SSB Part II:
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.
Clinical efficacy and safety results from Phase II chronic insomnia study.
As a reminder, on July 17, 2001, Neurocrine announced positive results from a
Phase II study of indiplon in chronic primary insomnia.
This was the first
time the drug was studied in chronic insomnia patients. The study, which
enrolled 59 patients who met the DSM IV (Diagnostics Statistical Manual of
Mental Disorders) criteria for a diagnosis of chronic insomnia, was a double-
blind, placebo and active-controlled study to evaluate the safety and
efficacy of indiplon. The study was designed as a six-way crossover, with
every patient receiving all four dose levels (5, 10, 20 and 30 mg) of the
immediate-release formulation of indiplon, 10 mg of Ambien (standard dose)
and placebo. In total, patients were evaluated for 12 nights to determine the
efficacy and safety of the compound. Per the protocol, each patient was
given two nights on every treatment variable and a mean of those two
responses were used in the analysis. The primary endpoint of the study was
Latency to Persistent Sleep (LPS), or time to sleep onset.
Secondary endpoints include Total Sleep Time (TST), Sleep Efficiency (SE) (defined as
Total Sleep Time divided by 8 hours; expressed as a percentage) and Wake
After Sleep Onset (WASO), or sleep maintenance. All endpoints were
objectively measured using polysomnography (PSG).
The study met its primary endpoint of Latency to Persistent Sleep (LPS) or
time to sleep onset, as measured by polysomnography (PSG), for all doses of
indiplon evaluated. Specifically, patients treated with the immediate-
release dosage formulation of indiplon at all dose levels experienced up to a
46% improvement in time to sleep onset, as compared to placebo. These
results, which were dose-related, were statistically significant in favor of
indiplon, with a p-value of less than 0.016. In addition, up to 80% of
patients treated with indiplon fell asleep within 30 minutes, which is the
definition of a clinical response. Overall, treatment with indiplon resulted
in a decrease in time to sleep onset of 10-18 minutes, as compared to
placebo, which is consistent with results observed in earlier Phase II
studies for transient insomnia. There was no statistically significant
difference in LPS between treatment with Ambien and indiplon; however, the
study was not designed or powered to detect a difference between the two
drugs. Ambien was merely used as an active control to ensure that the
patients enrolled in the study were responsive to treatment with an FDA-
approved insomnia drug.
The study also met its secondary endpoints at all dose levels of indiplon
with statistical significance, including Total Sleep Time (TST), Sleep
Efficiency (SE) and a reduction in Wake After Sleep Onset (WASO), with a p-
value of less than 0.018. These responses were also dose-related.
Specifically, patients treated with indiplon experienced an increase in TST
of 15-30 minutes, as compared to placebo. In addition, patients treated with
indiplon achieved sleep efficiency (TST/8 hours multiplied by 100) of 84-88%,
compared to 80% with placebo. Furthermore, patients treated with indiplon
achieved a reduction in WASO, relative to placebo, ranging from 10-16
minutes.
With respect to safety, 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. These residual effects were
measured using standardized sedation tests of Digital Symbol Substitution
Test (to test alertness), Symbol Copy Test (to assess motor skills) and the
Visual Analogue Scale (VAS) of sleepiness. One patient dropped out of the
study due to a serious adverse effect of excessive sedation at the highest
dose of indiplon.
Clinical efficacy and safety results from Phase II transient insomnia study.
This study met its primary endpoint of Latency to Persistent Sleep (LPS), as
measured by polysomnography (PSG), for all doses of indiplon IR evaluated.
The results seen in this trial were consistent with data collected in
previous studies with the compound, and based on these collected datasets,
appropriate dose ranges for the pivotal Phase III trial have been determined.
Specifically, the results show that patients treated with the 20 mg
immediate-release dosage formulation of indiplon IR, experienced up to a 40%
median improvement in latency to persistent sleep as compared to placebo
(p<0.004). Furthermore in terms of the secondary endpoints of time to sleep
onset, statistically significant effects were also documented, with
improvements showing a reduction from 31.7 minutes in the placebo group to
18.5 minutes in the highest dose group (p<0.001). Additionally, a higher
percentage of patients were classified as responders (subjects that were able
to sleep within 20 minutes) in the 20 mg dose compared to placebo, 73% versus
47%. There was also an improvement is total sleep time in the drug group
compared to placebo, of 434 minutes at the 20 mg dose and 430 minutes at the
10 mg dose compared to 419 minutes for placebo. This improvement was
encouraging, although, given the type of subjects tested, it was not expected
to reach statistical significance. The efficacy results from this study are
summarized in detail below.
