cellestis vs slt, page-12

slt - valuation $1.06 to $1.45 current .054 Valuation below as extracted from further down in Doc.

This will go out to all shareholders and used for marketing purposes.

Case NPV
Per share
Comments
Low $1.06 Lower treatment
rates and ramp up.
Med $1.22 Base case.
High $1.45 Still sound
assumptions.
Higher market
penetration rates.



Select Vaccines Ltd (SLT) Defining the market
Key data
Share price $0.60
Nominal capitalisation $14.6 million
Total ordinary shares * 24.41 million
Options * (SLTOA) 13.66 million
Exercisable at $0.20 to 31st May 2008
Options (SLTO) 7.64 million
Exercisable at $0.20 to 1st Feb 2007
Total options 21.3 million
* 3.0 million shares and 14.75 million options are
escrowed until July 2005
Major shareholders
Public 45.0%
Former shareholders of Select-Tel 36.0%
Peregrine Corporate and associates 19.0%
Directors
Bryan Frost - Executive Chairman
Dr Martin Soust - Managing Director
Jeremy Cooper - Finance Director
Peter Marks - Executive Director
Jonathan Brett - Non Exec utive Director

SLT was relisted in July 2003, following the
reverse-acquisition of two technology companies by
Select Tel Limited, and renamed Select Vaccines.

This report follows an earlier information document
produced by Clear Focus Research that accompanied
the relisting, with details of the acquisition transaction.
This is available on request.

Following listing, SLT has made its first deal
announcement. This report addresses the specific
aspects and market potential of two of the company’s
key product areas.

DISCLOSURE
This document has been prepared under contract to Select Vaccines Limited from all publicly available information.

The report objectives are to be complete and accurate, in outlining the pertinent business and other considerations.

The report incorporates a series of predictive assumptions, in establishing possible commercial outcomes. These assumptions are explicitly those of the author. Individuals should form their own view on the validity of these assumptions and derived valuation.
MARK TOPY FSIA, CPA, M.App.F

Overview
· Select is an infectious diseases company
commercialising technology from The
Macfarlane Burnet Institute ‘Burnet Institute’.
· Select is structured in two special purpose
companies, which hold the rights to individual
technology areas.
· Select holds 65% of each subsidiary company,
with 35% held by the Burnet Institute.
The two companies / technology details are:
Hepgenics P/L Picoral P/L
Diagnostic Products
Vaccine Products
Therapeutic Products
Hepatitis A
Hepatitis E
Hepatitis C
Adhesive
Peptides
Virus-like particles (VLPs)
Vaccines for Hepatitis A and E
Anti-virals Screening
Assay Development

SLT announced the first deal for its Hepatitis E ‘HEV’
diagnostic kit on September 24th 2003. The deal is
with Genelabs Diagnostic, an international company
with specific expertise in the area and distribution in
targeted countries. Other progress announcements
are anticipated shortly.

Key Hepatitis A and E markets assessment
· We identify China and South East Asia as main
target markets for Hepatitis E.
· China meets key criteria on capacity, and is a
large market in target volume.
· Asia is also broadly targeted, including countries
where sales of less effective products are
occurring.
· Developed countries with rebates add greatly to
HAV sales targets, based on complimenting
existing vaccine treatment.
· The hepatitis HEV and HAV products show
superior diagnostic results, supporting forecasts.
Our NPV projections for commercialising the HAV
and HEV diagnostic test range between $1.06 - $1.45.

We consider the mid case NPV value of $1.22 as
being supportable, reflecting commensurate risk
discounting. As products achieve milestones,
declining risk rates would progressively increase the
NPV valuation.

