Merrill:
Cash burn to be worse than expected for ‘06
Neurocrine earnings were a non-event, but Neurocrine updated its cash burn and
expense guidance for 2006, which was worse than expected. Based on new
guidance, we now expect the company to end 2006 with about $4.50 in cash,
which is less than our prior estimate of about $6 per share. As a result, we now
estimate fair value for NBIX of $8 or less. Reiterate SELL.
Indiplon update expected after meeting with FDA
Neurocrine plans to meet with FDA to discuss the additional data or analyses
required for both Indiplon IR and MR around late August or September.
Regardless of the outcome of these meetings, we believe that 1) continued
development of Indiplon by Neurocrine will be a large cash drain with negative
NPV, which will require additional financings, 2) Neurocrine is unlikely to be able
to effectively market the drug on its own and may require a large partner, 3)
Indiplon IR sales may be limited to no more than $100 MM, which is unlikely to be
enough to cover the cost of additional trials or marketing the drug.
Sales force may have to be disposed
Neurocrine is looking to in-license a drug that could be sold by the sales force that
was built to launch Indiplon. But, licensing-in quality drugs with large enough
market potentials to support their sales force may be unlikely.
Theoretical fair value now less than $8 per share
We believe Indiplon has limited value and estimate NBIX’s pipeline is worth $4 per
share or less. The company expects to end the year with about $4.50 in cash with
no revenue offsets from Indiplon. In the next 2 years, cash burn is expected to be
about $80 MM per year, so NBIX likely has less than 2 years of cash. Thus we
estimate that the theoretical fair value for NBIX is $8 or less. |
