Small Cap Neurocrine Biosciences (NBIX) Surges: Time for the Reality Check (IBB & XBI)

Yesterday, small cap biopharmaceutical stock Neurocrine Biosciences, Inc (NASDAQ: NBIX) surged 89.69% after announcing positive results for its VMAT2 inhibitor NBI-98854 as a treatment for tardive dyskinesia, meaning investors late to the party or those already in should take a closer look at the stock along with its performance verses that of biotech ETFs like the iShares NASDAQ Biotechnology Index ETF (NASDAQ: IBB) and SPDR S&P Biotech ETF (NYSEARCA: XBI).

What is Neurocrine Biosciences?

Small cap Neurocrine Biosciences is a product based biopharmaceutical company focusing on the development and commercialization of innovative pharmaceutical products to treat neurological and endocrine diseases and disorders. Specifically, Neurocrine Biosciences' product candidates address some of the largest pharmaceutical markets in the world, including endometriosis, stress-related disorders, pain, tardive dyskinesia, uterine fibroids, diabetes, insomnia and other neurological and endorine-related diseases and disorders.

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As for possible performance benchmarks or peers, the iShares NASDAQ Biotechnology Index ETF tracks the Nasdaq Biotechnology Index through 123 stocks and has a 75.89% weight in "biotechnology" and a 21.28% weight in Pharma while the SPDR S&P Biotech ETF tracks the S&P Biotechnology Select Industry Index with a 100% allocation in 71 biotechnology stocks.

What You Need to Know or Be Warned About Neurocrine Biosciences

On Monday after the market closed, Neurocrine Biosciences announced that NBI-98854, a small molecule VMAT2 inhibitor, showed a statistically significant and clinically meaningful reduction in tardive dyskinesia symptoms in a Phase IIb Kinect 2 study. Apparently, 67% of patients were "much improved" or "very much improved" after six weeks verses 16% of patients in the placebo group and the company wants to have a meeting with the FDA about design of a late-stage study and then file a proposed study in the first half of this year.

Tardive ("delayed") dyskinesia ("abnormal movement") is a difficult-to-treat and often incurable dyskinesia disorder that involves involuntary movements, especially of the lower face. tardive dyskinesia's exact cause is not clear, but its tends to be more common in those that experience acute neurological side effects from antipsychotic drug treatments with around 10% to 20% of individuals taking antipsychotic medication developing symptoms plus certain genetic risk factors have been identified that seem to increase one's chances of getting the disorder.

Nevertheless, tardive dyskinesia is classified as a "rare" disease by the National Organization for Rare Disorders, meaning that less than 200,000 people in the United States are affected by the condition. Moreover, its difficult to determine the exact number of people suffer from it because no large-scale survey has been taken and the condition can also be transient. This means that while Neurocrine Biosciences can probably get some sort of orphan drug status for the treatment (it its in fact successful), there may not be a big market for that treatment.

Otherwise, Neurocrine Biosciences has reported revenues of $53.14M, $77.41M, $33.50M and $2.95M for the past four years along with net income of $5.03M and $37.57M and net losses of $7.97M and $51.04M. For the first three quarters of 2013, Neurocrine Biosciences has reported revenues of $0.73M (3 months ending 2013-09-30), $0.73M (3 months ending 2013-06-30) and $0.73M (3 months ending 2013-03-31) along with net losses of $11.13M (3 months ending 2013-09-30), $12.24M (3 months ending 2013-06-30) and $12.07M (3 months ending 2013-03-31). However, Neurocrine Biosciences had $156.91M in cash and short term investments at the end of last September to cover $36.67M in total liabilities – meaning they aren't going to run out of money any time soon.

Share Performance: Neurocrine Biosciences vs. IBB & XBI

On Tuesday, small cap Neurocrine Biosciences surged 89.69% to $18.51 (NBIX has a 52 week trading range of $8.08 to $18.62 a share) for a market cap of $1.25 billion plus the stock is up 121.1% over the past year and up 466.1% over the past five years. Here is a look at the long term performance of Neurocrine Biosciences verses that of iShares NASDAQ Biotechnology Index ETF and SPDR S&P Biotech ETF:

As you can see from the above chart, Neurocrine Biosciences has sort of kept pace with and has periodically outperformed the iShares NASDAQ Biotechnology Index ETF and SPDR S&P Biotech ETF up until the middle of last year when shares slumped a bit.

Finally, here are the latest technical charts for small cap Neurocrine Biosciences and the two ETFs:  

The Bottom Line. If you just made an 89.69% gain on small cap Neurocrine Biosciences, then congratulations but let's also contain the excitement and consider taking some chips off the table.