Neurocrine Biosciences, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless otherwise noted. The company develops and commercializes treatments for neurological, endocrine and psychiatric disorders. INGREZZA generated nearly all product sales.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Total revenue | $310.6 million | $236.6 million; up 31% |
| Net product sales | $305.0 million | $231.0 million; up 32% |
| INGREZZA sales | $302.6 million | $229.6 million; up 32% |
| ONGENTYS sales | $2.4 million | $1.4 million |
| Collaboration revenue | $5.6 million | $5.6 million |
| Operating expenses | $307.5 million | $205.1 million; up 50% |
| Operating income and margin | $3.1 million; 1.0% | $31.5 million; 13.3% |
| Net income | $13.9 million | $32.1 million |
| Diluted EPS | $0.14 | $0.33 |
| Operating cash flow | $(40.5) million | $87.3 million provided |
| Cash, cash equivalents and marketable securities | $1,205.9 million at March 31 | $1,272.0 million at December 31, 2021 |
| Working capital | $764.7 million at March 31 | $727.0 million at December 31, 2021 |
| Convertible notes | $381.2 million principal outstanding; $377.7 million net carrying value | Due May 2024 |
Revenue growth was led by INGREZZA, which management attributed primarily to increased new-patient starts. R&D rose to $102.2 million from $73.2 million, reflecting investment in clinical and early-stage programs and a $7.3 million Xenon milestone expense. SG&A increased to $200.7 million from $129.0 million, mainly due to commercial initiatives, the expanded salesforce, higher headcount and stock-based compensation. The company’s operating margin contracted as expenses grew faster than revenue.
Net income included a $19.9 million unrealized gain on equity securities, compared with $0.7 million in the prior-year quarter. Interest expense fell to $2.6 million from $6.4 million, primarily following adoption of new convertible-debt accounting. The Q1 2022 income-tax provision was $7.5 million, versus a $4.9 million benefit in Q1 2021. Cash flow from operations was affected by higher commercial and R&D spending and a $78.0 million increase in accounts receivable, which the company attributed to extended customer payment terms following its distribution-network expansion.
At March 31, cash and cash equivalents were $270.2 million and available-for-sale debt securities totaled $935.7 million. Total assets were $2.14 billion and total liabilities were $753.4 million. Debt securities had $12.8 million of unrealized losses, primarily attributed to interest-rate changes; management said it did not intend, and was not more likely than not required, to sell them before recovery of amortized cost.
Material changes, outlook and notable matters
- Accounting adoption: Effective January 1, 2022, adoption of ASU 2020-06 increased the carrying amount of the 2024 notes by $42.2 million and produced a cumulative balance-sheet adjustment, including a $74.5 million reduction to accumulated deficit and a $106.8 million reduction to additional paid-in capital. Prior-year figures were not restated.
- Liquidity outlook: Management believes existing capital resources and anticipated revenues will cover current and projected requirements for at least 12 months, but cautioned that this does not assure funding for all planned R&D or commercialization activity. No specific revenue or earnings guidance is provided in the supplied filing text.
- Japan milestone: MTPC received Japanese approval for DYSVAL (valbenazine) in March. Neurocrine expects a $20 million milestone upon the first commercial sale, anticipated in Q2 2022.
- Clinical and geopolitical risk: The company suspended planned valbenazine and NBI-1065844 clinical-trial activities in Russia and Ukraine following the invasion; it reported no patients enrolled at those sites. COVID-19-related effects on trials, suppliers and commercialization remained uncertain.
- Patent litigation: Four generic applicants filed ANDAs challenging patents covering INGREZZA. The consolidated Delaware trial was scheduled for January 2, 2024. The company stated it could not predict the outcome and believed pending claims were not likely to have a material adverse effect.
- Facilities commitment: A February 2022 lease covers a four-building San Diego campus intended as the future headquarters, with options for a fifth building and to purchase the campus. The filing reports approximately $479.7 million of future minimum lease payments for leases not yet commenced, among other excluded commitments.
- Other contractual exposure: The company disclosed potential future event-based milestone payments of up to $10.8 billion under existing collaboration and license agreements; these are contingent, not current debt. Outstanding 2024 notes have $381.2 million principal due at maturity, unless converted, redeemed or repurchased earlier.
Key investor verification points
- Track whether INGREZZA patient starts and sales growth continue, and monitor specialty-distributor concentration: three customers accounted for about 77% of Q1 product revenue and 81% of receivables.
- Assess whether rising commercial and development spending can be supported by sales growth, given the sharp year-over-year decline in operating income and operating cash flow.
- Verify collection of the enlarged receivables balance and whether extended customer payment terms persist.
- Follow the timing and outcome of INGREZZA generic-patent litigation, and the potential implications for exclusivity and future sales.
- Monitor progress and costs of clinical programs, including impacts from the Russia/Ukraine suspension and the Xenon KAYAK study protocol milestone.
- Review the 2024 notes’ conversion, cash-settlement and maturity requirements, as well as the new campus lease obligations and contingent collaboration milestones.
- Consider risks identified by the company, including reimbursement and pricing pressure, competition, reliance on third-party manufacturers and collaborators, clinical-trial uncertainty, and changing tax rules.