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Positive CHMP opinion on Chronocort/Efmody

Diurnal Group 29 March 2021 Update
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Diurnal Group

Positive CHMP opinion on Chronocort/Efmody

Regulatory update

Pharma & biotech

29 March 2021

Price

89p

Market cap

£123m

$1.40/£

Net cash (£m) at 30 December 2020

20.3

Shares in issue

138.3m

Free float

45.9%

Code

DNL

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

58.9

66.4

192.1

Rel (local)

53.1

59.9

141.8

52-week high/low

89p

28p

Business description

Diurnal Group is a speciality pharma company developing new formulations of hormone-based products for the treatment of endocrine disorders. Its product Alkindi is marketed for paediatric adrenal insufficiency in the United States and Europe, and it is seeking approval of Chronocort for the treatment of congenital adrenal hyperplasia. It has a novel oral testosterone DITEST entering patient dosing studies.

Next events

DITEST IND submission

Q221

Efmody launch

Q321

Analyst

Nathaniel Calloway

+1 646 653 7036

Diurnal Group is a research client of Edison Investment Research Limited

On 26 March 2021, the EMA announced a positive opinion from the Committee for Medicinal Products for Human Use (CHMP) on granting a marketing approval for Efmody, Diurnal’s formulation for controlled release hydrocortisone (developed under the name Chronocort) for the treatment of adults and adolescents aged 12 and over with congenital adrenal hyperplasia (CAH). Formal approval for the product is set to be June 2021 and Diurnal expects to begin commercialisation in calendar Q321.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

06/19

1.0

(13.6)

(18.6)

0.0

N/A

N/A

06/20

6.3

(5.1)

(4.1)

0.0

N/A

N/A

06/21e

5.0

(11.5)

(7.0)

0.0

N/A

N/A

06/22e

7.9

(17.8)

(9.9)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Diurnal to market Efmody directly in Europe

The positive opinion from CHMP likely ensures that Efmody will receive marketing authorisation in Europe. This will be Diurnal’s second product to be approved in Europe; its first product, Alkindi, is its formulation of hydrocortisone for paediatric adrenal insufficiency (AI). Like Alkindi, the company stated that it intends to market Efmody directly in core European markets.

Official orphan status pending

The formal EMA approval decision is mostly a formality at this point. However, an official opinion on the orphan status of the product will also be announced at that time by the Committee of Orphan Medical Products (COMP). The product had orphan status during its development and substantiation of the claim would entitle it to 10 years of market exclusivity in Europe if CAH is viewed as a disease with a prevalence under 5 in 10,000. We believe that this is well supported by the literature on the disease.

Next steps: US approval and expansion to AI

In addition to the current application the company also has plans for US approval. It formally requested a special protocol assessment (SPA) meeting from the FDA; if granted, this should happen shortly (H121) and will provide clarity on the path forward in the United States. Additionally, Diurnal is planning a head-to-head study with the controlled release hydrocortisone product Plenadren to support an application for the broader indication of adult AI in Europe, to start as soon as 2021.

Valuation: Increased to £230.0m on Efmody upgrade

We have increased our valuation to £230.0m or 166p per basic share from £199.6m or 144p per basic share due to upgrades to our valuation of Efmody in Europe to £93.25m from £62.83m. We have increased the probability of success (100% from 80%) and decreased the discount (to 10% from 12.5%). We expect the company to need £25m in additional capital to reach profitability.

Efmody to receive marketing approval in Europe

Both the EMA and the company issued press releases announcing the positive opinion from CHMP on Diurnal’s product Efmody during the committee’s March 22–25 meeting. Efmody is the new trade name for the company’s controlled release formulation of hydrocortisone for the treatment of CAH. The last step before marketing approval will be the affirmation of the approval decision by the EMA, which is scheduled for June 2021 based on the statutory timeline. At that time, the EMA will also affirm the product’s orphan status, which will entitle it to 10 years of marketing exclusivity. We are confident that there are unlikely to be hang-ups in this process, and that it will receive official orphan status.

