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Neurocrine stocks up on a biotech’s psychiatric drugs

Neurocrine is perhaps best known for its work in movement disorders and women’s health, having developed approved medications for tardive dyskinesia and the pain associated with endometriosis.

However, the company has been trying to diversify, specifically into the area of neuropsychiatry. Last year, it secured rights to seven psychiatry programs from Takeda, Japan’s largest drugmaker, in a deal valued at more than $2 billion.

At the time the deal was signed, three of Takeda’s programs had advanced to human testing. But psychiatric disorders, like most areas of neuroscience, have proven exceptionally difficult to treat, making it unclear whether any of Neurocrine’s new drugs will ultimately make it to market. Earlier this year, for instance, the company disclosed that luvadaxistat — a schizophrenia medicine, and one of the more closely watched programs in the deal — had failed in a mid-stage clinical trial.

Neurocrine is now bringing on more experimental drugs through its partnership with Sosei Heptares, a company formed through Sosei Group’s $400 million acquisition of Heptares Therapeutics in 2015.

Sosei’s drugs act on specific kinds of muscarinic receptors, a class of proteins that perform a variety of important functions in the nervous system. The company isn’t alone in this approach either; Karuna Therapeutics and the Pfizer spinout Cerevel Therapeutics are developing their own schizophrenia treatments designed to activate these proteins, with both having notched positive results from clinical studies of their treatments.

Sosei claims its drugs are sufficiently targeted that they’ll be able to provide a benefit without triggering harmful side effects and other issues seen with less selective treatments.

In a note to clients, Stifel analyst Paul Matteis wrote that the early successes experienced by Karuna and Cerevel help validate Neurocrine’s decision to license Sosei’s drugs.

And yet, the deal does raise questions, according to Matteis. Chief among them is why, early this year, AbbVie chose to hand back rights to that schizophrenia drug poised to enter Phase 2 testing in 2022.

AbbVie inherited those rights following its recent acquisition of Allergan, which had linked up with Sosei back in 2016. While it’s not uncommon for programs to get cut in the wake of a mega-merger, Matteis wrote that it’s curious for AbbVie to drop the Sosei drug, given it’s potential to have “excellent synergies” with Allergan’s antipsychotic medication Vraylar.

That uncertainty aside, Matteis noted that investors are currently ascribing little value to Neurocrine’s pipeline of experimental programs. Therefore, “any win here from a [Phase 2 program] would represent upside.”

Neurocrine’s share price was relatively unchanged in Monday morning trading. Since the start of the year, though, it’s fallen almost 24%, to trade just under $86.