Tuesday, May 16, 2006

Analysts Respond to Nuerocrine Debacle

Well, now you know why investing in biotechs is equivalent to buying a lottery ticket. Shares of Nuerocrine Biosciences (NBIX) are down 60% today after the FDA rejected an extended release version of its insomnia drug, Indiplon. Below are some key takeaways from today's bloodbath, brought to you by some of the best analysts on the Street:

Bear Stearns' Akhtar Samad downgraded Neurocrine to "underperform" and wrote a note to clients, "We viewed the 15-milligram dose as key to differentiating Indiplon from other insomnia drugs, and therefore view a potential label for Indiplon as less competitive."

Standard & Poor's Equity Research reiterated a "hold" and pounded the table on Sepracor (who we isolated as a takeover target 3 months ago): "We think this bodes well for Lunesta....[whose] sales will rise 50% in 2006 to more than $650 million."

ThinkEquity Partners reiterated a "buy" rating and $4 price target on Questcor Pharmaceuticals, a smaller player in the insomnia category. ThinkEquity opined: "With Indiplon being kept off the shelves, we believe Questcor's ability to successfully market Doral (quazepam) to neurologists increases significantly...Doral, a long-acting benzodiazepine for insomnia, will be the only marketed agent in its class when Questcor begins detailing the product in the third quarter of this year."

Briefing.com "Officials of the San Diego-based company told analysts on a conference call this morning that the company will move quickly to answer the FDA's outstanding questions regarding its applications. They said they're not sure what impact the FDA's decision may have on the company's financial guidance for the year. The company recently said it expected to break even during 2006 with revenue between $165 million and $175 million excluding royalty revenues."

Morningstar.com We're placing Neurocrine's fair value estimate under review as we revisit indiplon's sales potential in the absence of a 2006 launch. We're also placing our fair value estimate for DOV Pharmaceutical (DOVP), a company entitled to a 3.5% royalty on indiplon sales, under review. Indiplon will have a tough time competing against a similar, controlled-release version of category-leading Ambien. Further, the delay of the other sizes means indiplon will have less time on the market before it has to compete with cheap, generic Ambien substitutes in 2009. Some version of indiplon is likely salvageable, but after Tuesday's announcement, the blockbuster sales scenario looks remote. Pfizer, Neurocrine's designated marketing partner for indiplon, could suffer to a smaller extent. The announcement is good news for firms with existing sleeping pill offerings, like Sanofi-Aventis (SNY) and Sepracor (SEPR). Sepracor, in particular, is breathing a sigh of relief as about half of its sales come from the insomnia aid Lunesta.

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