Neuren Pharmaceuticals Limited (NEU) Earnings Call Transcript & Summary

Great. Thanks very much, Ian, and good morning, everyone. Thanks for spending the time to listen to the Neuren story. Really appreciate it. Before I start, I would have to remind you that there are some forward-looking statements in the slides and in my comments subject to risks that could lead to different outcomes. So let me start by giving you a summary of what it is Neuren is trying to achieve, and that's to have a real positive impact on neurodevelopmental disorders. So these are serious neurological disorders. They emerge in early childhood, caused by genetic abnormalities and just have a severe aspect on just about -- severe impact on just about every aspect of life, so walking, talking, breathing, sleeping, eating, just about everything is impacted. They're called syndromes, so the names of the syndromes are across the top of the slide there, Rett syndrome being the first one on the left. And underneath that is the name of the gene that causes these things, so the abnormality in that particular gene. So you can see, they're all completely different, and yet, kids look very similar. So that horrible range of problems is common across all of them. And that's because there's a feature that is common to all of these things, which is that the connections between the brain cells don't form properly when the brain is developing, and therefore, signaling is not happening properly. And that covers just about every aspect of your body, and that's why you get this wide range of impacts. There's never been an approved treatment for any of them until last year when our drug for Rett syndrome was approved, which I'll come onto in a minute. So there's a massive unmet need here. This is a huge lifelong burden on the patients and their families, and that's what Neuren's trying to do something about. We're trying to treat the syndrome. So we're trying to improve that connectivity and the signaling, therefore treat the syndrome, not treat one particular symptom. And we do it with two drugs. So we have two drugs both trying to do the same thing, and they are delivered, both of them, as an oral liquid medication. So it's twice a day drink, which is a great dose form for the kids. So this is where our product portfolio stands today. So at the top, you've got the first drug, trofinetide. It's on the market, as I said, for Rett syndrome, marketed as DAYBUE. And that's through our exclusive licensee, Acadia Pharmaceuticals, which is a Nasdaq-listed company. And NNZ-2591 is the second drug. We've had positive Phase II trial results across 3 different syndromes, and Neuren owns that outright. One thing you have to understand about all of these syndromes is that they are so-called orphan drug indications. And that means, technically, we're dealing with rare disease here but, very importantly, it's not ultra-rare. So there are thousands of patients in each of these syndromes, not hundreds as you get in ultrarare diseases. Orphan designation gives you a few advantages: one, much more favorable pricing than mass market drugs; secondly, a more favorable negotiation with the regulators, which historically has led to greater probability of the drug getting to market, getting through all the development hurdles. And then the third thing is once you get to market, the regulators give you exclusivity periods on top of your patents. So they will give you periods where they won't approve a generic. It's 7.5 years in the U.S., 12 in Europe, 10 in Japan. So that's fantastic commercial protection. So Neuren's whole business is, a, neurodevelopmental disorders; and b, orphan drugs. And we think that's a really attractive space to be in for a relatively small company in Australia. So for investors, really, the Neuren story is fairly simple despite the complex science. There are three things that drive our value that you need to understand. The first one is we get our share of trofinetide or DAYBUE in the U.S. for Rett syndrome through our deal with Acadia. The second element is that same drug outside the U.S., so that's a separate deal with Acadia with different economics, and I'll go through both of those in a minute. And then the third thing to understand is the big value upside from the second drug represents. And so I've always felt this is a very attractive combination to have. So you've got the certainty of recurring commercial cash flows from the first drug, like you would get with a pharmaceutical company. And those cash flows gave us a maiden profit last year of $157 million, and we have more than $200 million in the bank so we don't need to raise capital. So that gives us an incredibly strong financial foundation. But then you have the big potential value upside of the second drug that you would normally get with a biotech company. So I think the good thing here is that sometimes with biotech investments, you're betting everything on one binary outcome. You're not here because your downside is protected. You've got this great financial foundation and these recurring cash flows coming from the first drug. So that's why I feel it's a great investment proposition. So I'm going to just briefly go through each of these three things, touch on the main points. So the first one is DAYBUE in the U.S. for Rett syndrome. So it's approved in March last year, first ever drug approved for Rett syndrome, first drug for neurodevelopmental disorder. So really proud moment for us after a long and winding journey to get there. Acadia launched in April and got a fantastic outcome April to December last year, so less than 9 months USD 177 million of sales. We're guiding for this year between USD 340 million and USD 370 million of sales. And just to point, everything I talk about is the calendar year, so Neuren's financial is the calendar year. So on the right-hand side you can see the impact on us financially. So last year, we owned $27 million of royalties. That should grow to between $55 million and $61 million this year. But we'll also receive a sales milestone payment. So that will take our revenue to between $132 million and $138 million for the year. Just to mention, before I leave this slide, so approved in the U.S. This slide is actually out of date because Canada was approved late last week. So that was fantastic news, approved on time. And then Acadia is preparing to file the full marketing application in Europe in the first quarter of next year, and they're also negotiating with the Japanese regulator at the moment for the requirements there. So let me quickly explain the economics that we get here and how we get this huge cash flow. So left-hand side, north America, the original deal; the right-hand side, outside of North America. So that was a deal done after approval in the U.S. So the left-hand side was done after Phase II. The right-hand side was done after approval. Important to understand that, and I'll point out a couple of things about that in a minute. So North America first. We've already received USD 60 million of milestone payments. But down the bottom of the slide, you see the future -- the current and future revenues. So we're receiving between 10% and 15%. Currently, it's between 10% and 12% on every sale. And then on the right-hand side -- the right-hand side or the left-hand side, there are the sales milestone payments, one-off payments as sales hit particular triggers for an annual