Neurocrine Biosciences, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Comparisons are with the three months ended March 31, 2023 unless otherwise noted. Amounts are in U.S. dollars; financial statement amounts are in millions except per-share data.
Business context
Neurocrine is a neuroscience-focused biopharmaceutical company. Its principal product is INGREZZA (valbenazine), approved in the U.S. for tardive dyskinesia and chorea associated with Huntington’s disease. The company also earns collaboration revenue, including royalties on partner sales. In April 2024, after quarter-end, it submitted two NDAs for crinecerfont for classic congenital adrenal hyperplasia and received FDA approval for INGREZZA SPRINKLE.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Total revenue | $515.3 | $420.4; up 22.6% |
| Net product sales | $509.0 | $415.3 |
| INGREZZA sales | $506.0 | $410.4; up 23.3% |
| Operating income (loss) | $99.3 | $(114.2) |
| Net income (loss) | $43.4 | $(76.6) |
| Diluted EPS | $0.42 | $(0.79) |
| Operating cash flow | $130.3 | $(125.2) |
| Cash, cash equivalents and marketable securities | $1,911.0 | $1,719.1 at Dec. 31, 2023 |
| Working capital | $1,086.1 | $952.2 at Dec. 31, 2023 |
Operating margin was approximately 19.3% of revenue, compared with approximately negative 27.2% a year earlier. Cost of revenues was $7.5 million; the filing does not present a separate gross-margin percentage. R&D expense rose to $159.4 million from $139.5 million, while SG&A was nearly unchanged at $243.1 million versus $242.7 million. Acquired in-process R&D expense was $6.0 million, compared with $143.9 million in Q1 2023.
At March 31, 2024, cash and cash equivalents were $396.3 million and available-for-sale debt securities totaled $1,514.7 million. Current assets were $1,799.0 million and current liabilities were $712.9 million. Operating cash flow improvement primarily reflected higher INGREZZA sales and lower collaboration upfront payments. Investing cash flow was $(55.0) million and financing cash flow was $69.9 million, primarily from stock-plan issuances.
The company had $170.4 million face value of 2.25% convertible notes outstanding, due May 15, 2024. It elected to settle conversions in cash. The notes’ carrying value was $122.8 million, alongside a $136.2 million embedded-derivative liability. The balance sheet also included $252.9 million of noncurrent operating lease liabilities.
Material changes and unusual items
- Revenue growth was primarily driven by INGREZZA, with management citing strong underlying patient demand and improved gross-to-net dynamics.
- Q1 2024 included $88.7 million of charges related to separating and remeasuring the notes’ conversion feature after the company elected cash settlement. These charges materially reduced income before tax; the cash flow statement adds them back in reconciling net income to operating cash flow.
- Q1 2023 operating results included $143.9 million of Voyager-related acquired IPR&D expense. Q1 2024 included $6.0 million of IPR&D expense for the Biocytogen collaboration and a $5.0 million Voyager milestone in R&D expense for selecting a Friedreich’s ataxia development candidate.
- The company recognized an $8.9 million income-tax benefit in Q1 2024, compared with a $26.7 million benefit in Q1 2023. The filing cites research credits, nondeductible items including debt-related charges, stock-compensation tax benefits, and foreign losses without a recorded tax benefit as factors in the 2024 effective tax rate.
- Four specialty pharmacy and distributor customers represented approximately 94% of product sales and 97% of accounts receivable, highlighting customer concentration.
Outlook, risks and contingencies
Management believes existing capital resources, anticipated INGREZZA sales and investment income will fund current and projected requirements for at least the next 12 months, while cautioning that funding may not cover all planned development or commercialization activities. No specific revenue or earnings guidance is provided in the supplied filing text. Potential future milestone payments under existing collaboration and license agreements total approximately $17.5 billion, contingent on achievement of specified milestones; this is not presented as an amount currently due.
Key risks include dependence on INGREZZA and concentrated distribution customers; competition, pricing and reimbursement pressure, including effects of the Inflation Reduction Act; clinical, regulatory and product-safety uncertainty; reliance on third-party manufacturers and collaborators; and the need for continued investment and possible future capital. The company said it qualified as a “specified small manufacturer” for the Medicare Part D discount phase-in; the future revenue impact remains uncertain and qualification is subject to requirements. The company reported no pending legal matters it currently believes are likely to have a material adverse effect. Disclosure controls were deemed effective; a company-wide ERP system was implemented during the quarter, with internal controls modified where necessary.
Important facts for investors to verify
- Whether INGREZZA demand and improved gross-to-net dynamics continue, and how customer concentration affects collections and sales.
- Cash settlement and final repayment or conversion of the $170.4 million face amount of notes due May 15, 2024, including the accounting impact of the derivative.
- The revenue and reimbursement effects of Medicare Part D changes and the company’s specified-small-manufacturer phase-in.
- Progress and regulatory outcomes for crinecerfont NDAs, and clinical progress across the pipeline, alongside associated collaboration and development costs.
- Whether the ERP implementation, new campus occupancy and planned subleases lead to additional costs or control issues; management reported no material control-effecting changes beyond the ERP-related work.