When you are heavily invested in a stock and a short report is released targeting your major revenue stream or investments it is not a nice feeling. Many of us Strawpeople would have experienced this before. One example was February 2021, when J Capital Research released its short report on Nearmap. Thankfully this report was easily refuted. The company's share price recovered quickly.
Thank you @mikebrisy for linking this short report see here (Culper Research Short Report). Great summary @Slideup.
Perhaps it is best to read this document from back to front. I think a short report is an excellent opportunity to pay attention to your investment thesis. I decided to take a few hours to go through the report, FDA website and latest research, as well as follow the money and really think about my position. I will have confirmation bias which I am trying to logic my way through and full disclosure I took this 15% drop on Friday as an opportunity to buy a few more shares in my already overweight position in Neuren Pharmaceuticals.
My immediate thoughts that lead to this purchase were:
1. I know this stock, the drug works, I have done my due diligence (DD), I follow social media accounts and I am seeing the positive effects of the drug in real time.
2. The science works and Acadia plus other unnamed pharmaceutical companies were in a race to buy the rest of world rights to Daybue and they all would have done their DD
3. Neuren has a second drug that is likely much more valuable than Daybue and has had recent outstanding phase 2 results for its trial in Phelan McDermid patients. The drug also has fewer side effects than Daybue
4. There are 3 more impending phase 2 trial results for Neuren’s second drug which will act as short term catalysts
5. I know that there a sharks circling who may use unscrupulous methods to absorb more Neuren or Acadia stock or apply pressure on the share price as we know Neuren is a current acquisition target
The Culper short report targeting Acadia Pharmaceuticals released on friday was unexpected. I am curious whether Acadia or its licencing partner Neuren was specifically the target of this report. It is possible that Culper may have had an incentive to quickly wind up a potential short position in Acadia. A quick short and distort attack can induce panic selling and allow a shorter to quickly get out before they are caught in a financial disaster.
Acadia had two positive updates recently:
1) Acadia recently won its patent litigation for Nuplazid - giving the company further protection from generic competition into the future and preserving revenue growth of the drug.
2) On the 9th of January 2024 Acadia reported an increase in guidance for Q4 from $80 million to $87.5 million for its sales of its newest drug Daybue.
Given the above points, anyone with a short position was likely to be in trouble come the February 28th, 2024 when Acadia released its financials. The share price would likely respond positively to this upcoming announcement.
The 8% drop following this reports release could have been an exit strategy or perhaps Culper really has increased its short position. However US analysts covering Acadia obviously didn’t think the report held much water as there was a full share price recovery on the same day.
The Report
The Culper report is full of hyperbole and emotive language – examples in the report assert that Daybue has been a total flop.
The report uses phrases such as horror stories to describe the stories spreading through the Rett community regarding Daybue.
The report also takes aim and Acadia’s credibility itself suggesting a downplaying of adverse events by the company and that 1 in every 10 to 11 patients who use Daybue end up in hospital.
Firstly, a total ‘flop’ of a drug doesn’t see such fast uptake and increasing revenue. Nor does a pharmaceutical company who is expecting sharp declines in uptake and increases in discontinuations pay such a hefty premium for the rest of the world rights for a drug.
With regard to the FDA Adverse Event Reporting System or (FAERS), this is a public post-drug release monitoring system. This database does not analyse the cause of hospitalisations or separate the cause from the drug or the disease.
Daybue is not a cure for Rett and ongoing health conditions and vulnerabilities from the disease will continue. There is no comment or comparison of standard hospitalisation rates for patients with Rett Syndrome versus hospitalisation rates for Rett patients on Daybue in the report. Acadia has been very clear that side effects and dosing management and assistance is a crucial part of successful treatment while on Daybue. It advised all patients to start on low dosing levels and titrate up as side-effects are managed.
FDA Adverse Event Reporting System (FAERS)
The FDA website states:
“Most common adverse reactions, occurring in at least 10% of Daybue-treated patients and twice the rate of placebo, included diarrhea (81%) and vomiting (27%).” See here (FDA reported Daybue Side Effects)
Culper report alternatively states “nearly everyone” experienced adverse events on Daybue. My interpretation of Culper’s statement is that the research house may be taking the total number of reported adverse events in the FDA database, which is 1115 cases and ascribing this as if everyone on Daybue has reported an adverse event. 1005 reports of diarrhea were made in the database and that is likely where they are falsely arriving at the >90% prevalence of diarrhea amongst those taking Daybue.
However as seen below the FAERS does not work like that. Reports are not verified, multiple reports may be in the system and causation cannot be linked to the drug. This is clearly stated on the FDA website.
Furthermore there was no black box label assigned to Daybue. This is given to drugs:
‘’when serious adverse reactions or special problems occur, particularly those that may lead to death or serious injury.” (according to the FDA website)
Furthermore the FAERS database has the following statements attached:
1. Duplicate and incomplete reports are in the system: There are many instances of duplicative reports and some reports do not contain all the necessary information.
2. Existence of a report does not establish causation: For any given report, there is no certainty that a suspected drug caused the event. While consumers and healthcare professionals are encouraged to report adverse events, the event may have been related to the underlying disease being treated, or caused by some other drug being taken concurrently, or occurred for other reasons. The information in these reports reflects only the reporter's observations and opinions.
3. Information in reports has not been verified: Submission of a report does not mean that the information included in it has been medically confirmed nor it is an admission from the reporter that the drug caused or contributed the event.
4. Rates of occurrence cannot be established with reports: The information in these reports cannot be used to estimate the incidence (occurrence rates) of the events reported.
Patients should talk to their doctor before stopping or changing how they take their medications.
The number of adverse events reported by the public for 2023 and 2024 are reported below in Figure 1. Remember these are not causative, there may be duplicate reports and reports have not been verified. 971 events were attributed to 2023 and 144 to 2024 so far.
Figure 1: FDA screen shot from FAERS database ( Source see here: FDA DAYBUE REPORT NUMBER IN FAERS)
Figure 2: FDA screen shot from FAERS database by reaction type reported by the public (see here FDA DAYBUE REPORTED REACTION TYPE)
As you can see the main reported % events are in green which represents non-serious events. Hospitalisations are a minority of the events recorded. Gastro intestinal disorders are by far the most common non-serious event reported which matches the Lilac study expectations see Figure 3 below.
Figure 3: FDA screen shot the most commonly reported non-serious Gastro-Intestinal events.
The next most common adverse events reported were issues such as under-dosing, with 494 events reported. See Figure 4 below. This matches the initial suggestions made by Acadia to start on a lower dose and titrate up as patients began their treatment on Daybue during 2023.
Figure 4. FDA screenshot of other most common adverse reporting on FAERS relates to dosing.
We can draw no causative conclusions from FAERS but no life-threatening events have been reported. It was made clear by Acadia and Neuren that Daybue had side-effects and many community support groups offer assistance with this.
A 2023 Epidemiology report paper released in the US offers some better insights into what the average Rett patient experiences. This would have been published just prior to patients receiving Daybue. (see study here).
The authors acknowledge gaps in available data for Rett patients in the US. Highlighting a lack of understanding around the following:
· Health care resource utilization and
· Health care costs
Of the Rett patients surveyed nearly 25% had hospital admissions for lower respiratory tract infections in the previous 5 years. Roughly 12% had 2 or more admissions. Unfortunately, there were no % rates for overall hospital admissions given in the study.
