Neuren Pharmaceuticals Limited (NEU) Earnings Call Transcript & Summary

Okay. Good morning, everyone. For any of you who don't know me, I'm Jon Pilcher, I'm Neuren's CEO. I'm joined today by our Chairman, Patrick Davies; and Vice President of Corporate Development, Gerry Zhao. Thank you very much indeed for attending at what I know was short notice. I'm absolutely delighted to be talking to you this morning about the outcome of our rest of world partnering process. I think, as you know, it's been a long process and a complex one, and I want to give special mention and thanks to my colleague, Gerry Zhao, who has worked tirelessly to reach this outcome. And in the last stage of the process, we had some attractive alternatives in front of us. And I believe the alternative that we've chosen is a fantastic outcome for everyone and very pleased to be talking to you about it today. So before I talk about the details, a quick bit of housekeeping. So if you want to ask questions, please use the Q&A function. If I think I've answered the questions during the presentation, I'm not going to read them out at the end, but we'll try and address as many as we can. I'm going to try and keep my comments reasonably short so that we can have plenty of time for questions. I just want to say a quick word about Acadia first before I get into the details. I mean, you'll have heard me say many times before, a fantastic job they have done with DAYBUE in the U.S. from a development and a regulatory point of view, in particular, but now I've had a conference call this morning partly about this deal, but also partly an update on the early stuff coming out of a launch, and it looks like they're doing a fantastic job on the commercialization as well. So I think all of our shareholders, including me, I mean, I think we all have to recognize the huge benefit that Neuren's received from the job that Acadia has done. And therefore, I'm absolutely delighted that we've been able to expand the partnership with them and very much looking forward to continuing to work extremely productively with them. Before I go on, just as usual, remind you that some of my comments and some of the slides that include some forward-looking statements subject to risks that could lead to different outcomes. Okay. So let me just run through the, I guess, headlines from the deal that we've announced today. So Acadia or, as you know, already had a exclusive license for trofinetide in North America only. That license has now been amended to worldwide. So it's one partner. And I think if you've heard us talk before, we always said that everything else being equal, there was an advantage to us in having a single partner. We don't have to stand in the middle of coordinating and taking risk. And that indeed is how it's worked out with Acadia. We're very pleased about the financial terms here, and it's sort of the front end and the back end. So we got USD 100 million upfront. We get that within 10 days. And then there are very significant milestones along the way from first commercial sale and then sales milestones and then the royalties on net sales range from mid-teens into low 20s. So they sort of start from the top end of the North America royalty range. So I think it's a fantastic deal for us all around from a financial point of view. Now the second point, again, talking about Acadia, this Acadia has learned so much and know so much. They know the drug inside out. They know the data inside out. They know the supply chain inside out. They've set it up, made a huge investment in that. So really, they are in a unique position to use all of that to then leverage outside the U.S. So I think the one question I'm sure I'll get is, well, they don't then have a commercial presence in the U.S. at the moment. Is that an issue? And I don't believe it is. And I think all the advantages I've just talked about, together with the fact that many of the people at Acadia have operated internationally. And in the near term, it's really regulatory stuff that needs to be done. And rare diseases are not about massive sales footprints. We know that. So I'm very confident that Acadia will do whatever they need to do to meet this success outside the U.S. And I think the stuff that they're achieving in the U.S. really is so impressive, and I think they're going to use that as a blueprint for them moving outside the U.S. Important point to understand, again, is that Acadia is responsible for all costs here. So just as the North America revenue goes straight to the bottom line for us, so will the rest of world revenue. Third element of the deal is regarding 2591. So what we have done also is grant Acadia an exclusive worldwide license to 2591 in only 2 indications, and that's Rett syndrome and Fragile X syndrome. Neuren continues to hold on to all other indications worldwide. And Acadia will pay us milestone payments and royalties for 2591 in Rett and Fragile X, which are identical to the milestone payments and royalties that they pay us or trofinetide, and that's both inside North America and outside North America. So inside North America, the original deal terms and outside North America, the terms we've announced today. Now I'm going to talk a bit more about what we're thinking behind that NNZ-2591 thing in a minute, but it's for us, an important part of the deal. And then I guess the last point is that there's no doubt this really does put us in an even stronger position now to explore all the strategic options that are going to be ahead of us. And we've talked about that when we reached our first Phase 2 result later this year. If you take our cash at June 30 and add on the upfront payment, I'm assuming Aussie U.S. exchange rate of 68, and there'll be U.S. withholding tax of 5%. We're going to have cash