Neurocrine Biosciences has been on a roll. Their leading drug for tardive dyskinesia (TD) and Huntington's chorea, Ingrezza, continues its strong performance, surpassing projections and showing potential for sustained growth. The recent approval of a sprinkle formulation and the extension of intellectual property protection to 2038 further reinforces its dominance in the market. Furthermore, Crinecerfont, expected to launch in 2025, offers a vital alternative for patients with congenital adrenal hyperplasia (CAH).

However, beneath these clear achievements, a more significant shift is underway in Neurocrine's strategy, one that could redefine the company and its influence on neuroscience. This change, visible in their latest earnings call (Q1 2024) and R&D day presentations, is centered around the ambitious development of their muscarinic pipeline, specifically orthosteric M4 agonists.

This is not just about introducing a handful of new medications to their collection. It's about establishing a platform, a multifaceted approach to tackle some of the most demanding neuropsychiatric illnesses. Although NBI-568, their leading M4 agonist, is aimed at schizophrenia, its possibilities reach far beyond a single indication. Neurocrine is concurrently conducting first-in-human studies with three additional M4 agonists—NBI-567, NBI-569, and NBI-570—each with a distinct profile designed to address different facets of these complex conditions.

"This 'portfolio strategy' with M4 agonists is a calculated risk, a divergence from the industry's usual practice of concentrating on a single lead compound. This intentional diversification enables Neurocrine to explore a spectrum of receptor selectivity and agonism, potentially unveiling a wider therapeutic window and catering to various patient groups with diverse needs."

The potential rewards are significant. Consider the market for schizophrenia treatments. KarXT, a new M4 agonist/M1 antagonist combination, is set to disrupt the current landscape with its impressive efficacy and tolerability. Emraclidine, another M4 agonist from Cerevel Therapeutics, further confirms the potential of this mechanism. Neurocrine, with its four M4 agonists, is well-positioned to secure a large share of this evolving market.

Mentions of "INGREZZA" in Q1 and Q4 2023 Earnings Calls

The following chart illustrates the mentions of "INGREZZA" during the Q4 2023 and Q1 2024 earnings calls, providing insights into the company's focus on its flagship product.

However, Neurocrine's ambition extends beyond market share. It's about amplifying the therapeutic impact. Schizophrenia, like many neuropsychiatric disorders, manifests uniquely in each individual. Some experience primarily positive symptoms, while others are plagued by negative symptoms and cognitive impairment. Neurocrine's approach of developing multiple M4 agonists increases their chances of finding the right treatment for the right patient, achieving a level of personalized care that is currently absent in the field.

The implications of this strategy are significant. A successful outcome for NBI-568, with data expected in the second half of 2024, could set off a chain reaction of clinical development for their other M4 agonists, resulting in multiple Phase 3 programs running concurrently.

This raises a crucial question: Does Neurocrine possess the resources and expertise to oversee such a bold undertaking? Their current financial guidance indicates a focus on utilizing existing infrastructure and prioritizing investments, suggesting a cautious approach. However, the potential benefits of their M4 agonist platform may necessitate a significant expansion of resources for clinical development.

The success of Neurocrine's strategy depends on several factors. The Phase 2 results for NBI-568 must be compelling, not only in terms of efficacy but also in demonstrating a superior tolerability profile. The preclinical and Phase 1 data for their remaining M4 agonists need to justify their advancement into Phase 2 trials. Lastly, Neurocrine needs to prove its ability to manage multiple large-scale clinical programs simultaneously.

The stakes are high, but the potential rewards are even greater. Should Neurocrine navigate these hurdles successfully, their M4 agonist platform could become a cornerstone of their future growth, potentially even eclipsing the success of Ingrezza and establishing them as a frontrunner in neuroscience.

Hypothesis:

Undervaluation of Muscarinic Pipeline: Current analyst valuations likely underestimate the potential of Neurocrine's M4 agonist platform. This is based on the assumption that success with NBI-568 will result in multiple Phase 3 programs, potentially yielding billions of dollars in yearly revenue.

Potential for Market Leadership: Neurocrine's portfolio approach, if successful, could position them as a leader in the emerging market for M4 agonists, capturing a considerable share and potentially exceeding the current market predictions for KarXT and emraclidine.

Numbers:

Projected Peak Sales of NBI-568 (Schizophrenia): Assuming comparable efficacy and safety to KarXT, peak sales of NBI-568 could reach $2 billion to $3 billion annually.

Combined Peak Sales Potential of M4 Agonist Platform: With four M4 agonists under development, the total potential peak sales could surpass $5 billion to $7 billion yearly, assuming successful clinical development and regulatory approval.

Potential Increase in R&D Spending: Effectively managing multiple Phase 3 programs could require an increase in R&D expenditure of $200 million to $300 million annually.

"Fun Fact: Neurocrine Biosciences' headquarters is situated in San Diego, California, a renowned hub for innovations in biotechnology and pharmaceuticals."