With Efmody approved in Europe and entering Phase 3 development in the US, Diurnal has been heavily associated with the smart delivery of hydrocortisone in patients suffering from low cortisol. However, the company's ambition to build a leading endocrinology (ex diabetes) franchise is epitomised by the development pipeline which includes DITEST for patients with low testosterone levels (primary and secondary hypogonadism).
On the face of it, testosterone replacement therapy (TRT) is a well-developed market with many TRTs available. However, due to the poor bioavailability of oral testosterone, the market is dominated by topical formulations and injectable products. Unfortunately, compliance rates with injectable and gel formulations remain poor, with switching between products commonplace. Injectable product administration can be painful, while topical formulations are associated with skin reactions and transference to women and children (hence a Black Box warning of virilisation). As a result, significant efforts have been made over the years to provide a convenient oral product. While modified oral formulations of testosterone have been available for some time outside the US, until the approval of the testosterone prodrug Jatenzo (testosterone undecanoate), the only US-approved oral product was Android (methyltestosterone). Android was associated with significant liver toxicity and is not widely used. Jatenzo, on the other hand, is an important recent addition to oral TRT, although its utility is limited by requiring administration with a high-fat meal.
Diurnal's DITEST is a native testosterone that has been formulated for oral administration but designed to provide normal physiological levels of testosterone irrespective of the need for food. DITEST, therefore, represents a more convenient alternative. In a Phase 1 study, Diurnal confirmed the differentiated nature of DITEST compared to testosterone undecanoate with the data now published in the European Journal of Endocrinology. The publication highlights the difficulties of formulating an oral testosterone treatment, given its poor solubility. Diurnal provides a suitable native oral product through DITEST's smart formulation (oil and solvent lipidic suspension).
The published data confirm that DITEST's administration results in physiological levels of testosterone after oral administration, does so with reduced variability, and lower physiological levels of undesirable dihydrotestosterone (DHT) when compared with Jatenzo. In our previous review of the TRT competitive environment, we noted that Jatenzo administration can result in supraphysiological levels of DHT while testosterone levels can be variable. Given the potential cardiovascular issues associated with the treatment of hypogonadal patients, the need for a high-fat diet is likely less than optimal. Also, there may be a link between supraphysiological levels of DHT and heightened cardiovascular risk (left ventricular hypertrophy).
While Diurnal generated the DITEST data in a relatively small number of patients, it is important to remember that the testosterone replacement market is well understood, and native testosterone is well-characterised. 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. Such an approach is associated with significantly lower costs and risks than traditional Phase 3 development.
TRT is a large market opportunity (circa $5bn) but is fragmented with no clear leadership. We also suspect that it is a highly promotionally sensitive therapeutic area requiring significant resources and expenditure. As a result, future commercialisation of DITEST will likely involve Diurnal finding a suitable commercial partner.
Considering its early stage of development, DITEST remains outside our financial model, although we believe it could deliver global peak sales of over $1bn. However, merely on the strength of existing commercial-stage products (Efmody and Alkindi), our DCF derived valuation yields 241p per share for Diurnal Group, compared with its 60p current share price.
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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