Clear Focus Research - Investment Value Identification
Tel. 03 98869848 / 0409946898 2
First strike
Hepatitis deal (24th Sept. 2003)

SLT has announced a deal for the
Hepatitis E ‘HEV’ diagnostic kit
with Genelabs Diagnostics Pte
Ltd, a subsidiary of a NASDAQ
company. Genelabs is involved
in the development, manufacture,
and distribution of diagnostic
tests for infectious diseases.
Genelabs markets an existing
ELISA test (see Appendix), and
holds patents covering the HEV
genome, making the combined
approach logical.
Genelabs is based in Singapore
with regional offices and has
extensive distribution. This
matches the commercialisation
objectives for the HEV test. The
financial terms of the agreement
are confidential, which is subject
to the completion of a detailed
technology evaluation, prior to
contract finalisation (anticipated
by the end of November 2003).
Key terms are:
· Licence term is 12 years.
· Milestone payments are likely
to be paid upfront and on sales
target achievement.
· Royalties will apply on
revenues.
· The agreement will include the
manufacture and distribution
of the HEV rapid diagnostic kit.
· The licence is worldwide, with
the exclusion of the USA.
Technology validation
The announcement has
reinforced Select’s technology
progress. While HEV is a lessor
problem in the developed world
than in developing countries the
market is still substantial. The
negotiation process develops
Select’s expertise in bringing
technology to market and builds
the c ompany’s recognition.
Market estimates
HEV is transmitted via the
faecal/oral route and occurs from
contaminated food and water.
HEV is exacerbated by poor
hygiene conditions. In estimating
revenue, we are seeking to
identify the disease presence and
treatment accessibility. HEV
occurrence is high in India, South
East Asia, China and Africa.
The WHO estimates HEV as
being present globally in the
range 2.5% to 3.0%.
Treatment projections relate to
gaining diagnosis personally, or
with government fun ding aid.
China, India, Malaysia and
Thailand are immediate targets.
Other countries are assessed as
lacking funding. There is the risk
that the take-up does not follow
the predicted path. However,
given governments’ focus on
reducing infectious diseases, we
regard the assumptions as
realistic. The rapid HEV test
could be used as a ‘test case’ for
building market awareness.
HAV development follows
Select announced that an
evaluation process was
underway with a number of
global companies to enter a
license (11th November 2003). We
adopt a similar methodology in
estimating HEV revenue,
although applying a higher risk
rate until a deal is concluded.
Licensee interest has been
positive. The HAV test is in
rapid form. While the HAV
incidence is similar to HEV in
developing countries, there is
also substantial HAV vaccination
of overseas travellers in
developed countries. This is a
significant further market. Our
pricing estimate is higher for
western countries where medical
product prices are generally
higher, and rebates are present.
Revenue assumptions
For HEV, we aggregate the
different country markets based
on the assessment of income and
disease occurrence, in producing
our estimated total target
population base of 1.45 billion.
Select is seeking to commercial
two HEV diagnostic kits, a
pathology test which is more
expensive and performed at
specialist facilities, and a rapid
test which can be performed
immediately under general
medical supervision. HAV
estimates reflect additional
disease occurrence in South
America and parts of Europe, but
more significantly, market
potential in the USA and other
developed countries.
Hepatitis, global occurrence
§ Hepatitis A (HAV)
Occurrence: Global; 1.5 million clinical
cases p.a.; Health effects: comparably
less, but still prolonged sickness. Present
vaccine market estimated at $US400 m,
representing a complimentary target area.
§ Hepatitis E (HEV)
Occurrence: globally widespread
Health effects: Similar to HAV, but HEV
can cause death in pregnant women.
HAV and HEV are transmitted through
contaminated water & food, and contact.
Methodology/key assumptions:
§ Global population estimate infected
with HEV: 3%
§ Global estimate for HAV: 3.1%
§ Population range receiving
hepatitis attention: 2.3% - 2.4%.
§ Persons actually using a hepatitis
diagnostic test of those receiving
attention: 48% – 58%
§ Select rapid market share: 55 - 62%.
§ Royalty rates estimated between
7.5% - 9%.
§ Royalties are based on net income,
after various distribution payments
estimated at: 15 - 50% of total price.