of AUD 226 million, so an incredibly strong position to be in. So I think all round, as I said, we're absolutely delighted with this outcome and with the process that has resulted in it. So just quick home in on those economics for ex North America. So I said, $100 million upfront. There's $164 million that comes to us when first commercial sale milestones are hit. So $35 million in Europe, $15 million in Japan, $14 million if a second indication gets to sales. And then there are sales milestones, and it's a similar sort of structure to the U.S. with our escalating thresholds of annual net sales. If you see in our announcement today, they are actually split between Europe, U.S. and the rest of the world, but they total up to USD 363 million. And then as I said, the royalties, as with North America tiered arrangement, mid-teens to low 20s. And also, if Acadia chooses to sublicense in any region in the early part, then we get a share of that, which is then recouped off the payments later on. So as I said, fantastic all round economics, not just the front end, but the back end as well. Important point to understand is that the North America economics are unchanged, and they were already very attractive to us and they remain so, remember, we've got the share of the priority review voucher coming when Acadia sells or uses it. We have royalty rates between 10% and 15%, and we have milestone payments up to USD 350 million of those thresholds of annual net sales. What we also have, which we haven't really talked about too much before is that if Acadia chooses to develop trofinetide in Fragile X, and of course, now they've got the choice trofinetide or 2591, we get paid up to $55 million in development milestones for that indication. So those remain really attractive economics to us and, of course, the rest of world layers on top of that. Now I'm just going to break off for a second because Acadia had a call this morning, which was partly about the deal, but partly an update on the DAYBUE launch. If you've got time, really encourage you to listen to that or at least to look at their slides. I'm going to actually share one of their slides just quickly now to give you a very brief flavor of what's happened. So hopefully, you can all see that. So Acadia is confident enough in what has been a great start to now give sales guidance. So they've said that the second quarter net sales, so i.e. the quarter that ended June 30, expected to be between USD 21 million and USD 23 million. And in the third quarter, which is we're now currently in, they've given guidance of between USD 45 million and USD 55 million as the net sales. So that's a great outcome and really reflective of everything going exactly according to plan. I mean, again, still is the message, and they've had a great start. And a few little snippets from that. I think one thing that the prevalent population, you remember, there's 4,500 patients that are known today. That population is adopting the drug faster than expected. And if you remember, there's split between centers of excellence, big teaching hospitals and then practices around the country. And there are patients from all of those areas who have been written prescriptions already. So that's a great outcome already. And the low-hanging fruit was people from the trial continuing commercial treatment. Well, those are now in the minority, it's new patients that are in the majority of the patients taking the drug. The second thing we talked about this morning and we've seen it and you've probably seen it on social media, and there's a lot of reports about the benefits that are being seen in patients and those reports are coming from both caregivers and physicians, which is very encouraging this early in the treatment, delighted to see that. A little bit on the reimbursement side. So Acadia said that out of those 4,500, 20% have effectively got covered by a plan on Medicaid that can now have a written policy about DAYBUE. Now that doesn't mean that the others can't get it yet because there's medical necessity measures that can be put in place for a patient to get the drug before those written policies are in place. But again, this early in the launch, that's a good outcome. And I think that 20% is going to keep growing over time. You remember, Acadia and I have talked about this in a 30- to 180-day period where all the states for Medicaid and all the different plans are all putting this in place. And of course, we are still really not even halfway through that process yet, but still arriving at those net sales numbers. So really, that was fantastic news. And as I said, plenty more color. And again, a glimpse of Acadia's expertise if you listen to that call, which I encourage you to do, if you have the time. Okay. So now let's talk about 2591, I said I wanted to just explain this a little more. So under the original agreement, Rett and Fragile X was locked out to 2591. So under the original agreement, there was a strict prohibition in fact, on 2591, being used in Rett and Fragile X. So no one could develop it for that. Also in the agreement was a restriction whereby whatever indications Acadia developed trofinetide for, Neuren was not to compete with that. So I've been asked in the past sometimes, well, what about if they developed trofinetide for Phelan-McDermid or Pitt Hopkins or Angelman or Prader-Willi, would you have to stop development? No, I never expected that to happen, but by the letter of the agreement, that's what I said. Now we've taken the opportunity here to remove that for the 4 indications. So there's clarity of the 4 indications that, that doesn't apply after this transaction. So I think I feel we've really enhanced the value of 2591. As you know, I already have very high conviction about the value of