Neurocrine Bio a Buy Under $5

We have long stated that Neurocrine Biosciences Inc.’s (NBIX) stock is stuck in a tight trading range until investors get an update on both elagolix and indiplon. We got the first update in early September when the management released very positive phase II data from the PETAL study on GnRH (gonadotropin-releasing hormone) antagonist elagolix. This encouraging data for the treatment of endometriosis should lead to the signing of a major partnership for pivotal trials in 2009.

As for insomnia drug indiplon, we assume the product is eventually discontinued in the U.S.  However, with elagolix now taking center stage, Neurocrine is well positioned to outperform in 2009.  We still believe that investors can be patient while additional elagolix becomes available, but we are moving our price target to $8, from $6, on the increased likelihood that a deal for elagolix gets done in the next several months.

Investor focus has now squarely turned to elagolix. Data from the PETAL Study provided a small pop to the shares. The management remains in discussions with multiple pharmaceutical companies on a potential development partnership. We are not expecting a deal to get done until after all the phase II becomes available in 2009. This represents the biggest near-term catalyst.

That said, the name is attractive from a long-term stand point, and becomes more interesting as elagolix phase II data comes out. We would be buyers of the stock below $5.

Read the full analyst report on NBIX

Read the full analyst report on NBIX