Neuren Pharmaceuticals Limited (NEU) Earnings Call Transcript & Summary

Hi, everyone. Good morning, and welcome to the 43rd Annual JPMorgan Healthcare Conference. My name is Silvia and I cover Australian Health Care over in Sydney. Today, I have the pleasure of introducing Neuren Pharmaceuticals CEO and Managing Director, Jon Pilcher.

Thank you, Silvia. Good morning, everyone. It's great to be here on a beautiful day in San Francisco, and thanks very much for coming to listen to the presentation. So Neuren, we are listed on the Australian Stock Exchange. Our market cap is around USD 1 billion. We have 2 products, one is commercial, and that's generated revenue of more than AUD 200 million for us in each of the last 2 years. But we have what we think is a very exciting follow-on opportunity with the second drug, and I'll talk about both of these. We're headquartered in Melbourne, Australia, but all of our attention is on the U.S. market. So before I continue, let you know there are some forward-looking statements in what I say and in the slides, subject to risks that could lead to different outcomes. So what does Neuren do? So we are completely focused on neurodevelopmental disorders. The names of the syndromes are across the top of the slide there. They're all caused by different genetic mutations. So you have them from birth, but families typically don't realize until about 18 to 24 months. And sadly, it's a terribly debilitating range of issues affecting just about every aspect of life. So walking, talking, sleeping, eating, hand use, cognitive function, everything impacted. There are no treatments available for any of these syndromes other than Rett syndrome, and that's our drug that was approved, which I will talk about. So massive unmet need here with devastating impact on the lives of the patients and families, which we're trying to do something about. Now the reason we think we can treat across these different syndromes, even though it's all different genetic mutations is that they're very similar clinically, and that's because in the brain, the connections between the brain cells haven't formed properly during development. So the signaling isn't happening properly, and that impacts everything in your body pretty much. So our 2 drugs are aimed at improving that situation in the brain to get the signaling working properly and hopefully have an impact across all of these symptoms. Both drugs are taken orally as liquids, which is a great dose form for the kids. So this is our pipeline at the moment. So the first drug, trofinetide, is partnered with NASDAQ-listed company, Acadia Pharmaceuticals worldwide. They presented at the JPMorgan conference a couple of days ago. I'm going to refer to some of the stuff that they updated on that presentation. Our second drug, we own outright, and that's in development. We're in clinical trials at the moment, at a very exciting stage that I'll talk about in a minute. All of these indications are orphan drug indications. So that means favorable pricing, regulatory concessions and also protection against generics beyond new patents from exclusivity periods that the regulators give you. So this means that technically, we're in 'rare disease' here, but there is a wide range of rareness and everything we're doing is not ultra-rare. So we're talking about thousands of patients suffering from each of these syndromes. And that means you can get hundreds of millions of dollars of sales in each of these indications. So our whole business is neurodevelopmental disorders and orphan drugs, which we think for a small company is a great space to operate in. So our business really is underpinned by a really strong financial foundation, which has been given to us by that first drug, trofinetide. It's actually called DAYBUE in the market. We have cash of more than AUD 200 million, and that's come from DAYBUE and we're getting more sustainable growing revenue from Acadia as our share of that drug coming in all the time. So that gives us a really strong foundation and that allows us to fund the second drug, which we think has got massive potential. The size of the boxes on the slide is no accident there. We really think it could be worth a lot more than the first drug. So I think from an investor point of view, you have the certainty of the strong cash flows coming, but then you also have the potential quick value upside from the second program. So I think it's a very good proposition for investors. So I'm going to touch on both of the drugs, and I'll start with DAYBUE. So DAYBUE was approved to treat Rett syndrome, the first treatment ever approved to treat Rett syndrome, in March 2023, a very proud moment for Neuren. We've had a long journey to get to that point. Acadia launched it a month later. So we had 3/4 of sales in 2023 and then a full year of sales in 2024. And it's been a fantastic start. So USD 177 million in that first year, grown to $340 million to $350 million in 2024, which was the first full year of sales. So that's a fantastic outcome, a highly successful launch. The chart on this slide just shows the quarter-by-quarter sales, and it's showing against a comparator, which is a drug called SKYCLARYS, which was launched around the same time as DAYBUE, similar size of the patient population, similar price, another orphan drug launch. And you can just see that DAYBUE every quarter has had higher sales versus SKYCLARYS and SKYCLARYS is viewed as being very successful launch. So we're very happy with what Acadia has achieved. You can see there was a big burst of demand after launch, and that really was driven by the Rett syndrome Centers of Excellence in the U.S. who have been intimately involved in all the clinical trials. So physicians and the families very familiar with the drug. So there's very fast uptake in that sector of the market. But really, the second wave of growth comes from the 75% of patients who are not seen in those centers of excellence. So really, that's the target for the second wave of growth for Acadia. And when they presented 2 days ago at the conference, they talked about a lot of initiatives to achieve that second wave of growth, which we're very happy to see. So when you think about the sales and the growth, there are 3 things to think about. How many patients are there available? What percentage of those patients can you get on to treatment? And then how many of those patients can stick with treatment because this is a chronic therapy. We expect it to be therapy for