It is difficult to determine then if 1 in 10 or 11 Daybue patients being hospitalised is more or less than the number of hospitalisations expected by Rett complications alone. So the quote in the Culper research report offers no particular insight as there is no context whether Daybue causes higher hospitalisation rates.
The most common clinical manifestations of Rett without Daybue treatment include:
· Neurological disorders 72.8%
· Gastrointestinal/ nutritional disorders 41.9%
· Orthopedic disorders 34.6%
The authors reported an average of 44.43 health related visits per patient per year. Feeding assistance (37.9%) was the most prevalent supportive therapy required for Rett patients. So gastro-intestinal and nutritional management is definitely part of the Rett treatment pathway whether on Daybue or not. The requirement for anti-epileptic drugs (54.8%) was also a prevalent support requirement. The conclusion of the above study was that Rett patients had a substantial disease burden. The FDA adverse events reported in the short report very much match the disease burden of a patient with Rett syndrome.
Gene Therapy
Another example of emotive writing in the report is the title used in the Gene Therapy section. This title eludes to new gene therapies being a potential “harbinger” for Acadia.
Let’s explore:
I agree with the report that there is a limited number of patients with Rett Syndrome. Hence there is a small population of potential trial subjects to pull from. Gene therapy has been mentioned by Jon Pilcher, Neuren CEO, as a possible treatment, not cure, for Rett Syndrome but a final treatment is years away, if successful at all. It is also something that could be used in conjunction with Daybue so patients can have multiple treatment options.
Taysha Gene Therapies is currently conducting phase 1 / 2 trials for its TSHA-102 drug in adults with Rett Syndrome. This gene therapy is delivered via injection into the intrathecal space see Image 1 below. This drug regulates MECP2 expression.
Image 1: Injection into Subarachnoid space or lumbar areas are the most common delivery pathways for gene therapies. Source (here)
This is obviously a more complicated treatment pathway than an oral dosing in Daybue. The treatment is currently only in adults with Rett’s and the company only plans to run the phase 1/2 REVEAL trial on 2-3 adults.
Forty-two days following the initial trial the first patient results were released (Taysha Gene Therapy Initial Trial Results). Results on 1 patient were as follows:
4 weeks in:
“Four weeks following the administration of TSHA-102, the patient demonstrated a score of 2 (“much improved”) on a version of the Clinical Global Impressions–Improvement scale adapted to Rett syndrome, an improvement to a score of 5 (“markedly ill”) from a baseline score of 6 (“severely ill”) on the Clinical Global Impressions–Severity scale, and an improvement to a score of 29 from a baseline score of 52 on the Rett Syndrome Behavior Questionnaire. Conversely, on the Revised Motor Behavior Assessment, there were no marked changes at 4 weeks after dosing.”
6 weeks in:
“At 6 weeks after administration of the gene therapy, observations of improvement in autonomic function, sleep quality and duration, normalization of night time behavior, and social interest were reported. Gained abilities to sit unassisted for 3 minutes, to hold an object, to unclasp hands, and to use fingers to touch a screen were also noted. At 5 weeks after treatment with TSHA-102, there had been no quantifiable seizure events recorded. “
Study summarized
“Following treatment, we have observed improvements in breathing patterns, vocalization, and motor skills. The patient was able to sit unassisted for the first time in over a decade, and she demonstrated the ability to unclasp her hands and hold an object steadily for the first time since infancy.”
TSHA-102 was well tolerated in the 1 patient it was trialled on and there were no significant adverse events reported. The second patient is now in the trial. FDA has recently approved a new drug application to commence treatment trials on children in the US. Taysha is also looking to run a trial on children in the UK.
There will be patients who may struggle or discontinue Daybue who are keen to be involved in a Gene therapy study. However, gene therapy is an unproven treatment that is years away if it proves successful at all. Patients who are seeing improvements will be unlikely to cease Daybue for an unproven treatment. Companies such as Taysha Gene Therapies are likely to struggle to recruit patients as there is an existing FDA treatment available for families with Rett children. There are still potential adverse events of gene therapies that are still unknown.
The short report describes Daybue’s many “short-comings” and suggests that gene therapy approaches are compelling.
The difficulty with the statements made by Physician’s quoted in the short report is that the testaments of these doctors largely make up the basis for the justification of Daybue being a flop. In Culper’s very own disclaimer -they acknowledge that these statements may not be fully truthful and are potentially bias and may leave out positive statements. Furthermore doctors were often financially compensated for their statements which they acknowledge might have skewed their report.
On the 10th of January this year Taysha announced that it was initiating the REVEAL paediatric trial in the US. TSHA-102 was expanded to female patients 5-8 years old. This study would include US, UK and Canada and the first trial was to include 3 children. This would test safety and efficacy of Taysha’s gene therapy in a paediatric population. The results for this study are due mid-2024. See announcement (here)
The dose is a single lumbar intrathecal injection. The studies so far are recruiting very small numbers of Rett patients with n=6. This is hardly going to lead to mass cessation of Daybue by Rett patients in order to participate.
Clinical Trials.gov website shows that the TSHA-102 Phase 1/2 Trials won't be completed until:
Estimated Primary Completion Date :
November 2, 2028
Estimated Study Completion Date :
November 2, 2031
Source (here).
Neurogene Trials
The second gene therapy trial in Rett syndrome also targets mutation in MECP2 gene like Taysha. The MECP2 protein regulates the activity of genes critical in brain development and function. The NGN-401 therapy delivers a working MECP2 gene. The thought is that a functional gene will lead to normal regulation of activity by the MECP2 protein. It is delivered via an adeno-associated virus (AAV) to deliver the gene inside working cells.
Phase 1/2 clinical trials begun December 2023. Two girls are being treated and it so far is well tolerated. A third patient begins treatment at the beginning of 2024. Efficacy data readouts will be available at the end of 2024. N=5 and girls are between 4-10 years of age. So another very small study.
There is currently no follow up data available. If the study continues and there are no serious adverse events further recruitment will begin in the second half of 2025. Source (here).
Further Information on the NGN-401 study can be found on Clinical Trials.gov (here) according to this website:
“The study is a phase 1/2, open-label study designed to assess the safety, tolerability, and efficacy of administration of an adeno-associated viral vector serotype 9 (AAV9), using Neurogene's proprietary transgene regulation technology. NGN-401 contains a full-length human MECP2 gene which is designed to express therapeutic levels of the MECP2 protein while avoiding overexpression.
The study treatment will be administered under general anesthesia via intracerebroventricular (ICV) delivery. Each participant will be followed for safety and preliminary efficacy for 5 years after treatment and is expected to enroll in a long-term follow-up study for 10 years.”
According to Clinical Trials.gov website Phase 1-2 safety will take up to 10 years to establish which provides a wide moat for Daybue as the only safe and efficacious treatment of Rett.
As Taysha’s gene therapy is a similar process I imagine this is why Jon has been so unphased during question time on Neuren calls as possible phase III trials may be a decade away.
The lead time for Daybue seems to be longer than I was actually modelling for. A quick google search reveals these time frames are hardly a harbinger for Acadia as there will still be years before a phase III trial, if that is ever reached.
