Neurocrine Biosciences, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2023. Amounts are in millions of dollars except per-share data. Neurocrine is a neuroscience-focused biopharmaceutical company; INGREZZA generates nearly all net product sales.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $498.8 | $387.9 | $1,371.9 | $1,076.7 |
| Net product sales | $491.8 | $379.3 | $1,353.4 | $1,036.3 |
| Operating income | $141.2 | $87.8 | $100.6 | $145.6 |
| Net income | $83.1 | $68.5 | $102.0 | $65.5 |
| Diluted EPS | $0.82 | $0.69 | $1.01 | $0.67 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $266.4 | $196.4 |
- Q3 revenue increased 28.6% year over year; nine-month revenue increased 27.4%. INGREZZA sales were $485.7 in Q3, up from $376.4, and $1,335.8 for nine months, up from $1,028.6. Management attributed growth primarily to higher prescription demand and increased commercial activity.
- Calculated operating margin was 28.3% in Q3 2023 versus 22.6% in Q3 2022; for nine months it was 7.3% versus 13.5%. Calculated net margin was 16.7% in Q3 and 7.4% for nine months in 2023.
- Nine-month operating expenses rose to $1,271.3 from $931.1. This included $143.9 of Voyager-related acquired in-process R&D (IPR&D), recorded in Q1. Excluding the comparison impact of that item is important when assessing operating performance.
- R&D expense was $427.5 for nine months, versus $345.8; SG&A was $668.7, versus $569.8. Management cited expanded clinical and commercial investment, higher headcount, and increased stock-based compensation.
- Q3 other expense was $25.6, including a $40.1 unrealized loss on equity investments, partly offset by $15.6 of investment income and other. Nine-month other income was $33.3; the 2022 comparison included a $70.0 debt-extinguishment loss.
Financial position and liquidity
- At September 30, 2023, cash and cash equivalents were $293.7 and available-for-sale debt securities totaled $1,256.1, for cash, cash equivalents and marketable securities of $1,549.8. Working capital was $958.3, compared with $915.8 at December 31, 2022.
- Total assets were $2,848.2; total liabilities were $846.1; stockholders’ equity was $2,002.1. Accounts receivable was $417.8, up from $350.0 at year-end.
- Nine-month operating cash flow was $266.4, investing cash outflow $265.3, and financing cash inflow $29.9. Cash, cash equivalents and restricted cash increased $31.0 to $301.7. Investing activity included purchases and maturities of debt securities and a $31.3 Voyager equity investment.
- The 2.25% convertible notes due May 2024 had $170.4 principal outstanding and a $169.9 carrying value. The notes’ conditional conversion feature was triggered as of September 30; holders could convert from October 1 through December 29, 2023. Conversion of principal would require cash settlement. The company reported that it expects resources and anticipated revenue to meet current and projected funding needs for at least 12 months.
Material changes, outlook and risks
- The FDA approved INGREZZA for adults with chorea associated with Huntington’s disease in August 2023. The FDA accepted the INGREZZA oral-granules application in September and set an April 30, 2024 target action date.
- Neurocrine reported positive top-line Phase III results for crinecerfont in adults with classic congenital adrenal hyperplasia in September; positive pediatric Phase III results were announced in October, after quarter-end. The filing provides no numerical full-year revenue or earnings guidance.
- The company expanded its Voyager gene-therapy partnership in Q1, paid $175.0 upfront including a $31.3 equity investment, and expensed $143.9 as IPR&D. Voyager-related equity valuation changes contributed to volatile reported earnings.
- Neurocrine gave notice to terminate its ONGENTYS U.S. and Canada license; termination was anticipated in December 2023, with an orderly transition planned.
- ANDA patent litigation over generic INGREZZA remained ongoing; consolidated Delaware proceedings were scheduled for trial beginning January 2, 2024. The company stated it did not believe pending claims were likely to have a material adverse effect, while noting litigation outcomes are uncertain.
- Key disclosed risks include INGREZZA commercialization, competition and generic entry, coverage and reimbursement or drug-pricing changes, clinical and regulatory uncertainty, reliance on third-party manufacturers and collaborators, and concentration of customers. Four customers represented about 91% of nine-month product revenue and 96% of accounts receivable at September 30.
- The company disclosed potential future collaboration milestone payments of up to $17.0 billion in aggregate, contingent on achievement of specified milestones. It also cited delays to certain clinical programs related to unavailable sites in Russia and Ukraine.
Most important facts for investors to verify
- Whether INGREZZA prescription growth and the Huntington’s disease launch sustain sales growth, and how much revenue remains concentrated in INGREZZA.
- Progress, regulatory timing and commercial implications for INGREZZA oral granules and crinecerfont, including the April 30, 2024 FDA action date.
- Outcome and timing of the INGREZZA generic-patent litigation, and the effect of any adverse ruling or settlement.
- How the 2024 notes are settled or refinanced, including cash needs and potential share dilution following conversion.
- Whether spending growth, stock-based compensation, investment valuation swings and the Voyager IPR&D charge obscure underlying operating trends.
- Customer concentration, payer access and reimbursement, and the extent to which collaboration milestones and lease commitments affect future cash requirements.