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In what we view as something of a coup for NeuroSearch, The Lancet has published the results of the tesofensine Phase II Proof-of-Concept TIPO-1 study. However, without taking anything away from the company, we would remind investors that this is not new news; the main part of the results have previously been presented at various locations including the 16th European Obesity congress on May 23 but in continuing to build the tesofensine case all new details are Nonetheless, biotech is a high risk/high reward story. NeuroSearch’s shares have fallen from DKK278 on 2. September 2008 to a closing price of DKK158 on October 22, in our view a reflection of volatility and risk aversion in the markets rather than the opportunities open to NeuroSearch. All preparatory documentation for the Phase III trial of tesofensine has been completed and the company will work with the EMEA and FDA on this before initiating the studies. Jacob Thrane
We believe Investors are awaiting news on the Phase III trial, but in our view NeuroSearch needs to find a commercial partner given the sheer size of the study and estimated cost of up to EUR100 mln, according to the company. Moreover, as GPs will remain in the frontline of tackling obesity, promoting tesofensine would require a sales force and marketing apparatus beyond the strategic scope of NeuroSearch. We expect a deal to be announced within the next six months as CEO Flemming Pedersen sees the “partner landscape more positive than ever”, according to Børsen. While more upbeat than usual, nothing more was added. In the absence of an agreement, NeuroSearch intends setting the wheels in motion for its own, albeit limited Phase III trial to de-risk the project for a potential partner, and according to Bloomberg, chairman Thomas Hofman-Bang says a financial partner is a possibility. After contacting the company, we understand that a partner will provide bridge finance until a commercial deal is signed without NeuroSearch surrendering any rights or this leading to any dilution. On the basis that we continue to await real progress, we maintain our Buy (****) recommendation and DCF-derived 12-month target price of DKK339 (using a WACC of 8.6% and terminal growth rate of 3.0%). Source: S&P Equity Research estimates Source: Company data, S&P Equity Research estimates Source: Company data, S&P Equity Research estimates Estimate arrows indicate a change equal to or greater than 5% since last published report. This report is for information purposes and should not be considered a solicitation to buy or sell any security. Neither Standard & Poor’s nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without written permission. Copyright 2008. All required disclosures and analyst certification appears on the last 3 pages of this report. Additional information is available on request. Tesofensine offers a potential breakthrough in the treatment of obesity, with strong results from the Phase II trials. While we are confident NeuroSearch will find a Phase III partner, investors should note that most drugs in this area have not shown the same efficacy and Sanofi’s Acomplia (SAN FP, Buy) was not approved in the US due to adverse psychiatric side effects, and as such we believe potential pharma partners will need reassurance before committing. Progress on competitors’ anti-obesity drugs have suffered serious setbacks recently. Pharmacologically unrelated to rimonabant (Acomplia), tesofensine is a monoamine reuptake inhibitor and as such works differently to now off-patent sibutramine (Reductil/Meridia from Abbott Labs (ABT US, Strong Buy)). Additionally, Merck (MRK GR, Buy) cancelled all further development on its Phase III anti-obesity candidate taranabant (a cannabinoid Type-1 receptor antagonist, CB-1) in early October, citing dose-response related efficacy and adverse side effects. We believe these side effects to be psychiatric (Acomplia is also a CB-1 antagonist) and with Pfizer’s (PFE US, Hold) end-of-September announcement of the termination of its obesity research, the future for its CB-1 drug candidate, CP- 945598 (otenabant), in our view looks bleak. Against this backdrop and combined with the strong Phase II results, we believe tesofensine should sell itself, given the huge medical need (e.g. 27.4% of the US adult population (> 20 years) is currently classified as obese, BMI>30, according to data from the American Centers for Disease Control and Prevention). We appreciate that the path to NeuroSearch finding a partner will involve complex negotiations, but we also believe that there is a limit to how long this can go on without investors becoming concerned. NeuroSearch is, in our view, keen to demonstrate the necessary momentum, notwithstanding the financial details of ongoing partnership negotiations and, according to the company, will not rule out going for a narrower indication, e.g. extreme obesity (BMI>35) or obesity with co-morbidity (BMI>30) to get tesofensine approved and on the market, but also believes it could then charge a higher (sales) price for tesofensine, hence sustaining projected income. This would be followed by an active pursuit of an In our view this indicates NeuroSearch has put a value on tesofensine that will be reflected in the price it would expect a potential partner to pay in a licensing agreement. With the patent expiring in December 2017, we argue that the last-lap bell is about to ring for full-scale trial initiation, and NeuroSearch is fully aware of We estimate tesofensine represents an NPV based on a Phase III probability- adjusted royalty income of DKK1,505 mln or DKK96 per share. In our estimates we currently reflect a milestone payment from a potential tesofensine partner in Q4 08, but moving this to Q1 09 has only a negligible impact on our valuation. On the basis that we await real news, we reiterate our Buy (****) recommendation and 12-month DCF-derived target price of DKK339 (using a WACC of 8.6% and Downside risks to our target price and recommendation include: Negative clinical trial results for ACR-16, ABT894 or tesofensine; The FDA requiring further trials and investigations on tesofensine based on Payer resistance to reimbursement on tesofensine; Inability or complications in signing a partner for the continued Phase III Complications in or the termination of signed strategic partner agreements; Failure and/or suspension of any of the other pipeline candidates. Fiscal year end December (DKK mln)
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Gross profitEBITDA, reportedEBITDA, adjustedEBIT, adjusted Source: Company data, Standard & Poor’s Equity Research estimates S&P STARS - Since January 1, 1987, Standard & Poor’s Equity Research Services SG&A- Selling, General & Administrative Expenses has ranked a universe of common stocks based on a given stock’s potential for future performance. Under proprietary STARS (STock Appreciation Ranking System), S&P Dividends on American Depository Receipts (ADRs) and American Depository equity analysts rank stocks according to their individual forecast of a stock’s future Shares (ADSs) are net of taxes (paid in the country of origin). total return potential versus the expected total return of a relevant benchmark (e.g., a regional index (S&P Asia 50 Index, S&P Europe 350 Index or S&P 500 Index)), based on a 12-month time horizon. STARS was designed to meet the needs of investors looking to put their investment decisions in perspective. 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The Source: Standard & Poor’s Equity Research, FactSet prices S&P Europe 350 - Pharma&Biotech (%) Source: FactSet, Standard & Poor's Equity Research S&P Europe 350 - P harma&B io tech Source: FactSet, Standard & Poor's Equity Research Source: FactSet, Standard & Poor's Equity Research

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