Better Ingrezza Sales & A Clinical Trial Read-Out Could Reignite Neurocrine Shares (NBIX)

I lamented back in February that Neurocrine Biosciences (NASDAQ:NBIX) was looking at a year in 2022 that was going to see a lot of behind-the-scenes work, but not a lot in the way of flashy announcements that could move the share price. Still, the shares have done okay since then, beating the biotech space at large and the S&P 500, and there are a couple of drivers that could accelerate the momentum in the share price.

With marketing efforts now less restrained by pandemic restrictions, I believe Neurocrine could rebuild some momentum in Ingrezza sales and build on the better-than-expected first quarter results. I also believe that the upcoming Phase II read-out of NBI-827104 in essential tremor could get some positive attention if the data are good enough. A good result with ‘104 could add $5/share or more to the fair value, while improving momentum in Ingrezza should quell some of the concerns about market size/saturation. With a current fair value of $110 and a line of sight to $120, I think these shares are still worth consideration, particularly ahead of what could be a very significant year of clinical data in 2023.

‘104 Could Create A Meaningful New Opportunity

While ‘104 has been part of Neurocrine’s pipeline for a little while now, coming as part of an early 2020 licensing agreement with Idorsia (OTCPK:IDRSF), analysts and investors haven’t paid all that much attention to it – an entirely reasonable decision given the poor odds of success for novel drug compounds, and neuro-psych in particular. Still, with initial Phase II results coming anytime now, this is a compound worth a closer look.

‘104 is a T-type calcium channel blocker that Neurocrine is developing for movement disorders, with the first read-out coming in essential tremor. Neurocrine isn’t the only company developing a calcium channel blocker for ET, but it is plausible that there are drug-specific attributes that will lead to better efficacy and tolerability.

Essential tremor is a relatively common movement disorder (6M to 10M affected in the U.S.) characterized by rhythmic involuntary movements in the upper limbs. The disease tends to get worse over time, often leading to functional disability and severe negative impacts on quality of life. Propranolol is a reasonably effective treatment initially, but the effect tends to wane over time, and drugs like topiramate are usually withheld until later stages due to tolerability/side-effect issues. To further underline that this isn’t a particularly well-served market, I’d note that propranolol is a drug from the 1960s, while topiramate dates to the late 90s (and does not, I believe, have on-label approval for essential tremor).

Phase II studies should always be viewed with caution, and that’s fair to say about this one – all I’m really hoping from this study is initial evidence of efficacy and safety and a path toward a Phase IIb study. Still, in terms of what to look for, a 30% or greater placebo-adjusted reduction in tremor would be significant, particularly if the side-effect profile (somnolence, dizziness, et al) is clean.

I would expect an effective and safe treatment for essential tremor to have an addressable market in the $1B to $2B range, and perhaps more depending upon the specifics of efficacy, tolerability, and so on.

Expecting Reacceleration In Ingrezza

There’s been no shortage of fretting over the health of Neurocrine’s Ingrezza business since the start of the pandemic. There were already concerns before that the market wasn’t as large as believed and/or that the company had already plucked the low-hanging fruit, and the weakness that the company saw through the pandemic didn’t help the bull case.

The business has been showing some signs of life, though, with some sequential growth in the last two quarters and better-than-expected overall sales. Management has completed a significant expansion of the salesforce and is also committing resources to a direct-to-consumer campaign to increase awareness of both the drug and the indication (tardive dyskinesia); the latter is not trivial, in my view, as there are a lot of doctors that underplay the frequency of the condition and the extent to which it can disrupt quality of life.

The sell-side is looking for Ingrezza to grow about 7% qoq in the second quarter (or about 20% yoy), and I think there could yet be a couple of percentage points of upside to that number. Still, the basic story here remains the same – trying to identify patients and get them on treatment. An estimated 6% to 8% of patients on anti-psychotics develop tardive dyskinesia (suggesting a market of 300K-400K on the short end), but perhaps only a quarter or so are diagnosed, with half of those on active treatment. Ingrezza (or rival Teva’s (TEVA) Austedo) won’t be appropriate for all of them (many cases of TD are mild), but I do still believe there is meaningful potential market penetration growth from here.

I also expect Ingrezza to get a boost from an expanded label in 2023. Neurocrine should get its sNDA for Huntington’s chorea into the FDA before year-end, setting up a 2023 approval. Given onset of action, efficacy, safety, and ease of use (no need for titration), I believe Ingrezza will outperform Austedo eventually, though the latter has a meaningful time-on-market advantage.

A 2023 With Multiple Potential Catalysts

This may not be the most exciting year as far as clinical data go, but 2023 should be a different story. Still, the company will be providing two read-outs this year – proof of concept data for ‘104 in essential tremor (any day now) and top-line Phase II data for a rare type of pediatric epilepsy (usually referred to by the acronym CSWS) in the second half of the year.

The next year should see top-line data from a study of Ingrezza in schizophrenia, as well as possibly some data from its M4 agonist in indications like major depressive disorder. Most significantly will be the adult and pediatric data on crinecerfont in congenital adrenal hyperplasia (or CAH). Gene therapy is a competitive risk here, but I could see crinecerfont being a $1B-plus drug for Neurocrine.

Outside of clinal results, there are also some opportunities to deliver on marketing catalysts in 2023. I already mentioned the efforts to get the Ingrezza TD business growing again, but I’d also like to see activity with opicapone – Neurocrine’s in-licensed and approved drug for Parkinson’s. The launch of Ongentys has certainly been impacted by the pandemic, but that excuse is wearing thin and it is time for better results from this drug, particularly given the lack of new treatment options in the space.

The Outlook

I’ve made some modest adjustments to my model since my last update – once again reducing the expected contributions of the hapless elagolix (marketed by AbbVie (ABBV)) but also adjusting up my market share estimates for Ingrezza in Huntington’s chorea. I currently give only a small weighting to ‘104 in essential tremor (in keeping with the long odds against novel neuro-psych drugs), but a strong efficacy signal and clean safety profile could add $5/share or more to my fair value (and likely even more in some sell-side models).

Of my nearly $110 fair value estimate, around $69 comes from Ingrezza and the large majority of that from the tardive dyskinesia market. If and when future clinical trial read-outs support more meaningful approval odds for other compounds (epilepsy, schizophrenia, CAH, et al), there could be more significant revisions in the future.

The Bottom Line

With around 15% or so undervaluation, possibly around 20% if the ‘104 read-out is positive, I can’t say that Neurocrine is massively undervalued today. By the same token, though, that early-stage pipeline could unlock a lot of value with positive read-outs, and Ingrezza still has significant potential in my view. Taking that all into account, I still think these shares are worth owning even if they’re a little deficient on thesis-changing events in the near term outside of potential M&A.