Comprehensive and level-headed attempt to put a future value on Clinuvel. By Frogster of SS.
***
Hi Farma. Sorry for slow reply - you posted just as I went to bed.
Your question is a very fair one, but also a very difficult one to answer with any confidence or accuracy. As Joe Schmoe accurately said, given the transition of the company from research to commercial entity, visibility of the financial shape of the business model IS very low.
As they say, ALL models are wrong, but some are useful. I don't know that what I'm about to say is useful, but we'll see.
Your model came at things from a bottom up approach - what is the EPS value of each patient? I prefer to come from the other side, from a top down approach. The reason (for me) is because the first few patients cover fixed costs and deliver nothing in terms of positive EPS (yes, they reduce negative EPS, but hopefully you get my point that the EPS growth contribution between patients 0-100 is different to 600-700). Anyway, two different ways of coming at the same thing. Either is valid within their constraining assumptions.
So, what can we say? Not much with certainty, but the following feel like fair assumptions to me: (all A$)
Fixed costs historically (ex any R&D costs) approx 5.5m (2015 saw 5m more than this thanks to generous board and management share issuance scheme - I'm assuming this is non recurring). After roll out, I'm not sure there are many reasons to assume fixed costs will go up all that much, but to be safe lets assume they rise to 7m.
Variable costs historically are really hard to pin down, but manufacturing COGS are probably not that high. Maybe 10%? The really big unknown is what cost impact will the high regulatory burden bring? I'm going to guess another 10% (this may be wildly wrong!). This means 80% of revenue might be available to cover fixed costs and then flow to profit.
Another really big unknown will be the R&D costs going forward. I guess these sit between fixed and variable costs in that they are kinda discretionary, but kinda not. These (combined) for the last few years have been approximately 2.5m. The reality is these will most likely rise as Enfance is pursued and Vitiligo etc. etc., but lets assume these stay flat, but acknowledge they probably won't.
Financing costs will remain essentially zero, and I'm going to assume a (possibly high) tax rate of 30%.
If the average implant cost is 25,000, and on average 3 are used per patient then for 1000 patients you get annual revenue of:
25000*3*1000=75,000,000
After variable costs: 75,000,000*0.8= 60,000,000
After fixed and research costs (i.e. EBIT): 60,000,000 - 7,000,000 - 2,500,000 = 50,500,000
After tax at 30%: 50,500,000 * 0.7 = 35,350,000
leading to an EPS (assuming 47m shares): 35,350,000/47,000,000 = A$ 0.75
I could easily imagine the stock carrying a 20x P/E implying A$15 per share - which is smack bang in the middle of your 10-20 range for 1000 patients (and I promise you I have not engineered the numbers to work in that way!).
So, for EPP alone and with, on balance, assumptions erring on the conservative side we get to the same point. Add another 1000 patients and the numbers come to and implied A$33 share price. Throw in line extensions and other indications, and the numbers could grow much higher, but this is enough speculation for me in one day!
As before, HUGE assumptions included in the above. Yes, the assumptions will be proven to be wrong. Hopefully they will be proven to be useful.