life. So persistence on therapy obviously is a critical part of the sales. So to step through those one by one. So the theoretical prevalence, 6,000 to 9,000 patients in the U.S. is what we believe the prevalence is. And when the drug launched, the diagnosed and known patients was 4,500. Now already since launch, that's grown to between 5,500 and 5,800. So there's been big growth in that, and there can be more to move that number towards the theoretical prevalence of 6,000 to 9,000. So the second element, how many of those patients can get on to treatment. So, so far, about 1,600 patients have tried therapy, the families who tried therapy. So there's a long way to go between 1,600 and 5,500 known patients. So big potential for growth. So the few initiatives that Acadia announced a couple of days ago. Firstly, a significant increase in the sales force that they're putting to the drug. So 30% increase in the sales force is coming and also an increase in sophistication of how the sales force is allocated. They're also launching direct-to-consumer information campaigns. And one very important thing here is to bring the positive experience that many families are seeing in their loved ones, bring that to life through real-world data. So now given that the drug has been on the market for a year and 9 months so Acadia has collected a lot of real-world experience, both from physicians and caregivers and really getting that information out to new physicians, new families is critical to achieving the growth, and they're doing that in a number of different ways in many different media. So the final thing is keeping patients on treatment. So with chronic therapies, you never get the situation where everyone stays on treatment. With this drug, there is one common side effect, which is it often causes diarrhea. And so strategy is to help families minimize that and deal with it and in many cases, eradicate it is very important. And I think that persistency rate is improving all the time. And now 66% of the patients have now been on treatment for more than 10 months. So once patients get past the early stage, it tends to be very sticky. And so guiding families through that early period is vitally important, and that's a big focus for Acadia. So I think everything is in place to drive that growth in the future. We're very, very optimistic about the growth that can occur in the U.S. from here. But that's not the end of the story because we think there's a long-term growth opportunity for Acadia and ourselves here through global expansion. So Acadia achieved approval in Canada recently, and we'll see first sales coming through in the third quarter of this year. They also, at the conference a couple of days ago, announced that they filed for approval in Europe. They said they were going to file in the first quarter. So I was delighted to see that they achieved that in early January, potential approval in the first quarter of next year, but they talked about initiating early access programs this year in the second quarter to bring the drug to patients in advance of approval. So we'll see that coming through, which is very exciting for us. And they're already building launch teams that they need to make most of this drug in Europe. And then there's Japan, so they've to run a small clinical trial in the Japanese population, which is very typical for drugs. That's going to start in the third quarter of this year. So you've got growth in the U.S. that I talked about, and then you've got Canada coming on stream and then you've got Europe and then you've got Japan and then potentially other markets as well. So we really think this is a fantastic long-term growth story for us, very excited about it. So what about the economics? I've talked about sales so far, but what does it mean for Neuren. So we get very attractive economics here in the form of milestone payments and royalties. On the left-hand side of the slide is the North America economics and on the right-hand side is outside North America. So you can see in the U.S., we get royalties of between 10% and 15% of sales, and we get some very significant milestone payments when sales hit certain thresholds. So the first threshold was $250 million in a year. We've seen earlier on that we hit that in 2024. So we've earned that first milestone payment of USD 50 million, which we'll receive shortly. We've already received big amounts of cash, you can see on the slide there to date. Outside North America, the economics are even better. So we received USD 100 million upfront for that, and we get milestone payments as the drug reaches the market and then again sales milestone payments similar to the U.S. but the royalties are higher, so mid-teens to low 20% royalties. So that means that if the sales are lower in Europe than they are in the U.S., we might actually get the same economics because we get a bigger share. So really strong position for us. And I mentioned when I started the presentation that we had revenue of more than $200 million in each of the last 2 years. So royalties in 2023 were $27 million. They doubled in 2024. Milestone payments increased, and we also had big one-off revenue of $100 million from that rest of world deal in 2023. And in 2024, we had another windfall because Acadia was awarded a rare pediatric disease priority review voucher for DAYBUE, which is a tradable, sellable instrument, and they sold it just before Christmas for USD 150 million, and we get 1/3 of the value. So we're going to receive another $50 million from them shortly. So really strong economics. And for us, we have no cost attached to this. This is 100% margin so straight to pretax profit. So incredibly strong financial position for us. So that is the DAYBUE story and the financial foundation that it's given us. Let me move on to NNZ-2591, which is our second drug. And I said with really high conviction about the fact this could be worth a lot more to us and for shareholders than DAYBUE, notwithstanding the amazing outcome we had from that. So 2591 has a number of very favorable properties compared with DAYBUE. One important one being it doesn't have those GI side effects that you see with DAYBUE. And we also think it has the ability to treat across these syndromes. So our strategy has been to push multiple syndromes in parallel. We want to make the absolute most out of this drug for both patients and their families and for shareholders. And so we really want to move these along in parallel as much as we can. So the 3 