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Diurnal Group - Spruce Biosciences

Diurnal and Spruce both announced share offerings today. California based Spruce Biosciences announced terms of its Nasdaq IPO, which suggests a significant valuation gap with Diurnal.

Spruce raised $90m, valuing the company at approximately $330m post money. Spruce is a development stage company with its sole candidate, tildacerfont, currently in Phase 2 trials. Like Diurnal's Chronocort, tildacerfont is being evaluated for the treatment of congenital adrenal hyperplasia (CAH). Diurnal is already a commercial stage company with Alkindi approved in the US and Europe. An EMA marketing decision is expected in Q1 next year for Chronocort in Europe, opening up a $250m market opportunity. Also, Diurnal has an earlier stage pipeline with candidates such as DITEST for hypogonadism, line extensions and global opportunities for Chronocort and Alkindi, plus other pre-clinical programmes.

Spruce's tildacerfont is non-steroidal; it works differently, and is potentially complementary, to Chronocort. By blocking CRF-1 receptors on the pituitary gland, tildacerfont seeks to reduce adrenocorticotropic hormone (ACTH) release, and therefore minimise excessive androgen production. High androgen levels are associated with early puberty, short-stature, hirsutism, genital virilisation and menstrual irregularities. The majority of CAH patients do not achieve optimal control of androgen levels despite being treated with high doses of glucocorticoids, the current standard of care - hence the opportunity for both Spruce and Diurnal. If successful, tildacerfont offers the potential to reduce the need for glucocorticoids and the associated side effects from steroid administration. 

On the other hand, Diurnal has progressed the Chronocort development path with a US Phase 3 trial design submitted to FDA for a Special Protocol Assessment meeting. Albeit that Chronocort failed to meet its primary endpoint in the European Phase 3 trial, it did show a meaningful benefit over the standard of care. For this reason, we believe Diurnal should be granted European approval next year. Tildacerfont is currently in Phase 2b trials, and we should see the first top-line result in Q4 2021. 

The increased activity in CAH from companies such as Spruce and Neurocrine Biosciences (NBIX) has possibly detracted from Diurnal's replacement therapy approach. However, we believe that alternatives such as tildacerfont will not eliminate the need for steroid-based treatments, like Chronocort. Patients will still need to replace cortisol, which these CRF-1 inhibitors do not address. 

Even adjusting for Spruce's large cash balances, the $330m valuation highlights a major valuation gap with Diurnal’s £80m post raise.


IMPORTANT:

Diurnal 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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