Neurocrine Biosciences, Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015; balance-sheet figures are as of June 30, 2015, compared with December 31, 2014. The company is a clinical-stage drug developer and reported no product-sale revenue.
Financial results and liquidity
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $19.8 million | $0 |
| Research and development expense | $18.7 million | $10.2 million | $35.3 million | $18.7 million |
| General and administrative expense | $6.6 million | $4.2 million | $12.1 million | $8.4 million |
| Net loss | $24.0 million | $13.4 million | $25.2 million | $25.2 million |
| Basic and diluted loss per share | $0.28 | $0.18 | $0.30 | $0.35 |
- First-half 2015 revenue was a $19.8 million portion of Mitsubishi Tanabe’s $30 million upfront license payment. The remaining $10.2 million was deferred for future performance obligations.
- Q2 operating expenses rose to $25.3 million from $14.4 million; the company attributed the larger quarterly net loss chiefly to increased R&D and G&A spending. No meaningful product gross margin is reported because there were no product sales.
- Cash and cash equivalents were $132.1 million; short- and long-term investments were $252.7 million and $114.2 million, respectively. Cash, cash equivalents and investments totaled $498.9 million, versus $231.3 million at year-end 2014. Total current assets were $389.4 million and current liabilities $17.6 million.
- Six-month operating cash use was $4.2 million, versus $19.7 million in 2014. This included the Mitsubishi Tanabe upfront payment; it should not be read as a measure of recurring operating cash burn. Investing activities used $170.0 million, primarily reflecting investment purchases and maturities; financing provided $275.3 million.
- The company reported no debt. Total liabilities were $44.3 million, including $10.2 million of deferred revenue and deferred real-estate gain liabilities. Stockholders’ equity was $466.9 million.
- In February 2015, an 8.0 million-share public offering generated approximately $270.7 million net proceeds. Shares outstanding were 85.75 million at June 30, versus 76.47 million at year-end 2014.
Material changes and business developments
- Q2 R&D expense increased $8.5 million year over year, mainly as VMAT2 Phase III development activity expanded. First-half R&D increased $16.6 million, including a $9.7 million increase in external development expense, primarily for VMAT2.
- G&A expense rose year over year, with higher personnel and share-based compensation costs, as well as market research and professional fees. First-half share-based compensation was $8.3 million, compared with $5.3 million in 2014.
- The company’s lead programs were elagolix, partnered with AbbVie and in Phase III development for endometriosis and Phase II studies for uterine fibroids, and NBI-98854, a VMAT2 inhibitor in Phase III development for movement disorders. The company was also expanding NDA preparation efforts for NBI-98854 in tardive dyskinesia.
- During Q2, the company suspended two planned clinical studies of CRF antagonist NBI-77860 following previously unobserved preclinical findings.
Outlook, risks and other notable items
- Management said existing capital resources, investment income and anticipated strategic-alliance payments were expected to meet current and projected funding needs for at least 12 months. It cautioned that funding may not support all planned R&D programs and that additional capital could be needed.
- The company expected operating cash-flow losses for the foreseeable future and stated it did not expect to be profitable or generate positive operating cash flow in 2015. It had no approved products and had not generated product-sale revenue.
- Mitsubishi Tanabe’s agreement covers Japan and select Asian markets for NBI-98854 and provides up to $85 million in development and commercialization event-based payments, manufacturing payments and royalties. Mitsubishi Tanabe may terminate on 180 days’ notice. A company-conducted Huntington’s chorea trial, estimated at approximately $12 million, would be required if requested.
- AbbVie was responsible for third-party development, marketing and commercialization costs for the GnRH collaboration. $500 million in future event-based payments remained outstanding, but none qualified as accounting milestones at June 30, 2015. Future payments and royalties depend on development and commercial outcomes.
- Key risks include clinical-trial safety or efficacy failures and delays, reliance on collaborators and contract manufacturers, regulatory and intellectual-property risks, future financing needs and potential dilution, and volatility in the company’s stock price. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
- The company reported no off-balance-sheet arrangements. It said a 10% change in interest rates would not materially affect investment portfolio fair value.
Most important facts for investors to verify
- Progress, timing and results of the VMAT2 Phase III tardive dyskinesia program and the elagolix clinical programs.
- Regulatory and clinical developments for NBI-98854, including the NDA preparation timeline and whether Mitsubishi Tanabe requests the Huntington’s chorea trial.
- Further information on the NBI-77860 preclinical findings and the implications of suspending its two planned studies.
- How quickly cash and investments are used as clinical and commercial-preparation spending grows, and whether further equity financing is required.
- Conditions and timing for any collaboration milestones, royalties or other future payments; these are contingent and should not be treated as assured liquidity.