About Neuren Pharmaceuticals ASX:NEU
Neuren Pharmaceuticals is an Australian biopharmaceutical company focused on developing therapies for neurodevelopmental and neurodegenerative disorders. The company specializes in creating treatments for rare conditions such as Rett syndrome, Fragile X syndrome, and other related neurodevelopmental disorders. Neuren’s lead product, trofinetide, has shown promise in clinical trials and is designed to address the underlying symptoms of these disorders. Through innovative research and partnerships, Neuren aims to bring effective treatments to market for conditions with significant unmet medical needs.
2023 – A Break-out Year
Neuren Pharmaceuticals was probably one of the biggest company stories of 2023. This was due to the successful launch of DAYBUE in the United States for the treatment of Rett syndrome. ASX:NEU received an upfront payment of A$205M along with royalties of A$27M from its distribution partner Arcadia Biosciences. The company also reported encouraging top-line results from a Phase 2 trial of NNZ-2591 for Phelan-McDermid syndrome. 2023 was a great year for the company, setting the stage for a strong outlook in the coming years.
2024 – The Reality Check
As September 2024 ends, shareholders are questioning why the share price, which nearly hit $26 just nine months ago, has declined to just $14.19 at the time of writing – a 45% decline.
In March 2024, Culper Research released a short-seller report targeting Neuren’s distribution partner, Arcadia Pharmaceuticals (NASDAQ: ACAD). The report accused Arcadia of misrepresenting retention data for DAYBUE, alleging that most patients stop using the treatment after six months. It also claimed Arcadia misrepresented safety data, suggesting nearly all patients experienced diarrhea, and about 1 in 10 were hospitalized. Additionally, only 13% of patients showed improvements in their condition. Culper also highlighted a series of high-level departures, including the Head of R&D, Chief Science Officer, and General Counsel, all of whom left within three months. The report further suggested insurers were concerned about the drug’s efficacy and its high price of US$575,000 per treatment.
While it’s still unclear if the report’s claims hold true, Arcadia has not met its initial sales targets. However, DAYBUE sales continue to grow in 2024, albeit at a slower pace than expected when Neuren’s share price was near $26.
2024 has been a tough year for Arcadia Pharmaceuticals too.
Valuation
Both Neuren and Arcadia Pharmaceuticals have faced challenges in 2024. Analysts still view Arcadia as undervalued, with a consensus 12-month price target of $25.11 from 19 analysts. Similarly, Neuren’s price target stands at $26.77 from 7 analysts.
Neuren trades at 17.5x expected earnings, a low multiple compared to other ASX biotech companies like CSL (43x), RMD (39x), COH (44x), TLX (42x), and PNV (200+x). While analysts project around 30% growth in revenues and EBITDA this year, it would appear the market is cautious and perhaps a bit sceptical about these forecasts.
Short Positions
The short positions in Neuren have increased steadily throughout 2024. They currently sit at 93rd on the list of most shorted companies. Some are clearly betting that things are only going to get worse for Neuren from here.
Final thoughts
Despite Neuren Pharmaceuticals’ significant achievements in 2023, including the successful launch of DAYBUE and positive clinical trials, challenges in 2024 have dampened optimism. A critical short-seller report and slower-than-expected sales growth have put pressure on the stock. Nevertheless, analysts see potential upside, given Neuren’s strong growth prospects and relatively low valuation compared to its peers. This suggests the current share price may not fully reflect the company’s future potential.
Disclaimer: This information is provided purely for educational purposes. It takes no account of an individual’s personal financial circumstances and hence can in no way constitute financial advice. The above data may be subject to errors or inconsistencies for which the author takes no liability. It is imperative that all investors do their own research or if they need advice, seek it from a qualified financial adviser.
What’s happened to Neuren Pharmaceuticals (ASX:NEU)?
Hi Nathan Nice summary of issues around NEU – it has been disappointing in 2024. So the market is discounting revenue from Daybue although it is in the range of guidance – just not above guidance! What the market may not be valuing is the commercial value of their second drug NNZ-2591 which has had successful Phase 2 trials on 3 syndromes. NEU is currently discussing Phase 3 trials with FDA. What is important is that NEU has complete control of the distribution of NNZ-2591 for those 3 syndromes ie the revenue potential is theirs. Arcadia does have distribution rights ( and thus royalty to NEU) for the Rhetts syndrome that Daybue is currently addressing.
Regards
Peter Hill ( Keith Ready shared your analysis as I hold NEU in some quantity)
Thanks Peter, it’s certainly become an interesting situation. It wouldn’t surprise me if many will look back to this time and say “you could have bought it for $14” just like they do with some of the other great Biotech’s on our market today.