What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-05 compared with 2020-11-09 · 72 added, 67 removed, 67 unchanged (67% 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 six months ended June 30, 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.

We specialize in targeting and interrupting disease-causing mechanisms involving the interconnected pathways of the nervous and endocrine systems.

Currently, we are primarily focused on the commercialization of INGREZZA ® (valbenazine) in the United States, or US, our first US Food and Drug Administration, or FDA, approved product.

In April 2017, we received FDA approval of our first marketed product, INGREZZA, for the treatment of adults with tardive dyskinesia, or TD.

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 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.

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 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 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.

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, 2020 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, 2020.

We are a neuroscience-focused, biopharmaceutical company dedicated to discovering, developing and delivering life-changing treatments for people with serious, challenging and under-addressed neurological, endocrine and psychiatric disorders.

Our diverse portfolio includes United States Food and Drug Administration, or FDA, approved treatments for tardive dyskinesia, Parkinson’s disease, endometriosis*, uterine fibroids* and clinical programs in multiple therapeutic areas.

For nearly three decades, we have specialized in targeting and interrupting disease-causing mechanisms involving the interconnected pathways of the nervous and endocrine systems.

(*in collaboration with AbbVie Inc.)

We launched INGREZZA ® (valbenazine) in the United States, or US, with our specialty sales force in May 2017, after receiving FDA approval for INGREZZA as the first FDA-approved drug for the treatment of tardive dyskinesia in April 2017.

In September 2020, we launched ONGENTYS ® (opicapone) in the US leveraging our existing INGREZZA commercial infrastructure after receiving FDA approval for ONGENTYS for Parkinson's disease in April 2020.

INGREZZA net product sales represent the significant majority of our total net product sales.

Our partner AbbVie Inc., or AbbVie, launched ORILISSA ® (elagolix tablets) in the US and Canada in August and November 2018, respectively, after receiving FDA and Health Canada approval for ORILISSA for endometriosis in July and October 2018, respectively.

In June 2020, AbbVie launched ORIAHNN ® (elagolix, estradiol and norethindrone acetate capsules and elagolix capsules) in the US after receiving FDA approval for ORIAHNN for uterine fibroids in May 2020.

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

In addition, we have a rapidly expanding pipeline of potential treatments and gene therapies for diseases such as Huntington’s disease, or HD, congenital adrenal hyperplasia, or CAH, epilepsy, schizophrenia and depression.

Pipeline Highlights:

• In February 2021, the Mitsubishi Tanabe Pharma Corporation, or MTPC, reported positive top-line results from the J-KINECT Phase III Study, designed to evaluate the efficacy and safety of valbenazine in tardive dyskinesia.

Detailed results from this trial will be presented at a future medical conference.

In April 2021, MTPC submitted a Marketing Authorization Application, or MAA, with the Ministry of Health and Welfare in Japan for valbenazine for the treatment of tardive dyskinesia.

MTPC submission of valbenazine triggered a milestone payment of $15.0 million, to be paid by MTPC to Neurocrine Biosciences and recognized as collaboration revenue in the second quarter of 2021.

Luvadaxistat (NBI-1065844/TAK-831) :

• On March 2, 2021, we announced that investigational drug luvadaxistat did not meet its primary endpoint in the Phase II INTERACT study in adults with negative symptoms of schizophrenia.

Luvadaxistat met both secondary endpoints of cognitive assessment.

We plan to initiate a Phase II study for the treatment of cognitive impairment associated with schizophrenia, or CIAS, by the end of 2021.

NBIb-1817 (VY-AADC) :

• In February 2021, we notified Voyager Therapeutics, Inc., or Voyager, of our termination of the NBIb-1817 for Parkinson’s disease program.

The effective date of this termination will be August 2, 2021.

The termination does not apply to any other development program other than NBIb-1817 for Parkinson’s disease, and our collaboration and license agreement with Voyager will otherwise continue in effect.

