Is PYC's share price going to behave like NEU before and after...

Is PYC's share price going to behave like NEU before and after FDA approval?

In a nutshell, yes, but much better! The devil's in the detail.

Yes, the devil is very much in the detail.


To sell or not to sell one of the drug assets in the pipeline?

NEU sold its North American distribution rights for their Rett syndrome drug Trofinetide to Acadia in 04/2023, to be marketed as DAYBUE

It was in in August, 2018 that Neuren licensed North American rights for trofinetide to Acadia and received just US$10m upfront. The market hated the deal (low upfront, not a Big Pharma) and the share price subsequently suffered.

HOWEVER, the deal meant that Neuren didn’t have to pay for Phase 3 trials and regulatory and marketing expenses.

Acadia’s external provider R & D costs alone for trofinetide, as recorded in the company’s SEC filings, totalled ~US$212m (A$327m) as at 31/12/23. That doesn’t include internal R & D costs, any upfront or milestone payments or any commercialisation costs for the drug.

https://ir.acadia.com/sec-filings/


Who is making more money - NEU or Acadia?

So NEU is only getting A$12.8M out of the 4th Quarter sale of A134M, i.e. 9.55% in royalty. Is that a good deal ???

At first glance, this suggests that Neuren’s financial benefit from the Acadia licensing deal is limited to 9.55 % royalties on sales, with Acadia creaming all the rest. This is absolutely not the case.

The North American licensing deal with Acadia for trofinetide provided for:

• US$10m (A$15m) upfront
• US$40m (A$60m) on first commercial sale in North America
• Tiered royalties of 10% on net sales < US$250m, 12% on net sales US$250m - $500m, 14% on net sales US$500m - $750m, 15% on net sales >US$1bn.
• Sales milestone of US$50m (A$75m) on annual net sales >US$250m
• Sales milestone of US$50m (A$75m) on annual net sales >US$500m
• Sales milestone of US$100m (A$150m) on annual net sales >US$750m
• Sales milestone of US$150m (A$225m) on annual net sales >US$1bn
• One third of the value of Priority Review Voucher granted (est. 1/3 of US$100m = US$33m (A$50m)
• All R & D costs paid by Acadia. As stated above, expenditure on external provider costs alone had totalled US$212m (A$327m) by 31/12/23

https://hotcopper.com.au/threads/ann-agm-chair-address-ceo-presentation.7406476/

The Rest of the World licensing deal with Acadia for trofinetide provided for:

• US$100m (A$150m) upfront
• US$35m (A$53m) on first commercial sale for Rett indication in Europe
• US15m (A$23m) on first commercial sale for Rett indication in Japan
• US$10m (A$15m) on first commercial sale in 2^nd indication in Europe
• US$4m (A$6m) on first commercial sale in 2^nd indication in Japan.
• Sales milestones of up to US$170m (A$255m) in Europe
• Sales milestones of up to US$110m (A$165m) in Japan
• Sales milestones of up to US$83m (A$125m) in other territories
• Tiered royalties on net sales from mid-teens to low 20s %

https://hotcopper.com.au/threads/an...d-global-partnership-for-trofinetide.7478191/

All of this information needs to be taken into account before deciding whether Neuren got a good deal.


Recent major events and their effect on NEU's SP:

• 23/03/2020 dropped to 1X @ 0.97Share price artificially pushed down for accumulation on confirmation of Phase 3trail timetable and details

Yes, the share price dropped to just $0.97 in late March 2020, leaving NEU with a market cap of just $100m, despite having its lead drug in Phase 3 trials with those trial costs being paid by someone else.

There were two (related) reasons for the share price drop in March 2020.

The first was the general sharp drop in the markets at this time as the world suddenly started to shut its borders due to Covid. The ASX small cap index fell 35% in just one month.

The other reason was that Neuren’s erstwhile long-time largest shareholder, the late Lang Walker, dumped his entire holding (17.8%) in two tranches, the second largest tranche (14m shares) at just $1 per share. The sale of the second tranche was announced by the Company on 26/03/20 and the share price bottomed the following day @ $0.965.

