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Neurocrine Biosciences (Nasdaq: NBIX  ) is seeing a nice boost to its stock price today -- some 14% -- after Abbott Labs (NYSE: ABT  ) agreed to license its endometriosis treatment, elagolix, and any future follow-on products.

Neurocrine gets $75 million up front -- not bad for a company that had just $66 million on the books at the end of last quarter -- and Abbott will take over paying for developing elagolix, including expensive phase 3 trials. If the partnership is successful, Neurocrine is eligible for about $500 million in milestone payments and royalties on potential sales.

The choice of partners seems good; Abbott has experience in the marketing of endometriosis treatments as it sells Lupron Depot. In endometriosis, the uterine lining begins to grow outside the womb. This can cause infertility and there is no cure.

But we're getting a little ahead of ourselves. Neurocrine doesn't expect that they'll file for marketing approval until 2013. The data looked good for the phase 2 trials, but that's no guarantee that phase 3 trials will be a success.

Neurocrine says that the drug is unique because it only partially suppresses estrogen levels, which helps treat the pain associated with endometriosis, but avoids adverse effects like bone loss when estrogen levels are extremely low. It's also an oral drug, which might be more acceptable for patients than Pfizer's (NYSE: PFE  ) Synarel, which is inhaled, and AstraZeneca's (NYSE: AZN  ) Zoladex, which is implanted.

For Abbott, the price seems about right. It's taking on risk by funding the phase 3 trials, but most of its expenses are tied to the success elagolix. I like that strategy better than its move earlier this year when it overbid Biogen Idec (Nasdaq: BIIB  ) to buy Facet Biotech outright. If the two phase 2 drugs that came as part of that deal flop, Abbott will be out a lot more money than it will if elagolix doesn't live up to expectations.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Pfizer is a recommendation of the Inside Value newsletter. The Fool has a disclosure policy.

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