Neurocrine Biosciences, Inc.

NBIX Details

Neurocrine Biosciences, Inc. (NASDAQ: NBIX) is a biopharmaceutical company focused on research, development, and commercialization of chemical entities to treat diseases associated with neurological, endocrine, and psychiatric disorders. The company’s commercial product portfolio includes INGREZZA (valbenazine), ONGENTYS (opicapone), ORILISSA (elagolix), and ORIAHNN (elagolix, estradiol, and norethindrone acetate). The company operates in a single segment of ‘Product sales.’ As of May 19, 2021, its market capitalization stood at USD 8.86 billion.

NBIX Program Pipeline (Source: Company Presentation, May 05, 2021)

Collaboration with Sentia Medical Sciences, Inc.: On April 26, 2021, Sentia Medical Sciences announced its research collaboration with the company to utilize NBIX’s drug development capability for manufacturing the medicines to treat hypothalamic-pituitary-adrenal (HPA) axis modulated diseases. As per the contract, both companies will first work together to discover novel peptide antagonists and advance them to the development candidate stage. After that, NBIX will be solely responsible for further development, manufacturing, regulatory, and commercial activities.

Q1FY21 Results: The company reported a 0.21% decline in total revenue to USD 236.60 million in Q1FY21 (ending March 31, 2021) compared to USD 237.10 million in Q1FY20 (ending March 31, 2020), primarily due to the lower refill rate per patient driven by seasonal payor dynamics for INGREZZA that were aggravated by Covid. The operating income of the company decreased by 46.51% to USD 31.5 million in Q1FY21 compared to USD 58.90 million in Q1FY20, due to a 22.55% increase in Research and Development expenses. The company reported a slight decrease in net income to USD 32.10 million in Q1FY21 compared to USD 37.40 million in Q1FY20.

Key Risks: Many of the company’s products are in various stages of Research and Development (R&D) and are prone to the risks of failure inherent in drug, diagnostic, and medical device product development. The products further run the risk of being ineffective or unreliable or failing to receive regulatory approval. Also, INGREZZA constitutes much of the company’s topline as well as earnings, thus exposing it to product concentration risk.

FY21 Guidance (Source: company presentation, May 05, 2021)

Outlook: The company has revised its FY21 expense guidance. NBIX is expecting combined R&D and SG&A expenses to be in the range of USD 855 million to USD 905 million on a GAAP basis. Further, it expects a pickup in INGREZZA's growth momentum as the impact of the pandemic tapers off.

Valuation Methodology: EV / Sales Multiple Based Relative Valuation

(Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

NBIX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Stock Recommendation: NBIX stock price has decreased by 19.89% in the past three months and is currently leaning towards the lower band of the 52-week range of USD 86.02 to USD 136.26. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 106.51. Considering the significant correction in the stock price in the past one months, solid track record, strong product pipeline, and growth potential, we recommend a “BUY” rating on the stock at the closing price of USD 92.35, down by 1.56% as of May 19, 2021.

Catalyst Pharmaceuticals, Inc.

CPRX Details

Catalyst Pharmaceuticals, Inc. (NASDAQ: CPRX) is a biopharmaceutical company involved in the development, in-licensing, and commercialization of quality medicines for patients associated with rare chronic neuromuscular and neurological diseases, like Lambert-Eaton Myasthenic Syndrome (LEMS), Anti-MuSK Antibody Positive Myasthenia Gravis (MuSK-MG), and other related disorders. The company sells Firadapse medicine to distributors who resell it to specialty pharmacies, medical centers, and hospitals on an emergency basis. The company operates in a single segment of ‘Product Revenue.’ As of May 19, 2021, the company’s market capitalization stood at USD 581.94 million.

Share Repurchase Program: The company repurchased 440,506 shares of its outstanding common stock under the stock repurchase plan in early Q2FY21. The shares were purchased at an average price of USD 4.53 for a total cost of approximately USD 2.0 million. This program indicates the company’s confidence in the long-term position and its ability to generate strong cash flows in the future.

Q1FY21 Results: The company reported a slight increase of 3.67% in product revenue to USD 30.20 million in Q1FY21 (ending March 31, 2021) compared to USD 29.13 million in Q1FY20 (ending March 31, 2020). Its operating income decreased by 8.40% to USD 9.80 million in Q1FY21 compared to USD 10.70 million in Q1FY20, due to an increment in Selling, General, and Administrative (SG&A) expenses. It reported a 26.48% decline in net income to USD 7.66 million in Q1FY21 than USD 10.42 million in Q1FY20. As of March 31, 2020, the company stood with cash and cash equivalents of USD 127.32 million without any funded debts.

Key Risks: The company is engaged in the commercialization of a single product, i.e., ‘Firadapse.’ Excessive dependence on the product could affect the company adversely. Further, the development and approval of products from regulatory authorities is a rigorous and time-consuming process, which exposes the company to risks associated with product development.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CPRX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Stock Recommendation: CPRX has increased by 70.55% in the past six months, and it is currently leaning towards the higher band of the 52-week range of USD 2.88 to USD 5.68. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 6.03. Considering the company’s reasonable financials, strong balance sheet, rise in the stock price in the past six months, and current valuation, we recommend a “HOLD” rating on the stock at the closing price of USD 5.56, down by 1.24% as of May 19, 2021.