What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-03 compared with 2021-05-05 · 58 added, 59 removed, 80 unchanged (59% 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, 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.

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(*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.

We launched INGREZZA ® (valbenazine) in the United States, or US, in May 2017 as the first FDA-approved drug for the treatment of tardive dyskinesia.

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

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.

Our partner AbbVie Inc., or AbbVie, launched ORILISSA ® (elagolix tablets) in the US and Canada in August and November 2018, respectively.

In June 2020, AbbVie launched ORIAHNN ® (elagolix, estradiol and norethindrone acetate capsules and elagolix capsules) in the US.

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.

Pipeline Updates:

• In April 2021, Mitsubishi Tanabe Pharma Corporation, or 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.

The MTPC submission of valbenazine triggered a milestone payment of $15.0 million, which we recognized as collaboration revenue in the second quarter of 2021.

Luvadaxistat (NBI-1065844/TAK-831) :

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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.

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

The global COVID-19 pandemic 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:

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 and their caregivers, healthcare providers and our employees;

Although the initial impact of the COVID-19 pandemic has subsided, we are uncertain how more transmissible variants may impact our business.

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.

As part of this commitment, we implemented a “Work from Home Policy” in early March 2020 for employees not involved in business-critical activities.

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

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.

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.

We have developed and implemented plans regarding the partial 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.

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

Most hospitals, community mental health facilities, physicians’ offices, pharmacies, and other healthcare facilities have relaxed their 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.

However, we anticipate these policies may change from time to time as communities grapple with local or regional outbreaks.

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, 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

Results of Operations for the Three and Six Months Ended June 30, 2021 and 2020

The following table presents revenues by category.

Three Months Ended

June 30, Six Months Ended

( in millions)

Product sales, net $ 231.0 $ 231.1

2021 2020 2021 2020

INGREZZA product sales, net $ 264.8 $ 267.6 $ 494.4 $ 498.7

ONGENTYS product sales, net 2.0 — 3.4 —

Collaboration revenue 22.1 34.8 27.7 40.8

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Product Sales, Net.

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.

Net product sales were $266.8 million and $497.8 million for the three and six months ended June 30, 2021, respectively, compared with $267.6 million and $498.7 million in the comparable periods last year, reflecting a slowdown in INGREZZA sales volume growth, largely attributable to the impact of COVID-19 on our customers.

Collaboration Revenue.

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.

Collaboration revenue reflects royalties earned on AbbVie net sales of ORILISSA and ORIAHNN and license fees earned under our collaboration agreements with AbbVie and MTPC.

Collaboration revenue was $22.1 million and $27.7 million for the three and six months ended June 30, 2021, respectively, primarily reflecting the achievement of a $15.0 million milestone associated with MTPC's MAA submission for valbenazine for the treatment of tardive dyskinesia in Japan.

For the three and six months ended June 30, 2020, collaboration revenue was $34.8 million and $40.8 million, respectively, primarily reflecting the achievement of a $30.0 million 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 $2.9 million for the three months ended March 31, 2021, compared with $2.1 million in the comparable period last year.

Cost of sales was $3.1 million and $6.0 million for the three and six months ended June 30, 2021, respectively, compared with $2.4 million and $4.5 million in the comparable periods last year.

Research and Development.

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Research and discovery consists of pre-IND costs.

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.

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 R&D activities.

Share-based compensation may fluctuate from period to period based on factors that are not within our control, such as our stock price on the dates share-based grants are issued.

Facilities and other consists of indirect costs incurred in support of overall R&D activities and non-specific programs, including activities that benefit multiple programs, such as management costs, as well as depreciation, information technology and facility-based expenses.

These costs are not allocated to a specific program or stage.

Facilities and other consists of indirect costs incurred in support of overall

R&D activities and non-specific programs, including activities that benefit multiple programs, such as management costs, as well as depreciation, information technology and facility-based expenses.

Such costs are not allocated to a specific program or stage.

The following table presents R&D expense by category:

Three Months Ended

June 30, Six Months Ended

(in millions) 2021 2020 2021 2020

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Research and discovery 11.7 10.6 21.1 19.8

Milestone expenses — 20.0 — 20.0

Payroll and benefits 29.1 25.2 64.5 49.1

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Total R&D expense $ 74.8 $ 80.9 $ 148.0 $ 139.2

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.

