Neurocrine Biosciences, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions unless noted.
Business context
Neurocrine discovers and develops pharmaceuticals focused on neurological and endocrine disorders. It had no product sales. Its lead programs were partnered elagolix, in Phase III development for endometriosis and uterine fibroids, and valbenazine, in Phase III development for movement disorders. AbbVie funds development and commercialization of elagolix; Mitsubishi Tanabe holds rights to valbenazine in Japan and selected Asian markets.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $15.0 million | $19.8 million |
| Research and development expense | $23.9 million | $16.6 million |
| General and administrative expense | $12.0 million | $5.5 million |
| Total operating expenses | $35.9 million | $22.1 million |
| Operating loss | $20.9 million | $2.3 million |
| Net loss | $19.3 million | $1.2 million |
| Net loss per share | $0.22 | $0.01 |
| Cash used in operating activities | $29.2 million | $18.2 million |
Revenue in Q1 2016 was a $15 million AbbVie milestone after it initiated Phase III development of elagolix for uterine fibroids. Q1 2015 revenue included $19.8 million recognized from Mitsubishi Tanabe’s upfront license payment. The filing reports no product revenue. Operating margin was approximately negative 139% in 2016 versus negative 12% in 2015, reflecting operating loss relative to collaboration revenue.
At March 31, 2016, cash and cash equivalents were $115.3 million and available-for-sale investments were $315.7 million, or approximately $431.0 million combined, compared with $461.7 million at December 31, 2015. Current assets were $401.0 million and current liabilities were $23.3 million. Total liabilities were $46.4 million; the balance sheet reports no debt. Management said resources, investment income and expected alliance payments should fund current and projected needs for at least 12 months, but might not support all planned programs.
Changes and notable items
- Revenue decreased $4.8 million year over year, while operating expenses rose $13.8 million. Net loss increased $18.1 million.
- R&D expense rose primarily with valbenazine Phase III development, higher personnel costs and expanded preparation for an anticipated valbenazine tardive dyskinesia NDA filing later in 2016. G&A growth reflected increased personnel, share-based compensation and market research and commercial-launch preparation.
- Operating cash use increased $11.0 million. Investing activities provided $70.3 million, mainly reflecting the timing of investment purchases, sales and maturities. Financing provided $0.1 million, versus $273.5 million in Q1 2015, which included net proceeds from a public offering.
- Share-based compensation expense was $6.9 million, up from $3.6 million. A sublease termination and reoccupation of space led to an approximately $0.8 million reversal of cease-use expense; the company also recognized $0.9 million of deferred real-estate gain in other income.
Outlook, risks and contingencies
- Management expects operating cash flow losses for the foreseeable future and did not expect profitability or positive operating cash flow in 2016. It cautioned that additional funding could be needed; equity financing would dilute shareholders, while debt or collaborations could impose restrictions or require relinquishing rights.
- Key risks include clinical-trial failure or delay, regulatory approval uncertainty, reliance on AbbVie and Mitsubishi Tanabe, commercial-launch execution, competition, reimbursement and pricing pressures, and the need for third-party manufacturers.
- Mount Sinai alleges breach of a 1999 license agreement related to the AbbVie collaboration and seeks unspecified damages, future sublicensing fees and attorney fees. Neurocrine’s motion to dismiss was pending; the company said it could not predict the outcome or estimate any potential loss.
- The company reported no off-balance-sheet arrangements and no material interest-rate exposure from a hypothetical 10% rate change. Disclosure controls were assessed as effective, with no significant quarterly change in internal control over financial reporting.
Most important facts for investors to verify
- Progress and timing of the valbenazine NDA and clinical programs, and whether the anticipated 2016 filing occurred.
- Future cash burn relative to the approximately $431 million in cash and investments, including the timing and probability of collaboration payments.
- Resolution and potential financial impact of the Mount Sinai litigation.
- Whether commercial-launch spending, clinical costs or collaboration developments materially change the company’s funding outlook.