SSB latest report:
Neurocrine Biosciences (NBIX)
NBIX: Reports Second Quarter Financial Results; V3 (Venture, Neutral)
Pipeline Update Mkt Cap: $940.9 mil.
July 30, 2002 SUMMARY
* Today, after market close, Neurocrine Biosciences
BIOTECHNOLOGY reported second quarter results of a net loss of $19.8
Elise Wang million or $0.65 per share, which was better than our
forecast of a net loss $24.0 million or $0.79 per share.
* In our view, given the stage of development for
Soham Pandya Neurocrine, quarterly earnings results are not the primary
driver for the shares; rather, the focus of investor
interest remains on the continued progress of the company's
Caroline pipeline.
Goodman * Given updated financial guidance, we are fine-tuning our
EPS forecast for fiscal 2002 to a net loss of $85MM or
$2.72 per share from a previous estimate of a net loss of
$75MM or $2.39 per share.
* We maintain our Venture, Neutral rating and await greater
visibility on a potential pharmaceutical collaboration for
NBI-34060 to alter our outlook. We are maintaining our
price target of $30.
FUNDAMENTALS
P/E (12/02E) NA
P/E (12/03E) NA
TEV/EBITDA (12/02E) NA
TEV/EBITDA (12/03E) NA
Book Value/Share (12/02E) NA
Price/Book Value NA
Dividend/Yield (12/02E) NA/NA
Revenue (12/02E) $37.0 mil.
Proj. Long-Term EPS Growth NA
ROE (12/02E) NA
Long-Term Debt to Capital(a) NA
NBIX is in the Russell 2000(R) Index.
(a) Data as of most recent quarter
SHARE DATA RECOMMENDATION
Price (7/30/02) $34.34 Current Rating V3
52-Week Range $53.46-$24.53 Prior Rating V3
Shares Outstanding(a) 27.4 mil. Current Target Price $30.00
Convertible No Previous Target Price $30.00
EARNINGS PER SHARE
FY ends 1Q 2Q 3Q 4Q Full Year
12/01A Actual ($0.45)A ($0.52)A $0.09A ($0.53)A ($1.42)A
12/02E Current ($0.52)A ($0.65)A ($0.76)E ($0.77)E ($2.72)E
Previous ($0.52)A ($0.79)E ($0.45)E ($0.63)E ($2.39)E
12/03E Current NA NA NA NA ($1.73)E
Previous NA NA NA NA ($1.73)E
12/04E Current NA NA NA NA NA
Previous NA NA NA NA NA
First Call Consensus EPS: 12/02E ($2.53); 12/03E ($1.58); 12/04E ($1.77)
OPINION
Today, after market close, Neurocrine Biosciences reported second quarter
2002 results of a net loss of $19.8 million or $0.65 per share, which was
better than our forecast of a net loss of $24.0 million or $0.79 per share.
Total revenues, largely from sponsored research and development and milestone
payments, were $4.2 million for the second quarter, below our estimate of
$8.3 million, primarily due to the decline in revenues from the Taisho
Pharmaceutical agreement (NBI-6024) for the treatment of Type I diabetes.
Revenues from Taisho decreased to $1.6 million from $2.3 million due to the
slower than expected enrollment in the Phase II adult Type I diabetes trial
and the delay of the Phase II pediatrics trial, which is now expected to
occur later this year. R&D expense for the quarter of $23.1 million was
below our forecast of $30.5 million. SG&A expenses were $3.2 million for the
second quarter, generally in line with our estimate of $3.1 million.
Furthermore, the company ended the quarter with $287 million in cash and cash
equivalents.
In our view, given the company's stage of development, quarterly earnings
results are not the primary driver for the shares; rather, the focus of
investor interest remains on the continued progress of the company's
pipeline. Neurocrine currently has seven programs in clinical development.
To date, the company has completed 25 Phase I and Phase II clinical trials
for indiplon involving approximately 1,300 subjects. The company has
initiated a comprehensive Phase III program that is anticipated to enroll
approximately 3,500 additional subjects in eight clinical trials, five
studies for the immediate release (IR) formulation and three studies for the
modified release (MR) version to assess the short term and long term
treatment in both adult and elderly patients with chronic or transient
insomnia. The first of these Phase III trials was initiated last November, in
a study that will enroll approximately 500 patients and evaluate two doses of
an IR formulation of indiplon for long-term use in patients with chronic
insomnia. Two additional double-blinded, placebo-controlled trials were
initiated with the IR formulation in patients with chronic insomnia and in
adult subjects with transient insomnia. The primary endpoint for the chronic
insomnia study will be Latency to Sleep Onset (LSO) as measured by patient
self-reported outcomes over a six-month period. The company has a goal to
complete enrollment in its Phase III program for the IR formulation this year
(approximately 2,000 patients) and complete a majority of patient enrollment
for the MR formulation by year-end. Topline results from one of the Phase
III studies may also be released later in the year.
