Anavex Life Sciences Study of Anavex 2-73 Shows Disease-Modifying Effects for Rett Syndrome

https://wsw.com/webcast/jeff281/neu.ax/2080650?mobile=True

I will direct you to 20 mins into this video from the Jeffries conference.

Jon is very diplomatic in his response regarding Anavex. The results have been very controversial. They changed their endpoints and FDA insisted on changes to their clinical phase 3. The bar has been set by the Lavender and Lilac studies and any drug will have to show that it equally meets these end points if not surpasses. Daybue will have a lengthy runway and a huge head start in row. The earlier phases I believe were also done on an older cohort of Rett’s patients. Definitely worth digging into with a few further questions.

@Nnyck777 thanks - I hadn't seen that - you are way ahead of me. Still, it confirms my hypothesis that it is most likely the prospect of Anavex that is holding the SP back. I agree it would be good to go further into this with Jon.

I now have a clear framework in my mind for the positive catalysts for $NEU:

1. Trofinetide US sales continuing strongly ("linear growth"), ahead of the market
2. Early regulatory filings in EU/UK and Japan (my base case is +2yrs and +3 yrs for approvals)
3. Positive CT newsflow on NNZ-2591 on one or more indications
4. Extended study times or protocol "rejigging" on Anavex. If there are questions on efficiacy/safety vs. standard of care then orphan status for Trofinetide is more secure.

Being the cautious type, I've moderated my view on risk-reward, partly to avoid increasing my position size too much. If newsflow on 4. is favourable to Trofinetide, then I'd probably go "all in" on $NEU based on what I've learned.

The upside is definitely there, and its not a single-mode success case, which is exciting. (I fully hope and expect to be handing out those beers, depsite my updated price targets)

@Nnyck777 nice video, Jon comes across as someone who is very happy with the position that he is in. Thanks for the insight around how they are managing the diarrhear symptoms better which now limits the weight loss problems from occurring. Makes sense.

@mikebrisy I just had a look at Anavex and their phase 3 trial for Rhetts only had 33 people (20 drug, 13 placebo) their justification on an unbalanced design was that they had pushback from patients who didn't want to be on a placebo. This is fair enough from a patients perspective but not great from a scientific integrity outcome. The changing endpoints also make it too hard for me to really compare it with Trofinitide. It would be interesting to see a power analysis for this as it seems to me that they are playing in the area of experimental design where the likelihood of false positives from small numbers is high.

This previous trial was for adults, and from what I can gather their Excellence trial (5-18yr olds, not sure on total numbers) is recruiting currently. It sounds like they expect patient enrollment will be complete in the upcoming quarter and the trial will then run for 12 weeks. I would think it would be difficult to enroll high numbers in this study given that their is an actual treatment available. Assuming this trial is successful and gets FDA approval, DayBue will still have a 1.5-2+ years head start on a competiting drug. The positive rhetoric and patient testimonials around this drug indicates to me that DayBue has a good opportunity to become synonymous with Rhetts treatment. I think this could actually be winner takes all market depending on which drug is best. I am watching the the sales numbers from Acadia as my key pulse checks, as my thinking is that you would be unlikely to change drugs if you are getting a good result from DayBue. If they can't achieve high patient uptake and low churn in the first 12 months it will indicate to me that either drug experience, insurance availability or reimbursement costs are a significant issue and this is my biggest unknown currently.

Anavex also don't look to be in a strong position to bring a drug to market and I would expect it becomes less desirable for someone to licence with DayBue already commercialised. Anavex are burning $US12-15M a quarter and have $US231M cash. They also look to be spread pretty thin in terms of having lots of trials and several diseases. It looks like parkinsons and alzheimer are their big opportunities.

Also, interesting to note that Anavex have the patient pool for Rhetts at 11000 people in the US vs the 4500 (10000 potential) from Acadia/Neuren, so maybe they like to overstate things a bit as well. This is not to say they or their drug isn't any good though. One of things that jumped out at me from Neuren was they way that they seem to have a very good focus on their key priorities and appear to methodically move through them to get the outcome.

