Newron Pharmaceuticals — Evenamide focus, Supernus to sell Xadago in US

Xadago is licensed, outside Japan and Asia, to Zambon, a private Italian company. Zambon is strong in Europe with 20% of its sales in the home Italian market. It launched Xadago in Europe during H115, with Newron receiving double-digit royalties on sales. Our royalty rate forecasts are around 12–13%. Total product royalties rose in H2 to €2.6m vs €2.1m in H119: €4.8m in total. The Italian price cap has been removed, which may help revenues given the strength of Zambon’s local sales in Italy.

In the US in Q116, Zambon sublicensed Xadago to US WorldMeds Pharma. FDA approval was gained in Q117. In April 2020, US WorldMeds sold the Xadago rights to Supernus Pharma, a quoted US company, as part of a package of CNS products. Supernus cites that the US Parkinson’s disease market is anticipated to grow from $1.5bn to $6.2bn by 2026. We anticipate that Supernus will invest in its CNS franchise and will have over 246 sales reps potentially available, a five-fold rise. This could drive Xadago sales more rapidly than we have forecast previously. Under the sublicence, Newron shares 50% of Zambon’s US royalties.1 Given the importance of the US market, this sharing arrangement might be a drag on royalty growth. Newron does not disclose sales by region, so detailed forecasting is not feasible.

In 2011, Newron entered into an exclusive licensing agreement with Meiji to develop, manufacture and commercialise the drug in Japan and Asia. Under an agreement between Eisai and Meiji in March 2017, Eisai has the exclusive rights to market safinamide in Japan, as well as to develop and market safinamide in Asia. The approval of Xadago in Japan in late 2019 gave a €2.3m milestone.

Xadago is indicated for the treatment of adult patients with idiopathic Parkinson’s disease (PD) as add-on therapy to a stable dose of levodopa (L-DOPA) alone or in combination with other PD medicinal products in mid- to late-stage fluctuating patients. Xadago is a monoamine oxidase type B (MOA-B) inhibitor. MOA is the enzyme that breaks down dopamine, so reducing its activity gives more consistent brain dopamine levels.

One of the issues with oral dosing of dopamine (given as the prodrug L-DOPA) is inconsistent blood levels, which lead to ‘off’ periods when Parkinson symptoms return. MOA-B inhibitors are used as one of several possible therapeutics to limit off time. Other treatments to deal with this include direct continuous delivery of L-DOPA gel to the small intestine via an external pump, but this is very expensive. Deep brain stimulation is also used.

A noted complication of L-DOPA treatment, the main Parkinson’s therapy, is dyskinesia – uncontrolled tremors that can occur both when treatment is working (‘on’) and in off periods. Dyskinesia is a very complex condition and opinion is still uncertain about why and how to treat it. It develops progressively in many patients after several years of L-DOPA therapy.

In the MOA-B class, the leader is Azilect (rasagiline, Teva), approved by the FDA in 2006 and EMA in 2005. Rasagiline is an irreversible MOA-B inhibitor, which means it destroys the enzyme activity after it binds. Other MOA-B drugs like Xadago and Zelapar (selegiline) are reversible. Rasagiline started to become generic in 2016. It has a wide label for use alone or in combination with other Parkinson’s disease medications. Azilect had peak sales in 2014 of $519m (EvaluatePharma) but generics are now under $50m in Europe and the US combined. Due to a late approval, it is a branded product in Japan (Takeda) accounting for about half of global sales. Selegiline seems never to have gained a significant market share with very low sales.

Newron expects to start a pivotal label extension study to support Xadago use in L-DOPA induced dyskinesia (LID). This trial has been expected for some years and may start in H220, although the need for a final agreement with Zambon, possibly involving Supernus, and limitations on vulnerable patients in clinical studies due to COVID-19, make timelines uncertain. The trial is stated by Newron to be a six-month, double-blind, placebo-controlled study. This will take about two years to recruit, run and analyse. It could announce data in 2023 with a fast review. Newron plans to fund the study up to a capped investment of €10m. In return, Newron would receive a €4m milestone on approval and a marginally enhanced royalty rate on all Xadago sales. Management indicates that, on approval, the deal could payback in a year with milestones and higher royalties if overall sales rise by 6% or more. This is therefore an obvious investment.

In H119, the FDA delayed the planned pivotal studies of schizophrenia drug Evenamide due to safety concerns. Newron is now carrying out additional preclinical work and is planning a four-week exploratory study in patients with schizophrenia to allay these concerns and get approval to run Phase III studies. In March at the AGM, a delay due to COVID-19 was announced. As yet, this small trial has not been posted on clinical trial databases. Our estimate is that, assuming the FDA is satisfied, the Phase III programme might start about mid-2021. However, this is clearly subject to events. The Phase III programme could take 18 months to run and covers two trials; designs have not been published.