In addition, the company is considering initiating an additional Phase III
clinical study of the MR formulation in adult patients to augment the
database of potential clinical data in the adult population. The company has
yet to make a final determination of the study protocol but is considering a
two-week study that will enroll approximately 200 patients (100 patients on
placebo and 100 patients on the 30 mg dose of Indiplon MR formulation) with a
primary endpoint of Total Sleep Time (TST). Although the company may
initiate an additional study for indiplon, we believe the short time period
for conducting the study are not likely to delay the regulatory filing for
the product. Neurocrine is targeting to file a New Drug Application (NDA)
for both formulations with the FDA at the end of 2003.
Furthermore, the
company indicated that they expect to spend an additional $2-3 million to
hire an additional CRO (Clinical Research Organization) to supervise the
recruitment and retention of patients enrolled in the Phase III trials.
Currently, the patient drop out rate has been approximately 28% versus the
company's original expectation of 45%.
Assuming clinical and regulatory success, we believe NBI-34060 will likely be
launched in both the U.S. and Europe in 2004. In our opinion, NBI-34060,
because of its higher potency and cleaner side-effect profile, has the
opportunity to capture a significant portion of the market for insomnia
products. We forecast that NBI-34060 could achieve $800 million in sales
worldwide by fiscal 2007. Since Neurocrine is likely to sign a development
and marketing partner for this compound, we estimate the company could record
net royalties of approximately 15-20%. We believe the signing of a
partnership agreement is likely to occur either later this year or early next
year as discussions continue to progress.
Updated company guidance; Revising financial model:
Neurocrine provided
updated financial guidance. The company now expects total revenues this year
to be approximately $35-37 million from a previous guidance of $60 million.
Net loss for the year is expected to be $80-85 million from a previous
guidance of $75-80 million. In addition, the company indicated it continues
to expect net loss for fiscal 2003 to be half of the level for fiscal 2002.
We are fine-tuning our financial model for fiscal 2002 and 2003 based on the
most recent quarter and the company's updated guidance. We have revised our
fiscal 2002 financial estimate to a net loss of $85 million or $2.72 per
share from a previous forecast of a net loss of $75 million or $2.39 per
share as we have revised our revenue estimate to $37 million from $60
million. Our fiscal 2003 financial estimate of a net loss of $59 million or
$1.73 remains unchanged.
PRODUCT PIPELINE UPDATE
Indiplon (NBI-34060) for insomnia. Indiplon, the company's most advanced
product candidate, has currently completed several Phase II studies for the
treatment of insomnia. indiplon belongs to the non-benzodiazepines class of
hypnotics, similar to two newer agents approved; Ambien (zolpidem) from
Sanofi-Synthelabo, and Wyeth's Sonata (zaleplon), marketing rights which were
recently acquired by Elan. Similar to these non-benzodiazepines, indiplon
has been shown to act on a specific site on the gamma amino-butyric acid-A
(GABA) receptor; however, indiplon is believed to be more potent than both
Ambien and Sonata. Furthermore, indiplon has been shown to be more selective
than the old-line benzodiazepines, such as Valium, for the specific subtype
of receptors within the brain that are believed to be responsible for
promoting sleep. As such, coupled with the short half-life of the compound,
indiplon could have fewer side effects such as next-day hangover effects and
memory and coordination impairment. Due to these properties, it is
postulated that indiplon could offer a superior efficacy and side-effect
profile than existing products on the market.
As indiplon has a very rapid clearance from the body, with a short half-life
of 1.5 hours, Neurocrine is developing a modified release (MR) dosage
formulation of the compound. This dosage formulation is intended to extend
the therapeutic window of the compound to maintain sleep throughout the
night. The MR dosage form has recently completed two Phase II clinical
studies, addresses both sleep initiation and sleep maintenance for the
chronic insomnia market. A pivotal Phase III study with indiplon-MR is
currently being conducted in over 600 patients with primary insomnia (the
SLEEP trial). This study is designed to assess the long-term safety and
efficacy of two different doses of indiplon-MR relative to placebo over a
period of six months. Key efficacy endpoints include sleep latency and sleep
maintenance as well as quality of life. The results of this trial are
expected to be announced in the third quarter of 2003.
Two additional Phase
III trials with indiplon MR are scheduled to begin later this summer. This
type of product label claim would help differentiate the product from other
non-benzodiazepines, which are approved for inducing sleep and are generally
limited to a maximum of 7-10 days of use.