§ Ramp up is progressive until target
is achieved. As China is a new
market, assumed slower ramp-up.
§ Revenues extend over 12 years,
which are discounted to a Net
Present Value and value per share.
§ Risk discount rates; HEV 12%,
and HAV 16% related to its earlier
development stage, with a deal still
to be announced.
NPV value per share
The purpose is to show an
achievable route to market.
Individuals will adopt their own
discount factor, given the
development phase. However,
demand is evident from current
product sales, and distributor
interest in licensing.
Case NPV
Per share
Comments
Low $1.06 Lower treatment
rates and ramp up.
Med $1.22 Base case.
High $1.45 Still sound
assumptions.
Higher market
penetration rates.
Projections are highly sensitive to
increased population testing
levels. There is significant
upside, but we have projected at
achievable levels.
3
Appendix
Country information
Hepatitis E
China
Population 1.3 billion
China emerges as a major target
due to it government health
objectives and population base.
Detection of the HEV strain has
been limited to-date, but an
effective kit will represent a far
more applicable product.
Specific data for the incidence of
HEV is difficult to determine.
However, the Chinese
Government publishes a range of
information regarding disease
prevalence and treatment.
Selected data includes (from
www.china.org.cn):
- Hepatitis is ranked as one of
the top eight infectious
diseases by the Chinese
Government.
- Over 1 million people were
officially recorded as having
various infected diseases in
the first half of 2003.
- There are 120 million
Hepatitis B virus carriers in
China, accounting for nearly
10% of the population
(Shenzhen Daily, 15.9.03).
- According to the WHO the
reported number of people
infected with Hepatitis C in
China is 37 million.
- The incidence of Hepatitis B
in Guangdong amounts to
17.85% (Xinhua News
Agency, 13.11.2001).
- China was reported as facing
a ‘serious epidemic of
hepatitis’.
- The Chinese government
allocates 30 – 50 billion Yuan
(US$3.6 – 6 billion) annually
for treatment of hepatitis
(www.eastday.com, 9.10.2001).
- The Chinese Government
has recently announced a
major push to improve the
treatment of Hepatitis, and
launched specific initiatives
against Hepatitis C
(13.9.2003). This includes
partnering with international
pharmaceutical companies.
- The Government is
indicating the availability of
subsidies and support
measures for hepatitis
treatment. This includes
funding for disease
detection. In HEV’s case, we
believe this will be around
$US2 per treatment for a
diagnostic kit.
We consider a solid case can be
shown for targeting China.
Volume production of the rapid
kit would reduce the unit cost,
increasing accessibility.
Asia
Genelabs’ approach is to sell via
individual country distributors.
Our specific country assessment,
based on WHO and other data
are:
India; large middle class with
medical access. HEV prevalence
estimated at 2.9% of population.
Thailand; high prevalence
estimated of 2.8%, but some
affordability issues.
Malaysia; expanding middle
class and medical treatment.
HEV estimated at 1.7%.
Vietnam; higher prevalence
likely, but greater payment and
distribution limitations.
Japan; occurrence lower,
estimated at 1.1%. Health system
modern, and affordability high.
Realistic implementation
- There is no present HEV test
in China, because existing
tests are not considered
sufficiently effective by
authorities.
- Genelabs has an in-depth
knowledge of South East
Asia, although China is a
new market. Genelabs
markets an existing
diagnostic ELISA test
worldwide, which generates
in excess of $US 600,000 in
sales and has an estimated
70% market share. The
Select test would greatly
enhance the performance of
this product.
Hepatitis A; WHO data
shows a global prevalence
including South America, Latin
America and Africa (range 3% –
3.5%). Existing vaccine sales are
$US90 million p.a., of which half
are estimated to be in western
countries for people travelling.
Data shows that over 30% of
people in western countries have
developed immunity to HAV.
The rapid diagnostic kit would
identify carriers who would not
require a vaccine. This improves
the effectiveness of current
treatmen t, which underpins our
volume assumption. Vaccines
have government rebates in
major markets such as the USA
(priced around $US50). We
believe the diagnostic will also
have a rebate, with the USA and
other countries incorporated in
the projections. This drives a
significantly higher revenue and
consequent royalty NPV
estimation for HAV.