Neurocrine Biosciences, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; balance-sheet comparisons are with December 31, 2013. Amounts below are in millions of dollars unless stated otherwise.
Business context
Neurocrine is a clinical-stage biopharmaceutical company with no products on the market and no product-sale revenue. Its lead programs were partnered elagolix, in Phase III development for endometriosis and Phase II studies for uterine fibroids, and wholly owned VMAT2 inhibitor NBI-98854 for movement disorders, then in Phase II. AbbVie is responsible for third-party development and commercialization costs for elagolix; Neurocrine may receive milestone payments and royalties. No collaboration milestone payments were recognized in the periods shown.
Financial results and liquidity
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $0 | $0.730 |
| Research and development expense | $8.572 | $10.313 |
| General and administrative expense | $4.153 | $3.392 |
| Operating loss | $(12.725) | $(12.975) |
| Net loss | $(11.842) | $(12.075) |
| Basic and diluted loss per share | $(0.17) | $(0.18) |
| Net cash used in operating activities | $(9.767) | $1.912 provided |
With no product or collaboration revenue in Q1 2014, gross margin is not meaningful. Net loss improved modestly year over year, largely reflecting lower VMAT2 external development costs after substantial completion of Phase IIb work in 2013. R&D expense fell by $1.7 million; G&A rose by $0.8 million, primarily due to higher share-based compensation, personnel, and professional-service costs.
At March 31, cash and cash equivalents were $105.532 million and available-for-sale investments were $165.650 million, totaling approximately $271.2 million; restricted cash was another $4.443 million. Total assets were $279.296 million, total liabilities $32.239 million, and stockholders’ equity $247.057 million. The filing reports no conventional borrowings. Current assets were $221.735 million versus current liabilities of $10.608 million. The company reported an accumulated deficit of $777.605 million.
Operating cash use was $9.8 million, compared with cash provided of $1.9 million a year earlier; the prior-year result included collection of approximately $14.1 million in receivables. Investing activities used $65.7 million, mainly reflecting investment purchases, sales, and maturities. Financing activities provided $136.2 million, primarily from the February stock offering.
Material changes and unusual items
- In February 2014, Neurocrine sold 8.0 million shares at $17.75 per share, raising approximately $133.2 million net. Shares outstanding increased to 75.9 million at quarter-end from 67.4 million at year-end 2013.
- VMAT2 external development expense declined to $0.6 million from $3.2 million as Phase IIb work substantially concluded in 2013. Management anticipated Phase III development later in 2014, with a significant increase in external development expense.
- Q1 2014 included $0.8 million of deferred gain recognition from the 2007 sale-and-leaseback of the company’s former facility. This noncash item contributed to other income; $20.1 million of deferred gain remained to be recognized over the lease term.
- Share-based compensation expense increased to $2.4 million from $1.7 million.
Outlook, commentary, and risks
Management believed existing capital resources, investment income, and expected strategic-alliance payments would fund current and projected needs for at least 12 months. It cautioned that resources might not support all planned R&D and that additional financing could be needed. Future equity financing could dilute shareholders; debt could bring restrictive covenants. The company expected operating cash-flow losses for the foreseeable future and did not expect profitability or positive operating cash flow in 2014.
Key risks include clinical-trial failure or delay, regulatory uncertainty, reliance on collaborators (including AbbVie’s control of elagolix development), competition, intellectual-property challenges, and the need for additional funding. The filing also notes that Neurocrine had no sales force or manufacturing capability and relied on third parties for manufacturing. Management stated that interest-rate sensitivity was not material and that a 10% interest-rate change would not materially affect the investment portfolio’s fair value. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Progress, timing, and costs for NBI-98854 Phase III development and the status of elagolix trials and AbbVie’s development plans.
- Whether cash use and planned R&D spending remain consistent with management’s stated minimum 12-month funding outlook.
- Potential future collaboration payments, including milestone conditions and the timing and amount of any royalties.
- Further share issuance under the effective shelf registrations and the resulting dilution.
- Trial, regulatory, intellectual-property, manufacturing, and collaborator risks; the filing cautions that actual outcomes may differ materially from forward-looking statements.