Neurocrine Biosciences, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Amounts below are in millions of dollars except per-share data, percentages, and where noted.
Business context
Neurocrine is a neuroscience-focused biopharmaceutical company. Its marketed products include INGREZZA for tardive dyskinesia (TD) and AbbVie-partnered ORILISSA for endometriosis. The company is developing candidates in areas including Parkinson’s disease, congenital adrenal hyperplasia, uterine fibroids, and polycystic ovary syndrome. It entered a four-program gene-therapy collaboration with Voyager in 2019.
Key financial results
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $183.6 | $96.9 | $322.0 | $168.0 |
| INGREZZA net sales | $180.5 | $96.9 | $317.0 | $168.0 |
| Collaboration revenue | $3.0 | — | $5.0 | — |
| Operating income (loss) | $34.5 | $(1.9) | $(66.5) | $(39.3) |
| Net income (loss) | $51.3 | $(5.9) | $(50.8) | $(47.7) |
| Diluted earnings (loss) per share | $0.54 | $(0.07) | $(0.56) | $(0.53) |
| Operating cash flow | Not presented quarterly | $(48.3) | $(18.0) |
Q2 revenue increased about 89% year over year; six-month revenue increased about 92%. INGREZZA sales rose about 86% in Q2 and 89% for the six-month period. Q2 operating expenses were $149.1 million, including $61.7 million of R&D and $80.8 million of SG&A. Cost of sales was $1.6 million in Q2 and $2.7 million for the six months.
Six-month R&D was $99.3 million, including a $10.0 million BIAL milestone tied to FDA acceptance of the opicapone NDA. Acquired in-process R&D expense was $118.1 million for the six months: $113.1 million related to the Voyager agreement and $5.0 million for added rights to the VY-FXN01 program. SG&A increased to $168.4 million for the six months, reflecting commercial-force expansion, the Talk About TD campaign, and higher branded-drug fees.
Financial position and liquidity
- At June 30, 2019, cash and cash equivalents were $141.0 million; short- and long-term available-for-sale debt investments totaled $625.5 million. Management reported cash, cash equivalents, and available-for-sale investments of $766.5 million.
- Total current assets were $748.8 million and current liabilities were $100.6 million. Accounts receivable was $95.4 million, up from $56.2 million at year-end 2018.
- Total assets were $1.067 billion; total liabilities were $583.2 million; stockholders’ equity was $483.7 million.
- Convertible notes had $517.5 million principal outstanding, a $398.5 million net carrying amount, and a disclosed estimated fair value of $683.1 million. The notes bear 2.25% interest and mature May 15, 2024.
- Operating cash use was $48.3 million for the six months. Investing activities provided $40.7 million, largely reflecting investment maturities and sales, offset in part by the Voyager equity investment. Financing activities provided $6.9 million.
Material changes, outlook, and notable items
- Q2 net income included a $21.0 million unrealized gain on Neurocrine’s restricted Voyager equity investment; the six-month gain was $22.6 million. This noncash valuation gain contributed to the quarterly profit and should be distinguished from operating performance.
- Despite higher product sales, the six-month net loss widened to $50.8 million, primarily because of the Voyager in-process R&D charge, partly offset by higher INGREZZA sales and the Voyager investment gain.
- The FDA accepted the opicapone NDA and set an April 26, 2020 PDUFA target action date. The acceptance triggered a $10.0 million payment to BIAL, payable in Q3 2019.
- AbbVie anticipated submitting an elagolix NDA for uterine fibroids in 2019; acceptance would trigger a $20.0 million milestone payable to Neurocrine. AbbVie also intended to initiate a study in polycystic ovary syndrome.
- Neurocrine stated existing resources, investment income, and expected strategic-alliance payments should meet current and projected funding needs for at least 12 months, while noting they might not fund operations and plans to the full extent contemplated. No specific revenue or earnings guidance was provided.
- The T-Force GOLD pediatric Tourette syndrome study had missed its primary endpoint; Neurocrine terminated the related T-Force PLATINUM study in Q2.
- Adoption of lease accounting in January 2019 added $49.1 million of operating lease assets and $66.2 million of noncurrent lease liabilities at quarter-end. Management concluded the change was expected to be immaterial to ongoing operating results and cash flows.
- Management identified commercialization, reimbursement, product safety, clinical and regulatory outcomes, reliance on third-party manufacturers and collaborators, gene-therapy development, and convertible-note liquidity or dilution as important risks. It reported effective disclosure controls and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether INGREZZA sales growth continues and is supported by durable prescribing, reimbursement, and patient access.
- Whether opicapone receives approval by the stated PDUFA date, and whether supply and commercialization arrangements with BIAL remain on track.
- How Voyager program spending, development responsibilities, milestone exposure, and the fair value of the restricted equity investment evolve.
- Whether the Q2 profit is repeatable without the noncash Voyager valuation gain, and how operating cash use compares with revenue growth and planned investment.
- Potential cash settlement, conversion, or dilution implications of the $517.5 million convertible notes, alongside the company’s stated liquidity runway.