indications we chose to lead this, Phelan-McDermid syndrome, Pitt Hopkins syndrome and Angelman syndrome. We had Phase II trial results in each of those last year. All positive. All incredibly encouraging. And we're in a great competitive position here because Phelan-McDermid syndrome and Pitt Hopkins syndrome, we're leading the way with the most advanced clinical program. We should be able to get to market first, much as Acadia has done with DAYBUE, set the price, dominate the market. So they're very attractive to us. Angelman Syndrome is a little bit different. It's still a very attractive proposition, but there are a couple of RNA therapy companies just starting Phase III trials. But we think that our oral therapy, which can take genetic allcomers is very competitive with those therapies. So we certainly want to push that forward as well. So Phelan-McDermid syndrome is the most advanced program. We recently had end of Phase II meeting with FDA where we proposed the next stage should be Phase III registration trial. And we've got alignment with FDA on everything apart from one thing, which I'll come back to in a second. But very important, they were okay with us going straight to Phase III with a single pivotal trial. The same dose we studied in Phase II, the same duration of treatment and the same population. So really, we just got to repeat Phase II on a larger scale, which is a great outcome. The one thing we didn't agree with them is very important. It's the primary efficacy endpoint, so how you judge efficacy in the trial. It's not that unexpected that we didn't reach alignment because in these indications, no one's ever done anything before. We're the first people to do a registration trial and it was the same case with Rett syndrome. So there's no precedent for FDA or us. So we really have to, between us, arrive at what the best way of measuring efficacy is. So obviously, they didn't agree with what we proposed at the end of Phase II meeting, but we had a lot of discussion about options, and we have to go back to another loop to go back to them and propose what we think is an outcome that will give them what they need, but give us what we need as well. So we're right in the middle of that process at the moment and hoping that we're going to get alignment with this situation. And in the meantime, we're making sure that everything moves on in parallel. So we're preparing for the Phase III trial. There's many preparations you have to do, service provider sites, drug manufacturing. All of that's proceeding to be able to start midyear, subject to getting that FDA alignment. Extra aspect that can come into 2591 as well beyond these 3 indications is that there are many neurodevelopmental disorders and they all need treatments. So we have been studying preclinically a number of these indications, and we expect pretty soon to be able to talk about indications that we want to add into the 2591 story. So very excited about 2591 and partly it's the clinical data that we saw in those Phase II trials. This slide has a lot of numbers on it. I'll just quickly summarize it by saying that across the 3 studies, from the physician's point of view, more than 80% of the patients showed improvement in those studies. And from the caregivers point of view, between 2/3 and 85% of the patients showed improvement. Improvement was a really important thing. So communication, cognitive function, motor abilities, social interaction are the critical things in all of these syndromes. And those are the things we saw improving in these studies. So really pleased with the outcome. And safety profile was very good. And as I mentioned, no GI issues with this drug. The market opportunity, even in the most conservative estimate of the number of patients that are out there, Phelan-McDermid syndrome is about twice Rett syndrome, Pitt Hopkins is slightly smaller, Angelman is slightly larger. So the most conservative estimate, we think this is at least a 4x Rett syndrome opportunity. And then as I said, we've got other indications to add to that story. So that's why we think it can be much higher value than the first drug. So I'll just finish by just quickly talking about milestones and catalysts. So we've had a massive couple of years. So much has happened, but this next period is almost more important. A lot of things coming, particularly in this first half. So first thing was announced 2 days ago, which was Acadia filing that application in Europe for trofinetide. We'll announce our results for 2024 in February and expecting between AUD 216 million and AUD 218 million revenue. We'll get the first sales in Canada of DAYBUE and also the start of those managed access programs in Europe. And then for 2591, we'll reach that confirmation with FDA on the primary efficacy endpoints for Phelan-McDermid syndrome, start that Phase III trial. We're then going to talk with FDA about Pitt Hopkins and Angelman and move those into registration trials. And then we will have the new indications that I talked about coming into the pipeline. So a huge amount to come this year, which we're very excited about. And the year has kicked off well, and we're very much looking forward to the rest of it. So I'll finish there and happy to take any questions. So I haven't left too much time.

Thanks, Jon. First of all, are there any questions from the audience? Okay. Maybe I'll just start first on DAYBUE. How has the real-world evidence compared to the LAVENDER Phase III clinical trial? And what have been some of the learnings along the way?

Yes, it's interesting. And it's so important that real-world data because clinical trials are quite an artificial setting and you've got measurements, that scores on checklist which doesn't mean much really in the real world. So that real-world data is really important to show what it really means for families. So a couple of different aspects. The real-world data has shown that more than 80% of families have seen improvements in their loved ones. So obviously, that's critical. But then on the other side, we talked about the diarrhea and the persistency. So we've seen a much lower incidence of diarrhea in the real world than in the trial. I think it was 80% in the trial whereas as low as 40% in the real world. And that's because there are strategies to deal with it, including titrating the dose and also taking dietary measures, which weren't available in the trial. So I think the persistency in the real world has been much better than we saw in the trial.