Business Context and Reporting Period
Company: Neurocrine Biosciences, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: Neurocrine discovers, develops, and intends to commercialize drugs for neurological and endocrine-related diseases. The company has no approved products and generates revenue primarily through collaborative research agreements and licensing milestones. As of June 30, 2009, the company had eight programs in various stages of development, including five in clinical trials, with elagolix (for endometriosis) as the lead candidate.
Key Financial Metrics
| Metric (in thousands) | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 |
|---|---|---|
| Total Revenues | $1,480 | $2,485 |
| Net Loss | $(34,945) | $(42,048) |
| Net Loss Per Share (Basic & Diluted) | $(0.90) | $(1.10) |
| Operating Expenses | $36,447 | $43,364 |
| Cash and Cash Equivalents (End of Period) | $38,615 | $91,917 |
| Total Investments (Short & Long Term) | $35,394 | $N/A (Combined with cash in prior period) |
| Accumulated Deficit | $(738,208) | $(703,263) |
Liquidity: Total cash, cash equivalents, and investments totaled $74.0 million as of June 30, 2009, down from $101.5 million at year-end 2008. The company maintains a facility lease covenant requiring $50.0 million in cash and investments.
Material Changes vs. Prior Period
- Revenue Decline: Revenues decreased 40% year-over-year to $1.48 million. This was primarily due to the absence of a $1.0 million milestone payment from GSK related to the CRF program recognized in the prior year.
- Expense Reduction: Operating expenses decreased by approximately 16% to $36.4 million. Research and Development (R&D) expenses dropped significantly from $30.4 million to $21.7 million, driven by cost containment measures and a reduction in external development costs for elagolix and pro-drug programs.
- Restructuring Charges: The company incurred a net restructuring charge of $2.9 million in the second quarter of 2009, resulting from a reduction of approximately 65 employees. This was partially offset by personnel cost savings.
- Real Estate Liability: The "cease-use liability" related to the vacated Front Building of the corporate headquarters increased. The company recognized an additional $5.8 million in cease-use expense during the six months ended June 30, 2009, due to revised assumptions regarding sublease timing and construction costs.
- Investment Portfolio: The company holds $22.6 million (par value) in auction rate securities (ARS). Due to market illiquidity, these are currently not liquid. The company recognized a net loss of approximately $1.2 million on ARS during the period, though fair value improved in Q2 2009 compared to Q1.
Outlook, Risks, and Management Commentary
- Restructuring Impact: Management expects the May 2009 restructuring to save approximately $12.0 million annually through reduced personnel and R&D costs.
- Liquidity Outlook: Management believes existing capital resources, interest income, and future collaboration payments will satisfy funding requirements for at least the next 12 months. However, additional funding will be required for future clinical trials and operations, likely through strategic alliances or equity/debt financing.
- Indiplon Uncertainty: The company faces significant uncertainty regarding the product candidate indiplon. Following a 2007 FDA "Approvable Letter," the company ceased clinical development pending new requirements (clinical trials in the elderly, safety studies, and pregnancy studies). Refiling the NDA would require significant resources and time.
- Investment Risk: A significant portion of the investment portfolio ($22.6 million par value) is tied up in illiquid auction rate securities. While backed by student loans, the company may not be able to access these funds without potential loss of principal until auctions succeed or securities mature (2030-2047).
- Real Estate Contingency: The company is subject to ongoing costs related to its corporate headquarters lease. If the landlord fails to sublease the vacated Front Building, the company will continue to incur significant expenses, limiting resources for development.
Key Facts for Investor Verification
- Cash Burn Rate: Verify the sustainability of the $74.0 million cash position against the projected $12.0 million annual savings from restructuring and the timeline for future capital raises.
- Auction Rate Securities Liquidity: Confirm the current status of the $22.6 million ARS portfolio and the likelihood of accessing these funds before maturity or successful auction.
- Real Estate Liability: Monitor the "cease-use liability" balance ($18.2 million total) and the progress of subleasing the Front Building to mitigate ongoing costs.
- Indiplon Status: Track any updates regarding the FDA requirements for indiplon and the company's decision on whether to pursue re-filing the NDA.
- Collaboration Revenue: Assess the dependency on collaboration partners (e.g., Dainippon Sumitomo Pharma) for revenue, as product sales revenue remains zero.