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

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to discover and develop life-changing treatments for people with serious, challenging and under-addressed disorders.

While we are unable to reliably estimate the duration or extent of any potential business disruption or financial impact during this time, including any impacts on INGREZZA product sales or R&D expense, we remain committed to (1) prioritizing the safety, health and well-being of patients, their caregivers, healthcare providers and our employees;

(2) ensuring patients with TD are well supported and have continued uninterrupted access to INGREZZA, for which we currently do not expect any supply disruption;

While we are unable to reliably estimate the duration or extent of any potential business disruption or financial impact during this time, including any impacts on INGREZZA product sales or R&D expense, we remain committed to (1) prioritizing the safety, health and well-being of patients and their caregivers, healthcare providers and our employees;

(2) ensuring patients with tardive dyskinesia are well supported and have continued uninterrupted access to INGREZZA, for which we currently do not expect any supply disruption;

and (3) advancing ongoing clinical studies.

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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.

We have since developed and are implementing plans regarding the opening of our sites to enable our employees to return to work in our corporate offices and the field, which plans take into account applicable public health authority and local government guidelines and which are designed to ensure community and employee safety.

However, the effects of the COVID-19 pandemic continue to rapidly evolve and even if our employees more broadly return to work in our corporate offices and the field, we may nevertheless have to resume a remote work model.

We continue to evaluate our remote work model and the impact of global spikes or surges in COVID-19 infection and hospitalization rates.

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

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.

To date, we have not experienced any interruption of our supply of drug products needed to support our ongoing clinical studies.

We recognize, however, that we may have to make further operational adjustments to our ongoing and planned clinical studies and that patient enrollment and new clinical trial site initiations may be further slowed due to the COVID-19 pandemic, especially if it is further prolonged or grows in severity.

Most hospitals, community mental health facilities, physicians’ offices, pharmacies, and other healthcare facilities have implemented policies that limited access of patients and our employees to such facilities and limited the ability of patients, pharmacies, and prescribers to interact with each other.

Due to these polices, our field force has been utilizing digital, video, and telephonic engagement tools and tactics, which may be less effective than our ordinary processes.

The ultimate impact of the COVID-19 pandemic, including any lasting effects on our revenue and the way we conduct our business, is highly uncertain and subject to continued change.

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 Nine Months Ended September 30, 2020 and 2019

However, the circumstances surrounding the COVID-19 pandemic are volatile and subject to rapid change.

Despite our mitigation efforts, we may experience delays or an inability to execute on our clinical and preclinical development plans, reduced revenues or other adverse impacts to our business, which are described in more detail in “Risk Factors” in Part I, Item 1A of this Quarterly Report on Form 10-Q.

We recognize that this pandemic will continue to present unique challenges for us throughout 2021, and potentially into 2022.

Results of Operations for the Three Months Ended March 31, 2021 and 2020

The following table presents revenues by category.

Three Months Ended

September 30, Nine Months Ended

September 30,

( in millions)

2020 2019 2020 2019

Product sales, net $ 231.0 $ 231.1

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Product Sales, Net.

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.

Net product sales were $231.0 million for the three months ended March 31, 2021, compared with $231.1 million in the comparable period last year, reflecting a slowdown in INGREZZA sales volume growth, largely attributable to

the impact of COVID-19 on our customers.

ONGENTYS net product sales were $1.4 million for the three months ended March 31, 2021.

Collaboration Revenue.

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.

Collaboration revenue reflects royalties earned on AbbVie net sales of ORILISSA and ORIAHNN and license fees earned under our collaboration agreement with Mitsubishi Tanabe Pharma Corporation, or MTPC.

Collaboration revenue was $5.6 million for the three months ended March 31, 2021, compared with $6.0 million in the comparable period last year.

Operating Expenses

Cost of Sales.

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.

