Biotechnology firms live or die by clinical trials, and Neurocrine Biosciences (NBIX) is no different. After putting on a solid performance up until late August, mixed results related to the company’s key schizophrenia drug caused investors to rush for the exits. Nevertheless, the selloff appears to be overlooking the company’s core strengths, particularly its overall pipeline. As a result, I believe NBIX stock is a speculative Buy.
Don't Miss our Black Friday Offers:
- Discover the latest stocks recommended by top Wall Street analysts, all in one place with Analyst Top Stocks
- Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter
One Trial Result Shouldn’t Drown NBIX Stock
After many years of steady progress, it’s understandable that investors want sustained consistency from NBIX stock. While the latest Phase 2 trial for NBI-1117568 – an oral drug formulated for adults with schizophrenia – wasn’t exactly exciting, the market appeared to excessively penalize Neurocrine, seemingly ignoring other positives. According to health and science news website STAT, the biotech reported that the lowest dose of its experimental pill reduced psychosis among study participants.
Though an encouraging data point, Wall Street did not like the fact that higher doses of the drug were deemed ineffective. All three of the higher doses – 30 mg, 40 mg, and 60 mg – failed to meet their primary endpoint of reducing psychosis-related symptoms. Only the 20 mg dose succeeded, raising doubts about the drug’s efficacy. What added to the skepticism against NBIX stock is the competition. Notably, analysts mentioned that the data did not keep pace with results from rival therapeutics.
Still, it’s important to note that Neurocrine intends to move forward with a Phase 3 study of NBI-1117568. Further, schizophrenia was only one potential use case. Indeed, the company will study the therapeutic’s effectiveness for other vexing conditions, such as Alzheimer’s disease, bipolar disorder, Lewy body dementia, and Parkinson’s disease. In other words, the mixed Phase 2 study is hardly the end chapter of the drug. For investors willing to exercise patience, NBIX stock could be a lucrative opportunity.
Other Catalysts May Pick Up the Slack for Neurocrine Biosciences
Another reason to not get too glum on NBIX stock is that the underlying enterprise is more than a one-hit-wonder. Earlier this year, the company announced that the U.S. Food and Drug Administration accepted its New Drug Applications centered on a therapeutic addressing classic congenital adrenal hyperplasia (CAH).
Why is this important for NBIX stock? If approved, according to the biotech’s official press release, the drug in question – called crinecerfont – would be “the first new treatment option for CAH in 70 years and a first-in-class therapy, with a novel approach for the treatment of this rare and serious endocrine disorder.”
Combined with Neuocrine’s robust pipeline of commercial drugs – particularly Ingrezza, which has seen strong demand – the biotech should be able to hit analysts’ expectations of $2.33 billion in revenue this fiscal year. Even better, the current price-to-sales ratio of the biotech industry stands at 6.48x. At the moment, NBIX stock comes in at an undervalued trailing 12-month multiple of 5.83x and a 2024 forward multiple of 5.21x. That’s already quite low compared to the trailing-year average of 7.19x. Given the history and track record of NBIX stock, that’s a difficult deal to ignore.
Another ‘Option’ That’s Available
Although a bullish long-term argument can be made for NBIX stock, it’s difficult to ignore the volatility in the charts. Indeed, Neurocrine shares are down more than 18% on a month-to-date basis. For those who want to tiptoe their way into NBIX stock, a multi-leg option strategy called the bull put spread may be intriguing. Rather than a strictly directional wager, a put spread involves betting on two outcomes: either the target stock moves higher or sideways.
To execute this transaction, a trader earns income from selling a put option. At a lower strike price but on the same expiration date, he or she also buys a put option. This cuts off the liability of the sold put in case the target security unexpectedly crashes, thus limiting the downside. Also, the net premium received is the difference between the income gained from the sold put and the premium paid for the bought put.
Should the stock consolidate or rise higher, both options expire worthless, and the trader profits because the income from the sold put has already been received.
For the quickest trade, investors may consider the options chain expiring September 20 of this year. One idea is to sell the $115 put at a bid of $1.30 per contract and simultaneously buy the $110 put at an ask of $0.90. This trade yields a maximum profit of $0.40 and a maximum loss of $4.60. Further, the breakeven price is $114.60. So long as NBIX stock stays above $114.60 (and ideally at or above $115), the trader can collect income while waiting for Neuocrine to break out of its funk.
Wall Street’s Take on Neurocrine Biosciences
Turning to Wall Street, NBIX stock has a Strong Buy consensus rating based on 17 Buys, five Holds, and zero Sell ratings assigned in the past three months. In addition, the average NBIX price target is $168.00, implying 38.72% upside potential.
Takeaway: Despite Setbacks, Strong Catalysts May Push NBIX Stock Higher
Neurocrine Biosciences recently faced a selloff after mixed results in a Phase 2 trial for its schizophrenia drug, but the market is overlooking its strong pipeline and future potential. The company plans to continue with a Phase 3 study and explore other conditions like Alzheimer’s and Parkinson’s. Additionally, Neurocrine has promising drugs like crinecerfont, which could be the first new treatment for CAH in 70 years. With solid revenue projections and an undervalued price-to-sales ratio, NBIX stock offers a compelling long-term opportunity.
