VYGR - Voyager: Recent Neurocrine Deal Signals More Upside

Summary

• In trying to deliver breakthrough, Voyager Therapeutics is able to ink multiple robust deals with reputable companies.
• The company is trying to tackle some of the most difficult to treat neurological conditions like Alzheimer's disease, ALS, and Parkinson's.
• The recent Neurocrine partnership signals more upside.

Risk comes from not knowing what you are doing. - Warren Buffett

Author's Note : This is an abbreviated version of an article originally published in advance on Jan. 12, inside Integrated BioSci Investing for our members. I wrote this article in response to research requests from our members.

As you can see, it takes roughly $1B to fund a drug from bench research to commercialization in the span of seven to ten years. As such, the company is likely to raise multiple rounds of capital via a public offering. Hence, you'd want to invest in biotech stocks with a significant market cap size. I prefer companies that are worth roughly $1B. After all, a significant equity offering won't clobber the share price of your stocks.

Now, certain companies, despite their smaller size, are still worthwhile speculative bets. Nevertheless, they tend to have significant partnerships to absorb the operating expenses. Voyager Therapeutics ( VYGR ) is one such exception to my general rule. I believe that this small company has promising innovations for gene therapy. In this research, I'll feature a fundamental analysis of Voyager while focusing on the recent Neurocrine ( NBIX ) deal.

Figure 1: Voyager Chart

About The Company

As usual, I'll present a brief corporate overview for new investors. If you're familiar with the firm, I suggest that you skip to the next section. Operating out of Cambridge, Massachusetts, Voyager is focused on the development and commercialization of novel gene therapy for neurological conditions. Leveraging its TRACER AAV capsid discovery platform (and expertise in neuropharmacology), Voyager seeks to deliver genes through the "blood-brain barriers" that traditionally hinder conventional approaches.

As shown below, there are multiple programs in development for various neurological conditions, including Alzheimer's disease (i.e., AD), Parkinson's, ALS, and Friedreich's ataxia. Keep in mind, they are in very early development. Precisely speaking, there is yet any clinical advancement.

Figure 2: Therapeutic pipeline

Recent Neurocrine Deal

Interestingly, Voyager recently entered into a strategic partnership with Neurocrine. The collaboration serves to advance Voyager's preclinical GBA1 gene therapy programs for Parkinson's disease and other GBA1-mediated diseases that utilizes Voyager's TRACER capsid platform. That aside, the partners would collaborate on the development of three new gene therapy programs for rare CNS targets (i.e., orphan neurological conditions).

Regarding deal terms, you can see that Voyager has the advantage. Specifically, the company would receive $175M in an upfront payment. Neurocrine also invests $39M in Voyager stocks at $8.88 per share. That is a 50% premium to the average share price for the past 1 month. Moreover, Voyager can receive up to $1.5B in potential development milestones.

Figure 3: Neurocrine partnership

That aside, there are other commercial milestones and tiered royalty payments on future product sales. That aside, Neurocrine would fund everything for Voyager's GBA1 program until the Phase 1 readout. At that point, Voyager can elect the 50/50 cost/profit sharing for future developments. Commenting on the said deal, the Chief Scientific Officer of Neurocrine (Dr. Jude Onyia) remarked,

This new collaboration with Voyager encompassing GBA1-mediated diseases such as Parkinson’s disease and Gaucher’s disease complements our existing collaboration around Friedreich’s Ataxia and other CNS targets, establishing the foundation for a strong franchise of next-generation gene therapies utilizing Voyager’s TRACER capsids to treat serious neurological diseases. We believe GBA1 gene therapy has the potential to play a transformational role in the future treatment of Parkinson’s disease and other serious neurological diseases.

Notably, you can see that the aforesaid deal is extremely favorable for Voyager. After all, its drugs are still in the earliest stage of development. Neurocrine doesn't know whether any of these developments would bear fruits. Nonetheless, partners already infused Voyager with much cash and further future payments.

You might be wondering why the partner seeks such an early partnership deal. It's likely that they do not want to potentially miss out on opportunities. After all, other firms like Pfizer ( PFE ) and Novartis ( NVS ) already invested.

As you can see, once a small company gets a notable deal it's much easier to get subsequent partnerships (and better deal terms). It's also likely that the partners trust Voyager's CEO (Dr. Al Sandrock), a former EVP of R&D of Biogen ( BIIB ) executive with many successful drugs under his belt.

Figure 4: Voyager's leadership

Now you might question whether Neurocrine or any of its partners knows if Voyager's drug would work. In my view, they don't. Else, it'd made sense for them to completely acquire Voyager to take ownership of the Alzheimer's disease franchise. After all, the demand for Alzheimer's drugs is extremely robust.

Financial Analysis

Just as you would get an annual physical for your well-being, it's important to check the financial health of your stock. For instance, your health is affected by "blood flow" as your stock's viability is dependent on the "cash flow." With that in mind, you should assess the 3Q2022 earnings report for the period that ended on September 30.

As follows, Voyager procured $41.0M compared to $1.4M for the same period a year prior. The revenue came from the collaborative partnership with Pfizer. That aside, the research and development (R&D) for the respective periods registered at $19.3M and $17.9M. I viewed the 7.8% R&D increase positively because the money invested today can turn into blockbuster profits tomorrow. After all, you have to plant a tree to enjoy its fruits. Additionally, there were $17.6M ($0.45 per share) net losses compared to $25.1M ($0.67 per share) decline for the same comparison.

Figure 5: Key financial metrics

About the balance sheet, there were $131.6M in cash, equivalents, and investment. On top of the $175M upfront payment from the Neurocrine partnership, the cash position is increased to $306.6M. Against the $26.6M quarterly OpEx, there should be adequate capital to fund operations into the next three years (i.e., 3Q2025).

While on the balance sheet, you should check to see if Voyager is a "serial diluter." After all, a company that is serially diluted will render your investment essentially worthless. Given that the shares outstanding increased from 37.7M to 39.5M, my math reveals a 4.7% annual dilution. At this rate, Voyager easily cleared my 30% cut-off for a profitable investment.

Potential Risks

Since investment research is an imperfect science, there are always risks associated with your stock regardless of its fundamental strengths. More importantly, the risks are "growth-cycle dependent." At this point in its life cycle, the main concern for Voyager is if the company can generate positive future data results.

Without positive clinical outcomes and pipeline advancement the stock is most likely going to fade into the land of microcaps. As a small company, Voyager can burn excessive capital to potentially run into a cashflow constraint.

Conclusion

In all, Voyager is an interesting company that deserves more follow-up research . Despite multiple big partnerships, whether TRACER would deliver the answer for AD remains to be seen. Now, I believe that the Parkinson's disease franchise that Neurocrine recently placed its bets on has a much better chance of success. Simply put, the hurdle to successful innovation for Parkinson's is much lower than it is for AD. Regardless of their hurdle to successful innovation, time will definitively tell if either Voyager's Parkinson's or AD franchise becomes a boon.

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