3 data and comment 3, page-8

Part 2- Expenditure Jan1. 2004-Dec 31, 2005./ Net cash on 31 Dec. 2005.

From the previous post: "Deduct costs for Sept.-Dec or 4*1.08 mill leaving VCR with net cash of $70.6 mill., say $70.5 mill. and 191.5 mill. shares on 1 Jan. 2004". This cash number is subject to Australan trial expenses.

VCR thinks that it can get Approvals reasonably quickly but for the time being I accept ABN-AMRO's suggestion that a profit be made in the year up to June 2006. I would say more likely in Jan. 2006-June 30, 2006.
That means that we need to estimate expenditure in the Calender years 2004 and 2005.
VCR has already said that the amount of cash they have will enable them to use more hospitals for the Trials, hence shortening the timelines for Europe. Perhaps they will be able to start trials earlier in the US.

I have taken the conservative attitude by allocating the European trial to cal. year 2004 and the US trial to cal. year 2005.

The expenditure in these 2 years will come from:
1. Increase in "normal expenditure' which was $1.08 mill/month-See above. Increase this by 5% in 2004 and another 5% in 2005. At the end of the cal. year 2005, that will be a total of $27.9 mill.

In Sept 2003, an appointment re Clinical trials was made, say at $120,000/year (all in). That is $30,000 for Sept-Dec. and $0.24 mill for the next 2 years. Allow for 5% increases and the total sum on Dec 30, 2005 will be $ 0.25 mill. She will have an assistant, allocate $60,000/year or say $0.14 mill, assuming she starts work in the latter months of 2003. The total of these 2 salaries is $0.39 mill. Add this to the previously mentioned $27.9 mill. and the total is $ 28.3 mill. (A)

2. Offices. It is likely that a small office will be established in Europe in 2004 and in the USA in 2005. Allocate $1.2 mill for the 2 years in Europe and $0.8 mill for 2005 in the USA, a total of $2 mill. (B) This includes staff and travelling costs.

3. Europe: Preparation for the trials, demonstration costs and additional paperwork, ie monotoring of patients and referring to FDA.
Preparation (say 4 hospitals in Europe): Preparation: $30,000. Demonstration surgery costs $0.2 mill; additional paper work, monitoring $0.1 mill. Attorney and Approvals: $0.5 mill., a total of $ 0.8 mill.
US : As above but add 0.2 mill. to $ 1.0 mill. This added to to the $0.8 mil. is $ 1.8 mill. (C)

4. Trials: There are 2 populations: Austr + Europe and the US. A very satisfactory statistical sample will be 30 in each population. There could be deaths on the table or recovery room. I am not sure if any will be replaced but in the meantime the following sample sizes are allocated: Australia: 8, Europe: 22 and the US: 30.

4.1 The US: I have the average estimated US cost which is $US200,000 per patient. This is $US100,000 for the device and surgery and $US100,000 for all other (hospital stays, drugs, staff, hospital overheads, monitoring) and looking after the patient in his home on return for some time.

I would allocate $US70,000 for the device and $US30,000 for surgery. I would say that VCR will set the cost (to themselves) of their device at say $A50,000; so, substitute that for the $US70,000. So the total cost of 1 patient will be $A246,970 $A=$US0.66). There are 30 patients, so the cost is $A7.409 mill. It is possible that any contract with a hospital will involve some payment, eg $A 10,000 per patient, a total of $0.3 mill. Add this to the $7.409 mill and the cost will be $A7.709 mill.

4.2 Australia and Europe. I don't have any data, so I use the US costs and these are $7.709 mill. Both costs total $15.5 mill.( D)

5. Interest: There is a gain here, say $2 mill. (E)

6. Summary: The sum total of (A)-(E)= $ 45.6 mill. Subtract this from $70.5 mill (See part 1) and net cash on 1 Jan. 2006 is $24.9 mill.

Please note that in this case the profit starts in the period Jan. 2006-June 30, 2006. Deferral of this profit will result in expenditure of $A1.37 mill. per month for the normal expenditure and the maintainance of offices.

While ordinary expenditure takes some research into account, it doesn't necessarily include expensive new developments or take-overs. My opinion is that the $24.9 mill. mentioned will be close to the possible maximum net cash position.

The attitude of Medicare as so subsidizing US implant operations will affect the VCR share price.

Currency translations: $A=$US 0.66 and $A=Euro 0.588.

Gerry
Disclaimer: Events could turn out differently than envisaged. Readers will need to do their own research and make their own decisions. I am not a financial advisor.