Neurocrine Biosciences, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance-sheet figures are as of March 31, 2021. Neurocrine is a neuroscience-focused biopharmaceutical company. Its principal product sales are from INGREZZA; it launched ONGENTYS in the U.S. in September 2020 and earns collaboration revenue and royalties from partners.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $236.6 million | $237.1 million |
| Product sales, net | $231.0 million | $231.1 million |
| Collaboration revenue | $5.6 million | $6.0 million |
| Operating expenses | $205.1 million | $178.2 million |
| Operating income | $31.5 million | $58.9 million |
| Net income | $32.1 million | $37.4 million |
| Diluted EPS | $0.33 | $0.39 |
| Operating cash flow | $87.3 million | $35.5 million |
Operating margin was approximately 13.3%, down from 24.8%; net margin was approximately 13.6%, down from 15.8%. INGREZZA sales growth slowed, which management primarily attributed to COVID-19 effects on customers. ONGENTYS contributed $1.4 million in net product sales.
At quarter-end, cash and cash equivalents were $352.6 million and available-for-sale debt securities totaled $770.7 million, or approximately $1.12 billion combined. Total current assets were $1.09 billion versus current liabilities of $190.0 million. Convertible notes had $381.2 million principal outstanding and a $322.0 million net carrying amount; they bear 2.25% interest and mature in May 2024. Total liabilities were $640.8 million.
Operating cash flow was higher year over year, which the company attributed primarily to timing of receivable collections and payable payments. Investing cash flow was $63.1 million and financing cash flow was $15.1 million. Cash, cash equivalents and restricted cash increased $165.5 million during the quarter.
Material changes and notable items
- R&D expense increased to $73.2 million from $58.3 million, reflecting investment in the expanded clinical portfolio and higher personnel costs, including a $6.4 million non-cash share-based award modification charge.
- SG&A expense rose to $129.0 million from $117.8 million, primarily due to commercialization investment, including continued investment in INGREZZA.
- Other expense, net, improved to $4.3 million from $20.0 million, mainly reflecting a $0.7 million unrealized gain on equity securities versus a $16.5 million unrealized loss a year earlier.
- The company recorded a $4.9 million income tax benefit, compared with a $1.5 million tax provision in Q1 2020. It said the lower effective rate primarily reflected excess tax benefits from stock compensation. Following the release of substantially all its deferred-tax valuation allowance at year-end 2020, it expected to record tax expense at a rate approximating statutory rates; it did not expect federal cash taxes in 2021 because of available NOLs.
- Common shares outstanding increased to 94.5 million from 93.5 million at year-end 2020; weighted-average diluted shares were 98.2 million versus 97.0 million.
Outlook, commentary and risks
- No quantified revenue, earnings or other formal financial guidance is provided in the supplied filing text. Management said existing funds, operating cash generation and financing access were adequate for planned needs, and believed capital resources sufficient for at least the next twelve months.
- In March 2021, the Phase II INTERACT study of luvadaxistat for negative symptoms of schizophrenia missed its primary endpoint but met both cognitive-assessment secondary endpoints. Neurocrine planned to initiate a Phase II study for cognitive impairment associated with schizophrenia by year-end 2021.
- MTPC reported positive top-line Phase III J-KINECT results for valbenazine in tardive dyskinesia and submitted a Japanese marketing application in April 2021. That submission triggered a $15.0 million milestone payment, expected to be recognized as collaboration revenue in Q2 2021.
- Neurocrine gave notice in February 2021 that it would terminate Voyager’s NBIb-1817 Parkinson’s disease program effective August 2, 2021; the remaining Voyager collaboration programs continue.
- COVID-19 remained a source of uncertainty for product sales, field engagement, clinical enrollment and trial-site initiation. The company reported no current expected disruption to INGREZZA supply, but cautioned that future operational and financial effects were difficult to estimate.
- Other material risks include clinical and regulatory setbacks, reliance on collaborators and third-party manufacturers, concentrated specialty-pharmacy customers, reimbursement and drug-pricing pressures, competition, and potential cash or dilution effects if the convertible notes become convertible.
Important facts for investors to verify
- Whether INGREZZA sales growth resumes and how COVID-19 and customer access affect demand; track ONGENTYS adoption separately.
- Progress and results for the schizophrenia, Huntington’s disease, congenital adrenal hyperplasia and other clinical programs, including follow-through after the INTERACT primary-endpoint miss.
- Recognition and receipt of the $15.0 million MTPC milestone in Q2 2021, and the status of the Japanese valbenazine application.
- Operating expense growth, cash generation and the effect of the expected shift to a statutory-rate tax provision.
- Convertible-note conversion conditions, cash settlement exposure and remaining principal; confirm any changes in classification or convertibility in subsequent filings.
- COVID-19 effects on clinical trials, commercial operations and supply, as well as developments in reimbursement, pricing and key-customer concentration.