All,
Wanted to share this from Ken. As per always he absolutely nails it with his view/insight of things currently. Should give you all something to noodle on over the weekend. All the best and here you go from Ken...
When I take a hard look at the NEU opportunity I see the "field of play" laid out in a distinct way, with distinct factors--markers--that will drive the company's value proposition. This is key because I have little doubt that NEU management aims to sell the company. It's only a question of when. Will they sell the company with NNZ2591 as a phase 2 asset or as a phase 3 asset? That's really the only question as I see it.
Of course key to the path taken will be the post phase 2 FDA meeting where the bar will be set for any subsequent clinical trial. This FDA meeting will likely frame the PMS trial's likely cost and duration; important considerations that NEU management will have to digest when considering whether to launch a PMS phase 3 trial within their own means or partner with someone like Blackstone who could provide financial support and operational management of any phase 3 trials.
Accordingly I've broken the field of play down to 3 factors that I discuss below:
Platform Play
NNZ2591 is a single molecule that has significant therapeutic value across a wide range of neurodevelopmental disease indications. And by a "wide range" I mean enough indications to keep a large pharma busy for decades. And these disorders would be of the low risk "low-hanging fruit" variety. This is one of NNZ2591's key superpowers: an abundance of orphan drug indications to choose from. The PMS, PHS, AS and PWS indications are just the appetizers.
While it's one thing to claim NNZ2591 is a platform play, yet another to provide a credible basis for such a claim. For NNZ2591 this is relatively straightforward. NNZ2591 has been trialed in 4 neurodevelopmental disorders with each disorder caused by a distinct genetic defect. For PMS the defect is in the SHANK3 gene; for Pitt Hopkins it is the TCF4; and so on. Key to the credibility claim is that none of the genes in questions are themselves related. The fact that a single molecule can provide significant therapeutic benefits against a wide variety of genetic defects is incredibly compelling. But...IMO, the claim of NNZ2591 as a platform will have to wait until the Angelman syndrome results are published. With 3 distinct neurodevelopmental disorders under the belt NEU will then be able to make a convincing, credible claim.
NEU also plans to publish several more neurodevelopmental disease candidates. These will be in the form of preclinical animal studies; much like what was done for the first 4 indications. A key factor will be in the degree of therapeutic benefits shown in these animal studies. For the first 4 studies (PMS, PHS, AS and PWS) the preclinical results were astounding. There's no other way to put it. If the next batch of preclinical studies are likewise on par with the first 4 then NEU will have added considerably to NNZ2591's presumption of being a platform play, with wide commercial applicability.
Remember, as a platform addressing dozens of neurodevelopmental disorders there will be some indications that will score a home run in terms of efficacy, to use a baseball analogy. While for others it might be a double or just a base hit. For commercial viability all a pharma needs is a base hit. I define a base hit for a NNZ2591 indication that provides a Trofinetide-level of efficacy. For this reason it won't matter to a pharma if indication "A" is less (or more) efficacious than indication "B". Not only that, variances in efficacy between NNZ2591 disease indications are to be expected.
We also shouldn't underestimate the financial benefit for having a single unmodified molecule that can treat a wide range of neurodevelopmental disorders. With the normal case a pharma will have to do a great deal of R&D to develop a drug (or tailor an existing drug) for each specific indication. This means spending additional time and money per indication. Not to mention the time and money spent on R&D programs that fail. They will also need to perform a phase 1 trial for each new indication to establish safety. This is par for the course for drug development. With NNZ2591 a pharma will only need to manage clinical trials. There's no need for any additional R&D. None at all! And over time we can expect the FDA to lower the bar to approve new indications. As long as it can be demonstrated that NNZ2591 is safe and provides some therapeutic benefits for patients with high unmet needs. For an acquiring pharma this means getting drugs to market faster and cheaper.
Safety and Tolerability Play
A second important superpower is NNZ2591's safety and tolerability profile. Across the board, pharma companies are content to produce "drugs" that have serious side-effects--with only marginal efficacy. They routinely sell drugs that if taken properly can kill you. Selling these types of drugs to adults is one thing, as an adult understands the seriousness of their disease and is more likely willing to deal with the side-effects. Just take the example of chemotherapy.