R&D expense was $74.8 million and $148.0 million for the three and six months ended June 30, 2021, respectively, compared with $80.9 million and $139.2 million in the comparable periods last year, primarily reflecting increased investment and headcount to support advancing our expanded clinical portfolio.

R&D expense for the six months ended June 30, 2021, also reflects 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.

Acquired In-Process Research and Development.

Acquired in-process research and development, or IPR&D, expense was $5.0 million for the three months ended June 30, 2021.

In the comparable period last year, IPR&D expense was $46.0 million in connection with the payment of the upfront fee pursuant to our collaboration and license agreement with Idorsia.

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 $4.3 million for the three months ended March 31, 2021, compared with $20.0 million in the comparable period last year.

Selling, general and administrative, or SG&A, expense was $143.2 million and $272.2 million for the three and six months ended June 30, 2021, respectively, compared with $96.5 million and $214.3 million in the comparable periods last year, primarily reflecting increased investment to support our commercial initiatives, including the May 2021 launch of our INGREZZA direct-to-consumer advertising campaign, "TD Spotlight".

Other (Expense) Income, Net

Other expense, net, was $5.3 million and $9.6 million for the three and six months ended June 30, 2021, respectively, compared with other income, net, of $6.6 million for the three months ended June 30, 2020, and other expense, net, of $13.4 million for the six months ended June 30, 2020.

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.

(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.

Provision for Income Taxes

Our provision for income taxes was $15.2 million and $10.3 million for the three and six months ended June 30, 2021, respectively, compared with $3.6 million and $5.1 million in the comparable periods last year.

Our effective tax rate for the three and six months ended June 30, 2021 was lower than federal and state statutory rates primarily due to excess tax benefits related to share-based compensation.

On 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.

Net income was $42.3 million, or $0.43 diluted earnings per share, and $74.4 million, or $0.76 diluted earnings per share, for the three and six months ended June 30, 2021, compared with $79.6 million, or $0.81 diluted earnings per share, and $117.0 million, or $1.20 diluted earnings per share, in the comparable periods last year, primarily reflecting increased investment to support our commercial initiatives, including the May 2021 launch of our INGREZZA direct-to-consumer advertising campaign, "TD Spotlight", investment in our expanded clinical portfolio and an increase in our provision for income taxes.

Liquidity and Capital Resources

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.

At June 30, 2021, our cash, cash equivalents and debt security investments totaled $1.2 billion compared with $1.0 billion at December 31, 2020.

Net cash provided by operating activities was $190.5 million for the six months ended June 30, 2021, compared with $154.4 million in the comparable period last year, primarily reflecting timing of working capital receipts and payments partially offset by lower net income on increased investment to support our expanded clinical portfolio and commercial initiatives.

The six months ended June 30, 2020 includes $46.0 million of upfront fees paid to Idorsia in connection with the execution of our collaboration and license agreement in May 2020.

Net cash used in investing activities was $27.7 million for the six months ended June 30, 2021, compared with net cash provided by investing activities of $126.6 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 $18.1 million for the six months ended June 30, 2021, compared with $21.8 million in the comparable period last year, primarily reflecting proceeds from issuances of our common stock.

Convertible Senior Notes.

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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.

At June 30, 2021, $381.2 million aggregate principal amount of the 2024 Notes remained outstanding.

On or after May 15, 2021, we may redeem for cash all or part of the 2024 Notes if the last reported sale price (as defined in the 2024 Indenture) of our common stock has been at least 130% of the conversion price then in effect (equal to $98.70 as of June 30, 2021) for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period ending on, and including, the trading day immediately before the date which we provide notice of redemption.

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.

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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 March 31, 2021, 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, 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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You should be aware that the occurrence of any of the events discussed under the heading in Part II titled “Item 1A.

Risk Factors” and elsewhere in this report could substantially harm our business, results of operations and financial condition and that if any of these events occurs, the trading price of our common stock could decline and you could lose all or a part of the value of your shares of our common stock.

Risk Factors” and elsewhere in this

report could substantially harm our business, results of operations and financial condition and that if any of these events occurs, the trading price of our common stock could decline and you could lose all or a part of the value of your shares of our common stock.

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.

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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