@Slideup these are all good points, particularly the 1.5-2+ years head start. Although I am not a clinical professional, I understand your points - however, without the data and analysis in front of us, my bias is to be cautious. $NEU and Anavex each have their own lens through which they are seeing things and communicating them.

What struck me in the Jeffries presentation @Nnyck777 shared, is Jon's characterisation of the "patient community pull" offset by the "bureaucratic" challenge of the reimbursement process ("30 to 180 days"). In that context the Q2 sales and Q3 forecast are pretty remarkable. If reimbursement bureacratic drag is the bottleneck, then perhaps the Q4 result (which you'd hope might be guided at Q3, given the Q2-Q3 communication) will give a better sense of the uptake rate. The faster the uptake, the stronger the advantage, absent churn concerns.

Furthermore, Jon spoke about the patient pull being a factor in EU and Japan. The EMA will on occasion require a fresh Phase 3 trial, but I believe this is relatively rare (I found a reference to "10% of the time", but without a reliable source). Jon expressed confidence in the quality of the data package submitted to the FDA, and said or implied that a 1-2 year delay for a further clinical study in the EU would create a patient uproar. But what gives me more confidence is that the FDA approved a broad label, with no requirement for ongoing monitoring. That indicates to me that the main driver for the EMA to want further data would be on the economics to make recommendations to member states on pricing and reimbursement. I honestly have no idea if economics would delay an EMA decision, as their main role is scientific (efficacy and safety).

In the latest $ACAD call, they reported that >90% of clinical trial patients were converting to commercial. (Presumably, its unethical to withdraw treatment from someone who is getting a benefit, so I imagine that accelerates the reimbursement decision for CT participants?) This is a good churn indicator, particularly if the 10% is largely due to commercial drag (we don't know, and it would be interesting to know if Jon has any insights into this?).

Add to this is @Nnyck777's point that Lavender and Lilac have set a bar for Anavex which Neuren did not have in front of them. On looking further into this, I learned that the results actually improve over time moving from 12-week (Lavender) to 40-weeks (Lilac). I think I heard Jon say that it is an open question as to whether improvement continues beyond? (Not sure).

Putting this all together, if sales can accelerate in the 1.5 to 2 year "head start", if the drug has positive benefits, is well-tolerated, with low churn, then that is a big hill to climb for a number 2, even if FDA provides a level playing field, which they might not. In that context, my $30 (EMV) to $20 "haircut" on valuation is harsh, particularly as 4 of my 8 scenarios have a competing product assumption from 2028 in two scenarios and from 2033 in another two, all of which lead to multiple years of decline from plateau due to a combination of market share and price erosion over time.

On market size, I'm less concerned about the 10,000 vs. 11,000. I have reviewed some of the literature and the confidence intervals around prevalence are wide and variable. Jon has cited 4,500 registered diagnosed cases in the US, so I take that as a verifiable fact. Back of envelope. in the US (popn 340m), the female population is c. 170m and, with 58% under 60 years old and a prevalence per 10,000 of [0.7 - 1.0] cases I get [6,902 - 9,860] existing cases. We know Rett Syndrome is under-disgnosed due to access to testing and potential (in absence of testing) for symptons to be misdiagnosed as other conditions. Jon makes the argument, which is reasonable, that once the existence of a treatment is known, then that will increase the demand for tests and drive growth in the diagnosed population from current 4,500 closer to the "true" 7,000-10,000. Not only is this nice from a value perspective, it is good from a human perspective because a whole bunch of people with currently "untreatable" conditions will gain hope for some improvement with a correct diagnosis and treatment.

In my modelling before this morning's "competitive adjustment" value change, I modelled two sets of scenarios where over the first 5 years we get to 60% of diagnosed market under treatment (hi case, US) to 40% treated (lo case, US), with lower values of 50%/35% (EU&UK and other high income developed markets) and a much lower number for Middle Income Developed markets (25%/20%). Once that target level (plateau) is hit, I conservatively assume 5% growth p.a. = %new diagnoses + %population growth - %churn.

