Neurocrine Biosciences May Have Something Interesting With NBI-74788

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About: Neurocrine Biosciences, Inc. (NBIX), Includes: ABBV, MLND
by: Stephen Simpson, CFA
Summary

Data from a small Phase II study suggest NBI-74788 is effective in reducing biomarkers tied to CAH and doing so safely.

There's miles to go with NBI-74788's development, including more meaningful efficacy and safety data, but this could be a real contender in a multibillion-dollar opportunity.

Neurocrine shares look undervalued, but value-driving catalysts may be more limited in 2019 given its clinical trial timelines.

It’s still very early, but Neurocrine Biosciences (NBIX) might have another compelling, largely underrated, drug in NBI-74788 for congenital adrenal hyperplasia (or CAH). Although Ph IIa data does little more than work to establish proof of concept at this point, I do believe it’s enough to get sell-side analysts and investors to start doing some due diligence on what I believe could be a meaningful contributor to Neurocrine down the road.

Neurocrine shares remain undervalued, but value-drivers are looking a little more limited in the short term. AbbVie’s (ABBV) “slow and steady wins the race” approach with Orlissa might be the right way to go long term, but it could lead to some near-term disappointments in terms of growth, and neither the opicapone program or the collaboration with Voyager (VYGR) are likely to generate much near-term buzz. Still, with the shares meaningfully below my estimate of fair value, I think it’s a name to consider.

Limited Data, But Meaningful Upside

Due in part to competitive reasons and also the limitations of a small open-label, non-randomized study, Neurocrine said little about the Phase IIa trial results of NBI-74788 in CAH other than that it seems to work and seems to be safe.

Specifically, management said that across the study it saw a reduction in 17-hydroxyprogesterone (17-OHP) and androcorticotropic hormone (or ACTH) levels of greater than 50% in more than 50% of the patients on background steroid therapy in just 14 days. These are important biomarkers in CAH, but it is well worth noting that biomarker-based studies aren’t always reliable in terms of real-world symptom/disease progression relief (though 17-OHP is an accepted biomarker with CAH). It’s also worth noting that “greater than 50% reduction” doesn’t really say just how effective the drug is, as classic CAH patients can have dramatically elevated levels of 17-OHP.

Neurocrine’s prior compound for CAH did show efficacy in terms of reducing 17-OHP levels, but it was shelved due to safety concerns. As of this point, NBI-74788 looks like a safer compound, with no serious adverse events seen so far.

With this information, the company will be meeting with the FDA to discuss clinical trial designs for both adult and pediatric CAH patients, and I will be very curious to see if the company pursues a trial design that includes at least one arm of patients taking NBI-74788 without background/maintenance steroids.

Framing The Opportunity

I’ve spent some time in recent weeks digging into the CAH opportunity for Neurocrine, using sources like the CARES Foundation website and medical journals. Based on that research, I think a safe and effective treatment for CAH could be a significant winner for the company.

CAH is a disease wherein patients lack an enzyme (typically 21-hydroxylase) that allows the body to produce essential steroids like cortisol and aldosterone. Around 75% of CAH cases are “classical”, which are typically more severe. Classical CAH is further subdivided into “simple virilizing CAH” and “salt-wasting CAH”. Simple virilizing CAH is not life-threatening, but it can lead to ambiguous genitalia in newborn females and virilization of prepubescent children (taking on male sex characteristics). In salt-wasting CAH, there are not only the sex hormone-linked symptoms, but also potentially more serious issues like life-threatening vomiting and dehydration.

Classic CAH can generally be managed with daily steroids, but long-term use of steroids has its own list of side effects and consequences, including bone loss, growth impairment, Cushing’s, metabolic disease, and cardiovascular disease, and there is often a delicate balancing act in finding the level of steroids necessary to keep the more serious CAH symptoms at bay while not overlying compromising the person’s quality of life (and particularly for children, normal growth and development).

There are likely around 19,000 people in the U.S. with classic CAH and perhaps twice that number in Europe, and roughly 1 in every 12,000 to 15,000 births will see classic CAH present. CAH can be detected at birth and it is mandatory as part of newborn screening in the United States.

Given the rarity of CAH and the potentially serious side effects, I believe effective CAH treatments can support orphan drug-type pricing, but I believe a lot will depend upon the efficacy and safety data seen in larger studies, and particularly what (if any) role drugs like NBI-74788 can have in reducing steroid use, and especially so in children.

I’m aware of two other competing programs in the clinic right now. Privately-owned Spruce is working on a CRF1 antagonist similar to NBI-74788 and should be presenting data at ENDO on March 24. Millendo (MLND) is working on nevanimibe, an ACAT1 inhibitor that works further downstream of CRF1 inhibition. Millendo started a 24-patient Phase II study in September of 2018 and estimates completion in March of 2020 with a primary endpoint of patients achieving 17-OHP levels of 2x upper limit of normal or below (an endpoint reached by 2 of 10 patients in an early Phase II study).

Not all CAH patients will need or want to change therapies, but a safe and effective treatment for classic CAH, particularly one that impacts steroid use, could be worth billions of dollars in revenue, but for now I value the opportunity to Neurocrine on the basis of assuming a little less than 50% share of approximately 50% to 60% of potential patients (as I said, not all patients will be willing or able to switch therapies). With a 20% chance of commercialization and over a decade to peak revenue, that is still worth more than $8.50/share today for Neurocrine, with more upside if and when further positive clinical data come through.

Orlissa Will Take Time

While Neurocrine reported solid revenue for Ingrezza in the fourth quarter (which was announced back in January in conjunction with presenting at a major sell-side conference), Orlissa is off to a somewhat slow start in AbbVie’s hands, with less than 1,000 prescriptions written through mid-January and a forecast of about $200 million in revenue for 2019. As the first new treatment for endometriosis in quite some time, not to mention the future uterine fibroid approval/launch, AbbVie is taking its time, working with payers to get coverage, and working with doctors to build awareness. I (and AbbVie) still view this as a multibillion-dollar drug, but it’s going to take some time to get there and that could leave Neurocrine shares open to some disappointment here and there.

The Outlook

Ingrezza remains a high-quality asset for Neurocrine and one that I believe can very nearly support the current stock price all on its own with over $2.5 billion in peak sales potential. Add in the Orlissa opportunity in endometriosis and uterine fibroids, opicapone, NBI-74788 in CAH, and the Voyager partnership, I believe Neurocrine has an attractive collection of assets, even if its wholly-owned early-stage pipeline is quite limited.

Adjusting for a slower ramp with Orlissa, the improved odds of success with NBI-74788 and some other housekeeping items, and my fair value moves to around $118. I’m more bullish than the sell-side average on Orlissa (though not above the most bullish sell-side analysts) and a little more bullish on Ingrezza, and I believe many analysts have yet to include NBI-74788 in their models (though that may well change with this trial update).

The Bottom Line

There’s plenty of risk with Neurocrine; Orlissa could be a long-term disappointment, the Voyager program could chew up large sums of cash and produce nothing, NBI-74788 could fail, competitors could emerge with better drugs, and so on and so forth. This is a “consenting adult” type of stock, but then that’s true for biotech in general, and I continue to believe that Neurocrine offers an attractive risk-reward balance at today’s price.

Disclosure: I am/we are long NBIX. 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.