The Next Blockbuster Therapies: Curing Neurological Disorders

Medicine has improved over the last decades in treating many diseases. From antibiotics to cardiac surgery or insulin, almost every part of the body can be better fixed or repaired than it was just one or two generations ago. Even cancer and genetic diseases are getting more treatable, and that is before gene editing or synthetic biology has had a chance to boost the success rates for these as well. But one organ has been most resistant to treatment, and it is an important one: the brain and neurological disorders.

Although increasing attention was brought to “mental health,” mental and neurological disorders are mostly treated with the same type of drugs as in the 1970s. Many deadly and plainly awful diseases are fully untreatable, like Parkinson’s, Alzheimer’s, multiple sclerosis, or life wrecking like schizophrenia and depression.

A Massive Market

Neurology is already a massive market worth more than $33B, but it is growing slowly at a 3.5% CAGR.  It is currently led by multiple sclerosis treatments, making 7 out of 15 top central nervous system treatments. Other major markets are anti-psychotic drugs, anti-epileptics, and antidepressants.

An aging population supports growth, but overall, scientific progress has been slow and has limited the market’s growth, as many neurological diseases are still poorly treated or not treatable.

It is also a medical segment where diseases are either deadly or very harmful to the patient’s well-being. So, it is safe to assume that the total addressable market is MUCH larger but under-monetized by the lack of adequate treatments.

Why Are Neurological Disorders Are So Hard To Treat?

Neurology is maybe one of the most complex fields in biology and biochemistry. This is because, even today, we are only starting to understand how the brain works. So when it doesn’t, it is hard to figure out why.

We know roughly how neurons interact with each other and which part of the brain assumes which function. However, it is unclear why neurons start to degenerate like in Alzheimer’s and other types of dementia.

We are also very far from fully understanding how the brain can generate consciousnesses from chemical and electrical signals. So, mental diseases like schizophrenia or depression are still hard to treat.

Another reason is that the brain is very hard to reach. The brain-blood barrier isolates the brain from the rest of the body. This barrier blocks many potentially useful drugs and other therapies from reaching their target. And any intrusive method might be harmful to the patients.

The last part is that the brain has very few native regeneration capacities. While the “no new neurons are created” dogma is now proven false, it is nevertheless true that this organ is very hard to “repair.” And for obvious reasons, transplants are not an option as they would be for a heart or a liver.

New Hopes For New Drugs

Advanced new methods like genomics, transcriptions multiomics, or even 3D/spatial biology are giving researchers new insights into how neurons work. This gives them whole new arrays of potential targets for new drugs.

Several companies favor this strategy.

1. Neurocrine Biosciences

(NBIX )

This is a rather large company, with a market capitalization oscillating around $8B-$10B between 2018-2022. It already has 2 approved medicines, as well as 2 others licensed out to AbbVie in exchange for royalty payments.

Its pipeline contains:

• 7 potential neuropsychiatry treatments, of which one for schizophrenia is in phase 3.
• 1 potential neuro-endocrinology (brain hormones) treatment in phase 3.
• 5 potential neurology treatments, of which two are in phase 3; one for Huntington’s disease and one for cerebral palsy.

Source: Neurocrine

The company is profitable with both positive earnings and free cash flow but trading at 60+ P/E, showing a lot of priced-in enthusiasm from the market for its pipeline. It represents an interesting option for conservative investors looking for an established and already profitable company with a narrow focus on neurology.

2. Acadia Pharmaceuticals

(ACAD )

Acadia is a medium-sized pharmaceutical company with a market cap moving around $3B-$5B. It already has 2 approved medicines, one for a complication of Parkinson’s disease (approved in 2016) and one for Rett syndrome (approved in March 2023).

Rett syndrome affects mostly female babies, hinders development, and concerns 6,000-9,000 patients in the US, and previously had no approved treatment whatsoever. The average treatment price will be around $575,000 and $595,000/patient.

Its research pipeline contains:

• A phase 3 clinical trial for symptoms of schizophrenia. If proven effective, this could interest up to 700,000 patients in the US.
• Three other programs are still in phase 1.

Source: Acadia

The company had a negative net income of -$215M in 2022 and a negative free cash flow of -$114M in 2022, stemming from its massive R&D investment of $369M just in 2022.

While no sales guidance was provided for the Rett syndrome treatment, the breakthrough of a first-ever treatment for the disease should bring extra income to the company by the end of 2023.