In terms of valuation, it is both the speed to "plateau" and the height of the plateau that are the main value drivers (assuming constant price). Which brings me back to the Q3 and Q4 results being important leading indicators, now made all the important given a potential, near term competitive consideration (which was unknown to me last week).

I am happy that with all the conservatism in my analysis, I still see a SP north of $20, but a true value that (even on a risked basis) could be a lot higher. There are a lot of assumptions involved, and you can get pretty much any answer you like, Overall, I'm really happy with what I've learned and have a clear framework for increasing my holding over time, or not, as the case may be.

Hi @mikebrisy great posts today. I love the challenge it really gave me pause. Understanding competition is so important in any investments thesis. I appreciate your logic and view point that this may be why the share price hasn’t moved ahead for Neuren especially in light of Neuren’s recent announcement and deal with Acadia.

I am more skeptical and think there is more at play then just business analyst conservatism. Although I agree it likely plays a part.

I feel the games are afoot regarding Neu entering the asx 200 next cycle. Positions are being lined up.

I am less concerned about competition. A good analogy for Neuren in PNV. The problem with so many analysts in the biotech space is that they are exactly that, business analysts. This is where I hope to carve out my investment niche as I feel reasonably competent reading the science and hopefully understanding the nuance.

I remember reading one Sydney analysts bull case for Aroa. All was ra ra aroa……. Boo Pnv. I think we can all agree that this was an inaccurate call looking at PNVs growth and variety of applications. The devil was in the detail- less risk of infection and the diversity of studies that were being conducted with novel use cases for BTM compared with studies being conducted with Aroas sheep gut product.

I agree with @Slideup that the quality of the clinical trials of any competitor are pretty average so far. I am pretty underwhelmed from what I have read. I think Orphan drugs are going to have an even larger first mover advantage than an average NDA. Not only are families lining up to get access to the drug, evidence as @Slideup mentioned suggests continuing improvement once Daybue treatment commences.

Why would a family stop using a drug with this kind of efficacy for a competitor. I am curious as to whether the use of Daybue will preclude patients from being enrolled in future drug trials from other companies. This will make the pool of Rett participants incredibly small.

With regard to gene editing - It is very easy to get caught up in buzz words and fall into the trap of thinking any company using ‘crispr’ or gene editing has discovered the holy grail. Gene editing treatments aren’t likely going to be a massive competitor in the next 10 years if at all.

Remembering gene editing is still in its infancy and still hotly debated due to ethical concerns especially in changing germ lines. I highly recommend the book Code Breaker, the Jennifer Doudna story by Walter Isaacson it really opened my eyes and has helped me to understand some of the complexities of the science of gene editing.

Jon’s tone as you say @mikebrisy is very nonchalant about this potential competitive prospect.

The thing that makes me comfortable about my investment in Neuren and it’s lead product Daybue, is that even say if Avanex clinical phase 3 studies are successful most of us would agree any possible market entry will be 2-3 years away.

In that time I strongly suspect Fragile X phase 3 studies will be completed by Acadia and likely approved. Fragile X will also be progressed quickly due to the lack of treatments for this condition. So for any potential decline in Rett numbers to Anavex I think fragile X will more than make up for this. It’s a built in safety mechanism for growth. Remembering Fragile X has 1:4000 males and 1:8000 females affected - the population in need of treatment is so much larger than Rett and should comfortably make up any short fall.

That is my logic :)

Volatility is part and parcel of being admitted into the ASX200 as funds rebalance holdings during this time.

Capricorn metals is the best example of this where it corrected 30%+ on debut into the ASX200. That is arbitrage right there but I know how everyone here feels about gold companies....

I'm still on the fence with Neuren. Not sure if I can stomach another biotech ride.

@Nnyck777 I agree - a few of us Strawpeople have exchanged some great content recently on $NEU, and its really helped me get up the learning curve quickly. It is really valuable to exchange ideas about the fundamental drivers of the business. That's actually the hard bit of investing.