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Something rare is set to happen at Trendlines Group from 1H next year -- recurring cashflow from the commercialisation of a medical device developed by a Trendlines portfolio company. |
Details, such as the number of years of the royalty stream and even the identity of the product, are not publicly disclosed yet due to confidentiality agreements signed between Trendlines and the acquirer of the assets of the portfolio company in 2014.
According to Trendlines, the US$43.8 million is the present value of the cashflow discounted using a variety of rates.
Here's Trendlines' explanation as contained in its FAQ list published on the SGX website on 7 Aug 2017:
| Q: About half of your total portfolio value, $43.8 million as at 30 June 2017, is found in your “Most Valuable Portfolio Company.” How was this value derived and what can you tell us about it? A: In 2014, this portfolio company completed a sale of substantially all of its assets relating to a medical device product to a multinational corporation. The sale was for cash, milestone payments, and – significantly – for royalties from the sale of the product when it comes to market. Due to the significant value of this asset, an external valuation of this company is performed on a quarterly basis by a company that specializes in valuations of medical device companies. The $43.8 million Q2 2017 valuation represents the net present value of our share of estimated future royalty payments, after adjusting the cash flow to take account of multiple risk factors, including market risk, manufacturing risk, and product risk, and then applying a financial discount rate. It should be noted that in June 2017 we were advised by the acquirer of the assets that it is establishing a high-volume manufacturing facility for the production of the product and is on schedule to release the product in 2018. |
One may assume various durations of the royalty stream, such as 10, 15 or 20 years.
For 15 years, one may divide the US$44 million by 15 to get an average of US$3 million a year.
After considering discount factors, one may conclude that the actual average annual number could be twice as high.
Initially, it will be small as sales start out and need time to ramp up.
The US$44 million valuation -- based on projected sales in Europe starting in 1H next year -- has not taken into account a launch of the product in the US next year, said Mr Rhodes.
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Asked what the biggest risk is, Mr Rhodes reckoned it would be the emergence of new competing products in the market. |
It has recently been made known to Trendlines management that the US launch would take place next year.
Trendlines co-chairman Todd Dollinger said he expects that sometime in 1H next year, the company would be permitted to publicly reveal key details such as the identity of the product and its acquirer, etc.
