Neuren pays the price for sellside froth

The Australian group has found a partner for its lead asset at last, so why is the stock down?

In a biotech bull market it is normal for sellside analysts to hype their stocks ever more enthusiastically, for fear of losing out on buying momentum. The problem comes when reality catches up with the froth, as Australia’s Neuren found out today.

There is a parallel here with Loxo, which fell last year after signing a licensing pact with Bayer; the sellside had touted prospects of a takeout. Neuren investors, meanwhile, had been led to believe that the group’s lead rare disease asset, trofinetide, could treat a $6bn market and yield a $70m up-front deal payment. In the event the long-awaited tie-up brought in a paltry $10m.

This left executives and analysts with egg on their faces, as Neuren shares were routed on the Australian stock exchange today, crashing 43%. Another reason for disappointment was the choice of partner: not a major rare disease player but the struggling neurology company Acadia.

Trofinetide targets Rett syndrome, a rare neurological disorder that occurs mainly in females and is caused by a mutation on the X chromosome in the MECP2 gene. Two phase II studies have been completed, but necessary manufacturing work means that Acadia’s pivotal trial will not start until the second half of 2019.

Perhaps this is one reason for the uninspiring deal Neuren pulled off. By this time next year the industry’s most advanced Rett syndrome project, Newron’s sarizotan, will have generated results from its phase III Stars trial; positive data would clearly make Neuren and Acadia’s potential market even smaller.

Ardent cheerleaders

Yet bizarrely such key considerations do not seem to have troubled some of Neuren’s most ardent cheerleaders, including analysts from the Australian brokerage Bell Potter. Last year Bell Potter was putting the size of the Rett market at $6.1bn, assuming reimbursement of $125,100 per patient.

Even more egregiously, in April 2016 after the failure of trofinetide’s traumatic brain injury trial, the analysts wrote that licensing prospects remained “intact ... We now forecast a $70m up-front [payment].” Last October they were still saying a deal, subject to which phase III should start this year, was imminent.

With expectations pumped up so high Acadia’s $10m payment for North American rights came as a huge disappointment, and there was little solace in the potential $455m of milestones and royalties.

A much more down-to-earth guide to the size of the Rett market comes from analysts covering Newron: sarizotan sales are expected to peak at well below $300m, according to consensus gathered by EvaluatePharma.

And sarizotan might not be trofinetide’s only Rett competitor: Ultragenyx’s triheptanoin is in a phase II trial in the disorder, which is also the setting for two studies of GW Pharma’s GWP42006 that are set to start this year.

Acadia has yet to disclose its detailed strategy for trofinetide, beyond committing to fund North American development and collaborating with Neuren on another indication, fragile X syndrome. Still, Acadia has other problems to worry about, like its controversial Parkinson's psychosis drug Nuplazid, which has been associated with hallucination and deaths.

No doubt investors nursing 40% losses are awaiting Bell Potter’s next research note with interest.

This story has been amended to correct Nuplazid's indication.

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