Expanded Medicare Coverage And Trials Will Secure Patient Access

Key Takeaways

• Expansion in formulary coverage and Phase III programs strengthens future revenue potential through increased patient access and new product approvals.
  
• Solid cash reserves provide flexibility for growth investments, supporting long-term earnings and strategic business development initiatives.
  
• Evolving policies, market volatility, and payer dynamics pose risks to revenue growth, net margins, and financial stability amidst clinical trial uncertainties and patient retention challenges.

Catalysts

Neurocrine Biosciences, Inc. discovers, develops, and markets pharmaceuticals for neurological, neuroendocrine, and neuropsychiatric disorders in the United States and internationally.

• Neurocrine Biosciences has expanded its formulary coverage for INGREZZA under Medicare Part D, which significantly increases patient access and provides a foundation for expanding their customer base, likely impacting future revenue growth positively.
  
• The company is on track to expand its muscarinic portfolio into Phase II studies for indications such as bipolar mania and schizophrenia, indicating a robust pipeline that could enhance long-term revenue and earnings through new product introductions.
  
• Neurocrine recently initiated two major Phase III programs in their pipeline, including osavampator for major depressive disorder and NBI-'568 for schizophrenia, which, if successful, could drive significant future revenue and earnings growth as these programs could result in new product approvals.
  
• The successful launch of CRENESSITY with early adoption metrics exceeding expectations and the ongoing formulary reviews by health plans could positively impact future revenue as the drug achieves wider reimbursement and adoption rates.
  
• The company has a solid balance sheet with approximately $1.8 billion in cash, which provides significant flexibility to invest in growth initiatives, R&D, and strategic business development, potentially leading to enhanced long-term earnings.

Neurocrine Biosciences Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Neurocrine Biosciences's revenue will grow by 14.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.7% today to 25.1% in 3 years time.
• Analysts expect earnings to reach $906.9 million (and earnings per share of $8.87) by about May 2028, up from $305.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.2 billion in earnings, and the most bearish expecting $384.0 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.8x on those 2028 earnings, down from 38.5x today. This future PE is greater than the current PE for the US Biotechs industry at 18.3x.
• Analysts expect the number of shares outstanding to decline by 1.66% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Neurocrine Biosciences Future Earnings Per Share Growth

Risks

• The company faces potential gross-to-net headwinds due to contracting activities, which could impact net margins and reduce net revenue growth.
  
• The Inflation Reduction Act has influenced payer behavior and reimbursement dynamics, which may affect future revenues and net margins.
  
• Clinical trials, particularly for new Phase III programs, often carry risks and uncertainties, which could impact future R&D expenses and ultimately earnings if the trials are not successful.
  
• Market volatility and evolving healthcare policies could introduce risks to revenue projections and financial stability.
  
• Challenges in reauthorization processes and payer requirements could lead to higher patient drop-offs and affect patient retention, impacting revenue generation.

Valuation

• The analysts have a consensus price target of $159.435 for Neurocrine Biosciences based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $192.0, and the most bearish reporting a price target of just $115.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.6 billion, earnings will come to $906.9 million, and it would be trading on a PE ratio of 19.8x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $118.92, the analyst price target of $159.44 is 25.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.