Neurocrine Pipeline Trickles
We think Neurocrine Biosciences, Inc.'s (NBIX) stock is stuck in a tight trading range until investors get an update on either the future of its insomnia drug indiplon, or the phase II data on Gonadotropin-releasing hormone antagonist, elagolix. Both updates are expected in the third quarter. However, until that time, we expect little news to drive the shares higher and rate the shares a Hold.
At this point we think it is unlikely Neurocrine can get indiplon on the market in the U.S. We have removed all U.S. indiplon revenues from our model, and continue to believe the drugs path to market is going to be extremely difficult for Neurocrine without a larger development partner.
Neurocrine is in active discussions with multiple pharmaceutical partners on elagolix. We continue to believe that partners are waiting to see the phase IIb data before they sign an agreement.
The company exited the first quarter 2008 with $149 million in cash. This is nearly $4 per share. The stock is currently trading at just above cash levels. Our sum of parts analysis, including cash, yields a price of $8+ per share. However, Neurocrine will burn an estimated $60 - $70 million in 2008, and confidence in management is shaken considering the indiplon mishap.
We continue to wait for updates on the pipeline before we recommend the name. The stock lacks catalysts until the third quarter. Therefore, we think Neurocrine is dead-money until that time. Our target remains $6.
Intriguing Price for Web.com
Web.com (WWWW) is a leading provider of Web services for Small and Medium Businesses (SMBs). In spite of some top-line pressures during the first quarter, the integration of Web.com appears to be going well and improving operating leverage should drive profits. We therefore reiterate our Buy recommendation on the shares.
The company currently has minimal competition, as most competitors are much smaller and focus on customized solutions at higher price points. The company uses a factory approach that it can leverage over thousands of customers. The addition of Web.com provides excellent cross-selling opportunities as WWWW can offer its higher-end services to existing Web.com customers.
Web.com has generally traded at a fairly attractive valuation, including its current multiple of 13x 2008 EPS and 1.7x 2008 sales, a discount to the industry mean. We set a target price of $15.00, which represent a multiple of 23.4x our 2008 EPS estimate of $0.64 and 3.1x our 2008 revenue estimate of $4.79.
Micromet to Trade with Biotechs
Given the depth of Micromet Inc.'s (MITI) product pipeline, we anticipate several milestone announcements in the near-to-medium term and believe these represent potential share price catalysts.
