Business context and reporting period
Neurocrine Biosciences, Inc. is a neuroscience-focused biopharmaceutical company. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2023. INGREZZA (valbenazine) is the company’s principal product and accounts for nearly all net product sales.
Financial performance and position
Amounts are in millions, except per-share data. Figures compare with the corresponding 2022 periods.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $452.7 | $378.2 | $873.1 | $688.8 |
| Net product sales | $446.3 | $352.0 | $861.6 | $657.0 |
| Operating income (loss) | $73.6 | $54.7 | $(40.6) | $57.8 |
| Net income (loss) | $95.5 | $(16.9) | $18.9 | $(3.0) |
| Diluted EPS | $0.95 | $(0.18) | $0.19 | $(0.03) |
| Operating cash flow | Not stated separately | Not stated separately | $54.4 | $97.6 |
- Q2 revenue increased about 20% year over year; net product sales rose about 27%, primarily on higher INGREZZA prescriptions and demand. INGREZZA sales were $439.7 million in Q2 and $850.1 million for the first half.
- Calculated gross margin was about 97.5% in Q2 and 97.7% for the first half, based on total revenue less cost of revenues. Calculated operating margin was about 16.3% in Q2 and negative 4.7% for the first half.
- Six-month operating loss included $143.9 million of acquired in-process R&D expense from the Voyager transaction. Q2 net income also benefited from a $37.3 million unrealized gain on equity investments; the first-half gain was $39.5 million.
- At June 30, cash and cash equivalents were $160.2 million and available-for-sale debt securities totaled $1,159.1 million, for reported cash, cash equivalents and marketable securities of $1,319.3 million. Working capital was $914.1 million.
- Operating cash flow was $54.4 million for the first half, down from $97.6 million. Cash, cash equivalents and restricted cash decreased $102.5 million during the period; investing cash outflow was $168.0 million, largely reflecting debt-security purchases and a $31.3 million Voyager equity investment.
- Outstanding convertible notes had $170.4 million principal and $169.7 million carrying value at June 30, 2023; they bear 2.25% interest and mature May 15, 2024. Total liabilities were $760.1 million.
Material changes and notable items
- First-half revenue growth was led by INGREZZA, while collaboration revenue fell to $11.5 million from $31.8 million. The prior-year period included a $20.0 million milestone from MTPC’s first Japanese DYSVAL sale.
- Research and development expense rose to $285.3 million from $238.1 million for the first half; SG&A increased to $464.5 million from $383.5 million. The company cited expanded commercial activity, higher headcount and increased non-cash stock compensation, including charges related to changes in equity grant agreement terms.
- 2022 first-half results included a $70.0 million loss on extinguishment of convertible notes; 2023 did not. Voyager investment fair-value gains also contributed to the year-over-year earnings change.
- In Q1 2023, Neurocrine paid Voyager $175.0 million upfront under an expanded gene-therapy collaboration. Of this, $143.9 million was expensed as acquired IPR&D and $31.3 million was recorded as an equity investment. The company reported a 19.9% voting interest in Voyager and a $98.2 million fair value for the investment at June 30.
Outlook, risks and contingencies
- Management said existing capital resources, anticipated INGREZZA sales and investment income are expected to fund current and projected requirements for at least the next 12 months; it cautioned that funding may not cover all planned programs and activities. No specific revenue or earnings guidance is provided in the supplied filing text.
- Potential future event-based milestone payments under collaboration and license agreements could total up to $16.9 billion, contingent on specified achievements; royalties and other collaboration obligations may also apply.
- INGREZZA generic-drug patent litigation remained pending against several ANDA filers, with a consolidated Delaware trial scheduled for January 2, 2024. The Teva cases had been dismissed. The company said it could not predict litigation outcomes and did not believe pending claims were likely to have a material adverse effect.
- Key disclosed risks include dependence on INGREZZA and a small number of specialty-pharmacy customers, generic competition and patent outcomes, pricing and reimbursement pressure, clinical and regulatory uncertainty, reliance on third-party manufacturers and collaborators, and cybersecurity and data-privacy risks.
- The company gave notice to terminate its ONGENTYS U.S. and Canada license; termination was anticipated in December 2023. It also noted clinical-trial site disruption related to the Russia-Ukraine conflict.
Important facts for investors to verify
- Whether INGREZZA prescription growth and sales momentum continue, and how customer concentration affects collections: four customers represented about 91% of first-half product revenue and 96% of accounts receivable at June 30.
- Updates to the INGREZZA ANDA litigation, including trial timing, rulings and potential generic-entry implications.
- Cash generation and spending trends, including commercial and R&D investment, and the plan for the $170.4 million notes due in May 2024.
- Progress and future costs or milestone obligations associated with the Voyager collaboration, alongside the effect of volatile equity-investment valuations on reported earnings.
- Execution of the ONGENTYS license termination and any resulting operational or financial impact.