updated research report - patersons

available also at eastlandmedical.com.au


RESEARCH NOTE
EASTLAND MEDICAL SYSTEMS
Investment Highlights

h We note the recent passing of Mr Calvin Ross, a non
executive Director of Eastland and Research & Development
Director for ProtoPharma Limited UK.

h In response, ProtoPharma has confirmed it is in a position to ensure
Mr Rosss work on ArTiMistTM comes to a successful conclusion. Dr
Daryl Bendal and Clive Booles (Senior Clinical Development
Scientist) from ProtoPharma worked very closely with Mr Ross. Mr
Booles in particular has been involved in all aspects of the ArTiMistTM
development and will oversee the upcoming Phase III trial.

h Eastland has confirmed it is able to maintain all milestone targets
for the ArTiMistTM project and its commercialisation. In line with
ProtoPharmas commentary, the multi centre Phase III trial remains
on schedule for commencement in September 2010. The trial aims
to further verify that ArTiMistTM can provide a rapid and effective
first line treatment for children with severe malaria.

h Another key milestone for the ArTiMistTM project is the presentation
of results from the recently completed Rwandan clinical trial at the
2010 Interscience Conference in Boston. The trial lead investigator,
Dr Stephen Rulisa will present his research paper titled Sublingual
Artemether in Severe Childhood Malaria on September 13th.

h Importantly, Eastland has also completed a placement of $2.277m
at an issue price of $0.04. The proceeds ensure there is enough
funding to complete the trial ($1.3m cost) with the balance applied
to working capital.

h Our risk adjusted NPV of the ArTiMistTM project has fallen to $0.26
as a result of the placement. Dependent on confirmatory trial
completion and other significant milestones, such as WHO
prequalification or a partnering agreement, the ArTiMistTM
proposition looks to hold significant value for investors.


10F 11F 12F
Free Cashflow ($m) 0.0 0.0 15.4
WACC 16.2% 15.4% 13.9%
Sum of NPV ($m) 229.4 289.1 372.5
Aggregate Cash from conversions - 14.6 15.6
Equity Value ($m) 229.4 303.7 388.1
Net Debt (Cash) -2.4 0.0 0.0
Equity Firm Value ($m) 231.8 303.7 388.1
Shares (m) - assuming conversions 375 535 569
Per Share ($) 0.62 0.57 0.68
Failure Rate risk 65% 55% 0%
Risk adjusted value ($) 0.22 0.26 0.68

h In summary, our view of the project has not changed. While the
death of Mr Ross is unfortunate and untimely, both Eastland and
ProtoPharma are confident that the necessary contingencies are in
place to progress the ArTiMistTM project and its commercialisation.

09 Aug 2010
12mth Rating Spec BUY
Price A$ 0.048
Target Price A$ 0.26
12m Total Return % 441.7
RIC: EMS.AX BBG: EMS AU
Shares o/s m 436.4
Free Float % 95
Market Cap. A$m 20.9
Net Debt (Cash) A$m -2.3
Net Debt/Equity % Na
3m Av. D. Tover A$m 0.04
52wk High/Low A$ 0.10/0.03
2yr adj. beta 0.85
Valuation:
Methodology DCF
Value per share A$ 0.26
Analyst: Allan Franklin
Phone: (+61 3) 9242 4001
Email: [email protected]