@Nnyck777, an interesting find, a biotech that is almost like a bond (or a high grade goldmine with a 10 yr mine life?) in the way the milestone and royalty payments could play out. Beyond this revenue stream though they are still a biotech and will be dependent on good phase 2/3 trial outcomes for their drug pipeline to continue to grow. I can see why the value is being overlooked by the market as it is a hard one to grasp what its true value is, and I imagine part of this value is deciding what the milestone payments will be used for and whether these just enable more drug trials and whether they hit more winners? How are you and @mikebrisy treating these one off payments in regards to value creation?

A big factor in the valuation is the cost of DayBue per patient, @Nnyck777 you have this at $US375K/yr, do you know how accurate this number is? as I couldn't find any reference to this is any of the release information and the audio call I listened to from Arcadia seemed like the really didn't wan to release this information.

Beyond the milestones payments, if Acadia manage to achieve $US500M sales then Neuren will have a royalty stream of $US55M which gives a somewhat perpetual EPS of $AUS0.62, which at 20x earnings multiple is the current price.

The other thing that jumped out is that the churn in patients use will be a real key here to potential revenue levels. From the trial adverse impacts statement it looks like their were a few side effects that could become problematic when used over the longer term. Weight loss was one side effect listed with 12% of trial patients losing 7% body weight over 12 weeks, and 2.2% of these patients stopping the drug mid trial. Small numbers but the rate of churn will be important and could become more significant outside of the trial environment. It looks like a great drug though and given their is no alternative currently though so maybe these adverse affects are worth living with.

Definately interesting and one I would never have looked at if it wasn't for Strawman, so thanks

I have checked the projections @Nnyck777 included in the Modelling and later posts. Some milestone payments related to market registrations are one-offs. However, some are triggered annually based on the annual sales level, and are repeated each year in addition to the % royalty.

We haven't assumed that the FDA Product Review Vocuher is monetised. It likely has a value to $NEU of one-third the value to Acadia. You can easily lookup values of PRV's online, and $100m to Acadia seems reasonable. I think that must be the value assumed in the deal in the event that Acadia exercise it themselves. They could of course choose to sell it to a third party, in which case its value would be subject to a negotiation. (There are historical examples of PRVs selling for much higher.) So its value and timing are unknown, but it is a decent chunk of cash for no new effort on $NEU's part ... as I understand it.

On costing, Acadia is resposible for all commercial management. I have independently of them seen industry reports that:

"Acadia anticipates that there are about 4,500 people with a Rett syndrome diagnosis in the United States. Acadia has said the list price is $21.10 per milliliter, and the drug is dosed according to the person’s weight and given twice a day. The company says payers will see an “average net realized cost” of about $375,000 per year per person, the majority of which will be covered through Medicaid or commercial insurance. Acadia has formed a patient assistance program for those who need financial help." (Source: Spectrumnews.org)

I'll be honest, in that I have played fast and loose with my valuation. I've looked at the consensus, which I don't believe reflects the high level of early sales Acadia has reported. Conversely, I did not share @Nnyck777 's view of the patient ramp-up for several reasons, including those you've indicated. Hence. I placed my ramp-up between the two, and applied a multiple to estimated FY25 earnings.

In RL, this is interesting enough for me to have taken my one-third initial bite. I'm going to do my own proper modelling on this, including scenarios for uptake and EU and Japan rollout. I will likely await some Phase 2 newsflow for NNZ-2591 and the next half year report from Acadia before adding more.

@Slideup raises a good point. As more patients take the drug, just as with every drug, monitoring will yield a more complete picture of the adverse repsonse profile. That is part and parcel of investing in pharmaceuticals and, in particular, in a company with its first leading product.

What marks out this opportunity to me from others (and therefore why I owe @Nnyck777 at least a beer or 50 for his post) is rarely do you find a start-up pharmaeutical company with the following profile:

• Strong cash on the balance sheet
• Strong operating cashflows under way
• Royalty structure (a bit like a Doterra of pharma!) where the partner has all the cost, supply chain, regualtory management etc. etc. risk, and a generous royalty structure
• On the ASX
• Futher indications on the same molecule with commercial flexibility
• Follow-on molecule already in multiple Phase 2 studies ....

I'd have missed that completely without Strawman.

I know its already a $1.8bn market cap. but the upside is multiples of that. @Nnyck777 high case of $119/sh is hard for me to see from the first molecule and Rett's indication alone. But add Fragile X indications and NNZ-2591 success in one or more indications, and roll forward 5-10 years, and that has to be in prospect.

$NEU is also a potential M&A candidate. I know (having worked in the industry years ago) that big pharma will be closely watching the progress of NNZ-2591 Phase 2. If progress is positive, there will be a window for acquisition before the NDA is filed.

