@mikebrisy

Thanks for posting this. NEU is definitely an interesting company given its royalty structure. For disclosure I do hold some shares. I'm gonna do some rambling below and just want some thoughts (happy for anyone to contribute). I guess this is somewhat of a Devil's advocate/bear thesis to counter all the wonderful analysis that has already been posted here.

Based on the analysts forecasts that you've posted, an FY25 EPS of 0.80 would imply approximately $100m in NPAT. I think based on figures from the past FY, total expenses came in around $15m and assuming a 30% tax rate would mean that total revenue of around $150m AUD.

I've plugged in the numbers on a basic spreadsheet and excluding any milestone payments, in order to achieve $150m of royalties from just NA, would need around $800m USD of annual sales of Daybue. Based on an average cost per patient of around $375k, this would equate to around 2100 patient's treated per annum (current enrolment is around 800). Acadia themselves have estimated that there are around 4500 patient's in NA diagnosed with Rett's Syndrome and in total around 10k-15k total cases in NA alone. Given the success of Daybue at the early stages, I think achieving a 20-25% market penetration is not totally unbelievable.

I guess going forward given that the sales milestones are a once off event, and these payments are likely going to be funding future projects (and not into shareholders pockets for example), then lets say Daybue starts to plateau at around 2000-2500 patient's treated per annum, then the royalty and NPAT figure are going to remain fairly constant. So the question would begin to be related to how much would you pay for a royalties business with minimal growth. A similar (but obviously completely different industry) royalties business in Deterra trades on around 15x-17x PE. The market average for the ASX200 is around 15x PE. It seems almost poetic that the figure for FY25 would be 15x PE.

Of course the catalyst for further upside would be through the ROW distribution and NNZ-2591 results and commercialisation. And for this reason I do hold shares and will continue to unless the thesis breaks (no ROW commercialisation or NNZ-2591 results are poor).

Let me know your thoughts.

Disc: Held IRL and on Strawman.

Good questions.

First up, there is potentially a very large difference between the number of people with Retts and the currently diagnosed patients. Various peer reviewed studies estimate the incidence, and I have conservatively assumed it as 0.7 per 10,000.

This means the potential market today in the US is 10,000 of which only 5,000 are currently identified. One potential reason for underdiagnosis is that the symptoms of Retts overlap with other neurological conditions. Hitherto, with no treatment available, it is considered likely that there has been a tendancy not to diagnose. Now that the treatment and uptake of it is well know in those involved in diagnosing neurological conditions, it is reasonable that the base of diagnosed patients will grow. This is a multplier on top of the steady growth of the US market.

While the milestones are indeed one-off, there are a lot of them, stepping right up to >$1bn US sales, which I estimate will be reached in 2026 or 2027 at latest, and in the ROW milestones may start as early as FY25 and continue (by my modelling) right through to 2031 (I have ROW sales at $ACAD hitting $1bn in 2031).

So I am getting bigger numbers because I am looking at the global-able-to-pay market, and seeing sustainable growth just for DAYBUE out as far as 2032.

Excellent rundown mikebrisy. The NEU story is near unbelievable.

At today's market update Arcadia's projected monthly sales of Daybue,are midpoint $US83.5m. This results in annualised sales figure of around $US1b. At this sales rate royalties of around $A230m are headed to NEU. In addition there are one off milestone payments of around the same amount. Then there is mid-term Daybue RoW sales and the other 5 rare conditions with drug development currently in Phase 2.

Who will spoil the party? Well others are trying to take it off NEU. NASDAQ listed Anavex has a successful Ph3 Rhetts condition result for a drug called Anavex @2-73.

Question is, assuming a further FDA approval is granted, how long will this all take and if successful, what will the drug do to Daybue's market share? To the second question I have no idea. To the first, let's just say Anavex would be unlikely to have anything in a bottle in under 18 months.

So even at a share price of $13, giving NEU a market cap of around $1.7b NEU is, very roughly selling on a PE of less than 10.

Where do you get value like that in Australian listed life sciences?

Great reviews thanks Strawpeople. We should know next month (as previously reported by the company) if Daybue is just the first of a number of drugs that will bring in income. The beauty is the next drugs currently under testing are owned outright by NEU! Daybue May just be the introduction for this life changing company.

Hold IRL

@Scoonie not sure if this is what you meant, but the midpoint of the Q4 revenues for DAYBUE for $ACAD is US$83.75m for the quarter, not monthly!

Previously, $ACAD have undertaken to guide one quarter ahead until they get enough confidence to provide annual guidance.

The revenue growth potential is significant.

In my base model $ACAD DAYBUE FY23 sales were forecast to be US$147m (vs US$174m now forecast based on Q2 and Q3 actuals and Q4 midpoint), growing in FY24 $396m - which only requires c. 1200 patients under treatment by Q4 FY24. That looks like its going to easily be exceeded, with lower churn and higher compliance to label than I assumed further driving revenue per script.

My problem is that my model is a bit of a mess and needs a rebuild, which I will do ready for the Q4 $ACAD result.

One thing I am not sure about is how revenue recognition will work regarding the Royaly Milestones for CY Annual Sales. (Any StrawPeople with expertise on revenue recognition?) This doesn't affect valuation which is driven off cashflow, but it may drive market sentiment and price targets based on EPS multiples.

Based on my analysis $NEU is easily going to land the US$250m sales milestone of US$50m for CY24 sales. While this wont be paid until early in CY25, I will be interested to see how revenue recognition works. For example, at a Q4FY23 runrate of US$85m without any further growth (0% chance), sales in FY24 will be US$340m. There is now an upside chance that if strong growth continues, we could even be pushing triggering the milestone payment for US$500m sales in CY25. But let's not get excited and wait to see what happens to sales momentum in Q4.

The SP reaction this morning is modest, and I wonder if that is because $NEU investors have not bothered to model this bottom-up off number of patients and applying the royalty structure. Personally, I don't mind. Things are progressing well, and this is allowing me to steadily build a significant position while the SP is still way below my valuation.

Fingers crossed now for the December NNZ-2591 readout.

I agree with your bottom line - I think this one is unique at the moment in Aussie listed life sciences. But again, if NNZ-2591 comes in, we ain't seen nothing yet.

Again, I owe this one entirely to being part of Strawman community, and to @Nnyck777 specifically.

Great Annalysis/Summaries to everyone above. I may be a little over bullish but if the stars align I think that the 500mil milestone payment could be a chance for the final qtr FY2024. My predicted sales range is between 400mil and 600mil.

I don’t know too much about the timing of revenue recognition but if it’s anything to go by; first sales were reported in April 2023 and the associated 40mil milestone payment was received in June 2023.

Aside from the growth assumptions the only other risk I currently see is the reliance on a single distributor/licensee. That said In the Strawman Meeting the CEO made comment that the companies are working well together (Me Paraphrasing).