Latency to Persistent Sleep
Group Median Values Mean Values
Placebo 20.5 minutes 22.6 minutes
NBI-34060 5 mg 14.5 minutes 23.1 minutes
NBI-34060 10 mg 15 minutes 21.7 minutes
NBI-34060 20 mg 12.5 minutes 15.7 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 any dose level of indiplon, as compared to
placebo. The rates of adverse events were similar, at 6% for placebo
compared to 7% for drug.
Market for Indiplon (NBI-34060). Insomnia, defined as difficulty in falling
or staying asleep, is a common neurological disorder in the U.S. According
to the National Sleep Foundation's 2000 Sleep in America survey, nearly two-
thirds (62%) of American adults report experiencing symptoms of insomnia a
few nights a week or more. The condition may be primary, in which case it is
long-standing with no direct relationship to immediate somatic or psychic
events, or secondary, where emotional problems, pain or use and withdrawal
from drugs are impacting the condition. Dr. Thomas Roth of the Henry Ford
Hospital Sleep Disorder Clinic, a renowned expert in sleep disorders,
estimates that the elderly comprise 15% of the total insomnia population, but
account for 40% of all prescriptions written for insomnia. Furthermore,
sleep factors affect more women than men and there are reports that between
45-60% of women aged 30-60 experience difficulty sleeping. We estimate that
NBI-34060 will likely be launched in both the U.S. and Europe in 2004 and,
given its profile, may expand the market for these types of drugs. Today,
the current market for hypnotics represents approximately $2.0 billion in
sales, with Ambien commanding approximately $840 million or 42% of the
market, and Sonata capturing about $74 million or 4% of the market. We
forecast that indiplon could achieve $800 million in sales worldwide by
fiscal 2007. Since Neurocrine is likely to sign a development and marketing
partner for this compound, the company could record net royalties of
approximately 15%.
IL-4 Fusion Toxin (NBI-3001) for malignant glioma. IL-4 fusion toxin is
comprised of linking a bacterial toxin, Pseudomonas exotoxin, with the
cytokine interleukin-4 (IL-4). IL-4, which is produced by a number of cell
types, such as mast cells and T cells, has a variety of important biological
properties, including T cell activation and IgE (immunoglobulin E) class
switching. Neurocrine is utilizing IL-4 fusion toxin to selectively target
and kill those cancer cells that overexpress the IL-4 receptor on their
surface, such as malignant glioma, the most common form of brain cancer.
In 1999, the company initiated a Phase I/II trial with IL-4 fusion toxin in
patients with recurrent gliomas. Thirty-one patients were enrolled in this
open-label, initial safety and efficacy trial, with final data analyzed from
27 patients who completed therapy. Patients were treated with intratumoral
infusions of the drug for a period up to four days. Results, which were
released last year, show that seven patients (26%) experienced a complete
remission, which was defined as no evidence of the tumor, and ten other
patients (37%) experienced a partial response, which was defined as greater
than 50% reduction in tumor mass. A survival benefit was seen in this small
study, with a median of 8.2 months with IL-4 fusion toxin treatment, compared
to a historical range of 6 months. Overall, the drug was generally well
tolerated given the patient population. The primary side-effect was
inflammation and edema arising from cancer cell lysis.
