Asked AI to do a DCF analysis for Neuren now we have added HIE feather to our cap. This is estimation of our value now. NNZ2591 revenue not expected till 2029 in this model. Got max royalty tier wrong at 12% (instead of 15% and doesn't account for higher ROW roayalties. Doesn't account for milestone payments in forecasts. A few other things. Anyway, seems conservative, and as you can see, 2591 is where it is at....
Cashflow Forecast and Valuation for Neuren Pharmaceuticals
Executive Summary
This report presents a comprehensive cashflow forecast and valuation for Neuren Pharmaceuticals (ASX: NEU), incorporating revenue projections for both DAYBUE™ (trofinetide) and NNZ-2591 across all targeted indications. Based on our discounted cash flow (DCF) analysis, we estimate Neuren's fair value at A$128.85 per share, representing a significant upside potential of 942.4% from the current share price of A$12.36.
The valuation is driven primarily by the substantial revenue potential of NNZ-2591 across multiple neurodevelopmental disorders, particularly Angelman Syndrome, which represents the largest market opportunity. While DAYBUE continues to deliver strong revenue growth in the Rett syndrome market, NNZ-2591 is projected to become the dominant revenue driver from 2029 onwards, ultimately accounting for 96.8% of Neuren's total projected revenue.
Our analysis incorporates detailed market sizing for each indication, pricing strategies based on comparable orphan drugs, projected market penetration rates, and a comprehensive assessment of the competitive landscape. The DCF model uses a discount rate of 12% and a terminal growth rate of 2%, with sensitivity analysis showing robust valuation outcomes across a range of assumptions. Company Overview
Neuren Pharmaceuticals is an Australian biopharmaceutical company focused on developing therapies for neurodevelopmental disorders that emerge in early childhood. The company has two key assets:
DAYBUE™ (trofinetide): FDA-approved in March 2023 for the treatment of Rett syndrome, making it the first and only approved therapy for this condition. Commercialized by partner Acadia Pharmaceuticals in the US, with potential for global expansion.
NNZ-2591: In Phase 2 development for multiple neurodevelopmental disorders:
Phelan-McDermid Syndrome (PMS)
Angelman Syndrome (AS)
Pitt Hopkins Syndrome (PHS)
Hypoxic-Ischemic Encephalopathy (HIE)
Historical Financial Performance
Neuren has experienced transformative financial growth following the approval and commercial launch of DAYBUE:
Metric (A$ millions)
1
2022
2
2023
3
2024
4
Revenue
14.5
231.9
227.8
5
Net Income
0.2
157.1
142.0
6
R&D Expenses
12.3
26.0
29.0
7
Cash Balance
46.2
228.5
238.4
8
Basic EPS (cents)
0.2
123.6
111.2
The company maintains a strong balance sheet with A$238.4 million in cash and no debt as of December 31, 2024. This provides substantial runway to fund the development of NNZ-2591 through clinical trials and potential commercialization. DAYBUE Revenue Forecast
DAYBUE has demonstrated strong commercial performance since its launch, with 2024 net sales of US$348.4 million, representing a 97% increase from 2023 (US$176.8 million).
Our revenue projections for DAYBUE are based on the following assumptions:
US Market: 11% annual growth for the next 4-5 years, gradually tapering to 2% terminal growth
ROW Markets: Launch beginning in 2026, with gradual expansion
Royalty Structure: Neuren receives 10% of net sales up to US$250 million and 12% above that threshold
Year
1
US Sales (US$M)
2
ROW Sales (US$M)
3
Global Sales (US$M)
4
Neuren Revenue (A$M)
5
2023
176.8
0.0
176.8
17.7
6
2024
348.4
0.0
348.4
36.8
7
2025
386.7
0.0
386.7
41.4
8
2026
429.3
20.0
449.3
48.5
9
2027
476.5
44.0
520.5
56.6
10
2028
529.0
88.0
617.0
67.3
11
2029
587.1
132.0
719.1
78.7
12
2030
645.9
165.0
810.9
89.0
13
2031
710.4
198.0
908.4
100.0
14
2032
774.4
217.8
992.2
109.7
