NeurogesX: Astellas Deal a Major Positive

By Jason Napodano

On June 22, 2009, NeurogesX (NGSX) (Analyst Report) announced that it has entered into a development and commercialization partnership for Qutenza, the company’s cutaneous patch for neuropathic pain, with Astellas Pharmaceuticals (ALPMF.PK). NeurogesX has licensed for commercialization Qutenza in all 27 EU member states, plus Iceland, Norway, Liechtenstein and Switzerland, along with the Middle East and Africa.

Astellas has also agreed to fund the required additional studies as requested by the European Commission, which include a long-term safety program in on-label indications. In return, Astellas has agreed to pay NeurogesX an upfront payment for Qutenza of €30 million ($42 million).

We expect that NeurogesX will recognize this payment over the life of the agreement. Astellas has also purchased an option to co-develop NGX-1998, the company’s liquid formulation, for €5 million ($7 million). In addition to these upfront payments, Astellas has also committed €70 million ($97 million) in development and sales related milestones for Qutenza and NGX-1998.

NeurogesX will be entitled to a mid-teen to mid-20s percent scaling royalty on sales of the product. NeurogesX will continue to supply Qutenza to Astellas at a fixed transfer price. Astellas plan to be ready to launch the product during the first half of 2010.

We view the deal as a major positive for NeurogesX. The $49 million in cash provides a significant runway for management to push forward with commercialization plans in the U.S.

On the recent conference call, management noted that the 20-person bridging study requested by the U.S. FDA testing a 2.5% lidocaine + 2.5% prilocaine pre-application cream has completed and the company plans to analyze the data shortly. This data will be submitted to the FDA in July or August 2009. We expect that the FDA will push back the U.S. PDUFA action date from August 16, 2009 to October / November 2009. If approved, NeurogesX should be in position to launch the product during the first half of 2010.

The $49 million upfront payment from Astellas will help management fund the creation of a specialty sales force to promote the product. We view the current cash balance, which should stand between approximately $60 and $65 million at the end of the second quarter 2009, is sufficient to fund operations to cash flow positive by 2011.