Based on these Phase I/II results, the company is currently enrolling
patients in a Phase II trial to establish the optimal dosing regimen and
treatment protocol. This trial was initiated in Q4 2000, with enrollment of
18 patients targeted. The company indicated it plans to enroll additional
patients to assess an optimal dose and to date a total of 30 patients have
been enrolled. IL-4 fusion toxin will be evaluated at doses of 240, 300 and
600 mcg. The protocol for this trial consists of performing a surgical
resection following administration of the drug to remove the cancer cells
that have been killed in efforts to mitigate the inflammation side effect
observed in earlier trials. According to the company, results from this
trial are expected in the third quarter, as the study protocol is designed
for a six-month follow-up with the last patient having been enrolled in
March. If these results are positive, the company intends to initiate a
pivotal Phase III trial later this year, with the study designed to enroll
140 patients and powered to show a 50% improvement in survival. In addition,
the company has initiated Phase I studies with NBI-3001 for other tumor types
(e.g., renal, breast and non-small lung cancer). The Phase I studies in lung
and kidney cancer are expected to be completed by year-end.
Market opportunity. According to the National Cancer Institute, there are
approximately 17,000 new cases of malignant gliomas in the U.S. We estimate
that approximate 30% of these patients develop recurrent glioblastomas per
year and would represent the primary target market for the product. If
successful, we estimate sales potential for IL-4 fusion toxin in malignant
glioma could be in the range of approximately $65 million.
Neurocrine is
also evaluating the potential of IL-4 fusion toxin in a variety of other
recurrent solid tumors such as renal cell and non-small cell lung cancer, as
well as breast cancer. Phase I studies in these cancers are ongoing. Given
the broad expression profile of IL-4 receptor, we remain cautious regarding
the safety of systemic delivery of IL-4 fusion toxin in these other cancers.
Corticotropin-Releasing Factor (CRF) antagonist for anxiety, depression and
IBS. Neurocrine has been on the forefront in establishing the role of
inhibiting the corticotropin-releasing factor (CRF) receptor for use in the
treatment of depression and anxiety, two large market opportunities. CRF
antagonists may provide a new treatment option for use in these conditions
that is mechanistically distinct from current therapies that involve
inhibiting serotonin reuptake (SSRIs). CRF is a neurotransmitter that is a
central mediator in the body's response to stress and data have shown that
CRF is overproduced in patients that suffer from depression. Furthermore,
preclinical data have suggested that serotonin may act by influencing CRF
levels. The CRF stress actions are largely mediated through the CRF-1
receptor subtype; thus inhibition of this receptor could provide a more
direct and rapid onset of action, with a more favorable side-effect profile.
Following the discontinuation of development of an earlier compound (NBI-
30775/R12191) by partner Johnson & Johnson (J&J) due to transient liver
enzyme elevations, a second compound, NBI-37582, was selected last year as
the new developmental candidate and is currently in late-stage preclinical
testing. In addition to its collaboration with J&J, Neurocrine is also
advancing its own internal compounds and initiated a Phase I trial in
December 2000 with one priority compound, NBI-34041. Six, single-doses of
NBI-34041 (5 to 200 mg) were tested with eight healthy volunteers in each
cohort. The most common side-effect reported was headache, which occurred in
7 of the 48 patients dosed. Other side-effects observed include fatigue,
diarrhea, nausea and sinusitis, which occurred in one subject each. Another
Phase I study, evaluating 14 days of dosing with NBI-34041, has been
completed. Additional preclinical studies are underway with other lead
compounds. Furthermore, there is now data that suggests the blocking of CRF
might have some utility for the treatment of irritable bowel syndrome (IBS).
On July 24, 2001, the company announced a partnership with GlaxoSmithKline
for the CRF antagonist program, its largest collaboration to date. The
collaboration represents over $100 million in potential funding over five
years and covers receptor antagonists toward both the CRF-1 and CRF-2
receptor, including NBI-34041, which is currently in Phase I studies. Under
the terms of the agreement, Neurocrine received an upfront payment and early
milestone payments totaling $25.5 million as well as annual technology access
fees. Furthermore, Neurocrine is expected to receive milestone payments
based on R&D progress and upon successful commercialization, royalties on
worldwide product sales with co-promotion rights for the United States. The
funding from GSK will cover all research and development costs incurred by
Neurocrine for this program. We estimate this will represent approximately
$4-5 million in annual contract R&D funds over the next five years. We
believe the company and GSK have completed two Phase I studies (single
dosing, 14-day treatment) and additional longer term (28 day) Phase I multi-
dosing studies. We expect proof-of-concept studies in certain indications
(e.g., anxiety, depression, IBD) to be initiated later this year or next
year.
