated at peak (m) 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15% of peak penetration 0.0 0.0 0.0 2.0 20.0 40.0 60.0 80.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 90.0 70.0 30.0 10.0Cost of treatment per patient per year ($) 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0Revenue generated ($m) 0.0 0.0 0.0 1.5 14.5 29.0 43.5 58.0 72.5 72.5 72.5 72.5 72.5 72.5 72.5 65.3 50.8 21.8 7.3EU market (top 5 countries)Population (m) 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0% PMLE patients 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00No. PMLE patients (m) 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00% Severe PMLE patients 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5No. severe PMLE patients (m) 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50% Maximum penetration of Melanotan 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0Total patients treated at peak (m) 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15% of peak penetration 0.0 0.0 0.0 2.0 20.0 40.0 60.0 80.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 90.0 70.0 30.0 10.0Cost of treatment per patient per year ($) 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0Revenue generated ($m) 0.0 0.0 0.0 1.5 15.0 30.0 45.0 60.0 75.0 75.0 75.0 75.0 75.0 75.0 75.0 67.5 52.5 22.5 7.5Australia/New ZealandPopulation (m) 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0% PMLE patients 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00No. PMLE patients (m) 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40% Severe PMLE patients 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5No. severe PMLE patients (m) 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12% Maximum penetration of Melanotan 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0Total patients treated at peak (m) 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01% of peak penetration 0.0 0.0 0.0 2.0 20.0 40.0 60.0 80.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 90.0 70.0 30.0 10.0Cost of treatment per patient per year ($) 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 500.0Revenue generated ($m) 0.0 0.0 0.0 0.1 1.2 2.4 3.6 4.8 6.0 6.0 6.0 6.0 6.0 6.0 6.0 5.4 4.2 1.8 0.6US $m 0.0 0.0 0.0 1.5 14.5 29.0 43.5 58.0 72.5 72.5 72.5 72.5 72.5 72.5 72.5 65.3 50.8 21.8 7.3EU $m 0.0 0.0 0.0 1.5 15.0 30.0 45.0 60.0 75.0 75.0 75.0 75.0 75.0 75.0 75.0 67.5 52.5 22.5 7.5Aus/NZ $m 0.0 0.0 0.0 0.1 1.2 2.4 3.6 4.8 6.0 6.0 6.0 6.0 6.0 6.0 6.0 5.4 4.2 1.8 0.6Total $m 0.0 0.0 0.0 3.1 30.7 61.4 92.1 122.8 153.5 153.5 153.5 153.5 153.5 153.5 153.5 138.2 107.5 46.1 15.4EPITANSource: T&G research19

20Prevention of sunburn injuryYear 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023US marketPopulation (m) 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0 290.0% Fitzpatrick types I-II 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00No. Fitzpatrick types I-II (m) 145.0 145.0 145.0 145.0 145.0 145.0 145.0 145.0 145.0 145.0 145.0 145.0 145.0 145.0 145.0 145.0 145.0 145.0 145.0% Fitzpatrick types I-II usingsunprotection products 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30No. Fitzpatrick types I-II usingsunprotection products (m) 43.50 43.50 43.50 43.50 43.50 43.50 43.50 43.50 43.50 43.50 43.50 43.50 43.50 43.50 43.50 43.50 43.50 43.50 43.50% Maximum penetration of Melanotan 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0Total patients treated at peak (m) 2.18 2.18 2.18 2.18 2.18 2.18 2.18 2.18 2.18 2.18 2.18 2.18 2.18 2.18 2.18 2.18 2.18 2.18 2.18% of peak penetration 0.0 0.0 0.0 2.0 20.0 40.0 60.0 80.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 90.0 70.0 30.0 10.0Cost of treatment per patient per year ($) 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0Revenue generated ($m) 0.0 0.0 0.0 8.7 87.0 174.0 261.0 348.0 435.0 435.0 435.0 435.0 435.0 435.0 435.0 391.5 304.5 130.5 43.5EU market (top 5 countries)Population (m) 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0% Fitzpatrick types I-II 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00No. Fitzpatrick types I-II (m) 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0% Fitzpatrick types I-II usingsunprotection products 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30No. Fitzpatrick types I-II usingsunprotection products (m) 45.00 45.00 45.00 45.00 45.00 45.00 45.00 45.00 45.00 45.00 45.00 45.00 45.00 45.00 45.00 45.00 45.00 45.00 45.00% Maximum penetration of Melanotan 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0Total patients treated at peak (m) 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25% of peak penetration 0.0 0.0 0.0 2.0 20.0 40.0 60.0 80.