Neuren seems to have been caught up in the biotech sell off following the appointment of RFK Jnr as the head of the Department of Health and Human Services in the US.

What are everyone's thoughts on this appointment? Seems like the market is looking quite short term towards news that may not actually eventuate to much.

Drugmaker stocks slide as Trump taps vaccine skeptic RFK Jr for US health job | Reuters

Disc: Held IRL and on Strawman.

JP Morgan: Overweight PT $23

Share buyback surprise; focus on first NNZ-2591 Phase 3 trial to start in 2025

Emerging biotechs do not typically find themselves in a position to announce share buybacks. However, for Neuren, the early arrival of a higher-than-expected sale price of Acadia Pharmaceuticals’ Priority Review Voucher (PRV) let them do just that. Neuren announced a $50m share buyback this week, a surprising move but one which speaks to the company’s comfort with its current spending requirements. We are somewhat cautious on what the exact next cost of the phase 3 clinical trial of NNZ-2591 in Phelan-McDermid patients will be, however, Neuren’s current cash position and lean operating model should allow the company to meet requirements comfortably. At this stage, we remain focused on the nearterm catalysts in the development of NNZ-2591 to a late stage clinical asset and view the risk/reward as favourable. Retain Overweight, PT unchanged at $23

• Buyback driven by PRV sale. At Neuren’s current cash position of ~$210m and incoming steady royalties from Daybue, the company maintains it will have sufficient funds to execute on at least two Phase 3 trials (likely to be NNZ-2591 for Phelan-McDermid syndrome and Pitt Hopkins syndrome). We view the announcement of a share buyback as somewhat unnecessary, but understand the rationale of returning excess cash to shareholders

• Clinical trial preparation on track. We await the news of the defined endpoints for NNZ-2591’s first Phase 3 trial in Phelan-McDermid Syndrome patients, likely to be announced in early 2025, for commencement shortly thereafter. Management have maintained the line it will cost US$50-100m per trial and we expect to get a clearer picture once further details emerge of how large the patient size of the Phase 3 trial will be required to be

• Daybue patient adds now steady. Daybue September quarterly sales of US $91.2m was within our expectations, as full year guidance was unsurprisingly narrowed to the lower end at $340-350m. Sales reassuringly continue to grow, lifting 8% QoQ as discontinuations stabilise. Moving forward the focus will be on driving penetration outside the Rett’s Centres of Excellence (more than 70% of patients treated) in the US and abroad, the submission of the European dossier in 1Q CY25. We make limited changes to our Daybue forecasts

• Retain Overweight, PT unchanged. The overhang on Daybue sales volatility appears mostly removed, since the latest Acadia quarterly numbers suggest patient discontinuations have stabilised. Our focus remains on the progress of Neuren’s pipeline drug, NNZ-2591, as it enters late stage clinical trials which should over time demonstrate its platform potential. We continue to see the risk/reward as favourable for Neuren and retain our Overweight rating, PT unchanged at $23 p/share

DISC: Held in RL & SM

$NEU have announced an on-market share buyback of us to $50m.

ASX Announcement

This is not a surprise as Jon has indicated that the Board have been considering how much cash they need and what should be done with an excess cash.

$NEU were already sufficiently cashed-up to fund the planned two Phase 3 Trials for NNZ-2591, and with a perpetual incoming stream of royalties from DAYBUE, the windfall of $US50m for the PRV sale by $ACAD, has clearly been judged as excess cash, a one-off, to be returned to shareholders.

For long term holders of $NEU, this is an opportunity to deliver some returns. Good to see management exercising discipline.

From my perspective, the return makes sense. I consider $NEU remains materially under-valued, and they won't need the cash for NNZ-2591.

If the strategy evolves and they develop the company to take (in the success case) NNZ-2591 all the way to market, there's probably enough future cashflow coming from DAYBUE to fund that.

Disc: Held in RL and SM

$NEU paused, presumably while they prepare their release on the DAYBUE sales number. No biggie.

They will however likely now give very tight guidance on FY24 renveue, which will be uplifted due to proceeds from the PRV sales, which $ACAD expects to close in Q4.

