There are lots of exciting biotech stocks that investors can consider owning in their growth portfolios. But according to Motley Fool Industry Focus: Healthcare analyst Shannon Jones and Fool contributor Todd Campbell, Neurocrine Biosciences (NASDAQ: NBIX) and Regenxbio (NASDAQ: RGNX) are two stocks that ought to be top of mind.
Neurocrine Biosciences is already racking up significant revenue growth from one drug it has on the market, and clinical-stage trials could increase sales even more. Meanwhile, Regenxbio is leveraging its proprietary platform of viral vectors to tap into the emerging market for gene therapies. Can these companies generate profit-friendly returns for shareholders?
In today's show, Jones and Campbell discuss:
- Sales growth for Neurocrine Biosciences' Ingrezza.
- Neurocrine Biosciences' potential to expand Ingrezza's label to include Tourette's syndrome.
- An opportunity for Neurocrine Biosciences in Parkinson's disease.
- The competitive advantages associated with Regenxbio's viral vectors.
- An early stage wet age-related macular degeneration therapy in Regenxbio's pipeline.
- How Regenxbio may benefit soon from a relationship with biopharma giant Novartis (NYSE: NVS).
Also, Jones and Campbell discuss why game-changing data from Amarin's (NASDAQ: AMRN) cardiovascular outcomes study for Vascepa, a purified fish-oil pill, could send its sales soaring.
A full transcript follows the video.
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This video was recorded on Sept. 26, 2018.
Shannon Jones: Welcome to Industry Focus, the show that dives into a different sector of the stock market every day. Today is Wednesday, September the 26th, and we're talking healthcare. I'm your host, Shannon Jones. I'm joined in the studio with Motley Fool contributor Todd Campbell via Skype. On today's show, we're diving into one of the most widely anticipated trial readouts for Amarin and their fish oil pill, believe it or not. We'll also be revealing our favorite biotech picks. That's all in this week's episode of Industry Focus: Healthcare.
Todd, I don't know about you, but for me, September has been a wild and very interesting month for the biopharma world.
Todd Campbell: Oh, absolutely! The Amarin Vascepa data that we just got has to rank in the top five, at least, of crazy things that we've seen in biopharma this month, if not higher.
Jones: Yeah, I definitely would say it has to be within the top five. I would dare say it's maybe No. 2 or No. 3, even, given the anticipation leading up to the trial, everything that's happened prior to the trial, and what the results showed. We'll get into all of that.
But first, Todd, I know you and Kristine did an awesome background leading up to this cardiovascular outcome study. That was the first Wednesday in September. I'd really encourage our listeners to go back, listen to that episode. They did an awesome job setting the stage of this binary event for Amarin. But let's give a very brief background to our listeners that are catching up, let's just tell them why this trial was so, so important for Amarin.
Campbell: Amarin markets a drug called Vascepa. Vascepa is a purified omega three fatty acid. We'll call it EPA. It's been on the market since 2012 for use in reducing triglycerides, fat in the blood, in patients that have very high triglyceride readings, greater than 500 milligrams per deciliter. The approval in the very high population, however, only scratches the surface of the addressable market. There are literally tens of millions of patients that have elevated triglyceride levels.
Amarin had conducted a trial to see whether or not patients with moderate triglyceride levels -- 152 to 500 -- would benefit from Vascepa. Sure enough, their triglyceride levels fell in that trial. But the FDA said, "We're not going to approve its use in that moderate patient population because frankly, no one has proven that lowering triglycerides," again, fat in the bloodstream, "actually translates into saving people's lives, reducing the risk of major cardiovascular events like stroke and heart attack and, yes, death." About 800,000 people die every year from cardiovascular events.
Amarin, recognizing that the big money was to be made in being able to roll this drug out to a much bigger, broader population, began conducting a study to tie and make that link that yes, if you take Vascepa, it will lower triglycerides. And yes, if it lowers triglycerides, that will indeed save people's lives and prevent heart attack and stroke.
