Today, Macquarie initiated coverage on Neuren Pharmaceuticals Ltd (ASX: NEU) shares, tipping significant upside.
Neuren Pharmaceuticals has developed DAYBUE (trofinetide), for which Acadia Pharmaceuticals has a worldwide exclusive distribution license.
In 2023, Acadia received marketing approval from the US FDA for trofinetide, which is marketed as DAYBUE™ in the US, to treat Rett syndrome. This made it the first FDA-approved treatment for the disease.
Rett syndrome is a genetic, neurological, and developmental disorder that almost exclusively affects girls.
Under the arrangement, Acadia handles all costs associated with selling its DAYBUE product, while Neuren collects royalty payments of 10% to 15%.
In an 18 June research note, Macquarie described Neuren Pharmaceuticals as a standout in the biotech industry, with a unique combination of an approved product, significant revenue, and a healthy cash balance.
Macquarie placed an outperform rating on the ASX biotech stock, with a price target of $18.60. Neuren Pharmaceuticals shares are trading for $12.85 at the time of writing. This suggests 45% upside from here over the next 12 months.
The broker cited several factors to support its rating.
Strong financial position
The broker referenced Neuren's robust net cash balance of approximately $360m, which it believes "places it in a unique position for a biotech company to be able to fund clinical trials, while continuing to collect royalties and milestone payments from Acadia's ongoing sales".
Pipeline
Macquarie also touted Neuren's pipeline, noting:
NEU's pipeline product, NNZ-2591, has the potential to address multiple neurodegenerative conditions, with a patient population >5x Rett. By independently completing phase 3 PhelanMcDermid trial, NEU retains all commercialisation benefits if approved.
Lucrative disease market
The size of Neuren's potential total addressable market was also cited.
Neuren targets rare neurodegenerative diseases such as Rett, Phelan-McDermid, and Pitt Hopkins syndromes. This allows them to achieve premium pricing in the US market, with the broker noting that DAYBUE sells for ~US $400k per patient per annum.
The broker also stated that Orphan Drug designation has been granted for the majority of Neuren's pipeline products. Crucially, this grants exclusivity protection against generic competition for 7.5 years in the US and 12 years in EMA.
Valuation
Macquarie believes Neuren Pharmaceuticals shares are attractively valued.
The broker said:
[Neuron shares are] on only ~34.5x FY26 PE, this is below the average of our biotech rare disease index, while also having higher forecasted EBITDA growth relative to the index (including mainly companies that have approved rare disease products and positive cash flow).
Foolish Takeaway
Over the past five years, Neuren Pharmaceuticals shares have risen 740%. However, as with many ASX biotechnology stocks, the journey has been volatile. Over the last year, the shares have fallen 36%.
Could this be a good entry point for investors?
Macquarie suggested "Investors seeking exposure to the biotech sector with an attractive risk-reward profile should consider adding NEU to their portfolio".