On June 24th, Neurocrine Biosciences announced positive results from a Phase
II study of indiplon (NBI-34060) modified release (MR) in elderly patients
with chronic insomnia. This Phase II study, which enrolled 79 patients (ages
65-75 years), was a randomized, multi-center, double-blind, placebo-
controlled, dose response study. Patients were administered four doses of
the modified-release formulation of indiplon (10, 20, 30 or 35 mg) or placebo
in a cross-over manner. The primary endpoint of the study was Sleep
Efficiency (SE). Other efficacy endpoints evaluated included Total Sleep
Time (TST), Wake Time After Sleep Onset (WASO), Wake Time During Sleep
(WTDS), Number of Awakenings After Sleep Onset (NASSO), Latency to Persistent
Sleep (LPS), and Latency to Sleep Onset (LSO). In particular, WASO, WTDS and
NAASO are key secondary measurements of sleep maintenance. The results show
that indiplon MR treatment demonstrated a highly statistically significant
improvement in the primary efficacy endpoint of SE at the 20, 30 and 35 mg
dose levels compared to placebo. In addition, key endpoints assessing sleep
maintenance as well as sleep initiation (i.e., TST, WASO, WTDS, NAASO and
LPS) demonstrated statistically significant improvements at the 20, 30 and 35
mg dose levels compared to placebo.
With respect to safety, overall, the drug was well tolerated. There were no
clinically significant effects of next-day residual effects (e.g., hangover,
sedation, somnolence) with any dose level of indiplon, as compared to
placebo. For the 35 mg dose level, modest impairment on the Digital Symbol
Substitution Test (DSST) was observed. Consequently, the company does not
expect to pursue this dose level in additional clinical studies. Based on
the positive results, the company has selected the doses that will be used in
the remaining Phase III studies with indiplon MR in elderly patients, which
is scheduled to begin later this year.
Details of Second Phase II chronic insomnia study of indiplon (MR) in elderly
patients. The trial enrolled a total of 79 patients over 65 years of age
(mean age of 69 years) and was designed as a five-way cross over study. Four
doses of the modified release (MR) formulation (10 mg, 20 mg and 30 mg and 35
mg) of indiplon were evaluated relative to placebo. The primary efficacy
endpoint examined was Sleep Efficiency (SE) as defined by Total Sleep
Time/Time in Bed and measured by polysomnography (PSG). The results seen in
this trial were consistent with data collected in previous studies with the
compound. Specifically, the results show that patients treated with indiplon
MR experienced a statistically significant effect on SE compared to placebo
treatment at 20 mg, 30 mg, and 35 mg dose level (p<0.0001). Furthermore,
this is the first clinical study assessing sleep maintenance in elderly
patients with chronic insomnia. In particular, the key secondary endpoints
for sleep maintenance of Wake Time After Sleep Onset (WASO), Wake Time During
Sleep (WTDS), and Number of Awakenings After Sleep Onset (NAASO) measurements
demonstrated statistically significance at 20 mg, 30 mg and 35 mg dose levels
as compared to placebo. The results also demonstrated statistically
significance in sleep initiation as determined by Latency to Persistent Sleep
(LPS) as measured objectively by PSG relative to placebo.
We summarize
detailed data of some of the key efficacy endpoints measured objectively in
this trial in the table below.
Dose Sleep Efficiency Total Sleep Time
(SE) (mean)
Placebo 74% 355 minutes
10 mg 75.9% (p=0.5628) 364.5 minutes (NS)
20 mg 80% (p<0.0001) 384 minutes (p<0.0001)
30 mg 81.3% (p<0.0001) 390 minutes (p<0.0001)
35 mg 81% (p<0.0001) 390 minutes (p<0.0001)
Sleep Efficiency = Total Sleep Time/ Time in Bed
Dose Wake Time After Latency to Number of
Sleep Onset (WASO) Persistent Sleep Awakenings After
(LPS) Sleep Onset (NASSO)
Placebo 103 minutes 26 minutes 8.8
10 mg 102 minutes (NS) 17.6 minutes 7.5 (p<0.0001)
(p=0.008)
20 mg 87.3 minutes 11.0 minutes 7.1 (p<0.0001)
(p=0.005) (p=0.0001)
30 mg 81.9 minutes 11.0 minutes 6.5 (p<0.0001)
(p=0.0001) (p=0.0001)
35 mg 82.0 minutes 9.9 minutes 6.5 (p<0.0001)
(p=0.0001) (p=0.0001)
Source: company reports and ssb.
Details of Phase II study of MR formulation in patients with chronic insomnia
The trial enrolled a total of 47 adult patients, and was designed as a five-
way cross over study. Four doses of the modified release (MR) formulation
(20 mg, 30 mg, 35 and 40 mg) of indiplon were evaluated relative to placebo.
