Neurocrine Biosciences, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This filing reports annual results; it does not provide standalone fourth-quarter financial results.
Business context
Neurocrine is a neuroscience-focused biopharmaceutical company. Its principal revenue driver is INGREZZA (valbenazine), approved for tardive dyskinesia. The company also sells ONGENTYS and receives collaboration revenue, including royalties on AbbVie’s elagolix products and milestone and royalty payments from Mitsubishi Tanabe Pharma. Its pipeline spans neurology, neuroendocrinology and neuropsychiatry.
Key financial results
| Metric (USD millions, except per-share amounts) | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | $1,488.7 | $1,133.5 | +31.3% |
| Net product sales | $1,440.9 | $1,090.1 | +32.2% |
| INGREZZA sales | $1,427.8 | $1,081.9 | +32.0% |
| Collaboration revenue | $47.8 | $43.4 | +10.1% |
| Operating income | $249.0 | $102.5 | +143.0% |
| Net income | $154.5 | $89.6 | +72.4% |
| Diluted earnings per share | $1.56 | $0.92 | — |
| Operating cash flow | $339.4 | $256.5 | +32.3% |
Operating margin was approximately 16.7% and net margin approximately 10.4% in 2022. R&D expense rose to $463.8 million from $328.1 million; SG&A rose to $752.7 million from $583.3 million. The filing attributes higher SG&A largely to commercial investment, advertising and the expanded sales force.
At year-end, cash, cash equivalents and marketable securities totaled $1,288.7 million, versus $1,272.0 million a year earlier. Working capital was $915.8 million, up from $727.0 million. Cash and cash equivalents alone were $262.9 million; cash, cash equivalents and restricted cash reported in the cash flow statement totaled $270.7 million. Outstanding 2024 convertible notes had $170.4 million principal remaining. The company reported no separate financial debt covenant requirements for these notes.
Material changes and unusual items
- INGREZZA sales growth was attributed to higher demand, more new patient starts and prescriptions, continued direct-to-consumer advertising, and the expanded sales force.
- In 2022, Neurocrine repurchased $210.8 million principal amount of convertible notes for $279.0 million in cash, recording a $70.0 million extinguishment loss. The remaining notes became conditionally convertible for the first quarter of 2023 and were classified as current at year-end; principal settlement on conversion is in cash.
- Reported 2022 net income includes a $59.4 million income-tax provision. Comparisons with 2020 are affected by a one-time $296.3 million tax benefit from releasing substantially all of the valuation allowance that year.
- The company acquired Diurnal in November 2022 for $55.2 million in cash consideration. It reported $42.7 million net cash outflow for the acquisition after cash acquired.
- Effective January 1, 2022, adoption of convertible-debt accounting guidance changed the carrying amount of the notes and equity balances; prior-year figures were not restated.
Outlook, pipeline and risks
- Management said existing capital resources and anticipated INGREZZA sales should cover current and projected funding needs for at least 12 months, while noting that planned development and commercialization spending could exceed available resources.
- The FDA accepted the valbenazine supplemental application for Huntington disease chorea; the stated target action date was August 20, 2023. Top-line results from Phase III crinecerfont studies in adult and pediatric congenital adrenal hyperplasia were expected in the second half of 2023. Other disclosed expected readouts included focal-onset seizure data in the second half of 2023 and studies in dyskinetic cerebral palsy, schizophrenia and depression in 2024.
- Two NBI-827104 studies did not meet specified endpoints: the essential-tremor program was not planned to proceed, while the company said it was still assessing the EE-CSWS study data.
- In January 2023, after the fiscal year-end, Neurocrine announced a Voyager collaboration involving a $175 million upfront payment, including a $39 million equity investment, subject to closing conditions.
- Principal risks include dependence on INGREZZA and concentrated distribution customers, pricing and reimbursement pressure, competition, clinical and regulatory uncertainty, reliance on third-party manufacturers and collaborators, and patent challenges. Five companies filed ANDAs seeking generic INGREZZA; consolidated Delaware litigation was scheduled for trial beginning January 2, 2024.
- Planned clinical trial activities in Russia and Ukraine were suspended following the invasion, potentially affecting valbenazine and luvadaxistat timelines. Management also cited continuing uncertainty around COVID-19 impacts and implementation of the Inflation Reduction Act; the company said it qualified for the small-biotech exemption, which is set to expire in 2029, subject to ongoing eligibility.
Important facts for investors to verify
- Whether INGREZZA growth and customer demand continue, and how concentrated distribution relationships and receivables affect sales and cash collection.
- Progress and regulatory outcome for the Huntington disease chorea application, and the results and timelines of the crinecerfont and other priority trials.
- Developments in the INGREZZA generic patent litigation, including trial timing and any effect on patent protection or expected exclusivity.
- Cash needs and dilution or liquidity implications of the remaining convertible notes, the Voyager collaboration, and other pipeline or business-development commitments.
- Whether pricing, reimbursement, IRA implementation, manufacturing supply or collaborator performance materially changes revenue, margins or development plans.
The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of December 31, 2022.