Date 15 March 2023 Theme Company Update Sector Healthcare...

Date
15 March 2023
Theme
Company Update
Sector
Healthcare
Company
Neuren Pharmaceuticals Ltd (NEU)
DAYBUE’s debut: a happy price surprise
We maintain our OVERWEIGHT rating on Neuren with a revised risked PT of $18.29/sh. The
recent FDA approval of trofinetide for the treatment of Rett syndrome in the US market – known
as DAYBUE – and subsequent net annual pricing of US$375,000 are material de-risking, and
valuation upside moments for Neuren. Whilst we had a positive view on the certainty of DAYBUE
approval in the US, we significantly underestimated the pricing Acadia have guided for the
product. This provides material upgrades to our modelling of both the DAYBUE and NNZ-2591
opportunities, given that pricing here sets a new benchmark for orphan neurodevelopmental
disorder (NDD) drug approvals. We eagerly await the April launch of DAYBUE by licensee,
Acadia, which will help to get a better understanding for the size of the Rett market. Our current
US modelling is based on ~4,500 diagnosed patients but prevalence estimates suggest more
than double this pool resides in the US, with many yet to be diagnosed. We anticipate the
DAYBUE approval will expand the prevalent patient pool, as increased genetic testing and
subsequent diagnosis occurs as a result of treatment availability (previously absent). So, whilst
hefty upgrades, we still view these forecasts as conservative. The readthrough and upgrade to
our NNZ-2591 model on the basis of equivalent pricing, further grows the opportunity for NEU.
 Key Points
Pricing upside. The net annualised realised price Acadia have released of US$375K is materially
above our base and best-case estimates (US$150K & US$250K respectively). We would note,
NEU consensus pricing seemed to reside within the US$120-200K range versus US analyst
ACAD consensus pricing of between US$250-475K – hence the ACAD market reaction being
less favourable to this news. The US$375K net price factors in gross-to-net (GTN) discounts,
including the Medicaid 21.3% rebate (applicable to 2/3 of Rett patients), as well as compliance
(noting that outside of clinical trials it is the norm to see perfect compliance drop offs). A gross list
price of US$575-595K was noted by Acadia on their market call, representing the delta in GTN.
Launch and reimbursement. Please see more detail regarding this here. At the point of launch
(end April) Acadia look to have a material portion of the market covered by either Medicaid,
Medicare or commercial insurance – therefore there is not anticipated to be material delays owing
to coverage assessments, nor material patient out-of-pocket expense. A linear launch profile is
being described, with 80 patients currently in the LILAC-2 study the immediate roll-over targets.
AE concern mitigated. Whilst there was some hesitance around the commonality of diarrhea
owing to treatment from the Phase III trial program, this has not resulted in any restrictions,
boxed warnings or REMS requirements post approval, nor is any further clinical study required.
Forecasts. We upgrade our DAYBUE and NNZ-2591 peak sales forecasts owing to price
(US$150K/yr increased to US$375K/yr) which delivers >40% revenue upgrades in outer years
(FY23 lesser component vs milestones). DAYBUE peak US sales WILSe:US$800M/yr; peak sales
estimates for NNZ-2591 now US$2.5B/yr across the four focus NDDs, excluding expansion.
Valuation. PT reflects upgrades, set at a discount to SOTP valuation of $27.43/sh. $18.29/sh PT
comprises: $8.97/sh for DAYBUE across Rett & FXS; and $9.32/share for NNZ-2591 in four focus
NDDs; with $9.15/sh upside for NNZ-2591 expansion additive to PT. NNZ-2591 epilepsy
expansion still core to further valuation upside, yet to be recognised (p.5). Unrisked $100.47/sh.
Recommendation OVERWEIGHT
12-mth target price (AUD) $18.29
Share price @ 14-Mar-23 (AUD) $9.97
Forecast 12-mth capital return 83.5%
Forecast 12-mth dividend yield 0.0%
12-mth total shareholder return 83.5%
Market cap ($m) 1,286
Enterprise value ($m) 1,242
Shares on issue (m) 129.0
Sold short (%) 0.1
ASX All Ords weight (%) 0.1
Median turnover/day ($m) 3.9
12-mth price performance ($)
Source: Company data, Wilsons estimate, Refinitiv, IRESS.
All amounts are in Australian Dollar (A$) unless otherwise stated.
Wilsons Equity Research
Analyst(s) who owns shares in the Company: n/a Issued by Wilsons Advisory and Stockbroking Limited (Wilsons) ABN 68 010 529 665 – Australian Financial Services
Licence No 238375, a participant of ASX Group and should be read in conjunction with the disclosures and disclaimer in this report. Important disclosures regarding companies
that are subject of this report and an explanation of recommendations can be found at the end of this document.
Dr Melissa Benson
[email protected]
Tel. +61 2 8247 6639
Dr Shane Storey
[email protected]
Tel. +61 7 3212 1351
Madeleine Williams
[email protected]
Tel. +61 3 9640 3834
Mar-22 Jul-22 Nov-22 Mar-23
3.00
4.17
5.33
6.50
7.67
8.83
10.00
NEU XAO
1-mth 6-mth 12-mth
Abs return (%) 24.0 39.8 126.1
Rel return (%) 29.2 38.8 127.0
Financial summary (Y/E Dec, AUD) FY21A FY22A FY23E FY24E FY25E
Sales ($m) 0.0 14.6 114.2 60.9 140.7
EBITDA norm ($m) (7.9) 0.2 89.3 35.5 83.4
Consensus EBITDA ($m) 78.4 44.6 82.3
EV/Sales (x) n/m 64.9 7.8 14.2 5.8
EV/EBITDA (x) n/m n/m 10.0 24.4 9.8
Key changes 2-Mar After Var %
Sales FY23E 109.3 114.2 5%
($m) FY24E 39.4 60.9 55%
FY25E 99.1 140.7 42%
EBITDA FY23E 84.4 89.3 6%
norm FY24E 13.9 35.5 155%
($m) FY25E 48.1 83.4 73%
Price target 11.24 18.29 63%
Rating O/W O/W