Neurocrine Biosciences, Inc. — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. This is an annual report; fourth-quarter figures are identified separately below. Neurocrine was a clinical-stage biopharmaceutical company with no product sales. Its lead programs were INGREZZA (valbenazine), elagolix (partnered with AbbVie), and opicapone (licensed from BIAL after year-end).
Financial performance and position
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $15.0 million | $19.8 million |
| Research and development expense | $94.3 million | $81.5 million |
| General and administrative expense | $68.1 million | $32.5 million |
| Operating loss | $147.4 million | $94.2 million |
| Net loss | $141.1 million | $88.9 million |
| Net loss per share | $1.63 | $1.05 |
| Cash, cash equivalents and investments | $350.8 million | $461.7 million |
| Working capital | $280.0 million | $358.4 million |
| Long-term debt | None | None |
- All 2016 revenue was collaboration milestone revenue: $15.0 million from AbbVie following initiation of Phase III elagolix studies for uterine fibroids. In 2015, $19.8 million was recognized from Mitsubishi Tanabe’s INGREZZA license; another $10.2 million of its $30 million upfront payment remained deferred.
- Operating expenses rose substantially, particularly G&A, as the company prepared for a potential INGREZZA launch. Research and development costs also increased, including spending on INGREZZA development and NDA preparation. Operating margins are not a meaningful indicator given the absence of product revenue and reliance on collaboration payments.
- Net cash used in operations was $106.2 million, compared with $38.0 million in 2015. Investing activities provided $112.9 million, principally reflecting investment maturities and purchases; financing activities provided $2.4 million, mainly from option exercises. The company reported $83.3 million in cash and cash equivalents and $267.6 million in investments at year-end.
- Fourth quarter 2016 revenue was zero; operating expenses were $46.3 million, net loss was $44.7 million, and loss per share was $0.51. The comparable 2015 quarter recorded no revenue, $30.7 million of operating expenses, a $29.3 million net loss, and a $0.34 loss per share.
Material changes and business developments
- INGREZZA’s TD NDA was submitted in August 2016 and accepted for FDA Priority Review, with a target action date of April 11, 2017. The pivotal Kinect 3 study met its primary endpoint: the 80 mg dose improved AIMS scores by 3.1 points more than placebo at week six (p<0.0001). A prior adult Tourette study showed improvement on a secondary global-impression measure but did not meet its prespecified primary endpoint.
- AbbVie completed the placebo-controlled portions of two Phase III elagolix endometriosis studies and expected to file an NDA in the third quarter of 2017. Its Phase III uterine-fibroid program was underway, with initial results expected in late 2017.
- On February 9, 2017, Neurocrine licensed U.S. and Canadian rights to opicapone from BIAL. The agreement requires a $30 million upfront fee and could require up to $115 million in regulatory and sales milestones, plus sales-based payments and supply purchases. Neurocrine is responsible for development and commercialization costs.
Outlook, risks and contingencies
- Management expected 2017 R&D expense to be broadly consistent with 2016, while G&A was expected to increase significantly due to planned INGREZZA commercialization. It expected a 2017 net loss. The company anticipated a $30 million AbbVie event-based payment tied to an endometriosis NDA filing and potential INGREZZA sales following FDA approval; these were expectations, not assured outcomes.
- Management stated existing capital resources, investment income and anticipated alliance payments should fund current projected requirements for at least 12 months. It also expected negative operating cash flow for the foreseeable future and acknowledged that additional financing might be needed; equity financing could dilute shareholders.
- Key risks include FDA approval and labeling outcomes, clinical safety or efficacy setbacks, uncertain reimbursement and market adoption, competition, and dependence on third-party manufacturers. The filing highlighted supplier concentration for INGREZZA and Neurocrine’s lack of commercial-product launch experience.
- Mount Sinai litigation alleged breach of a license agreement connected with the AbbVie collaboration and sought unspecified damages, future sublicensing fees and legal fees. Neurocrine disputed the claims and stated it could not estimate a potential loss.
- Other commitments include $24.2 million of minimum lease payments through 2019 and the BIAL upfront payment and potential milestones. The lease requires the company to maintain $50 million in cash and investments or increase its security deposit by $5 million.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and procedures were effective.
Important facts for investors to verify
- FDA action and final label for INGREZZA, including any post-approval requirements, and the practical timing and economics of a U.S. launch.
- Actual 2017 cash burn, launch spending, and liquidity after the $30 million BIAL upfront fee; assess the assumptions behind management’s 12-month funding statement.
- Whether AbbVie files the elagolix endometriosis NDA on schedule, whether the anticipated milestone is achieved, and the results of the uterine-fibroid Phase III program.
- Opicapone’s U.S. regulatory pathway, development costs, supply arrangements, milestone exposure and contractual minimum-sales obligations.
- Progress and outcome of the Mount Sinai litigation, and any material effect on collaboration rights or potential payments.