New Bell Potter Research Update

http://www.bellpotter.com.au/ca4/Research/GetFile.aspx?id=01c2e5bb-8ea0-4297-abb5-591dbfe732a9

Good cost management ahead of key Rett trial read out FY16 underlying Net loss of $11.1m (down 9% y/y), was 7% below our forecast of $12.0m and was driven by lower operating costs. Revenue was in-line with our forecast, however up significantly over pcp due to higher R&D tax rebate. G&A costs were significantly lower due to a reduction in the remuneration of directors and executives. R&D costs were slightly lower, however we believe that to be a timing issue, with some of the ongoing Phase 2 Rett trial costs being pushed to 1Q17. Cash balance of $5.1m provides runway through to June’17. We expect additional $1m receipts in 1Q17 through R&D tax rebate. We assume a $5m placement to NEU’s largest shareholder Mr. Lang Walker in 2Q17 (approved by shareholders), which would further strengthen its balance sheet ahead of partnering negotiations. Key catalyst – Phase 2 Rett trial data due by March end An evaluation of strategic options last year led to management concluding that while commercial interest for lead drug trofinetide was high, results from ongoing Phase 2 paediatric trial in Rett is required to further strengthen data package, improve licensing prospects and achieve best terms in a partnering deal. This pushed deal timeline for trofinetide out by a year (2H17 vs. 2H16). NEU expanded its Rett trial which completed follow up of 82 subjects enrolled in the trial in Jan’17. Results from the trial are expected to be released in the back end of March’17 and will be a key inflexion point for NEU. We continue to have a positive view on the outlook for Neuren as an orphan drug play and believe Trofinetide has attractive licensing prospects based on the positive data from past Phase 2 trials in Rett and Fragile X and look to the results from the paediatric trial now to further strengthen its data package. Maintain Buy rating and Valuation of $0.11 Following revisions to our model, the net result is our NPAT forecast for FY17 has decreased by 9% and for FY18 has increased by 11%, driven by revisions to our opex forecasts. The short term NPAT adjustments were offset by revised currency estimates and DCF roll over. Our valuation for NEU is unchanged at $0.11/sh. We retain Buy.