Neurocrine, FDA to Hold Insomnia Drug Summit

Neurocrine Biosciences ( NBIX) will meet next month with federal regulators on securing approval of its insomnia drug Indiplon as the company faces a massive cash burn and a possible decision on its sales force headcount.

Neurocrine provided an update Monday as it tries to overcome regulatory setbacks that have caused its stock to fall and result in Pfizer ( PFE) canceling a marketing partnership for a drug that had appeared to be headed for the market this year.

In mid-May, San Diego-based Neurocrine said the FDA delayed approval of an immediate-release version of Indiplon. The FDA also rejected an application for an extended-release version, which analysts have said offers greater sales potential.

A month later, Neurocrine reported that discussions with the FDA indicated that the company might need to provide more clinical and/or preclinical safety data for the immediate-release version and would "likely" need to conduct more clinical trials for the long-acting version.

"We continue to pursue activities to expedite successful registration and commercialization of Indiplon and look forward to meeting with the FDA to finalize development plans for the resubmission of each Indiplon application," said Gary A. Lyons, the company's president and CEO. Lyons said he will need more information from the FDA before he considers talking to potential partners.

In recent weeks, Neurocrine has been preparing to meet with the FDA "to seek clarity and direction from the agency necessary for resubmission" of applications for both versions of Indiplon, the company said. The meeting for the immediate-release capsules will be held in August.

The company issued its Indiplon update as it announced second-quarter financial results. For the three months ended June 30, it lost $27.4 million, or 73 cents a share, compared with a net loss of $5.6 million, or 15 cents a share, for the same period last year. Second-quarter revenue was $9.2 million vs. $33.2 million for the same period last year.

As the company forecast several weeks ago, it revised its full-year guidance, telling analysts it will spend $100 million in cash this year for operations. It will conclude the year with $180 million in cash and marketable securities.

The loss for 2006 will exceed $130 million. Before the Indiplon setbacks, the company had predicted break-even earnings per share for this year, excluding Indiplon-based royalties from Pfizer.

Paul W. Hawran, Neurocrine's chief financial officer, said the company wants a two-year cash cushion and is "prepared to take the appropriate steps on the expense side" to pursue its goals.

He said Neurocrine will need to raise more money, adding that it must wait for the FDA meetings before settling on a plan. Potential strategies include making a partnership deal, raising equity, trying to market both Indiplon versions at the same time or launching one version and then following up with the other.

One financial decision will come quickly. Part of the company's deal with Pfizer, which was announced in late 2002, had Pfizer supporting a 200-member Neurocrine sales force to market Indiplon as well as Pfizer's antidepressant Zoloft. Pfizer will provide some assistance to Neurocrine for 180 days following the cancelling of their agreement. But with Indiplon on hold and Zoloft having lost U.S. patent protection, Neurocrine must find other drugs for the representatives to sell.

Neurocrine is investigating an unnamed product, and Lyons said he should know if by the end of July if a marketing deal can be made. If not, Neurocrine may have to dismiss all or some representatives, then resurrect a sales force if Indiplon is approved by the FDA.

Lyons said he hoped a meeting for the extended-release tablets would be held soon after the August meeting. "We're anxious to have that dialogue," he said. After both meetings have been completed, Neurocrine will provide an update to shareholders.

Since mid-May, Neurocrine's stock has been beaten badly. It closed at $54.63 on May 15, the day before Neurocrine received three dramatic jolts over the next five weeks.

On May 16, Neurocrine revealed the FDA's decision, providing few details. On June 15, the company said it might have to conduct additional tests . A week later, Pfizer cancelled the partnership.

The stock closed at $9.42 on Monday in regular trading. In after-hours trading, the stock fell to $9.06, near its 52-week low is $8.61.

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