Neurocrine Biosciences, Inc. — 2013 Form 10-K Summary
Business context and reporting period
Reports the fiscal year ended December 31, 2013; unaudited quarterly data are also provided. Neurocrine is a clinical-stage biopharmaceutical company focused on neurological and endocrine disorders. It had no approved products and generated no product-sale revenue; all reported revenue came from collaborations and license-fee amortization.
Lead programs were partnered elagolix (Phase III for endometriosis and Phase II for uterine fibroids, with AbbVie) and wholly owned VMAT2 inhibitor NBI-98854 (Phase II for movement disorders, including tardive dyskinesia). The company had no commercial sales force or manufacturing capability.
Financial performance and liquidity
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $2.9 million | $53.1 million |
| Research and development expense | $39.2 million | $37.2 million |
| General and administrative expense | $13.3 million | $13.4 million |
| Operating loss / income | $(49.7) million | $1.4 million |
| Net loss / income | $(46.1) million | $5.0 million |
| Net loss / income per diluted share | $(0.69) | $0.08 |
| Cash, cash equivalents and short-term investments | $145.7 million | $173.0 million |
| Working capital | $136.8 million | $173.6 million |
| Long-term debt | None | None |
Net cash used in operating activities was $29.6 million, versus $35.3 million in 2012. Cash and cash equivalents alone were $44.8 million at year-end; short-term investments were $101.0 million. The company reported no product gross margin because it had no product sales. The filing does not provide a clear operating cash-flow margin measure.
Fourth-quarter 2013 revenue was $0.7 million, operating expenses were $12.3 million, and net loss was $10.6 million, or $0.16 per share. The filing reports no debt at year-end, but disclosed $46.4 million in future minimum lease payments under its facility lease.
Material changes versus the prior comparable period
- Revenue fell by $50.2 million year over year, primarily because AbbVie’s collaborative development funding ended in 2012 and Boehringer Ingelheim’s collaborative research period ended in June 2012. 2012 also included substantial collaboration revenue; 2011 had included $30.0 million in AbbVie milestones.
- The company shifted from 2012 net income to a 2013 net loss as collaboration revenue declined. Revenue in 2013 was primarily $2.9 million of annual license-fee amortization from the DSP agreement; there was no 2013 revenue from AbbVie or Boehringer Ingelheim.
- R&D expense increased 5.6%, mainly from higher external development spending on VMAT2 as the program advanced in Phase IIb. Elagolix-related company costs declined as development responsibility shifted to AbbVie.
- Cash and investments decreased by approximately $27.3 million. Operating cash use improved year over year, partly because $14.1 million of collaboration receivables outstanding at the end of 2012 were collected in 2013.
Outlook, commentary, and key risks
- Management expected 2014 revenue to decline versus 2013 and did not expect milestone revenue in 2014. It expected higher R&D expense, particularly for VMAT2, higher share-based compensation and higher G&A expense, and projected a 2014 net loss.
- Management stated existing resources, investment income and anticipated collaboration payments were expected to fund current projected requirements for at least 12 months; it cautioned that resources might not fund all planned programs. The company expected operating cash-flow losses for the foreseeable future.
- In the Kinect 2 Phase IIb study of NBI-98854 for tardive dyskinesia, the company reported a statistically significant reduction in centrally video-assessed AIMS scores at week six versus placebo (2.6-point reduction versus 0.2; p<0.001) and responder rates of 49% versus 18%. The first Kinect study had not met its primary endpoint at the 50 mg dose; its reported 100 mg finding was at week two using central video assessment. The results remained clinical-stage evidence, not regulatory approval.
- The company planned to seek an FDA end-of-Phase-II meeting for NBI-98854 in the first half of 2014. AbbVie had initiated a second Phase III endometriosis study in 2013; an NDA filing was expected in 2016. AbbVie controlled elagolix development and regulatory interactions and bore third-party development and commercialization costs.
- Principal risks include clinical-trial failure or delay, dependence on collaborators for development and milestone or royalty potential, uncertain future funding and possible dilution, lack of approved products and commercialization infrastructure, competition, patent and manufacturing risks, and reimbursement or regulatory changes.
- Other relevant items: the company recognized $3.1 million of deferred gain from a prior real-estate sale in 2013; this was reported in other income, not collaboration revenue. It had an effective shelf registration permitting up to $150 million of common-stock offerings and had not sold shares under it as of January 31, 2014. No material legal proceedings were reported. The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Subsequent clinical and regulatory progress for NBI-98854, including FDA feedback on dose, trial design, and the assessment endpoint.
- Elagolix Phase III trial results, timeline, and AbbVie’s continued investment and development decisions; verify the assumptions behind anticipated royalties and milestones.
- Actual 2014 cash burn, collaboration receipts, and runway relative to management’s stated funding horizon; assess the potential for shelf offerings or other financing.
- The sustainability and composition of reported revenue, which was collaboration- and license-related rather than product sales, and the impact of the 2012 collaboration completions.
- Lease and other contractual obligations, including the $50 million cash-and-investments requirement or additional security deposit provision in the facility lease.