Diurnal Group Analyst Q&A: Positive news flow & strengthened balance sheet (LON:DNL)

Hardman & Co

Diurnal Group plc (LON:DNL) is the topic of conversation when Hardman and Co’s Head of Life Sciences Dr Martin Hall caught up with DirectorsTalk for an exclusive interview.

Q1: You recently released a report on Diurnal Group highlighting some interesting developments for the company. Can you update us on what has been going on?

A1: Calendar 2020 was always expected to be characterised by potential news flow from the group and, to date, most of these have been positive in nature. In March, the company signed a deal with Eton Pharmaceuticals for the commercialisation of Alkindi in the US.

More recently, it has been able to launch Alkindi in a number of European countries following satisfactory conclusion of reimbursement and pricing discussion, bringing the total countries in which it is sold to eight. Also, this drug has received approval from the respective regulators in both Israel and Australia.

So, overall, the news in 2020 has been positive and the company has been able to strengthen its balance sheet with a Placing for £11.2m.

Q2: Can you expand a little more about the significance of the US partnering deal with Eton?

A2: This deal was important for clarity about how the company would maximise the opportunity for Alkindi in the large US market. In an ideal world, the Group would have liked to secure a deal for both Alkindi (for children) and Chronocort (the version for adults). However, the initial deal with Eton for Alkindi alone has made this a two-step process.

Eton is a specialty pharma company focused on hospital and paediatric products, so it is a good fit for Alkindi. The headline value of the deal in terms of upfronts, milestones and royalties was $52.5m, which included an upfront payment of $3.5m in cash plus $1.5m in Eton shares.

In its second quarter results release last week, Eton made some fairly positive statements about Alkindi. Apart from highlighting the upcoming FDA user feed date of 29th September, Eton was confident of the drug’s approval, and stated that it was working aggressively on launch preparation activities so that it would be in a position to launch shortly after formal approval is received. In addition, Eton has indicated that its expectations for the sales potential of Alkindi is more than three times higher, at $100m, than our own peak forecasts, suggesting that there is upside potential to the numbers in the event that Eton is right. So, an important deal for the company.

Q3: Moving on to the recent Alkindi approvals, are these significant?

A3: Early in August, Alkindi was approved by the Israeli regulator, where it will be commercialised by Medison, a local specialty pharma group. For most drugs, the Israeli market is relatively small. However, for Alkindi it has greater significance because of a genetic predisposition in the Israeli population making cortisol replacement therapy important in that market. Launch is likely to be in the first half of 2021.

This was followed shortly after by news that Alkindi has been approved by the Australian Therapeutic Goods Administration, where it will be marketed by Emerge Health. The commercial opportunity here is estimated at $11m.

These small numbers all add up and make a difference to the Group’s prospects.

Q4: Is there anything more to come?

A4: There are two important pieces of news to look forward to. First, as just mentioned the FDA has a scheduled user feed date on 29th September, which is the date by which it should make a decision about Alkindi provided that all the requirements are in the filing. Apart from the confidence of Eton, Washington Analysis Group has no doubt that the application will be approved and also has high confidence that FDA will act on or even before the September 29 date. It should be noted that the company would become the third AIM listed company to reach this important milestone.

Secondly, the Group is continuing to discuss with potential partners for the development and commercialisation of Chronocort. This is important because it would share the development burden of the Phase III trial required for the US approval. Also, the adult cortisol replacement market is many times larger than the paediatric market. However, we always caution that while a deal will happen, getting ink dry on contracts does sometimes take longer than anticipated.

Q5: And is there anything into 2021?

A5: The key event for next year, is the potential approval of Chronocort by the European Medicines Agency. The validation stage of the submission was passed by the EMA in April. This suggests that an approval could come in the first quarter of 2021.

Q6. What about Diurnal Group’s share price?

A6: On two occasions recently, there have been some quite large movements in the share price and, while some of the gains are subsequently given up, the trend is very much in an upward direction. The group is well funded, so its cash position is not an issue, which suggests that the shares are likely to continue to be driven by news flow. We would expect a substantial positive movement on FDA approval of Alkindi, as it removes the risk and Eton will be ready to launch.

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