- Increased number of meetings with the FDA throughout the development of the drug,
- Maintaining an interactive dialogue with the FDA regarding drug development to ensure the sponsor is obtaining the proper nonclinical and clinical data necessary for approval expeditiously,
- Working with the FDA to ensure the clinical trials are being run as efficiently as possible,
- Rolling review and priority review.

NBI-98854 was granted breakthrough therapy designation based in part on the results of the Phase 2b studies of the drug in patients with tardive dyskinesia. Interestingly, breakthrough therapy has typically been designated for compounds in hematology and oncology with few compounds attaining the designation thus far in the neurology and psychiatry areas. Thus, by granting breakthrough designation to NBI-98854, the FDA has indicated it views tardive dyskinesia as a serious condition and one worthy of the agency’s increased time and attention. Management indicated that the next interaction with the FDA in regards to the breakthrough designation would be a ‘Type-B’ meeting in 2015.

…Phase 1 Tourette Syndrome Initiates…

On October 2, 2014, Neurocrine announced the initiation of a Phase 1b clinical trial called T-FORCE (NCT02256475) of NBI-98854 in both children and adolescents with Tourette syndrome. The T-FORCE study is an open-label, multiple ascending dose, two-week study of 36 subjects with Tourette syndrome. The study participants will receive once-daily dosing of NBI-98854 during a two-week treatment period to assess both the safety and tolerability of NBI-98854 in Tourette patients followed by seven days off-drug. The study will take place at approximately 10 centers in the U.S.

The study will be divided into two dosing groups: children (ages 6-11) and adolescents (ages 12-18). Each group will then be divided into three dosing cohorts of six patients each. Following the initial two weeks of dosing with the first adolescent cohort, an independent review of both safety and pharmacokinetic results will occur prior to escalating the dose level for the second cohort of adolescents. Concurrently, when the second group of adolescents is dosed the first group of children will be administered NBI-98854. Continued dose escalations for both children and adolescents will be contingent upon the pharmacokinetic and safety data from the previous cohort in each age group. Lastly, each patient’s Tourette symptoms will be evaluated weekly using the Yale Global Tic Severity Scale, the Premonitory Urge for Tics Scale, and the Clinical Global Impression in Tourette syndrome Scale. However, management indicated during the third quarter conference call that this study is not powered to show efficacy in treating Tourette syndrome, but is rather a pharmacokinetic and pharmacodynamics focused study. Data from the T-FORCE study should be available in the second half of 2015.

…Elagolix Violet Petal Top-Line Data Expected In January 2015…

The first set of data that Neurocrine is expecting in 2015 will be from the Violet Petal study (NCT01620528), a Phase 3 study of elagolix for endometriosis. The study is a 24-week, multinational, randomized, double-blind, placebo-controlled study designed to evaluate the safety and efficacy of elagolix in 875 women, age 18 to 49, with moderate to severe endometriosis-associated pain. Approximately 160 sites in the United States, Puerto Rico and Canada are conducting this study. During the third quarter conference call management indicated that the last patient visit is scheduled for November 2014. After that it will be up to AbbVie to perform the data analysis with top-line data expected in January 2015.

AbbVie is also concurrently conducting a second Phase 3 study of elagolix for endometriosis, the Solstice study (NCT01931670). This study is similar in design to the Violet Petal study and will assess 788 women, age 18 to 49, with moderate to severe endometriosis-associated pain at more than 200 sites globally.

Since the Solstice study is still recruiting patients, the data that will be available from the Violet Petal study is likely to be quite limited. This is because AbbVie does not want to bias the ongoing study by releasing too much information, thus the only data that is likely to be presented in January from the Violet Petal study is a p-value for the dual-endpoints of a reduction in dysmenorrhea and non-menstrual pelvic pain after six months of treatment compared to placebo.

…Phase 2b uterine fibroids study…

In addition to studying the use of elagolix in treating endometriosis, AbbVie is also performing a Phase 2b randomized, double-blind, placebo-controlled clinical trial to evaluate the safety and efficacy of elagolix in treating heavy menstrual bleeding due to uterine fibroids (NCT01817530). The study is expected to enroll 520 women between the ages of 18 and 51. The primary efficacy endpoint of the study is an assessment of the change in menstrual blood loss utilizing the alkaline hematin method comparing baseline to month six. Data from this study is expected to be reported by the end of 2015.

Conclusion: Valuation and Recommendation

AbbVie is expected to announce Phase 3 results from the Violet Petal study in early January 2015, and this could set the stage for a breakout year for Neurocrine Bio. The second half of the year should bring results from both the Phase 2b uterine fibroids study along with topline data from the Phase 3 study of NBI-98854 in tardive dyskinesia. In addition, data from the Phase 1b study of NBI-98854 in Tourette syndrome will be reported in the second half of 2015 as well.

We see tardive dyskinesia as a meaningful market opportunity for Neurocrine. There are an estimated 500,000 TD patients in the U.S. with no real treatment options besides tetrabenazine. For valuation purposes, we assume U.S. approval of NBI-98854 in tardive dyskinesia will target roughly 150,000 of the approximate 200-500,000 total TD patients in the U.S. that are moderate-to-severe in disease state. We assume Neurocrine will charge pricing comparable to atypical antipsychotics, or around $10,000 per year. If Neurocrine can capture 30% market share, which we believe is reasonable given the superior characteristics of NBI-98854 vs. generic tetrabenazine, then peak sales estimates are approximately $500 million in this indication in the U.S. alone (see our analysis of NBI-98854 vs. the competition here).

Based on obtaining breakthrough designation, we have reduced the discount rate we apply to 15% as we believe this de-risks the asset somewhat. Assuming peak sales for NBI-98854 in 2022, then we believe it is worth approximately $465 million in value. Adding an additional $300 million in value for sales outside the U.S. and add-on indications such as Tourette syndrome gives us a value of approximately $765 million, or $10 per share.

We believe elagolix is worth $9 per share based on the rate at which the two ongoing Phase 3 studies at AbbVie are enrolling and reporting data, and the timelines for the uterine fibroids Phase 3 study (see our analysis of the elagolix market opportunity here). Along with a little over $2 in cash, we see Neurocrine worth approximately $21 per share today, and we are maintaining a ‘Buy’ rating heading into 2015.