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Item 2. Management’s Discussion and Analysis

2020-08-03 compared with 2020-05-06 · 59 added, 42 removed, 79 unchanged (56% of the section changed)

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The following Management’s Discussion and Analysis of Financial Condition and Results of Operations section contains forward-looking statements, which involve risks and uncertainties.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Part II, Item 1A under the caption “Risk Factors.” The interim financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2019 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are contained in our Annual Report on Form 10-K for the year ended December 31, 2019.

We are a commercial-stage biopharmaceutical company focused on discovering and developing innovative and life-changing treatments for patients with serious, challenging and under-addressed neurological, endocrine and psychiatric disorders.

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In April 2020, we received FDA approval for ONGENTYS ® (opicapone) as an adjunctive therapy to levodopa/DOPA decarboxylase inhibitors in adult Parkinson's disease patients.

FDA approval of ONGENTYS for Parkinson’s disease triggered a milestone payment of $20.0 million.

FDA approval for ONGENTYS for Parkinson’s disease triggered a milestone payment of $20.0 million, which was expensed as research and development, or R&D, in the second quarter of 2020.

We plan to commercialize ONGENTYS later in 2020 with our existing INGREZZA commercial infrastructure.

Our late-stage pipeline includes crinecerfont (NBI-74788) for the treatment of congenital adrenal hyperplasia, or CAH, in adult patients, elagolix for the treatment of heavy menstrual bleeding, or HMB, associated with uterine fibroids in women, valbenazine for the treatment of chorea in adult patients with Huntington’s disease, or HD, and NBIb-1817 (VY-AADC) for the treatment of advanced Parkinson’s disease patients with motor fluctuations that are refractory to medical management.

Our product candidates for uterine fibroids and advanced Parkinson’s disease are partnered with AbbVie and Voyager Therapeutics, Inc., or Voyager, respectively.

Our early-stage clinical pipeline includes crinecerfont for the treatment of CAH in pediatric patients, elagolix for the treatment of polycystic ovary syndrome, or PCOS, in women, a vesicular monoamine transporter 2, or VMAT2, inhibitor with potential use in the treatment of neurologic and psychiatric disorders and NBI-921352 (XEN901), a clinical-stage candidate with potential in epilepsy.

In May 2020, AbbVie received approval from the FDA for ORIAHNN TM (elagolix) for the management of heavy menstrual bleeding associated with uterine fibroids in pre-menopausal women.

FDA approval for ORIAHNN for uterine fibroids resulted in the achievement of a $30.0 million regulatory milestone, which was recognized as collaboration revenue in the second quarter of 2020.

We are entitled to receive royalties at tiered percentage rates on any net sales of ORIAHNN.

Our late-stage pipeline includes crinecerfont (NBI-74788) for the treatment of congenital adrenal hyperplasia, or CAH, in adult patients, valbenazine for the treatment of chorea in adult patients with Huntington’s disease, or HD, and NBIb-1817 (VY-AADC) for the treatment of advanced Parkinson’s disease patients with motor fluctuations that are refractory to medical management.

Our product candidate for advanced Parkinson’s disease is partnered with Voyager Therapeutics, Inc., or Voyager.

Our early-stage clinical pipeline includes crinecerfont for the treatment of CAH in pediatric patients, elagolix for the treatment of polycystic ovary syndrome, or PCOS, in women, NBI-921352 (XEN901), a clinical-stage candidate with potential in epilepsy, and NBI-827104 (ACT-709478), a T-type calcium channel blocker in clinical development for the treatment of a rare pediatric epilepsy.

Our product candidate for PCOS is partnered with AbbVie.

In January 2020, we announced a collaboration and optional licensing agreement with Idorsia Pharmaceuticals Ltd, granting us an option to license ACT-709478, a potent, selective, orally active and brain penetrating T-type calcium channel blocker, in clinical development for the treatment of a rare pediatric epilepsy.

The option also includes a research collaboration to discover, identify and develop additional novel T-type calcium channel blockers.

In May 2020, we entered into a collaboration and licensing agreement with Idorsia Pharmaceuticals Ltd, or Idorsia.

In connection with the agreement, we paid Idorsia $45.0 million upfront to gain a license to NBI-827104, a potent, selective, orally active and brain penetrating T-type calcium channel blocker, in clinical development for the treatment of a rare pediatric epilepsy.

The agreement includes a research collaboration to discover and identify up to two additional novel T-type calcium channel blockers as development candidates.

In June 2020, we entered into an exclusive license agreement with Takeda Pharmaceutical Company Limited, or Takeda, to develop and commercialize certain compounds in Takeda’s early to mid-stage psychiatry pipeline.

The agreement became effective in July 2020, upon expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

In connection with the agreement, we paid Takeda $120.0 million upfront to gain an exclusive license to seven of Takeda’s pipeline programs, including three clinical-stage assets for schizophrenia, treatment-resistant depression, and anhedonia.

