Equity Research Wachovia Neurocrine Biosciences, Inc.
NBIX: Positive Daisy Petal Results. Partnering H2 2010?
• Summary: Yesterday (5/25), Neurocrine hosted a conference call to discuss
positive top-line results for the Phase II elagolix Daisy PETAL study in 132
endometriosis patients. Statistically significant reductions versus placebo were
observed in the co-primary endpoints of dysmenorrhea and non-menstrual
pelvic pain and the exploratory endpoint of dyspareunia (all p<0.001).
Importantly the study utilized a novel, more sensitive daily diary scale to assess
efficacy, which was requested by the FDA. These data will help finalize a Phase I
and II data package in over 700 patients and will be the basis for discussions
with the FDA during a Q3 End of Phase II meeting. Management has noted that
it has no intentions of conducting Phase III studies without a licensing partner
due to the large costs necessary to advance the compound and we believe these
data help increase the likelihood of signing a licensing agreement. However due
to a lack of clarity on the Phase III requirements (i.e., endpoints, length of study,
etc.), uncertainty around timing of a partnership, and belief that Neurocrine is
fairly valued at $3.50-4.50/share we are maintaining our Market Perform rating.
• Consistent Profile. The Daisy-Petal study randomized 132 women in a 1:1
fashion to either placebo or 150 mg/daily for 8 weeks after an initial one month
period (no drug or placebo) where women recorded their daily baseline in an
electronic diary. These top-level results reflect unblinded treatment group initial
2 month efficacy results but the patient-level results are still blinded. After the
initial 8-week period all patients are switched to elagolix until study completion.
The co-primary endpoints of dysmenorrhea and non-menstrual pelvic pain
scores decreased by 1.13 and 0.47 points from baseline in the elagolix arms (p<
0.001 and 0.01, respectively) and the exploratory endpoint of dyspareunia (FDA
requested) decreased 0.61 points (p<0.01). The elagolix results are consistent
with data from European Tulip-Petal (703) study vs. placebo and active control
leuprorelin which was in a less severely affected patient population. Importantly
a responder analysis requested by the FDA for the Daisy-Petal co-primary
endpoints achieved significant results with a near doubling of response rates for
dysmenorrhea and non-menstrual pelvic pain (63% vs. 33%). The secondary
endpoints for daily and monthly scales (the PGIC, EHP-5, and CPSSS) were all
significant and robust. Finally, the drug continues to be well-tolerated with no
Serious Adverse Events (similar to Tulip-Petal) and nausea being most common.
Valuation Range: $3.50 to $4.50
We value Neurocrine based on a sum of the parts analysis. On a risk adjusted NPV
basis using a required IRR of 20-35%, we believe elagolix is worth about $40-75
million or $1.00-2.00 per share using 40 million shares outstanding. Neurocrine
will end 2010 with approximately $45 million in cash, cash equivalents and
marketable securities. We arrive at a current valuation range of $150-200 million
or approximately $3.50-4.50 Neurocrine's primary risks are an inability to sign
licensing partners for any of its compounds. Clinical failure of elagolix would also
have a negative impact on shares.
Investment Thesis:
Neurocrine Biosciences is a neuroscience company whose lead candidate, elagolix,
is in Phase II development for endometriosis. Early data is encouraging however,
the drug has yet to demonstrate significant improvements in non-menstrual pelvic
pain, a key endpoint for regulators.
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