So for those in the market who don't understand the details of what's going on, FY24 is going to look strong. It will be interesting to see what this does!

Still writing up my more detailed notes from $ACAD and doing some analysis on DAYBUE.

https://www.businesswire.com/news/home/20241016133678/en/Acadia-Pharmaceuticals-Announces-Health-Canada-Approval-of-DAYBUE%E2%84%A2-trofinetide-for-the-Treatment-of-Rett-Syndrome

Daybue has just received approval for use in Canada. This will add to the US sales numbers.

Lets see if this can halt the continued slide of Neu share price - despite good news.

The recording of today's meeting with Jon Pilcher from Neuren is now up.

The big takeaways:

• NNZ-2591 has the potential to be much more impactful than Daybue -- both in terms of addressable market and the nature of partnership agreements (which should be much more favourable than the initial agreement with Acadia)
• Jon was extremely optimistic about its prospects, not just because of very encouraging Phase 2 results, but because of their experience bringing trofinetide to market
• Expect about 2 years or so before this is contributing to revenues
• In the meantime, they have a fortress balance sheet. It seems more than enough to support them, especially given their Daybue business is profitable and fast growing.
• The partnership agreement outside of North America was significantly better than the initial terms with Acadia, and the market in Europe is essentially the same size.
• The business is in the best shape its ever been, and yet the share price is down 50% or so from its high. I suspect because the market got a little carried away last year, but also because of some doubt cast by a short report targeting Acadia, and a downward revision in Acadia sales -- but Jon said that had little to do with their partnership

Neuren operates in a high-risk space, but it seems like things have been substantially de-risked in recent years. A reliable cash-cow in Daybue with a long runway of growth, a rock-solid balance sheet and another candidate coming to market (hopefully) in the coming years with even bigger potential.

I haven't had a crack at a valuation, but things certainly seem more compelling now given the recent decline in price.

Summary

Following $ACAD 2Q Results in Aug and recent conference presentations in September also by $ACAD, I have firmed up on my recent valuation ($24, $12-$46), and am getting more comfortable with the future US sales trajectory for DAYBUE.

As a result, I've added back most of the shares I sold in May at yesterday's price, which I consider a bargain.

I consider that today the market is offering $NEU on a "two for the price of one" basis, ... or thereabouts.

Context

With all the focus on ASX reporting over recent weeks, I’m only now catching up with some of the wider research opportunities in my portfolio. One area I am giving some focus is $NEU. I’ll not repeat information here from earlier straws and posts, but in summary, this business has two important things going on:

1) DAYBUE being sold under licence by $ACAD in the US, with work underway to gain approval in Canada (likely end-24/early-25) and EU & Japan (approvals likely only in 2026+)

2) NNZ-2591 has completed Phase 2 studies in three neurological conditions, with an end of Phase 2 meeting with the FDA for Phelan-McDermid syndrome due this month. (This is likely the first indication to advance to Phase 3, given the US market potential of 17,000-32,000 patients. While there's still clincal development risk, it's potentially much bigger than DAYBUE)

We’ve covered NNZ-2591 in other recent straws/posts. My focus here is to consider my view on DAYBUE in the light of recent communications from $ACAD, including over the Summer Conference season in the US.

I’ve given a rough valuation of $NEU as $24.00. Being $16.00 due to DAYBUE and $16.00 due to NNZ-2591, risked at 50%. In my normal way of presenting valuations, I have this down as $24 ($12-$46).

This compares with analyst views of $26.56 ($22.90 - $29.90, n=6).

This picture below shows the SP progression relative to the consensus view, which suffered a modest downgrade in August, due to $ACAD downgrading guidance for 2024 DAYBUE sales.

So, we all know that momentum players in the market hate downgrade cycles, and so a very large gap has opened up between valuations of the business and the SP.

Hence the title of this straw: I view that with $NEU you are essentially getting a DAYBUE business (which I see as worth $16) and a success case for NNZ-2591 (which I see as worth $16 unrisked) for $13.59 at the time of writing. The analysts agree – two for the price of one!

