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Black Sky

Diurnal Group

Shifting Gear


Dr Brian White

Andrew Keith

Diurnal Group logo

11 November 2020

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Source: Calvine Partners Research
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With Diurnal’s focus on endocrine disorders, the initial target has been addressing conditions characterised by low levels of cortisol. Alkindi is already approved for paediatric adrenal insufficiency, while Chronocort has been filed in Europe for the orphan indication of congenital adrenal hyperplasia. With the recent fundraising and the confirmation of a truncated development pathway, Diurnal’s native testosterone preparation, DITEST, has come to the fore. Although testosterone replacement therapy (TRT) has been used successfully for many decades, recent product developments have been fraught with disappointment. As a result, we believe that little value is being attributed to Diurnal’s programme despite the substantial market opportunity and DITEST’s encouraging proof of concept data.


Pipeline potential


Diurnal has ambitions to become a leading (non-diabetes) endocrinology specialty pharma business. First up has been the development and approval of Alkindi in Europe and the US. Meanwhile, Chronocort is moving towards a regulatory conclusion at the EMA in Q1 2021. Successful execution of the adrenal franchise will be critical for Diurnal to achieve sustainable profitability; however, it is important not to overlook the advancing pipeline at Diurnal. In particular, we would highlight the potential for DITEST in the large TRT market for the treatment of hypogonadal men with low testosterone levels. This looks like a straightforward proposition, administering testosterone and returning to normal physiological levels. However, testosterone suffers from poor bioavailability, and non-oral therapies have dominated the market. Unsurprisingly, given the potential to transform TRT market dynamics, there have been various efforts to develop oral treatments. However, efforts have been more protracted than anticipated, and approval has been significantly delayed (Jatenzo) or as yet unattainable (Tlando). We believe that there are reasons to be more optimistic regarding DITEST and the hypogonadism segment generally. 


DITEST could be best-in-class


Recent TRT development efforts have been undone by the desire to gain approval for the broader low testosterone segment including those with idiopathic origin. Due to the safety profile, the FDA has narrowed TRT’s applicability only to those with a specific medical condition, resulting in the off-label treatment of ageing males with low testosterone levels. This highlights a large unmet need, with requirement for safer, more convenient alternatives and we believe DITEST shows potential to provide a best-in-class addition. With a streamlined branded generic regulatory pathway, we look forward to the attraction of a suitable partner to progress DITEST for classical male hypogonadism


Beyond Alkindi and Chronocort


Undoubtedly, the near-term investment case at Diurnal is dominated by the adrenal franchise and in particular the potential for Chronocort to successfully navigate the European regulatory process, with a decision due in Q1 2021. Alkindi is now approved in both Europe and the US for the treatment of paediatric adrenal insufficiency. Chronocort in the US awaits the attraction of a development partner to take it through Phase 3. The rest of the pipeline is now coming into view, and with the proceeds of the recent fundraising, Diurnal is better resourced in to progress its drug candidates.

DITEST – unlocking the $4.8bn testosterone replacement market opportunity


With Diurnal’s objective of becoming a specialty pharma company focusing on endocrinology, DITEST is targeting the treatment of testosterone deficiency as it relates to male hypogonadism. Testosterone is responsible for many facets of male development and behaviour, including increased muscle strength, bone mass and red blood cell production, as well as sexual prowess and aggressiveness. Normal physiological levels vary significantly between different males, and levels decrease markedly after the age of 40 in most (but not all) men.


Hypogonadism is caused by testosterone deficiency and can be of central (hypothalamic or pituitary) or testicular origin, or both. Hypogonadism with testicular failure as a result of genetic disorders such as Klinefelter syndrome, trauma, radiation, chemotherapy, or undescended testes, is classified as hypergonadotropic hypogonadism (primary hypogonadism). Hypogonadism with gonadotropin deficiency as a result of disease or damage to the hypothalamic-pituitary axis is known as hypogonadotropic hypogonadism (secondary hypogonadism). This may be caused by Kallmann’s syndrome, cancer, trauma, radiation or sarcoidosis. In addition, older males may suffer from low testosterone levels with functional abnormalities at several levels of the hypothalamic-pituitary-testicular axis. The most common symptoms of hypogonadism are reduced sexual desire and sexual activity, erectile dysfunction, and hot flushes. Other clinical factors associated with low testosterone include obesity, metabolic syndrome and a generally negative impact on overall health status. Other less-specific symptoms can include loss of physical strength and muscle mass, fatigue, mood changes, anger, sleep disturbance and cognitive impairment. Characteristic signs include gynaecomastia, smaller testes and reduced body hair. Diagnosis of hypogonadism usually involves confirmation of low testosterone concentrations on at least two occasions with symptoms checked using a questionnaire. Commonly used assessments for diagnosis of clinical hypogonadism include the Androgen Deficiency in the Aging Male questionnaire and the Aging Males’ Symptoms scale. Confirmatory diagnosis is made via total testosterone, luteinising hormone, and follicle-stimulating hormone concentrations.