The ideal target indication will be patients who are refractory to clozapine, a common anti-psychotic agent. These patients currently have no other treatment options; Newron estimates there are 20,000 clozapine-refractory patients in the US. An approval in this indication would give a solid market base that Newron estimates could be worth several hundred million dollars. Note that meeting the primary endpoint in the single clozapine-resistant study would potentially suffice for this indication.

Newron will also seek a general schizophrenia indication for patients who are not well controlled on their current anti-psychotic medicine, about 70% of cases. In Newron’s estimates, this could have a market potential of over US$1bn a year. In the general anti-psychotic market, the leading agents are now generic, but Evenamide might add onto current therapy rather than seek to replace it. Both the general and clozapine studies need to be successful for FDA approval in this wider indication and safety would need to be acceptable.

If a filing is made by H124, the product could be marketed from H225. The form of matter patent expires in 2028 but the duration of the clinical programme means that additional US patent cover, up to five years, could be gained by patent extensions.

Newron previously estimated that as the studies are on an out-patient basis, they could be funded from company resources. Now, in the absence of sarizotan profits, either further funding from 2022 or Phase III partnering will be needed in our view. The trials will need to be large enough to show safety, given current concerns and the use by patients of multiple medicines. A marketing partner for a mass-market anti-psychotic will be needed, but Newron has plans to sell direct to the smaller clozapine-resistant market. There are therefore a number of strategic issues for Newron to resolve.

Our previous valuation has been updated by the following adjustments.

In the short term, 2020 and 2021, we retain our Xadago sales forecast of steady growth. We note the potential for Supernus (with its fivefold larger CNS salesforce vs US WorldMeds) to boost sales. As yet, Supernus has not issued any sales guidance. Growth may also be affected by the COVID-19 situation in the US. We continue to keep the Xadago forecast under review.

Sarizotan sales are eliminated from our model. Pre-marketing costs formerly expected in 2020 and 2021 respectively of €2.5m and €10m are removed.

We have not changed the Evenamide peak sales potential and still assume launch in 2025 and US patent extension to 2033. If COVID-19 further delays trials, this could slip to 2026. In the EU, there will be 10-year exclusivity to 2034.

We assume R&D in 2020 reduces slightly with COVID-19 delays to the small Evenamide study, which is not a high cost. However, trial costs are assumed to increase from H221. Newron has previously given guidance of €35–38m in clinical trial costs over the next few years.

Debt has risen due to use of the EIB loan facility. This had a discounted (fair) value of €16.7m in the 2019 balance sheet (December 2019) reflecting €17.5m face value of debt. The fair value has been used in our value assessment. A further €7.5m was drawn in April 2020 and is added (gross) to the debt. A further €15m of debt is assumed to be drawn in 2021. Cash use in 2019 was €22m. Note that debt is converted to CHF for valuation.

We added a line to reflect core cash flows from R&D and general and administrative costs. These are discounted at 10%, as commercial costs, and adjusted for tax. We assume 2020 costs will be slightly lower at core R&D of €7.5m and administration costs of €8m a year (net of warrant gains). We assume costs are as before from 2021 and rise at 5%. We have adjusted the discount period, which now starts from 2021 as we are now in mid-May; this raises the overall cost estimate by about €10m over the period.

The rNPV valuation, which uses a 12.5% discount rate for clinical-stage assets and a 10% discount rate for commercial assets (Xadago in PD), is shown in Exhibit 1. This uses 11 May 2020 FX rates, which have altered both US$ vs the euro and the euro vs the Swiss franc. The revised value is CHF121m (formerly CHF340m) or CHF6.8/share. This is much higher than the mid-May market value of CHF33m. This may reflect the market perception of low reported revenues and of further funding requirements. It may also reflect the risks of schizophrenia drug development and the lack of a clear statement regarding the FDA’s concerns on Evenamide or any other published data.

Reported revenues grew during FY19 to €4.8m (FY18: €4.0m) plus a €2.3m milestone from the Japanese approval. Costs in FY19 were predominantly R&D of €22.4m offset by a tax credit of €5.0m. General costs were €9.9m in FY19. There were non-cash share options costs of €2.1m split between R&D (€0.5m) and administration (€1.6m). Newron reported cash and equivalents of €39.2m at 31 December. The April €7.5m loan is shown in 2020 and the remaining €15m EIB loan shown as fully drawn in 2021. This gives Newron cash into 2022 with further funding needed to complete the development of Evenamide. Financial forecasts (in euros) are shown in Exhibit 2.