it, but I think we've really added to it here, a, by adding Rett and Fragile X in partnership with Acadia. They talked about that on the call this morning, I think, particularly with Fragile X, I think greatly increased the probability of it being developed. And then we've removed risk, albeit a remote risk from our 4 [ price ] indications. So I think really, the position for 2591 is greatly enhanced by this transaction. And of course, there's more milestone payments and royalties to come from 2591, and they get the same attractive economics in both North America and in the rest of the world that trofinetide has. So if it was possible, I'm even more excited about 2591 now. As you know, we have the 4 Phase 2 trials running, and we're going to get the first results from the Phelan-McDermid trial in December this year. Can't wait for that moment. And then we'll have some attractive options ahead of us. So I will close as always on this slide, which is, as I said before, we started 2023, knowing that it was a massive year for us. There's some very big transforming milestones coming. As you well know, the first one was DAYBUE being approved by the FDA back in March. That was huge. I guess today is another massive moment for us that rest of world outcome, a global partnership with Acadia with all of those attractive economics and the improved position for 2591. So I think, again, that's not it for the year because there's a lot more to come. We're going to get $100 million before too long, quarterly royalties on net sales starting. I mean we've already owned them for the last quarter, and we now can see the sort of net sales numbers, the priority review voucher, 1/3 share is still there to receive. And then all buildings of that result in December for Phelan-McDermid trial. So a transformational year for us and be extremely happy today and can't wait for the rest of it to play out now.

So thank you very much. I am going to stop sharing and have a look at the questions that you've submitted. So no particular order. Is there any consideration for a share in any future PRVs for Rett and/or Fragile X within NNZ-2591 through Acadia? So that's a good question. So what you have to understand is that for each molecule, you can only get on priority review voucher. So for 2591, there can only be one and it will be the first pediatric rare disease indication that is approved. At the moment, we're obviously ahead in our development program. So we'd expect us to get it. But if it turned out Acadia got their first with Rett or Fragile X, then we will get 1/3 of the value the same as we do for trofinetide. Can we please get an update on whether there will be a requirement for any clinical trial of trofinetide in the EU prior to approval? So as you know, our position has always been that we don't think that should be necessary. We think the data is strong enough to get approval on its own. As I mentioned, Acadia is in the best position of anyone to prosecute that argument. They know that data inside out. They've already prosecuted it with the FDA. So it's now going to go up to Acadia and they talked this morning about going and engaging with the EMA. There's a second part of this. Can you explain the time lines for trofinetide to launch into the EU? Again, I can't do that now because it's now in Acadia's hands and they will need to do that. But as I said, there was discussions morning on the call about getting going with that regulatory process. There's a question here about the restrictions on 2591. And I think it's sort of almost suggesting that the restrictions have been put in with this agreement. Well, as I said, hopefully, I've explained that clearly, it's the opposite. We've actually removed restrictions in this agreement. Does Acadia have licensing first rights for NNZ-2591 for indications outside of Rett and Fragile X? No, they don't. So as I said, there is nothing in this agreement that impacts on 2591 outside Rett and Fragile X. Next question, previously, Acadia has guided to a linear ramp of DAYBUE. Do you still think this is the case? So that's funny. I've always said to people, well, linear, the slope of the linear thing can be many different things. So all I say is, I think I feel that the sales are ahead of expectations, but that reimbursement process still has to be gone through. So I still think there's a break on the demand that is actually sitting out in the market. But I think certainly sales, I feel are ahead of expectations so far. Any progress with Acadia on sale of the priority review voucher? So the trofinetide priority review voucher. They were asked on the call this morning and again Steve Davis has again said they have made a determination on whether to sell or use it but there's a very well-established market for selling them. So yes, I don't have an update today. Question. Noted that you said you had other attractive alternatives in front of you. What was the clinch point to go with Acadia? Yes. So I certainly feel this is the most attractive of all round value to us. So financial terms were very attractive to us. The fact that Acadia has all this fantastic knowledge and the supply chain set up, ready to go and they know it inside out was extremely attractive to us. And also that enhancement of the position with 2591 was also very attractive to us. And so even though the alternatives were attractive in themselves and they were companies that we would have been very happy to work with, none of them could provide that mixture of benefits to us. So I think just overall, it was clearly the best deal for us. Can you give us your thoughts on the timing of the regulatory process in other parts of the world? I think I think I've already answered that. I can't, that's up to Acadia to do that now. What are the payment