We are very pleased to see this positive opinion from CHMP, because we were confident based on the prior clinical data that the product could provide superior control of cortisol levels compared to existing treatments. However, there were some issues with the interpretation of the clinical data gathered in Phase III and the study officially missed its primary endpoint. Please see our initiation report for a more thorough discussion of the Phase III data. This endpoint finding increased the uncertainty of the current application, but we are now pleased that overhang has been removed.

CAH is a hormone deficiency caused by congenital mutations that prevent affected individuals from producing the hormone cortisol, a key regulator of alertness, mood, inflammation and many other systems. Moreover, these patients have a build-up of androgenic hormones like testosterone due to these mutations, which can cause a range of issues, especially in women. The disease is estimated to affect from 1/10,000 to 1/18,000 live births. Efmody was designed to achieve around the clock control of cortisol and androgen levels when administered once in the morning and once at night. It will be the second extended release hydrocortisone product approved in Europe (the other being Plenadren from Takeda), but the only product approved specifically for CAH. Based on the clinical data, Efmody should provide superior control of androgens compared to Plenadren, and Diurnal has stated the intent to study the two products head-to-head in future studies.

The next steps for Efmody are to start a series of clinical studies to expand its marketing reach, both in Europe as well as into the United States. The above head-to-head study with Plenadren would support a marketing application for the treatment of adult AI in Europe, and the study could start as soon as CY21. Diurnal has also submitted a request for a SPA meeting to the FDA. If granted, the SPA would provide concrete guidance on what endpoints need to be met for approvability. The company has guided to the meeting taking place in calendar Q121 and Diurnal is targeting starting a new US Phase III study in calendar H221.

Valuation

We have increased our valuation to £230.0m or 166p per basic share from £199.6m or 144p per basic share. This is driven exclusively by upgrades to our valuation of Efmody (formerly Chronocort) in Europe to £93.25m from £62.83m. We have increased the probability of success for the product to 100% (from 80%) in this geography, and we have reduced our discount rate to 10% (our standard for approved medical products) from 12.5% (our standard for unapproved products). Our peak sales and other aspects of our model remain unchanged. We expect the product to have initial sales in FY22/calendar Q321 in accordance with company guidance.

Exhibit 1: Valuation of Diurnal

Product

Indication

Geography

Clinical stage

Prob. of success

Launch year

Peak sales ($m)

rNPV
(£m)

Alkindi

Paediatric AI

Europe

Approved

100%

2018

16

7.28

US

Approved

100%

2020

10

4.70

Efmody (aka Chronocort)

Adult CAH

Europe

Approved

100%

2021

63

93.25

US

Phase III

50%

2024

84

29.25

Adult AI

Europe

Phase III

50%

2023

131

44.35

US

Phase II

30%

2026

150

20.15

Ditest

Hypogonadism

US

Phase II

25%

2025

70

10.73

Total

209.69

Net cash and deposits (December 2020) (£m)

20.34

Total firm value (£m)

230.04

Total basic shares (m)

138.34

Value per basic share (p)

166

Dilutive options (m)

4.83

Total diluted shares (m)

143.17

Value per diluted share (p)

161

Source: Diurnal reports, Edison Investment Research

Financials

Our financial forecasts remain unchanged. We expect the company to require £25m in additional cash (in FY22) to advance its clinical programme before it achieves profitability (forecast in FY24).