One of the more contentious areas in testosterone deficiency has been the recognition that in addition to structural reasons, testosterone production decreases naturally with age. Studies such as the Baltimore Longitudinal study of Aging suggested that circa 20% of men over the age of 60 are hypogonadal, and this rises to 50% of men over the age of 80. TRT prescriptions apparently increased in the US by more than 300% from 2001 to 2013. Many of these prescriptions were written for men under the age of 45, and indeed much of the increase came from that age category. Concerningly, the increase was purported to have been driven not by a formal diagnosis of hypogonadism but by other symptoms, including low libido and fat redistribution which are a normal consequence of aging, as well as obesity. In 2015, the FDA took action to limit TRT and has been successful to the extent that prescribing has decreased significantly, better reflecting the product labelling. Nevertheless, we suspect that TRT is still being prescribed to men without a formal diagnosis of hypogonadism.

Testosterone replacement therapy has been a mainstay of both primary and secondary hypogonadism for several decades and has generally been associated with good outcomes (increased sexual function, reduced body fat, increased lean muscle and better lipid profile). Notably, many of these apparent benefits reversed on TRT withdrawal, confirming the requirement for chronic therapy. While the weight of available evidence appears to suggest that TRT has not been associated with significant adverse events, we note that TRT comes with a black box label in the US. The labelling warns of cardiovascular risk and its promotion in the US is limited to patients with hypogonadism linked to specific (structural or genetic) medical disorders. TRT is not indicated for the treatment of age-related hypogonadism where significant (now off-label) use has been experienced. The FDA’s action in 2015, followed a 2014 Advisory Committee meeting to review TRT. The committee voted 20-1 to recommend restricting the indicated population for TRT and to require the companies concerned to conduct a cardiovascular safety study. Following the FDA action, the EMA and Health Canada also warned of heightened cardiovascular risk. As a result, males with adult-onset hypogonadism, who represented the majority of the treated patient population, were deemed off-label. One of the consequences of the FDA action has been a reduction in TRT coverage from health insurers in the US.

The apparent wariness of regulators hasn’t been helped by concerns regarding supraphysiologal levels of testosterone. Indeed, athletes who abuse testosterone and other androgenic steroids have a sharply increased risk of high blood pressure, heart attack, and stroke. However, the development and subsequent regulatory review of testosterone-based therapies Jatenzo and Tlando has brought safety concerns to the fore. Indeed, the FDA Briefing Documents for both products scrutinised the apparent increase in cardiovascular risk. For Jatenzo the commentary suggested that when compared to a topical testosterone formulation, Jatenzo was associated with increased blood pressure, increased haematocrit as well as reduced HDL and increased LDL cholesterol. Furthermore, these changes apparently increased with longer duration of Jatenzo treatment.  Additionally, for Tlando, clinical evaluation showed that both Tlando and Androgel raised heart rate.

It is also worth highlighting that there are long-held concerns regarding the potential abuse of testosterone products, with oral formulations, particularly at risk given the heightened convenience. Nevertheless, TRT remains an effective mainstay of treatment for hypogonadism, returning patients to normal levels of testosterone and indeed there are conflicting studies, which highlight the cardioprotective potential of returning patients to normal testosterone levels, particularly elderly men with low testosterone levels and pre-existing coronary artery disease with TRT apparently reducing the risks of MACE including strokes, heart attacks, and death.


A significant market opportunity


Given the aforementioned attributes associated with testosterone, it is perhaps unsurprising that testosterone replacement therapy has become a very attractive proposition for many males including, more contentiously, those with apparently normal levels of testosterone. Testosterone also has a complex relationship with many organs resulting in concerns regarding increased risk of prostate cancer, increased cardiovascular risk and an impact on blood lipids (to name a few). Consequently, regulators particularly in the US, are cognisant of the risk of off-label use and promotion given the size of the market opportunity. The Endocrine Society has sought to provide guidance which balances the risk/reward of TRT. The 2018 guideline, Testosterone Therapy in Men with Hypogonadism – An Endocrine Society Clinical Practise Guideline, recommends against routine screening of men in the general population for hypogonadism (due to unclear mortality risk) but does recommend diagnosing hypogonadism in those patients with clinical manifestations and consistently low levels of testosterone. Helpfully, in the more controversial age-related (>65 years) patient population, the guidelines suggest against routine TRT use but do advocate that .”…clinicians offer testosterone therapy on an individualised basis after explicit discussion of the potential risks and benefits” for those suffering from symptoms (e.g. low libido and anaemia as well as low testosterone levels).