Seven years in the making, the study has finally read out results. And sure enough, Shannon, it was, I would say, as good as they could have hoped for.
Jones: Yeah, and really even better. I think it's safe to say too, expectations leading up to this trial, while everyone was anxious to see exactly what the readout would be, the expectations were relatively low, given the multiple study failures when it comes to cardiovascular outcome studies. The most recent one was the Ascend study, which effectively found that generic fish oils -- granted, relatively low dose compared to Vascepa in this study -- weren't effective in the prevention of these cardiovascular events.
Of course, Amarin was very quick to come out and counter the results of that study, reiterating and reemphasizing the purity of Vascepa. As you talked about with EPA, not a mixture of all these other types of fatty acids.
Campbell: Right, DHA elevating bad cholesterol levels is thought to have been why the supplements failed. Those supplements also included DHA alongside EPA. That's not the case with Vascepa. It is pure EPA.
Jones: Yes. Amarin been really driving that point home. Leading up to the study, it's really been on the top of everyone's mind looking to see if, indeed, that makes a difference. Just like you said, it sounds like it did. Let's dive right in. What it exactly did Amarin find in this particular trial?
Campbell: They enrolled patients that had bad cholesterol levels that were controlled by statins. We're talking patients who take statins, which are the most commonly prescribed drugs in the world. I think 38 million Americans alone take statins every day for their high bad cholesterol. They enrolled patients that were on cholesterol-controlling medications, but still had high triglyceride levels.
What they found is that taking four grams per day of Vascepa translated into an additional 25% reduction in the risk of a major cardiovascular event, including stroke, heart attack, and death. 25%. That, Shannon, is on top of the 25% reduction in risk that's historically been associated with taking statins. So, a really remarkable finding.
Jones: Absolutely, yes. Honestly, I think Wall Street and the scientific community would have been fine with a 15% reduction in risk. To see 25% really wowed everybody. We'll get more detailed data moving forward. We've got the American Heart Association meeting happening November the 10th.
Specifically for me, I'm really curious to dig into the slicing and dicing of the data a little bit more. What you see with a lot of these cardiovascular outcomes studies are these composite endpoints. The endpoints basically, as you mentioned, Todd, they're looking at a number of different events. You talked about stroke, heart attack, death, even. They combine all of those endpoints into one, and that's really what they reported out on this week. What we'll see coming into November is more detail into that.
I'm also curious to see which patient groups responded better than others. Also, I mean, with so much focus being on triglyceride levels, I'm really curious to see just how much Vascepa was able to lower those levels, too. Those are the things that are in the top of my mind heading into that meeting.
Campbell: The big question that every investor is going to have is, how big could this drug get? They did $180 million in sales last year, I think they were targeting $230 million for this year already. That's just on the severe high triglyceride approval way back in 2012. I think that totally undersells it, now that this data is out. I would not be surprised if cardiologists are going to be talking to their patients about this drug very, very soon. It is, again, potentially a life-saving drug.
Now, I happen to have family members who have a history of stroke. My father, for example, is on statins and other drugs to try and rein in that risk. He had told me in the past that he was on fish oil pills. So, when I saw this data, I called him up and I said, "Hey, did you see this great data?" He goes, "Oh, yeah, I stopped taking my fish oil pills because of that failed study of the over the counter supplements." It wouldn't be shocking to me, if my dad's cardiologist, a lot of people's cardiologists, started having conversations with them about Vascepa. Again, 25% relative risk reduction on top of the statins is pretty remarkable.
This is a massive addressable market. Amarin estimates that over 50 million adults in the United States have triglyceride level readings that are above 150 milligrams per deciliter. Obviously they won't get that big, but is there the potential for this to be a billion-dollar blockbuster drug? I think there is now.
Jones: Absolutely. I've heard the terms being thrown around as a true game changer, paradigm shift in how we treat patients. I really think, to your point, you will start to see the uptake in prescribing habits when it comes to Vascepa. Amarin is actually aiming to file the supplemental MD&A by early 2019. Anticipated approval within this specific indication coming by late 2019. I fully anticipate you'll see a bump up in sales even before that.
