Neurocrine Biosciences, Inc.

Moat: 3/5

Understandability: 3/5

Balance Sheet Health: 4/5

Neurocrine Biosciences is a biopharmaceutical company focused on developing treatments for neurological and endocrine-related disorders, with a strong emphasis on addressing unmet medical needs.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview: Neurocrine Biosciences, Inc. (NBIX) is a commercial-stage biopharmaceutical company focusing on neurological, endocrine, and neuropsychiatric-related disorders. The company develops drugs to treat diseases with unmet needs and has several products currently on the market as well as several compounds in various stages of clinical development.

  • Core focus: NBIX’s primary focus is on discovering, developing, and commercializing innovative and novel treatments for neurological, endocrine, and neuropsychiatric disorders.
  • Geographic reach: NBIX operates mainly in the U.S., but has commercial sales and clinical trials in international markets.
  • Product pipeline: NBIX has several products on the market, primarily INGREZZA, and a robust pipeline of products in various clinical stages.
  • Commercialization: NBIX commercializes INGREZZA (valbenazine) for tardive dyskinesia and has established a direct salesforce in the US, focused on specialist physicians.
  • Collaboration: NBIX collaborates with other companies, such as AbbVie and Voyager Therapeutics, to develop and commercialize other drugs.

Revenue Distribution NBIX derives the vast majority of its product sales revenue from INGREZZA, a treatment for tardive dyskinesia (TD). INGREZZA generated around $443.2 million in product sales for the first six months of 2023, representing 99% of their total revenues which also included collaboration revenues.

Recent Developments

  • Q2 2023 Results: Total revenues for the second quarter of 2023 were $448 million, primarily driven by INGREZZA sales. INGREZZA’s net product sales were $443.2 million for the 6 months ending June 30, 2023.
  • The company recently entered into collaboration agreements with Idorsia for a new drug and expanded a collaboration agreement with Takeda for additional milestones, which can enhance the company’s growth outlook.
  • NBIX is actively engaged in ongoing trials for multiple indications. Management has emphasized commitment to the expansion of the INGREZZA label, as well as other programs in the pipeline.
  • Management has also emphasized continued growth for the rest of the year, while also planning for the future.
  • The Company has been actively pursuing strategic acquisition opportunities as well, however these are not included in current financial projections.
  • In March 2023, NBIX reported that they commenced shipment of their new treatment for Parkinson’s, ONGENTYS. Management expects that future revenue will be bolstered by sales of this drug.

Industry Trends and Competitive Landscape

  • Biopharmaceutical Industry Trends: The pharmaceutical industry experiences constant pressure to innovate to address unmet medical needs, while facing competition from generic and biosimilar products. Clinical trial results, regulatory approvals, and pricing pressures heavily influence the financial outlook of companies in this space.
  • Competition: NBIX faces competition for its commercialized products as well as for its pipeline candidates. In the treatment of tardive dyskinesia, other pharmaceutical companies have been developing treatments that are under different stages of clinical trials. Specifically, Neurocrine noted that new competitors may be making their way through the approval pipeline soon. In addition, the company faces stiff competition in the pharmaceutical industry for R&D financing, development talent, and patient uptake.
  • Differentiation: NBIX differentiates itself through a focus on developing innovative therapies for diseases with limited treatment options. Furthermore, the company appears to be able to navigate the challenging FDA approval process, having successfully approved multiple drug programs. The company is a leader in the neurology space, allowing for an extensive reach to their core consumer base.

Financial Performance Analysis

  • Revenues: NBIX relies heavily on INGREZZA for revenue, collaboration revenue accounts for a fraction of their top line. In Q2 2023, the company generated $448 million in total revenue, where only $4.8 million was collaboration revenue. A dependence on one drug may represent a financial risk.
  • Expenses: NBIX has a high percentage of its expenses devoted to R&D, reflecting the nature of the biopharma industry. There were substantial selling, general, and administrative expenses due to NBIX’s focus on direct selling. However, the company’s operating expenses are generally growing slower than revenues.
  • Margins: NBIX has high gross and operating margins and the company has had a consistently positive net income. However, a large portion of the company’s value is tied up in intangible assets that may be highly volatile. The cost of revenue for NBIX is generally low.
  • Growth: NBIX’s revenue has shown impressive growth from past data, with management expecting the growth to persist into the next few years. In their recent earnings calls, management has expressed that they are expecting sustained growth and returns on capital.
  • Cash flows: NBIX generates a large portion of cash from operations, and has a healthy balance of cash to meet their long term debt requirements.
  • Profitability: NBIX has seen consistent positive net profits, which is very encouraging for a pharmaceutical company. There are also plans to aggressively market other approved drugs which may result in further profitability.

Moat Rating: 3/5 NBIX has a narrow moat that is tied to product patents, regulatory approvals, and some brand loyalty for INGREZZA. However, the pipeline remains fragile as is typical for the pharmaceutical industry. This moat is unlikely to expand, however if their pipeline performs well, it could help the company expand into other markets and gain greater market share. In this case, a higher moat would be justified, as it would imply significant growth in cash flows into the far future.

Risks to the Moat

  • Competition: NBIX operates in a competitive landscape where new treatments can erode the market share of existing drugs. It faces competition from generics/biosimilars as well as new treatments in development.
  • Patent expiration: While the current patent on INGREZZA is still active, patent expirations remain a threat. If NBIX is unable to follow up the success of INGREZZA with new successful products, their cashflows may shrink as their revenues are dependent on the drug.
  • Clinical trial failures: The company may not be able to successfully navigate clinical trials and bring all their pipeline products through to market.
  • Regulatory hurdles: Failure to achieve regulatory approvals on any of their products can materially harm their income stream and future growth.
  • Pricing and reimbursement pressures: Regulatory changes and pricing pressures have created a headwind for pharmaceutical companies.
  • Acquisition risk: NBIX has a history of making acquisitions to increase their product pipeline. The success of any acquisition and its integration with NBIX is uncertain and represents a risk.
  • Geopolitical risks: The ongoing conflict in Ukraine as well as political uncertainty in the US may impact the company, its supply chain, and future development plans.
  • Reliance on single product: NBIX relies heavily on their single revenue driver, INGREZZA, which is a risky proposition.

Business Resilience NBIX demonstrates some degree of business resilience despite some of its risks. NBIX’s primary drug is a market leader and management expects the growth to continue. Furthermore, they have demonstrated the ability to navigate the stringent approval process with FDA, which indicates good operational knowledge and infrastructure.

Understandability: 3/5

The company’s business model is reasonably straightforward. NBIX develops and commercializes treatments for neurological and endocrine disorders. However, given the complexities of the pharmaceutical industry, regulatory environment, and clinical trials, the company is at least a bit difficult to fully understand. It also takes a degree of technical understanding to fully appreciate the nuances of drug development and regulatory implications. It requires a high degree of financial understanding to analyze and account for the complex statements typical of a pharmaceutical company.

Balance Sheet Health: 4/5

  • Cash Position: NBIX has a strong cash position of roughly $1.2B, providing a buffer against debt and a strong position to fund their pipeline.
  • Debt-Equity: the Company is not highly leveraged, relying primarily on equity for capital. This provides good financial stability.
  • Working Capital: Current assets cover current liabilities by about 3 to 1, indicating sufficient liquidity.
  • Tangible book value: Intangible assets are a big component of NBIX’s balance sheet. It has a negative tangible book value which is a risk to keep in mind. While NBIX has positive free cashflows and a healthy business model, it needs to carefully manage and fund its pipeline in the long term to offset the negative tangible book value.