Funding Taysha Gene Therapy
RA capital management is funding Taysha’s Gene therapies to the tune of $150 million.
About RA capital management:
Assets under management: 9.65 billion USD (March 2023)
Founded: January 2002
Founders: Richard Aldrich; Peter Kolchinsky
Headquarters: Berkeley Building, Boston, Massachusetts, U.S
Interestingly RA capital which is funding Taysha Gene Therapies also had a large stake in Acadia Pharmaceuticals in 2014.
Funding Acadia
There are 573 institutional owners and shareholders.
Shares on issue: 169,300,389
Largest shareholders: Baker Bros (26%). Vanguard, Black Rock, State Street Corp etc…
I can’t see whether RA capital still holds any Acadia stock. However in 2016 an Acadia Shareholder suit ended in $15.75 M settlement against RA Capital Management LCC claiming that they colluded with two investors to score millions in short-swing profits from the drug company in violation of the securities laws (source (here)
The same RA Capital and Peter Kolchinsky that is funding Taysha Gene Therapies.
Further to this A Fierce Biotech article (here). States that RA Capital is hardly pristine. And has a history of settling with the US Securities and Exchange Commission. In another case they were ordered to pay US$3.6 million in disgorgement, interest and penalties related to 17 instances between 2009-2013, where they bought shares in stock too soon after selling short the same stock.
“This allows a fund to buy shares in a company offering at a lower-than-market price to cover its short position. This episode highlights a fundamental tension that plagues life science hedge funds between supporting innovative companies and deriving financial benefit--regardless of whether it's to the detriment of those same companies.”
Funding Neurogene pharmaceuticals
Neurogene is a fully owned subsidiary of Neoleukin (Source: here). The merger was completed in December 2023.
“Neoleukin is focused on developing immunotherapies to treat cancer, inflammation and autoimmunity, leveraging its de novo protein design technology.”
Investors include: Casdin Capital, EcoR1 Capital, Great Point Partners, Janus Henderson Investors, Redmile Group and Samsara BioCapital were among those taking part in the financing round
Rachel McMinn is Neurogene CEO and founder.
Culper Report Insurance Payment Issues
Insurance payment issues for Daybue are certainly a valid concern for all investors in Acadia and Neuren on page 11 of the report Culper suggests that Acadia is now facing a wall of discontinuations. They suggest 6/12 insurance re-authorizations are likely to be rejected based on minimal improvements by patients who have been on Daybue.
Page 13 of the short report discusses issues with insurance plans. This is true of all drugs in the US system and the PBS system in Australia too. To stay on an expensive drug patients have to achieve improvement to justify ongoing costs. This area is challenging for patients to navigate. Acadia has set up help lines to help patient streamline payments from insurers.
I acknowledge this is a risk but I trust that Acadia has a strategy to assist patients navigate these difficulties. Future qrtr growth beyond this 6 month window should certainly help to alleviate investor concerns.
According to the report numerous insurance plans require an improvement of CGI-I scores of 1 to 3. There is an argument that due to the lower dosing and slower titration up, patients may not achieve the required improvements within 6 months to receive continued payment.
It appears in the report that physicians have complaints of time management when filling out these tests for patients. This is certainly a common complaint across all areas of medicine and is not unique to Daybue.
Caregivers indicated in the report that they are facing challenges of navigating a complex system. However this once again is not unique for Daybue.
The report also claims that patients are losing interest in Daybue due to its side-effects. On page 10 of the report Culper sites reduced Facebook engagements and impressions since Daybue’s release in June 2023.
This trend may be falsely attribute to drop out rates and alternatively may be caused by the opposite effect – less need to post as more and more caregivers have started Daybue and are managing the side effects so they are less likely to post for advice. High initial post rates may also have been related to questions about Daybue applications and insurance coverage.
There are 5 physician quotes in the report sighting a variety of reasons patients are reluctant to start Daybue e.g. due to diarrhea. It is difficult to put much weight in this anecdotal evidence when a sample of 5 other physicians are likely to give different answers again.
There are certainly common stories of caregivers having to titrate Daybue dosages up and down and find dietary solutions to help with symptoms before further increases. This is true. Is this leading to attrition? Certainly some but so far Acadia denies high rates of drug attrition and claims a 76% retention rate at 6 months. Culper questions this and states that churn is likely “closer to double that.”
This assumption of double the churn appears to be based on the statement made by a Physician interviewed for the report who suggested roughly 40% of patients cannot safely reach their full prescribed dose without safety issues.
I do acknowledge that this is a potential risk of Daybue. However I await further confirmation of these numbers directly from Acadia.
Financials
The Culper short report proposes that the market analysis is incorrect in its assumptions regarding the financial projections of Daybue and that sales have already peaked in 2023 and are going to fall moving forward.
They double the churn reported by Acadia and a much higher attrition rate due to side effects and insurer payee issues. They also sight gene therapy as a major threat to Daybue usage as patients will opt to cease this medication in search of access to gene therapy trials.
As explained above no gene therapy trials are likely to begin phase 3 which will require more participants than phase 1/2 until 2028-2030. So this is toward the very end of the proposed model. The current trials require very small sample sizes until safety and efficacy is established. Gene overexpression is a risk that requires serious caution especially in children.
Culper Research history
At the beginning of this short report there is a disclaimer that I suggest everyone reads (Culper Research Short Report).
The disclaimer basically states that they are not liable for any losses from the information provided. That you should assume they have a position or are affiliated with people who have a position in the securities discussed in the short report. That Culper is or affiliates are long, short or neutral on the stock discussed in the short report.
There is a statement that they are continuing to transact in the securities that there is no warranty around the information provided and that they cannot attest to the accuracy of statements provided and quoted. That positive comments may not have been included and that the people quoted may have received compensation which could make them bias representatives.
Culper involved in previous defamation
Life MD Inc Vs Culper– involved in defamation suit
Culper Research and owner Christian Lamarko allegedly defamed Life MD Inc, CEO and CTO and claimed the pair had engaged in fraud in a previous company and had engaged unlicenced doctors to dispense medications.
See news article ( here)
Life MD Inc was a telehealth company offering prescription based products and services for areas such as dermatology and hair loss. On April 14 2021 Culper research published a short report on the company.
Defamation proceedings were bought against Culper Research and Lamarco shortly after this report was released. See defamation suit here.
Life MD CEO and CTO claimed that the report was a short and distort attack:
A “short and distort” stock scheme occurs when “short-sellers borrow securities, sell them, and then drive the price of their target company's stock down by spreading materially false, misleading, defamatory, and disparaging information about the company. Once the company's stock drops to an artificially low price, the short-sellers repurchase and return the borrowed securities, pocketing the difference.”
Side note: Interestingly in this defamation case of Life MD Inc vs Culper Research and Christian Lamarco a footnote states:
“Christian Matthew Lamarco is the sole employee and member of Culper Research.”
This is apparently a very small research house of one.
The case is ongoing.
Summary
This short report has given me a chance to catch up on the latest gene therapy trials and investigate the FAERS database for myself. I am not currently overly concerned and I never believed or modelled a 100% retention rate or 100% TAM in the Rett community for Daybue.