Another interesting thing, too, there's not really an immediate direct competitor for Amarin in this space right now. The closest one is actually AstraZeneca. They've got right now a strength trial. They're also looking at a 4 gr daily dose of their drug. It's interesting, though, because for AstraZeneca, their drug is one of those mixed omega three fatty acids. I believe it's called Epanova. That will be reading out in 2019. I think it will be a really interesting read out, to see what we can extract from that study, are there any read throughs when it comes to dosing level. It's just going to be an exciting 2019, to say the least.
Campbell: [laughs] Yeah, very much so! We're definitely going to watch those prescription trends over the course the next few quarters for this company. It's also going to be interesting to see whether or not a larger company decides to step ahead of the AstraZeneca data, or they end up waiting until that data is out to see what that competitive landscape may look like further on down the road. Vascepa really is the only engine in the car that is Amarin. It'll be really interesting to see what ends up happening with this company in the next year or two.
Jones: Yeah, absolutely. Always good to have positive trial news, especially in biopharma land, and especially to see this with a drug that's not your typical biotech drug. It is literally fish oil. We even saw this, too, with CBD and marijuana. Someone even said in the bio Twitter world that this is really the year of natural medicines making a run for it. Fascinating stuff, really great science. We'll be keeping an eye on that. We'll be sure to keep our listeners up to speed with all the comings and goings of who may be entering this market space.
But first, we'll want to switch gears. We're going to talk about our personal top biotech picks on the other side of the break.
As fascinating as Amarin's fish oil pill is, there's an equally fascinating company on Todd Campbell's radar right now, in one of the hottest areas in biotech right now, which is gene therapy. Gene therapy really brings with it the promise of novel one-time treatments that target the underlying causes of disease at the genetic level. Todd, tell us about your top pick, and why you love it so much.
Campbell: This is going to sound kind of funny for me to talk about this, because oftentimes, I'll say to people who ask, I typically try to avoid young, early stage companies. The risk of trial failure is so high. Yet, every once in a while, there'll be a company that has some pretty remarkable competitive advantages that basically makes me stand up go, "This is kind of an interesting company, it's definitely one worth exploring a little bit more." That was the case with this stock, Regenxbio, symbol RGNX.
The reason that I'm really interested and intrigued by this company is twofold. They have a proprietary collection of adeno associated viral vectors. Those AAVs can be used to enable gene therapies, to get into the tissue and actually do the work of creating that change in the way that the genes function.
There are about 6,000 diseases that are caused by genetic mutations. The whole concept with gene therapy is to be able to go in and either restore the gene function by adding some genetic code or restore appropriate gene function by deleting a part of code. We've talked about this in the past on the show, it's called gene editing.
Regenxbio's AAVs are intriguing because what they're used for is to deliver the gene therapy into the tissue to make the change and theoretically restore correct genetic function. They argue that their AAVs are the best there are out there, that their AAV platform will not only create less of an immune reaction within patients that they're given to, which allows for more durable, long lasting results; but they're going to be easier and cheaper to manufacturer, too. That removes a big hurdle that's been overhanging the gene therapy market.
Jones: You've got a really novel platform, and it sounds like they're going to be targeting some really high unmet need areas, as well. What can you tell us about the indications they're going after?
Campbell: They have two business approaches. The first business approach is a licensing approach, where they allow drug makers to come in and license the use of their AAVs in exchange for some upfront money, maybe some milestone payments, depending on their clinical trial success, and then royalties if a drug is eventually commercialized. That's one part of their business model. The other part of their business model is to develop their own internal candidates for genetic diseases that they can usher through their own clinical trials and theoretically partner out later on or just go ahead and launch them on their own.