However, with young children--or "adults" who are developmentally disabled--it can be difficult for this patient demographic to tolerate treatments with serious side-effects. The result: a sizable percentage of these patients will refuse to take their medications. They simply dropout. The retention rate--the percentage of patients that continue treatment--for this population is typically around 50%, or lower depending on the severity of the side-effects. For a pharma the retention rate directly translates to "revenue capture", as most of these patients will require medication their entire lives. So if you can bump the retention rate from, say, 40% up to 60% you're looking at a 50% increase in annual revenue. That's how impactful a good tolerability profile can be to a pharma's bottom line.
While we can expect variations in efficacy between the different indications (e.g., PMS vs PHS) the key will be demonstrating a similar safety and tolerability profile across the board. Due to NNZ2591's high bioavailability I'm expecting very good safety and tolerability profiles for each indication. Why do I expect this? Because a great many problems associated with drug side-effects boil down to the required dosage to achieve therapeutic benefits. All drugs have "off-target" effects that disturb a patient's physiology in some way. But a much lower therapeutic dose will almost always produce much less side-effects. Due to NNZ2591's high oral bioavailability patients only need a fraction of the dosage compared to DayBue patients. So we should expect a considerably milder side-effect profile for NNZ2591. The PMS trial demonstrated this effect convincingly. We will see if the PHS and AS trial shows similar results.
Pricing Play
Let's face it Acadia has firmly established the market price for a drug treating a neurodevelopmental disorder with an unmet need. They're charging an average price of $375k/patient/year. Importantly, Acadia was able to convincingly make their pricing case to both private and public insurance providers. For poor families they offer Medicaid coverage. Acadia has an efficient, uncomplicated payment channel for DayBue. Parents have a wide variety of payment options for their children. So now the market knows, objectively, the "floor" pricing for a drug that treats neurodevelopmental disorders for patients with a high unmet need. In effect Acadia provides a proven commercial--go to market--template that a pharma can use for any NNZ2591 neurodevelopmental indications.
With NNZ2591 a pharma will have a reasonable way of estimating its addressable market and making credible revenue projections for each indication they choose to take on. Normally putting a price tag on an asset like NNZ2591 is difficult. You've got the seller asking for the moon with the buyer skeptical of their return on investment. With NNZ2591 both parties can rely on an impartial, objective commercial record: it's called DayBue. It's much harder to argue against commercial facts on the ground.
IMO, the only point of contention between NEU and acquiring pharma is likely to be the discount. It should be straightforward to use a traditional market model, augmented by Acadia's market data, to establish a "fair price" for NNZ2591. But this ultimately assumes that all 4 indications have successful phase 3 trials and are ultimately approved by the FDA. The discount is used by the buyer to model the risk of getting phase 2 assets to a successful outcome. Fortunately there are well-established statistics that provide probabilities that can be used to discount the phase 2-to-phase 3 risk factors. So, roughly speaking, NNZ2591's takeover price is its discounted fair market value.
Even with these risk mitigation measures there can still be a disagreement on the discount value; a difference of opinion on the risks in getting the 4 NNZ2591 indications FDA approved. IMO, a sensible solution is to come up with a "base price". This would be a takeover price that the pharma feels comfortable with--but NEU does not. Then NEU can mitigate the risk by creating back-end payments associated with each risk factor. There could be a "dollar value" payment made when an indication passes their phase 3 trial; another dollar value payment if an indication gets FDA approval. In this way NEU (and the shareholders by extension) can share in both the risks and rewards of getting the NNZ2591 indications over the finish line. These milestone payments could be in the form of cash or the equivalent in pharma shares at a discounted price.
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So from my vantage point NEU's field of play looks quite favorable. The winning team. Think the New England Patriots back in the day, when Tom Brady was in his prime. My reasons: One: I believe NEU will be able to convincingly position NNZ2591 as a platform play. This puts a floor on NNZ2591's fair market value. Two: I think NNZ2591 will be able to demonstrate an outstanding safety and tolerability profile. These 2 factors provide considerable uplift for any revenue forecasts, strengthening the takeover price. Three: NNZ2591's unit pricing provides an acquiring pharma with a compelling revenue machine; a golden goose capable of producing a wide range of big ticket, high margin drugs with governmental protection from competitors due to NNZ2591's orphan drug designation.
So don't fret Monday's announcement. No matter Monday's outcome, with NEU's field of play we have very little to worry about.
Ken
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