West Coast Editor

Neurocrine Biosciences Inc.'s decision last week to lay off its 200-person indiplon sales force failed to shock many investors, who saw the handwriting on the wall when Pfizer Inc. backed out of their potential $400 million commercialization deal for the lately troubled insomnia drug.

New York-based Pfizer opted not to wait for a meeting with the FDA (expected in August) regarding indiplon, which became the subject of two action letters from the agency in May: an approvable letter for 5-mg and 10-mg immediate-release capsules and a non-approvable letter for a 15-mg modified-release tablet formulation. The news sliced Neurocrine's stock by more than half, from $54.63 to $20.76. (See BioWorld Today, May 17, 2006.)

Shares fell to $15.18 earlier this month when the company acknowledged that more trials with the compound probably would be necessary, at least with the modified-release version, which is expected to grab the larger share of the insomnia market. Further studies could mean a delay of two years or more. (See BioWorld Today, June 19, 2006.)

San Diego-based Neurocrine had hoped to find another product for in-licensing that might justify the indiplon sales force until the latter drug could be approved. This didn't happen, and Neurocrine is taking a charge of about $5.9 million in letting the staffers go. While the firm gets a $10 million expense reduction this year (and more going forward) as a result of the layoffs, the sting remains of losing $32 million in sales-force funding promised under the Pfizer deal.

But that's old news, and dropping the sales force - which New York-based CIBC World Markets analyst Bret Holley called "essentially neutral" - dented only slightly Neurocrine's stock (NASDAQ:NBIX), which enjoyed a mild upswing Friday to close at $9.39, up 45 cents.

Trouble for indiplon, a non-benzodiazapine agent that acts on a specific site of the GABA-A receptor, left a door open for Union City, Calif.-based Questcor Pharmaceuticals Inc.'s Doral (quazepam), a long-acting benzodiazepine for insomnia due to become the only marketed agent in its class when Questcor begins pushing the product in the third quarter. Questcor in May acquired Doral from MedPointe Inc., of Somerset, N.J., which had not been promoting the drug actively, for $2.5 million in cash and a future milestone payment of $1.5 million.

Analysts took note that Questcor's CEO in May bought more than 102,000 more shares for his personal holdings. He and the company's vice president of operations own more than 500,000 shares each, which Andrew McDonald at ThinkEquity Partners in San Francisco called a "bullish signal" regarding Questcor.

Neurocrine has said preclinical and clinical data with indiplon capsules will be reanalyzed for sleep initiation and middle of the night dosing, and the safety results in elderly patients will get another look as well. Regarding the tablets, the firm said efficacy data might not be good enough for the 15-mg dose (since most trial data submitted to the FDA involved higher doses). The FDA wants more safety and efficacy sifting of work related to the tablets, too.

Indiplon, which came to Neurocrine by way of Hackensack, N.J.-based DOV Pharmaceuticals Inc., seems likely to reach the market eventually. Its main competitor would be Marlborough, Mass.-based Sepracor Inc.'s Lunesta (eszopiclone), approved in December 2004. Last month, at the annual meeting of the Associated Professional Sleep Societies in Salt Lake City, Sepracor bolstered Lunesta's standing with more data in oral presentations of results from a Phase IIIb/IV study.

Over the past couple of months, analysts have reduced their ratings and price targets for Neurocrine. Prudential Financial's David Woodburn kept his "neutral weight" rating but dropped the target price from $35 to $25, and UBS Securities knocked the target price from $12 to $9.