Neurocrine Biosciences, Inc. — Q1 2017 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2017. Neurocrine is a biopharmaceutical company focused on neurological and endocrine disorders. On April 11, 2017, after quarter-end, the FDA approved INGREZZA (valbenazine) for tardive dyskinesia; its U.S. commercial launch began May 1. Lead programs included partnered elagolix, INGREZZA for Tourette syndrome, and opicapone for Parkinson’s disease.
Key financial metrics
Amounts below are in millions of dollars, except per-share data.
| Metric | Q1 2017 | Q1 2016 / comparator |
|---|---|---|
| Revenue | $0 | $15.0 |
| Research and development expense | $51.9 | $23.9 |
| General and administrative expense | $28.1 | $12.0 |
| Total operating expenses | $79.9 | $35.9 |
| Operating loss | $(79.9) | $(20.9) |
| Net loss | $(78.3) | $(19.3) |
| Net loss per share, basic and diluted | $(0.90) | $(0.22) |
| Net cash used in operating activities | $(77.4) | $(29.2) |
There was no product revenue in the quarter, so a meaningful operating margin is not provided. The 2016 revenue was a $15.0 million AbbVie milestone; no revenue was recognized under that collaboration in Q1 2017.
At March 31, cash and cash equivalents were $64.1 million and available-for-sale investments totaled $209.2 million, for cash and investments of $273.3 million, versus $350.8 million at December 31, 2016. Restricted cash was $5.1 million. Total assets were $289.4 million, current liabilities $23.6 million, and total liabilities $42.2 million. The balance sheet reported no debt at quarter-end; the $517.5 million convertible notes were issued in May, after quarter-end.
Investing activities provided $56.6 million, principally reflecting investment sales and maturities exceeding purchases; financing activities provided $1.5 million, primarily from stock-option exercises. No gross margin or product-sales margin is reported.
Material changes versus the prior comparable period
- Net loss widened by $59.1 million, reflecting operating expenses $44.1 million higher and the absence of the prior-year $15.0 million milestone revenue.
- R&D expense rose by $28.0 million, primarily due to the $30.0 million BIAL opicapone license fee, expensed as in-process R&D; lower VMAT2 spending partly offset the increase.
- G&A expense increased by $16.1 million, mainly from higher personnel costs and commercial-launch preparation, market research, and professional services.
- Operating cash use increased by $48.2 million, reflecting higher operating expenses and payment of accrued liabilities and accounts payable.
Outlook, commentary, risks, and unusual items
- Management said existing resources, investment income, and expected strategic-alliance payments were sufficient for projected needs for at least 12 months, while cautioning that funding might not cover all planned commercialization and R&D activities. The company expected operating cash-flow losses for the foreseeable future and did not expect to be profitable or cash-flow positive in 2017.
- The BIAL agreement requires Neurocrine to fund U.S. and Canadian opicapone development and commercialization. It includes up to $115 million in additional regulatory and sales milestones and minimum-sales provisions that could require payments; repeated shortfalls could allow BIAL to terminate.
- In May 2017, Neurocrine issued $517.5 million of 2.25% convertible senior notes due 2024. The notes are convertible subject to conditions and may be settled in cash, shares, or a combination; they introduce interest, liquidity, and potential dilution considerations.
- Mount Sinai litigation alleges breach of a license agreement related to the AbbVie collaboration and seeks unspecified damages, future sublicensing fees, and attorneys’ fees. Neurocrine disputes the claims and said it could not predict the outcome or estimate a potential loss.
- Key risks include successful INGREZZA commercialization, reimbursement and market acceptance, dependence on third-party manufacturers and suppliers, clinical and regulatory uncertainty, reliance on collaborators, and ongoing losses. The filing identifies single-source suppliers for INGREZZA and its active ingredient.
- The company reported effective disclosure controls and no significant changes in internal control over financial reporting during the quarter. It reported no off-balance-sheet arrangements.
Important facts for investors to verify
- INGREZZA launch performance, access and reimbursement, supply capacity, and any post-approval requirements.
- Cash burn and remaining liquidity after the May note issuance, including the notes’ conversion, settlement, and interest terms.
- Opicapone development spending, milestone exposure, supply arrangements, and minimum-sales obligations under the BIAL agreement.
- Progress and timing of elagolix and other pipeline programs, including the conditions attached to potential collaboration payments.
- Developments in the Mount Sinai litigation and any resulting financial exposure.