Exhibit 2: Financial summary

£000s

2019

2020

2021e

2022e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Sales

1044

2390

3134

7802

Royalties & Milestones

0

3923

1876

137

Revenue

 

 

1,044

6,313

5,010

7,939

Cost of Sales

(224)

(668)

(2,324)

(720)

Gross Profit

820

5,645

2,686

7,219

EBITDA

 

 

(13,679)

(5,151)

(11,621)

(17,847)

Normalised operating profit

 

 

(13,701)

(5,176)

(11,646)

(17,872)

Amortisation of acquired intangibles

0

0

0

0

Exceptionals

0

627

0

0

Share-based payments

(825)

(843)

(843)

(843)

Reported operating profit

(14,526)

(5,392)

(12,489)

(18,715)

Net Interest

130

114

122

122

Joint ventures & associates (post tax)

0

0

0

0

Exceptionals

0

0

0

0

Profit Before Tax (norm)

 

 

(13,571)

(5,062)

(11,524)

(17,750)

Profit Before Tax (reported)

 

 

(14,396)

(5,278)

(12,367)

(18,593)

Reported tax

2,108

1,206

2,318

3,485

Profit After Tax (norm)

(11,584)

(3,905)

(9,363)

(14,422)

Profit After Tax (reported)

(12,288)

(4,072)

(10,048)

(15,107)

Minority interests

0

0

0

0

Discontinued operations

0

0

0

0

Net income (normalised)

(11,584)

(3,905)

(9,363)

(14,421)

Net income (reported)

(12,288)

(4,072)

(10,048)

(15,107)

Basic average number of shares outstanding (m)

62

95

134

145

EPS - basic normalised (p)

 

 

(18.6)

(4.1)

(7.0)

(9.9)

EPS - diluted normalised (p)

 

 

(18.6)

(4.1)

(7.0)

(9.9)

EPS - basic reported (p)

 

 

(19.7)

(4.3)

(7.5)

(10.4)

Dividend (p)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

82

1,770

1,826

1,826

Intangible Assets

49

79

79

79

Tangible Assets

33

23

79

79

Investments & other

0

1,668

1,668

1,668

Current Assets

 

 

13,381

19,206

19,233

31,474

Stocks

672

1,241

5,809

1,801

Debtors

1,457

1,337

1,235

1,958

Cash & cash equivalents

9,147

15,434

10,995

26,522

Other

2,105

1,194

1,194

1,194

Current Liabilities

 

 

(2,503)

(2,555)

(2,734)

(4,239)

Creditors

(2,503)

(2,555)

(2,734)

(4,239)

Tax and social security

0

0

0

0

Short term borrowings

0

0

0

0

Other

0

0

0

0

Long Term Liabilities

 

 

(16)

(36)

(36)

(25,036)

Long term borrowings

0

0

0

(25,000)

Other long term liabilities

(16)

(36)

(36)

(36)

Net Assets

 

 

10,944

18,385

18,290

4,025

Minority interests

0

0

0

0

Shareholders' equity

 

 

10,944

18,385

18,290

4,025

CASH FLOW

Op Cash Flow before WC and tax

(13,679)

(5,151)

(11,621)

(17,847)

Working capital

(2,331)

(380)

(4,288)

4,791

Exceptional & other

(10)

(1,398)

0

0

Tax

2,279

2,120

2,318

3,485

Net operating cash flow

 

 

(13,741)

(4,809)

(13,590)

(9,570)

Capex

(62)

(45)

(81)

(25)

Acquisitions/disposals

0

0

0

0

Net interest

130

114

122

122

Equity financing

5,526

10,670

9,136

0

Dividends

0

0

0

0

Other

0

0

0

0

Net Cash Flow

(8,147)

5,930

(4,413)

(9,473)

Opening net debt/(cash)

 

 

(17,284)

(9,147)

(15,434)

(10,995)

FX

10

357

(26)

0

Other non-cash movements

0

0

0

0

Closing net debt/(cash)

 

 

(9,147)

(15,434)

(10,995)

(1,522)

Source: Diurnal reports, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Diurnal Group and prepared and issued by Edison, in consideration of a fee payable by Diurnal Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Diurnal Group and prepared and issued by Edison, in consideration of a fee payable by Diurnal Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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