This is from a BP report issued at the end of last week. In short, Bell Potter thinks US$680 million deal will happen and upgrades their risked/present day NEU Price Target to $0.285.
Neuren Pharmaceuticals (NEU)
2016 should be eventful - NEU remains (a) Top Pick for the year
Strong cash position, pipeline on track
FY15 reported Net loss of $13.4m (up 61% vs. pcp), was 3% unfavourable to our forecast (BPe $13.0m), driven by higher opex, partially offset by higher revenue and FX gain. Revenue was slightly ahead of our forecast ($2.4m vs. BPe $2.3m), due to higher R&D tax incentive receivable from the Australian government. R&D costs were markedly higher over pcp (+41%), due to increased cost of manufacturing drug for clinical trials, costs associated with optimisation of manufacturing processes and clinical costs related to the Phase II Fragile X Syndrome (FXS) trial, partially offset by the completion of the Phase II Rett Syndrome trial in FY14. Cash balance of $16.6m as per our estimates provides cash runway into 1Q17.
Trofinetide attracting industry interest
Promising results from Phase II Rett and Fragile X trials serve as proof-of-concept (POC) for trofinetide, with benefits seen across two different indications now, which significantly de-risks the company. Success in both of these indications now positions trofinetide to be tried across other Autism Spectrum Disorders and therefore strengthens its value proposition and increases its licensing prospects. The recent POC in FXS has generated high level of interest from global pharma in trofinetide. Following the results from the trial, NEU appointed Leerink Partners, a leading US healthcare specialist investment banking firm with specific expertise in the orphan drugs space, as its corporate advisor to assist it in evaluating strategic options. We believe NEU is well placed to benefit from the heightened M&A interest in the orphan drug space. We assume trofinetide gets licensed for US$680m in 2HCY16.
Valuation lifted to $0.285/sh, Maintain Buy rating
Revision to our model has led to a change in our NPAT est. as follows -6% FY16 & +0.5% FY17, primarily driven by higher opex costs and lower interest income. The earning changes and rolling forward of our DCF model has led to a modest lift in our valuation of NEU by 2% to A$0.285/sh. We retain Buy on NEU. Key catalyst: results from the Phase II trial for Traumatic Brain Injury in April 2016.
Recommendation: Buy
Valuation: $0.285
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