NRBO: Initiating Coverage of NeuroBo Pharmaceuticals, Inc.; Targeting the $30 Billion+ Obesity Market…
NASDAQ:NRBO
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We are initiating coverage of NeuroBo Pharmaceuticals, Inc. (NASDAQ:NRBO) with a valuation of $25.00. NeuroBo is a biopharmaceutical company focused on the development of therapies for metabolic diseases with two lead programs:
DA-1241: This is a novel G-Protein-Coupled Receptor 119 (GPR119) agonist that is being developed as a therapy for metabolic dysfunction-associated steatohepatitis (MASH; formerly NASH) and type 2 diabetes (T2D). GPR119 activation in the liver inhibits lipid synthesis and activation of immune cells and hepatic stellate cells, which are involved in MASH pathogenesis. Additionally, GPR119 agonism in the pancreas and gut results in insulin secretion and the release of key metabolic peptides GLP-1, GIP, and PYY, which are involved in glucose and lipid metabolism. In vivo studies have shown that DA-1241 has beneficial effects on glucose levels, lipid profile, and liver inflammation. The company is currently conducting a two-part Phase 2a clinical trial of DA-1241 that will examine its efficacy in patients with suspected MASH and confirmed pre-diabetes or T2D (Part1) and in combination with sitagliptin (Part 2). We anticipate topline data in the second half of 2024.
DA-1726: This is a novel oxyntomodulin (OXM) analogue that functions as a dual agonist of the GLP-1 receptor (GLP-1R) and the glucagon receptor (GCGR) for the treatment of obesity through reduced food intake and increased energy expenditure. Preclinical studies show that DA-1726 exhibits superior weight loss to semaglutide and similar weight loss to tirzepatide with increased food consumption. The company recently submitted an Investigational New Drug (IND) application such that a Phase 1 clinical trial can initiate.
Targeting a $30 Billion Obesity Market
The U.S. obesity prevalence was estimated to be approximately 42% in 2021 (CDC) and the World Obesity Atlas estimates that approximately 50% of the world’s population will be overweight or obese (BMI ≥ 25kg/m2) by the year 2035. Sales of approved weight loss medications have skyrocketed in the past 12 months, driven both by increased media attention and exponential social media growth. This is translating into ever-increasing revenue estimates for weight-loss therapies, with sales of Wegovy and Zepbound forecast to be $14.9 billion and $10.6 billion, respectively, in the year 2028 (EvaluatePharma).
Committed Partner Provides Financial and R&D Support
NeuroBo’s strategic partner and largest shareholder, Dong-A ST Co., Ltd., is part of the Dong-A Socio Group, which had revenues of approximately $1.8 Billion in 2022 and is the leading pharmaceutical company in South Korea. Dong-A ST markets a wide variety of pharmaceuticals and medical devices worldwide. In September 2022, NeuroBo entered into an exclusive license agreement with Dong-A ST Co., Ltd. for the rights to DA-1241 and DA-1726. In connection with the license agreement, NeuroBo entered into a securities purchase agreement with Dong-A in which NeuroBo raised gross proceeds of $15 million.
Multiple Near-Term Value Drivers
The company is currently recruiting patients into a Phase 2 clinical trial of DA-1241 for the treatment of MASH (formerly NASH) and we anticipate topline results in the second half of 2024. In addition, NeuroBo has submitted the IND for DA-1726 for the treatment of obesity and we anticipate a Phase 1 trial initiating in the first half of 2024 and topline results being reported in the first half of 2025.
Valuation
We value NeuroBo using a probability-adjusted discounted cash flow model that takes into account potential future revenues for DA-1241 and DA-1726. We currently model for NeuroBo to partner with a larger pharmaceutical company, and the receive 13% royalties, for the development of each compound as both markets are highly competitive, making it extremely unlikely that a small company such as NeuroBo could compete on their own.
DA-1241 is currently in a Phase 2a clinical trial for MASH. We model for a Phase 3 trial to initiate in 2027 and for FDA approval of the drug in 2030. With up to 20 million individuals in the U.S. suffering from MASH, we model for DA-1241 to achieve peak sales of $1.2 billion. Using a 15% discount rate and a 33% probability of approval leads to a net present value for DA-1241 of $32 million.
DA-1761 will be entering a Phase 1 clinical trial in the first half of 2024 and we estimate that a Phase 3 program will initiate in 2027 and lead to FDA approval of the drug in 2031. We model for peak sales of DA-1761 of $3.5 billion, which we believe is supported by the forecast size of the obesity market (at least $30 billion by 2030) and the forecast sales of leading obesity therapies (Wegovy sales forecast to be $14.9 billion in 2028). Using a 15% discount rate and a 25% probability of approval leads to a net present value for DA-1761 of $76 million.
Combining the valuation for DA-1241 and DA-1761 along with the company’s current cash balance leads to a net present value for the company of $133 million. NeuroBo’s current fully diluted share count is approximately 5.2 million, which leads to a valuate of $25 per share.
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