Neurocrine’s mixed schizophrenia data disappoint Wall Street

Neurocrine Biosciences on Wednesday reported results from a schizophrenia drug study that, despite one bright spot, mostly disappointed investors.

The study tested four doses of the drug, which is one of Neurocrine’s most advanced and closely watched research programs, in adults with schizophrenia. After six weeks of treatment, participants on the lowest dose experienced a significant reduction in their symptoms compared to those given a placebo.

The other doses led to reductions, but didn’t clearly outperform the placebo. That puts Neurocrine in a tricky position. Developers almost always want to show their drugs have more potent effects as the dose increases, since that usually indicates they’re working as researchers had hoped.

To Brian Skorney, an analyst at Baird, the uneven results suggest there’s a “strong possibility” the positive outcome in the low-dose arm was “driven by noise,” he wrote in a client note.

Neurocrine executives tried to explain the data on a call with investors. They said inverse dose responses are common in schizophrenia drug trials. They also noted how, in the earliest stage of the study, the effects of the second-largest dose looked consistent with the lowest. The company now plans to push the drug, code-named NBI-‘568, into late-stage testing, and even wants to explore whether it could be useful in other diseases.

Investors, however, aren’t so confident. Shares of Neurocrine dropped more than 20% Wednesday morning, wiping $3 billion from the biotechnology company’s market value.

“[M]aybe they didn’t get the memo that not everything is always awesome,” Josh Schimmer, an analyst at the investment firm Cantor Fitzgerald, wrote in a note to clients.

Neurocrine’s drug is part of a new class of mind-stabilizing medicines designed to be as effective as older antipsychotics but without the more troublesome side effects like weight gain and sedation. The class targets “muscarinic receptors,” a type of protein that regulates brain chemistry, and is currently led by a therapy that Bristol Myers Squibb owns.

Bristol Myers acquired the therapy, known as KarXT, through its recent $14 billion acquisition of Karuna Therapeutics. KarXT was victorious in three medium-to-large schizophrenia trials, providing Karuna enough evidence to file for approval with the Food and Drug Administration. Analysts expect the FDA to clear KarXT for market by the end of September.

Though farther behind, AbbVie is also trying to bring a muscarinic drug to market. Called emraclidine, the drug is in mid-stage testing for schizophrenia and an early-stage trial for psychosis tied to Alzheimer’s disease. It was developed by the Pfizer spinout Cerevel Therapeutics, which last year agreed to sell to AbbVie for $8.7 billion.

In Neurocrine’s study, participants were evaluated on a well-known scale used to measure schizophrenia symptoms. The company said those on its lowest drug dose had a 7.5-point greater reduction on that scale relative to the placebo group. While comparing results across trials can be difficult, on at least a surface level, Neurocrine’s data don’t look quite as strong as those backing KarXT and emraclidine.

According to Phil Nadeau, an analyst at TD Cowen, investors think Neurocrine’s drug needs to deliver at least a 10-point benefit over placebo to be competitive with Bristol Myers’ and AbbVie’s medicines.

Schimmer of Cantor Fitzgerald wrote that a plausible explanation for these cross-trial differences is a higher-than-expected response from the placebo group in Neurocrine’s trial, which, over the treatment period, recorded a nearly 11-point reduction in their symptom scores.

Even so, the data are “certainly not without controversy,” according to Schimmer, who has now lowered the price he thinks Neurocrine’s stock can reach. The company has, over the past few years, seen several of its other experimental drugs fail key tests. And it continues to rely on one product, the tardive dyskinesia therapy Ingrezza, for the bulk of its revenue.

“Given its poor track record in neuroinnovation beyond Ingrezza, the limited data in the public domain for its muscarinic portfolio, and the company’s tendency towards unbridled enthusiasm, [Neurocrine] doesn’t get the benefit of the doubt with these data,” Schimmer wrote.

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