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Neurocrine Biosciences Looks Oversold

- By John Engle

The biotech space provides ample opportunities for value. The recent market pullback, coupled with sector's inherent ability to produce breakout companies makes it a good place to look for long-term value. San Diego-based Neurocrine Biosciences (NBIX) is a biotechnology firm specializing in the development of treatments for neurological and endocrine diseases and disorders.

Although the stock has had a rough few months, losing around 45% from its 2018 highs, Neurocrine's strong pipeline could bring the company back in the long term.

Let's discuss.


On its most recent earnings call, Neurocrine posted total revenues of $151.8 million for the quarter, compared to $60.8 million year-on-year, representing a 60% increase. Net income for the quarter totalled $50.8 million (52 cents diluted earnings per share), although this included milestone payments from partners AbbVie (ABBV).

Without the milestone payment, net income came in at $10.8 million (11 cents earnings per share). The company is currently trading at around $68 per share and has a market capitalization of $6.18 billion.

Prospects and setbacks

The company's lead product is a drug called Ingrezza (generic name valbenazine), a vesicular monoamine transporter 2 (VMAT2) inhibitor, which is currently approved for the treatment of tardive dyskinesia (TD), a neurological disorder characterised by involuntary, repetitive movements. Long-term users of antipsychotic medications are more likely to develop TD than the general population, and so the market for treatment is forecast to grow at a compound annual growth rate (CAGR) of 4% over the next five years as the the number of antipsychotics prescribed also increases.

Management have stated that 8 out of every 10 written prescriptions are filled and over three quarters of patients pay less than $10, making the drug accessible. There is a competing drug on the market, Teva's (TEVA) Austedo; however, Ingrezza's once-daily dosing mechanism is considered to Austedo's. Moreover, Neurocrine's drug hit the market first, giving it time to establish some control of the market.

The company also has a potential blockbuster drug in the form of Orilissa, a treatment for endometriosis. Sold and marketed by Abbvie (Neurocrine receives milestone and royalty payments from the pharmaceutical giant), Orilissa is forecast to take over 20% of the market for endometriosis treatment by 2025. It is also being investigated for efficacy in the treatment of uterine fibroids and congenital adrenal hyperplasia. As there are currently limited treatment options for chronic uterine fibroids available in the U.S., analysts believe that Orilissa could corner the market in a similar way to Ingrezza did when it arrived on the scene.

It hasn't all been smooth sailing, however. Last December, Neurocrine announced that its study investigating the efficacy of Ingrezza in the treatment of Tourette's Syndrome had failed to meet its primary endpoint, causing the stock to lose 20% of its value. While certainly disappointing, this is a temporary setback, rather than a blow from which the company cannot recover.


In short, Neurocrine seems oversold. Yes, there have been setbacks, and the broader market downturn has exerted additional downward pressure on the stock. But the company has a big potential catalyst if Orilissa gets the green light for the treatment of uterine fibroids, and sales of Ingrezza are forecast to grow at a healthy clip. We are therefore cautiously optimistic about the prospects of this biotech firm.

(This article was co-authored by Stepan Lavrouk, director of research at Atreides Capital LLC and a former research analyst for Almington Capital Merchant Bankers.)

Disclosure: No positions.

This article first appeared on GuruFocus.