Description

Summary

Addex is functionally a stub that allows you to invest in a freshly launched series A biotech company backed by blue-chip VC firms at a downround. Post-money on the raise was $79M, but thanks to recent events, you can create the investment at a $62M valuation. NewCo will follow in the footsteps of Karuna (acquired by BMY last fall for $14B) and Cerevel (to be acquired by ABBV for $8.7B), targeting muscarinic receptors for the treatment of psychiatric disorders.

This is a binary and I will keep the writeup brief, but I think the odds on the binary are great thanks to a halving of the stock this week, due to the failure of an unrelated/unimportant Ph2 on an Addex asset that is partnered with JNJ. I took a small position.

Situtation

Last month, Neurosterix announced its existence to the world. A group of investors led by Perceptive, with participation from Acorn Bioventures, raised $63M. Neurosterix paid $5.5M and 20% of its equity to Addex in return for a portfolio of assets including 1) an M4 PAM and 2) an mGlu7R NAM (the latter of which is less interesting).

Addex is a Swiss biotech s***co that had been sitting on these assets (most interestingly the M4 PAM) but had no cash to develop them, and apparently could not raise any. This (I assume) allowed Perceptive and peers to buy the assets for a song.

Addex’s pipeline is most likely worth $0, and for the purposes of this investment I am considering Addex to be a stub company, assuming zero cash value (I expect they’ll burn the last of it in 2026 if nothing changes). The only asset worth anything, in my opinion, is the 20% stake in Neurosterix.

This week, the stock traded down 50% due to a trial failure in an unrelated pipeline asset, allowing one to take a stake in Neurosterix and a cheaper valuation than Perceptive and peers.

What could Neurosterix be worth? I already mentioned the sales of Karuna and Cerevel, but a more appropriate comp here would be Neumora (NMRA).

NMRA’s M4 PAM (in Ph1) received a clinical hold due to seizures in rabbits a few weeks ago, and the market cap dropped by ~$375M the next day and $715M since announcement. 

If Neurosterix can get an IND and enter Ph1, that’s worth something >$64M. If they pass Ph1 with a safe drug and Cerevel announces positive data from their M4 PAM (will readout in the coming months), it could be argued that Neurosterix is worth >$375M. 

A $500M valuation would imply a $0.41 valuation to Addex, or 6.7X, assuming no dilution.

Risks

The obvious risk here is that Neurosterix's drug never gets off the ground, due to a tox issue in animals, or a PK issue. At my last firm, we put together a company of similar size to tackle a similar problem. Within months, it was found that the pharmacokinetics were bad, and the company was no more. Tha said, this bear case would result in the return of ~$10M of cash to addex (assumes ~$5M spend on pre-IND studies) which is basically it's entire market cap.

The secondary risk is that Addex management, whom I have no reason to trust, dilutes and/or burns faster than expected. If it were possible I would buy the whole company, shut it down, and recieve 20% of Neurosterix for effectively ~$5M that would be ideal. Alas, I'm not an activist.

Catalyst

Cerevel Ph2 M4 PAM data this year.

Neurosterix M4 PAM entering/completing Ph1 with no issues