Neurocrine Biosciences, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; balance-sheet figures compared with December 31, 2018. Amounts are in U.S. dollars.
Business context
Neurocrine is a neuroscience-focused biopharmaceutical company. INGREZZA, approved for tardive dyskinesia, generated the majority of revenue. The company also receives royalties on AbbVie’s ORILISSA and is developing candidates in areas including Parkinson’s disease, congenital adrenal hyperplasia and uterine fibroids. It entered a four-program gene-therapy collaboration with Voyager in Q1.
Key financial results
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Total revenue | $138.4 million | $71.1 million |
| INGREZZA net sales | $136.4 million | $71.1 million |
| Collaboration revenue | $2.0 million | None reported |
| Research and development expense | $37.7 million | $48.9 million |
| Acquired in-process R&D expense | $113.1 million | None reported |
| Selling, general and administrative expense | $87.5 million | $58.6 million |
| Operating loss | $101.0 million | $37.4 million |
| Net loss | $102.1 million | $41.8 million |
| Basic and diluted loss per share | $1.12 | $0.47 |
| Net cash used in operating activities | $112.5 million | $38.5 million |
Revenue increased approximately 95% year over year, led by INGREZZA sales. Cost of sales was $1.1 million, approximately 0.8% of revenue; the filing does not present a gross-margin measure. The larger net loss primarily reflects the Voyager-related IPR&D charge.
Financial position and liquidity
- Cash and cash equivalents were $72.8 million; available-for-sale investments totaled $628.0 million. Together, cash and available-for-sale investments were $700.8 million, versus $866.9 million at year-end 2018.
- Cash, cash equivalents and restricted cash declined $68.9 million during the quarter. Investing activities provided $41.0 million, including investment maturities and sales, while financing activities provided $2.6 million.
- Total assets were $957.7 million and total liabilities were $548.4 million. Current assets were $633.2 million and current liabilities $72.0 million.
- Convertible notes had $517.5 million principal outstanding and a $393.4 million net carrying amount. The notes bear 2.25% interest and mature May 15, 2024.
- Operating lease liabilities totaled $70.4 million, including $67.1 million noncurrent; adoption of the new lease standard added lease assets and liabilities to the balance sheet.
Material changes and unusual items
- Under the Voyager agreement, Neurocrine paid $115.0 million upfront and bought $50.0 million of Voyager stock. It recorded $113.1 million as IPR&D expense and the equity investment at $54.7 million fair value at closing; that investment was valued at $56.4 million at quarter-end, including a $1.7 million unrealized gain.
- Voyager may receive up to $1.7 billion in development, regulatory and commercial milestones, plus royalties. Neurocrine is responsible for development costs under agreed plans, subject to the agreement’s terms.
- R&D expense fell $11.2 million, mainly because Q1 2018 included a $10.0 million BIAL milestone and a nonrecurring $7.7 million share-based compensation charge. SG&A rose $28.9 million, principally reflecting sales-force expansion, a national disease-awareness campaign and higher branded-drug fee expense.
- Neurocrine adopted lease accounting guidance on January 1, 2019. The company recognized operating lease right-of-use assets and liabilities and recorded an $8.0 million cumulative-effect adjustment to opening accumulated deficit.
Outlook, commentary and risks
Management stated that existing capital resources, investment income and expected strategic-alliance payments should fund current and projected requirements for at least the next 12 months, while noting that resources could be insufficient for all planned programs, commercialization or acquisitions. The filing provides no specific revenue or earnings guidance.
- Management said it continues to analyze the T-Force GOLD study of valbenazine in pediatric Tourette syndrome after the study failed to meet its primary endpoint in 2018.
- Key disclosed risks include sustaining INGREZZA sales and reimbursement, competition, product safety and regulatory obligations, dependence on third-party manufacturers, clinical-development uncertainty, and execution and cost risks in collaborations—including gene therapy.
- The company reported no off-balance-sheet arrangements and concluded disclosure controls were effective at the reasonable-assurance level.
Investor verification checklist
- Track INGREZZA prescription growth, net sales, payer coverage and competitive effects.
- Review operating cash burn and the trend in cash plus investments against management’s stated funding horizon.
- Assess Voyager program progress, Neurocrine’s continuing cost commitments, milestone exposure and the restricted equity investment’s valuation.
- Monitor development and regulatory milestones for opicapone and other pipeline candidates, and confirm updates on the Tourette syndrome program.
- Check the convertible notes’ conversion conditions and potential cash settlement or dilution, alongside lease obligations.