Is Mid-Cap Neurocrine Biosciences A Buy After Blowout Q3 Report?

Key Points

• Neurocrine Biosciences came within a penny of Tuesday’s all-time high of $125.99 before pulling back.
• The company's treatment for a disorder called tardive dyskinesia, which accounts for nearly all the company's revenue, came in higher than expected. 
• The stock is up 15.33% in the past month.
• In the company's Q3 earnings report earlier this month, CEO Kevin Gorman cited other promising drugs in the pipeline. 

Mid-cap Neurocrine Biosciences NASDAQ: NBIX continued its uptrend Thursday, along with the market-wide broad rally.

The stock came within a penny of Tuesday’s all-time high of $125.99 before pulling back. Nonetheless, the San Diego-based biotech finished the session with a gain of $1.40, or 1.15%, at $123.22. Trading volume was lighter than average.

The company develops and commercializes pharmaceutical treatments for neurological, endocrine, and psychiatric conditions.

On November 1, it easily trounced Wall Street’s third-quarter expectations. Earnings came in at $1.08 per share, way ahead of analysts’ consensus, calling for $0.81 a share. That marked a 69% year-over-year increase.

Revenue was up 31% to $387.9 million, beating forecasts of $377 million. In the past five quarters, revenue grew between 15% and 31%, with the latter number being a steady growth rate for the past three. 

A glance at MarketBeat earnings data for Neurocrine reveals that the company has a mixed history when it comes to meeting, beating or missing views on the top and bottom lines. 

One standout in the quarter was Ingrezza, Neurocrine’s product to treat a movement disorder called tardive dyskinesia, which may occur as a side effect of antipsychotic medications. Those sales came in at $376 million, which constituted nearly 97% of total revenue. 

Ingrezza's revenue was ahead of expectations, and the company increased its full-year guidance. 

In his remarks accompanying the earnings release, Neurocrine CEO Kevin Gorman addressed additional potential for Ingrezza, using its chemical name. 

"With the submission of the sNDA of valbenazine for the treatment of chorea associated with Huntington Disease, we have the potential to help even more patients with our valbenazine franchise,” he said.

He also discussed clinical programs for drugs in the pipeline, such as crinecerfont, a treatment for congenital adrenal hyperplasia and for certain seizures. The former refers to genetic disorders that can affect adrenal glands. Gorman also mentioned the company’s lead muscarinic program for the treatment of schizophrenia. 

While Ingrezza essentially makes up all the company’s revenue at this point, Gorman was drawing attention to other treatments in the pipeline, signaling to Wall Street that Neurocrine is not satisfied being a one-trick pony. 

The stock climbed out of a flat base in early October, then trended higher along its 50-day average for the next four weeks. After the earnings report, the stock jumped nearly 4% and has been forming a potentially bullish ascending channel with higher highs and higher lows.  

This stock has notched strong performance relative not only to its biotech and biomedical industry peers, but also relative to the broader market. In this case, the best broad-market comparison is the S&P 400 Midcap index, of which Neurocrine is a component. 

That index, as tracked by the SPDR S&P MidCap 400 ETF NYSEARCA: MDY, has notched the following performance numbers:

• 1 month: +5.10%
• 3 months: -4.40%
• Year-to-date: -15.28%

Meanwhile, here are Neurocrine’s returns:

• 1 month: +15.33%
• 3 months: +15.39%
• Year-to-date: +44.68%

When it comes to industry peers, small-caps Catalyst Pharmaceuticals NASDAQ: CPRX and Aveo Pharmaceuticals NASDAQ: AVEO, and  Immunocore NASDAQ: IMCR are among the best price performers in recent months. 

Larger names, including Amgen NASDAQ: AMGN, Gilead Sciences NASDAQ: GILD, Regeneron Pharmaceuticals NASDAQ: REGN and Vertex Pharmaceuticals NASDAQ: VRTX are also outperforming the broader market. In this case, the best comparison is the S&P 500. 

With that many small and large stocks all outpacing their indexes, it’s clear that biomedical and biotech stocks are a leading industry. When scouting for new opportunities, it’s generally a good idea to focus on industries with multiple top-performing stocks. That kind of breadth indicates strong demand in the “rising tide lifts all boats” sense. 

Neurocrine is out of buy range at the moment, and if Thursday’s rally gathers steam in the coming weeks, it could move even further away from a reasonable buy point. However, it’s a good candidate to put on a watch list, and monitor it for a pullback to a key moving average.