September 27, 2020

New Data Support The Idea That Neurocrine Biosciences Is Building A Credible Parkinson’s Portfolio (NASDAQ:NBIX)

I had previously expressed my concern that Neurocrine (NBIX) shares could remain weak given a lack of thesis-changing data catalysts on the horizon, and the shares have fallen another 17% since my last update. I see nothing wrong with the business, but the quality of the Ingrezza business is a known factor now and most of the company’s more exciting pipeline developments are still some distance away.

To that end, the recent presentations at the MDS Virtual Congress on the company’s NBIb-1817 Parkinson’s gene therapy program (licensed/partnered from Voyager (VYGR) and Ongentys (opicapone) are “nice to have” updates. I do believe that the lack of more robust positive data on the gene therapy program is a modest negative, though I also believe that the revenue potential of Ongentys remains somewhat underappreciated by investors.

I do continue to believe that Neurocrine is undervalued, but I also an ongoing risk that investors will ignore the name in favor of companies with more exciting near-term data updates.

Neurocrine and Voyager produced new data on their PD-1101 and PD-1102 Phase Ib studies of the VY-AADC one-time gene therapy for advanced Parkinson’s disease.

Three-year data from the PD-1011 showed a 1.9 hour reduction in “off time” in Cohort 2 and a 1.72 reduction in Cohort 1, while Cohort 3 showed a 0.15 reduction. Generally speaking, a one-hour improvement has been seen as clinically significant. Patients in Cohort 2 also saw a 2.23-hour improvement in “on time”, while Cohort 1 saw a 2.08 improvement and Cohort 3 showed a 0.26 improvement.

Source: Poster presentation of “Three-year safety and clinical outcomes from the PD-1101 trial of AADC gene therapy for advanced Parkinson’s disease”; Chadwick Christine, R Mark Richardson, et al

Looking at motor function (as measured by UPDRS), there was improvement in all three cohorts, ranging from 19 in Cohort 1 to 12 in Cohort 2 to 10 in Cohort 3, with some erosion seen in the second and third cohorts from the two-year levels. Anecdotally, Voyager management also noted a significant reduction in falls, which supports the idea of meaningful motion improvement.

Source: ibid

All groups reported quality of life improvements, but again with some erosion over time. Safety continues to look pretty clean, with some transient dyekinesias, but no serious adverse events related to the treatment.

Source: ibid

Looking at the data, the lack of dose-dependent response in Cohort 3 (a total dose of up to 4.7×10^12 vg versus up to 1.5×10^12 vg in Cohort 2 and up to 7.5×10^11 vg in Cohort 1) is concerning, but it is possible that the small sample size (n=5 in all three groups) and the more severe disease in Cohort 3 (two patients in Stage 4 versus none in the other two cohorts, and a 13-point higher starting UDysRs score) could explain it.

Source: ibid

Source: ibid

The companies also provided a look at 24-month data from the PD-1102 study, which uses the same drug but a different administration approach – a posterior trajectory that takes less time (about two hours less versus the approach used in PD-1101), achieves greater putamen coverage (76% versus 33.5% to 42% in PD-1101), and achieves greater AADC enzyme activity (85% increase versus 56% to 79% in PD-1101).

In this study, the increase in “on time” improved from 1.7 hours to 2.1 hours at 24 months, while “off time” improved from 2.1 hours to 3.2 hours. The reduction in UPDRS improved from 9.4 at 12 months to 12.0 at 24 months, though there was again some erosion in quality of life metrics.

Source: Poster presentation of “AADC gene therapy administered via a posterior approach: 18-month results from the PD-1102 trial in advanced Parkinson’s disease” ; Stewart Factor, Amber Van Laar, et al

All told, I look at this therapy as credible and clinically viable, but not a paradigm-changing blockbuster. Based on the data seen to date, VY-AADC would have to be an add-on to therapy (patients were able to lower their medical by about 20% to 30% at three years), not a replacement. While insurers be willing to pay $200,000 or more for a one-time therapy that is not curative? Given the reduction in falls and other clinical symptoms, I believe so, but I freely acknowledge these data by no means close the door on other competing therapies in the clinic.

Management is planning to reinitiate enrollment in the RESTORE-1 study later this year (in cooperation with the clinical sites, of course), while starting up RESTORE-2 will likely be a 2021 event.

Ongentys May Deserve More Love

Neurocrine also offered some interesting post-hoc data analysis on Ongentys (which the company the morning of this writing is now commercial available). As a reminder, Ongentys is a COMT inhibitor meant to be given as an add-on to Parkinson’s patients getting levopdopa.

Two post-hoc Phase III analyses (of the BIPARK-1 and BIPARK-2 studies) showed that Ongentys produced a 64-minute improvement in “on time” versus entacapone (another COMT inhibitor), while a reducing “off time” by 69 minutes relative to a placebo. As I mentioned above, an improvement of an hour or more in “off time” is considered clinically meaningful, and Ongentys has a cleaner safety profile relative to other drugs in this class (side effects have been an important limiting factor in the use of COMT inhibitors).

Given the benefits Ongentys can offer patients, I believe this could become a $500M/year drug for Neurocrine over time. A significant percentage of that will go to BIAL, the owner/developer of the drug, but this still looks like an underrated future contributor for Neurocrine.

The Outlook

Given these updates, I’ve made some modest adjustments to my expectations both Ongentys and VY-AADC. For Ongentys, I believe the improved on/off times can support a slightly higher market share/penetration assumption, while I’ve revised my expectations for VY-AADC down slightly. It’s well worth noting, though, that the VY-AADC is still a very early-stage program and I’m only assigning a 25% chance of commercial success at this point.

These changes don’t have much impact, adding a couple of dollars to my fair value (less than a 2% change).

The Bottom Line

With the decline in Neurocrine’s share price, I believe investors are basically only paying for Ingrezza, essentially valuing the Orlissa partnership with AbbVie (ABBV) and the pipeline at virtually zero. I do expect Ingrezza to ultimately generate more than $2.75 billion in revenue for Neurocrine, and I think there is meaningful value in the crinecerfont program in congenital adrenal hyperplasia program, as well as in Ongentys. Earlier-stage programs like VY-AAD and epilepsy likewise have some modest value today.

I can’t say when the Street will return to this name, as there won’t be much in the way of exciting clinical data for a while, and investors have been conditioned to expect strong results from Ingrezza. Still, relative to the long-term value I see, I believe these shares are worth buying and owning today.

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.

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