Neurocrine Biosciences, Inc. — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013. Unaudited financial results; dollar amounts below are in millions unless noted.
Business context and reporting period
Neurocrine was a clinical-stage drug discovery and development company, with 11 programs in development, including six in clinical development. Its lead programs were partnered elagolix for women’s health and a wholly owned VMAT2 inhibitor for movement disorders. The company reported no product sales and relied on collaboration payments, investment income and equity financing.
Financial results and liquidity
| Metric | Q2 2013 | Q2 2012 | First half 2013 | First half 2012 |
|---|---|---|---|---|
| Revenue | $0.73 | $10.57 | $1.46 | $21.84 |
| Research and development expense | $10.53 | $8.82 | $20.84 | $18.21 |
| General and administrative expense | $3.37 | $3.13 | $6.76 | $6.80 |
| Operating loss | $13.17 | $1.38 | $26.14 | $3.17 |
| Net loss | $12.24 | $0.50 | $24.32 | $1.39 |
| Loss per share | $0.18 | $0.01 | $0.36 | $0.02 |
At June 30, cash and cash equivalents were $44.3, short- and long-term investments totaled $122.1, and restricted cash was $4.3. Management cited cash, cash equivalents and investments of $166.4. Total assets were $174.8; total liabilities were $38.8; stockholders’ equity was $136.0. No debt balance was reported.
For the first half, operating cash use was $7.9, investing cash use was $14.1, and financing provided $2.6, primarily from stock-option exercises. Cash and cash equivalents declined $19.4 to $44.3. The filing attributes lower operating cash use than in the prior-year period mainly to collection of $14.1 of collaboration receivables.
No conventional operating margin was reported; the company had a substantial operating loss relative to revenue. Investment income was $0.2 for the first half. Recognition of deferred real-estate sale gain contributed $1.6 of other income during the first half.
Material changes versus prior comparable periods
- Revenue fell sharply: the first half declined to $1.46 from $21.84, primarily because the AbbVie elagolix collaborative-development period ended in December 2012 and Boehringer Ingelheim’s collaborative research period ended in June 2012. Q2 2013 revenue consisted of approximately $0.7 from Dainippon Sumitomo Pharma.
- First-half net loss increased to $24.32 from $1.39, reflecting the loss of prior collaboration revenue and higher R&D spending.
- First-half R&D expense rose $2.6, mainly from increased external development costs for the VMAT2 program in Phase IIb; G&A expense was essentially unchanged.
- Cash and investments were $166.4 at June 30, compared with $173.5 at December 31, 2012. First-half operating cash use was lower year over year, largely due to collection of receivables, rather than improved earnings.
Outlook, management commentary, risks and unusual items
- Management expected existing resources, investment income and future strategic-alliance payments to cover projected funding needs for at least the next 12 months, but warned resources might not support all planned R&D. The company expected operating cash-flow losses for the foreseeable future.
- Potential future funding sources included strategic alliances and equity issuance. Effective shelf registrations provided up to $187 million of aggregate offering capacity; approximately $37 million remained under the older shelf, and no shares had been sold under the newer shelf as of June 30. Additional equity could dilute shareholders; debt could carry restrictive covenants.
- AbbVie was responsible for third-party development, marketing and commercialization costs for elagolix and related GnRH compounds. No milestone revenue was recognized in the periods presented. Neurocrine noted it had limited access to information about AbbVie’s development activities and related confidentiality constraints.
- Principal risks included clinical-trial failure or delay, regulatory uncertainty, dependence on collaborators and contract manufacturers, need for additional financing, competition, intellectual-property disputes, and the possibility that candidates may never generate product revenue.
- The company reported no material change to its stated risk factors other than identified revisions, and management concluded disclosure controls were effective. No subsequent event requiring disclosure was identified.
Important facts for investors to verify
- Clinical progress, trial results and timelines for the AbbVie-partnered elagolix programs and Neurocrine’s Phase IIb VMAT2 inhibitor program.
- Whether collaboration or milestone payments materialize, and the timing and amount of any future payments from partners.
- Cash burn and liquidity runway, including how much of reported liquidity is available for operations and how development spending changes.
- Any use of shelf-registration capacity or other financing, and the resulting dilution or financing terms.
- The implications of the ended AbbVie and Boehringer Ingelheim research periods for future revenue, and the extent of Neurocrine’s access to partner program information.