Ann: Neuren secures funding for key activities for Rett syndrome, page-64

Neuren’s funding arrangement allows an immediate injection of $3 million ($1.5 million from Rettsyndrome.org + Neuren directors and management and a further $1.5 million upfront from Lanstead Capital). Lanstead will also make 18 monthly payments to Neuren, which I am assuming will run from July 2017 to December 2018.

By my understanding, if Neuren shares maintained a steady VWAP of 8.86c (the nominated benchmark price within the agreement) in the 5 day period before each monthly settlement, Neuren would receive $472,222 per month. Using this scenario, over the next 12 months, Neuren would receive $8.66 million - $3 million upfront and $5.66 million in monthly payments from Lanstead.

Let’s consider a second scenario. Neuren shares hover around the 6.2c -7c mark during this quarter but then fall on FDA rejection of RSBQ to H2 2016 lows of 4.1c -4.2c. The price stays there in the absence of a deal before June 30, 2018. Using this scenario, Neuren would receive just $6 million over the next 12 months - $3 million upfront and approximately $3 million in monthly payments from Lanstead. Interestingly, $6 million is the same amount that Neuren would have received if the Board had run with the Lang Walker option.

During these next 12 months Neuren intends to complete some critical activities, including conclusion of optimisation of the manufacturing process for commercial supply, conclusion of stability testing and analytical validation of trofinetide and conducting a 6 month rodent toxicity study. While likely to be less costly than clinical trial costs, there will still be significant costs attached to these activities. It’s difficult to imagine that cash burn will be less than $6 million over the 12 months.

I’m sure that the Neuren Board will have carefully calculated their sums, using various scenarios. In my view, Scenario 1 might provide sufficient funding over the next 12 months, but is highly unlikely to occur without good news to boost the share price. Scenario 2, I’d suggest wouldn’t provide sufficient funding over the next 12 months.

It could be considered that the Neuren Board has made a high-stakes gamble with this funding arrangement. However, if one considers that

1. the Board is cognizant of details of partnering offers on the table, of which we are not
2. management is said to be very confident with Phase 3 approval using RSBQ as primary endpoint (as reported by Shimmer after the AGM).
3. directors, management and Rettsyndrome.org are backing this with a $1.5 million upfront

it could also be concluded that Neuren is confident of wrapping this up, firstly with the FDA, and then with a deal, probably before the end of this calendar year.