year of sales. So you can see the one I talked about, we'll earn this year is USD 50 million. For the first year, it's USD 250 million. So fantastic economics from there. But then if you move to the right-hand side, it's even better because we got USD 100 million upfront for that deal, USD 100 million upfront last year. There, again, very lucrative milestone payments. But then if you look at the royalties, at this time, it's mid-teens to low 20%. So much higher royalties. So it actually means that even if the sales will stay lower in Europe and Japan than they are in the U.S., we could actually get it the same because we're going to get a bigger share of it. So really powerful economics. And the other important thing to understand is we have no cost attached here. We're not paying anything on to anyone else here. This is -- this revenue comes to us some in really, very straight pretax profit. So that's why it's had such a massive financial impact on us. A quick word about the U.S. launch. So in this chart, the blue bars are DAYBUE quarter by quarter since launch. The gray bar is an orphan drug that was launched about the same time and very comparable. It's the same sort of size market, similar pricing. So we think a very good comparator. And you can see that DAYBUE has beaten it every quarter but has quite a different shape there. We had a massive surge in demand in Q3 and Q4 last year and we had fall in Q1, and then it's back on the growth trajectory now but slower growth beyond that massive surge that we got initially. We actually got heavily punished in the market for that, when that Q4 to Q1 fall happened. But we think there's a great opportunity here in the future. About less than 30% of the currently diagnosed patients, which is about 5,000 patients, have so far tried the therapy. So there's another 70% for Acadia to access. We also believe that the real number of patients out there is between 6,000 and 9,000. So again, growing that diagnosis should lead to growth. And the great thing here is now Acadia has now been able to collect a year's worth of real world evidence of the positive impact this is having for patients. And that's really powerful from a marketing point of view. That's a much better than clinical trial data, which tends to be scores and end points, which are quite difficult for you to understand what they mean. Now they've got real world evidence to use in their marketing efforts. So that's the first two elements of our value. And back to the third element, which is this big potential increase in value from the second drug, NNZ-2591. I've always had very high conviction this can be worth multiples of the first drug notwithstanding what they've done for us. And that's because we're going after multiple syndromes in parallel. And so we've had positive Phase II results across three syndromes: Phelan-McDermid, Pitt Hopkins, Angelman. The number of patients across those three is about 4x Rett. So even if it's only those three, it's a way bigger opportunity. But we're actually working on other indications in the background and we think we could have an impact on them. We'll talk about those in due course. We just had a meeting with the FDA, end of Phase II meeting on the Phelan-McDermid syndrome. And we've got alignment on the next trial being a Phase III trial, so the last trial before registration. Very similar to the Rett syndrome Phase III program and very similar to our Phase II trials. So the same population, the same length of treatment, the same dose. So we've really got to repeat Phase II to get a positive outcome. There's one thing we still have to nail down with them, which is the way you analyze the efficacy measures, We're working on that at the moment. And in the meantime, we're getting ready to start the trial, so identifying sites, appointing the service providers and making the drug. We're about halfway through making the drug for Phase III. So a really exciting time for this drug. And that Phase III is where you get a massive value uplift. I take you back to those 2 deals I've showed you in the economics. Even on that example, you can see the difference in economics if you can take it to a successful Phase III outcome and way more companies then become interested. And we think we can get a much, much bigger outcome there than you can get at the first two. So that's the huge opportunity for the future. Just quickly on the 3 Phase II trials that I said were positive. There's too many numbers on this slide, but I'm just going to pick out the message, which is that from a physician's point of view, more than 80% of the kids improved during the treatment. And from the caregiver's point of view, between 2/3 and 83% of the kids improved, which was a great outcome. And the things that improve: communication behavior, cognitive ability, and social interaction, all -- and motor skills, all critical things that might be some of the most important things across these syndromes. This chart, and I just want to hone in on there, because people don't see we're going to start a Phase III very soon. This is a really important. This is just a snapshot of some of the results in that particular trial of Phelan-McDermid syndrome Phase II trial. Left-hand side is the clinicians' view of kids. The right-hand side is the caregivers' view of the kids. Each bar is an individual child. You can see sort of a white horizontal line across each chart. That's no change. So on the left-hand side, you can see 16 out of 18 kids are above that. 16 out of 18 improved. And we got 2 which had the best possible score of 1, very much improved. And on the right-hand side, you see a very similar picture from a caregivers' point of view. So lots of things important here: the rate, the magnitude of improvement, very important; the consistency of improvement across the kids; and very important, the consistency between what the clinicians saw and what the caregivers saw. So these are fantastic results. We were blown away by this. Okay. I'm just going to close by looking at the milestones for the past and future. So we've had another massive year so far. A lot has happened. We've had positive Phase II results in 3 different syndromes, as I said, Phelan-McDermid, Pitt Hopkins, Angelman. We've had that great meeting with the FDA about the way forward. Acadia had more than USD 160 million of sales in the first half. And you've seen the guidance again for the full year. So we had $24 million of royalties in that first half. The next point, as I said, they've got approval in Canada, which is fantastic to see on time. And they've also gone through the first element of the European regulatory process. So that's a great year so far, but there's a lot coming up. So as I said, we've got to confirm that final thing with FDA on the Phase III trial. We're going to then commence the Phase III program. It should be a massive event for the company. We're looking at those other indications. As I said, we'll talk more about them in due course. Potential royalties and sales milestones at $130 million to $138 million for the year. No longer a potential approval in Canada, but actually launched trofinetide in Canada. And then that submission in Europe in the first quarter next year. So huge amount coming up. It's been a massive 2 years for us, a transformational 2 years, but a huge amount still to come. So thank you very much. I will stop there and happy to take questions.

