Ann: Preliminary Final Report, page-12

received an updated info from Bell Porter

Next catalyst - Partnering deal in 1HCY18 for trofinetide
NEU had cash reserves of $4.7m at end of FY17, following $5.4m of receipts under its July’17 financing. We expect NEU to receive another $10.5m over 14 months (starting Jan’18) under their sharing agreement with UK fund Lanstead Capital, which would further strengthen its balance sheet and support its ongoing partnering negotiations. It also allows the company to progress with preparatory key activities required ahead of a Phase 3 trial for Rett. NEU reached an agreement with the FDA on the key elements of its proposed Phase 3 trial design for Rett in Oct’17, which has reduced the uncertainty around the Rett program and consequently increased the probability of partnering. A licensing deal for trofinetide could trigger a significant re-rating.

Valuation lifted to $3.99, Retain Buy (speculative)
Following revisions to our model, the net result is our NPAT forecast for FY18 has decreased by 11% and for FY19 has increased by 18%, primarily driven by revisions to our opex forecasts and revised currency estimates. The short term NPAT adjustments and rolling forward of our DCF model has led to a modest lift in our valuation for NEU to $3.99/sh (was $3.92/sh). We retain Buy (speculative). Next catalyst: Further details on the Phase 3 Rett Trial design for trofinetide and potential licensing deal for trofinetide in 1HCY18.

Deal assumptions for trofinetide
We continue to forecast that trofinetide for Rett and Fragile X and including provision for potential other indications can get licensed for a total deal package of US$680m, including US$50m in upfront payment. While we do not rule out the possibility of a deal still taking place before the end of 1QCY18, given we have no visibility on how advanced the discussions with potential partners are and given the company is in a stronger cash position following the Lanstead funding, we expect it may get pushed to 2QCY18. We also expect tiered double digit royalties could be part of the deal ranging from 15%-25%. For conservatism sake, we model a flat rate of 15% now.

Forthcoming Milestones
In terms of news flow over the next 12 months, we expect the following:

• 1HCY18 – More details from Neuren on the clinical trial design for Phase 3 Rett trial;
• 1HCY18 – Potential licensing deal for trofinetide;
• 2HCY18 – Potential initiation of a Phase 3 trial in Rett Syndrome (likely by a partner).