australia's next csl?, page-21

I think its very hard to come up with a reasonable valuation for TIS. You need to come up with assumptions for key inputs that if just a little wrong totally change the end valuation ie, the number of people to be treated with VitroGro and the price they pay. That said, i did my own valuation. But rather than do it based on a market size provided by TIS (USD16b) i estimated the market size myself based on the market being chronic ulcers. There is enough info on the web to give us figures for how may people have diabetes, what percentage develop ulcers, what percentage diabetic ulcers are of all ulcers etc. I made assumptions on all those, using the lower number of ranges where specifics were not available. One example of this is that it seems the number of diabetics who develop ulcers are between 10 and 15%. I used 10% in my calculations. If i used 15% the valuation changes a lot!

My methodology was:
- accept that our market is the chronic ulcer market
- estimate the number of chronic ulcers in the US
- create a total market based on estimated number of chronic ulcers x estimated average cost of VitroGro per patient

These are the results:
# people with diabetes in US: 26m (b)
# people who develop diabetic ulcers: 2.6m (a)
# people who develop venous (and arterial) ulcers: 7.8m (c)
# chronic diabetic ulcers: 1.3m (d)
# chronic venous (and arterial) ulcers: 3.9m (d)

Total # people with chronic ulcers: 5.2m

TIS market opportunity equals USD3.12t
- 5.2m chronic ulcers x average cost to treat each patient with VitroGro, USD600.
- TIS have previously said they can charge as little as USD30. Im going to assume the actual price will reflect what people will pay rather than what TIS can charge (for the US anyhow). USD600 is conservative considering the average cost per patient is somewhere above USD6k. Dermagraft is about USD2k for a 10 week course.

VitroGro Sales:
- 10% of USD3.12t market: USD312m
- 20% of USD3.12t market: USD624m

TIS Revenue:
- from USD312m in sales: USD31m (e)
- from USD624m in sales: USD62m (e)

From here you can calculate your own profits based on more assumptions of margins, other costs, and tax. When i do mine based on 25% total costs and 30% tax i get:
- 31m revenue = 15m profit
- 62m revenue = 29m profit

TIS share price on a PE of 15:
- 15m profit = share price of 125c
- 29m profit = share price of 249c

We will enter europe first. What i know about europe is its larger then the US (900m people) but there is a lower average rate of diabetes as well as reduced ability to pay premiums for drugs (disparity between countries like UK and Turkey). So without getting into the detail i simply say we should earn about the same from europe as we do from the US. So double the share price.

Then there is the rest of the world. With our high margins and low costs we can access African and Asian markets at lower prices to grab larger volumes. I suspect (read 'guess') some of our competitors cant access these markets due to price. So add a few cents onto the share price for the rest of world sales too.

Where does the share price end up? No idea. But im willing to speculate the market will one day see the value that we all see today... but by then the price will be many times higher.

Assumptions
(a) 10% of people with diabetes develop ulcers
(b) http://www.diabetesatlas.org/map?id=6
(c) 25% of ulcers are diabetic, 75% are venous
(d) healing rate for existing rate therapies is 50%
(e) assume 10% royalty
- average cost per patient for existing therapies is USD6k+
- calculations exclude pressure wounds
- 1:1 currency exchange between USD and AUD