Neurocrine Biosciences, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Dollar amounts are in millions unless stated otherwise. Neurocrine is a commercial-stage biopharmaceutical company, principally commercializing INGREZZA in the U.S.; ONGENTYS launched in late September 2020.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Product sales, net | $254.1 | $198.1 | $752.8 | $515.0 |
| Collaboration revenue | $4.4 | $24.0 | $45.2 | $29.0 |
| Total revenue | $258.5 | $222.1 | $798.0 | $544.0 |
| Research and development | $69.1 | $45.3 | $208.3 | $144.7 |
| Acquired in-process R&D | $118.5 | — | $164.5 | $118.1 |
| SG&A | $112.5 | $84.5 | $326.8 | $252.8 |
| Operating income (loss) | $(44.3) | $90.1 | $91.2 | $23.5 |
| Net income (loss) | $(57.6) | $53.8 | $59.4 | $3.0 |
| Diluted EPS | $(0.62) | $0.56 | $0.61 | $0.03 |
Q3 product sales increased about 28% year over year, primarily from INGREZZA patient additions; ONGENTYS sales were $0.1 million. Nine-month product sales increased about 46%. Q3 total revenue rose about 16%, while collaboration revenue declined as the prior-year quarter included higher collaboration revenue. Nine-month collaboration revenue included a $30.0 million milestone from AbbVie’s FDA approval of ORIAHNN.
Q3 operating and net losses reflected the $118.5 million Takeda upfront-payment charge recorded as acquired in-process R&D. Nine-month acquired R&D expense also included $46.0 million for Idorsia; the prior-year nine-month amount principally reflected Voyager-related charges. Operating expenses increased alongside expanded clinical development, higher headcount, and continued INGREZZA marketing investment.
Cash, liquidity and debt
- Cash and cash equivalents were $425.3 million and available-for-sale debt securities were $700.8 million at September 30, 2020, or approximately $1.13 billion combined. Combined cash and securities were $970.2 million at December 31, 2019.
- Nine-month operating cash flow was $139.6 million, versus $49.5 million in 2019. Investing cash flow was $151.8 million provided, versus $44.9 million used; financing cash flow was $21.6 million provided, mainly from stock issuance.
- The company had $517.5 million principal amount of 2.25% convertible senior notes due May 2024; their net carrying amount was $425.0 million. The notes were classified as current at quarter-end because a conversion condition was triggered, allowing holders to convert from October 1 through December 31, 2020. Conversion could require a cash payment; settlement may also involve shares at the company’s option.
- Total liabilities were $698.3 million; operating lease liabilities were $92.7 million, including $83.0 million noncurrent. Management said existing funds, operating cash generation and financing access were expected to meet needs for at least the next 12 months.
Business developments, outlook and risks
- Neurocrine paid Takeda $120.0 million upfront for rights to seven psychiatry assets, including three clinical-stage programs; the payment and transaction costs were expensed in Q3. Takeda may receive up to $1.9 billion in development and commercial milestones, plus royalties for royalty-bearing products. Certain assets have profit-sharing arrangements.
- In May, Neurocrine paid Idorsia $45.0 million upfront for NBI-827104 and a research collaboration; the upfront was expensed in Q2. Idorsia may receive development, regulatory and commercial milestones and royalties.
- ONGENTYS received FDA approval in April for adjunctive Parkinson’s disease treatment and launched in late September. Neurocrine relies on BIAL for its commercial supply and faces minimum-sales requirements under the license.
- COVID-19 had paused enrollment in several trials; enrollment in Huntington’s disease and congenital adrenal hyperplasia studies resumed in Q3. Management expected delays to some study completions and data readouts, but reported no supply interruption to date and did not expect an INGREZZA supply disruption at the time of the filing. A prolonged pandemic could affect revenue, trials, operations, liquidity and access to capital.
- The filing’s risk discussion also reports that in November 2020 the RESTORE-1 gene-therapy trial safety monitoring board requested additional patient data and recommended pausing dosing until review of those data. The company said it was preparing an expedited IND safety report. This is a subsequent development, not a Q3-period result.
- No numerical revenue or earnings guidance is provided. Management expects continued investment in commercialization, research and development, and business development; sustained profitability is not assured. Key risks include trial delays or failures, product adoption and reimbursement, competition, reliance on third-party manufacturers and collaborators, and potential note conversions.
- Disclosure controls were judged effective; management reported no significant quarter-period change in internal control over financial reporting. The company reported no off-balance-sheet arrangements.
Investor verification priorities
- Track INGREZZA demand, payer access and customer concentration, and the early commercial contribution and supply arrangements for ONGENTYS.
- Verify the 2024 notes’ conversion status, potential cash settlement and resulting liquidity or dilution implications.
- Assess the Takeda and Idorsia programs’ development progress, cost-sharing terms, and potential milestone, royalty and profit-sharing obligations.
- Confirm the status and impact of the RESTORE-1 dosing recommendation and the COVID-related clinical delays.
- Monitor operating expense growth and the extent to which revenue growth supports sustained profitability and positive cash flow.