Neurocrine Biosciences, Inc. — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016. The company is a clinical-stage biopharmaceutical developer with no product-sale revenue to date. Its lead programs were INGREZZA (valbenazine), whose tardive dyskinesia NDA was under FDA review, and partnered elagolix.
Financial results
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $15.0 million | $19.8 million |
| Research and development expense | $20.9 million | $24.4 million | $71.7 million | $59.7 million |
| General and administrative expense | $17.5 million | $11.5 million | $44.4 million | $23.5 million |
| Net loss | $36.9 million | $34.4 million | $96.4 million | $59.6 million |
| Loss per share, basic and diluted | $0.43 | $0.40 | $1.11 | $0.71 |
| Operating cash flow | Not presented by quarter | $(74.6) million | $(22.8) million |
Operating margins are not meaningful given the absence of quarterly revenue and the company’s development-stage operations. At September 30, cash and cash equivalents were $99.8 million, short- and long-term investments totaled $283.5 million, and cash, cash equivalents and investments together were $383.2 million. Total assets were $399.2 million, liabilities $47.5 million, and stockholders’ equity $351.7 million. No borrowings or debt are identified in the presented balance sheet; restricted cash of $4.9 million is reported separately.
Changes and notable items
- For the first nine months, revenue fell $4.8 million year over year: 2015 included $19.8 million of Mitsubishi Tanabe license revenue, while 2016 included a $15.0 million AbbVie milestone after elagolix entered Phase III development for uterine fibroids.
- Nine-month operating expenses rose $32.9 million. R&D increased by $12.0 million, driven principally by INGREZZA NDA-related work and clinical development; G&A increased by $20.9 million, mainly for commercial-launch preparation, personnel, market research and professional services.
- Q3 net loss increased by $2.5 million, primarily reflecting higher G&A, partly offset by lower R&D expense. Nine-month net loss increased by $36.8 million.
- Operating cash use rose by $51.8 million year over year. Investing activities provided $97.8 million, largely reflecting investment purchases, sales and maturities; financing provided $2.3 million, compared with $276.0 million in 2015, which included the prior-year public offering.
- Cash and investments declined from $461.7 million at December 31, 2015 to $383.2 million at September 30, 2016. Management said existing resources, investment income and anticipated alliance payments were expected to fund current and projected needs for at least 12 months, while cautioning that planned activities might require additional funding.
Outlook, risks and contingencies
- The FDA’s PDUFA target date for its review of the INGREZZA tardive dyskinesia NDA was April 11, 2017. The company intended to commercialize INGREZZA in the United States if approved; approval and timing were uncertain.
- Management expected operating cash-flow losses to continue. The company had no approved products and identified additional financing, if needed, as potentially dilutive or restrictive; insufficient funding could require program reductions or relinquishment of rights.
- AbbVie was responsible for third-party development and commercialization costs for elagolix. Approximately $485 million of future event-based payments remained under that agreement, but none then met the accounting definition of a milestone. Future royalties and payments depended on development, regulatory and commercial outcomes.
- Mount Sinai litigation alleged breach of a license agreement related to the AbbVie collaboration and sought unspecified damages, future sublicensing fees and attorneys’ fees. The company denied the allegations, asserted counterclaims, and said it could not predict the outcome or estimate a potential loss.
- Other key risks included clinical-trial and regulatory failure or delay, reliance on collaborators and contract manufacturers, commercialization and reimbursement uncertainty, intellectual-property disputes, and the company’s history of losses. Management reported effective disclosure controls and no significant changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- FDA review progress, the April 11, 2017 target date, and any resulting approval, labeling or launch requirements for INGREZZA.
- Cash burn, investment balances and management’s stated minimum 12-month funding outlook against commercialization and development spending.
- INGREZZA launch-preparation costs and whether they translate into timely commercial revenue if approved.
- Elagolix development progress and the conditions for future AbbVie payments and royalties.
- Developments in the Mount Sinai case, including any change in potential exposure or licensing rights.