Terms: Trofinetide brand name is DAYBUE in North America.
A book was written in 1994 about US biotech company Vertex Pharmaceuticals called The Billion Dollar Molecule. Last week Neuren Pharmaceuticals (NEU: $13.23) may have been successful in achieving that quest - with approval in the US, through its partner Acadia Pharmaceuticals, of the drug which has been renamed DAYBUE (formerly trofinetide) for the treatment of Retts syndrome.
Around 4,500 people have been identified with this genetic disease in the US and it's believed between 6,000 - 9,000 people have the syndrome in that region. Retts syndrome is a neurodevelopment disorder which occurs in girls, surfacing around the age of two.
In the Phase III clinical study with DAYBUE, the drug achieved both primary endpoints in a study involving 187 girls with Retts syndrome (aged five to 20 years).
Acadia expects to start selling the drug next month at a list price of US$575,000 - US$595,000, and an estimated nett price of US$375,000 per patient per year. This nett price includes the expected lower usage as not 100% compliance will be achieved.
The recommended dosage of DAYBUE is 40ml, twice a day (based on an average child weight of 27kg), with the list price being US$21 per ml. Based on the initial identified patient population, the addressable market is US$1.7 billion. If 60% of identified patients take the therapy, it will represent annual sales of US$1 billion.
As the patients grow in weight, the level of drug required will also increase.
On a recent Acadia investment call, there were frequent references to Neuren and the payment obligations by way of milestone payments, royalties, and Neuren's entitlement to one third of the value of a Rare Diseases Pediatric voucher, which Acadia will receive from the FDA. Acadia listed all of the specific royalties and milestone payments that will be payable to Neuren.
On a Neuren investor call, CEO Jon Pilcher said the original deal with Acadia was not well received, however this was because the deal was back-ended, with just a US$10 million upfront fee. Upon approval, the deal appears to be very favourably structured for Neuren with terms listed below.
Deal Terms Revealed
Neuren will receive a royalty from nett sales starting at 10% with sales up to US$250 million, and then increasing to 12%, 14% and 15% on subsequent amounts as sales pass US$250 million, US$500 million and US$750 million respectively. So, if sales reach US$1 billion, Neuren will be receiving a royalty of 13.25%.
Neuren will receive US$40 million upon first commercial sales of DAYBUE, and then US$50 million when sales pass US$250 million, another US$50 million when sales pass US$500 million, a US$100 million milestone payment when sales eclipse US$750 million and US$150 million if sales pass US$1 billion.
If sales pass US$1 billion, and including an estimated US$33 million for its share of the Pediatric Rare Diseases voucher, Neuren stands to receive US$423 million (A$626 million).
If Acadia decides to keep the Rare Pediatric Disease voucher, the company highlighted that there is a set process on how Neuren will be paid, which will relate to the expected market rate. However, it appears that Acadia is likely to sell the voucher and use the funds for its own working capital requirements.
82% Participation in Open Label Extension Study Option
The level of sales will arguably depend on perceived benefit from treatment, and side effects, which appear to be mild, being primarily diarrhea and some vomiting. In the Phase III study, the compliance rate was 90%, which will be higher than in practice, and 82% of the patients in the Phase III study elected to participate in the open label extension study. As many of the children with Retts are affected by constipation, DAYBUE should assist with that issue.
Of those who participated in the extension study, 21% discontinued treatment due to the diarrhea side effect. It's likely that this side effect will become better managed across patients with experience.
So far 109 patients have been on treatment with DAYBUE for more than six months, 69 for more than a year and four patients have been on treatment for more than two years.
Acadia's management said that there was no restriction on use, with treatment available for patients above two years of age. No contra indications with other therapies have been identified. However, some post-approval, small studies in healthy volunteers will be needed, including a drug interaction study.
It appears Acadia has prepared extremely well for the introduction of DAYBUE into the US market. It's three pillars for introduction are to educate, identify and facilitate. The company is putting in place access managers for each family to assist with treatment and arranging reimbursement. It is working with 200 Key Opinion Leaders in North America and expects the diagnosis rate to increase as the therapy is introduced.
The company will have around 50 sales staff managing the introduction of the therapy. The company has all drug material required for the US market launch; however it is a complex manufacturing process with the cost-of-goods being high (relative to small molecule drugs). The drug is a liquid that is taken orally and requires refrigeration. Pilcher said that Acadia has made a large investment into the manufacture of trofinetide.
