Acadia Pharmaceuticals

(ACAD US)

Key drivers behind our strong conviction

Ingrezza: continued commercial uptake

Neurocrine's main product, Ingrezza, is the first approved treatment for Tardive Dyskinesia (TD), a $700mn market. It beat consensus estimates for the tenth consecutive quarter. The next leg of growth will come by improving diagnostics.

• Estimates indicate that only about 10% of the patients are currently diagnosed.

Potential approvals in the near term

Neurocrine might have three additional treatments approved by the FDA in several indications very soon.

• Huntington's disease chorea ($1.5bn market by 2023), expected in 2021
• Elagonix, for the treatment of Uterine Fibrosis (9mn women, of which only 1/3 are currently diagnosed) expected in Q2-2020.
• Opicapone, for Parkinson's (1mn people in the U.S. alone) with an approval date set for the end of April 2020.

Entry into the gene therapy space

Gene therapy could bring new hope for CNS (central nervous system)-related diseases. Neurocrine has made a strategic move by developing gene therapy programs that might be approved for several neurological disorders.

• In early 2019, Neurocrine signed an agreement with Voyager Therapeutics (VYGR US) on four neurological gene therapy programs: one for Parkinson's Disease (Phase II), one for Friedreich's Ataxia (preclinical), and two additional undisclosed programs in Phase I.

About the company

Expertise on central nervous system (CNS) disorders

Neurocrine is the leader in Tardive Dyskinesia, currently affecting 500k people in the U.S. alone.

• Ingrezza's approval was supported by impressive Phase III data showing a reduction in involuntary movements.
• The lack of black box warnings on depression or suicidality gives Neurocrine a competitive advantage over its main rival, Teva’s (TEVA US) Austedo.

Promising drugs on women's health

Neurocrine received approval for Elagolix in collaboration with AbbVie (ABBV US) for the treatment of endometriosis, uterine fibroids, and PCOS.

• Phase III response rates were impressive at 75% for the high dose vs. 20% for placebo.
• Neurocrine receives 20% royalties on sales by AbbVie.

A rich and diversified pipeline

Neurocrine is expanding its pipeline with new products that leverage its expertise in CNS and women's health.

• It entered a collaboration with Xenon Pharmaceutical (XENE US) to develop novel epilepsy assets using a new method of action.
• Final Phase II data from NBIX-74788 with Congenital Adrenal Hyperplasia (CAH), a hormonal disorder affecting women, will be presented in 2020.

Catalysts

• An exciting pipeline. Two likely approvals next year have the potential to drive substantial long-term upside.

• Gene therapy catalyst. The recent partnership with Voyager allows Neurocrine to expand its pipeline on gene therapies for neurological diseases.

• Continued Ingrezza market penetration. Awareness campaign to physicians and rising use of antipsychotics will boost Ingrezza's expansion.
   

Risks

• Competition. Since 2018, Teva's Austedo is competing with Ingrezza in Tardive Dyskinesia and could slow down its future expansion.

• No manufacturing capabilities. Neurocrine depends mainly on third parties contract manufacturers.

• Development risk. Elagonix and Opicapone's FDA rejections would hurt the stock price.

Vertex Pharmaceuticals

(VRTX US)

Key drivers behind our strong conviction

The leader in Cystic Fibrosis market

Vertex dominates the Cystic Fibrosis (CF) market, which is expected to grow at a CAGR of 18.4% from $3.6bn in 2017 to $13.9bn in 2025.

• In October 2019, the FDA approved the triple combo, Trikafta, offering the potential of treating up to 90% of all U.S. patients.
• EvaluatePharma expects Trikafta’s sales to surpass $4.3bn by 2024.  

Purely focused on a rapidly growing rare diseases market

Vertex concentrates on creating high-value transformative medicines for rare diseases.

• All of Vertex’s drugs benefit from FDA/EMA breakthrough and fast track designations.
• Recent approvals in the UK and France shows governments’ willingness to cover drugs for life-threatening disorders.

Successful ongoing expansion into other specialized high growth markets

Vertex’s objective is to grow its pipeline beyond CF. It has several Phase II trials on neuropathic, acute, and musculoskeletal pain management.

• For Rare blood diseases, it presented positive early data (Phase I/II) from the first two patients treated for Sickle Cell Disease and Beta-Thalassemia.
• For Duchenne Muscular Dystrophy and Type-1 Myotonic Dystrophy, Vertex acquired gene therapy programs through the Exonics’ takeover in June 2019.

About the company

Targeting rare diseases with transformative drugs

Vertex focus on Cystic Fibrosis (CF), a severe and rare disease caused by the CFTR gene mutations and responsible for the production of mucus, sweat, and digestive juices.

• The disease leads to frequent lung infections and affects 75’000 people worldwide.

Significant expertise in Cystic Fibrosis (CF)

Vertex already addresses around 50% of patients with three commercialized CF drugs and CFTR modulator therapies, Kalydeco, Symdeko/Symkevi, Orkambi.

