Neurocrine Biosciences, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual filing, not a standalone fourth-quarter report. The unaudited quarterly data show Q4 revenue of $0, operating expenses of $30.7 million and net loss of $29.3 million ($0.34 per share).
Business context
Neurocrine is a clinical-stage biopharmaceutical company focused on neurological and endocrine disorders. It had no approved products and generated no product-sales revenue. Its leading programs were partnered elagolix, in Phase III for endometriosis and uterine fibroids, and valbenazine (NBI-98854), in Phase III for tardive dyskinesia (TD) and Phase II for Tourette syndrome. The company plans to retain certain valbenazine commercial rights and build toward becoming an integrated pharmaceutical company.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $19.8 million | $0 |
| Research and development expense | $81.5 million | $46.4 million |
| General and administrative expense | $32.5 million | $18.0 million |
| Operating loss | $94.2 million | $64.4 million |
| Net loss | $88.9 million ($1.05 per share) | $60.5 million ($0.81 per share) |
| Net cash used in operating activities | $38.0 million | $47.1 million |
| Cash, cash equivalents and investments at year-end | $461.7 million | $231.3 million |
| Long-term debt | None | None |
All FY2015 revenue was collaboration revenue: $19.8 million recognized from Mitsubishi Tanabe’s $30 million upfront payment for Asian valbenazine rights; $10.2 million of that payment remained deferred. No product gross margin was reported; a product-sales margin is not applicable because the company had no marketed products. Working capital was $358.4 million, total assets were $474.8 million, and stockholders’ equity was $424.5 million at year-end.
Operating cash use declined year over year, partly reflecting the Mitsubishi Tanabe upfront payment and higher accrued liabilities. Financing provided $277.0 million, including $270.7 million net proceeds from a February 2015 public stock offering. Investing used $195.8 million, largely reflecting investment purchases and maturities. The company reported no outstanding debt.
Material changes and significant developments
- Revenue rose from zero in 2014, while net loss widened by $28.4 million. Higher R&D and G&A spending more than offset the new collaboration revenue.
- R&D expense increased 76%, principally due to valbenazine Phase III development, higher staffing and share-based compensation. G&A rose substantially, including increased personnel, pre-commercialization and professional costs.
- Share-based compensation expense increased to $28.4 million from $10.4 million, including approximately $8.8 million related to performance-based awards becoming probable, largely following valbenazine Phase III results.
- In February 2015, Neurocrine sold approximately 8.0 million shares at $36 per share, receiving about $270.7 million net. Year-end shares outstanding were 86.3 million, up from 76.5 million.
Outlook, pipeline, risks and contingencies
- Management outlook: Neurocrine expected a net loss in 2016, higher R&D and significantly higher G&A expense, and a modest revenue decline. It expected negative operating cash flows for the foreseeable future, but believed existing resources, investment income and anticipated collaboration payments would fund requirements for at least 12 months.
- Valbenazine: The company expected to file a TD NDA in 2016, supported by the Kinect 3 Phase III study and the ongoing Kinect 4 safety study. Kinect 3’s week-six AIMS results favored both doses versus placebo; the 80 mg dose showed a 3.1-point least-squares mean difference in the intention-to-treat analysis (p<0.0001). The FDA had granted breakthrough therapy designation, which does not assure faster review or approval.
- Elagolix: AbbVie reported positive Phase III endometriosis results for both tested doses; dose-related hot flashes and bone mineral density loss were noted. AbbVie targeted a 2017 U.S. NDA filing for endometriosis. AbbVie began Phase III uterine-fibroid studies in early 2016. Neurocrine relies on AbbVie for development, regulatory work and commercialization.
- Other programs: Phase II valbenazine Tourette studies were underway, with readouts expected around year-end 2016. NBI-640756 was in Phase I for essential tremor, with initial data expected in the first half of 2016. Neurocrine halted clinical development of CRF antagonist NBI-77860 after toxicology findings in juvenile rodents; it was evaluating other CRF compounds.
- Legal contingency: Mount Sinai sued in December 2015, alleging breach of the parties’ license agreement relating to the AbbVie GnRH collaboration. It seeks unspecified damages, future sublicensing fees and legal fees. Neurocrine said it had meritorious defenses, but could not predict the outcome.
- Principal risks: Clinical or regulatory failure and delay; dependence on collaborators and milestone/royalty timing; no commercial sales, manufacturing or sales infrastructure; future financing and potential dilution; reimbursement, pricing and competitive pressures; intellectual-property disputes; and the Mount Sinai litigation. A lease covenant required maintaining $50 million in cash and investments or increasing the security deposit by $5 million.
Most important facts for investors to verify
- Whether valbenazine’s 2016 NDA was filed and accepted, and how the FDA evaluated the clinical, safety and manufacturing package.
- Whether the 2017 elagolix endometriosis filing target and the uterine-fibroid development schedule were achieved by AbbVie.
- Cash and investment balances, operating cash burn, deferred collaboration revenue and the company’s stated funding runway.
- The status and potential financial effect of the Mount Sinai lawsuit, and any changes in license or collaboration arrangements.
- Expected dilution, including equity compensation and use of the effective shelf registration statement.