Newron Pharmaceuticals — Long-term generic challenge to Xadago

Newron Pharmaceuticals (SIX: NWRN)

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Research: Healthcare

Newron Pharmaceuticals — Long-term generic challenge to Xadago

The FDA has notified Newron that an application for a generic safinamide (Xadago) has been filed. Xadago has new chemical entity (NCE) exclusivity until 27 March 2022. Xadago is then protected to December 2028 by three patents that have potential extensions to 2031. If Newron files to enforce its patents before mid-June 2021, as we expect, the FDA will not authorise a generic for up to 30 months (to September 2024) while the legal situation is clarified. However, if a generic is launched in the next few years, it might reduce our expectations of Xadago’s US sales potential. We retain our indicative value of CHF121m until the Xadago legal situation is clarified and the evenamide study 008A completes in late 2021.

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Healthcare

Newron Pharmaceuticals

Long-term generic challenge to Xadago

Xadago patents

Pharma & biotech

18 May 2021

Price

CHF2.18

Market cap

CHF39m

€1.05/CHF; $1.03/CHF; $1.08/€

Cash and investments (€m) at 31 December 2020

31.25

Shares in issue

17.8m

Free float

99.6%

Code

NWRN

Primary exchange

SIX

Secondary exchange

XETRA

Share price performance

%

1m

3m

12m

Abs

(15.5)

(24.8)

16.2

Rel (local)

(14.5)

(27.0)

(1.0)

52-week high/low

CHF3.00

CHF1.34

Business description

Newron Pharmaceuticals is focused on the central nervous system. Xadago for Parkinson’s disease is sold in Europe, Japan and the US. Evenamide, a novel schizophrenia therapy, may start Phase III in 2022 if the 30mg bid dose has positive results.

Next events

H121 report

September 2021

ANDA court application

By mid-June 2021

Evenamide Phase II outcome

Late 2021

Analysts

Dr John Savin MBA

+44 (0)20 3077 5700

Dr Susie Jana

+44 (0)20 3077 5700

Newron Pharmaceuticals is a research client of Edison Investment Research Limited

The FDA has notified Newron that an application for a generic safinamide (Xadago) has been filed. Xadago has new chemical entity (NCE) exclusivity until 27 March 2022. Xadago is then protected to December 2028 by three patents that have potential extensions to 2031. If Newron files to enforce its patents before mid-June 2021, as we expect, the FDA will not authorise a generic for up to 30 months (to September 2024) while the legal situation is clarified. However, if a generic is launched in the next few years, it might reduce our expectations of Xadago’s US sales potential. We retain our indicative value of CHF121m until the Xadago legal situation is clarified and the evenamide study 008A completes in late 2021.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/19

7.04

(18.04)

(1.01)

0.0

N/A

N/A

12/20

5.26

(18.16)

(1.09)

0.0

N/A

N/A

12/21e

6.67

(18.10)

(1.01)

0.0

N/A

N/A

12/22e

7.68

(27.24)

(1.53)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. 2019 accounts were restated.

Orange book patents

The FDA granted Xadago standard NCE protection expiring 27 March 2022. Safinamide’s strongest (form of matter) patent has expired. Newron lists three active US patents in the FDA Orange Book (the list of approved pharmaceuticals). The FDA does not enforce patents (courts do) or rule on patent validity (US Patent Office). The active patents are a production method expiring 10 December 2028 (US8076515B2); a process patent expiring 8 June 2027 (US8278485B2); and a use patent covering safinamide co-administration with other PD therapies (US8278485B2) expiring 1 September 2027. In our experience, it can be complex to try to enforce production and use patents; we do not comment on this case.

Abbreviated new drug application (ANDA)

To make an ANDA, a generic manufacturer claims that any active patents are invalid or not infringed. Under Paragraph IV of the FDA rules, If Newron files a court suit against the ANDA within 45 days, as we expect, the FDA will suspend the ANDA for up to 30 months (to September 2024). But if court rulings agree with the ANDA earlier, the FDA might authorise a generic after April 2022. This would reduce our expectations of US royalties, currently about 6% of US sales. Europe has regulatory protection for up to 10 years ending 21 February 2025.

