Neurocrine Biosciences, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2013. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted. The company is a clinical-stage drug developer and had no product sales.
Business context and pipeline
Neurocrine reported 11 programs in research and development, including six in clinical development. Its lead programs were elagolix, partnered with AbbVie for women’s health indications, and a wholly owned VMAT2 inhibitor for movement disorders, then in Phase IIb development. AbbVie assumed full responsibility for elagolix development costs; the company’s collaborative development work under the agreement concluded in December 2012.
Financial performance and liquidity
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $0.729 | $9.357 | $2.189 | $31.193 |
| Research and development expense | $9.490 | $9.860 | $30.330 | $28.066 |
| General and administrative expense | $3.245 | $3.324 | $10.007 | $10.126 |
| Operating loss | $12.006 | $3.962 | $38.148 | $7.134 |
| Net loss | $11.131 | $3.078 | $35.448 | $4.465 |
| Net loss per share | $0.17 | $0.05 | $0.53 | $0.07 |
| Operating cash used | — | — | $18.728 | $26.385 |
At September 30, 2013, cash and cash equivalents were $34.889, short- and long-term investments totaled $122.697, and restricted cash was $4.335. Management reported cash, cash equivalents and investments of $157.6, versus $173.5 at December 31, 2012. Total assets were $165.967; total liabilities were $36.675; and stockholders’ equity was $129.292. The balance sheet reports no borrowings or other interest-bearing debt.
For the first nine months, investing activities used $15.389 and financing activities provided $5.252, primarily from stock option exercises. Cash and cash equivalents fell by $28.865 to $34.889. The company had an accumulated deficit of $755.121.
Material changes versus comparable periods
- Q3 revenue fell $8.628 year over year; nine-month revenue fell $29.004. The main reason was that scheduled AbbVie collaboration development and related revenue recognition ended in 2012. The Boehringer Ingelheim collaborative research period also ended in June 2012. 2013 revenue was primarily from Dainippon Sumitomo Pharma.
- Q3 net loss widened to $11.131 from $3.078; nine-month net loss widened to $35.448 from $4.465. Lower collaboration revenue drove much of the increase; higher VMAT2 development spending also contributed in the year-to-date comparison.
- Nine-month R&D expense rose $2.264, including VMAT2 external development expense of $10.2 versus $5.3 in 2012. Q3 R&D expense decreased modestly, as lower compensation and laboratory costs more than offset increased VMAT2 spending.
- Operating cash use was $7.657 lower year over year, primarily because $14.1 of collaboration receivables outstanding at year-end 2012 were collected in Q1 2013, partly offset by higher R&D spending.
Outlook, risks and notable items
- Management expected existing capital resources, investment income and future strategic-alliance payments to fund current and projected needs for at least 12 months, but cautioned that resources might not support all planned programs. The filing gives no formal revenue or earnings guidance.
- The company expected operating cash-flow losses for the foreseeable future and stated it may need additional financing. Equity issuance could dilute shareholders; debt could impose covenants; insufficient funding could require program cuts or surrender of product or technology rights.
- Development and regulatory milestones under the AbbVie and Boehringer Ingelheim collaborations could generate future payments, but no milestone revenue was recognized in the periods presented. Future payments depend on development progress and partner activity.
- Key risks include clinical-trial safety, efficacy, enrollment and timing; dependence on collaborators, contract research organizations and third-party manufacturers; regulatory approval, intellectual-property and commercialization risks; and volatility in financing and share price. Neurocrine noted it lacks commercial manufacturing and sales capabilities.
- Other income included $2.344 of deferred gain recognition from the 2007 real-estate sale during the first nine months of 2013. The remaining deferred gain was to be recognized over the lease term, which ends in 2019. The company also reported a $3.198 cease-use liability related to subleased space.
- Management reported disclosure controls and procedures were effective at the reasonable-assurance level and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Current clinical status, trial progress and results for the VMAT2 inhibitor and AbbVie’s elagolix programs, including the extent of information Neurocrine receives from AbbVie.
- Cash burn, investment balances and funding runway against the company’s stated minimum 12-month outlook; timing and terms of any future financing.
- Potential collaboration milestones, royalties and partner commitments, noting that milestone payments are contingent and none were recognized in this filing’s periods.
- Why reported collaboration revenue and comparative losses changed sharply after the scheduled completion of partner-funded research and development work.
- Lease, sublease and cease-use obligations, along with the timing of deferred real-estate gain recognition.