Neurocrine Biosciences, Inc. — FY 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing is an annual report, not a standalone quarterly filing; selected unaudited data show fourth-quarter 2014 results. Neurocrine is a clinical-stage biopharmaceutical company with no product sales. Its lead programs were partnered elagolix (AbbVie) and wholly owned VMAT2 inhibitor NBI-98854.
Financial highlights
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Revenue | $0 | $2.9 million |
| Research and development expense | $46.4 million | $39.2 million |
| General and administrative expense | $18.0 million | $13.3 million |
| Operating loss | $64.4 million | $49.7 million |
| Net loss | $60.5 million; $0.81 per share | $46.1 million; $0.69 per share |
| Operating cash flow | $(47.1) million | $(29.6) million |
| Cash, cash equivalents and investments | $231.3 million | $145.7 million |
| Working capital | $182.5 million | $136.8 million |
| Long-term debt | None | None |
There is no meaningful operating margin because the company reported no revenue. At December 31, 2014, current assets were $198.2 million and current liabilities were $15.7 million. Cash and cash equivalents alone were $31.0 million; the reported $231.3 million liquidity total also includes short- and long-term investments.
Fourth-quarter 2014 unaudited results: no revenue, $20.5 million operating expenses, $19.4 million net loss, and $0.26 net loss per share.
Changes versus prior periods
- Revenue fell from $2.9 million in 2013 to zero in 2014 as prior collaboration-related revenue streams ended. The $53.1 million reported in 2012 included substantial collaboration revenue, so historical profitability was not recurring product revenue.
- Net loss widened by $14.5 million in 2014, reflecting higher operating expenses and the absence of 2013 revenue. R&D rose 18%, chiefly due to personnel, early discovery work and the new CRF program; G&A rose 35%, including higher personnel and share-based compensation costs.
- Cash, cash equivalents and investments increased $85.6 million, principally due to the February 2014 public offering, which generated $133.2 million net proceeds. Shares outstanding increased to 76.5 million at year-end from 67.4 million a year earlier.
- Operating cash use increased $17.5 million. Investing cash use of $105.4 million largely reflected investment purchases and maturities, rather than solely operating expenditure.
Pipeline, outlook and key risks
- NBI-98854 for tardive dyskinesia: The company began the Phase III Kinect 3 study in Q4 2014 and received FDA breakthrough therapy designation in October 2014. Top-line results were expected in the second half of 2015; a separate open-label safety study was underway. Management anticipated an NDA filing in 2016, dependent on clinical and regulatory progress. Earlier Kinect 2 results were positive, while Kinect 1 did not meet its prespecified primary endpoint; some reported analyses were post hoc.
- Elagolix: AbbVie conducts development and commercialization and bears associated costs under the collaboration. On January 8, 2015, AbbVie reported that both doses met the Violet PETAL study’s co-primary endpoints; the one-year portion was expected to conclude in May 2015. Solstice results were expected in late 2015, and a uterine fibroids Phase IIb study was expected to complete in the second half of 2015. Neurocrine’s future payments depend on development, regulatory and commercial events; the filing reported up to $500 million of future event-based payments remained, none then meeting the accounting definition of a milestone, plus potential royalties on sales.
- Other programs: NBI-77860 entered Phase I/II evaluation for classic congenital adrenal hyperplasia; data were expected in the second half of 2015. The company also expected data from its pediatric Tourette syndrome study in the second half of 2015.
- Management outlook: R&D and G&A expenses were expected to increase significantly in 2015, driven by VMAT2 Phase III development, the CAH program, pre-commercialization activity and share-based compensation. The company expected a 2015 net loss and negative operating cash flow, and stated that available resources, investment income and expected alliance payments should fund current projected needs for at least 12 months.
- Funding and execution risks: The company has never generated product revenue, reported an accumulated deficit of $826.3 million and expected losses for the foreseeable future. Additional financing may be needed; equity issuance could dilute shareholders and debt could impose restrictive covenants. Clinical failure, regulatory delay, manufacturing dependence, competition, intellectual-property challenges and reliance on AbbVie for elagolix are material risks.
- Commitments and unusual items: The headquarters lease required maintaining $50 million in cash and investments or increasing the security deposit by $5 million; minimum lease payments totaled $39.2 million through 2019. The company recognized $3.2 million of deferred gain from a prior real-estate sale-leaseback in 2014. No material legal proceedings were reported. Ernst & Young issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Subsequent clinical and regulatory outcomes for NBI-98854, including whether its Phase III results support the anticipated NDA timeline.
- Elagolix study results, approval prospects, AbbVie’s continued commitment, and the terms and timing of any milestone or royalty receipts.
- Actual cash burn and liquidity runway against management’s 12-month funding estimate, including the lease liquidity covenant and increasing 2015 development costs.
- Future share issuance and dilution, given the 2014 offering, available shelf registrations and equity compensation awards.
- Whether pipeline progress translates into product revenue; the company had no approved products and no product sales at the reporting date.