The way to value this properly is to do an EMV analysis on some distinct success and failure case scenarios, including NNZ-2591 and M&A scenarios, and I will do that before committing further tranches of investment. But the potential of the upside is already very clear to me and I've been looking for something like this to have in my portfolio. The only near neighbour I have is $PNV, but they carry all the execution risk.

Nothing is a sure thing and you have to be comfortable with pharmaceutical commercialisation risk and the development risk.

Hi @mikebrisy and @Slideup great to have other Straw people to share ideas with about Neuren. I certainly really enjoy our exchanges on Polynovo.

@mikebrissy you could be right about the 5000 being excessive as this is the currently registered ‘known’ numbers of Rett patients. However the estimates from prevalence rates are that there is likely double this rate in the community. As there is now a treatment I think it is fair that we will see a higher number of people come forward in future years. 

So far indications are good that there is a lot of coverage and co-operation from insurers but yes this is always a risk. 

Given the lack of treatments, the advocacy and the urgent need for treatment of this debilitating disorder and the apparent comprehensive data sets established in the Lilac and Lavender studies, I think there is a good chance that EU and Japan registration of Daybue will be reasonably quick. But agreed this is also a risk. 

As you say all focus can now turn to NNZ2591 – As mentioned in previous posts and on Neuren calls the optimism around this drug is very high. The mouse models are exceptional for the drug and hopefully this transitions to efficacy in phase 2 (although of course this frequently doesn’t occur). The bioavailability of this drug is much greater and the 4 populations this drug is targeting are much larger than Rett. 

Honestly, I suspect that if Phelan McDermid Phase 2 data read outs are positive in December, Acadia will attempt to buy out Neuren (likely with the assistance of a large pharmaceutical backer). Acadia has already seen the data – remembering this is an open label trial and they have already coughed up $100 million for rights to the Rett and and Fragile X treatments for this new drug. I imagine they would be pretty desperate to get their hands on the universal rights to NNZ2591. Jon is smart and wouldn't be budging on this without proof in trials of its likely success. Every new clinical phase = $$$ in Neuren's market value.  

Several analysts have actually depreciated the value of Daybue stating that NNZ2591 will cannibalize profits. I disagree with this assertion. I would suggest this will only be developed as a follow on drug as the patent for Daybue gets close to expiry and may be developed for Fragile X first. Fragile X is a much larger population so therefore should yield a higher return. 

@Slideup the $375K pricing I believe is largely based on the assumption of a body weight of 30 kg. So depending on individual weight spread of patients this will vary slightly (I would say this is fairly accurate for a young population of mostly females). 

With regard to churn remember the studies were conducted during the pandemic. Jon and families on Rett groups have mentioned that it was really difficult to travel at this time and this largely accounted for the drop out. Apparently several families when offered the ability to commence the follow on Lilac continuation study rejoined.  

Diarrhoea and vomiting were the biggest barrier for continuation of treatment in some kids. Constipation is one of the biggest issues for hospital presentations for kids with Rett and this can happen several times a year. Apparently the management of the Diarrhoea was easier by comparison. The rate of Daybue was titrated quite quickly to peak dose during the course of the Lavender Trials. 

Since the launch of Daybue, the approach has changed and the dosing levels have been managed much better and the side-effects haven’t been as much of a problem. I think the lessons learnt mean that more of the kids will be better managed long term and hence drop outs will be lower. The reported benefits by some of these families since the release of Daybue have been incredible. The videos families are sharing show such rapid improvement in language, walking and motor skills. I admit that I have cried tears of joy watching these generously shared video. After all Neuren is very much a hidden gem but also an ethical investment. Given the benefits that families are seeing it seems unlikely that attrition rates would be high. 

@Slideup Weight loss is being mitigated by better diarrhea management.

Apparently this is one of the biggest benefits of NNZ2591 – much lower doses will be needed for treatment so diarrhoea should be largely resolved according to Jon. 

@Mikebrisy that’s right if Acadia use the voucher themselves for a new drug molecule Jon has confirmed that they still have to pay Neuren 1/3 of the market value. 

Thanks @mikebrisy I’ll take that beer when it hits $30.00 per share. I will then have to pass that beer on to Trevor who introduced the discussion around Neuren at one of our first Strawman meetings in Brisvegas in 2022. Did you ever take your own suggestion @CanadianAussie?

Oh and by the way @mikebrisy the he is actually a she.

I 100% agree that Strawman has exposed me to a lot of ideas that I would not have considered – Hence it’s fantastic value. I will continue to be a member as long as Strawman will have me. 

