A slightly different approach this week. Rather than discussing the macro, we introduce a potential buy-and-hold candidate in the biotechnology sector: Neurocrine Biosciences $NBIX.
Note, we do not get into weeds of valuations at this stage. At a high-level, we think, if the company can realise its growth potential, a forward price-to-earnings multiple (based on consensus estimates) of 24x is not expensive.
Investment Case
- Neurocrine Biosciences (Neuorcrine) is one of two pharmaceutical companies with an FDA approved, marketable treatment for tardive dyskinesia (TD) — the other being Teva Pharmaceuticals
- INGREZZA (valbenazine) was approved by the FDA in April 2017
- Full-year 2019 net sales of US dollars 753 Million, up more than 83 per cent year-over-year.
- Net product sales were US dollar 231.1 million during the first quarter of 2020, up almost 70 per cent year-over-year.
- TD affects an estimated 500,000 persons in the United States according to Neurocrine’s management — a figure that is likely to have been understated.
- An estimated 7 million people in the US take antipsychotic medications to treat schizophrenia and other similar conditions.
- At the low-end of the range, there are potentially 1.1 million persons suffering from TD; at the high-end the number rises to 3.5 million.
- INGREZZA retails for approximately US dollar 7,000 for a supply of 28 capsules. Neurocrine charges an estimated US dollar 5,275 per bottle or US dollar 63,300 for a year’s supply.
- Assuming net sales per bottle of US dollar 4,500 and average of 8 bottles per patient for 2019, an estimated 21,000 patients treated for TD using INGREZZA.
- Taking the estimated 500,000 adults suffering from TD in the US, Neurocrine, by our estimates, has reached less than 5 per cent of the addressable market.
- There is room from a significant increase in the uptake of the treatment.
- Consensus revenue estimates have Neurocrine generating sales of $1.07bn and $1.33bn in 2020 and 2021, respectively. The 2021 estimate would suggest that less than 8 per cent of adults suffering from TD receive the treatment.
- We think Neurocrine revenues could significantly surprise to the upside.
- Upside risks arising from (1) faster adoption of INGREZZA, (2) successful licensing of INGREZZA for international markets and (3) positive roll-out of ONGENTYS (opicapone), a treatment approved by the FDA in April 2020.
- Healthy balance sheet — long-term debt of US dollars 414 million, cash and equivalents plus short term investment of US dollars 772 million; positive free cash flow generation in 2018 and 2019 of US dollars 196 million and US dollars 49 million.
- Short-term investments consist of highly liquid and high-quality government and other debt securities
Overview
- Neurocrine Biosciences (Neurocrine) is a commercial-stage biotechnology company founded in 1992 and headquartered in San Diego, California.
- The company has two US Food & Drug Association (FDA) approved treatments
- April 2020 — ONGENTYS (opicapone): The once-daily oral 25 mg and 50 mg capsules that serve as an add-on treatment to levodopa/carbidopa in patients with Parkinson’s disease experiencing “off” episodes.
- “Off” episodes: As Parkinson’s disease progresses, patients taking levodopa/carbidopa may begin to experience between treatment doses motor symptoms such as tremors, slowed movement and difficulty walking.
- In June 2016, BIAL – Portela & CA, S.A. (BIAL) received approval from the European Commission for ONGENTYS as an adjunct therapy to preparations of levodopa/DOPA decarboxylase inhibitors in adult patients with Parkinson’s disease and end-of-dose motor fluctuations who cannot be stabilized on those combinations. BIAL currently markets ONGENTYS in Germany, United Kingdom, Spain, Portugal and Italy.
- Neurocrine in-licensed opicapone from BIAL in 2017 and has exclusive development and commercialization rights in the U.S. and Canada.
- FDA approval of ONGENTYS triggered a milestone payment of US dollars 20 million to BIAL from Neurocrine.
- Bial is eligible to receive total milestone payments of up to US dollars 115 million and a percentage of net sales.
- The company has said that because of the COVID-19 pandemic, it will not be launching the product until later in 2020.
- April 2017: The FDA approved INGREZZA (valbenazine) capsules to treat adults with tardive dyskinesia (TD).
- TDs are involuntary movements of the tongue, lips, face, trunk, and extremities that occur commonly occur in patients that have taking antipsychotic medications over the long-term to treat conditions such as schizophrenia, schizoaffective disorder, or bipolar disorder
- Approximately 20–50 per cent of patients receiving antipsychotics develop TD
- INGREZZA is one of two drugs approved by the FDA for the treatment of TD.
- Neurocrine is primarily focused on the commercialization of INGREZZA in the US.
- Full-Year 2019 Net Sales of US dollars 753 Million, up more than 83 per cent year-over-year.
- Net product sales were US dollar 231.1 million during the first quarter of 2020, up almost 70 per cent year-over-year.
- The company also receives royalties from AbbVie Inc for ORILISSA (elagolix), medication for the management of moderate to severe endometriosis pain in women.
- ORILISSA received marketing approval from both the FDA and Health Canada in July 2018.
- Neurocrine receives royalties at tiered percentage rates on the net sales of the medication.
- Endometriosis: An often-painful disorder in which tissue similar to the tissue that normally lines the inside of the uterus — the endometrium — grows outside the uterus. Endometriosis can cause severe pain especially during menstrual periods and may also cause fertility problems to develop.
Research & Development
- Crinecerfont for the treatment of congenital adrenal hyperplasia (CAH) in adult patients.
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- CAH refers to a group of genetic disorders that affect the adrenal glands and their ability to produce important hormones such as:
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- Cortisol, which regulates the body’s response to illness or stress
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- Mineralocorticoids, such as aldosterone, which regulate sodium and potassium levels
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- Androgens, such as testosterone
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- Presently there is no cure for CAH
- Elagolix for the treatment of heavy menstrual bleeding.
- Valbenazine for the treatment of chorea in adult patients with Huntington’s disease — a progressive brain disorder that causes uncontrolled movements, emotional problems, and loss of cognition.
- NBIb-1817, an investigational gene therapy product designed for the treatment of advanced Parkinson’s disease patients who have been diagnosed with and are not responding adequately to oral medications, and have at least three hours of “off” time during the day.
Key Risks
- Sales of Neurocrine’s products depend, to a large degree, on the extent to which products will be covered by third-party payors, such as government health programs, commercial insurance and managed health care organizations.
- Third-party payors are becoming stricter in the ways they evaluate medical products and services and the containment of health care costs has become a priority of federal and state governments, and the prices of drugs have been a focus in this effort.
- The treatment for TD is currently offered by two companies in the US: Neurocrine and Teva Pharmaceuticals
- While the two companies have priced their productors comparably, a price cut by Teva or a wider adoption of its treatment (AUSTEDO) could negatively impact Neurocrine’s sales
Appendix: FDA Approval Process
- Clinical trials
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- Phase 1 uses 20 to 80 healthy volunteers to establish a drug’s safety and profile (about 1 year).
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- Phase 2 employs 100 to 300 patient volunteers to assess the drug’s effectiveness (about 2 years).
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- Phase 3 involves 1000 to 3000 patients in clinics and hospitals who are monitored carefully to determine effectiveness and identify adverse reactions (about 3 years).
This post should not be considered as investment advice or a recommendation to purchase any particular security, strategy or investment product. References to specific securities and issuers are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.