Neurocrine's Big Headache

It's been a bad year to be an investor in shares of biopharmaceutical company Neurocrine Biosciences (NASDAQ:NBIX). Shares of Neurocrine were trading at 52-week lows on Friday after it released its third-quarter results. These lows are about 90% off the stock's high for the year, so the drop has been sharp and swift.

The cause for the near 30% drop in shares of Neurocrine on Friday was the announcement that it was going to run another clinical trial for its sleep disorder drug, Indiplon. If you recall, Neurocrine received an approvable letter from the FDA for Indiplon back in May, which led to Pfizer (NYSE:PFE) exiting the marketing partnership on the drug.

Initially, investors had hopes that the company could resolve the issues preventing the lower doses of the drug from receiving approval with a short trial testing its interaction with different types of food. But now Neurocrine has announced that it will run a three-month safety and efficacy study (essentially another short phase 3 trial) before it resubmits its new drug application (NDA) back to the FDA.

This has set the Indiplon timeline back to the summer of 2008 for the NDA filing, and to the first half of 2009 for any possible approval of the less marketable lower doses. This timeline doesn't include the more marketable higher dose of the drug, which needs long-term safety and efficacy studies for any possibility of approval.

Neurocrine has $128 million in net cash on its balance sheet after deducting for current and long-term expenses. This means that all of Neurocrine is currently valued at around $160 million minus this cash. With three drugs in phase 2 trials, shares of Neurocrine might be cheap -- if you can put your faith in management to bring these drugs to market (not to mention the long and expensive clinical trials needed for the difficult-to-treat indications in which these drugs are being tested).

The good news is that with cash and equivalents expected to be down to $180 million by the end of 2006, and cash burn for 2007 estimated to be in the $80 million range, Neurocrine has about two years of funds left on its balance sheet before it needs to do another financing. If any of these phase 2 trials show strong results, then Neurocrine will have no problem raising funds on favorable terms in the future.

Neurocrine's management deserves at least some plaudits for its frank discussion of its issues with Indiplon. From my perspective, though, this does not make shares of the company any more attractive, since Indiplon will not be on the market for so long (if it can even get approved), and none of the other drugs in its pipeline will be on the market any time soon, either.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy .