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Item 2. Management’s Discussion and Analysis

2020-11-09 compared with 2020-08-03 · 49 added, 53 removed, 85 unchanged (55% 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 and our Quarterly Report on Form 10-Q for the three months ended March 31, 2020.

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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Shortly after receiving FDA approval, we began commercializing INGREZZA in the US using a specialty sales force primarily focused on educating physicians who treat patients with TD, including psychiatrists and neurologists.

In addition to our first marketed product, our collaboration partner, AbbVie Inc., or AbbVie, received approval of ORILISSA ® (elagolix) for the management of moderate to severe endometriosis pain in women from the FDA in July 2018 and Health Canada in October 2018.

We receive royalties at tiered percentage rates on any net sales of ORILISSA.

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 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.

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, which was commercialized by our commercial team in late September 2020.

Our collaboration partner, AbbVie Inc., or AbbVie, received approval of ORILISSA ® (elagolix) for the management of moderate to severe endometriosis pain in women from the FDA in July 2018 and Health Canada in October 2018.

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

We receive royalties at tiered percentage rates on any net sales of ORILISSA and ORIAHNN.

Also 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.

The agreement includes a research collaboration to discover and identify 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, which became effective in July 2020.

The agreement is focused on the development and commercialization of certain compounds in Takeda’s early to mid-stage psychiatry pipeline.

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.

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

Our late-stage pipeline includes valbenazine for the treatment of chorea in adult patients with Huntington’s disease, or HD, crinecerfont (NBI-74788) for the treatment of congenital adrenal hyperplasia, or CAH, in adult patients, 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-1065844 (TAK-831) for the treatment of schizophrenia, NBI-1065845 (TAK-653) for the treatment of treatment-resistant depression, NBI-1065846 (TAK-041) for the treatment of anhedonia in depression, NBI-921352 (XEN901) for the treatment of epilepsy, and NBI-827104 (ACT-709478) for the treatment of a rare pediatric epilepsy.

Our product candidate for PCOS is partnered with AbbVie.

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.

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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 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.

Due to the impact of COVID-19, we initially paused enrollment of new patients in several of our clinical trials.

Beginning in the third quarter of 2020, we began enrolling patients in our HD and CAH studies.

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.

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

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.

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 and Six Months Ended June 30, 2020 and 2019

Results of Operations for the Three and Nine Months Ended September 30, 2020 and 2019

The following table presents revenues by category.

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

( in millions)

2020 2019 2020 2019

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

Product sales, net $ 254.1 $ 198.1 $ 752.8 $ 515.0

Collaboration revenue 4.4 24.0 45.2 29.0

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Product Sales, Net.

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.

Net product sales were $254.1 million and $752.8 million for the three and nine months ended September 30, 2020, respectively, compared with $198.1 million and $515.0 million in the comparable periods last year, reflecting increased INGREZZA net product sales primarily driven by new patient additions.

ONGENTYS net product sales were $0.1 million for the three and nine months ended September 30, 2020.

Collaboration Revenue.

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.

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

Collaboration revenue was $4.4 million and $45.2 million for the three and nine months ended September 30, 2020, respectively, compared with $24.0 million and $29.0 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 $2.4 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.

Cost of sales was $2.7 million and $7.2 million for the three and nine months ended September 30, 2020, respectively, compared with $2.2 million and $4.9 million in the comparable periods last year.

Research and Development.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2020 2019 2020 2019

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Total R&D expense $ 69.1 $ 45.3 $ 208.3 $ 144.7

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.

R&D expense was $69.1 million and $208.3 million for the three and nine months ended September 30, 2020, respectively, compared with $45.3 million and $144.7 million in the comparable periods last year, primarily reflecting increased investment to support advancing our expanded clinical portfolio and increased personnel expenses on higher headcount.

Acquired In-Process Research and Development.

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.

In the third quarter of 2020, we recorded a charge of $118.5 million, accounted for as IPR&D, in connection with the payment of the upfront fee pursuant to our exclusive license agreement with Takeda.

In connection with the payments of the upfront fees pursuant to our collaboration and license agreement with Voyager, we recorded charges of $118.1 million, accounted for as IPR&D, in the first nine months of 2019.

Sales, General and Administrative.

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.

Sales, general and administrative, or SG&A, expense was $112.5 million and $326.8 million for the three and nine months ended September 30, 2020, respectively, compared with $84.5 million and $252.8 million in the comparable periods last year, primarily reflecting increased personnel expenses on higher headcount and continued investment in INGREZZA marketing.

Other Expense, Net

Other expense, net, was $12.8 million and $31.7 million for the three months ended September 30, 2020 and 2019, respectively.

For the nine months ended September 30, 2020, other expense, net, was $26.2 million, compared with $15.6 million in the comparable period last year.

Periodic fluctuations in other 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 $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.

Our provision for income taxes was $0.5 million and $5.6 million for the three and nine months ended September 30, 2020, respectively, compared with $4.6 million and $4.9 million in the comparable periods last year.

At September 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 nine months ended September 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 (Loss) Income

We incurred a net loss of $57.6 million, or $0.62 diluted net loss per share, for the three months ended September 30, 2020, compared with net income of $53.8 million, or $0.56 diluted earnings per share, in the comparable period last year.

nine months ended September 30, 2020, net income was $59.4 million, or $0.61 diluted earnings per share, compared with $3.0 million, or $0.03 diluted earnings per share, in the comparable period last year.

Liquidity and Capital Resources

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.

At September 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 $139.6 million for the nine months ended September 30, 2020, compared with $49.5 million in the comparable period last year, primarily reflecting increased INGREZZA net product sales offset partially by increased upfront payments in connection with our collaborations with Idorsia and Takeda.

Net cash provided by investing activities was $151.8 million for the nine months ended September 30, 2020, compared with net cash used in investing activities of $44.9 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 $21.6 million for the nine months ended September 30, 2020, compared with $20.0 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

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

We did not have any off-balance sheet arrangements at September 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 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.

If a 1% change in interest rates were to have occurred on September 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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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.

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.

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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The cautionary statements made in this report are intended to be applicable to all related forward-looking statements wherever they may appear in this report.

We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.

We urge you not to place undue reliance on these forward-looking statements, which

speak only as of the date of this report.

Except as required by law, we assume no obligation to update our forward-looking statements, even if new information becomes available in the future.

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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