Neurocrine: High Risk and Reward in Biotech

06/18/2015 7:00 am EST


Joe Duarte

Editor, Joe Duarte In the Money Options

This biotech stock has held up quite nicely in the recent volatile market; the technical action in the stock suggests that a big move is on the way, suggests Dr. Joe Duarte, editor of Smart Tech Investor

It is difficult to predict the direction of any move, but given the current market and the generally bullish tone of the biotech market, the odds favor an upside move.

Here is the story. Neurocrine Biosciences (NBIX) is in late Phase III trials for a drug aimed at treating endometriosis, a painful condition in pre-menopausal women that causes painful menses due to the growth of uterine endometrial tissue growing outside the uterus. 

The company licenses the drug Elagolix to Abbvie (ABBV), formerly known as Abbot Pharmaceuticals. If Elagolix continues its success in clinical trials it would be worth $575 million in licensing fees to Neurocrine.  Bullish analysts have predicted a potential $1.2 billion dollar market for Elagolix. 

Elagolix has competition from oral contraceptives and other long-standing treatments that cost less.

There have been some studies that suggest that the margin of improvement of symptoms of Elagolix—although statistical significant—may not be clinically significant in a large enough number of patients. 

Neurocrine remains a research dependent firm for its revenues and has no net income although it has narrowed its losses recently. NBIX has $31 million in cash on hand and 198 million in total assets with only 34 million in liabilities.

That puts it in a viable position at this stage of its development. Its market cap is $3.75 billion. It has a negative cash flow and sold $138 million worth of stock in 2014 to finance operations.

This is a highly speculative stock and it should be bought only by investors that are comfortable with higher than average risk. Yet, if Elagolix confirms its efficacy, and can deliver a pleasant surprise, we may see a nice move up. 

More important, if the biotech sector starts a broad move, we expect to see NBIX go along for the ride. Neurocrine Biosciences looks ready for a potential breakout and could move to the $55-$58 area. 

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