Their own projects are pretty early stage projects. But, one of those projects that's most advanced is incredibly intriguing because it targets wet age-related macular degeneration, a multibillion dollar market that's dominated by Eylea, $5.2 billion a year drug. Their goal is to develop a gene therapy that can be a one-and-done -- or maybe a twice a year; who knows, we'll see -- therapy that would avoid the need for patients with wet AMD to go into the office every three months or eight weeks or whatever and have to have an injection done in their eye to help restore their vision. That is particularly exciting to me because they reported some data this past summer from a Phase I study that showed that there was a dose-dependent reaction to their medication, to their gene therapy. And, half of the patients in the highest dose cohort were injection-free after six months. They're actually continuing that study, ramping up to include another dose cohort that's a higher dose. Data from that additional cohort could be available before the end of this year. Phase II trials could begin for that medicine as soon as 2019. That's on the internal program side.
On the external program side, the closest drug that's to commercialization is a Novartis gene therapy for spinal muscular atrophy, SMA. Earlier this year, Novartis went out and spent $8.7 billion to acquire AveXis, to get its hands on this drug, AVXS-101. They plan to file for FDA approval of that drug soon, potentially getting that drug on the market next year. If so, if the FDA gives it to go ahead, then Regenxbio should be able to collect mid-single digits to low double-digit royalties on sales. That's significant, Shannon, because the one drug that's out there right now for use in that indication is Biogen's Spinraza, and that's tracking $1.5 billion in sales per year as of last quarter.
Jones: For our listeners that have been following along, Spinraza had a phenomenal launch trajectory. Granted, it's been tapering off over time. But when you think about the closest competitors, AveXis is top of mind for many investors right now, in terms of how the dynamics would change once they come to market, if they come to market, if the data are worthy of approval.
Going back to what you were mentioning, I'm really intrigued. This wasn't a company I followed, I haven't been following it all, really, until you mentioned it, Todd. That wet AMD indication is extremely intriguing for a couple of reasons. One, you mentioned the patient populations. That's a population that's really only going to increase as you see the baby boomer generation continuing to grow and live longer. You talked about the competitive landscape with Eylea. You've also got Lucentis, Avastin. Those, of course, require multiple doses. If Regenxbio can get a one-and-done or close to one-and-done approach, I think the opportunity is huge here.
It'll be really, really interesting to see, if this gets approved, where pricing will fall. Of course, with gene therapies, we know that they can easily command hundreds of thousands of dollars. Compared to the competitive landscape, that would be a huge jump for many prescribers and patients. I think the opportunity is interesting. It'll be really, really interesting to watch that space, too.
Campbell: Maybe you end up with some novel pricing programs that get announced if this thing ever does make it to market. Again, we're talking way out in the future. I always want to tamp down on a little bit of enthusiasm because the information that we've seen so far is Phase I. That's as early stage data as you can get.
You make a great point. If you're talking about, right now, patients normally getting six or seven injections per year, you multiply the cost of each one of those injections. And then you say, "Well, what if I'm diagnosed with wet AMD, I'm 70, and I end up living until 85? The next 15 years, I'm going to have six of these injections per year." How do you price that? So, that will be interesting.
But, I think it's a multibillion dollar indication. Theoretically, this could shake it up if data in Phase II, and eventually in Phase III, confirm what we saw in this very, very small Phase I cohort.
Jones: Todd, what do you think in terms of their cash runaway right now? Do you feel like they've got enough on the books right now to fund those trials moving forward?
Campbell: They'll need to tap cash at some point, tap investors for cash at some point. Maybe that'll be a little bit dilutive. That's not unexpected for clinical stage companies. But one of the reasons that I like this company is because it does have the potential to bring in those royalty payments beginning next year. That will offset the risk and slow the cash burn for this company. They have about $306 million on the books right now. I think the projecting that they're going to finish the year with somewhere between $250-260 million on the books. That should give them some pretty good runway. Then we'll have to see what happens with AVXS-101 at the FDA, and whether or not Novartis can successfully launch that out against Spinraza.
Jones: So much to look forward to in 2019. This is a truly an interesting company. Gene therapy has really taken off and has gained so much investor enthusiasm and support. We'll see where that one goes.