The collaboration also includes a cost-sharing arrangement for associated collaboration activities.

Going forward, we expect to augment our product pipeline by acquiring, through license or otherwise, additional drug candidates for research and development, or R&D, and potential commercialization.

In March 2020, the World Health Organization declared the novel coronavirus disease, or COVID-19, outbreak a global pandemic.

The pandemic has dramatically changed the ways in which we live and interact with one another.

The global COVID-19 pandemic has dramatically changed the ways in which we live and interact with one another.

While we adapt to this new shared reality, our mission remains unchanged:

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For employees involved in business-critical activities, we implemented safety measures designed to comply with federal, state and local guidelines.

Due to the impact of COVID-19, we are temporarily pausing enrollment of new patients in our clinical studies, including our studies related to HD, Parkinson’s disease, and CAH, while also continuing preparations to be well positioned to launch planned clinical studies in the second half of 2020.

Due to the impact of COVID-19, we initially paused enrollment of new patients in several of our clinical trials and have recently begun enrolling patients in our HD and CAH studies.

Although certain of our trials have begun enrolling, not all clinical trial sites are able to begin enrolling at this time.

We will continue preparations to be well positioned to launch planned clinical studies in the second half of 2020.

To date, we have not experienced any interruption of our supply of drug products needed to support our ongoing clinical studies, but we expect that completion and data readouts for several of our ongoing and planned studies will be delayed.

Further, with the cancellation of the annual meeting of the Endocrine Society in March 2020, we look forward to sharing data from the Phase II proof-of-concept study of crinecerfont in adults with classic CAH, as well as preparing for a single, global registrational study of crinecerfont in CAH patients in mid-2020.

We continue to believe that existing funds, cash generated from operations, and existing sources of and access to financing are adequate to satisfy our needs for working capital, capital expenditures, debt service requirements, and other business development

initiatives that we plan to strategically pursue.

In addition, in July 2020, we initiated the CAHtalyst study, a single, global registrational study of crinecerfont in adult patients with classic CAH.

However, should the COVID-19 pandemic and any associated recession or depression continue for a prolonged period, our results of operations, financial condition, liquidity and cash flows could be materially impacted by lower revenues and profitability and a lower likelihood of effectively and efficiently developing new medicines.

Results of Operations for the Three Months Ended March 31, 2020 and 2019

Results of Operations for the Three and Six Months Ended June 30, 2020 and 2019

The following table presents revenues by category.

Three Months Ended

June 30, Six Months Ended

( in millions)

2020 2019 2020 2019

INGREZZA product sales, net $ 267.6 $ 180.5 $ 498.7 $ 316.9

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Product Sales, Net.

In April 2017, the FDA approved INGREZZA for the treatment of TD.

INGREZZA became available for prescription in late April 2017.

Net product sales were $231.1 million and $136.4 million for the three months ended March 31, 2020 and 2019, respectively, primarily reflecting increased INGREZZA net product sales driven by new patient additions.

Net product sales were $267.6 million and $498.7 million for the three and six months ended June 30, 2020, respectively, compared with $180.5 million and $316.9 million in the comparable periods last year, primarily reflecting increased INGREZZA net product sales driven by new patient additions.

Collaboration Revenue.

Collaboration revenue reflects event-based milestones, royalties, and license fees earned under our collaboration agreements with AbbVie and Mitsubishi Tanabe Pharma Corporation, or MTPC.

For the three months ended March 31, 2020 and 2019, we recognized collaboration revenue of $4.7 million and $2.0 million, respectively, in connection with royalties earned at tiered percentage rates on quarterly net sales of ORILISSA.

Collaboration revenue reflects the achievement of certain development, regulatory and commercial milestones, royalties received on any net sales of ORILISSA and license fees earned under our collaboration agreements with AbbVie and Mitsubishi Tanabe Pharma Corporation, or MTPC.

Collaboration revenue was $34.8 million and $40.8 million for the three and six months ended June 30, 2020, respectively, compared with $3.0 million and $5.0 million in the comparable periods last year, primarily reflecting the achievement of a $30.0 million regulatory milestone associated with AbbVie’s receipt of FDA approval for ORIAHNN for uterine fibroids in May 2020.

Operating Expenses

Cost of Sales.

Cost of sales was $2.1 million and $1.1 million for the three months ended March 31, 2020 and 2019, respectively.

Cost of sales was $2.4 million and $4.5 million for the three and six months ended June 30, 2020, respectively, compared with $1.6 million and $2.7 million in the comparable periods last year.

Research and Development.

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Research and discovery consists of pre-IND costs.

Milestone expenses reflect payments made in connection with our collaborative and other relationships.

Payroll and benefits consists of costs incurred for salaries and wages, payroll taxes, benefits and share-based compensation associated with employees involved in ongoing R&D activities.

