australia's next csl?, page-25

Thanks for your very detailed calculations, Mattkid. It's always helpful to have another angle. However, the more assumptions and estimates that are made, the more inaccurate the result I believe. I also note that your calculations do not seem to include any earnings from TIS controlling manufacturing. I do agree with you that TIS and its partner can charge what the market will pay, so the very low costs for TIS are to its benefit.

I believe that the TIS Board is in the best position, with all its resources and advice available to it, to estimate the potential market size for ulcer treatment. My calculations have started with the amounts given in the recent Prospectus, which is presently US$14B and growing at 25% per annum to US$34B by end 2014. It is better to look ahead rather than the present market as it will take several years to ramp up sales.

For royalty earnings, my assumptions (see my separate post "billion dollar baby" and my earlier response on this post) were very few:
- The TIS Board is correct on market size & growth
- Market penetration by end 2014 is 25%
- Royalty rate is 8% (I now think 10% is likely)
- Margin on royalties is 90% (for EBIT)
- No debt and no interest paid
- Tax rate of 30% (for NPAT)

For manufacturing earnings the additional assumptions were:
- 70% of revenue for partner, leaving 20% for manufacturing
- contract manufacturer gets half of this
- TIS costs are 25%, leaving 25% EBIT margin

The calculations based on these assumptions are very simple, and lead to EPS of $4 by end 2014, If we look forward only 2 more years to 2016, that is how I get to $6 EPS (with no further growth in market share from 25%).

These are my estimates only, and of course TIS may not deliver to this extent by that time. So check my calcs, do your own research and get advice before investing.