While TRT has been used since the 1950s, due to the poor bioavailability of oral testosterone, the market has been dominated by topical formulations (such as Androgel) and injectable products. It should be noted that compliance rates with injectable and gel formulations have generally been poor. Administration of injectable products can be painful while topical formulation are associated with skin reactions and transference to women and children (hence the Black Box warning of virilisation). While oral formulations of testosterone have been available for some time outside the US, until the approval of Jatenzo, the only US approved oral product was a 17-alpha-alkyl preparation methyltestosterone (Android) which has been associated with significant liver toxicity and as a result has not been widely used. 

The development of the first non-17-alpha-alkyl based oral testosterone treatments in the US (Jatenzo & Tlando) was protracted and problematic.  While Tlando has received three FDA rejections so far, Jatenzo was ultimately approved (after two negative AdCom votes). Initially submitted by Clarus in 2014, it wasn’t until 2019 that the product was finally approved. After Jatenzo’s initial rejection by FDA, to deal with concerns, a second Phase 3 study was needed which included food effect data, a revised starting dose and titration regimen, plus ambulatory blood pressure monitoring.

Limitations of different TRT formulations

Source: Calvine Partners Research

Jatenzo (testosterone undecanoate) is a prodrug, and it uses the intestinal lymphatic pathway, bypassing the liver and reducing the risk of hepatotoxicity. Hepatotoxicity had blighted acceptance of previous oral formulations such as methyltestosterone, and this reduced risk resulted in Jatenzo’s exalted status as the first oral soft gel TRT.  Although Jatenzo represents a significant improvement in convenience, it does have some limitations. Looking at the prescribing label, Jatenzo needs to be taken at the same time as meals (fasted administration not being a viable option), and we note that it can result in supraphysiological levels of dihydrotestosterone (DHT) while testosterone levels can be variable. Given the potential cardiovascular issues associated with treatment of hypogonadal patients, the need for a high-fat diet is clearly less than optimal. Also, there may be a link between supraphysiological levels of DHT and heightened cardiovascular risk (left ventricular hypertrophy).


DITEST profile confirmed in proof of concept study


DITEST is a native testosterone which has been formulated for oral administration, but designed to provide normal physiological levels of testosterone irrespective of the need for food. Potentially, DITEST should overcome some of the limitations associated with the current TRT profile of testosterone undecanoate. In a Phase 1 study, Diurnal confirmed the differentiated nature of DITEST compared to testosterone undecanoate.

The primary endpoint of the small proof of concept study compared the rate and extent of absorption of testosterone from 120mg DITEST administration with a single dose of testosterone undecanoate 80mg in hypogonadal men after eating. Encouragingly, DITEST administration was associated with achievement of testosterone levels within the normal physiological range for young adults, and with less variability compared to the comparator.

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Source: Company Reports

Secondary endpoints showed no impact on absorption of testosterone with DITEST irrespective of whether it was taken with food. The result confirmed the higher convenience associated with the DITEST formulation. From a safety perspective, there were no serious adverse events from DITEST administration. Encouragingly, levels of dihydrotestosterone (DHT), the potent testosterone derived androgen, were lower when compared to the comparator.

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Source: Company Reports

Native Oral Testosterone

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Source: Calvine Partners Research

Metabolites of testosterone were returned to normal physiological levels, and DITEST was observed to return dihydrotestosterone levels to normal, irrespective of whether patients were fed or fasted.

While the data were generated in a relatively small number of patients, it is important to bear in mind that the market for testosterone replacement is well understood and native testosterone is a well-characterised molecule. Importantly, discussions with the FDA have confirmed that DITEST can be developed using the branded generic pathway (505(b)(2)). This  means that clinical development can be streamlined. The 505(b)(2) pathway is associated with significantly lower costs and risks than traditional drug development. Effectively, Diurnal (and a potential partner) can take advantage of data previously provided by other testosterone-based products as it seeks to provide a regulatory package that fulfils the Agency’s requirement that DITEST is safe and efficacious.


TRT is a large market opportunity, with approximately 6% of US males affected by low levels of testosterone (approx. 4-5 million men). However, diagnosis of testosterone deficiency is subjective with variable testosterone thresholds used globally (200-400ng/dl with FDA 300ng/dl) while others are more focussed on the presenting clinical symptoms. There is a very clear need for oral products with fewer limitations, that are more convenient than topical or injectable products. 

