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Diurnal Group - SMC decision, financial results and outlook

We published a research report today following Diurnal's recent results and the SMC's decision not to automatically reimburse Efmody.

Management has made significant progress in the last few years, developing and launching two products. On Efmody, pricing and reimbursement have been agreed in Germany, Europe's biggest market, Austria and Norway. We commented on the SMC decision recently, and while somewhat surprising and disappointing, hopefully, it will merely delay the UK roll out. We have yet to hear from other important European markets such as Italy and Spain.


Our note highlights the additional Efmody studies underway, which should provide more confirmatory data for bodies such as the SMC. The recently started CHAMPAIN study compares Efmody to Plenadren in the treatment of adrenal insufficiency. The study is expected to take six months to complete, and we should see a data readout in H2 2022. A successful outcome will allow a filing for Efmody's approval in AI, a $1.9bn market in Europe alone. Our report outlines the reasons why the trial should deliver a successful result. An approval for AI in Europe will dwarf the CAH opportunity and should remove any concerns arising from the Scottish decision.


We also look at the ongoing US Phase 3 CONNECT study, which evaluates DNL-0200 (Efmody) in CAH. The trial design allows a more comprehensive evaluation, and a successful conclusion should remove any lingering concerns from the failed European Phase 3. CONNECT is expected to complete at the end of 2023.


Finally, we revisit the opportunity for DNL-0300, Diurnal's oral testosterone replacement therapy (TRT). TRT is thought to be a $3bn+ market where there remains an unmet need, with current options carrying safety issues and inconvenience. Diurnal has agreed a faster and less risky regulatory pathway and should be able to partner this programme.


The narrative at recent results spooked investors. Management now assumes that the SMC's decision will mean sustainable profitability will take longer to achieve, which might mean the need for additional funding. However, funding can come from sources other than equity, such as debt or upfront payments from partnerships.


We accept that recent news has introduced additional uncertainty and have revisited our NPV calculation. A combination of Lower near-term revenues and an increase in our discount rate, from 15% to 20%, take our DCF price per share price calculation to 155p.


However, at the current 15p per share, Diurnal is trading at its cash with no value attributed to Efmody, Alkindi or DNL-0300. These products target markets worth over $6bn combined.


To access all our research on Diurnal Group, please use the link below.


https://www.calvinepartners.com/diurnal-group


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IMPORTANT:

Diurnal Group is a client of Calvine Partners, and as such, this publication is not independent and should be considered a marketing communication under FCA Rules. None of the information contained in this publication should be considered as any form of advice.


Link to full disclosures.



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