The reason I sold down 1/3^rd of my RL holding in $NEU on 15-May was that I was concerned about the 1Q report from $ACAD. According to my model, $ACAD were never going to hit 2024 guidance for DAYBUE, and I didn’t buy the offered story about a harsh winter causing clinics to shut down. But as importantly, I became suspicious of management – having prematurely offered annual guidance, and then spinning a 1Q story and acting as though things were on track for the year.

Roll forward to the 2Q report in August. While sales began to recover, guidance was indeed finally lowered, and that pushed many ASX shareholders into a funk with shares sliding from c. $18 to $13-$14.

To put this in context, you can buy $NEU today for less that you could at the launch of DAYBUE, which pre-dated the stream of positive newsflow on NNZ-2591.

So, What Can We Say About DAYBUE?

Having gone back over the $ACAD 2Q Results call (8-Aug), the Morgan Stanley Healthcare Conference (4-Sept) and the Baird Conference (11-Sept), I have firmed up my view on what is happening with DAYBUE. (BTW, recordings of both conferences are accessible on the $ACAD website.)

It is now clear to me that what happened following the launch of DAYBUE:  $ACAD were completely surprised by the demand in the first 5-6 months. In retrospect, this should not have been surprising. Rett Syndrome is a very challenging condition, and there is a strong global Rett community. With no pre-existing treatments on the market, there is a well-established specialist support network via Rett Centres of Excellence that support about 25% of US Rett patients. Highly motivated patients, including the parents of sufferers who carry the burden of care, quickly accessed their HCPs requesting the product as soon as it was launched.

This drove strong initial sales in Q3 and Q4 2023, and it led $ACAD to prematurely issue what now turns out to be overly-optimistic guidance (… which was clear to me as early as May).

But as we know, DAYBUE is not well tolerated by many patients. So Q1 and Q2 2024 saw two things happen. 1) The initial “surge” from "c. 25%" of the potential market subsided and 2) discontinuations from this initial “bolus” swamped new patient adds. Aaaaah! DAYBUE has stopped growing! Sell!

This complex dynamic made the interpretation of data from Q2 very challenging. But as a new normal in net patient adds began to establish itself, $ACAD were able to reset 2024 guidance to a more realistic level.

Why Am I So Interested in What $ACAD have been saying in September?

With the “panic spin” of the 2023/24 winter behind us, I have been forensically examining $ACAD's statements throughout September, to test them against what was said in August. I can bring myself to overlook what I consider as “Winter Spin” because, indeed, the dynamic – while easy to model after the fact – must have been very disorientating at the time. And who knows, maybe winter clinic closures and delays in reimbursement renewals for refills created a genuine “winter fog”. Management word salad didn't help, but perhaps I was too quick to judge.

What matters is the future and whether $ACAD are properly characterising the current performance, and the path ahead.

So Where Are we Now?

Throughout the last three public disclosures, a consistent picture is emerging. Here are the key points.

Persistency in the real world remains about 10% ahead of clinical trials. This has been a consistent story for 2024. The best estimate of long-term persistency remains around 50%

Patient adds are net positive, and they are coming into line with the patterns $ACAD say they more typically expect to see in rare disease treatments

A consistent picture is emerging for each of the HCP segments:

1.     COEs (25% patients) – 50% penetrated, 1/3^rd of prescriptions to date. Major area of focus, as these continue to attract new patients. (My thesis is that the availbility of a treatment might increase diagnoses, expanding the market from 5,000 current to the 6,000-9,000 estimated prevalence. CoEs will likely attract an outsized share of new diagnoses.)

2.     High volume non-COEs (60% patients) – “good penetration” and the current area of focus

3.     Low volume HCPs (25%) – many treating only 1 or 2 Rett patients – large number of HCPs.

Overall, c. 30% of the total diagnosed Rett populated has started treatment on DAYBUE and, by my calculations, Q2 revenue represents an annual revenue run-rate of c. US$340m.