I still strongly believe that $100 per share is not an unreasonable expectation for the price of a buyout either if NNZ2591 phase 2 studies are successful in the December. This drug will prove to be incredibly lucrative. If Jon continues at the helm and Neuren takes the drug through phase 3, I will be happy either way. 

I agree PNV is another good example of a company with heaps of future growth and potential. 

If you want to go full high risk check out the thread on Botanix. Hugely de-risked drug with 90% likelihood of FDA approval in September and current SP of 14.5c. 

I find this area of the market super fun to research. 

Cheers

Nnyck

@Nnyck777 that's a deal for sure at $30.00. Apologies for pronoun slip. I'm usually quite careful not to assume, but sometimes, when typing at speed, the unconscious bias takes over. (Listen to @Strawman rant on a recent MF Podcast with Scott Phillips - the last pre-recorded Mail Bag if I recall).

BTW, I have noted your posts on $BOT. It is on my research list and I have noted the importance of making a call before the next milestone. We'll see if that adds to "beers payable".

No, unfortunately I didn't @Nnyck777 . NEU and CGS are two I'm kicking myself over. I'll certainly take the beer though ????

@Nnyck777, you have definately done your homework on this one. Thanks for the confirmation on the pricing, I have also now found the pricing on one of their earlier slide decks. @mikebrisy are you sure that the sales milestones are not one offs paid the first time that level is reached? I couldn't find anything to say that sales milestones are paid each year they are hit. It also seems unlikely to me that they would pay an annual royalty percentage on sales as well as an annual milestone if a certain levels are hit. I am assuming they are one and done.

I keep looking at this one and am trying to find a reason not to buy it as I am a bit risk adverse on biotechs after previously going through the rollercoaster of Phase 3 trial outcomes. I got lucky at the time but it served as a good warning about how dependant on an external outcome these buisnesses are. Neuren is definately a different beast though. I just cant get over how little rollout costs and how much very high margin revenue they have effectively locked in and it will in my opinion take a very unexpected left field event for this to be lost.

In my model I am ascribing zero value to the current phase 2 trials and NNZ-2591 as while the science looks good it is far beyond my biochem knowledge to assess so am treating this as a free kick if they are successful. Given their success with Trofinitide and the similiar mode of actions for the new drugs/indications you would have to back them as a better than even chance of good outcomes in their trials.

I am also giving a slower rate of uptake in the US, from the released Acadia Q1/Q2 numbers I am backcalculating that they have around 220-230 people currently using the drug and to hit their sales guidance of $45-55M for Q2 they will need between 500-600 people. I have used 15% growth in numbers in the next 2 quarters, as the easiest patients are added and from then on I have assumed a steady 10% per quarter growth for the next 4 years. I haven't added churn because we just don't know what it is and I think that is too fine a detail for this high level model.

This gives me a high level view that their is plenty of room left for this to run. I am really surprised at how compelling the case is for what I am considering to be fairly conservative rollout rate. Trofinitide appears to work very well and has a relatively large impact on the development of these children/adults so I can easily see the more optimistic scenarios playing out. The low aussie dollar really helps this one as well and I don't see that reversing dramatically over the next 12-24 months.

The rollout for the ROW the world could take an extra year or two longer than I have it currently, depending on regulatory approvals etc, but I think Acadia will move as quickly as they can on this area now that they have the licence deal finalised. The $100M upfront payment from the ROW deal is a big driver of the target price for this year, and my understanding is that it will be paid within FY24. I have a 12 month price target of $28 and from there I will see how well the patient uptake rates and retention are. @Nnyck777 you might have more beers than you want coming your way as I will also be looking to add this to my portfolio as well.

I think your both probably right in that this likely be bought out if the upcomng trial results are positive.

Table 1: Number of patients and estimated revenue to Acadia each quarter. Launch date was April 17th 2023, Q1 is 2 weeks short of a full quarter.

Table 2: Estimated annual revenue to Neuren from the Acadia US and Rest of world (ROW) deal. Includes all sale royalties and milestones and 1/3 share of PRV.

You are on:)

trading halt just lifted on Bot.

6A1159290_BOT.pdf

Master stroke by management team. They just bought out rights and future milestone payments for SB. This is valued at more than $168 million future payments. The brilliance.

1) Frestracks is distressed financially so on FDA approval BOT owed Freshtracks another $4million. Instead they have only added another $4.25 million = $8.25 million all rights for future royalties and milestones have been bought out.

2) Done with minimum dilution to shareholders

3) No caviat that the deal is subject to FDA approval (show extreme confidence there will be approval).

4) As management has stated this makes an asset or company much more attractive.