Let's turn over to my top pick. My top pick is actually a company called Neurocrine Biosciences, ticker NBIX. The reason why this is my top pick, and it's really one of my favorite stocks, primarily because I've actually been holding on to it for about three years now. I got in early, before Ingrezza got approved. Was really impressed with some of the late stage data. And two, they had a really solid cash position, even at the end of 2015. Then, they also had the backing and credibility of a well-funded partner, which was AbbVie (NYSE: ABBV) at the time, too. That's still their partner. So, for me, it checked a lot of the boxes.
Kind of like you, Todd, I try not to get too excited with companies that are yet to have an approved drug on the market. But this one really caught my eye. It was kind of floating under the radar, but was really generating some early traction.
Just to give our listeners an overview, Neurocrine Biosciences is focused on neurological and endocrine-based diseases. Their first commercialized drug is Ingrezza. That was actually approved in April 2017, became available commercially in May. This is a drug that's been indicated to treat a disease called tardive dyskinesia. It's an involuntary movement disorder that can often be associated with anti-psychotic medications. That's important for a couple of reasons that I'll get to in a minute. This particular drug, in terms of launch trajectory and sales expectations, has really blown them out of the roof.
Just looking back, Ingrezza generated about $97 million in net product sales in the second quarter of 2018. That's up from $71 million in the first quarter of 2018, giving them about $168 million in net product sales in the first half of the year. This is important because they were really expecting a very slow launch trajectory. When I talk about tardive dyskinesia, and its associated with anti-psychotic medications, one of the reasons is because of the patient population. When you think about it, patients that are on anti-psychotics -- and it's not even confined just to that -- patients that are on that tend to have much lower compliance and adherence rates than other therapeutic classes. So, they were really expecting a much lower launch in trajectory. Generally speaking, for that patient class, you're looking at compliance rates of about 60-70%. Ingrezza has exceeded that, and has been able to hold well above that level. It'll be interesting to see if that does start to taper off over time.
What that says is that not only are prescribers prescribing and that patients are more willing to take it, especially as it relates to being able to suppress many of these involuntary movements that are caused by an irregular dopamine signal that's happening in the brain, Ingrezza is really indicated to stop that mechanism. So far, so good with the launch and the sales.
Campbell: I was actually surprised. I missed this stock. When you started talking about it, I was like, "Wow, I really have to do some more work on this name, because this is a fascinating story." The fact that they're already at $97 million per quarter, and that's up from $71 million from Q1, that's darn impressive. What's even more impressive is, as I was looking through the 10-Q and some of the other filings, looking at the fact that, that may not be it for Ingrezza. It looks like they're also evaluating its use in other indications, specifically Tourette's.
Jones: Yes. That's going to be a really exciting indication, I think, to read through. Tourette's is another neurological movement disorder. I think the read through to that is huge. That's another multibillion-dollar opportunity, as well.
One side thought to that too is, when you look at the marijuana market, you see CBD also potentially being studied in the same indication. You see a lot of darts being thrown at the target. I'll be watching that. But yes, we've got a Tourette's label expansion that's also coming up with Ingrezza.
That's not to say that it stops there. Ingrezza was the first approved therapy. Also in late July 2018, in partnership with AbbVie, there is now a drug on the market called Orilissa. AbbVie right now has exclusive worldwide commercialization rights. Neurocrine receives about a 20% royalty on sales. What's interesting about partnering with AbbVie, AbbVie is really known for being the label expansion king. They do that really well. Granted, they have their ups and downs. But they do that really well. It's really interesting, seeing their partnership with Neurocrine here. Right now, Orilissa is approved for moderate to severe endometriosis pain. It's is the first FDA-approved oral treatment for the management of moderate to severe pain associated with endometriosis in over a decade.
The drug hit the market just last month. It's providing yet another source of revenue for a fairly new commercial stage company. We'll be keeping everything a close eye on the launch numbers heading into the latter half of this year for that. That could be, easily, another $1.5-2 billion opportunity. I talked about label expansions, uterine fibroids is another indication that they'll be looking into. Just had some really positive Phase III data in that indication, too.
