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July 29, 2010
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Neurocrine received $75 million upfront and has the potential to earn an additional $500 million in future milestones, of which CEO Kevin Gorman noted the “vast majority" 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.
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 used 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 be successful, 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 second deal with Boehringer Ingelheim adds icing to the cake. The collaboration will focus on the research and development of G-protein coupled receptor (GPCR) small molecules for the treatment of Type-2 diabetes. The activation of GPR119 receptors located in the digestive system stimulates incretins, resulting in increased insulin production, while activation of GPR119 receptors located on pancreatic islet beta cells also stimulates insulin secretion.
As part of terms of the collaboration, Neurocrine received another $10 million upfront milestone payment for research funding, and is eligible to receive up to $225 million in future milestone payments based on the achievement of development, regulatory and commercial goals. Again, CEO Kevin Gorman noted that a “substantial amount" can be achieved in clinical development.
With a strong financial position, we believe Neurocrine is in outstanding position to build shareholder value over the next several years. The company exited the second quarter with $145.5 million in cash and receivables, with the potential to earn several hundred million more as clinical development progresses.
The company has several other outstanding collaboration partners, including with Glaxo (GSK) on CRF1, DSP on indiplon in Japan, and with the Christchurch Cardioendocrine Research Group and University of Edinburgh for Urocortin-2.
These collaborations are a game-changer for Neurocrine. The company’s dramatically improved financial position affords management the opportunity to push forward the development of internal pipeline candidates, including VMAT-2, as well as in-license new pre-phase II molecules within the company’s core CNS focus. We recommend accumulating the stock at today’s price, up to our $9 target.
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