terms for royalty payments for DAYBUE in the U.S.? So yes, it's quarterly in arrears. So during the subsequent quarter, they have to report to us and pay the royalty. My question is Canada NDA filing expected in 18 months, do you have visibility on time lines for EU and Japan? Sorry, same question. I don't at the moment. When will DAYBUE be available in Australia? Good question. Australia is an important part of the rest of the world, and it is separately contemplated in some of the deal terms. Again, sorry, I don't have any time line for you. I'm afraid that's going to be up to Acadia, but absolutely, we expect Australia to be part of the story. On Fragile X based preclinical models, which drug turns out or NNZ-2591 lent itself to be the better choice to develop in your view and why? Yes, good question. Actually, both drugs, the results in the preclinical model were very good with both drugs. So I don't think it's so much that. It's more the different properties of 2591 versus trofinetide including the dose means that there's a sort of a trade-off to be made there. We've made sure there's no economic incentive either way in the deal terms. And again, it will be up to Acadia, which one they choose. They've said they'll consider both. So what I do feel the probability overall for Fragile X has been enhanced by this deal. That's definitely the case. Okay. Someone's asked me whether have you received takeover interest that you have declined to entertain? And I'm sorry, I'm not going to answer that. Given Acadia does not have ex-U.S. infrastructure, are they more likely to establish infrastructure sales force or sublicense? So I believe it's more likely that they will establish the infrastructure they need. Now they might not necessarily be in the whole of the ex-U.S., but I do think that they will look to do this directly. But again, we'll need to hear from them on their plans in due course. Are there sales milestones for Fragile X? So remember, the sales milestones and the royalties for both molecules apply to total net sales in all indications. So it's always been the case that if Fragile X happened, you get the benefit of it effectively coming in at the top because it comes into the top of the net sales calculation. So there are not separate sales milestones for it. Is there an estimate for the start for the Fragile X Phase 3 trial? So now again, Acadia needs to decide what they're going to do in there, and we'll need to hear from them in due course. So I think that's all the questions, but we did have some pre-submitted ones. So let me just turn to them. So someone's pointing out that Israel has quick approval times, can this market reprioritize? So possibly, but again, that's Acadia's decision now. So we'll see what [indiscernible], but I think they will want to go to places as quickly as they can, but that will be up to them. Does this agreement effectively restrict Neuren's development options for 2591 to just the current 4 indications? So again, remember what I said about the 2591 arrangements, it's not that we've introduced restrictions. It's actually that we've removed restrictions. So the position for the other 4 indications outside the current 4 is the same as it was before the deal. So it's not restricted. There's only a conflict if Acadia in the future decides to divert trofinetide for those theoretical indications. So no, we have everything open to us still as we did before. Just a question about the Angelman syndrome trial. So asking why it's running beyond December 2023, given it started earlier. And is recruitment still going on? And what is the new time line? So lots of different questions there. So yes, it is still going on. It has been more challenging to enroll in that study than the 2 studies that are in the U.S. and the big challenge I've talked about this before is having to enroll patients in 3 different age groups starting with the older kids. So you've got to enroll older mid-teen Angelman syndrome patients before you can enroll the younger ones. And really that's been the big factor in why it has enrolled more slowly. But it's still running, and we're not giving new time lines yet, but we will do in due course. As you know, First Phelan-McDermid is first in December and the other 2 will follow sequentially. But Angelman will likely be the third or 3. I think we might have another couple of questions. USD 100 million is a large upfront and the other financial terms are very attractive too. It suggests that Acadia sees a great potential for the drug outside U.S. Have they talked about what that market opportunity looks like? So they were asked about that on the call this morning. And they haven't really other than said the prevalent population is the same everywhere. So therefore, because the population is larger, the potential number of patients is much larger outside the U.S., albeit typically the price will be lower. That's as far as they've gone so far. I think they will come out with much more about that in due course. The second indication noted for rest of world trofinetide. So this could be anything outside the 4 focus of 2591. Yes, that is true. I think I'd be very surprised if an indication comes to rest of the world and not in the U.S., I think it's highly likely that it would be the same indication for both. But yes, we will have to wait and see, and of course, now 2591 in Rett and Fragile X plays into that as well. Okay. I think that's all the questions. So I was hoping to wrap this up within half an hour, and we're just about done that. So thank you so much, all of you, again, for attending. I'm sure I'll talk to some of you in more over coming days. But delighted with the position we're in today and very much looking forward to the remainder of the year. Thanks very much, everyone.