Neurocrine Biosciences, Inc. — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing also reports unaudited fourth-quarter results. Neurocrine is a clinical-stage drug developer with no product sales; all reported revenue came from collaborations.
Financial performance and position
| Metric | 2011 | 2010 |
|---|---|---|
| Revenue | $77.4 million | $33.5 million |
| Operating income (loss) | $33.9 million | $(13.7) million |
| Net income (loss) | $37.6 million | $(8.0) million |
| Diluted earnings (loss) per share | $0.67 | $(0.15) |
| Research and development expense | $31.0 million | $31.2 million |
| Cash, cash equivalents and investments | $129.1 million | $126.9 million |
| Working capital | $85.4 million | $80.3 million |
| Long-term debt | None | None |
Revenue grew about 131%. Operating and net margins were approximately 43.8% and 48.5%, respectively, but reflect collaboration income rather than product sales and should not be viewed as evidence of recurring product profitability. Abbott milestone revenue totaled $30.0 million; upfront-fee amortization also increased. Operating cash flow was negative $0.7 million, versus positive $49.9 million in 2010, when the company received large Abbott and Boehringer Ingelheim upfront payments. The company had an accumulated deficit of $724.7 million.
Fourth-quarter 2011 revenue was $11.1 million and net income was $1.3 million, compared with $13.7 million and $2.5 million, respectively, in fourth-quarter 2010.
Material changes and business developments
- Neurocrine reported its first annual profit in the periods shown, versus losses in 2010 and 2009. Management attributed the 2011 result primarily to Abbott collaboration revenue, including milestones and amortization of upfront fees.
- In 2011, Abbott’s elagolix program advanced in uterine fibroids, and a pre-Phase III FDA meeting for endometriosis generated a $20 million milestone. Abbott was pursuing a Special Protocol Assessment for the pivotal endometriosis program.
- Neurocrine began a placebo-controlled Phase II study of its VMAT2 inhibitor NBI-98854 in tardive dyskinesia; larger Phase IIb studies were expected to begin in 2012.
- R&D expense was approximately flat year over year. Lower elagolix spending as responsibility shifted to Abbott largely offset higher VMAT2 development expense.
Outlook, risks and contingencies
- Management expected 2012 revenue to decrease significantly and anticipated no milestone revenue in 2012. It expected a net loss, higher R&D expense due primarily to VMAT2 clinical work, and G&A expense roughly at 2011 levels.
- Management believed existing resources, investment income and expected alliance payments would fund planned requirements for at least 12 months, while cautioning that funds might not cover all planned programs. The company expected negative operating cash flow for the foreseeable future.
- In January 2012, after year-end, Neurocrine raised approximately $82.8 million net by selling 10.9 million shares at $8.10 each. Shares outstanding were 66.2 million as of January 31, 2012, up from 55.3 million at December 31, 2011.
- Abbott controls final decision-making for the GnRH collaboration and may terminate it; future revenue depends materially on partner decisions, development progress, milestone achievement and eventual commercialization. Boehringer Ingelheim also controls final decisions for its GPR119 collaboration.
- Clinical, regulatory, manufacturing, intellectual-property, reimbursement and financing risks remain substantial. No product candidate had FDA approval. A prior Phase II depression trial of GSK’s CRF1 compound 561679 showed no benefit over placebo.
- Indiplon remained uncertain: the FDA had deemed the 5 mg and 10 mg capsules approvable subject to additional studies, but Neurocrine had stopped U.S. development and pre-commercialization activity.
- Future minimum lease payments totaled $60.1 million through the lease term; the facility lease requires maintaining $50 million in cash and investments or increasing the security deposit by $5 million. No material legal proceedings were reported.
Most important facts for investors to verify
- Progress and FDA agreement on the elagolix Phase III design, timing, and the uterine-fibroids study.
- NBI-98854 Phase II results, subsequent Phase IIb plans, and whether efficacy and safety support continued development.
- Actual 2012 collaboration revenue and cash receipts versus management’s expectation of no milestone revenue and lower revenue.
- Operating cash burn, liquidity runway, and the effect of the January 2012 equity offering and resulting dilution.
- Collaboration partner commitment, program costs, and any changes to the indiplon program or its regulatory path.