Business context and reporting period
Neurocrine Biosciences, Inc. is a commercial-stage biopharmaceutical company focused on neurological, endocrine and psychiatric disorders. This unaudited Form 10-Q reports the quarter and six months ended June 30, 2020, compared with the same 2019 periods. INGREZZA (valbenazine) for tardive dyskinesia was the primary commercial product. The company received FDA approval for ONGENTYS (opicapone) for Parkinson’s disease in April 2020.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $302.4m | $183.5m | $539.5m | $321.9m |
| Net income (loss) | $79.6m | $51.3m | $117.0m | $(50.8)m |
| Diluted EPS | $0.81 | $0.54 | $1.20 | $(0.56) |
| Operating income (loss) | $76.6m | $34.4m | $135.5m | $(66.6)m |
- Revenue: INGREZZA net sales were $267.6m in Q2 and $498.7m for the first half, versus $180.5m and $316.9m, respectively. Management attributed the increase primarily to new patient additions. Collaboration revenue was $34.8m in Q2 and $40.8m for the half, principally reflecting AbbVie’s $30.0m ORIAHNN regulatory milestone.
- Margins and expenses: Operating margin was approximately 25.3% in Q2 2020 versus 18.7% in Q2 2019; for the first half it was approximately 25.1%, compared with a loss margin of approximately 20.7% in 2019. R&D was $80.9m in Q2 and $139.2m for the half; SG&A was $96.5m and $214.3m. Q2 included $20.0m of ONGENTYS approval milestone expense in R&D and $46.0m of acquired in-process R&D expense associated with Idorsia.
- Cash flow: Operating cash flow was $157.1m for the first half, versus cash used of $48.3m in 2019. Investing activities provided $126.6m and financing activities provided $19.1m. Cash, cash equivalents and restricted cash totaled $418.3m at June 30.
- Liquidity: Cash and cash equivalents plus available-for-sale debt securities totaled approximately $1.14bn at June 30, versus $970.2m at year-end 2019. Total current assets were $1.15bn and current liabilities $573.0m.
- Debt: The company had $517.5m principal amount of 2.25% convertible notes due 2024; their net carrying amount was $419.5m. Notes were classified as current at June 30 because the conversion condition had been triggered, making them convertible from July 1 through September 30, 2020. The company intended to use combination settlement, which may require cash for principal and shares or cash for excess conversion value.
Material changes, outlook and risks
- First-half results moved from a net loss to net income, supported by higher INGREZZA sales and collaboration revenue. Results also reflect increased R&D and SG&A investment, alongside period-to-period fluctuations in acquired IPR&D charges and unrealized gains or losses on equity investments.
- Neurocrine planned to commercialize ONGENTYS later in 2020 using its existing commercial infrastructure; the filing’s risk discussion later notes an August announcement of planned third-quarter commercial availability. No quantified revenue or earnings guidance is provided.
- In May, the company paid Idorsia $45.0m upfront to license NBI-827104 and funded $7.2m for a research collaboration. A Takeda license covering seven psychiatry pipeline assets became effective in July 2020; the stated upfront payment was $120.0m, less an earnest-money deposit paid earlier. The Takeda transaction is a subsequent-period commitment, not a June 30 balance-sheet payment.
- COVID-19 had disrupted clinical-trial enrollment and site activity. Some enrollment had resumed, but not all sites could enroll; management expected delays to study completion and data readouts. The company reported no supply interruption to date and did not expect an INGREZZA supply disruption, but said a prolonged pandemic or recession could materially affect revenue, profitability, liquidity and development progress.
- Management stated that available funds, operating cash generation and financing access were adequate for planned needs. Key risks include dependence on INGREZZA sales and third-party reimbursement, successful ONGENTYS launch and supply, clinical and regulatory uncertainty, collaborator performance, competition, pricing pressure, and pandemic-related commercial and trial disruption.
Important facts for investors to verify
- Whether INGREZZA patient additions and sales growth continued, and how COVID-19 affected prescriptions, access and reimbursement.
- ONGENTYS launch timing, uptake, supply arrangements with BIAL and commercial costs.
- Clinical-trial enrollment and timeline updates, particularly for Huntington’s disease, CAH and the Voyager Parkinson’s program.
- Conversion activity or settlement choices for the 2024 Notes, including potential cash needs and dilution.
- Cash and investment balances after the Idorsia and Takeda payments, and the scale and timing of future pipeline-development obligations.
- The contribution of one-time milestones and investment revaluations to reported earnings; the filing provides no formal forward revenue or earnings guidance.