Neurocrine Biosciences, Inc. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Neurocrine is a biopharmaceutical company developing medicines for neurological, psychological and endocrine disorders. The FDA approved INGREZZA for tardive dyskinesia in April 2017; the U.S. commercial launch began May 1.
Financial results and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total revenue | $60.8 million | $0 | $67.1 million | $15.0 million |
| INGREZZA net product sales | $45.8 million | $0 | $52.1 million | $0 |
| Operating expenses | $66.8 million | $38.4 million | $210.3 million | $116.1 million |
| Operating loss | $6.0 million | $38.4 million | $143.2 million | $101.1 million |
| Net loss | $11.1 million | $36.9 million | $149.4 million | $96.4 million |
| Loss per share, basic and diluted | $0.13 | $0.43 | $1.70 | $1.11 |
- Q3 revenue included $15 million in Mitsubishi Tanabe development milestone revenue. Nine-month 2016 revenue included a $15 million AbbVie milestone.
- Product-sales cost was just $0.4 million in Q3 and $0.5 million year to date. Management cautioned that this temporarily low cost reflects inventory manufactured before FDA approval, whose manufacturing cost had already been expensed as R&D; future product costs are expected to be higher.
- At September 30, cash and cash equivalents were $267.8 million; short- and long-term investments totaled $453.5 million. Cash, cash equivalents and investments together were $721.3 million, versus $350.8 million at December 31, 2016. Current assets were $548.5 million and current liabilities $38.1 million.
- Nine-month operating cash outflow was $134.9 million, compared with $74.6 million in 2016. Financing provided $511.0 million, primarily from the May notes offering; investing used $191.6 million, largely reflecting investment portfolio purchases and maturities.
- The company issued $517.5 million principal of 2.25% convertible senior notes due 2024, receiving net proceeds of about $502.8 million. The balance-sheet carrying amount was $365.1 million after debt discount and financing costs. Interest expense was $7.3 million for Q3 and $12.1 million for the nine months, including substantial non-cash discount amortization.
Material changes and business developments
- INGREZZA generated first commercial product revenue following FDA approval and launch. Q3 SG&A rose to $43.9 million from $17.5 million, mainly due to sales-force, patient-support and other launch costs.
- Nine-month R&D increased to $96.2 million from $71.7 million, including the $30 million opicapone upfront license payment expensed as in-process R&D. Nine-month SG&A increased to $113.6 million from $44.4 million, principally reflecting INGREZZA commercialization.
- In February 2017, Neurocrine licensed opicapone rights for the U.S. and Canada from BIAL. Neurocrine is responsible for development and commercialization costs and may owe up to $115 million in additional milestones, as well as face minimum-sales provisions after commercialization.
- After quarter-end, AbbVie accepted FDA filing of the elagolix NDA in October, triggering a $30 million payment due in Q4 2017.
Outlook, risks and contingencies
- Management stated existing resources, investment income and expected collaboration payments should fund current and projected requirements for at least 12 months, but cautioned that resources may not support all planned commercialization and R&D activity. The filing provides no specific revenue or earnings guidance.
- The company expects operating cash-flow losses for the foreseeable future and does not expect to be profitable in 2017. Commercial success depends on INGREZZA uptake, reimbursement and market acceptance.
- Key risks include reliance on a single approved supplier each for INGREZZA capsules and active ingredient; limited commercial-launch experience; clinical and regulatory uncertainty across the pipeline; dependence on collaborators; and potential pricing, reimbursement and competition pressures. Teva’s Austedo was approved for tardive dyskinesia in August 2017.
- Mount Sinai litigation alleges breach of a license agreement tied to the AbbVie collaboration and seeks unspecified damages and future sublicensing fees. A trial was anticipated in the first half of 2018; Neurocrine said it could not estimate potential loss.
- Three largest customers accounted for all Q3 product revenue and all accounts receivable at September 30. The company reported no off-balance-sheet arrangements. Management concluded disclosure controls were effective.
Important facts for investors to verify
- INGREZZA prescription demand, net sales, reimbursement access and whether launch-related spending produces durable growth.
- How product cost and gross margins change as pre-approval, previously expensed inventory is depleted.
- Cash burn and funding runway against management’s stated 12-month outlook, including the cash and settlement implications of the 2024 convertible notes.
- Progress and timing for elagolix, opicapone and other pipeline programs, including collaboration milestones and the Q4 AbbVie payment.
- Developments in the Mount Sinai litigation, manufacturing concentration, and customer concentration.