FYI | Dec 06 2018
By Pitt Street Research
The Neuren/Acadia deal has been misunderstood
When Neuren Pharmaceuticals, a drug development company focused on neurology drugs, partnered its lead molecule, called Trofinetide, to Acadia Pharmaceuticals in August 2018, the result was a sudden decline in the share price, from the $2.65 level of early August to a low of $1.04 by 28 August.
To us that doesn’t make sense, given the quality of the Phase 2 data which Neuren has generated in two Orphan diseases – Rett Syndrome and Fragile X. It also doesn’t make sense in the light of Acadia’s agreeing to pay US$105m in development and regulatory milestones and US$350m in sales milestones, plus double-digit royalties on all Trofinetide sales, for North American rights only.
Investment case: A fast path to market
Acadia expects to take Trofinetide into Phase 3 next year and file for FDA approval in Rett Syndrome potentially in 2021. We believe the market has misunderstood the massive opportunity Neuren and Acadia are working on with Trofinetide, particularly with regard to its speed to market. Since Orphan drugs often sell for very high prices, we see potential for Trofinetide to become a blockbuster.
Neuren has a great partner in Acadia
Acadia Pharmaceuticals is a significant player on the US biotechnology scene, with a current market capitalisation of nearly US$3bn and membership in the elite Nasdaq Biotechnology Index. The company gained FDA approval for its first drug, Nuplazid for Parkinson's disease psychosis (PDP), in 2016 and is now seeking to grow based on strong focus and expertise in the neurology space.
Valuation range of $4.17 – $6.31 per share
We value Neuren at $4.17 per share base case and $6.31 per share optimistic case using a probability-weighted DCF approach. We believe the market has chosen to price Neuren like a Phase 2 company rather than the Phase 3 company which it really is. We see Neuren being re-rated towards our valuation range as the market starts to appreciate the quality of the deal with Acadia, as Neuren negotiates a deal for the ex-North America rights for Trofinetide and as Acadia prepares for the US pivotal studies.
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