Daybue has side effects and they are manageable the benefit of this drug is life changing and worth the management of side effects. I will continue to hold my position and my conviction remains unchanged. Although I acknowledge potentially lower than modelled revenue for 2030 If attrition rates are slightly higher than expected.
Acadia up 10% in US overnight and up over 3% here close of day. Scuttlebutt Acadia just received a funding deal from DVA US for $300 million worth of Daybue for soldiers PTSD / insomnia related?? Will try and find out more.
Neuren Numbers
I recommend the following video to understand the significance of the new deal with Acadia:
https://www.youtube.com/watch?v=_bMto7lvoEE
This slide presentation matches the video:
Neuren Rett Syndrome Estimates in the US alone
5000 Currently identified people
10,000 Potential
Rett Estimates for the ROW (rest of the world)
Neuren has provided very rough estimates of potential Rett numbers in Europe, Japan, China Urban and Other Asia.
To minimize complexity I am going to just concentrate on Europe and Japan.
4000 Currently identified people Europe
13,000 Potential in Europe
1000 Currently identified people Japan
3000 Potential in Japan
Pricing Rett ROW for Models
I am keeping this very basic. Google tells me based on a 2021 study by Rand corporation that prescription prices of drugs in the US are 2.4 x higher than in Japan and other European Countries such as Germany.
So I estimate $US150,000 per annum per child in Europe and Japan in my model (as opposed to $375K per annum in US).
Also milestone payments accrue with the addition of ROW numbers, so milestones payments will be accrued faster. Milestones however are only paid once. The tiered royalties are exactly the same as the US percentages for Daybue.
This will stay the same independent of whether Daybue is used for Rett or other indications such as Fragile X.
Fragile X Estimates in the US alone (Figures sourced from Neuren)
30,000 potential people in the US with Fragile X
It is still unclear whether Daybue will be developed for Fragile X or whether Acadia will develop NNZ2591 for this condition instead.
As this is unknown I have left it out of the model
Fragile X will need a Phase 3 study with Daybue so 1 year plus 6 months fast track FDA approval. So conservatively no revenue from Fragile X until 2025.
Fragile X Estimates for the ROW (figures sourced from Neuren)
38,000 potential people in Europe
117,0000 potential in Asia
Time Horizon for models
Daybue patent exclusivity to 2040
My model assumes only Rett revenue until more details emerge around fragile X.
Important note on milestone payments
Jon Pilcher has confirmed that milestone payments are one off, once paid they are no longer factored into Neuren’s future revenue.
Neuren’s Current Position Factoring new announcement.
The first major rejig of models came on FDA approval when analysts estimated that Daybue would cost $180K per annum per child with Rett.
The surprise to the upside was huge with cost estimate per child based on average weight of $357K per annum per child.
Remember too that all these figures are in US dollars which of huge benefit to Neuren currently. I am assuming an exchange rate of 0.68c.
*Converted to AUD above in Table
So cash on hand for Neuren as of July 2023 is AUD $240 million
The PRV has not been factored in. If Acadia use or sell this soon this Cash on Hand balance increases to AUD $297 million.
My revenue model estimates prior to this new Acadia deal.
I estimated Acadia was on track to receive $US 76,500,000 or $AUD 112,500,000
However this estimate already appears to have been exceeded according to Acadia with Q2 23 million Q3 55 million reported revenue estimates. Say conservatively Q4 sees 70 million. That suggests that they were able to rollout Daybue to approximately 400 people in the first 3 qrts since release. A first year estimate of 500 patients seems very possible.
*All figure is US dollars
**0.68c currency conversion (I will guess at this but keep it consistent, although this will account for error in the model)
Remember Milestone Payments are triggered every calendar year. So 2024 is unlikely to trigger this.
However my revenue estimates for 2024 for Neuren are $27 million (tiered royalties) + $146 million for the new ROW payment deal + $50 million with likely sale of PRV.
I don’t believe that any ROW numbers will be rolled out in the calendar year of 2023 so this has been excluded from estimated revenues. I believe these will be involved in calendar year 2024.
FY 2024 Total Revenue = AUD $223 million which is well ahead of estimates of $120 million.
Priority Revue Voucher (PRV) Notes
Acadia still retains the priority review voucher.
Priority review vouchers are only valid for one drug molecule.
Total resale value is approx. US$100 million.
If Acadia uses this voucher themselves then will still need to pay Neuren 1/3 of the value.
If Acadia sells this voucher they will still need to pay Neuren 1/3 of the value of the voucher.
Neuren will receive US$33 million or approximately $50 million AUD.
Unsure of the timing.
With approval of NNZ2591 there will be a second PRV distributed by the FDA. Jon has mentioned that this is likely to go to Neuren as they are more advanced in their pipeline – up to phase 2 trials already for this molecule. So they perhaps will receive the full US$100million on approval.
However if Acadia does somehow receive approval first for NNZ2591, say for Fragile X, Neuren will still receive 1/3 of the value of their voucher.
The importance of the New ACADIA NEUREN DEAL just released.
Neuren and Acadia’s New Deal Payment Structure
1. More cash in the bank immediately contributing to FY 24 revenue
2. Upfront payments for commercial sales likely to be triggered in both Europe and Japan in calendar year 2024 as Daybue data is so comprehensive and well understood by ACADIA and there is an urgent unmet need for this condition.
3. Fragile X re-immerging as a new revenue stream for Acadia and hence Neuren
4. The very significant removal of restriction of NNZ2591 being restricted for development by Neuren in Rett and Fragile X
5. Future payments for NNZ2591 for Rett and Fragile X from Acadia to Neuren, secured at a much higher % of royalties as are ROW for Daybue
6. Neuren retains the full world rights for NNZ2591 for all other conditions including:
a. Phelan McDermid (US 22,000 EU 28,0000, ASIA 81,000)
b. Angelman Syndrome (US 14,000 EU 18,000 ASIA 52,000)
c. Pitt Hopkins (US 7000 EU 9000 ASIA 25,000)
d. Prader Willi (US 13,000 EU 18,000 ASIA 47,000)
Restrictions have been lifted on what can be developed by Neuren.
NNZ2591- Due for Phase II readouts in Dec 2023.
However it is an open label study so Acadia and Neuren would be well aware of the first signs of results during negotiations for this drug.
New Models To Include Rett for US, EU and Japan
Basic model for all sales and milestones and upfront payments by year
This does not take into account Fragile X or NNZ2591 development.
Like all models I am plucking numbers of potential takers of the drug assuming that most will stay on it. It is a really hard thing to model. So I presume this is a very rough guideline only.
Would be interested in others perspectives.
However it might help with rough estimates of uptake in different territories.
Thanks
Nnyck
NEU a baby giant
I really enjoyed the baby giants podcast interview with Pro Medicus founder Sam Hupert this week. I couldn’t help but find similarities to another Australian company that I think, like Pro Medicus, will grow to be an industry giant.
A bold claim I know but let me share some thoughts on the company, its future revenue and potential.
While listening to the podcast a few things dawned on me. While the two companies are very different medical software versus drug development, there are some key similarities. It is by studying the beginnings of other baby giants that we can learn how to spot the birth of a new giant.