While early, in our opinion, the CRF antagonist program provides the
potential for significant upside in our valuation for Neurocrine, as it
represents a novel new class of compounds that addresses a broad market
opportunity. Given the large potential market opportunity for CRF receptor
antagonists, any positive developments in this area, scientifically or
clinically, will continue to foster increased investor interest.
Altered Peptide Ligands technology for multiple sclerosis and Type I
diabetes. Neurocrine is advancing its Altered Peptide Ligands (APL)
technology platform for use in the treatment of various autoimmune diseases,
such as multiple sclerosis and Type I diabetes. While the exact mechanism is
unknown, in these disease types, specialized blood cells called lymphocytes,
primarily T cells, incorrectly react against the body's own tissues.
Neurocrine is using APL to find particular sequences or antigens that are
being inappropriately recognized as foreign and altering these structures to
prevent the T cell from destroying its target. In the case of multiple
sclerosis, Neurocrine has designed an APL from a specific region (83-99) of
myelin basic protein (MBP), called NBI-5788. A Phase II multi-center,
placebo-controlled study was conducted in collaboration with partner
Novartis. The study evaluated three doses of NBI-5788 (5, 20 and 50 mg),
compared to placebo, in relapsing-remitting multiple sclerosis patients.
Fifty-three patients completed the double-blind phase of the trial and the
results showed that 50% of patients given low dose NBI-5788 had reductions in
new enhancing lesions, compared to 25% of placebo-treated patients. There
was no dose response, with the two higher dose NBI-5788 treatment groups
achieving reductions in new lesion rates that were similar to placebo. There
were incidences of systemic hypersensitivity reactions that occurred in
treated patients, but these reactions did not result in an exacerbation of
the disease. In January 2000, Neurocrine reacquired all rights to this
program from Novartis, as Novartis decided to focus on other core therapeutic
areas. A Phase IIb trial to optimize the dosing of the drug is expected to
begin in Q4 2002.
For the treatment of Type I diabetes, a condition where the insulin producing
B-islet pancreatic cells are the targets of the immune response, Neurocrine
has re-engineered one of the dominant pancreatic antigens so that it is no
longer recognized by the attacking cells. On June 14th, the company
announced positive safety results from a Phase I/II study of NBI-6024 in Type
I diabetes. The study, which enrolled 35 adolescent patients, 12-17 years of
age, was a randomized, double-blind, placebo controlled, dose escalating
study to evaluate the safety, tolerability, pharmacokinetics, and
pharmacodynamics of NBI-6024. For all dosing cohorts of NBI-6024, the safety
profile and adverse events were similar when compared to placebo. In
addition, there were no detectable anti-6024 antibodies, no significant
increase in anti-insulin, anti-GAD, and anti-ICA 512 levels compared to
placebo. Detailed results will be presented at the American Diabetes
Association (ADA) meeting in San Francisco June 14-18. Initial Phase I
trials were completed with this APL compound, NBI-6024, in 50 patients with
Type I diabetes. The results show that NBI-6024 was safe and well tolerated.
A Phase II trial that will enroll approximately 400 adult/adolescent patients
was initiated late 2001. A second Phase II study is expected to begin later
this year. Neurocrine has partnered its APL diabetes program with Taisho
Pharmaceutical. In addition, Neurocrine is negotiating with Taisho to
reacquire the North American rights. As a result, the company expects to
assume control of the Phase II pediatric trial in Type I diabetes. This
study is expected to be initiated later this year.
Gonadotrophin-releasing hormone (GnRH) antagonist for prostate cancer/
endometriosis. Neurocrine is developing orally active GnRH small molecules
for the treatment of certain reproductive disorders, such as endometriosis,
as well as for prostate cancer. The company completed an initial Phase I
single-dose study that enrolled 56 normal, healthy post-menopausal women 45
to 65 years of age. This study was designed to evaluate the safety,
tolerability, pharmacokinetics, and pharmacodynamics, including endocrine
profiles, over a range of eight escalating doses. In May, the company
released results demonstrating positive pharmacokinetic results (i.e., rapid
absorption and a linear dose-response in terms of drug concentration).
