Neurocrine Biosciences, Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016. Neurocrine is a clinical-stage biopharmaceutical company with no product sales to date. Its lead programs were valbenazine, in Phase III development for movement disorders, and partnered elagolix, in Phase III development for endometriosis and uterine fibroids.
Key financial results
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $15.0 million | $19.8 million |
| Research and development expense | $26.9 million | $18.7 million | $50.8 million | $35.3 million |
| General and administrative expense | $15.0 million | $6.6 million | $26.9 million | $12.1 million |
| Net loss | $40.3 million | $24.0 million | $59.5 million | $25.2 million |
| Basic and diluted loss per share | $0.46 | $0.28 | $0.69 | $0.30 |
| Cash used in operating activities | — | — | $43.5 million | $4.2 million |
At June 30, cash and cash equivalents were $86.2 million, short- and long-term investments totaled $328.3 million, and restricted cash was $4.9 million. Cash, cash equivalents, and investments were $414.6 million, down from $461.7 million at December 31, 2015. Total assets were $429.8 million and total liabilities were $48.8 million; the filing reports no debt balance. No operating margin is meaningful given zero Q2 revenue and the company’s development-stage operations.
Material changes and business developments
- First-half 2016 revenue was a $15 million AbbVie milestone after it began Phase III development of elagolix for uterine fibroids. First-half 2015 revenue included $19.8 million recognized from Mitsubishi Tanabe’s valbenazine license fee.
- Q2 operating expenses rose by $16.5 million year over year. R&D expense increased with valbenazine Phase III work and preparation for an anticipated tardive dyskinesia NDA submission, including a $2.4 million filing fee. G&A increased with personnel, market research, commercial-launch preparation, and professional services.
- Six-month operating cash use increased by $39.3 million year over year, primarily reflecting the larger net loss and the prior-year Mitsubishi Tanabe upfront payment. Investing activities provided $54.6 million, largely reflecting investment sales and maturities exceeding purchases; financing provided $1.0 million.
- Stock-based compensation was $14.2 million for the first half, versus $8.3 million a year earlier. Accumulated deficit was $974.8 million at June 30, compared with $915.2 million at year-end 2015.
Outlook, risks, and contingencies
Management said existing capital resources, investment income, and expected strategic-alliance payments should fund current projected requirements for at least the next 12 months, but cautioned that resources may not support all planned R&D. The company expected continuing operating cash-flow losses and stated it did not expect profitability or positive operating cash flow for 2016. Management described preparation for a valbenazine tardive dyskinesia NDA submission later in 2016; the filing provides no formal financial guidance.
Key risks include clinical-trial outcomes and regulatory review, including the possibility of delay or rejection of the anticipated NDA; reliance on collaborators and contract manufacturers; the need for potential additional financing; commercialization, reimbursement, and competitive risks; and intellectual-property disputes. Mount Sinai’s lawsuit alleges breach of a 1999 license agreement and seeks unspecified damages, future sublicensing fees, and attorney fees. The court allowed the case to proceed in part but ruled that Mount Sinai’s consent was not required before the AbbVie license; Neurocrine denied the allegations and filed counterclaims. The company said it could not predict the outcome or estimate a potential loss.
The filing reported no off-balance-sheet arrangements, no material effect from a hypothetical 10% interest-rate change, and effective disclosure controls. Management was evaluating the effects of new revenue-recognition, lease, and share-based-compensation accounting standards.
Important facts for investors to verify
- Regulatory and clinical progress for valbenazine, including the timing and acceptance of the anticipated tardive dyskinesia NDA.
- Cash burn, investment balances, and whether resources remain sufficient as development and launch-preparation spending rises.
- Potential milestone, royalty, and other payments under the AbbVie and Mitsubishi Tanabe agreements, including collaborator-controlled milestones.
- Developments and any financial exposure in the Mount Sinai litigation.
- Whether operating expenses and share-based compensation continue to increase, and the potential need for dilutive financing.