Like Pro Medicus, Neuren Pharmaceuticals has become fully self -funded with the success of its lead drug. Like Pro Medicus there is no debt. And now oodles of cash on hand thanks to a successful FDA approved drug. Neuren Pharmaceuticals has an excellent fiscally responsible and smart leadership team and board. CEO Jon Pilcher, like Sam, is strongly aligned with share-holders and heavily invested in the company himself.
Neuren the ‘overnight success’ like Pro Medicus has actually been around a long time and was founded in 2001. It has been a long dull road for share holders until recently. I met a few of these share-holders at a Strawman meeting in Brisbane and it was Trevor and these guys who first peaked my interest in the company.
As with a lot of biotech companies you can put your money in and feel like you are watching paint dry, as very little happens for a long……. time. Around the time I caught up with these investors there was a lot of insider buying creating interest, plus phase 3 clinical trial results for Trofinetide were due that year. Share-holders were getting pretty excited. As it turns out, rightly so.
FDA approval is a big deal for an Australian biotech company. However other Australian companies have done this before and as we will see not all of these companies turn out to be industry giants.
I think Neuren’s model, their ‘sweet spot’ is what makes them unique and a potential giant. Let me explain; Neuren Pharmaceuticals has 2 lead drug assets and the beauty of these drugs is that they have been shown to improve the distressing symptoms seen across multiple neurodevelopmental disorders, like hand wringing. Trofinetide now known as Daybue and NNZ-2591 are different molecules but both work by repairing impaired connections and signalling between brain cells.
The implication is that both drugs can stop or reduce neurological symptoms across a multitude of conditions, while a patient is on them. Deficient signalling between cells can cause behavioral and cognitive problems, deficient motor skills and breathing and cardiovascular problems.
Neuren’s drugs are a golden opportunity as they treat rare (not super rare) disorders that have no current treatments available. Hence, they are more likely to get approval and once they do, they can yield much higher drug prices as they are considered a cost effective investment by Medicaid and US insurers. Children end up spending a lot less time in hospital from their symptoms which is viewed as a major cost saving.
Daybue is now approved for children 2 and up for the treatment of Rett Syndrome. However this drugs success is unlikely to stop there as It also has the potential to treat the symptoms of other developmental disorders such as Fragile X. It should be noted that Daybue is also patented as a treatment for autism in Israel.
We will look at the expected revenues for Daybue for Rett Syndrome further down. What I want to emphasize is that this drug is patent protected until 2039. So there is plenty of time to generate revenue and to look at other potential applications in the neurodevelopmental world.
What is more exciting is the second drug NNZ-2591 touted by Jon as the ‘diamond’ of the two drugs. This is already in phase 2 clinical trials for 4 childhood neurodevelopmental illnesses. Read outs for these studies are due as early as July this year. This drug has been described by one rather excited share-holder as ‘aspirin’ for the brain. While a little exuberant in their description, I don’t think that their excitement is unfounded.
While 4 childhood conditions are being targeted for now, there is potential that numerous other conditions such as autism could be treated.
Having an FDA approved drug on the ASX is a rare feat with only a few Australian companies achieving this coveted goal. Obviously, FDA approval opens the door to a much larger market in the US and much higher drug pricing. Companies that have walked before Neuren and lit the way include: Tellix Pharmaceuticals (Illucix 2021), Pharmaxis (Bronchitol 2020), Clinuvel (Scenesse 2019), Hatchtech (XeglyzeTM 2020), Medicines Development for Global Health’s (Moxidectin 2018).
A quick look at these predecessors shows what can happen to the share price of biotech companies when FDA approval is granted.
Illucix, Telix Pharmaceuticals drug offering to treat prostate cancer was granted FDA approval in December 2021. There was a big increase in share price pre-approval followed by steady gains to highs in January 2022.
Pharmaxis did not see such a share price increase when Bronchitol received FDA approval for its Cystic Fibrosis inhaler. In fact it only increased from 0.09 to 0.10 cents per share and largely flat lined from there. Pharmaxis partnered with Chiesi Farmaceuticals in the US to complete phase 3 trials and received milestone payments from Chiesi on FDA approval. It continued to receive high teen % royalties on US sales of Bronchitol. The company acknowledged a huge impact of COVID 19 on their distribution and sales capabilities.
World-wide sales were over $5 million in 2022 but growth had largely flat-lined and this figure was similar to total revenue from 2021. Share-holders were not happy about this.
Gary Phillips the CEO delivered a share-holder address in 2022 that detailed the challenges of selling Bronchitol to the US market. Pre – covid cystic fibrosis patients attended clinics regularly at least 4 times a year and post covid only 2 times a year. Hence Pharmaxis had less opportunity to deliver the respiratory test required before Bronchitol prescription.
Pharmaxis (PXS) market cap is currently around $32 million. PXS revenue from sale of goods (full year to June 30, 2022) was $7.42 million. Cash on hand is close to $20 million with the recent sale of the Orbital device. However, Pharmaxis made a loss of $1.93 million in FY22 but this was an improvement on the previous financial years loss of $3 million.
On a side note PXS Parkinson’s drug to treat sleep disorders in early stage disease looks promising. It is currently in Phase II studies. Their drug to reduce skin scarring is due for data read out in mid 2023.
PXS although not a shining example of share price accretion post FDA approval or conversion to an industry giant, is a company worth further investigation. It appears to be self-funding through sales and grants with decent cash on hand and a very interesting and diverse product pipeline. It certainly seems to have a very low market capitalisation. The CEO believes that the share holders are punishing the company for disappointing Bronchitol sales.
Clinuvel a company I know many Strawpeople have followed has been pretty successful post FDA approval for Scenesse. Since approval in June 2018 the share price has doubled. Not jaw dropping gains but 100% returns are certainly nothing to sneeze at.
Scenesse treats Erythropoietic Protoporphyria. This is an incredibly rare disease affecting approximately 1 in 75,000 people. In Europe Scenesse was priced at $109,730.00 per patient annually.
(from Clinuvel Fy 2022 announcement)
(from Clinuvel Fy 2022 announcement)
While Profit is certainly increasing Opex is also increasing. Clinuvel since FDA approval is certainly self -funding and paying a dividend. It is also re-investing in research and development. Total revenue generation was $66 million in Fy2022 with roughly $20 million after tax profit. Certainly an impressive growth for an asx biotech. However Clinuvels figures will likely be dwarfed by Neuren’s revenue and impending profit from Daybue.
XeglyzeTM the Australian nit treatment had a very different road to development. Hatchtech is not listed on the ASX. The drug took 20 years to develop and $40 million in investment money to get to FDA approval in the US. Uniseed was the initial investor and Dr Reddy’s Laboratories (NYSE: RDY) became the US commercial developer.
This private equity deal was touted as a huge success for an Australian biotech developer. Hatchtech received an up-front payment of US$10 million and up to US$50 million in pre-commercialisation payments. There were additional milestone payments on commercial sales of up to US$137 million. Dr. Reddy’s was the official distributor in multiple countries including USA, Australia and Canada. However, Hatchtech did retain the rights to distribute XeglyzeTM across several other countries. While impressive this company did not become an industry giant.
Moxidectin was another FDA approved drug to treat river blindness. It was developed by a not for profit group Medicine Development for Global Health 2018. While an impressive development group it is also not a publicly listed company.