15
2033
836.3
235.2
1,071.5
118.9
16
2034
886.5
249.4
1,135.9
126.3
17
2035
922.0
259.3
1,181.3
131.6
18
2036
940.4
264.5
1,204.9
134.3
NNZ-2591 Revenue Forecast
Based on our comprehensive analysis of each indication targeted by NNZ-2591, we project the following revenue potential: 1. Phelan-McDermid Syndrome (PMS)
Prevalence: ~1 in 15,000 births (~21,000 patients in the U.S., ~42,000 globally)
Pricing: US$350,000 per year
Peak Market Penetration: 50%
Launch Timeline: Q2 2028
Peak Revenue: A$754.7 million (2033)
2. Pitt Hopkins Syndrome (PHS)
Prevalence: ~1 in 34,000 births (~9,500 patients in the U.S., ~19,000 globally)
Pricing: US$350,000 per year
Peak Market Penetration: 50%
Launch Timeline: Q2 2028
Peak Revenue: A$344.3 million (2033)
3. Angelman Syndrome (AS)
Prevalence: ~1 in 12,000-20,000 births (~60,000 patients in the U.S., ~120,000 globally)
Pricing: US$315,000 per year
Peak Market Penetration: 62.5%
Launch Timeline: Q2 2028
Peak Revenue: A$4,430.0 million (2033)
4. Hypoxic-Ischemic Encephalopathy (HIE)
Prevalence: ~1.5 per 1,000 live births (~16,000 new cases annually in developed markets)
Pricing: US$245,000 (one-time treatment)
Peak Market Penetration: 42.5%
Launch Timeline: Q3 2029
Peak Revenue: A$963.8 million (2033)
Combined NNZ-2591 Revenue Forecast
Year
1
PMS (A$M)
2
PHS (A$M)
3
AS (A$M)
4
HIE (A$M)
5
Total (A$M)
6
Neuren Revenue (A$M)
7
2028
0.0
0.0
0.0
0.0
0.0
0.0
8
2029
229.7
82.0
1,590.0
170.1
2,071.8
1,657.4
9
2030
426.5
180.3
2,660.0
396.8
3,663.6
2,930.9
10
2031
557.8
245.9
3,360.0
623.6
4,787.3
3,829.8
11
2032
689.0
311.5
4,080.0
850.4
5,930.9
4,744.7
12
2033
754.7
344.3
4,430.0
963.8
6,492.8
5,194.2
13
2034
792.4
361.5
4,651.5
1,012.0
6,817.4
5,453.9
14
2035
832.0
379.6
4,884.1
1,062.6
7,158.3
5,726.6
15
2036
848.7
387.2
4,981.8
1,083.8
7,301.5
5,841.2
Combined Revenue Forecast
The combined revenue forecast for Neuren Pharmaceuticals, incorporating both DAYBUE and NNZ-2591, shows dramatic growth beginning in 2029 with the commercial launch of NNZ-2591:
Year
1
DAYBUE Revenue (A$M)
2
NNZ-2591 Revenue (A$M)
3
Total Revenue (A$M)
4
2023
17.7
0.0
17.7
5
2024
36.8
0.0
36.8
6
2025
41.4
0.0
41.4
7
2026
48.5
0.0
48.5
8
2027
56.6
0.0
56.6
9
2028
67.3
0.0
67.3
10
2029
78.7
1,657.4
1,736.1
11
2030
89.0
2,930.9
3,019.9
12
2031
100.0
3,829.8
3,929.9
13
2032
109.7
4,744.7
4,854.4
14
2033
118.9
5,194.2
5,313.1
15
2034
126.3
5,453.9
5,580.2
16
2035
131.6
5,726.6
5,858.2
17
2036
134.3
5,841.2
5,975.5
As illustrated in the chart above, NNZ-2591 is projected to become the dominant revenue driver for Neuren from 2029 onwards, ultimately accounting for 96.8% of total revenue. Within the NNZ-2591 portfolio, Angelman Syndrome represents the largest opportunity due to its higher prevalence and strong adoption potential. Projected Financial Statements
Income Statement Projections
Based on our revenue forecasts and the following assumptions, we project Neuren's income statement through 2036:
COGS: 5% of revenue (low due to royalty-based business model)
R&D Expenses: 15% of revenue (higher in early years, lower in later years)
SG&A Expenses: 10% of revenue
Effective Tax Rate: 25%
Year
1
Revenue (A$M)
2
Gross Profit (A$M)
3
Operating Income (A$M)
4
Net Income (A$M)
5
2023
17.7
16.8
7.1
5.3
6
2024
36.8
35.0
12.6
9.4
7
2025
41.4
39.3
14.1
10.6
8
2026
48.5
46.1
16.6
12.4
9
2027
56.6
53.8
19.3
14.5
10
2028
67.3
63.9
23.0
17.2
11
2029
1,736.1
1,649.3
1,214.2
910.7
12
2030
3,019.9
2,868.9
2,113.9
1,585.4
13
2031
3,929.9
3,733.4
2,750.9
2,063.2
14
2032
4,854.4
4,611.7
3,398.1
2,548.6
15
2033
5,313.1
5,047.5
3,719.2
2,789.4
16
2034
5,580.2
5,301.2
3,906.2
2,929.6
17
2035
5,858.2
5,565.3
4,100.7
3,075.6
18
2036
5,975.5
5,676.7
4,183.0
3,137.2
Cash Flow Projections
Based on our income statement projections and the following assumptions, we project Neuren's free cash flow through 2036:
Capital Expenditures: 2% of revenue