Primary efficacy endpoint examined was Sleep Efficiency, as measured by
polysomnography (PSG). The results seen in this trial were consistent with
data collected in previous studies with the compound. Specifically, the
results show that patients treated with indiplon MR experienced a
statistically significant effect on SE compared to placebo treatment at the
30 mg, 35 and 40 mg dose levels (p<0.002). Additionally, 60% (30 mg), 51%
(35 mg) and 66% (40 mg) of treated patients were able to achieve more than
seven hours of sleep compared to 36% of the placebo group. Furthermore,
Number of Awakenings After Sleep Onset (p<0.01) and Latency to Persistent
Sleep (p<0.01) demonstrated statistically significant improvement over
placebo for all dose levels. We summarize some of the key efficacy endpoints
measured objectively in this trial in the table below.
Dose Sleep Efficiency Total Sleep Time % Patients asleep
(SE) (mean) greater than 7
hours
Placebo 84.1% 356 minutes or 5.9 hours 36%
20 mg 85% (p=NS) 384 minutes or 6.4 hours NA
30 mg 87.3% (p<0.0012) 397 minutes or 6.6 hours 60%
35 mg 86.8% (p<0.002) 387 minutes or 6.5 hours 51%
40 mg 88.5% (p<0.0001) 395 minutes or 6.6 hours 66%
Sleep Efficiency = Total Sleep Time/ Time in Bed
Dose Number of Awakenings Latency to Persistent Sleep
After Sleep Onset (LPS)
(NASSO)
Placebo 6.7 25 minutes
20 mg 5.6 17 minutes
30 mg 5.2 15.4 minutes
35 mg 5.3 13 minutes
40 mg 5.4 15 minutes
Source: Company reports and Salomon Smith Barney.
With respect to safety, overall, the drug was well tolerated. There were no
clinically significant effects of next-day residual effects (e.g., hangover,
sedation, somnolence) with the 20, 30 and 35 mg dose levels of NBI-34060 MR,
as compared to placebo. For the 40 mg dose level, modest impairment on the
Digital Symbol Substitution Test (DSST) was observed on the second day after
treatment. Consequently, the company does not expect to pursue this dose
level in additional clinical studies.
On December 14, 2001, Neurocrine Biosciences announced positive results from
a Phase II study of indiplon immediate release (IR) in elderly patients with
chronic insomnia. This Phase II study, which enrolled 42 patients (ages 65-82
years), was a double-blind, placebo-controlled, dose response study.
Patients were administered three doses of the immediate-release formulation
of indiplon (5, 10 or 20 mg) or placebo in a cross-over manner. The primary
endpoint of the study was Latency to Persistent Sleep (LPS). Other efficacy
endpoints evaluated included Latency to Sleep Onset (LSO) measured
subjectively and Total Sleep Time (TST). The results show that indiplon IR
treatment demonstrated up to a 61% improvement in the primary efficacy
endpoint of LPS for all doses groups evaluated compared to placebo. More
importantly, in our view, as these elderly patients are more sensitive to
side effects of next day residual sedation than adult patients, the fact that
the no incidences of this side-effect were documented in this trial confirm
the safety and tolerability of the compound.
Phase II chronic insomnia study in elderly patients. The trial enrolled a
total of 42 patients over 65 years of age (mean age of 70 years) and was
designed as a four-way cross over study. Three doses of the immediate
release (IR) formulation (5 mg, 10 mg and 20 mg) of the indiplon were
evaluated relative to placebo. Primary efficacy endpoint examined was
Latency to Persistent Sleep (LPS), as measured by polysomnography (PSG). The
results seen in this trial were consistent with data collected in previous
studies with the compound. Specifically, the results show that patients
treated with indiplon IR experienced a statistically significant effect on
LPS compared to placebo treatment at all dose levels with up to a 61%
improvement (p<0.001) documented. Additionally, 85% of treated patients were
able to fall asleep within 30 minutes. We summarize some of the key efficacy
endpoints measured objectively in this trial in the table below.
Dose Latency to Persistent % Patients asleep Total Sleep Time (TST)
Sleep (LPS) in 30 minutes (measured by PSG)
Placebo 39.9 minutes 40% 363 minutes
5 mg 25 minutes (p=0.001) 67% 372 minutes (p=NS)
10 mg 17.5 minutes 86% 381 minutes (p=0.03)
(p<0.001)
20 mg 18 minutes (p<0.001) 81% 395 minutes (p<0.001)
LPS=Latency to Persistent Sleep; TST= Total Sleep Time; PSG= polysomnography
The company also conducted various subjectively measures for efficacy of the
compound. These are summarized in the table below.
Dose Total Sleep Time Latency to Sleep Onset
Placebo 328 minutes 59 minutes
5 mg 353 minutes (p=0.033) 39 minutes (p=0.004)
10 mg 367 minutes (p=0.001) 33 minutes (p<0.001)
20 mg 383 minutes (p<0.001) 27.5 minutes (p<0.001)
Source: Company reports and Salomon Smith Barney. |
