DAYBUE And NNZ-2591 Will Expand Markets While Facing Regulatory Risks

Key Takeaways

• Strong financial position and partnerships reduce the need for capital raising, protecting margins and earnings.
  
• International expansion and R&D investments present significant long-term growth and valuation opportunities.
  
• Heavy reliance on Acadia, FDA approvals, Medicaid, and currency stability poses significant risks to revenue, earnings, and market expansion efforts.

Catalysts

A biopharmaceutical company, develops drugs for the treatment of neurological disorders.

• Neuren Pharmacuticals has strong financial foundation due to cash on hand and incoming cash from partnerships, reducing the need for capital raising, which can protect the company's net margins and earnings.
  
• The expectation of increased diagnosed population and patient uptake of DAYBUE in the U.S. indicates potential revenue growth with more patients getting access to the drug.
  
• Acadia's investment in expanding its field force and direct-to-consumer campaigns is expected to increase DAYBUE's reach, further boosting Neuren's revenue through royalties.
  
• Planned expansion into international markets, such as Canada, Europe, and Japan, offers significant long-term growth prospects and additional revenue streams due to higher royalty rates outside the U.S.
  
• Ongoing R&D investment into NNZ-2591 and upcoming Phase III trials for multiple indications present future valuation catalysts that could significantly impact earnings upon successful outcomes.

Neuren Pharmaceuticals Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Neuren Pharmaceuticals's revenue will decrease by 12.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 65.5% today to 46.8% in 3 years time.
• Analysts expect earnings to reach A$68.8 million (and earnings per share of A$0.56) by about April 2028, down from A$142.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$147.2 million in earnings, and the most bearish expecting A$16.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 53.4x on those 2028 earnings, up from 9.7x today. This future PE is greater than the current PE for the AU Pharmaceuticals industry at 16.9x.
• Analysts expect the number of shares outstanding to decline by 0.63% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.2%, as per the Simply Wall St company report.

Neuren Pharmaceuticals Future Earnings Per Share Growth

Risks

• The reliance on Acadia for revenue, particularly from DAYBUE sales, presents a risk as any unexpected changes in Acadia’s performance, strategy, or external factors affecting their operations could directly impact Neuren's revenue from royalties and milestone payments.
  
• The need for approval of new drug indications by the FDA introduces regulatory risk. Any delays or unfavorable outcomes, especially with the upcoming Type C meeting, could affect the timeline and financial projections linked to NNZ-2591’s development and future earnings.
  
• Currency fluctuations pose a financial risk since the company's functional currency was changed to US dollars while reporting stays in Australian dollars. Such changes previously resulted in losses, impacting net profit measurements and could impact net margins again in the future.
  
• The dependence on Medicaid for 60% of DAYBUE’s coverage in the US means any changes in Medicaid policies, especially potential cuts, could significantly affect the drug access and hence, resulting revenues from this key market.
  
• Patent and commercial litigation risks in expanding indications or territories could lead to unforeseen expenses or hinder market access, thus impacting revenue and earnings from potential market expansions into Europe and other regions.

Valuation

• The analysts have a consensus price target of A$24.974 for Neuren Pharmaceuticals based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$30.8, and the most bearish reporting a price target of just A$19.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$147.1 million, earnings will come to A$68.8 million, and it would be trading on a PE ratio of 53.4x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of A$11.01, the analyst price target of A$24.97 is 55.9% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.