Great story, Jon. Thank you for the presentation. We do have a number of questions coming through. Just for the sake of completeness, I'll ask a couple of which I think you might have answered almost completely. But you mentioned U.S. and outside the U.S. The first question was, where outside U.S., I think you said Canada, Europe and Japan. The question then went on, what's happening in Australia?

Yes, right. So Canada, Europe and Japan are the first, the top priority, and part is because they've got very well-established orphan drug rare disease regulatory frameworks and business long standing. So that's why they're the first target. But there's many other countries that are hoping we'll get to, and Australia is one of them. I can't tell you anything specifically until Acadia does, but I certainly hope it will come to Australia in due course.

Also a couple of questions here around performance. And again, to the extent that you can, tell us about what may mean for the future with revenues down flowing to perhaps share price. Again, I know you're an ASX-listed company. What can you tell us about how the future may look?

Yes. Look, I mean, I'm disappointed here since revenue is down. I mean, with 10% of sales and that fall from quarter 1, which then became growth again in quarter 2. I mean, the impact on us is minimal in terms of royalties. So we're still very optimistic about the future and said that cash all flows to the bottom line. So I think it's hugely attractive still. So I think it's way overdone, the reaction from everyone to that. Acadia is going to -- as I mentioned, Acadia going to report their next quarter, Q3, I think it's the 7th of November Australia time. So that will be important to see that in the next quarter. But all the metrics are pointing in the right direction. So we feel good about it. But as I said, the main game from a value point of view now is the second drug and the huge uplift we can get if we can execute that given the first 2 results we've had.

A little bit about the competitive landscape in the United States, world's biggest market for just about everything. Who are your competitors and how do you stack up against them?

Yes. So one very attractive thing about working in these sort of conditions is that compared to mass market drugs, there's very little competition. And in fact, Phelan-McDermid and Pitt Hopkins, we're leading the way very comfortably. So we can be the first to market. Rett, currently, there are no competitors. DAYBUE is the only product on the market. The long-term competitors potentially is gene therapy. So all of these syndromes, there are gene therapy companies in the early stages of development. In Rett, they're in the early stages of clinical trials and some of the others that haven't reached clinical trials yet. So my view on gene therapy, it's not going to be a cure. The data that's come out in Angelman syndrome in particular and in Rett is showing improvements, but they're not that dissimilar to the improvements we see. So completely different approach, can be complementary and probably, time will tell, but probably you get a better outcome in both. So -- but they've got a long way to go yet from a clinical and regulatory point of view.