Whilst the net cost of DAYBUE will be high at US$375,000, there will be very little out-of-pocket expense for families. If families cannot access reimbursement, the company will provide financial assistance to help source payment for the therapy.
Reimbursement will come from Medicaid (60% of patients), private insurers (30%) and from Medicare (10%). Around 80 patients will rollover to treatment from ongoing studies. There will be a 23% Medicare discount which explains some of the price drop from the US$575,000 to the nett price.
Treatment of Patients
The treatment of patients is relatively concentrated: there are 22 centres of excellence that treat 25% of patients; 60% are treated in 300 specialty treatment centres, and 15% of patients are treated in the community setting.
Acadia expects high demand for DAYBUE with no therapies currently available. It will take up to six months to secure access for most identified patients, although Acadia management acknowledges that not each patient will remain on treatment, and this is not factored into the reduced nett cost, although less than 100% compliance is taken into account in the company's nett revenue per patient estimate.
Neuren CEO Jon Pilcher expects there to be a linear product uptake and said that Acadia had been in negotiations with payors for a long period. He also doesn't think it will take a long time for the product to reach peak sales.
Patents
Acadia/Neuren have market exclusivity protection for DAYBUE by way of orphan drug status (7.5 years in the US and 12 years in Europe). It has method-of-use patents that extend exclusivity out to 2032, and Acadia expects it will be eligible for patent extensions in the US out to 2036. Other patents have been filed that may extend coverage further (to 2040). Improvements in formulations will also provide opportunities for longer patent protection.
The mechanism-of-action for DAYBUE is not precisely understood according to Pilcher.
DCF Value of DAYBUE to Neuren ($7.28 - $9.84 per share)
Calculating the value of the DAYBUE asset to Neuren in the US, Bioshares calculates the net value as being between $7.28 a share (assumes 45% market penetration of the identified 4500 patients) or $9.84 (60% market penetration). At these levels peak sales would reach between US$760 million and US$1.01 billion.
This valuation excludes the value for trofinetide outside of the US and the value of the second asset in development, NNZ-2591. It also only considers the currently identified patients in the US, with the actual estimated market being between 6,000 - 9,000 patients in the US according to Acadia.
Rest of World Rights to Trofinetide
Neuren has the rest-of-world marketing rights (outside of the US, Canada and Mexico) to trofinetide and Pilcher said the company is in discussions with multiple partners which are 'advancing'. Neuren has access to all the clinical and non-clinical data that Acadia has built. Deals for other regions could include one major deal or a series of regional deals (for Europe and Japan). Those discussions can be expected to accelerate with the approval of DAYBUE and also as information becomes available on how the therapy is being received and taken up by patients.
Pilcher said that the price for trofinetide will not be the same (i.e. lower) outside of the US.
Second Compound in Development - NNZ-2591
Pilcher believes that the opportunity for NNZ-2591, also for genetic neurodevelopment disorders, is even larger than for trofinetide (DAYBUE). The experience built in developing trofinetide has been extremely valuable and Pilcher expects the development period to be faster than with trofinetide.
The trials with NNZ-2591 are very similar to that for trofinetide, it has established relationships with key opinion leaders and the patient groups are very similar.
Neuren is currently conducting Phase II studies with NNZ-2591 in three different disorders - Phelan-McDermid syndrome, Angelman syndrome and Pitt Hopkins syndrome - with a fourth Phase II study due to commence in Prader Willi syndrome. Results from the first of those studies are expected this year (Phelan-McDermid syndrome) with recruitment into the first three studies expected to be filled this year.
The next study for Neuren is expected to be a Phase III trial similar to the one Acadia conducted for DAYBUE in Retts syndrome. Neuren believes the market applications for NNZ-2591 are five times larger than that for Retts syndrome due to its different mechanism of action.
NNZ-2591 has high bioavailability and has shown it penetrates through the blood-brain-barrier. It has also shown clear and consistent efficacy in each of the knock-out mouse models it has been tested in against these genetic disorders.
Summary
For Neuren the two key points of focus now are the development of NNZ-2591 for the four chosen indications and securing rest-of-world marketing deals for trofinetide.
The company is extremely well-funded for the development of NNZ-2591 in multiple indications, with further potential revenue from rest-of-world licensing deals. The likelihood of an acquisition of Neuren has increased substantially following the US approval of DAYBUE.
Neuren had $40 million in cash at the end of last year. It is capitalised at $1.7 billion.
Bioshares recommendation: Hold
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