From their website:
“Our expertise is in the product development process, which we apply to advancing medicines and vaccines that address important unmet medical needs, predominantly in low- and middle-income countries. We work with global colleagues, collaborators and contributors at all stages of the process of investigating and implementing new and improved medicines for the treatment of neglected diseases. “
Clinuvel certainly appears to be the most impressive comparison. CUV is generating growing revenue and it is profitable and dividend paying. Neuren will be profitable and similarly reinvest into clinical trials and Jon Pilcher stated that it is not looking to pay dividends but to grow their product pipeline (listed below).
(table above from Neuren website)
Neuren’s Daybue deal was back-ended and is now looking like a very clever move from Jon and the team.
(table above from Neuren website)
Neuren as of December 2022 had a cash balance was $40 million (includes US $10 million for NDA acceptance). Neuren is about to receive another US$40 million milestone payment on first sale likely in April (AUS $61 million Australian). Roughly $100 million in the bank. At some point they will also receive 1/3rd of the value of the sale of the Priority Review Voucher. This will be an additional amount directly to Neuren’s bottom line of AUS$ 50 million). This will be a total of AUS$150 million before recurring percentage royalties are factored in.
Acadia is in charge of commercialisation, marketing and distribution. This Opex will be carried by Acadia alone and Neuren will not have any expenses for Daybue incurred. Neuren will incur usual operational costs plus additional costs for funding Phase 2 clinical trials.
The way the deal was reached meant that Acadia would have to pay Neuren one off sums if sales exceeded a certain amount in a calendar year.
Minimum Sales Scenario
US $250 million will mean US$25 million (10%) to Neuren and US$50million in milestone payments.
This will total a minimum of AUS$115 million in % sales and milestone payments.
Moderate Sales Scenario
US$500 million in sales US$55 million in % sales and milestone payments of US$100 million triggered.
This will total a minimum of AUS $238 million in %sales and milestone payments
Best case Scenario
US$1bln in % sales US$128million and US$350 million in milestone payments. This scenario will require roughly 3000 Rett patients (3000 x 375K) to be using Daybue (estimated 10,000 patients with Rett in the US.
This will total a minimum of AUS $196 million in %sales and AUS$538 million in one off payments.
Certainly a more attractive revenue and profit potential when compared to Clinuvel.
If a new treatment indication for Daybue is found (say Fragile X) these sales will also contribute to these sales targets increasing the likelihood that milestone payments will be met.
The surprise this week was that pricing models for Neuren’s success was based around US drug pricing of $180k per patient per annum. The result surprised to the upside which left analysts needing to revise their modelling. Acadia has achieved pricing for Daybue of US$375K per annum. This will be covered by Medicaid and Insurers with only 3% being paid directly by families.
Neuren looks like it is going to be a hugely profitable company off the back of their deal with Acadia.
This baby giant has a plug and play model for 4 other conditions and if successful will likely achieve much higher returns due to the higher number of children suffering from these other conditions.
Neuren is now also in charge of a rest of the world deal. Jon and team are planning to sell rights for Daybue to be distributed in other countries outside of North America. Jon is currently talking to interested pharmaceutical companies. An announcement about this new revenue stream could come any day.
There are limited examples for comparison on the ASX and Neuren certainly looks like it will be entering its own league. Like Pro Medicus there is a wide Moat as the areas they are treating have orphan drug status and no current treatments are available. This makes Neuren a unique and potentially very lucrative profit generating biotech company - dare I say it......a likely industry giant.
Cheers
Nnyck
Neuren Pharmaceuticals
#Bullcase #De-risked #Upsidein2022 #FDAapprovalpending #Globaldrugdealsonimmediatehorizon #Plusmore
Full credit to @Canadian Aussie who mentioned this company to me at our first Strawman meeting in Brisbane. His interest was piqued by the level of insider buying just prior to the release of phase 3 results for the companies lead drug, Trofinetide. Four Board members had bought significant chunks of stock pre-announcement. I took a closer look and thought I would share some of my research.
If you took a gamble on the outcome of the phase 3 Trofinetide trial you would have been justly rewarded, with a stock run from $1.70 to $4.00+ per share at its recent peak. What is most intriguing to me about this pharmaceutical stock is that there are still multiple short, mid-term and long-term catalysts for future upside.
Neuren Pharmaceuticals and its US based partner ACADIA pharmaceuticals have demonstrated a successful Phase 3 trial outcome in the treatment Rett Syndrome. This trial was run through the middle of the COVID pandemic in the US. This provides confidence for the completion of future clinical trials of the drug Trofinetide for separate indications. This partnership has shown these companies are capable of navigating successful clinical trials under difficult circumstances. Neuren Pharmaceutical’s drugs treat a unique subset of the population – childhood neurodevelopmental disorders, which mostly have no existing therapeutic treatments, there is a ready pool of eager participants for trials and future drug sales. Neuren is providing hope for tens of thousands of families with their drugs development programs.
Neuren Pharmaceuticals now has one successful Phase 3 drug Trofinetide awaiting submission to the FDA for New Drug Application (NDA) status and it will hopefully be released to the market within 12 months.
The points below are the core of my bull case thesis for Neuren and why I believe there is still plenty of upside for this stock. I will expand on these points in the body of research below:
· Share price upside on NDA submission to FDA by ACADIA (Neuren’s North American licencing partner for Trofinetide)
· Imminent licensing payments due FY2022 rom ACADIA to Neuren
· Likely FDA approval of Trofinetide for Rett Syndrome in the US FY2022 with fast track status (likely share price upswing on announcement)
· Likely royalties about to role in from ACADIA to Neuren on Trofinetide commercialisation
· Multiple other disease use cases in the pipeline for Trofinetide – a de-risked drug
· A new worldwide licencing deal/ partnership/buyout likely for Trofinetide in the Asian and European market in FY2022 and Neuren Pharmaceuticals still holds these rights to commercialise outside of the US market.
· Share price upside once ACADIA announces plans for development of Trofinetide in Fragile X Syndrome FY 22/23
· Plenty of cash on hand to start upcoming phase 2 trials for NNZ-2591
· Phase 2 trials in prep with FDA for a second drug - NNZ 2591 with great TAM
Let’s take a look at Neuren Pharmaceuticals who they are, drugs, management, company ownership, what they are currently doing, risks, future catalysts and broker valuations.
What does Neuren Pharmaceuticals do?
Neuren Pharmaceuticals is an Australian ASX listed company developing new medicines for diseases of the central nervous system (CNS). It has the biggest and most advanced portfolio worldwide in neurodevelopmental disorders that impact children. There are a couple of companies working in 2 of the areas that Neuren Pharmaceuticals is focused in but no other company working across all 6 areas and no one is as advanced in their trials (according to CEO John Pilcher).
Business strategy for Neuren Pharmaceuticals is:
‘Get to market and lead the market’. (Quote: John Pilcher CEO)
Currently NEU has developed 2 unique drug types:
1. Drug 1: Trofinetide (lead drug)
2. Drug 2: NNZ-2591
Neuren has ongoing CLINICAL development programs focusing on:
1). Traumatic Brain injury
2). Concussion
3). Rett Syndrome
4). Fragile X syndrome
Preclinical R&D programmes in a range of other areas.
