Neurocrine Biosciences, Inc. — Q2 2012 Form 10-Q
Reporting period: Three and six months ended June 30, 2012. Unless stated otherwise, financial amounts below are in USD millions. Neurocrine is a clinical-stage drug discovery and development company; it reported no product-sale revenue. Revenue came from collaborations and research funding.
Financial performance and position
| Metric | Q2 2012 / June 30, 2012 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $10.6 | $12.2 in Q2 2011 |
| Operating expenses | $11.9 | $11.1 in Q2 2011 |
| Operating loss / income | $(1.4) | $1.1 income in Q2 2011 |
| Net loss / income | $(0.5), or $(0.01) per share | $2.0 income, or $0.04 per share, in Q2 2011 |
| Six-month revenue | $21.8 | $24.7 in 2011 |
| Six-month net loss / income | $(1.4), or $(0.02) per share | $4.9 income, or $0.09 per share, in 2011 |
| Six-month operating cash flow | $(18.1) | $(14.5) in 2011 |
| Cash, cash equivalents and investments | $192.2 | $129.1 at December 31, 2011 |
| Total assets / liabilities | $202.1 / $57.4 | $138.4 / $78.3 at December 31, 2011 |
For the six months, investing activities used $73.3 million and financing provided $83.3 million; financing primarily reflects the January stock offering. No borrowings are listed on the balance sheet. Liabilities include deferred revenue, deferred real-estate gain, and lease-related obligations. The filing does not provide a clear gross-margin measure; product sales were nil.
Material changes versus comparable periods
- Q2 revenue fell $1.6 million year over year; first-half revenue fell $2.8 million. Lower sponsored research and development reimbursements under Abbott and Boehringer Ingelheim agreements were a principal factor, including the transition of elagolix development work to Abbott.
- Research and development expense increased to $8.8 million in Q2 from $8.2 million, and to $18.2 million for the first half from $15.5 million. The filing attributes increases to personnel, share-based compensation, and continued VMAT2 Phase II development, partly offset by lower elagolix costs.
- General and administrative expense rose to $3.1 million in Q2 from $2.8 million and to $6.8 million for the first half from $6.0 million, primarily due to higher share-based compensation.
- In January 2012, Neurocrine sold 10.9 million shares at $8.10 per share, raising approximately $83.0 million net. Shares outstanding increased from 55.3 million at December 31, 2011 to 66.3 million at June 30, 2012.
- The accumulated deficit was $726.1 million. The company recorded $1.5 million of deferred real-estate gain in the first half, a non-operating item arising from its 2007 property sale and leaseback.
Outlook, collaborations and risks
- Management expected existing capital resources, investment income, and future strategic-alliance payments to cover current and projected funding needs for at least 12 months, while cautioning that funding may not support all planned programs. It expected operating cash-flow losses for the foreseeable future.
- Neurocrine reported 11 programs in research and development, including six in clinical development. Elagolix, partnered with Abbott, was its lead clinical program. Abbott is responsible for third-party development, marketing, and commercialization costs and has final decision authority under the collaboration. Neurocrine may receive up to approximately $24 million in personnel funding through the end of 2012, as well as potential milestone payments and sales-based royalties.
- The two-year collaborative research period with Boehringer Ingelheim for GPR119 agonists ended in June 2012; Boehringer Ingelheim is responsible for any subsequent global development and commercialization. No milestone revenue was recognized in the periods presented.
- The company had approximately $37 million remaining under its $125 million shelf registration statement. Its Kingsbridge committed equity facility had not been used and was due to expire September 15, 2012; any facility draws or additional equity issuance could dilute shareholders.
- Key risks include clinical-trial failure or delays, dependence on collaborators, the need for additional financing, uncertain regulatory outcomes, competition and intellectual-property challenges. Neurocrine had no approved products and no product-sale revenue.
Important facts for investors to verify
- Development progress, trial results, and timelines for elagolix and the VMAT2 program, including the effect of Abbott’s assumed development work on Neurocrine’s reimbursements and costs.
- Whether collaboration payments, milestones, and funding assumptions support the stated minimum 12-month liquidity outlook, given operating cash use and planned R&D spending.
- The status and terms of the remaining shelf capacity and the Kingsbridge facility, including any later financing or resulting dilution.
- The composition and liquidity of the $192.2 million cash-and-investment balance, which excludes separately reported restricted cash, and the company’s lease-related commitments.
- Potential changes in clinical-trial accruals, share-based compensation expense, and recognition of deferred collaboration and real-estate gains.