Against the updated (downgraded) guidance for 2024 Revenue ($340-$370m), $ACAD have said at the September conferences that they are tracking to “just below the midpoint of guidance” which I interpret as being c.$350m.

They’ve also said that they see “more upside than downside” from here, which says to me that they are seeing the guidance offered in early August as still appropriate, and we are now getting to the closing phase of the year.

My Analysis

The message consistency across three presentations spanning 5 weeks, indicates to me that $ACAD have got to grips with DAYBUE sales performance. Things seem stable.

I see the journey of the 16 months since launch in three clear phases:

Phase 1: The Pent-up Demand “Bolus Surprise" - April-October 2023

Phase 2: “Winter of Discontent”: Early Patient Discontinuations swamp new scripts - Nov 2023 – March 2024

Phase 3: “Stabilisation” – Normal Market Penetration and Steady Growth - April 2024 onwards

Looking further ahead, while, based on my model, $NEU are unlikely to get their 2025 $500m US milestone, this is likely to come in during 1H 2026. Canada might give 2025 royalties a bit of a push, as it experiences its own “mini-bolus”, and then hopefully Japan and EU will add new impetus to revenue with milestones and royalties in FY26 and FY27.

So, overall, I’m increasingly comfortable about the downside floor to the SP being in the $low-teens. Which is where we are today!

So, my original investment thesis is intact. Today, I can buy $NEU for less than the fair value of DAYBUE, with the free option of the upside of NNZ-2591.

Investment Decision

My valuation remains as published previously. However, yesterday in RL I have added some $NEU to my portfolio, getting back to 94% of my original position. I’ll potentially add some more, but at just over 5% in RL, I’d also be happy to settle here.

Near term upcoming news flow is:

• Readout from September FDA meeting on NNZ-2591
• $ACAD Q3 results in mid-October

Disc: Held in RL and SM

ASX Announcement

$NEU has received Rare Pediatric Disease Designation from the US Food and Drug Administration (FDA) for NNZ-2591 in Phelan-McDermid syndrome. A sponsor who receives an approval for a drug with this designation may qualify for a priority review voucher (PRV) that can be redeemed to receive priority review for a different product or sold to another sponsor. The rare pediatric disease PRV program aims to incentivize drug development for serious rare pediatric diseases. Neuren is preparing for an End of Phase 2 Meeting with FDA in Q3 2024 to discuss the development program for NNZ-2591 in Phelan-McDermid syndrome. Neuren previously reported results from a Phase 2 trial in which significant improvement was assessed by both clinicians and caregivers across multiple efficacy measures.

My Analysis

Today's announcement is marked price sensitive and, while that is reasonable, I think given the Phase 2 result announced previously it is hardly a surprise.

What it does mean is that if the NNZ-2591 NDA is eventually approved (and this is probably still 2 years or so down the track, because the Phase 2 process hasn't fully wrapped up year, and therefore Phase 3 hasn't formally begun) then is it likely that $NEU would reveive a Prority Review Voucher, which can be traded or used to accelerate the FDA review process. The traded values of PRVs vary widely, depending on their availability when they are sought. Values have been as low as $21 million and as high as $350 million, but these are extreme outliers and the average traded value tends to be in the vicinity of $100 million +/- $30 million.

However, beyond the potential future value of the PRV, the orphan designation is the validation by the FDA of the therapeutic need for NNZ-2591 in the market for the rare condition Phelan-McDermid Syndrome. This is a positive step in the development of this product.

Having said that, given what we know about the disease and the early apparent safety and efficacy of NNZ-2591, it might have been more of a surprise had the designation now been granted.

Future News Flow for $NEU

The near term expected items of significant newsflow for $NEU are:

• DAYBUE Q2 Sales from Acadia ($ACAD) (31-July/1-Aug)
• Phase 2 Anglemann Clinical Trial Readout for NNZ-2591 (expected this quarter)
• End of Phase 2 Meeting with FDA on Phase 2 PMS Study report back (expected this quarter)

Taken together, the cumulative effect of these announcements have the potential to be material - either way.

Disc: Held in RL and SM