Overall, Acadia is still a small and innovative biotech with lower risk than most, thanks to a previously approved drug and one recently approved piece of news that failed to move markets. Its schizophrenia drugs also have potential, but the rest of the portfolio is relatively small.

3. Intra-Cellular Therapies

(ITCI )

Intra-Cellular Therapies has one approved treatment, CALYPTA, for schizophrenia and Bipolar depression. The authorization for treating bipolar disorders is recent (2022) and has strongly accelerated the drug’s sales growth, tripling in 2022.

The drug has only one competitor in this application. This is a problem affecting 11 million adults in the US. The company hopes to expand CALYPTA’s label for other mood disorders in the future, which could reach up to 21 million adults in the US.

Intra-Cellular pipeline is focused on neuropathology, including a phase 3 clinical trial for major depressive disorders and 6 other trials in phases 1 & 2.

Source: Intra-Cellular TherapiesThe company had $630M in cash in September 2022 and no debt. For now, it is not yet profitable, and net income was -$256M in 2022, with large spending on promoting CALYPTA to 58,000 doctors. Considering the recent growth in sales, this would not seem to be a problem and represents a long-term investment in the drug’s sales.

Intra-Cellular Therapies are growing quickly in a profitable niche with little competition for now. Future expansion of CALYPTA prescriptions and labels should support revenue growth. The promising pipeline should have solid synergies in the sales network with the already-approved drug.

Investors will count on some of the pipeline getting approved and sales expenses decreasing once the company’s drugs are well established on the market.

4. Karuna Therapeutics

(KRTX )

Karuna does not have any approved drug yet, and so is fully pre-revenue.

Karuna pipeline includes one drug investigated in three different clinical trials, all in phase 3, for schizophrenia and psychosis from Alzheimer’s disease. The schizophrenia drug potential approval and launch are scheduled for the end of 2024.

Source: Karuna Pharmaceuticals

The company had in early 2023 $1.1B in cash, enough to fund operations through 2025. Some of this cash came from a public offering of shares in March 2023, for $460M.

By potentially reaching both some Alzheimer’s patients and schizophrenia patients, this makes the total addressable market for the drug in phase 3 trial up to 10-15 million people.

Investors in Karuna are betting on its most advanced drug approval by 2024. Funding to reach that milestone is adequate, but failing to get FDA approval would likely prove negative for the stock price.

New Technologies To The Rescue.

Not all neurology biotech companies are counting on new drugs. Others are literally trying to repair the brain directly, including by adding fresh new cells to the patient’s nervous system through stem cell therapy.

BrainStorm Cell Therapeutics

(BCLI )

Brainstorm is focused on neurological diseases like Multiple Sclerosis, Alzheimer’s, Parkinson’s, Huntington’s Disease, or Autism Spectrum Disorder. The ALS treatment is the only one in phase 3, with hopes to get it approved quickly, and preliminary results seemingly indicate it could help if used preventively.

Source: Brainstorm Cell

Brainstorm Cell uses its autologous cellular technology platform (NurOwn®): the company takes the patient’s bone marrow cells and turns them into neurons and other nerve cells. This is a rather short process, taking only 7 days.

The company seems tight on cash, with just $4M left in cash on December 31, 2022. This is unsettling when compared to $19M in a net loss in the latest quarter. So it is pretty clear it will need to raise more money, from equity and/or debt, to reach commercialization of its ALS treatment and pursue its other R&D programs.

Overall, Brainstorm seems an interesting company from a technology point of view, but with serious financial risks. Risk-taking investors might want to monitor the situation closely and buy after a stock decline caused by these immediate financial concerns.

Investing In Neurology Biotech Companies

Readers might have noticed that many of the leading companies in the segment are often targeting similar diseases. This might lead to several possible outcomes:

1. One of the upcoming drugs or treatments proves vastly superior to the other, taking over most of the market.
2. Only some of the phase 3 trials get approved, leaving the existing approved drug dominating the market.
3. More treatments are approved, dividing the market.

In any case, the segment’s total revenue is likely to grow drastically, as most of these diseases are currently poorly treated or not treated at all.

Because it is difficult to judge which outcome is the most likely, investors might want to diversify their portfolio with a mix of approved drugs and a pipeline of phase 2 & 3 clinical trials, this way, they can capitalize on the market’s overall growth and have more patients treated more efficiently, independently of the market structure by 2026-2030.

More concentrated bets are also a high-risk, high-reward option. Focusing on less crowded treatments and more innovative therapies, likely to become the long-term dominant medical solution, are likely to pay off more than conventional scientific approaches.