Plus recent patent for AUTISM granted in 2021 for Neuren Pharmaceuticals “Bicyclic compounds and methods for their use in treating autism” extends to July 2034. Similar claims have previously been granted in Europe and Japan.
Drug 1: Trofinetide (Lead drug) in detail
· Orphan drug status recent successful phase 3 trial outcome in Rett Syndrome
· Treating small rare disease paediatric subset with no current treatments
Trofinetide is an analogue (meaning similar to) molecule derived from IGF-1 (occurs naturally in the brain).
IGF-1 is a hormone similar in molecular structure to insulin plays an important role in childhood growth
IGF-1 Is made by neurons and glia – In the brain it aids brain development and brain function
In the brain IGF1- mostly affects neurons themselves and when broken down to a separate molecule GPE – this affects glial cells (astrocytes, microglia)- Increases production of IGF-1 by neurons and glial cells – (microglia: maintain synapses during brain development and help to prune dendrites and synapses).
Trofinetide is a chemically modified form of GPE – mimics GPEs natural function in the brain.
The small modification in this drug has the following benefits:
1. Increased half-life in circulation – the drug is available for longer to improve synaptic function
2. Better stability for easier storage and shipping
3. Suitable as an oral medication
The natural GPE molecule doesn’t have these benefits and can only be administered in injection form
In the adult brain IGF-1 and GPE plays a significant role in responding to stress and injury
The drug Trofinetide exerts diverse effects on multiple problems
Why Neuren Pharmaceuticals is so interesting (biochemistry in a nutshell)
Their 2 drug programs are targeting common underlying features that are true of all CNS conditions. Hence the potential benefit in multiple childhood developmental issues with the use of these drugs. Quicker to market – safety profile should be universal increasing likely FDA fast track status for these separate conditions (John Pilcher interviews).
All CNS conditions have common underlying pathological features.
1. Inflammation (excess inflammatory cytokines: Neurodevelopmental: Rhett and Fragile X Syndrome, autism/ Neurodegenerative: Alzheimer’s Parkinson’s and Normal aging
2. Abnormal microglial function
3. Synaptic dysfunction
4. Reduced levels of IGF-1
What Neuren Pharmaceuticals Drugs do:
Aim of Neuren Pharmaceuticals 2 drugs Trofinetide and NNZ-2591
· Reduce inflammation
· Restore normal function of microglia
· Improve the dendritic structure of synapses
· Normalise the level of IGF-1 in the brain.
The evidence for Trofinetide:
· It reduces the levels of pro-inflammatory cytokines in the brain
· Improved symptoms in post-traumatic seizures, anxiety, memory impairment and hyperactivity
· Microglia are activated by brain damage – can’t do their normal work as the brain’s gardeners when damaged they also produce more inflammatory cytokines compounding problems.
· Trofinetide acts by restoring normal microglial functioning: improved synaptic structure and cell to cell signalling – restores the balance the microglial cells provide
· Trofinetide also acts by improving dendrite functioning crucial for the following diseases:
o Rett Syndrome – where dendritic branching is sparse and immature and minimal while in
o Fragile X syndrome dendritic branching excessive but still immature
· Trofinetide – improves branching and pruning in both conditions
· In IGF1 dysregulation – GPE repair depressed: Trofinetide normalises synaptic signalling improve cellular functioning
About Rett Syndrome: Lead drug Trofinetide has successful Phase 3 trial in treating this rare condition (currently no treatments available)
“Rett syndrome is a rare, debilitating neurological disorder that occurs primarily in females following apparently normal development for the first six months of life. Rett syndrome is often misdiagnosed as autism, cerebral palsy, or non-specific developmental delay. Rett syndrome is caused by mutations on the X chromosome on a gene called MECP2. There are more than 200 different mutations found on the MECP2gene that interfere with its ability to generate a normal gene product.
Rett syndrome occurs worldwide in approximately one of every 10,000 to 15,000 female births and in the United States impacts 6,000 to 9,000 patients. Rett syndrome causes problems in brain function that are responsible for cognitive, sensory, emotional, motor and autonomic function. Typically, with symptoms presenting between six to 18 months of age, patients experience a period of rapid decline with loss of purposeful hand use (fine motor skills), development of hand stereotypies, absent or impaired mobility (gross motor skills), loss of communication skills (including eye contact) and inability to independently conduct activities of daily living. Symptoms also include seizures, disorganized breathing patterns, an abnormal side-to-side curvature of the spine (scoliosis), and sleep disturbances. Currently, there are no FDA-approved medicines for the treatment of Rett syndrome.” (ACADIA website)
Neuren Pharmaceuticals Management Team:
The Board of Neuren has good gender balance. John Pilcher is the CEO and managing director of Neuren – He is a chartered accountant but holds a biotechnology degree and joined the Board in 2013. He is the face of the company and interviews very well and appears to be extremely competent and passionate about Neuren. Patrick Davies has been a member since 2018. Trevor Scott is the oldest board member serving since 2002. Dianne Angus joined the Board in 2018 and holds a Masters degree in biotechnology and is also a registered patent attorney. Dr. Jenny Harry also joined in 2018 and has experience running biotech companies.
According to Simply Wall St “Our data indicates that Neuren Pharmaceuticals insiders own about AU$12m worth of shares (which is 5.3% of the company)”
Insider buying in 2021 prior to Trofinetide phase 3 results release by ACADIA:
· Dianne Angus bought $59K worth of shares at $1.98 per share.
· Patrick Davies, recently bought AU$61k worth of stock, for AU$1.40 per share. That purchase might not be huge but it did increase their holding by 21%.
· John Pilcher bought $24K in June
· Patrick Davies bought $50K in Feb
Insider selling in 2021:
· Dr. Trevor Scott sold only 10% of his holdings
· But he is currently the 3rd largest holder of shares in NEU so only a small sell down
Neuren Ownership:
John Pilcher, Trevor Scott, Patrick Davies, and newer board members Dianne Angus and Dr. Jenny Harry re all listed in the top 18 holders of shares in NEU. Nice to see board and managements with skin in the game.
Insider ownership 5.4% - latest figures Dec 2021
Institutions 5.9% - Milford Asset management just bought $11 Million + worth of shares in December 2021
Private companies -14.3%
General public- 74.4%
About Neuren Pharmaceuticals US partner for Trofinetide – ACADIA Pharmaceuticals:
LAVENDER phase 3 Trofinetide Rett Syndrome study has orphan drug, fast track and rare paediatric disease designation from FDA
Development and commercialisation of Trofinetide in North America is fully funded by Acadia.
Neuren Pharmaceuticals partnered with them to ensure funding for phase 3. In exchange there are licencing payment installations owed from ACADIA to Neuren Pharmaceuticals. Neuren also has royalties on sales of commercialised Trofinetide in the North America and full access to all ACADIA Trofinetide drug data.
This deal ensured that Neuren Pharmaceuticals kept all rights and full control of licencing and commercial partnerships through Europe and Asia.
FDA approval is often smoother for an Australian pharmaceutical companies if they partner with US based companies and run US based trials.
Neuren Pharmaceuticals will receive potential milestone payments of up to US $455 million plus tiered escalating double digit percentage royalties on net sales for Trofinetide in North America. Plus an additional 1/3 of the market value of the Rare Paediatric Disease Priority Review Voucher if awarded by the FDA upon approval of a new drug application.