They've got multiple shots on target here. Really, if you look at their pipeline, there are some other really interesting products, too.
Campbell: Really quickly on that Orilissa, that $1.5 billion in peak sales. If everything goes its way, like you said, AbbVie being so good at expanding labels, conducting trials, getting the most out of their drugs, you could actually get up to that $300 million run rate in royalties for Neurocrine. That would be pretty fantastic.
You talked a little bit about the pipeline. One of the things I wanted to see what your thoughts were on is, what do you make of this move into Parkinson's? This licensing deal that it did last year for that Parkinson's disease drug?
Jones: That one was interesting to me, Todd. For our listeners, the drug is called Opicapone. It's currently being studied in Parkinson's disease. I will say, it is approved in Europe as an adjunct therapy in the disease. It's got some kind of positive read through here, particularly as they look to file in the U.S., which could happen as soon as the first half of 2019.
Anytime I hear Parkinson's, Alzheimer's, I'm a little hesitant. I try not to get my hopes up too much, just because those are diseases that, honestly, we haven't quite figured out what causes it yet. For me, when I'm looking at a potential investment in biotech, I always like to know that the science is well-backed and well understood. This is just one of those areas where I don't feel like we've got a strong enough hold on what actually causes the disease yet. So, I'm a little on the fence on that one, Todd.
Campbell: I understand, absolutely understand. What's the failure rate in Alzheimer's disease clinical trials? I think it's like 99%.
Jones: 99%, yes.
Campbell: It's really crazy! I do think, though -- I'm just putting on my hat for a second -- this is a little bit de-risked, for two reasons. One, you've got the EU approval already in hand. Two, you've got the fact that this isn't a game-changing medication. It's a medication that helps the most commonly used Parkinson's disease drug work better. I think that that adjunct status also de-risks this compound. If it can get approved, this could be a big deal. I think there are 60,000 people in the U.S. alone that are getting diagnosed with Parkinson's disease every year, and about a million people with Parkinson's disease. If this drug does reduce the off-time that people suffer when they take Levodopa, then I think you'll see it get pretty widely used. And yet again, you have another drug that could push this company toward profitability, right?
Jones: Absolutely. And they're very, very close to profitability, speaking of. Net loss for the most recent quarter was $5.9 million. That was compared to a loss of $60 million in the same period for 2017. Even before accounting for the Orilissa sales that just came onto the market here in August, they're extremely close. To your point, going back to the Parkinson's opportunity, that, to me, could be a huge game changer for this company itself. We're talking about Ingrezza, we're talking about these other drugs that are already approved. This could really put Neurocrine Biosciences on a completely different level, completely different scale, if that works.
Another thing I really, really love about this company is management. This company has been around since the early 90s, but the management team in place right now is particularly tight when it comes to expense control. They do a phenomenal job of level-setting expectations. They will usually tend to set expectations on the lower end when they do. But, just looking at their cash position, they had $800 million at the end of June. Now, you've got sales coming in. Now, you've got royalty payments coming in. They are well-positioned to fund many of these trials, especially in an indication like Parkinson. Feel pretty good there. Granted, I got in on Neurocrine three years ago. The evaluation has jumped up quite a bit since then. I don't plan to sell anytime soon, but definitely is a bit lofty right now.
Campbell: Yeah, I just took a quick look before we started recording the show. The price to book was like 28X, and the price to sales is 33X on future. It's definitely not a cheap stock. That being said, the valuation could get brought in check if the growth happens more quickly than the estimates go up. I went on looked at the average analyst estimates over the last 90 days. $1.89 per share in earnings expected in 2019. That's up from $1.43 90 days ago. That's a pretty significant increase in the past 90 days.
Jones: Absolutely. So, yes, definitely a stock to watch. All the stocks we've talked about today, so many interesting things happening, so many novel disease targets and indications. Certainly be sure to add them to your watch list.
For us, that is it for this week's Industry Focus: Healthcare show. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. This show is produced by Austin Morgan. For Todd Campbell, I'm Shannon Jones. Thanks for listening and Fool on!