• 08/12/2021 8X@ 3.85DAYBUE (Trofinetide) forRett syndrome Phase 3shows stunning efficacy [It took 22 months to do a12-month trial due to Covid]

This is incorrect. The Phase 3 trial was a 12 week trial in 187 individuals. When the trial commenced in late 2019, Acadia estimated trial completion would occur in October 2021. Ultimately the trial completed early, in August 2021. Considering the challenges posed by COVID, Acadia did an excellent job here.

https://classic.clinicaltrials.gov/ct2/history/NCT04181723?B=10&amp;A=1&amp;C=merged#StudyPageTop


Observations:

1. Adding the 2nd drug's good Phase 2 efficacy caused SP to be nearly another 2X (or 24X from baseline) ****** Note that the BIG JUMP in SP is due to the fact that the Phelan-McDermid drug is 100% owned by NEU. Whereas the Rett syndrome drug is already sold to Acadia and NEU is only earning % royalty. Now you would appreciate selling the crown jewel is not a good idea and a Cap Raise is painful and dilutive, but it's only a short term pain for long term gain!

Yes, the NEUshare price almost doubled on announcement late last year of Phase 2 success of Neuren’s second drug, NNZ-2591 in Phelan McDermid syndrome, a drug which it fully owns (except in Rett syndrome and Fragile-X).

But the share price also (more than) doubled on Phase 3 success for trofinetide, for which Neuren had already sold US rights.

Further contributing factors to the great market response to NEU's Phase 2 PMS results were

1. the results were exceptionally strong, stronger than those seen in trofinetide.
2. as NEU was simultaneously conducting Phase 2 trials of NNZ-2591 in 3 other indications, targeting similar symptoms, the assessed likelihood of success in those 3 other indications increased, multiplying the effect of the announcement on share price.

PYC Valuation:

If all goes well, the ADPKD drug would be commercialized in 2028 with an estimated recurring annual earnings of US$10b.

PYC has indicated the possibility of commercialization of its drug for ADPKD in 2029, based on accelerated approval. FDA has been tightening the rules on accelerated approval. It is demanding that a Phase 3 trial already be well underway before it will consider allowing the accelerated approval pathway to be used. Thus the very time-consuming Phase 3 trial preparation, manufacturing and initial recruitment has to be completed (and paid for) well before any money flows into the coffers from commercial sales.

Also, while the estimated market for ADPKD might be US$10b and it is true that current treatment for the disease is inadequate, there are multiple other PKD therapies in development around the world, with a number of them already well into clinical trials. If PYC succeeds in this indication, it is highly unlikely that it will be the only drug to do so.

Therefore, it would be naïve to assume that PYC would have, and/or continue to have, that US$10bn market to itself.

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9329410/
https://news.mit.edu/2024/new-drug-candidate-can-shrink-kidney-cysts-0122
https://www.cira.kyoto-u.ac.jp/e/pressrelease/news/240229-150000.html


I’m not wishing to sound negative on PYC; longer term holders here will know that I am actually bullish.

But PYC is not 18 months behind NEU. NEU has a commercialised drug on the market, whereas PYC is at least 4 years away from that milestone.

Further, even after Neuren achieved successful results in Phase 3, it should be noted that the Company’s market cap rose to just slightly more than where PYC’s market cap already sits.

The extreme growth in NEU’s share price occurred in part because it came off an extremely low base market cap of just A$100m when it was already in Phase 3.

That extremely low market cap was mainly the result of the largest shareholder dumping his stock @$1 just as COVID hit. NEU shareholders didn’t see either of those events coming.

There will be varying opinions about whether NEU did well or got ‘dudded” in its licensing deal with Acadia for trofinetide. But, when forming an opinion, one should consider the full impact of the deal, in terms of both revenue and expenditure. And that also applies in any consideration of whether PYC should outlicense or go it alone.