Cost of sales was $2.9 million for the three months ended March 31, 2021, compared with $2.1 million in the comparable period 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

September 30, Nine Months Ended

September 30,

(in millions) 2021 2020

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Research and discovery 9.4 9.2

Milestone expenses — — 20.0 10.0

Payroll and benefits 35.5 23.9

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Total R&D expense $ 73.2 $ 58.3

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 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 $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.

R&D expense was $73.2 million for the three months ended March 31, 2021, compared with $58.3 million in the comparable period last year, primarily reflecting increased investment to support advancing our expanded clinical portfolio and higher personnel expenses driven by a non-cash share-based compensation charge of $6.4 million related to the modification of certain share-based awards.

Selling, General and Administrative.

Selling, general and administrative, or SG&A, expense was $129.0 million for the three months ended March 31, 2021, compared with $117.8 million in the comparable period last year, primarily reflecting increased investment to support our commercialization activities and continued investment in INGREZZA.

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.

Other expense, net, was $4.3 million for the three months ended March 31, 2021, compared with $20.0 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 $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.

(Benefit from) Provision for Income Taxes

The benefit from income taxes was $4.9 million for the three months ended March 31, 2021, compared with a provision for income taxes of $1.5 million in the comparable period last year.

Our effective tax rate for the three months ended March 31, 2021 was lower than federal and state statutory rates primarily due to excess tax benefits related to stock compensation.

December 31, 2020, we released substantially all of our valuation allowance against our net operating losses and other deferred tax assets.

Beginning in the first quarter of 2021, we began recording a provision for income taxes using an effective tax rate approximating federal and state statutory rates.

Due to our ability to offset our pre-tax income against previously benefited federal net operating losses, no federal cash tax is expected in 2021.

Net income was $32.1 million, or $0.33 diluted earnings per share, for the three months ended March 31, 2021, compared with $37.4 million, or $0.39 diluted earnings per share, in the comparable period last year, primarily reflecting increased investment in commercial initiatives and to support advancing our expanded clinical portfolio.

Liquidity and Capital Resources

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.

At March 31, 2021, our cash, cash equivalents and debt security investments totaled $1.1 billion compared with $1.0 billion at December 31, 2020.

Net cash provided by operating activities was $87.3 million for the three months ended March 31, 2021, compared with $35.5 million in the comparable period last year, primarily reflecting increased working capital on timing of accounts receivable collections and accounts payable payments.

Net cash provided by investing activities was $63.1 million for the three months ended March 31, 2021, compared with $33.2 million in the comparable period last year, reflecting timing differences related to purchases, sales, and maturities of debt securities available-for-sale and changes in our portfolio-mix.

Net cash provided by financing activities was $15.1 million for the three months ended March 31, 2021, compared with $6.0 million in the comparable period last year, reflecting proceeds from issuances of our common stock.

Convertible Senior Notes.

In May 2017, we issued $517.5 million of 2.25% convertible senior notes due May 15, 2024.

Off-Balance Sheet Arrangements

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

In May 2017, we completed a private placement of $517.5 million in aggregate principal amount of 2.25% convertible senior notes due May 15, 2024, or the 2024 Notes.

In November 2020, we entered into separate, privately negotiated transactions with certain holders of the 2024 Notes to repurchase $136.2 million aggregate principal amount of the 2024 Notes for an aggregate repurchase price of $186.9 million in cash.

At March 31, 2021, $381.2 million aggregate principal amount of the 2024 Notes remained outstanding.

We may not redeem the 2024 Notes prior to May 15, 2021.

On or after this date, at our election, we may redeem all, or any portion, of the 2024 Notes under certain circumstances.

The 2024 Notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, the issuance of other indebtedness or the issuance or repurchase of securities by us.

There are customary events of default with respect to the 2024 Notes, including that upon certain events of default, 100% of the principal and accrued and unpaid interest on the 2024 Notes will automatically become due and payable.

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 September 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 March 31, 2021, 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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Although our forward-looking statements reflect the good faith judgment of our management, these statements can only be based on facts and factors currently known by us.

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.

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.

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.

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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