Neurocrine Biosciences, Inc. — 2012 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2012. The filing also reports unaudited fourth-quarter results. Amounts below are in U.S. dollars; financial figures are in millions unless noted.
Business context
Neurocrine is a clinical-stage biopharmaceutical company developing treatments for neurological and endocrine disorders. It had 11 programs in research and development, including six in clinical development, and had generated no revenue from product sales. Elagolix, partnered with AbbVie, was in Phase III for endometriosis and Phase II for uterine fibroids. Neurocrine’s VMAT2 inhibitor NBI-98854 was in Phase IIb trials for tardive dyskinesia.
Financial performance and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Total revenue | $53.1 | $77.4 |
| Research and development expense | $37.2 | $31.0 |
| General and administrative expense | $13.4 | $12.5 |
| Operating income | $1.4 | $33.9 |
| Net income | $5.0 ($0.08 diluted per share) | $37.6 ($0.67 diluted per share) |
| Net cash used in operating activities | $35.3 | $0.7 |
| Cash, cash equivalents and investments at year-end | $173.5 | $129.1 |
Revenue was entirely from collaborations. Operating margin was approximately 2.7% and net margin approximately 9.5%; reported net income included $3.0 million of deferred gain recognition from a prior real estate sale. The company had $195.979 million of total assets, $154.372 million of stockholders’ equity, $173.618 million of working capital, and no outstanding debt at year-end. Cash flow from operations was negative despite reported profit. The January 2012 stock offering generated approximately $83.0 million net proceeds.
In the unaudited fourth quarter, revenue was $21.947 million, operating expenses were $13.365 million, and net income was $9.490 million ($0.14 diluted per share). The filing attributes the substantial fourth-quarter result partly to collaboration revenue; it does not provide a clear quarterly breakdown of the drivers in the selected quarterly table.
Material changes versus prior period
- Revenue fell 31% from 2011, primarily because 2011 included $30.0 million of AbbVie milestones; sponsored research and development revenue also declined as collaboration work concluded.
- Net income declined from $37.6 million to $5.0 million. R&D expense rose by $6.2 million, principally due to increased VMAT2 development activity and higher personnel and share-based compensation costs.
- Operating cash use increased from $0.7 million to $35.3 million. Cash and investments nevertheless increased, principally supported by the 2012 equity offering.
- AbbVie’s collaborative development period for GnRH compounds concluded as scheduled on December 31, 2012. Boehringer Ingelheim’s collaborative GPR119 research period ended in June 2012; it assumed responsibility for any subsequent development.
- Neurocrine and GSK terminated their CRF antagonist collaboration in 2012, and Neurocrine reacquired rights to the CRF portfolio.
Outlook, commentary and risks
- Management expected 2013 revenue to decline significantly, with no milestone revenue anticipated, and expected a net loss. It projected higher R&D expense, mainly from VMAT2 clinical work, and higher G&A expense, partly from share-based compensation.
- Topline results from the Kinect Phase IIb tardive dyskinesia study were expected in Q2 2013 and from Kinect 2 in mid-2013. The filing expected an end-of-Phase-II discussion with the FDA in late 2013. AbbVie expected to file an elagolix endometriosis NDA in 2016.
- Management said existing resources, investment income and anticipated alliance payments were expected to fund current projected requirements for at least 12 months, but warned they might not fund all planned R&D. The company expected negative operating cash flow for the foreseeable future.
- Key risks include clinical-trial failure or delay, regulatory uncertainty, dependence on collaborators, future financing needs and potential dilution, competition, intellectual-property disputes, and reliance on third-party manufacturers. The company had no commercial manufacturing, sales or distribution capabilities.
- Operating lease commitments totaled $53.3 million, including $7.0 million due in 2013. The facility lease requires maintaining $50 million in cash and investments or increasing the security deposit by $5 million. A $4.2 million letter of credit was backed by restricted cash.
- The NBI-98854 Phase IIa study did not meet its prespecified primary endpoint in the full study population; favorable findings came from post-hoc analyses. The filing describes procedures added to subsequent trials to strengthen AIMS assessment consistency.
- Indiplon had received an FDA “approvable” letter for capsules, but U.S. development and pre-commercialization work had stopped; future development remained uncertain. No material legal proceedings were reported.
Important facts for investors to verify
- Whether 2013 revenue and cash use followed management’s forecast, and the timing and terms of any additional collaboration or financing proceeds.
- Results and full-population analyses from the Kinect and Kinect 2 trials, including safety, endpoint integrity and any subsequent FDA guidance.
- Progress, funding responsibility and milestone or royalty economics under the AbbVie partnership, and development status of elagolix for both indications.
- Whether Neurocrine’s $173.5 million of cash and investments, lease-related requirements and other obligations provide adequate runway under updated R&D plans.
- Potential dilution from equity issuance and the effects of expiring or limited tax attributes; the filing reports a full valuation allowance against $321.2 million of deferred tax assets.
The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of December 31, 2012.