On the excepted big deal finally announced, Neurocrine Biosciences, Inc. (NASDAQ:NBIX
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) stock surged substantially yesterday. Investors seeing Neurocrine's cash position strongly boosted up, the under $10
stock entered the trading session with a large gap up.
The market seems confident in Neurocrine Biosciences' bright future, after yesterday a collaboration agreement with Abbott International was announced. It concerned the worldwide development and commercialization of elagolix, the company's lead oral gonadotropin-releasing hormone antagonist, designed for the treatment of endometriosis.
According to newsletters sent to investors throughout the day, the stock was up 21.91% to $5.73 already in the pre-market trading. An opening price far above the previous close confirmed: the demand for the stock will explode. Thus, the already in the early trading extremely large volume led to a close of $5.37, bringing the excess return of 14.21% for a day.
Over 6.6 million shares of the NASDAQ biotechnology stock were traded, as the market finally received the news it has been waiting for since the end of May. Then, Neurocrine Biosciences jumped up, again with a huge gap, on the announced success of the Phase II Daisy study for elagolix, which had shown statistically significant and clinically meaningful efficacy in patients with endometriosis.
Currently, the stock is nearly 100 times overvalued relative to the past sales of the company, but future is what matters in the capital markets. On investor anticipation for Neurocrine to come into profitability soon, the market value reflected in advance the cash, expected to flow into the company. The $75 million upfront payment to be received under the agreement with Abbott will probably boost up the company's revenues for periods ahead if differed, as usually done in such cases.
Another $500 million from milestone payments and additionally royalties on any future sales, can be potentially received, giving strong support for the $68 million of current assets at the end of March. The fact that Phase III clinical trials have not begun yet, and all the related risks, can be easily ignored in regard that Neurocrine will also get previous research expenses of about $20 million reimbursed by Abbott, which will also fund all the ongoing development activities.
Neurocrine Biosciences had in March eight research and development programs running and the funds to be received appear sufficient to cover their costs for at least a year, preventing thus further dilution and making the stock even more attractive.