Neurocrine Biosciences (NASDAQ:NBIX) announced the FDA approval of Ingrezza for the treatment of Tardive Dyskinesia last week. The outcome was largely anticipated but the uncertainty was related to the label, as a black box warning about suicidal ideation could have been included. Since it was not, it is all good news for Neurocrine and enables the company to focus on successfully launching the product. I initiated coverage on Neurocrine in early April (the article is exclusive to Growth Stock Forum subscribers) with a buy rating and a $65 price target and I am now increasing my price target to $69.
Ingrezza approved with a better-than-thought label
I was pleasantly surprised to see that Ingrezza's label did not include a black box warning of any kind since it was part of my thesis - a possible class effect-type of a black box warning. The warnings and precautions section only includes somnolence and QT prolongation. So, overall, a pretty clean label that could represent a significant advantage over potential competitors, such as Teva's Austedo, which is currently approved for the treatment of chorea associated with Huntington's disease. However, Teva also submitted an NDA for Austedo for the treatment of TD with a PDUFA date in August. Austedo has a black box warning for suicidality and depression in its label and is also contraindicated in patients with hepatic impairment and in patients taking MOIs, reserpine or tetrabenazine (Xenazine) while Ingrezza has no contraindications listed in its label.
I believe that Ingrezza will be the best-in-class TD product (it is currently the only product approved for TD) and that it will garner higher market share than Teva's Austedo due to its clean safety profile and a robust efficacy profile. Austedo reduced the AIMS score at similar rates to Ingrezza but Ingrezza showed stronger differences over placebo (placebo response was higher in Austedo's study). I suspect that Teva's efforts to create a market for Austedo will have a positive impact on disease awareness and that it could increase the size of the market without impairing Ingrezza's market share.
The company declined to provide pricing information due to the significantly increased sensitivity to drug pricing but management did say that the annual price for the drug will be in the previously provided $20,000-$60,000 range and that it will be competitive. I have modeled my peak sales ($1.5 billion) based on a price near the low end of the range and have decided not to increase my targeted peak sales even if the price is significantly higher as I want to see how successful the launch is.
The main hurdles for the launch will be:
- Product and disease awareness. Neurocrine will have to do some heavy lifting to inform physicians and patients about Ingrezza's availability and its fulfillment of a significant unmet need. This is a hurdle that should be eliminated over time.
- Reimbursement. This is the most significant hurdle to pass in the early launch phases. The company needs to engage with payers and get Ingrezza on formularies and this will be done over the next 9-12 months. In the meantime, the company will address the reimbursement issue through its INBRACE hub, which will provide informational and other support services, including reimbursement, co-pay assistance, patient assistance and free supply of Ingrezza.
Based on what I heard on the investor call last week, Neurocrine is well prepared to tackle all the usual launch problems. The company has gathered a strong sales team with significant experience in the field and most reps have experience with at least one drug launch. The awareness campaign, medical meetings, and symposiums will be used to let physicians and patients know about TD and Ingrezza and its efficacy and safety.
The FDA has requested a post-approval study with a higher dose of Ingrezza. The agency is obviously intrigued by the data and is interested in seeing the potential efficacy benefits from a higher dose. It is up to Neurocrine to come up with trial design and we should know more about this study in the following quarters. The potential higher efficacy with the higher dose could further improve Ingrezza's competitive position.
Due to Ingrezza's favorable efficacy and safety profile, I previously modeled a 90% probability of approval. Since Ingrezza is now approved and with a clean label, I am increasing my NPV on Ingrezza from $35 to $39 (the full model is available to Growth Stock Forum subscribers). I am raising my price target on Neurocrine from $65 to $69.
How likely is the launch to disappoint?
The odds are often stacked against a company that launches its first drug as expectations are often too high which means that the majority of drugs fail to meet or exceed expectations. Drug launches have become all the harder recently given the changed payer landscape and the increased pricing pressure. This is perhaps the most important near-term risk for the stock, as share prices of companies with recent drug approvals are lower on average compared to the pre-approval levels, even with no evidence of how successful a particular launch is. This is true for many stocks that I own and cover and the most recent examples are Synergy Pharmaceuticals (NASDAQ:SGYP), Lexicon Pharmaceuticals (NASDAQ:LXRX), and Heron Therapeutics (NASDAQ:HRTX). I have used the post-approval weakness in these cases to build my position.
Neurocrine's story is somewhat different since, unlike the above-mentioned companies, it has several additional catalysts that could drive the stock up or down regardless of Ingrezza's success or lack thereof:
- Ingrezza Phase II data in Tourette syndrome in May.
- NDA submission for elagolix in endometriosis in Q3 - though this is not that big of a catalyst.
- Phase III results of elagolix in uterine fibroids in late 2017.
- Clarity on Ongentys' path forward after the meeting with the FDA. If Neurocrine can submit an NDA based on the current dataset, it could move the stock modestly higher as it would significantly speed up Ongentys' market entry and create synergies with Ingrezza since the same sales team will be in charge of both products.
I am raising my price target on Neurocrine from $65 to $69. Neurocrine stands to be a substantially different company within the next 12-24 months:
- Ingrezza should start generating strong sales in 2018 and it could advance to a Phase III trial in Tourette's (and get some off-label use if Phase II results are good).
- AbbVie should launch elagolix in endometriosis in 2018 and in uterine fibroids in 2019 (rough time frames) and Neurocrine should start collecting meaningful royalties on net sales and milestone payments.
- Potential approval of Ongentys in 2018/2019, assuming another trial is not needed (but I assume it will be needed, so the approval is likely to occur in early 2020s).
- NBI-640756 Phase II trial readout in 2018 in essential tremor could put this candidate on investors' maps. The implications of potential positive results would be quite significant since essential tremor represents the largest addressable market for Neurocrine.
- NBI-74788 is still in early stages of development, but we could see some data over the next two years.
- Neurocrine could use equity or its potentially growing cash flow to make additional acquisitions that bring synergies with Ingrezza and Ongentys (if approved).
I also believe that Neurocrine is one of the most attractive M&A targets in biotech at the moment considering Ingrezza's profile, elagolix, the early stage pipeline and the company's drug discovery platform. The risk to the thesis include:
- Ingrezza underperforming Street expectations.
- Lower-than-expected pricing for Ingrezza.
- Changed competitive dynamics leading to lower long-term market share.
- Ingrezza failing in the Tourette Phase II trial.
- Elagolix failing to receive FDA approval and failing in the Phase III trial in uterine fibroids.
- Other pipeline or regulatory setbacks.
Disclaimer: This article reflects the author's personal opinion and should not be regarded as a buy or sell recommendation or investment advice in any way.
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Disclosure: I am/we are long NBIX, HRTX, SGYP, LXRX.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.