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Three Months Ended

June 30, Six Months Ended

(in millions) 2020 2019 2020 2019

Late stage $ 13.1 $ 14.1 $ 26.1 $ 19.1

Early stage 5.7 5.9 10.3 12.6

Research and discovery 10.6 5.4 19.8 10.8

Milestone expenses 20.0 10.0 20.0 10.0

Payroll and benefits 25.2 16.9 49.1 32.8

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Total R&D expense $ 80.9 $ 61.7 $ 139.2 $ 99.4

R&D expense was $58.3 million and $37.7 million for the three months ended March 31, 2020 and 2019, respectively, primarily reflecting increased investment in our gene therapy programs in collaboration with Voyager, increased activity to support advancing our expanded clinical portfolio, and increased personnel expenses on higher headcount.

R&D expense was $80.9 million and $139.2 million for the three and six months ended June 30, 2020, respectively, compared with $61.7 million and $99.4 million in the comparable periods last year, primarily reflecting increased investment in our gene therapy programs in collaboration with Voyager, increased activity to support advancing our expanded clinical portfolio, increased personnel expenses on higher headcount, and milestone expenses of $20.0 million associated with our receipt of FDA approval for ONGENTYS for Parkinson’s disease in April 2020, offset by milestone expenses of $10.0 million associated with the FDA’s acceptance of the ONGENTYS new drug application for Parkinson’s disease in June 2019.

Acquired In-Process Research and Development.

In connection with the payment of the upfront fee pursuant to our collaboration and license agreement with Voyager, we recorded a charge of $113.1 million, accounted for as in-process research and development, or IPR&D, in the first quarter of 2019.

In connection with the payment of the upfront fee pursuant to our collaboration and license agreement with Idorsia, we recorded a charge of $46.0 million, accounted for as in-process research and development, or IPR&D, in the second quarter of 2020.

In connection with the payment of the upfront fee pursuant to our collaboration and license agreement with Voyager, we recorded a charge of $113.1 million, accounted for as IPR&D, in the first quarter of 2019.

In the second quarter of 2019, we entered into an amendment to the collaboration and license agreement with Voyager, pursuant to which we paid Voyager $5.0 million upfront, accounted for as IPR&D, to obtain outside the U.S.

rights to the Friedreich’s ataxia program.

Sales, General and Administrative.

Sales, general and administrative, or SG&A, expense was $117.8 million and $87.5 million for the three months ended March 31, 2020 and 2019, respectively, primarily reflecting increased personnel expenses on higher headcount and continued investment in our patient-focused disease state awareness campaign, “Talk About TD.”

Oth er Expense , Net

Other expense, net, was $20.0 million and $1.6 million for the three months ended March 31, 2020 and 2019, respectively, primarily reflecting unrealized losses of $16.5 million for the three months ended March 31, 2020, to adjust our equity investments in Voyager and Xenon to fair value.

Sales, general and administrative, or SG&A, expense was $96.5 million and $214.3 million for the three months and six months ended June 30, 2020, respectively, compared with $80.8 million and $168.3 million in the comparable periods last year, primarily reflecting increased personnel expenses on higher headcount and continued investment in INGREZZA marketing.

Other Income (Expense), Net

Other income, net, was $6.6 million and $17.7 million for the three months ended June 30, 2020 and 2019, respectively.

For the six months ended June 30, 2020, other expense, net, was $13.4 million, compared with other income, net, of $16.1 million in the comparable period last year.

Periodic fluctuations in other income (expense), net, primarily reflect unrealized gains or losses recognized to adjust our equity investments in Voyager and Xenon Pharmaceuticals Inc.

to fair value.

Provision for Income Taxes

Our provision for income taxes was $1.5 million for the three months ended March 31, 2020, reflecting estimated current state income taxes.

For the three months ended March 31, 2019, we had a benefit from income taxes of $0.5 million, reflecting $0.6 million of tax benefit recorded to income from continuing operations, with an equal and offsetting tax expense recorded to accumulated other comprehensive loss, offset by $0.1 million of state income tax expense.

At March 31, 2020 and 2019, we had full valuation allowances against our net deferred tax assets as realization was uncertain.

As a result, our tax expense for the first quarter of 2020 and tax benefit for the first quarter of 2019 vary from the statutory tax rate primarily due to changes in our valuation allowances, net of other permanent book/tax differences, tax credits generated and impacts of changes in tax laws.

Net income was $37.4 million, or $0.39 diluted earnings per share, for the three months ended March 31, 2020, compared with a net loss of $102.1 million, or $1.12 loss per share, in the comparable period last year, primarily reflecting increased INGREZZA net product sales and $113.1 million of IPR&D expensed in the first quarter of 2019 in connection with our collaboration with Voyager, offset by unrealized losses of $16.5 million for the three months ended March 31, 2020, to adjust our equity investments in Voyager and Xenon to fair value.

