Business context and reporting period
Neurocrine Biosciences, Inc.’s unaudited Form 10-Q covers the quarter and nine months ended September 30, 2014. The company discovers and develops medicines focused on neurological and endocrine disorders and reported no product sales. Its lead programs were partnered elagolix (AbbVie) and its wholly owned VMAT2 inhibitor.
Financial performance and liquidity
Amounts are in millions of dollars except per-share data. Operating margins are not meaningful because the company reported no revenue in 2014.
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $0 | $0.729 | $0 | $2.189 |
| Research and development expense | $12.194 | $9.490 | $30.927 | $30.330 |
| General and administrative expense | $4.663 | $3.245 | $13.016 | $10.007 |
| Net loss | $(15.875) | $(11.131) | $(41.098) | $(35.448) |
| Basic and diluted loss per share | $(0.21) | $(0.17) | $(0.56) | $(0.53) |
| Cash used in operating activities | Not separately presented for the quarter | $(31.831) | $(18.728) |
- At September 30, 2014, cash and cash equivalents were $29.046 million and available-for-sale investments were $217.776 million, totaling $246.822 million, versus $145.739 million at December 31, 2013. Restricted cash of $4.443 million is additional but not included in that total.
- Total assets were $257.751 million; total liabilities were $33.714 million and stockholders’ equity was $224.037 million. The filing does not report outstanding borrowings; liabilities include lease-related and deferred-gain balances.
- Nine-month investing cash outflow was $120.911 million, primarily reflecting investment purchases and maturities. Financing cash inflow was $136.999 million, including approximately $133.2 million net proceeds from a February public offering of 8.0 million shares.
Material changes versus prior comparable periods
- Revenue fell to zero in both 2014 periods, from license-fee revenue of $0.729 million in Q3 2013 and $2.189 million in the first nine months of 2013.
- Net loss increased by $4.744 million in Q3 and $5.650 million for the first nine months. Higher operating expenses and lower revenue contributed.
- Q3 R&D expense rose $2.704 million year over year, mainly from personnel, share-based compensation, early-stage program development and laboratory costs. Nine-month R&D rose only $0.597 million: lower VMAT2 development spending after Phase IIb was substantially completed was largely offset by personnel and early-stage program costs.
- G&A expense increased $1.418 million in Q3 and $3.009 million for the first nine months, primarily from personnel-related costs, share-based compensation and professional services.
- Operating cash use increased $13.103 million year over year for the nine-month period; management attributed the comparison mainly to collection in Q1 2013 of approximately $14.1 million in receivables originating in 2012.
Outlook, commentary and risks
- Management expected existing capital resources, investment income and future strategic-alliance payments to fund current projected requirements for at least 12 months, while cautioning that this may not support all planned R&D. It expected operating cash-flow losses for the foreseeable future and did not expect profitability in 2014.
- Neurocrine had recently initiated Phase III development of its VMAT2 inhibitor for tardive dyskinesia; management anticipated a significant increase in future external development expense. Elagolix was in Phase III development for endometriosis and Phase II studies for uterine fibroids.
- Under the AbbVie collaboration, AbbVie is responsible for third-party development, marketing and commercialization costs. Neurocrine may receive development and regulatory payments, commercial event-based payments and royalties; no milestone payments were recognized in the periods presented. The agreement may be terminated by AbbVie on 180 days’ notice.
- Additional funding may be needed. Equity financing could dilute shareholders; debt could impose restrictive covenants. Inadequate funding could require curtailing programs or relinquishing rights. Clinical-trial failure or delay, reliance on AbbVie and third parties, regulatory and reimbursement hurdles, competition, and intellectual-property and product-liability exposures are material risks.
- The company reported that its disclosure controls were effective at a reasonable-assurance level and that no material change in internal control over financial reporting occurred during the quarter. A new revenue-recognition standard was scheduled for adoption beginning in 2017; impact was still under evaluation.
Important facts for investors to verify
- Progress, enrollment, results and timelines for VMAT2 Phase III tardive-dyskinesia development and the elagolix programs.
- Actual cash burn, investment liquidity and whether available resources continue to support the company’s stated minimum 12-month funding outlook as development costs rise.
- AbbVie’s continued development and regulatory progress, and the conditions and timing for potential milestone and royalty payments.
- Potential future equity issuance and dilution, including use of the company’s effective shelf registrations.
- Clinical, regulatory, manufacturing, intellectual-property and commercialization risks before any candidate can generate product revenue.