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#Bull Case
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Added 5 years ago

Currently no revenue - still in trials, but has been open with results to date and all indications to date have been very positive, including anecdotal evidence. Drug is safe (been used for 65 years) and is being re-purposed to actually treat OA (current "treatment" is only pain relief) without surgery. Large addressable market (OA is 10% of Aus and USA populations). Significant and protected moat if drug passes Ph3 trials.

What follows is an over simplified summary of my valuation - a couple of spreadsheets back this up - and yes, I know this is NOT the way to value it, but gives some insight to my thoughts...

Market: Aus = 2.1M + USA 31M = 33M patients. But it'll take time to penetrate the whole market. I include no spreadsheets here, but say it takes them 2 years to commence sales and 10 years to treat 20% of the whole Aus and USA population (yes I know this isn't the right way to value, simply fag packet assessment). So total patients is 20% of 33M =6.6M patients

Say average Rev/patient = AUD1000, revenue AUD6.6B

Say average COGS = AUD400

GP = AUD600/patient = AUD3.96B

Say other costs are 20% of GP, EBT = AUD3.168B

30% tax leaves NPAT = AUD2.218B

Say it takes PAR 10 years (after 2 years trials) to capture this NPAT - average 6 years from today. Assume discount rate 25% (high risk) and NPAT is due in year 6 (from above) gives NPV of NPAT of AUD580M.

I’ve sought to keep values conservative so I actually think value is higher than this (based on simple spreadsheets), but this places value of AUD580M (SP = 4.20) on a company of current price at AUD200M (SP = 1.45).

Weaknesses/Threats:

1 .Execution risk – doesn’t make it through Ph3 – in which case value is 0

2. Single product business

Strengths/Opportunities:

1. AUD80M cash in bank – enough for Ph3 trials

2. Management has skin in the game.

3. Currency risk – this may be a benefit if AUD/USD is weak

Say:

1. worst case SP = 0

2. best case SP>4.20

3. most likely case (IMO) is SP<4.20

Therefore, SP=1.45 is one of those cases where the market has it wrong – the true value of the business will be either much higher or much lower than the current price - just like KPT