Neurocrine Biosciences, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; balance-sheet comparisons are to December 31, 2014. Neurocrine is a clinical-stage biopharmaceutical company with no product-sales revenue. Its lead programs were elagolix, partnered with AbbVie, and the VMAT2 inhibitor NBI-98854; the company also had a CRF antagonist in clinical development.
Financial results and position
| Metric | Q1 2015 | Q1 2014 or prior balance-sheet date |
|---|---|---|
| Revenue | $19.8 million | $0 |
| Operating expenses | $22.1 million | $12.7 million |
| Operating loss | $2.3 million | $12.7 million |
| Net loss | $1.2 million; $0.01 per share | $11.8 million; $0.17 per share |
| Operating cash flow | $(18.2) million | $(9.8) million |
| Cash and cash equivalents | $170.3 million | $31.0 million |
| Available-for-sale investments | $315.2 million | $200.3 million |
| Total assets | $527.8 million | $243.0 million |
| Total liabilities | $43.0 million | $34.3 million |
- Cash, cash equivalents, and investments totaled $485.5 million at quarter-end. Current assets were $405.0 million and current liabilities $15.2 million.
- No borrowings are reported on the balance sheet. Liabilities included deferred revenue, deferred real-estate gain, lease-related balances, and other operating liabilities.
- Operating margin was approximately negative 11.6% (operating loss divided by reported revenue); the quarter’s revenue was license-related, not product sales.
- Investing activities used $116.1 million, largely reflecting investment purchases and maturities. Financing activities provided $273.5 million, mainly from the February stock offering.
Changes and drivers
- Revenue increased from zero to $19.8 million, primarily because Neurocrine recognized part of the $30 million upfront fee from its March 31 Mitsubishi Tanabe agreement. It deferred $10.2 million for continuing obligations.
- R&D expense rose $8.0 million to $16.6 million. External development expense increased $5.9 million, including higher VMAT2 Phase III and CRF program costs; personnel expense also increased.
- General and administrative expense rose $1.3 million to $5.5 million, mainly from personnel-related costs. Total operating expenses increased $9.3 million.
- The smaller net loss primarily reflects the Mitsubishi Tanabe license revenue, partly offset by higher expenses. Share-based compensation was $3.6 million, up from $2.4 million.
- In February, Neurocrine sold 8.0 million shares at $36 per share, receiving approximately $270.7 million net proceeds. Shares outstanding increased to 85.4 million at March 31 from 76.5 million at year-end.
Outlook, risks, and notable items
- Management said existing capital resources, investment income, and expected strategic-alliance payments should fund current and projected needs for at least 12 months. The company cautioned that funding may not support all planned R&D and that future financing could be dilutive or unavailable on acceptable terms.
- The filing states Neurocrine did not expect to be profitable or generate positive operating cash flow for 2015, and expected operating cash flow losses for the foreseeable future. No quantitative revenue or earnings guidance is provided.
- Clinical and regulatory outcomes remain uncertain. Risks include trial delays or failures, adverse effects, enrollment challenges, and the possibility that candidates will not receive approval or achieve commercial acceptance.
- Neurocrine depends on AbbVie for elagolix development and commercialization, and on Mitsubishi Tanabe for development and commercialization of NBI-98854 in Japan and select Asian markets. Both agreements carry collaborator-performance and termination risks.
- The Mitsubishi Tanabe agreement provides up to $85 million in development and commercialization event-based payments, plus manufacturing payments and royalties. None of AbbVie’s remaining $500 million in event-based payments qualified as a substantive milestone under the company’s accounting assessment at quarter-end.
- Management reported effective disclosure controls and no off-balance-sheet arrangements. It described interest-rate exposure as immaterial under a 10% rate-change scenario.
Important facts for investors to verify
- Progress, enrollment, and results in the VMAT2 Phase III program and AbbVie’s elagolix trials, along with the CRF program’s development trajectory.
- Revenue-recognition estimates and timing for Mitsubishi Tanabe deliverables, including the deferred $10.2 million and any future event-based payments.
- Cash burn and investment balances relative to the stated 12-month funding outlook, as R&D spending increases.
- Potential dilution from equity compensation and future offerings, and the terms and availability of financing if required.
- Collaborator execution, termination provisions, regulatory outcomes, and the potential costs of the possible Huntington’s chorea trial, estimated at approximately $12 million if requested by Mitsubishi Tanabe.