Valuation: Held at CHF121m until more data available

In 2020 Xadago had annual royalties of €5.3m including low (undisclosed) US royalties. Our valuation contains an NPV of CHF100m for future Xadago sales (including the added dyskinesia indication) out of CHF240m total NPV revenues. If Xadago were exposed to earlier US generic competition (after April 2022) than we expect, this may need to be re-evaluated. Our Newron valuation of CHF121m (CHF6.8/share) is retained until study 008A of the schizophrenia drug evenamide (30mg) reports in late 2021 and any court action is resolved.

Exhibit 1: Financial summary

€000s

2019

2020

2021e

2022e

Year end December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

7,038

5,258

6,669

7,678

Cost of Sales

0

0

0

0

Gross Profit

7,038

5,258

6,669

7,678

EBITDA

 

 

(18,567)

(16,386)

(16,681)

(25,822)

Depreciation

(206)

(219)

(219)

(219)

Share option adjustments

(2,126)

(1,461)

0

0

Operating Profit

(20,899)

(18,066)

(16,900)

(26,041)

Net Interest

737

(1,552)

(1,200)

(1,200)

Profit Before Tax (norm)

 

 

(18,036)

(18,157)

(18,100)

(27,241)

Profit Before Tax (reported)

 

 

(20,162)

(19,618)

(18,100)

(27,241)

Tax

(45)

(1,380)

0

0

Profit After Tax (norm)

(18,081)

(19,537)

(18,100)

(27,241)

Profit After Tax (reported)

(20,207)

(20,998)

(18,100)

(27,241)

Average Number of Shares Outstanding (m)

17.8

17.8

17.8

17.8

EPS - normalised (€)

 

 

(1.01)

(1.09)

(1.01)

(1.53)

EPS - (reported) (€)

 

 

(1.13)

(1.18)

(1.01)

(1.53)

Dividend per share (c)

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

100.0

100.0

100.0

EBITDA Margin (%)

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

14,797

13,324

13,309

13,294

Intangible Assets

20

11

11

11

Tangible Assets

252

734

719

704

Investments

14,525

12,579

12,579

12,579

Current Assets

 

 

45,491

37,874

20,048

8,323

Stocks

0

0

0

0

Debtors

6,328

6,624

6,324

6,324

Cash

39,163

31,250

13,724

1,999

Current Liabilities

 

 

(5,595)

(6,892)

(7,151)

(7,651)

Creditors

(5,595)

(6,892)

(7,151)

(7,651)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

(17,895)

(27,060)

(27,060)

(42,060)

Long term borrowings

(16,749)

(25,674)

(25,674)

(40,674)

Other long-term liabilities

(1,146)

(1,386)

(1,386)

(1,386)

Net Assets

 

 

36,798

17,246

(854)

(28,094)

CASH FLOW

Operating Cash Flow

 

 

(22,668)

(12,656)

(16,141)

(25,341)

Net Interest

737

(1,552)

(1,200)

(1,200)

Tax

(45)

(1,380)

0

0

Capex

(51)

(34)

(50)

(50)

Acquisitions/disposals

0

0

0

0

Financing

0

0

0

0

Other

17,337

7,365

(135)

14,865

Dividends

0

0

0

0

Net Cash Flow

(4,690)

(8,257)

(17,526)

(11,726)

Opening net debt/(cash)

 

 

(42,972)

(22,414)

(5,576)

11,950

HP finance leases initiated

0

0

0

0

Other

(15,868)

(8,581)

0

(15,000)

Closing net debt/(cash)

 

 

(22,414)

(5,576)

11,950

38,675

Source: Company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Newron Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by Newron Pharmaceuticals. 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.

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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

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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.

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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 Newron Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by Newron Pharmaceuticals. 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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