Neurocrine Biosciences, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Neurocrine is a neuroscience-focused biopharmaceutical company; its commercial product INGREZZA is approved for tardive dyskinesia (TD). Its portfolio also includes partnered products and clinical-stage programs. Dollar amounts below are in millions unless noted.
Financial results and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $222.1 | $151.8 | $544.1 | $319.7 |
| INGREZZA net sales | $198.1 | $111.3 | $515.1 | $279.3 |
| Operating income | $90.1 | $54.3 | $23.6 | $15.0 |
| Net income | $53.8 | $50.8 | $3.0 | $3.0 |
| Diluted EPS | $0.56 | $0.52 | $0.03 | $0.03 |
Q3 operating margin was approximately 40.6%, versus 35.8% a year earlier; nine-month operating margin was approximately 4.3%, versus 4.7%. Q3 operating income increased with product sales, while nine-month results included $118.1 million of acquired in-process R&D expense tied to Voyager. Q3 net income also reflected a $28.5 million unrealized loss on Neurocrine’s restricted Voyager equity investment.
Q3 collaboration revenue was $24.0 million, including a $20.0 million AbbVie milestone following FDA acceptance of its uterine-fibroids NDA and $4.0 million in ORILISSA royalties. The prior-year quarter included a $40.0 million milestone on FDA approval of ORILISSA. Nine-month collaboration revenue was $29.0 million versus $40.5 million.
- Operating expenses: $132.0 million in Q3, up from $97.4 million; $520.5 million for nine months, including $118.1 million of Voyager-related IPR&D. SG&A rose to $84.5 million in Q3, primarily reflecting commercial expansion, a disease-awareness campaign and higher branded-drug fees.
- Operating cash flow was $49.5 million for nine months, compared with $50.9 million. Capital expenditures were $11.9 million; reported investing cash outflow was $44.9 million, including the $54.7 million Voyager equity investment. Financing provided $20.0 million, primarily from common-stock issuance.
- At September 30, cash and cash equivalents were $166.6 million, available-for-sale debt securities totaled $708.3 million, and cash, cash equivalents and restricted cash totaled $171.8 million. Cash plus available-for-sale securities was approximately $875.0 million, compared with $866.9 million at year-end 2018.
- Current assets were $819.2 million and current liabilities $115.7 million. Convertible notes had $517.5 million principal outstanding and a $403.6 million net carrying amount; they bear 2.25% interest and mature May 15, 2024. Their estimated fair value was $708.7 million. Notes are unsecured and may require cash settlement upon conversion under specified conditions.
- Operating lease liabilities totaled $82.6 million, including $8.2 million current and $74.5 million noncurrent. The company added office space under a 12-year lease amendment; a further $47.4 million of minimum payments relates to leases not yet commenced.
Material changes, outlook and risks
INGREZZA sales increased 78% in Q3 and 84% for the first nine months year over year. Management attributed higher R&D expense primarily to Voyager program development, and higher SG&A primarily to commercial investment. The company reported it was profitable in Q3 but cautioned that quarterly results may fluctuate and that it may not achieve sustained profitability.
No specific revenue or earnings guidance is provided in the filing. Management stated existing capital resources, investment income and expected strategic-alliance payments should fund current and projected needs for at least 12 months, while noting resources may not cover operations and development to the full extent planned.
- FDA accepted the opicapone NDA, with a PDUFA target action date of April 26, 2020; the filing notes a $10.0 million milestone paid to BIAL in Q3.
- AbbVie’s uterine-fibroids NDA for elagolix was accepted with a PDUFA target date in Q2 2020; the related $20.0 million milestone was recognized in Q3 and was payable in Q4. AbbVie also intended to initiate an elagolix study in polycystic ovary syndrome.
- Neurocrine announced initiation of the Phase III KINECT-HD study; enrollment of 120 participants was expected to begin in Q4 2019.
- Key risks include dependence on INGREZZA acceptance, reimbursement and supply; clinical and regulatory uncertainty across the pipeline; reliance on collaborators, including AbbVie, BIAL, MTPC and Voyager; and reliance on third-party manufacturers. The filing also highlights drug-pricing and healthcare-policy risks, safety and product-liability exposure, and possible cash needs if the convertible notes become convertible.
- Voyager collaboration obligations include up to $1.7 billion in potential development, regulatory and commercial milestones, plus royalties; Neurocrine generally funds development costs under agreed plans. The restricted Voyager equity investment is valued using Level 3 assumptions and may cause earnings volatility.
Most important facts for investors to verify
- Whether INGREZZA sales growth continues and whether reimbursement, competition and product supply support further adoption.
- FDA review progress and outcomes for opicapone and elagolix, including the stated 2020 target dates.
- KINECT-HD enrollment timing and subsequent clinical results, as well as progress and funding needs in Voyager programs.
- Cash generation relative to commercial, R&D and collaboration spending; the company’s stated 12-month funding outlook; and the potential liquidity and dilution consequences of note conversion.
- The valuation and restrictions associated with the Voyager equity holding, and the cost and timing of expanded lease commitments.