The Whens and Whys of Top Biotech M&A Deals, page-31

The softening up of the Neuren share price appears to be having the desired effect of lowering takeover expectations for some shareholders.

Perhaps it's worth re-iterating the irrelevance of the share price to Neuren's plans.

If your only option for realizing the value of your investment in the near future was selling shares on the open market, then sure, the share price is important.

If the company needs to raise cash from the market, then the share price would be important.

If the company is considering a (competitive) takeover then the share price is not important.

As I've tried to point out a few times, the fundamental value of Neuren is not linked to the share price. The Neuren board has, I believe, indicated that their evaluation of Neuren's value will be based on a DCF. The share price has no effect on a DCF valuation i.e. the DCF valuation is the same with a $15 share price as it is at a $25 share price (or a $10 share price for that matter).

A potential buyer will base their bidding on what the asset is worth to them (doing their own DCF likely, combined with other strategic factors). The value of the asset to a buyer (i.e. the maximum they will pay) is therefore dependent upon their valuation of the asset - a valuation in which the current share price is irrelevant. The share price simply determines whether they think the asset is currently under or over valued. For example, if they value Neuren at $2b and the company's current listed market cap is $4b they may decide to not bid at all - the company is 'overvalued'. But their valuation of Neuren won't change just because the share price changes.

If the share price is low a buyer will, of course, try to purchase for less than their valuation - as any smart buyer would. This means if there is just one bidder, then the share price will be relevant.

However, as soon as you have two or more serious bidders the share price becomes irrelevant again. Each party's focus will be on the value of the other party's bid, not the Neuren share price.

Finally, on takeover premiums. Contrary to what some posters seem to suggest there is no rule saying takeover premiums have to be 200% or less. The takeover premium is a historical measure of the undervaluation of the company at the time of a successful bid. There is no intrinsic limit to how high the takeover premium can be - the buyer ultimately does not care what the takeover premium is, they simply care about purchasing an asset for less than or equal to their own assessment of its worth. As some have pointed out, there are indeed examples of takeover premiums up to 600%. Using historical takeover premiums to calculate Neuren's likely TO price is a meaningless exercise.

All the evidence I've seen suggests strongly that Neuren is working to maximise the value of a TO after the FDA review meeting in September. Neuren is making alot of noise about proceeding with the Phase 3 trials themselves - but that's exactly the strategy you'd expect from them if they wanted to maximise TO value now. Neuren is also investigating another "less than 10" indications for development. This is NOT something you'd do if you were intending to go it alone - Neuren clearly doesn't have the resources to develop 10 simultaneous indications. However, it is something you'd do if you wanted to maximise value for a TO.