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 90.0 70.0 30.0 10.0Revenue generated ($m) 0.0 0.0 0.0 9.0 90.0 180.0 270.0 360.0 450.0 450.0 450.0 450.0 450.0 450.0 450.0 405.0 315.0 135.0 45.0Australia/New ZealandPopulation (m) 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0% Fitzpatrick types I-II 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00No. Fitzpatrick types I-II (m) 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00% Fitzpatrick types I-II usingsunprotection products 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30No. Fitzpatrick types I-II usingsunprotection products (m) 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60% Maximum penetration of Melanotan 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0Total patients treated at peak (m) 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18% of peak penetration 0.0 0.0 0.0 2.0 20.0 40.0 60.0 80.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 90.0 70.0 30.0 10.0Cost of treatment per patient per year ($) 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0Revenue generated ($m) 0.0 0.0 0.0 0.7 7.2 14.4 21.6 28.8 36.0 36.0 36.0 36.0 36.0 36.0 36.0 32.4 25.2 10.8 3.6Total revenues - prevention of sunburn injuryUS $m 0.0 0.0 0.0 8.7 87.0 174.0 261.0 348.0 435.0 435.0 435.0 435.0 435.0 435.0 435.0 391.5 304.5 130.5 43.5EU $m 0.0 0.0 0.0 9.0 90.0 180.0 270.0 360.0 450.0 450.0 450.0 450.0 450.0 450.0 450.0 405.0 315.0 135.0 45.0Aus/NZ $m 0.0 0.0 0.0 0.7 7.2 14.4 21.6 28.8 36.0 36.0 36.0 36.0 36.0 36.0 36.0 32.4 25.2 10.8 3.6Total 0.0 0.0 0.0 18.4 184.2 368.4 552.6 736.8 921.0 921.0 921.0 921.0 921.0 921.0 921.0 828.9 644.7 276.3 92.1Source: T&G researchEPITAN

Melanotan NPVYear 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023Total revenues US ($m) 0.0 0.0 0.0 10.2 101.5 203.0 304.5 406.0 507.5 507.5 507.5 507.5 507.5 507.5 507.5 456.8 355.3 152.3 50.8Total revenues EU ($m) 0.0 0.0 0.0 10.5 105.0 210.0 315.0 420.0 525.0 525.0 525.0 525.0 525.0 525.0 525.0 472.5 367.5 157.5 52.5Total revenues Australia/New Zealand ($m) 0.0 0.0 0.0 0.8 8.4 16.8 25.2 33.6 42.0 42.0 42.0 42.0 42.0 42.0 42.0 37.8 29.4 12.6 4.2EPITAN% royalty to Epitan on US/EU revenues 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0Royalty to Epitan on US/EU revenues ($m) 0.0 0.0 0.0 4.1 41.3 82.6 123.9 165.2 206.5 206.5 206.5 206.5 206.5 206.5 206.5 185.9 144.6 62.0 20.7Upfront payment to Epitan ($m) 0.0 0.0 9.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Milestone on filing with regulators ($m) 0.0 0.0 9.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Milestone on product launch/approval ($m) 0.0 0.0 0.0 9.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Total payments to Epitan from US/EUpartnering ($m) 0.0 0.0 19.0 13.6 41.3 82.6 123.9 165.2 206.5 206.5 206.5 206.5 206.5 206.5 206.5 185.9 144.6 62.0 20.7Total revenues Australia/New Zealand ($m) 0.0 0.0 0.0 0.8 8.4 16.8 25.2 33.6 42.0 42.0 42.0 42.0 42.0 42.0 42.0 37.8 29.4 12.6 4.2Cost of goods sold ($20 per patient per year)($m) 0.0 0.0 0.0 -0.1 -0.8 -1.5 -2.3 -3.1 -3.8 -3.8 -3.8 -3.8 -3.8 -3.8 -3.8 -3.5 -2.7 -1.2 -0.4Sales and marketing costs (20% of sales)($m) 0.0 0.0 0.0 -0.2 -1.7 -3.4 -5.0 -6.7 -8.4 -8.4 -8.4 -8.4 -8.4 -8.4 -8.4 -7.6 -5.9 -2.5 -0.8Pre-launch/launch marketing costs ($m) 0.0 0.0 -1.0 -1.5 -0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0R&D spend on Melanotan ($m) -7.9 -13.3 -12.1 -4.0 -3.0 -2.