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Hardman & Co

Diurnal Group Approaching a number of near-term milestones

Diurnal (LON:DNL) is a commercial-stage specialty pharmaceutical company focused on diseases of the endocrine system. Its two lead products are targeting rare conditions where medical need is currently unmet, with the aim of building a long-term ‘Adrenal Franchise’. The first product, Alkindi®, is being rolled out through key EU markets, and sales have exceeded the £1.0m mark. Despite unexpected Phase III results, positive feedback from the EMA has cleared the path for regulatory submission of Chronocort for adult CAH in Europe before the end of 2019. It has also allowed DNL to revise the primary endpoint in the protocol for the US Chronocort Phase III trial.

  • Strategy: DNL’s goal is to create a valuable ‘Adrenal Franchise’ that can treat patients with chronic cortisol deficiency diseases from birth and for the rest of their lives. The long-term vision, once Alkindi and Chronocort are established in Europe and the US, is to expand the product offering to other endocrine conditions.
  • Results: The focus during 2019 has been to build up the launch of Alkindi in Europe and establish commercial partners in other key territories. Sales during 2019 were in line with forecasts, at £1.0m. Events around Chronocort caused some volatility in R&D spend, which left net cash of £9.1m at 30 June 2019.
  • Chronocort: Following the surprising results of the European Phase III study with Chronocort, DNL met with the EMA and is now planning to submit an MAA in 4Q’19. The US Phase III trial in CAH will be amended following the European outcome and is expected to start once a partner is on board.
  • Risks: Concerns about the US prospects for Chronocort have been allayed by the positive EMA outcome and the opportunity to revise its US Phase III protocol. However, this has added extra time into the US development process and delayed the point at which DNL is expected to become cashflow-positive.
  • Investment summary: Alkindi, a cortisol replacement therapy designed for children under 18 years of age, is DNL’s first product on the market. It is expected to be followed by Chronocort for adults – a larger market – which now has a clear pathway for regulatory approval in both Europe and the US. Despite this, the share price is still languishing well below valuations determined by peer group and DCF (202p) analyses, due possibly to the need for more capital during 2020.

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