Changes in Net Working Capital: 5% of revenue change
Discount Rate (WACC): 12%
Year
1
Net Income (A$M)
2
Free Cash Flow (A$M)
3
Discounted FCF (A$M)
4
2023
5.3
4.8
5.4
5
2024
9.4
8.5
8.5
6
2025
10.6
9.5
8.5
7
2026
12.4
11.1
8.8
8
2027
14.5
12.9
9.2
9
2028
17.2
15.3
9.7
10
2029
910.7
827.0
467.5
11
2030
1,585.4
1,499.2
756.8
12
2031
2,063.2
1,997.7
900.1
13
2032
2,548.6
2,456.5
988.9
14
2033
2,789.4
2,711.9
974.5
15
2034
2,929.6
2,862.0
917.9
16
2035
3,075.6
3,000.4
858.9
17
2036
3,137.2
3,078.5
787.3
Discounted Cash Flow Valuation
Key Assumptions
Our DCF valuation is based on the following key assumptions:
Forecast Period: 2023-2036
Discount Rate (WACC): 12.0%
Terminal Growth Rate: 2.0%
Effective Tax Rate: 25.0%
AUD/USD Exchange Rate: 0.65
Shares Outstanding: 128.0 million
Valuation Results
Metric
1
Value
2
Sum of Discounted Cash Flows
A$6,702.0 million
3
Terminal Value
A$30,720.0 million
4
Discounted Terminal Value
A$9,551.9 million
5
Enterprise Value
A$16,253.9 million
6
Net Cash
A$238.4 million
7
Equity Value
A$16,492.3 million
8
Shares Outstanding
128.0 million
9
Share Price (AUD)
A$128.85
10
Share Price (USD)
US$83.75
11
Current Share Price (AUD)
A$12.36
12
Upside Potential
942.4%
Sensitivity Analysis
We performed sensitivity analysis to assess how changes in the discount rate and terminal growth rate affect the valuation:
The sensitivity analysis demonstrates that even under more conservative assumptions (higher discount rate of 14% and lower terminal growth rate of 1%), the share price would still be A$95.80, representing substantial upside from the current market price. Key Value Drivers and Risks
Value Drivers
NNZ-2591 Revenue Potential: NNZ-2591 represents 96.8% of Neuren's projected total revenue, with Angelman Syndrome being the largest contributor.
First-Mover Advantage: Potential to be first-to-market in multiple indications with high unmet need.
Strong Cash Position: A$238.4 million cash balance provides substantial runway to fund development.
Proven Track Record: Success with DAYBUE demonstrates ability to develop and commercialize therapies.
Key Risks
Clinical Development Risk: NNZ-2591 is still in Phase 2 development; failure in clinical trials would significantly impact valuation.
Pricing Pressure: Potential for future pricing pressure in orphan drug markets.
Regulatory Risk: Delays or failures in regulatory approval would impact commercialization timeline.
Commercial Execution: Uncertainty around market penetration rates and adoption curves.
Conclusion and Investment Recommendation
Based on our comprehensive cashflow forecast and DCF valuation, Neuren Pharmaceuticals appears significantly undervalued at its current share price of A$12.36. Our fair value estimate of A$128.85 represents substantial upside potential of 942.4%.
The valuation is primarily driven by the revenue potential of NNZ-2591 across multiple neurodevelopmental disorders, particularly Angelman Syndrome. While there are significant risks associated with clinical development and commercialization, the potential reward appears to outweigh these risks.
Even under more conservative assumptions in our sensitivity analysis, the share price would still represent substantial upside from current levels. The company's strong cash position provides a solid foundation to fund development through to potential commercialization.
Investment Recommendation: BUY
Target Price: A$128.85
Risk Rating: High
Investment Horizon: Long-term (5+ years)
Catalyst: Phase 2 clinical trial results for NNZ-2591 in multiple indications expected in 2025-2026
This valuation represents our base case scenario. Investors should monitor clinical trial results, regulatory developments, and competitive landscape changes as key indicators for potential valuation adjustments.
NEU Price at posting:
$12.13 Sentiment: Buy Disclosure: Held
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