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Pre-tax earnings from Australia/New Zealand($m) -7.9 -13.3 -13.1 -4.9 2.5 9.9 17.9 23.8 29.8 29.8 29.8 29.8 29.8 29.8 29.8 26.8 20.8 8.9 3.0Pre-tax earnings from US/EU partnering ($m) 0.0 0.0 19.0 13.6 41.3 82.6 123.9 165.2 206.5 206.5 206.5 206.5 206.5 206.5 206.5 185.9 144.6 62.0 20.7Total pre-tax earnings for Epitan ($m) -7.9 -13.3 5.9 8.7 43.8 92.5 141.8 189.0 236.3 236.3 236.3 236.3 236.3 236.3 236.3 212.6 165.4 70.9 23.6Tax payable ($m) 0.0 0.0 -2.1 -3.1 -15.3 -32.4 -49.6 -66.2 -82.7 -82.7 -82.7 -82.7 -82.7 -82.7 -82.7 -74.4 -57.9 -24.8 -8.3Epitan earnings from Melanotan ($m) -7.9 -13.3 3.9 5.7 28.4 60.1 92.1 122.9 153.6 153.6 153.6 153.6 153.6 153.6 153.6 138.2 107.5 46.1 15.4Probability of successful progression (%) 100.0 70.0 70.0 50.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0Risk adjusted earnings ($m) -7.9 -9.3 2.7 2.8 11.4 24.1 36.9 49.1 61.4 61.4 61.4 61.4 61.4 61.4 61.4 55.3 43.0 18.4 6.1Discount factor (10%) 1.0 0.9 0.8 0.7 0.7 0.6 0.5 0.5 0.4 0.4 0.3 0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.2Discounted cash flow ($m) -7.9 -8.4 2.2 2.1 7.5 14.2 19.6 23.5 26.4 23.8 21.4 19.3 17.3 15.6 14.1 11.4 8.0 3.1 0.9NPV ($m) 214.0NPV (£m) 112.6NPV ($Am) 270.3Exchange rates used £1=$A2.4-$1.9Source: T&G research21

EPITANAppendicesThe board and senior management of EpiTan comprise individuals from severaldifferent geographic regions, which we believe will benefit the company in theprogression of global late stage clinical trials and partnering of MELANOTAN. Theboard has also been involved in a wide range of aspects of pharmaceuticaldevelopment and commercialisation.In addition, the company has engaged a number of consultants and has collaborativeresearch relationships with leading research institutions to provide specialistknowledge where required.Senior managementIain KirkwoodChief ExecutiveMr Kirkwood has, over the last 25 years, held a range of senior financial positions withmajor public companies in Australia, Britain and the US, including F.H. Faulding & Co.Limited, Santos Limited and Pilkington plc. Mr Kirkwood is currently also a NonExecutive Director of Medical Developments International Limited (ASX: MVP) andVision Group Holdings Limited (ASX: VGH).He is a Chartered Accountant, CPA, former President of the Finance and TreasuryAssociation of Australia and a member of the Institute of Company Directors.Dr Stuart HumphreyManager Clinical DevelopmentDr Humphrey joined EpiTan in 2001. He has an Honours degree in Biochemistry fromthe University of Liverpool and a Doctorate of Philosophy from the University ofAuckland with over 35 years experience in research and pharmaceutical projectmanagement.He has held the positions of Regional Operations Manager at Omnicare ClinicalResearch, a large international clinical research organization, and Regulatory AffairsManager and Manager Scientific Clinical Development with Bristol-Myers Squibb inAustralia and New Zealand.Michael KleinigManager Pharmaceutical & New Business DevelopmentMr Kleinig joined EpiTan in 2001. He was formerly a Senior Research Scientist at CSLLimited where he was employed for 15 years, working in research and development inboth the Pharmaceutical and Bioplasma divisions. He graduated from SwinburneInstitute of Technology with a double major in Applied Chemistry and Biochemistry.Chris RossidisManager Pharmaceutical ProductsMr Rossidis has broad experience of the pharmaceutical industry after spending 15years in sales and marketing roles at Eli Lilly, Glaxo Welcome and latterly CSL. AsCSL's Business Development Manager, he was responsible for supporting CSL'sgrowth through identifying and evaluating new prescription medicine business.Dr Dennis WrightManager Regulatory AffairsDr Wright has a broad range of experience in the pharmaceutical industry spanningnearly 25 years. He spent over 17 years at CSL Limited (ASX: CSL) workingpredominantly in regulatory affairs with nearly a decade as Regulatory AffairsManager. During this time Dr Wright was responsible for the registration of a number akey products in Australia and the management of regulatory strategy for developmentprojects. Most recently he was Pharmacovigilance and Regulatory Affairs Manager forthe Australian and New Zealand operations of Mayne Pharma (ASX: MAY). Dr Wright22