Further revenue potential for Neuren Pharmaceuticals via partnership with ACADIA
Phase 2 trials for Trofinetide for Fragile X syndrome – Partnership deal with ACADIA for drug development and commercialisation – Another future revenue stream if successful and ACADIA has to fully fund clinical trials and commercialisation (drug has same mechanism of action to normalise synaptic dendrites and functioning for this condition). Also has ORPHAN DRUG designation in US and EU plus Fast Track designation in US meaning 6 month instead of 12 month FDA review – faster to market, commercialisation and revenue if successful.
ACADIA ticker code ACAD on the NASDAQ.
Market cap $3.85Billion
Currently trading $23.96 ps (29.12.21)
There was a small uptick from announcement of successful Trofinetide Phase 3 results on 7/12/2021- $19.00 to $27.00 odd per share but has pulled back given current market volatility.
ACADIA pharmaceuticals pipeline see below:
Neuren Pharmaceuticals finances:
Q3 2021
· Cash on hand $33.6 million ($2.5 mill R &D tax incentive and $3.3 million from SPP)
· Recent Capital Raise
· US$111 million plus low double digit royalties due from ACADIA in North America (instalment and future sales)
· Part of this money will be spent obtaining commercial worldwide partner deals for Trofinetide. Neuren Pharmaceuticals has full control of these deals.
· In a recent Auzbiz interview John Pilcher stated that Neuren were already looking for international partners to commercialise/ partner or / buyout Trofinetide
· EU and Asia will piggyback off US FDA approval then apply for approval in individual regions
· 6 months for FDA approval (due to fast track status) – ACADIA aiming to submit all data to FDA for Trofinetide and Rett NDA by mid 2022
· Extra upside expected for NNZ-2591 for neurodevelopmental disorders with global rights retained.
o Waiting for FDA trial approval phase 2 for Phelan-McDermid, Angelman and Pitt Hopkins Syndromes – currently working on IND submissions to perfect trial set up for approval
· FDA approved orphan drug status for Prader-Willi Syndrome Phase 2 NNZ-2591 trial to begin mid 2022
· New US patent granted to 2034 for treatment of Autism
FINANCES
Strong cash position
Burning $3.773 million per qrt
According to John Pilcher
Average orphan drug in the US $150,000 ++ per year for a patient
Analysts sighting these average numbers of affected patients across US EU and ASIA for each condition.
Drug 2: NNZ-2591 for multiple neurodevelopmental disorders
FDA has designated orphan drug status designation to NNZ-2591 for treatment of Prader-Willi Syndrome and has orphan drug status (currently no approved medicines) in all 4 conditions including Phelan-McDermid, Angelman and Pit Hopkins.
John Pilcher states, in MST access interview, November 2021 he considers NNZ-2591 the ‘jewel in the crown’for Neuren pharmaceuticals. Given the 4 conditions plus others this drug can target. John has stated his has no interest in partnership deals that will give away US commercialisation rights for NNZ-2591. Neuren Pharmaceuticals intends to keep control themselves.
The 4 conditions NNZ-2591 is targeting have 5-6 x the number affected patients compared to Rett Syndrome. So a bigger market opportunity and larger number of beneficiaries for successful drug to market.
John Pilcher states, in an interview with Peak Asset Management, in July 2021 that the margin of this drug will be far better than Trofinetide. NNZ-2591 will be a more profitable product.
Great pre-clinical results leading into the Angelman Syndrome study. All drugs are now in Phase 2 trials or later stages. There are six possible pathways to market from these new drug trials. This de-risks company massively as there are multiple drug treatment pipelines.
Neuren Pharmaceuticals is keeping global rights for NNZ-2591 – so no capping to the upside like in the ACADIA deal for Trofinetide. But Neuren needed the ACADIA deal to provide the funding for the company and the rest of its developmental programs. Hasn’t ruled out future partnerships with ACADIA as “we have formed an excellent working relationship.”
Risks for Neuren Pharmaceuticals:
1. FDA fails to approve Trofinetide: my view as ‘non-expert’ seems unlikely due to the unmet need and lack of alternatives and orphan drug status. But a caution here as the FDA often can make very odd decisions that are unpredictable. My logic is as follows:
a. Only mild to moderate side-effects experienced in trial – largely diarrhea most common and some vomiting. As children and adults with Rett have GI tract problems constantly combating constipation unlikely to be a reason to withhold approval especially with a physician plan in place to tackle this
b. No serious adverse side effects
c. John Pilcher said about 11% pulled out of trial but most due to issues with COVID in the US over that 12 week trial period and several participants re-joined for further off-label LILAC study. >95% of trial participants continued on into the LILAC extension study indicating caregiver and physician support. This is designed to get 12 months of safety data which the FDA wants following successful Phase 3 trial.
MST Financial group suggest a 95% likelihood of FDA approval off the back of the latest positive Phase 3 LAVENDER trial.
2. FDA insists on a second Phase 3 study before commercialisation – funding risk though will be taken by ACADIA not Neuren Pharmaceuticals – Follow up study unlikely though as results are all statistically significant met Co-primary endpoints with P values of 1. P<0.00175 for RSBQ and 2. P<0.0030 for CG1 and 3. P<0.0064 for secondary endpoint CSBS DP-IT (co-primary endpoints were corroborated and the improvement seen in the participants were validated by both the carer and physician in Randomized Double Blind Placebo Controlled study). Alduhelm was a recent example of an FDA approved drug which only needed 1 Phase 3 clinical trial, based on need. It was approved despite much more controversial findings.
3. ACADIA fails to pay Neuren Pharmaceuticals pay instalment for Trofinetide US$111 million in FY22. Unlikely after successful phase 3 data. Plus contract states if failure to pay accrues interest for 30 days and if still fails to pay forfeits rights to commercialize drug. ACADIA extremely unlikely to default on payments
Potential short-term further UPSIDE for Neuren:
John Pilcher in a recent conference call stated that there had been a lot of interest from partners in ASIA and EUROPE for commercialisation deal for Trofinetide. This may consist of individual country deals or a deal with a large global partner.
To summarise
· Neuren is expecting licencing payments and royalties to roll is FY 22/23 from ACADIA
· Expected US $500 million in sales for Trofinetide annually in North America alone for Rett Syndrome
· PLUS Neuren can expect partnership deals for Europe and ASIA – won’t be as profitable as drug pricing in America is always higher
· BUT the commercialization and licencing deal between Neuren and ACADIA was done before successful Phase 3, so now drug is de-risked so should yield good revenue or buyout potential
· Phase 2 trial for NNZ-2591 should also commence for Prader-Willi treatment in FY2022 and possible approval and clinical trial commencement in Phelan-McDermid, Angelman and Pit Hopkins
Analyst Valuations predict an increase in Neuren Pharmaceutical valuation
Current NEU market cap of $491 million.
Stock Coverage and Share Price Targets
MST access predicts a Market cap valuation of $651 million
price per share of $5.06
Bell Potter
Suggests a price per share of $5.60 as speculative by given recent successful Phase 3
Neuren pharmaceutical is certainly developing drugs in a unique space. The company is largely de-risked with a drug that will hopefully reach market in the next 12 months and multiple drug applications in the pipeline.
Disclosure: Held IRL