Health and Healthcare

Merrill Lynch Sees 4 Top Biotechs With Key Catalysts in 2018

Chris Lange

Published: September 11, 2018 10:55 am

Last Updated: January 11, 2020 6:07 pm

Biotechnology companies offer big risk, but big reward as well. These are seen as some of the more speculative companies in the market because a single clinical trial could either be a huge sunk cost or the next blockbuster drug.

The biotechs have seen a tumultuous 2018, but they are currently outperforming the broad markets, with the iShares Nasdaq Biotechnology ETF (NASDAQ: IBB) up over 10% year to date. At this rate, 2018 could prove to be a strong year for the industry.

With 2018 coming to a close in just a few months, Merrill Lynch is taking a close look at the biotech industry and what key catalysts to expect before 2019. While the following four biotechs are nothing new in Merrill Lynch’s coverage universe, they now are the top industry picks from the firm.

Clovis Oncology

Clovis Oncology Inc. (NASDAQ: CLVS) has a Buy rating from Merrill Lynch with an $84 price objective. This biotech is expected to release interim results from its Phase 2 TRITON-2 study of Rubraca in metastatic castration-resistant prostate cancer (mCRPC) at the European Society for Medical Oncology meeting in mid-October. Look for the abstract on October 19.

Merrill Lynch had this to say about what it expects to see in these results:

At the interim read, we expect to see results from more than 80 points with at least 16 weeks of follow-up. We also expect to see RECIST response from approximately 25 evaluable points. Management believes that >20-25% in RECIST response would be meaningful with “realistic chance of an approval” and 30% response rate would be great. The prostate indication currently attributes $24/sh in our discounted cash flow (DCF) based model (which we assumed 50% likelihood of success). We estimate risk-adj. $27 million at launch in 2020 reaching $795 million (risk-adj.) peak sales by 2028. We note that positive TRITON-2 data could provide significant upside potential, as Clovis plans to file sNDA to expand Rubraca into BRCA+ (15% of mCRPC) mCRPC by year end 2019 pending positive full TRITON2 data.

Shares of Clovis were last seen trading at $35.48, with a consensus analyst price target of $69.17 and a 52-week trading range of $33.85 to $86.26.

Neurocrine Biosciences

Neurocrine Biosciences Inc. (NASDAQ: NBIX) has a Buy rating and a $128 price objective from Merrill Lynch. This company continues to see strong growth in Ingrezza in tardive dyskinesia (TD), with second-quarter sales of $97 million, up 36% quarter over quarter. The brokerage firm estimates Ingrezza sales of $408 million in 2018, ramping up to peak sales of $1.9 billion in 2029. Orilissa (partnered with AbbVie) received U.S. approval in treating endometriosis (EN) and launched last month. Merrill Lynch models EN with $66 million sales in 2018 and peak sales of $2 billion by 2029 ($395 million royalties).

Merrill Lynch detailed what to expect later this year:

On key upcoming catalysts, we expect results from the Phase 2b study of NBI-74788 in congenital adrenal hyperplasia (CAH) in 2H18, and topline results from Phase 2 T-FORCE GOLD (n=120 peds pts) in Tourette syndrome (TS) by year end 2018. Neurocrine is expected to discuss with the agency for a potential sNDA in TS in 1H19 pending TFORCE GOLD readout. We note that TS points population is as big as TD, as it currently contributes $9/sh in our model with $360 million risk-adj. peak sales in 2030. We view TS indication with significant upside potential for shares given high under-met need and Ingrezza’s favorable dosing and tolerability profile.

Neurocrine Bio shares were trading at $120.39 on Tuesday. The consensus price target is $133.09, and the 52-week range is $55.95 to $126.82.

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Acadia Pharmaceuticals

Acadia Pharmaceuticals Inc. (NASDAQ: ACAD) has a Buy rating with a $22 price objective from Merrill Lynch. This company has an FDA-approved product called Nuplazid that treats Parkinson’s disease psychosis (PDP).

Nuplazid sales came in at $57.1 million in the second quarter, noting impact from the negative press on data from the FDA’s FAERS database. Management lowered its full-year guidance to $210 million to $225 million (from $255 million $275 million) but indicated the impact on new scripts had since stabilized. The brokerage firm estimates Nuplazid sales at $216 million (+73% year over year) for 2018 from the PDP indication, with risk-adjusted peak sales of $660 million by 2026.

As for 2018 catalysts, Merrill Lynch detailed:

For the second half of 2018 key catalyst, Acadia is expected to report topline results from the Phase 2 CLARITY trial of Nuplazid in Major Depressive Disorder (MDD) in the fourth quarter of 2018. CLARITY recruited 207 points and treated points for 10 weeks with either placebo or 34mg of Nuplazid. We expect topline results would include improvement of primary endpoint (changes in Hamilton Depression Rating HAM-D score), safety and other exploratory efficacy measurements (not yet disclosed). We currently include MDD in our model as a part of our $200 million pipeline plug (contributing $1/sh). We see positives from the Phase 2 CLARITY study would (1) affirm Nuplazid’s safety; and (2) expand its application into other CNS indications. We also expect updates on enrollment in the second half of 2018 from the ongoing schizophrenia (Phase 3 ENHANCE-1, Phase 2 ADVANCE) and dementia-related psychosis (DRP) studies (Phase 3 HARMONY).

Acadia traded at $13.50 per share, in a 52-week range of $12.77 to $41.20. The consensus price target is $30.56.

Sage Therapeutics Inc. (NASDAQ: SAGE) has a Buy rating from Merrill Lynch with a $209 price objective. This company has several late-stage assets in central nervous system (CNS) diseases.

Merrill Lynch detailed its upcoming catalysts as:

Sage has several upcoming catalysts in the near term: (1) Zulresso (also known as Brexanolone IV) in post-partum depression (PPD). The FDA advisory committee meeting will be held on Nov. 2, with FDA decision by PDUFA date of Dec. 19. We expect more color on site-of-care options and sales force deployment during company calls in the second half of 2018 ahead of Zulresso launch in the first half of 2019. For EU approval, mgmt. expects EMA scientific advice in the fourth quarter of 2018; (2) SAGE-217 programs. We expect topline Phase 2 results of oral ‘217 in PPD in the fourth quarter of 2018. We also expect initiation of studies in major depressive disorder (Phase 3, MDD), MDD points with insomnia (Phase 3) and bipolar disorder in the fourth quarter of 2018; and (3) other earlystage assets. Sage is expected to report data of ‘324 in single ascending dose (SAD) and ‘718 in multiple ascending dose (MAD) studies in the fourth quarter of 2018. ‘217 in MDD contributes the majority of our valuation at $144/sh. We est. MDD launch in 2020 with risk-adj. sales of $102 million (less than 50% likelihood of success) and reaching risk-adj. peak sales of $3.4 billion by 2033. We reiterate our confidence in the potential of its GABA-targeted assets in several CNS disorders, given positive and consistent results in MDD and PPD.

Shares of Sage traded at $154.12, with a consensus price target of $220.64 and a 52-week range of $59.57 to $195.97.