Furthermore, an initial pharmacodynamic assessment showed that after a single
dose, rapid suppression of circulating leutinizing hormone (LH) of up to
approximately 60% was demonstrated in a dose-dependent manner. In addition,
suppression of LH was observed for all dose groups compared to placebo. From
a safety perspective, the compound was well tolerated and no laboratory or
clinical safety issues were observed. The company is conducting a two-week
multiple-dose, dose-escalating Phase I placebo controlled clinical trial to
further evaluate the safety and endocrine profiles of this compound in order
to properly design a Phase II clinical study. Currently, the company intends
to initially target the product for endometriosis, a serious disorder in
which there is abnormal growth of tissue outside of the uterine lining in
females. The market opportunity for endometriosis is large, representing
approximately five million patients in the U.S.
UPCOMING MILESTONES
* Results from Phase II study for IL-4 fusion toxin in glioma Q3 2002
* Initiation of additional Phase II study for APL-MS program Q4 2002
* Initiation of Phase II study for APL-Diabetes program in Q4 2002
pediatrics
* Results from Phase I study for IV form IL-4 fusion toxin in Q4 2002
solid tumors
* Results from a Phase III study of NBI-34060 IR in transient Q4 2002
insomnia
* Results from a Phase III study of NBI-34060 IR in chronic Q1 2003
insomnia
* Announcement of corporate partner for NBI-34060 program Q4 02/Q1 03
INVESTMENT THESIS
We are maintaining our V3 (Venture, Neutral) rating on the shares of
Neurocrine Biosciences as we await the potential announcement of a major
marketing collaboration for indiplon to alter our outlook for the stock. The
company currently has five programs in clinical development, encompassing
areas such as insomnia, brain cancer and depression, as well as treatments
for multiple sclerosis and Type I diabetes based on its Altered Peptide
Ligands technology platform. Indiplon, the company's lead product candidate,
has been demonstrated in both transient and chronic insomnia. In our
opinion, indiplon, because of its higher potency and cleaner side-effect
profile, has the opportunity to capture a significant portion of the market
for insomnia products. As previously indicated, we believe Neurocrine may
announce a marketing and development partner for this product candidate later
this year or early next year and progress on this front should help validate
the commercial feasibility of Indiplon.
COMPANY DESCRIPTION
Founded in 1992, Neurocrine Biosciences is an early-stage biotechnology
company focusing on the discovery and development of treatments for
neurological and endocrine disorders. The company's most advanced product,
indiplon (NBI-34060), which targets the GABA-A receptor, is currently in
Phase III studies for insomnia. Other product candidates in clinical trials
include NBI-3001, a fusion toxin linked to IL-4, for malignant glioma, and a
CRF R-1 antagonist for anxiety and depression. The company has a priority
technology platform, Altered Peptide Ligands, which is being utilized to
develop treatments for certain autoimmune diseases such as Type I diabetes
(NBI-6024) and multiple sclerosis (NBI-5788).
Valuation:
We have utilized is a discounted earnings analysis in which we have applied
what we view as an appropriate discount rate and PE multiple, representative
of a high growth biotechnology company, to a projected EPS estimate for the
company. Our financial model assumes the company will be breakeven in fiscal
2006 with its current research pipeline and achieve an EPS estimate of
approximately $2.70 in fiscal 2007. We applied a P/E multiple of
approximately 35-40x, which we believe is comparable to the range for mid- to
large-cap therapeutic companies with significant growth prospects, to our
2007 EPS estimate of $2.70 and discounted this figure back at a conservative
25% discount rate to arrive at a 12-month price target of $30.
Risks:
Any delays in the regulatory approval timelines and clinical trial setback
with Indiplon (NBI-34060) for insomnia, as well as other clinical programs,
will likely have a negative impact on the shares of Neurocrine. As the
company presently does not have any sales or marketing infrastructure,
Neurocrine is dependent on its current corporate partners and the signing of
new agreements.
ANALYST CERTIFICATION
I, Elise Wang, hereby certify that the views expressed in this research
report accurately reflect my personal views about the subject company(ies)
and its securities. I also certify that I have not been, am not, and will not
be receiving direct or indirect compensation for expressing the specific
recommendation(s) in this report. |