Our provision for income taxes was $3.6 million and $5.1 million for the three and six months ended June 30, 2020, respectively, compared with $0.8 million and $0.3 million in the comparable periods last year.

At June 30, 2020 and 2019, we had full valuation allowances against our net deferred tax assets as realization was uncertain.

As a result, tax expense for the three and six months ended June 30, 2020 and 2019, respectively, varies from the statutory tax rate primarily due to changes

in our valuation allowances, net of other permanent book/tax differences, tax credits generated and impacts of changes in tax laws.

Net Income (Loss)

Net income was $79.6 million, or $0.81 diluted earnings per share, for the three months ended June 30, 2020, compared with $51.3 million, or $0.54 diluted earnings per share, in the comparable period last year.

For the six months ended June 30, 2020, net income was $117.0 million, or $1.20 diluted earnings per share, compared with a net loss of $50.8 million, or $0.56 net loss per share, in the comparable period last year.

Liquidity and Capital Resources

At March 31, 2020, our cash and cash equivalents and debt securities available-for-sale totaled $1.0 billion compared with $970.2 million at December 31, 2019.

Net cash provided by operating activities was $38.2 million for the three months ended March 31, 2020, compared with $112.5 million net cash used in operating activities in the comparable period last year, primarily reflecting increased INGREZZA net product sales and an upfront payment of $113.1 million in March 2019 in connection with our collaboration with Voyager.

Net cash provided by investing activities was $33.2 million for the three months ended March 31, 2020, compared with $41.0 million in the comparable period last year, reflecting timing differences related to purchases, sales and maturities of debt securities available-for-sale, changes in our portfolio-mix, and an equity investment of $54.7 million in Voyager in March 2019.

Net cash provided by financing activities was $3.3 million for the three months ended March 31, 2020, compared with $2.6 million in the comparable period last year, reflecting proceeds from issuances of our common stock.

Shelf Registration Statement.

In February 2017, we filed an automatic shelf registration statement which immediately became effective by rule of the Securities and Exchange Commission.

We sold no securities under this shelf registration statement in 2019 or the first quarter of 2020.

At June 30, 2020, our cash and cash equivalents and debt securities available-for-sale totaled $1.1 billion compared with $970.2 million at December 31, 2019.

Net cash provided by operating activities was $157.1 million for the six months ended June 30, 2020, compared with net cash used in operating activities of $48.3 million in the comparable period last year, primarily reflecting increased INGREZZA net product sales, our achievement of a $30.0 million regulatory milestone in May 2020 in connection with our collaboration with AbbVie, and upfront payments of $118.1 million in the first six months of 2019 in connection with our collaboration with Voyager, partially offset by an upfront payment of $45.0 million in May 2020 in connection with our collaboration with Idorsia.

Net cash provided by investing activities was $126.6 million for the six months ended June 30, 2020, compared with $40.7 million in the comparable period last year, reflecting timing differences related to purchases, sales and maturities of debt securities available-for-sale, changes in our portfolio-mix, and an equity investment of $54.7 million in Voyager in March 2019.

Net cash provided by financing activities was $19.1 million for the six months ended June 30, 2020, compared with $6.9 million in the comparable period last year, reflecting proceeds from issuances of our common stock.

Convertible Senior Notes.

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Off-Balance Sheet Arrangements

As of March 31, 2020 or 2019, we did not have any off-balance sheet arrangements.

We did not have any off-balance sheet arrangements at June 30, 2020 or 2019.

Critical Accounting Policies and Estimates

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To minimize our exposure due to adverse shifts in interest rates, we invest in short-term securities and ensure that the maximum average maturity of our investments does not exceed twelve months.

If a 10% change in interest rates were to have occurred on March 31, 2020, it would not have had a material effect on the fair value of our investment portfolio as of that date.

If a 1% change in interest rates were to have occurred on June 30, 2020, it would not have had a material effect on the fair value of our investment portfolio as of that date.

Due to the short holding period of our investments, we have concluded that we do not have a material financial market risk exposure.

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Consequently, these forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements.

words (including their use in the negative), or by discussions of future matters such as the development of new products, technology enhancements, possible changes in legislation and other statements that are not historical.

These statements include but are not limited to statements under the captions “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as other sections in this report.

Forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “hopes,” “may,” “will,” “plan,” “intends,” “estimates,” “could,” “should,” “would,” “continue,” “seeks,” “proforma,” or “anticipates,” or other similar words (including their use in the negative), or by discussions of future matters such as the development of new products, technology enhancements, possible changes in legislation and other statements that are not historical.

statements include but are not limited to statements under the captions “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as other sections in this report.

You should be aware that the occurrence of any of the events discussed under the heading in Part II titled “Item 1A.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis