Neurocrine Biosciences, Inc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also provides unaudited fourth-quarter results. Neurocrine discovers, develops, and commercializes medicines for neurological and endocrine disorders. Its marketed products were INGREZZA for tardive dyskinesia (TD), sold by Neurocrine in the U.S., and ORILISSA for endometriosis pain, commercialized by AbbVie.
Financial performance and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Total revenue | $451.2 million | $161.6 million |
| INGREZZA net product sales | $409.6 million | $116.6 million |
| Collaboration revenue | $41.6 million | $45.0 million |
| Operating expenses | $414.3 million | $293.0 million |
| Income (loss) from operations | $36.9 million | $(131.4) million |
| Net income (loss) | $21.1 million | $(142.5) million |
| Diluted earnings (loss) per share | $0.22 | $(1.62) |
| Operating cash flow | $101.4 million | $(94.3) million |
| Cash, cash equivalents, and investments | $866.9 million | $763.3 million |
| Working capital | $649.5 million | $500.5 million |
Revenue rose about 179%, driven primarily by INGREZZA sales. 2018 collaboration revenue included a $40 million milestone following FDA approval of ORILISSA and approximately $1.6 million in ORILISSA royalties. The company reported a profit after losses in 2016 and 2017. Research and development expense increased to $160.5 million from $121.8 million; sales, general and administrative expense increased to $248.9 million from $169.9 million, reflecting pipeline spending and expansion of the commercial organization. Cost of sales was $4.9 million; the company cautioned that costs would rise in 2019 as post-approval INGREZZA manufacturing costs enter cost of sales.
Fourth-quarter 2018 revenue was $131.5 million, versus $94.5 million in fourth-quarter 2017; net income was $18.1 million, versus $6.9 million, and diluted EPS was $0.19, versus $0.07.
At year-end, current assets were $737.8 million and current liabilities $88.2 million. Convertible notes had $517.5 million principal outstanding and a $388.5 million net carrying value; they bear 2.25% interest and mature in May 2024. Operating cash flow turned positive; investing activities used $242.9 million, principally reflecting investment purchases and facility spending. The filing reports no off-balance-sheet arrangements. Product gross margin is not a clean measure of ongoing economics because some INGREZZA manufacturing costs had been expensed as R&D before approval.
Material changes and business developments
- INGREZZA sales expanded substantially following its 2017 launch; Neurocrine increased its U.S. specialty sales force by approximately 50% in 2018, to about 250 professionals.
- AbbVie began marketing ORILISSA in August 2018 after FDA approval for moderate to severe endometriosis pain. AbbVie reported positive Phase III uterine-fibroid results; Neurocrine anticipated an NDA submission in mid-2019.
- Neurocrine planned to submit an NDA for opicapone for Parkinson’s disease in the second quarter of 2019, following FDA feedback that an additional Phase III trial was not required.
- The Phase IIb T-Force GOLD study of valbenazine in pediatric Tourette syndrome failed to meet its primary endpoint. The company was analyzing the complete data and had not determined next steps.
- After year-end, Neurocrine entered a Voyager gene-therapy collaboration on January 28, 2019. The agreement included a $115 million upfront cash payment and a $50 million stock purchase, with potential development, regulatory, and commercial milestones. Effectiveness was subject to closing conditions; these were not 2018-period expenses.
Outlook, risks, and contingencies
Management expected increased spending on INGREZZA commercialization and research and development, and stated that existing capital, investment income, and expected collaboration payments should fund current projected requirements for at least 12 months. This was not a specific revenue or earnings forecast. Initial NBI-74788 results in classic congenital adrenal hyperplasia were expected in the first quarter of 2019. The company noted that clinical outcomes, regulatory decisions, commercialization, and funding needs remain uncertain.
- Concentration: The three largest customers represented approximately 93% of product revenue and substantially all accounts receivable.
- Supply: Neurocrine relied on contract manufacturers, including single-source suppliers for INGREZZA components; qualifying replacements could take time and disrupt supply.
- Development and market risks: Clinical failures, regulatory delays, competition, reimbursement restrictions, pricing pressure, and product safety findings could impair revenue and pipeline value. The Tourette trial failure illustrates clinical risk.
- Debt and dilution: Note conversion may require cash settlement of principal or issuance of shares; $535.0 million of notes and related interest was scheduled in the filing’s 2023-and-thereafter contractual-obligations bucket.
- Other commitments: The company disclosed potential licensing milestones of up to approximately $1.0 billion plus royalties across agreements; timing and probability were not reliably estimable. It also reported $101.9 million in operating-lease commitments.
The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of December 31, 2018.
Key facts for investors to verify
- Subsequent INGREZZA sales, net pricing, reimbursement, and customer concentration.
- Whether opicapone’s NDA was submitted and how FDA review progressed; whether elagolix was submitted for uterine fibroids and the outcome of review.
- Complete results and follow-up decisions from the failed Tourette study, and clinical progress of NBI-74788 and other pipeline programs.
- Actual manufacturing costs, supply resilience, and product gross margins after the transition to post-approval INGREZZA inventory.
- Cash and investment levels, operating cash generation, and the funding and share-dilution implications of debt conversion and the Voyager agreement.