EPITANhas a Pharmacy degree, post-graduate qualifications from Sydney University andHealth Economics qualifications from Monash University, Melbourne.ConsultantsDr Perry RobinsMedical Advisory ConsultantDr Perry Robins is a New York-based skin cancer specialist. He is a full Professor ofDermatology and Chief of the Mohs Micrographic Surgery Unit at New York UniversityMedical Center. Dr Robins has joined EpiTan as a Medical Advisory Consultant tofacilitate the expansion of EpiTan's clinical trials into the US and Europe.Dr Robins has practiced medicine for over thirty-five years, treating more than 40,000skin cancer patients. As an accomplished educator in his field, Dr Robins has trainedsixty doctors from around the world who are now leaders in dermatologic and skincancer care, and he has lectured in thirty-four countries. At present, he performs morethan 1,000 surgical procedures annually and conducts training workshops for his peersin advanced techniques of dermatologic surgery.Dr Robins is founder and president of the Skin Cancer Foundation, an internationalorganisation dedicated to skin cancer research and education. The advisory board andmedical councils of the Skin Cancer Foundation comprise more than 144 leadinginternational physicians who are distinguished members of the scientific and medicalcommunities and members of the business and professional sectors.Dr Robins is also the founder/president of the International Society of DermatologicSurgery, founder/former president of the American College of Mohs MicrographicSurgery, and former president of the American Society of Dermatologic Surgery.Dr Ella ToombsRegulatory Advisory ConsultantDr Toombs was a dermatology specialist with the FDA for 13 years. Her primary focusis to assist EpiTan prepare its IND application for MELANOTAN.Dr Toombs spent ten years with the FDA Division of Dermatologic Drugs. During thistime Dr Toombs reviewed numerous IND proposals for novel drug applications andtraditional dermatologics.Dr Toombs is the Washington DC representative on the advisory board of theAmerican Academy of Dermatology and a member of the National Medical Associationand American Association of Pharmaceutical Physicians.She is currently a consultant in private practice specialising in aesthetic dermatology.Medical Advisory PanelEpiTan has also established a Medical Advisory Panel of leading dermatologists. ThePanel is made up of Dr Peter Foley (Chairperson), Senior Lecturer Dermatology, St.Vincent’s Hospital, University of Melbourne; Dr Chris Baker, Director of ClinicalDermatology, St Vincent’s Hospital, Melbourne; Professor Ross Barneston, Head ofDermatology, Royal Alfred Hospital, Sydney; and Dr James Muir, Head ofDermatology, Mater Hospital, Brisbane.Non-Executive DirectorsDr Wayne MillenNon-executive ChairmanDr Millen is the founding Managing Director of EpiTan. He has a PhD in chemistry andbiochemistry from the University of Western Australia and is a Chartered Chemist withover 35 years experience operating his own commercial enterprises.Dr Millen has extensive experience in venture and development capital investment withan emphasis on companies involved in technological innovation and has been the leadinvestor and strategist in several private and public companies.23

EPITANDr Helmer AgersborgNon-Executive Deputy ChairmanDr Agersborg is Chairman and President of Melanotan Corp, President of Afferon Corpand a Director of Virxsys Corporation, all pharmaceutical companies. He was formerlyPresident of WyethAyerst Research.Dr Terry WintersNon-Executive DirectorDr Winters is a director of four private US based companies, including MELANOTANCorp, and is a Special Limited Partner of Valley Ventures, a venture capital fund basedin Scottsdale, Arizona, US.In 1983, he co-founded, and is a General Partner of, Columbine Venture Fund, whichhas invested over US$125 million in life science and technology companies in thewestern US.Dr Stanley McLieshNon-Executive DirectorMr McLiesh was formerly General Manager, Pharmaceuticals at CSL Limited (“CSL”),where he was closely involved in the transition of CSL from government ownershipthrough corporatisation to a listed company.Shareholding structureSubstantial shareholders are listed in the following table:Shareholder% shareholdingWeighton Pty Limited (Wayne Millen) 13.3FM Fund Management (Absolute7.3Return Europe Fund)24