This is a fragmented market with no clear leadership, and we sense that this is a highly promotionally sensitive therapeutic area. Given the challenges faced in diagnosis, concerns over abuse and the significantly higher prescribing of TRT in the US over Europe, we believe that a development partner with relevant experience will be required to ensure optimal positioning and drive uptake in the relevant patient populations. This is a significant market opportunity and we believe that Diurnal should be able to deliver a suitable commercial development partner particularly given the well-defined low-risk pathway agreed with FDA, as well as the positive Phase I data. Diurnal’s timing could be helped by the regulatory actions which have effectively limited the target population to patients with hypogonadism, and specifically those with structural issues. 

Currently, DITEST has not been included in our Diurnal financial model or valuation given its relatively early stage of development. However, our analysis suggests that even a modest penetration of 3% of the US TRT market highlights in-market sales in the region of $1.5bn. DITEST, if successful, should be positioned as the most convenient treatment - an oral therapy which can be taken irrespective of fed or fasted state. With the right partner, DITEST demand could be driven beyond our estimates, by a best-in-class appreciation.



The principal risks associated with Diurnal are largely clinical and commercial in nature. The failure of the European Phase 3 study for Chronocort was an unexpected disappointment although a review of the data has suggested significant support for Diurnal’s approach. While we hope that the EMA will be pragmatic in its approach to reviewing the data there are lingering risks in this approach.


Diurnal has retained European rights to its adrenal disorder franchise, which brings commercialisation risks. We note that Diurnal has engaged the services of Ashfield, which has a successful track record in helping life science companies launch new products. Nevertheless, the pace of uptake is difficult to predict which could affect out forecasts although we recognise that market expectations for Alkindi are modest.


If successful, and Chronocort ultimately achieves a market introduction, Diurnal is seeking to launch its products into what is largely a generic market environment. We have assumed a price for Chronocort that is consistent with the European price of Plenadren – a once daily formulation of hydrocortisone which looks to be a reasonable proxy. We note that in this regard there is no equivalent product in the US. With Diurnal looking to partner its products in the US, including DITEST, there is an associated partnering risk.


As a development stage company, Diurnal is currently a loss making enterprise. Diurnal has successfully raised funds to continue with its development plans and to aid the launch of Alkindi in Europe. Even with this near-term funding, our forecasts suggest that in order to progress its pipeline assets expeditiously, Diurnal may require additional funding.

Financial Model and Summary

Our financial model for Diurnal is limited to the prospects for the adrenal franchise - the cortisol replacement-based treatments Alkindi and Chronocort. With the recent successful fundraising, Diurnal has highlighted the potential of the pipeline to deliver future value for shareholders, and improve the treatment of patients with other endocrine disorders such as hypogonadism.

Despite the longevity of TRT, there has been significant conjecture with respect to the safety profile, particularly in patients without a formal diagnosis of hypogonadism as well as those with apparently normal levels of testosterone. Fortunately for Diurnal, the regulatory pathway appears to have cleared helped by the identification of the suitable target patient population and the implementation of appropriate guidelines. The confirmation of a streamlined development pathway is enormously helpful in this regard we believe.

We believe that recent regulatory actions have served to increase the awareness of properly diagnosing and treating patients with hypogonadism. The more limited prescribing label in the US may have served to blunt demand and to have effectively alienated those with age-related reduced testosterone levels. However, the guidelines do provide a means by which physicians can still diagnose and treat those with a formal diagnosis of hypogonadism (albeit off-label).

With all of the various preparations of testosterone available, this is a fragmented market and one that still lacks a truly convenient oral preparation. The data generated to date suggests that DITEST could satisfy that need as the first orally available native testosterone treatment.


With a clear outline of a registrational programme ahead, it makes sense for Diurnal to take this relatively low-risk programme forward before selecting an appropriate development partner. This should result in a more lucrative partnership both with respect to the up-front payment and potential royalty rates. We have currently assumed a double-digit to mid-teens royalty rate but have made no allowance for any upfront payment, instead waiting to see what a collaboration may look like. These are still relatively early days and, despite our belief that this is likely a relatively low-risk endeavour, we have not yet included DITEST sales in our financial model or valuation of Diurnal; we await further clinical data. 

We have updated our forecasts to include the cash proceeds from the fundraising. Our projections suggest Diurnal is in a strong position to continue clinical evaluation of DITEST before securing a partner and to progress the earlier stage pipeline generally. We forecast  Diurnal should remain in a cash positive position based on the expected spend associated with these activities. 

Diurnal Group Cash Flow Statement (£m)

Source: Calvine Partners Research

Diurnal Group Income Statement (£m)

Source: Calvine Partners Research

Diurnal Group Balance Sheet (£m)

Source: Calvine Partners Research


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