Neurocrine Biosciences, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports unaudited fourth-quarter results. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Business context
Neurocrine is a commercial-stage biopharmaceutical company focused on neurological, endocrine and psychiatric disorders. Its primary marketed product is INGREZZA (valbenazine), approved in the U.S. for tardive dyskinesia. The company also earns royalties on AbbVie’s ORILISSA (elagolix) and is developing candidates across Parkinson’s disease, Huntington’s disease, congenital adrenal hyperplasia, uterine fibroids and epilepsy.
Financial performance and liquidity
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Total revenue | $788.1 | $451.2 |
| INGREZZA net product sales | $752.9 | $409.6 |
| Collaboration revenue | $35.2 | $41.6 |
| Operating income | $72.3 | $36.9 |
| Net income | $37.0 | $21.1 |
| Diluted earnings per share | $0.39 | $0.22 |
| Cash from operating activities | $152.1 | $101.4 |
| Cash, cash equivalents and marketable securities | $970.2 | $866.9 |
- Revenue increased about 75%, driven mainly by INGREZZA sales, which rose about 84%. Operating margin was about 9.2% and net margin about 4.7%, calculated from reported totals.
- Operating expenses were $715.8 million, including $154.3 million of acquired in-process R&D charges, primarily related to Voyager and Xenon collaborations. R&D expense was $200.0 million, up from $155.8 million; SG&A was $354.1 million, up from $248.9 million.
- Other expense, net, was $25.7 million, including a $13.0 million unrealized loss on restricted equity investments. Interest expense was $32.0 million. Income tax expense was $9.5 million; the company maintained a full valuation allowance against net deferred tax assets.
- Net cash used in investing activities was $211.1 million, including equity investments in Voyager and Xenon. Net cash provided by financing activities was $27.3 million, primarily from stock option exercises.
- Working capital was $265.7 million, compared with $649.5 million in 2018. The 2019 balance included $408.8 million of convertible notes classified as current because their conditional conversion feature had been triggered.
- The notes have $517.5 million principal, bear 2.25% interest and mature in 2024. Holders could convert during January 2–March 31, 2020; conversion could require cash settlement of principal. Contractual obligations totaled $730.6 million, including notes and lease commitments.
Unaudited fourth-quarter 2019 revenue was $244.0 million and net income was $34.0 million, versus $131.5 million and $18.1 million, respectively, in fourth-quarter 2018.
Material changes and notable items
- INGREZZA sales growth more than offset lower collaboration revenue, which declined partly because 2018 included a $40.0 million ORILISSA approval milestone. In 2019, collaboration revenue included a $20.0 million milestone for FDA acceptance of AbbVie’s uterine-fibroid NDA and $14.3 million of ORILISSA royalties.
- 2019 included $118.1 million of Voyager-related upfront and program payments expensed as in-process R&D, and $36.2 million of Xenon-related in-process R&D. The company also made equity investments of $54.7 million in Voyager and $14.2 million in Xenon.
- Opicapone’s NDA was accepted by the FDA with an April 26, 2020 target action date; approval would trigger a $20.0 million payment to BIAL. AbbVie’s uterine-fibroid NDA for elagolix was accepted with a target action date in the second quarter of 2020.
- In December 2019, Neurocrine licensed Xenon’s clinical-stage epilepsy candidate NBI-921352. In January 2020, it announced an option and research collaboration with Idorsia concerning ACT-709478.
- The company adopted lease accounting guidance in 2019, recognizing operating lease assets and liabilities. It reported no material legal proceedings or off-balance-sheet arrangements.
Outlook, risks and contingencies
- Management stated that existing capital resources, anticipated INGREZZA sales and investment income were expected to fund current projected requirements for at least the next 12 months; this is not a guarantee and plans may require additional financing.
- Pipeline milestones included plans to begin a global registration study of crinecerfont in adults with CAH in mid-2020, file an IND for NBI-921352 in mid-2020, and advance the RESTORE-I study of NBIb-1817 following protocol changes. These are development plans, not financial guidance.
- Key risks include clinical and regulatory uncertainty, competition, reimbursement and drug-pricing pressure, reliance on collaborators and third-party manufacturers, and concentration in a small customer base. Two customers represented approximately 86% of 2019 product revenue.
- Collaboration and license agreements could require up to $4.9 billion in future milestone payments, plus royalties, if specified development, regulatory and commercial milestones are achieved; these are contingent obligations, not amounts currently due.
- The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. The audit identified government rebate reserves as a critical audit matter because their estimation depends on forecasts of distribution-channel inventory, payer mix and rebate rates.
Important facts for investors to verify
- INGREZZA sales trends, payer access, net pricing and the effect of customer concentration on collections.
- FDA decisions and subsequent commercialization economics for opicapone and elagolix, including the opicapone milestone payment and supply arrangements.
- Cash settlement or conversion outcomes for the 2024 Notes and the impact on liquidity, dilution and reported working capital.
- Progress, costs and clinical results for crinecerfont, valbenazine in Huntington’s disease, Voyager programs and Xenon epilepsy candidates.
- Assumptions underlying government rebate reserves, ORILISSA royalties and contingent collaboration milestone obligations.