Looksmart Limited (LKST)

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A bit more on ept for you TG....

https://www.baillieu.com.au/home/login.asp



*The United States Food and Drug Administartion has given in principal approval for Epitan Ltd to commence Phase II trials of its tan promotion and sunburn minimisation drug, Melanotan, in 2004. The FDA green light for the trials to commence is a major milestone along the road to commercialisation.

* Epitan will now lodge new IND application with the FDA in mid-2004 and commence Phase II trials in the third quarter of 2004.

* The FDA is allowing the trials to proceed on the basis that a sustained-release implant version of Melanotan be sold as an ethical (prescription ) drug with the potential indication that the drug may reduce sunburn injury. The "reduces sunburn injury" indication will allow Melanotan to be marketed as a specialist drug for dermatologists to treat patients who are at high risk of skin cancers, especially the highly lethal form, melanoma.

* The US trials will follow trials now commencing in Australia and soo to commence in Germany. The Australian trials being conducted in Brisbane at teh Pharm medical research facility, are designed to determine approriate dosage levels of Melanotan using a new sustained release implant. Earlier trials had been based on injections.

* The German trials, commencing in March, are to test the impact of melanotan on reducing the impact of Polymorphous Light Eruption, a sun induced skin ailment which afflicts a proportion of very fair-skinned cauasians during European summer.

* Prior to commencing the US trials in the third quarter of 2004, Epitan is expected to solicit expressions of interest from major international drug companies to partner the commercialisation of Melanotan, both in prescription drug form and in other(over the counter) versions. Epitan will be offering the right to produce , market and distribute the drug in return for funding the final phase of testing ( estimated to cost around $30 mil) plus an ongoing royalty on Melanotan sales.

* We believe that the market will begin to view Epitan in a different light once it has received formal FDA approval for its IND trials. Very few small biotech and pharmaceutical companies acheive this status with a potential "blockbuster" drug without attracting the attention of the global pharmaceutical giants.

* Final FDA approval would also in our view be likely to increase substantially the markets view of the value of Epitan shares. As a new drug passes major milestones on the road to commercialisation , the discount rate the market applies to future cash flows is reduced.

* Using a 20% discount rate on future royalty cash flows and a conservative market penetration rate, our base case valuation of Epitan is 61-63 cents per share. However using a lower discount rate (15%) and more optomistic market penetration assumptions - assumptions the market is likely to use closer to commercialisation - Epitan is valued at $2.44 to $2.83 per share.

* Recommendation. Because the value of the company hinges on a single drug which has yet to be commercialised, Epitan is a high risk with no certainty as to cash flows and profitability. Therefore it is suited to professional investors and investors who are prepared to accept the high risk of capital loss that is associated with single drug pharmaceutical developers. However following the recent pull-back in the share price, Epitan is now trading at the bottom end of our risk-adjusted valuation. We rate the stock a Spec. Buy, with the potential for capital appreciation on good news in 2004.