FY24 Result | Neuren has endured a turbulent half year, with...

FY24 Result | Neuren has endured a turbulent half year, with market uncertainty persisting around the long-term value of the DAYBUE royalty and milestone revenue stream, despite improved clinical management of patients on drug and encouraging launch metrics from commercial partner, Acadia Pharmaceuticals. Total income of A$32.1 was earned in 1H24, with A$24.3M of that coming from royalties from the licensing of DAYBUE (trofinetide) to Acadia pharmaceuticals in North America. Profit after tax of A$8M was recorded, with increases in royalty revenues offset by the A$59.4M milestone payment received in 1H23. Cash used by operations of A$20.5M was mostly for the development of pipelines asset NNZ-2591. Outlook | Total FY24 guidance of A$132-138M from DAYBUE licensing, comprising a milestone payment of US$50M (expected in 2H24 CY) and royalties of US$36-40M. Acadia are advancing trofinetide outside the US, with Canadian approval expected at year-end 2024 E&P Comments | This 1H24 result is a mere formality, but highlights favourable economics that would equally apply to pipeline asset (NNZ-2591), contingent on successful clinical development (assuming a similar licensing arrangement to trofinetide). NNZ-2591 could be a significant opportunity for the company across a range of potential neurodevelopmental indications, but requires further placebo-controlled studies to validate its efficacy. The fact that opex (“foundational work to prepare for Phase 3 development of NNZ-2591”) has increased in 1H24 suggests that NEU are anticipating a company funded registrational program. We note that NEU have ample cash to fund randomised controlled studies of NNZ-2591 in one or more indication (we assume ~$40M US per indication). An end of Phase 2 meeting with the FDA for NNZ-2591 in Phelan-McDermid syndrome is scheduled for Sept-2024 to seek guidance on further clinical development. Valuation | Company guidance assumes a USD:AUD exchange rate of 1.54, however, our rDCF valuation utilises the current spot rate of 1.47 which reduces our forecast revenues by ~4% (we note that NEU's clinical development expenses are largely in USD, providing a partial natural hedge). Given the increasing likelihood that NEU will progress to in-house Phase 3 development of NNZ-2591, we move our assumed proportion of company:distributor profit share for this asset to 65% (from 50%). Together this leads to a ~15% reduction in the trofinetide/DAYBUE licensing stream, offset by a 19% increase in the NNZ-2591 pipeline value (refer figs. 2, 3 & 4). The net impact is a 40c increase in our price target to $22.90 / share, and we retain our Speculative Buy recommendation.