EPITAN - Clinuvel Pharmaceuticals

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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
Page 1 and 2: EPITANTEATHER &GREENWOODLIMITEDBeau
Page 3 and 4: EPITANInvestment summaryEpiTan is a
Page 5 and 6: EPITANOverviewEpiTan is a biopharma
Page 7 and 8: EPITANProphylacticThis is potential
Page 9 and 10: EPITANTrialEP001 - Phase I/II Safet
Page 11 and 12: EPITANincreased melanin density in
Page 13: EPITANDermatological products busin
Page 17 and 18: EPITANValuationWe have performed a
Page 19 and 20: PMLEYear 2005 2006 2007 2008 2009 2
Page 21 and 22: Melanotan NPVYear 2005 2006 2007 20
Page 23 and 24: EPITANhas a Pharmacy degree, post-g
Page 25 and 26: EPITANGlossary“alphaMelanocyteSti
Page 27: Teather & Greenwood Limited (“Tea

EPITAN - Clinuvel Pharmaceuticals

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