Shares of Regulus Therapeutics (RGLS) surged about 8% in after hours trade today after the company reported that Astrazeneca (AZN) wants to advance RG-125 -- also known as AZD4076 -- for the ability to treat patients with NASH who additionally have type 2 diabetes/pre-diabetes. RG-125 is a micro-RNA molecule being developed by both companies to target the NASH indication. NASH stands for non-alcoholic steatohepatitis and is a fatty liver disease not due to any excessive alcohol consumption.

The initial deal goes back to 2012 where Regulus and Astrazeneca formed a strategic partnership to discover microRNA therapeutics in three possible key areas:

1. Cardiovascular diseases
2. Oncology -- cancer
3. Metabolic diseases

By Astrazeneca selecting NASH as the first indication, it translates to selecting two microRNA components that are being utilized to target NASH known as miR-103/miR107 respectively. That means that Astrazeneca will be able to pursue a future third microRNA component if it chooses to do so under the contract from 2012. Regulus first received $28 million  from Astrezeneca, when Regulus went public in October of 2012, with another $3 million as part of the upfront payment.

With the news announced today Regulus has obtained a $2.5 million payment with the ability to still earn another $495.5 million as future milestone payments. Regulus is responsible for initiating these programs by running pre-clinical trials and then possibly obtaining additional payments from Astrazeneca. Astrazeneca will be responsible for taking the drugs through the clinical trials and commercializing process.

Both Regulus and Astrazeneca are set to present pre-clinical data of RG-125 targeting NASH at an upcoming medical conference later this year in 2015. Both companies will also be expecting to begin a phase 1 study for RG-125 against NASH by the end of 2015. The disease NASH is becoming a very popular target nowadays because of the huge market that can be captured with a strong treatment. There are about six million people in the U.S. alone who currently have NASH.

Other biotechnology companies that target NASH are Intercept Pharmaceuticals (ICPT), Conatus Pharmaceuticals (CNAT), and La Jolla Pharmaceuticals (LJPC). Both Intercept and Conatus have already reported positive phase II results in NASH, while La Jolla has only reported positive pre-clinical results with NASH, although La Jolla expects to initiate a Phase I/II trial in NASH in the first half of 2015.

Regulus has a lot of competition ahead but it is in an earlier stage than these other biotechnology companies so it will be awhile before it gets to the mid-stage phase for the NASH indication. Still, Regulus first impressed the market with Hepatitis C results back on October 22, 2014 when it announced a positive outcome against Hepatitis C in its proof of concept study. With the addition of NASH as an indication together with the Hepatitis C drug, Regulus is on its way to becoming a nice acquisition target pending further positive results.