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.
SLT Price at posting:
0.0¢ Sentiment: None Disclosure: Held