Successful, page-82

A friend just asked me earlier:

"Are you going to hold onto NEU or sell ??"

Please see the highlights of my response to him as follows:

In short

There is no way in [deleted] I am going to sell at these price.

Qualitative

The opportunity is massive from here as I believe a positive result for Retts is a precursor of a positive outcome in any one of Fragile X phase II currently being run.

According to the previous information we know just a 1/3 dose of NNZ 2566 noramlised the Fragile X mouse.

According to reports I have heard, the researchers were genuinely surprised because the effects of these compounds were significantly more in FragileX mice then those in RETT mice.

So since RETT data is significant, Neuren is argubaly the leading contender of FragileX.

Rett = $1.6bn market
Fragile X = $7bn market

Quantitative:

Baillieu Holst's $0.25 and Bell Potter's $0.19 are RISKED/PROBABILITY ADJUSTED, prior to results.

Bell Potter's valuation priced in only 14.5% Probability of Success ("PoS") for Retts.  

If we increase this to 60% CoS, which is where it could be following today's successful Phase II and assuming orphan drug designation (should be higher with breakthrough therapy designation too as hurdles drop again versus standard 40% CoS for drugs that succeed in Phase II) the NPV for the company goes up to $653MM or a FULLY diluted SP of $0.32, ignoring any uplift in CoS for F-X.

(Additionally, this ignores the fact the Bell Potter report is using very conservative/unrealistically low assumptions. E.g. 'Peak Market Share' of 10-20%. Remember, there are no alternative treatments, so assume all these valuations are understated should the drugs hit the market).

	Column 1	Column 2	Column 3	Column 4	Column 5	Column 6	Column 7	Column 8
0	Asset	Stage	First Fiscal Year of Sales	Peak Market Share	Peak Global Sales	Chance of Success	CoS Adjusted NPV	Value per Share A$
1	NNZ-2566 (IV) - Severe Traumatic Brain Injury	Phase II	2019	12.0%	$1,162	14.5%	$85	$0.05
2	NNZ-2566 (oral) -Concussion	Phase II	2019	12.0%	$547	14.5%	$74	$0.04
3	NNZ-2566 (oral)- Rett Syndrome	Phase III	2018	20.0%	$557	60.0%	$294	$0.17
4	NNZ-2566 (oral)- Fragile X Syndrome	Phase II	2019	10.0%	$700	29%	$180	$0.10
5	Cash (EOY 2014E)	N/a	NA	NA	NA	NA	$20	$0.01
6	Equity Value						$653	$0.37

........ and if you (as I do for the reasons I note above) see positive results on Retts as a precursor of a positive outcome in any one of Fragile X, Concussion and TBI, so bump them up to a still v conservative PoS of 29% then NEU has a valuation of $0.37 fully diluted and probability adjusted, following today's successful Retts Phase II.

So NEU seems to be quite undervalued at 0.12. I bought more NEU on open at 0.13.

As a final note, I refer to Baillieu's most recent pre result valuation of $0.25 baseline and $0.67 optimistic case -- https://www.baillieuholst.com.au/publishedresearch/2014/neu_05nov14.pdf

I note that their $0.25 PT from today is unchanged from the pre result valuation (this seems illogical to me) -- https://www.baillieuholst.com.au/publishedresearch/2014/neu_12nov14.pdf

I would have thought that we are more derisked than we were on 5 November (prior to results), so unless Baillieu's incorrectly assumed 100% CoS on Phase II last week, it seems logical that this will be increased/corrected upwards.

For anyone on the Investor Conference call today; perhaps Stuart enjoyed a little too much celebratory champagne during his lunch break?

Cheers,

Eights.