• The fourth therapy, Trikafta, performs better, and targets even more patients, a tangible differentiator from competitors.

And diversifying outside CF

Thanks to strategic partnerships with CRISPR Therapeutics (CRSP US) and Moderna (MRNA US) as well as acquisitions of early-stage companies (Semma, Exonics), the company has programs on five other therapeutic areas, i.e., rare blood diseases, Diabetes 1, Alpha-1 Antitrypsin Deficiency and Duchenne muscular dystrophy.

• Vertex has three gene therapy programs already in phase II.

Catalysts

• Gene editing proof-of-concept. Data supporting the efficacy and safety of CRISPR/CAS 9 for treating genetic diseases would drive long-term value.

• Phase I/II result in rare blood diseases. Vertex and CRISPR Therapeutics plan to present initial results from two clinical trials by early 2021.

• Phase II data on VX-814 for alpha-1 antitrypsin (AAT) deficiency in 1H20. Positive data support Vertex’s potential to diversify outside its core CF franchise.
   

Risks

• Dependence on CF franchise. The pipeline outside CF is exciting but still in its infancy with high clinical risks.
• Intensifying competitive landscape. AbbVie (ABBV US), Eloxx Pharmaceuticals (ELOX US), or Proteostasis Therapeutics (PTI US) also have triple CFTR combinations candidates.
• Pricing pressure. Pricing pressure on expensive new drugs brings volatility.

Fiserv Inc

(FISV US)

Key drivers behind our strong conviction

Focused on becoming a leader in transaction-based technology solutions.  

Innovative technology upgrades, and leveraging data management expertise, ensure a steady flow of customers, recurring revenues, and drive growth to double-digit levels.

• Fiserv is outpacing a high growth industry (+35% 5Y CAGR), by gaining market share and significant client additions.
• Its Popmoney and Zelle solutions brought a 100% growth in 2019 for P2P and Debit transactions.

Grows market share through strategic mergers

To offer new and improve existing payment solutions and to widen its customer base, Fiserv completed in 2019 one of the most significant Fintech mergers of the decade by acquiring First Data and gaining access to the STAR Network.

• STAR Network provides debit acceptance at over 2mn retail POS, ATM, and outlets for 33% of all U.S. debit cards.

Operational effectiveness and remarkable cash flow generation

To boost its profitability, Fiserv has implemented a five-year operational effectiveness program to achieve $250mn in savings through labor optimization and procurement initiatives.

• This program already resulted in significant margin expansion of +6p.p. to 30% in 3 years and a free cash flow conversion of around 115%.

About the company

Fintech with an advanced delivery model.   

Fiserv provides a multitude of financial services, i.e., payment, processing, optimization, risk, and analytics solutions. Still, unlike competitors, its delivery model is an "on-demand solution", which does not require software installations, a strong differentiator vs. competitors.

• Their platform offers instant access to industry experts and data sources.

Differentiates itself with IP-protected technology

Fiserv has a proven track record of being a leader in product disruption, providing the first-ever modular platform, which can be easily scaled and customized and allows Fiserv's customers to stay ahead of the market.

• Payments and Industry Products concentrates on digital P2P payments and lending services, representing 60% of revenues.
• Financial Institution Services focuses on the account and item processing, consulting services, loan origination, and represents 40% of revenues.

The platform successfully relies on Human and AI collaboration

The company developed a unique and effective model, which fully automates a complex thought process by combining human Bank Strategists with intelligence derived from >30 databases, proprietary methodology, and online tools, resulting in a steady growth of the client base.

• New clients' growth is in the high teens.
• Serviced accounts represent AuM of over $1.4tn.

Catalysts

• Rising demand for digital banking and payment services. A boom in the number of digital financial transactions and P2P lending requires more customer management and processing services, providing significant growth opportunities for Fiserv.
• Credit Union mergers. Already serving 16k clients, Fiserv will continue to grow its revenues from a series of credit union mergers, e.g., on the 8th of January, Fiserv was selected for its open architecture to service loans of Verve Credit Union.
• Digitization and easier loan applications. A user-friendly all-digital process attracts more customers, including retail and SMEs, boosting demand for Fiserv's products and services, and driving growth to double digits.
   

Risks

• Highly competitive market. Fiserv's core products attract a lot of competition from several non-banking bodies, e.g., data processing departments and affiliates of large companies, while maintaining healthy and long-term client relationships remains a difficult task.
• Highly leveraged balance sheet. With a long-term debt of $22bn and cash levels at $1bn as of Q3 2019, Fiserv must generate enough cash for debt servicing and be profitable enough to maintain its 4x Debt/EBITDA covenant (FY18 at 2.7x, and FY19E 3.94x).
• Elevated integration risk. Multiple M&As may negatively impact its balance sheet or bring operational inefficiencies harming growth; the acquisition of First Data raised Fiserv's debt levels from $6bn to 18$bn and forced the company to renegotiate its debt covenants.