Macro Tsimmis

intelligently hedged investment

SELL Neurocrine Biosciences (NBIX)

Posted by intelledgement on Wed, 25 Mar 09

Neurocrine Biosciences, our biotech play with the snakebit insomnia remedy—which the FDA rejected twice despite strong data showing efficacy and safety—announced top line results of a Phase 2 study of their Gonadotropin-Releasing Hormone (GnRH) receptor antagonist, elagolix, for treatment of endometriosis today after the close of the market. The results were mixed, but bottom line according to the press release: “Although the daily pain scores improved numerically over the course of treatment on the primary endpoint NRS, the change from baseline was not statistically significant compared to placebo.”

Now it so happens that NRS—“numeric rating system”—daily pain measurement is considered to be “experimental” according to management, because it had never been used before…and elagolix did show statistically significant superior results to the placebo when measured by several other monthly pain measurement methodologies which have been used in prior studies. “The decoupling of these exploratory daily scales from the established monthly validated scales will prompt us to seek input from regulatory authorities and our expert clinical consultants,” said Dr. Chris O’Brien, NBIX’s chief medical officer. Do tell; the NRS was the primary endpoint because it was proposed by the FDA. (Results also fell short on another novel measurement suggested by the National Institutes of Health, non-menstrual pelvic pain.)

It seems likely to us that elagolix is efficacious, and most definitely there are no safety concerns so far. However, given the company’s history of difficult relations with the FDA, we are disinclined to bet on management effectively explaining to the agency folks why they are wrong here. And, frankly, we are not disposed to continue to pay attention to this story for another two years minimum before the drug could be approved when we have more macro-relevant fish to fry. Accordingly, we are putting in a sell order to unload our shares at the market open tomorrow (which will most likely be down from today’s close at $3.97, down 65% for us).

Takeaways from this failed play: [a] betting on an FDA approval is risky (as if we didn’t already know this) and [b] when your Plan A investment thesis fails—as ours did here in December 2007 when the FDA did not approve indiplon—you should  probably admit defeat immediately and move on. Had we done that, we would’ve been out at $5.25 and onto greener pastures 15 months ago.

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