NBIX :Pfizer Terminates Indiplon Agreement
2006-06-23 02:31 (New York)
Piper Jaffray & Co.
Company Note
(NBIX - $13.81)
Market Perform Volatility: Low
Pfizer Terminates Indiplon Agreement
Thomas Wei, Senior Research Analyst Reason for Report:
212 284-9305, thomas.a.wei@pjc.com Change in Price Target
Gur A. Roshwalb, M.D., Research
Analyst
212-284-9314, gur.a.roshwalb@pjc.com
KEY POINTS:
* What Are The Implications Of PFE Walking Away From Indiplon Prior To FDA
Meeting: Regulatory Risk And/Or Commercial Risk? NBIX announced that
Pfizer has terminated the collaboration agreement to develop and co-
promote indiplon. With only $10m-$30m estimated by NBIX to finish clinical
development, we are highly concerned that PFE is walking away prior to
even meeting with the FDA, and we believe that the two companies may have
very different assessments of the requirements necessary to gain approval
for indiplon and/or may have a revised smaller perspective on the market
opportunity for indiplon. As part of the termination provisions of the
agreement, Pfizer will continue to support indiplon and the sales force
for a period of up to 180 days. NBIX plans to continue indiplon
development and will attempt to find another psychiatric product to in-
license to offset the cost of the 200 person sales force. NBIX will
evaluate commercial alternatives for indiplon including seeking a new
partner.
* What Magnitude Of Development Would Cost $10m-$30m? NBIX indicated on its
call that it expects final indiplon development to cost an additional
$10m-$30m.We had previously estimated that the cost for the core Phase III
trials encompassing thousands of patients was approximately $100m. We are
surprised, therefore, by the wide range of estimates, implying high
uncertainty on clinical trial requirements, and the absolute magnitude of
the estimates, particularly at the high end of the range. At the $30m end,
this appears to assume onerous clinical development work that could extend
beyond our current 2008 launch projection. NBIX expects to meet twice with
the FDA in July, and we expect an update on the timeline and cost for
developing indiplon shortly afterward. Given the uncertainty on
development timeline, we will maintain our 2008 launch assumption but will
update accordingly when we have further visibility.
* Lowering Price Target To $7. Given our sense that the two companies had
divergent views on the development requirements, regulatory risk and/or
commercial opportunity, we are lowering our indiplon sales estimates and
our price target. Our current model assumes roughly $600m in peak U.S.
indiplon sales in 2011, a new partner paying NBIX a 27% royalty in the
U.S., full reimbursement for the NBIX sales force, and very modest
increases in NBIX's base R&D and G&A expenses. With these new assumptions,
our price target moves from $22 (was 35x 2010E EPS, discounted at 35%) to
$7 based on (35x 2011E EPS, discounted at 35%). Based on after market
indications, we believe that the stock today may trade toward the high
single digit range, in line with our new price target, and thus, we remain
on the sidelines. We will re-evaluate our stance when increased clarity on
regulatory and commercial prospects for indiplon is available.
From To Price: $13.81
Changes (Previous) (Current) 52 Week High: $73.13
Rating -- MarketPerform 52 Week Low: $13.52
Price Tgt $22.00 $7.00 Price Target: $7.00
FY06E Rev $104.9 $66.5 (35x 2011E EPS, Disc. 35%)
(mil) Shares Out (mil): 37.4
FY07E Rev $41.8 $62.5 Market Cap. (mil): $516.5
(mil) Avg Daily Vol (000): 2,522
FY06E EPS ($1.36) ($2.32) Book Value/Share: $10.28
FY07E EPS ($3.71) ($2.75) Cash Per Share: $7.08
Debt to Total Capital: 15%
Est LT EPS Growth: NM
P/E to LT EPS Growth (FY06): NA
Est Next Rep Date: 07/24/2006
Fiscal Year End: Dec
Rev (mil) 2005A 2006E 2007E EPS 2005A 2006E 2007E
Mar $11.9A $19.5A NA Mar ($0.51)A ($0.51)A NA
Jun $33.2A $15.1E NA Jun ($0.15)A ($0.58)E NA
Sep $64.8A $11.3E NA Sep $0.68A ($0.72)E NA
Dec $14.1A $20.6E NA Dec ($0.65)A ($0.51)E NA
FY $123.9A $66.5E $62.5E FY ($0.60)A ($2.32)E ($2.75)E
CY $123.9A $66.5E $62.5E CY ($0.60)A ($2.32)E ($2.75)E
FY RM 4.2x 7.8x 8.3x FY P/E NM NM NM
CY RM 4.2x 7.8x 8.3x CY P/E NM NM NM
INVESTMENT RECOMMENDATION:
We remain on the sidelines until we have further clarity on the timeline and
prospects for indiplon approval.
RISKS TO ACHIEVEMENT OF TARGET PRICE:
Risks include but are not limited to: 1) regulatory uncertainty on indiplon
FDA issues; 2) delays in indiplon launch, and 3) lower-than-expected sales
of indiplon.
COMPANY DESCRIPTION:
Neurocrine Biosciences, Inc. is developing a potential best-in-class
insomnia agent. |