You are not too late still with Neuren especially before Dec this year and phase 2 results. You are on we should definitely all catch up again soon in brissy. I certainly owe you that beer :)

Hey everyone, I have taken a small position in NEU as I also think the risk/reward proposition is compelling. Thanks for all the details @Nnyck777, @mikebrisy, @Slideup and everyone else I've missed! (apologies!)

I think @Slideup is right in that the sales milestones are a once off payment once the annual sales hit the targets. However even with this being not an annual payment, the margins from just Daybue are quite promising.

The current share price basically doesn't take into account much sales from ROW and any future indications from this drug and their developing NNZ-2591.

Disc: Held IRL and on Strawman.

@Slideup - of course you are correct, the milestone payment occurs once only, triggered at the point the net sales in one calendar passes the threshold. I was wrong to write "are repeated each year". So, for the US, the total value across all years of sales milestones to be earned is $350m. The speed at which the total is earned is driven by the time it takes to ramp up sales to >US$1bn (2,666 full paying patients).

Your US sales projection seems more in line with what I had in mind. In your Table 2, isn't 2024 actually this year or at least three-quarters of this year? As Q1 in your Table 1 is actually 2Q of 2023 and Q2 is 3Q of 2023? $NEU's year is the calendar year. I'm getting into the weeds here, and of course the cash payment is in arrears, so not sure how $NEU will recognise revenue.

For me the key unknowns on the revenue line for Daybue for the US are:

• Proportion of patient population who are medically suitable
• Proportion eligble for reimbursement via insurance or medicaid and, in case of medicaid any pricing discount
• Patient Churn
• Looking longer term - does a competitor emerge, i.e., how long is plateau revenue achieved. Competitors are in early stage development (Phase 1 and 1/2)
• The "missing 5000", i.e., to what extent does market grow with increased diagnosis (the 5000 vs. 10,000) now that there is a treatment.

Still really only starting to get my head around this.

In any event, if $NEU starts to show the revenue growth that we are all seeing, then the p/e will definitely be a lot more than 20x current earnings you show in the final column.

So I am happy with a 12m TP of $36 as a placeholder,... having done no actualy modelling of my own.

All that to say, the market consensus still appears to be based on net sales of FY23=A$200m FY24=A$130m FY25=A$149m. (WTF!)

And on top of that, a few days ago Gaurav Saudi was saying: "fantastic deal...hold" and Mathan "reduce to take profts,... you've already 10 bagged".

So the thought in my head is are we all smoking something, or is this a case of serious mis-pricing. Does anyone have any recent $NEU or Acadia broker research? Or is it that this is another one of those overnight success cases that been 10 years in the making, so brokers have missed the breakout? Surely that market cannot be that inefficient.

A quick interjection to this thread to say that the Neuren CEO Jon Pilcher has agreed to meet with Strawman members on the 15th of August. Hopefully will help clarify some of our questions.

Also, Charif from Dropsuite is scheduled for early September.

Legend- Thanks Andrew! Can’t wait. He will be peppered with questions.

One CEO that I trust. Jon seems to have integrity and is very aligned with share holders and has worked very hard to get Neuren to where it is.

@Strawman that's fantastic news, and great timing on both fronts.

Regarding Jon, we probably need to take care in framing our questions in a way he can answer. With the Acadia deal, all responsibility for regulatory filings, market entry, supply, pricing and margins rests with Acadia. This was evident in the most recent investor call, where answers to many questions began with, "I can't really say as that's Acadia's call...."

So, thinking out loud....,

It would be good maybe to understand the science behind the drug's action, and whether the main competitors earlier in the pipeline are targeting a similar action, and how likely they are to be successful. That would be a valuable insight.

Secondly, it would be good to get insights into progress of NNZ-2591, its role in Retts and all the other indications and the interplay between it and Trofinetide, per the slide below. There are several clinical trials running in parallel.

I've got homework to do, but I think you can expect a full Slido from several of us heading into the meeting!

@mikebrisy i was trying to be really conservative and see how much of a margin of safety there was. I was actually surprised at how few of the pre-identified 4500 diagnosed patients are required to get to the milestone payments. Even using my low PE I still get a large safety margin on todays price.

My Q1 lines up with April 2023, I didn’t bother to align with financial year as it was more for me to get an idea on 12 month revenue potential. It also became clear that the big driver of value in 2024 will come from the $US100M rest of the world payment, rather than DayBue patients.

I agree with your list of unknowns, and I think these are somewhat unanswerable at this stage, but I am increasingly comfortable on letting the data come in to answer these.

Like you I am also scratching my head on how this opportunity even exists, and subsequently what am I missing. I searched on Livewire, and in a few months old 5 stocks video segment it was called an overhyped biotech by a fund manager. I am wondering if the recent strong run has given it the appearance of being full valued.

great news @Strawman on securing Jon, I think we will all learn a lot from it