EPITANGlossary“alphaMelanocyteStimulatingHormone” or “alpha-MSH”“Allele”“cGMP”“DNA”“Fitzpatrick”a peptide hormone which stimulates the production andrelease of melanin (Melanogenesis) in the skinone of the variant forms of a genecurrent Good Manufacturing Practices. Methodologiesand procedures mandated by regulatory authorities fortesting and manufacturing of pharmaceutical products toensure the manufacture of safe clinical and commercialsuppliesDeoxyribonucleic Acidskin type classification according to vulnerability tosunlight and UV radiation:Fitzpatrick Type Skin colour CharacteristicsI White Always burns , nevertansII White Always burns,sometimes tansIII White Sometimes burns,always tansIV White Rarely burns, alwaystansV Brown Brown, moderatelypigmentedVI Black Black skin“FDA”“Liposomal”“Melanin”“Melanocytes”“Melanogenesis”“Melanocortin 1receptor” or “MC1-R”“PBS”“Pharmacokinetics”or “PK”“Phase I”“Phase II”US Food and Drug Administrationa drug preparation that contains the active drug in verytiny fat particles to enable it to be absorbed betterthe dark pigment synthesised by Melanocytes;responsible for skin pigmentationthe cells in the skin that produce melaninthe process whereby melanin is produced in the bodythe receptor on a melanocyte cell to which Melanotanbinds promoting the production of melaninPharmaceutical Benefit Scheme (Australia’s equivalentof the UK’s NHS)information on the absorption, distribution, metabolismand excretion of a drug in the bodythe first trials of a new drug candidate in people. PhaseI trials are designed to evaluate how a new drugcandidate should be administered, to identify the highesttolerable dose and to evaluate the way the bodyabsorbs, metabolises and eliminates the compounda Phase II trial is designed to continue to test the safetyof the drug candidate, and begins to evaluate whether25

EPITANand how well the new drug candidate works (efficacy).Phase II trials often involve larger numbers of patients“Phase III”“PMLE”“R&D”“Subcutaneous”“Sustainedreleased”"TGA"“Topical”“Transdermal”“UV”“UV-A”“UV-B”“Vitiligo” or“Leukoderma”an advanced-stage clinical trial that should conclusivelyshow how well a therapy works. Phase III trials can belonger and typically much larger than Phase II trials, andfrequently involve multiple test sites. Their goal is thestatistical measurement of how well a therapy clinicallyimproves the health of patients undergoing treatmentpolymorphous light eruption; a common reactionattributed to UV light that occurs in "light sensitive"individuals, also known as “sun poisoning” or “sunallergy”. Small red pimples and blisters appear on theskin within 1 to 4 days after exposure to sunlight, thendisappear within 2 weeksresearch and developmentbeneath the layers of the skinprocess whereby the drug is released from a formulationover a long period of timeTherapeutic Goods Administration, Australia's regulatoryagency for medical drugs and devicescream, gel or spray applied to the skinalso known as transdermic, percutaneous,transcutaneous, through the unbroken skin; refers tomedications applied directly to the skin (creams orointments) or in release forms (patches)ultraviolet - refers to particular colours of light which areso blue that they cannot be seen by the human eye. UVlight from the sun reacts with many chemicals in theatmosphere and controls many aspects of climate andweather. UV light also reacts with human skin to causesuntans and sunburns. Repeated sunburn injury is aknown precursor to skin cancer. UV light consists ofUV-A, UV-B and UV-C (UV-C does not penetrate theatmosphere)UV, type A - rays of light from the sun that are not visiblebut can cause damage to the skin. Approximatewavelength: 320 to 400 nanometres. UV-A rayspenetrate deeply into the skin. "The sun ageing rays”UV, type B - rays of light from the sun that are not visiblebut can cause damage to the skin. Approximatewavelength: 285 to 320 nanometres. They cause cellulardamage to outer layers of the skin, causing dryness andageing. "The sun burning rays."skin condition in which there is a loss of pigment fromareas of the skin resulting in irregular white spots orpatches, even though the skin has a normal texture26

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