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June 16, 2010
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On June 16, 2010, Neurocrine Bio (NBIX) announced that it has entered into a collaboration agreement to develop and commercialize elagolix for the treatment of endometriosis-related pain with Abbott Labs (ABT). Under the terms of the agreement, Abbott will receive worldwide exclusive rights to develop and commercialize elagolix and all next-generation GnRH antagonists for women's and men's health. This includes potential indication beyond endometriosis pain, such as uterine fibroids, adenomyosis, premenstrual dysphoric disorder (PMDD), polycystic ovarian syndrome (PCOS), breast cancer, or benign prostatic hypertrophy (BPH).
Abbott will make an upfront payment of $75 million and will fund all ongoing development activities. Neurocrine is eligible to receive additional milestone payments of approximately $500 million from Abbott for the achievement of certain development, regulatory and commercial milestones. Neurocrine will also receive funding for certain internal collaboration expenses, plus royalty payments (we model 20%) on any future product sales.
On the conference call highlighting the deal, CEO Kevin Gorman noted that the “vast majority" of the $500 million milestones are for development. This gives us confidence that Neurocrine will recognize a significant portion of these milestones prior to potential FDA approval in 2013 or 2014. Finally, Neurocrine will handle the CMC and commercial scale-up for elagolix, which will be funding by Abbott Labs.
Homerun for Neurocrine Bio
The collaboration is a homerun for Neurocrine Bio. Abbott is the pioneer and market leader in GnRH antagonists with Lupron (leuprolide) for the treatment of hormone-responsive cancers such as prostate cancer or breast cancer. The drug is also by Ob/Gyns for the treatment of endometriosis and uterine fibroids, as well as to treat precocious puberty, and to control ovarian stimulation in In-Vitro Fertilization (IVF).
Abbott has a strong appreciation for the GnRH mechanism, and the company is clearly committed to seeing elagolix a success with Lupron expected to lose patent protection in 2015. Abbott’s Lupron sales in 2009 were $800 million ($540 million U.S.). We believe that Abbott will look to replace Lupron in the Ob/Gyn market with elagolix thanks to superior efficacy and tolerability, as well as patent protection.
The $75 million upfront from Abbott, as well as the potential to receive several hundred million more over the next few years, has dramatically improved the strategic position at Neurocrine Bio. We expect Neurocrine to report roughly $135 million in cash on the books at the end of the second quarter 2010. Management can now push forward the development of internal pipeline candidates, including CRF receptor antagonists and VMAT-2, as well as in-license new pre-phase II molecules within the company’s core CNS focus.
We view this as a game-changer for Neurocrine. Accordingly, we are raising our rating to Outperform, and increasing our price target to $9 per share.
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