Member Info for TommyFlowers

Inan, sorry it is 3 in a row ... just one more thought about why you should care about discount rates, DCF and NPV etc.... this is meant as a something to think about rather than an admonishment .... anyone buying one of our assets will sit down with an investment bank and all of the above will be worked in to a model and after playing about with some of the assumptions that model will tell them exactly how much they can afford to pay.

* sensible in that it would be within spitting distance a likely figure

Inan, agreed ... but very hard to turn that in to a $ figure that is anyway sensible from where we stand today ? I would be happy to hear thoughts that allowed a figure to be derived for our pipeline.

Ray,

I will not be able to get the TD report in front of me until later so I am afraid I will have to defer an answer with respect to the TD model structure .... As to the effect on the DCF ... if a larger the sum of cash received at the earlier point this has a very high impact on a DCF (less periods) and would have a very significant impact on the NPV of the company ....

With respect to the inputs you have highlighted as significant ....

1) Absolutely agreed chance of success is very important

2) I agree increase in efficacy would be important factor in the price someone is prepared to pay... I not sure how you might best go about modelling/estimating this at this point .... I will think about and let you know if I have any thoughts.

Inanco,

I agree they probably dont .... but like it or not that is how it is done by Instos. That is why an Insto can broadly agree with you on the future value of the science but come to a very different conclusion as to what is the "right"price to pay for it to day.

:) also it is all done on excel spreadsheets now. Still have to take the commercial output of the science in to account so it does cover your key area of interest. I was responding to a question on DCFs that flowed from my observation with respect to the implied discount rate using the TD cash output from the science which at 25% I felt was too high.

I know why you would think that but it is not necessarily the case ..... DCF is the present value of all cash flows ... be they one off or recurring or as in most operating companies, recurring revenue or a combination of the two. With respect to SCLP you could apply it just to lump sum payments if you are not expecting any royalty income or to both if you anticipate a recurring royalty .... but the DCF it takes no account of cash required/invested to create the cash flow captured. That is where the NPV comes in to play NPV is essentially the amount of cash invested minus the DCF.

JS, I am happy to share what I have but it is a bit to rough to be of much real use.... ask me again in a week or so and I should (using some of RRs and Rays ideas about market size and chance of sucess) have something that I would be happy to put my name to.

C7, there is no fear in SCLP in my view.... you would see it in the volumes if there was. If you are seeing fear please highlight where you are seeing it...... We all have different thresholds for things like fear but if it was widespread you would see huge turnover. I know you will not answer this but are you feeling fearful ? If yes then I can understand why you highlight the fear issue .... if not then where are you seeing signs of fear ?

Also I struggle to understand what you mean when you say there are too many unknowns to speak of such uncertainty.... I maybe misunderstanding your point but the time to discuss uncertainty is when there are unknowns, no ? If things were known there would be no discussion of uncertainty?

C7, to be fair I did not say average down... I said average ... as I have said before I am expecting a capital raise at a lower price than today .... if I am right I will put the extra cash I have available for SCLP to work and average down... if I am wrong my holding will rise and I will still probably buy (price depending) as only good news will make the price rise and if that news is significant it will probably take sometime to be fully reflected.

I also did not use the term advise .... I suggested to the poster consider an approach.

C7, with respect to cash and how long it will last you need to consider the fact that the board can not let the cash levels drop below a certain point ... I suspect it is 4 to 6 months worth of expenses .... so although if you used up all the cash you may be good in to 2020 you have to deal with the funding long before that.

Hol, risk are large and real, rewards are large and real .... only thing I would say is maybe look to average a little over time .....

RR, yes and I think your figures make sense .... my point is really for the BOD if there is not clear, constant and effective communication with the market .... the market will fill the void and if that void is filled with less positive views that has a real cost to all shareholders when they need to tap the markets.

On the issue of dilution .... I think if they go they have to go big .... I think you might be looking at 100pct over 2 placements if we assume the share price stays in this area 50% to 70% .... if we are close to these prices a second raise you would suppose would be after we have more data so it is very difficult to guess what price that may be done at in part because some of your assumptions around success are likely to have changed materially. So I think (if no deal) you are looking at a dilution of between 70% and 100%. That is predicated on the trials producing positive data .... if the trials are not positive then dilution could go much higher ... but that is another story.

I expect some to say well why do I care about the day to day share price .... Even if you are a buy and hold till the payout investor you want the discount rate to be as low as possible. A higher share price that is more reflective of the potential is your insurance policy against dilution. If the discount rate was 12.5% we would be a 20p .... if we do raise then dilution would be orders of magnitude lower than a raising where we are now.

Ray and RR, I was thinking a bit more about the valuation approach you are both using and I dont have a major problem with either one - a few differences with some of the assumptions but methodology is sound.

Where I struggle slightly is neither of you use a DCF or NPV for the future cash receipts but I broadly understand why. But just to explore this issue a little bit ... the discount rate used in the TD model is 12.5% .... My own feeling given the overall risk profile of the company is that is a good bit to low. That leads them to their 21p target price. so at 5.5p the implied discount rate is very roughly 25% ... That feels to high to me .... never the less at somewhere between 12.5% and 25% it is clear that the sensitivity to either delays or disappointments is very high ... I am not sure management really understand this ....... so for example with SCIB1 ..... we are completely in the dark about the start date .... it could be anything from next week to never ..... it is vital that management start to communicate with the market better.... to my mind even as we derisk the science we will not make meaningful improvements to the discount rate until management communicates regularly and effectively with shareholders.

Would love your views on value of SCIB2 .... As then we can work out what the option value of that might be worth today. For the right price I would be happy to sell it to fund work on Modi .... but also SCIB1 as I think we are half pregnant with that one no value unless we go forward and too much value to consider abandoning .... gut feel tells me theoretical option value of SCIB2 is about 25 to 30 million (needs a lot of firming up) .... I think a sale today you should be able to get about 50% of theoretical option pricing and a small royalty. 12 - 15 million and 2.5% on sales .... I would be pretty happy with that right now ... take away cash flow pressure and see us a good way if not the whole way to SCIB1 and Modi trial read outs.

Ray and RR,

Are you then running a DCF back to todays date and if so what discount rate are you using ?

For Bermuda in the other place.... it is cumulative so it is the total return if you had bought on 1st April each year and held to yesterday’s close. So the fact that the negative return for SCLP increase from 19% to 51% between 2012 and 2013 accounts for the run up in share price you saw in 2012. So there was a higher entry price on the 2013 vintage than the 2012 vintage. I am not sure I have explained that very well but I hope you get the point.

TF, no doubt about it none of the science is reflected in the share price. The bit that I think is missing is fixable. There is a lot the BOD can consider with a bit of creativity ..... I think they should consider selling SCIB2 ... as it stands we have CRUK fully funding the trial and we have an option to buy it back depending on the results ..... that option has real value and I believe could be sold for a decent sum to a US small cap pharma ... we can live without SCIB2 especially if it allows us to complete the SCIB1 or Modi trial without needing a capital raise or having to make a deal.

The conclusion I draw and I know it is not popular is we don’t have the right management or BOD in place for the non science tasks in front of us. Surely you want to put the best people and best corporate infrastructure around the quality of science we have.

RR, More of a curiosity than anything else .... given the potential in the science I think it does provide some colour with respect to the ability of management to convey that message over time vs the peer group on aim. I think it also tells you why we don't have a large institutional sharebase ... they can live with negative returns it is large negative relative returns they struggle with .... the VCT type of investors aside.