What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-04 · 75 added, 49 removed, 138 unchanged (47% of the section changed)

1 unchanged sentence

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, 2021 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, 2021.

At Neurocrine Biosciences, our purpose is simple:

3 unchanged sentences

(*in collaboration with AbbVie Inc., or AbbVie)

We launched INGREZZA ® (valbenazine) in the United States in May 2017 as the first FDA-approved drug for the treatment of tardive dyskinesia and launched ONGENTYS ® (opicapone) in the United States in September 2020 as an FDA-approved add-on treatment to levodopa/carbidopa in patients with Parkinson's disease experiencing motor fluctuations.

We launched INGREZZA ® (valbenazine) in the United States in May 2017 as the first FDA-approved drug for the treatment of tardive dyskinesia and launched ONGENTYS ® (opicapone) in the United States in September 2020 as an FDA-approved add-on treatment for levodopa/carbidopa in patients with Parkinson's disease experiencing motor fluctuations.

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

Our partner AbbVie launched ORILISSA ® (elagolix tablets) in the United States in August 2018 and launched ORIAHNN ® (elagolix, estradiol and norethindrone acetate capsules and elagolix capsules) in the United States in June 2020.

Our partner AbbVie launched ORILISSA ® (elagolix tablets) in the United States in August 2018 for the treatment of moderate to severe pain associated with endometriosis and launched ORIAHNN ® (elagolix, estradiol and norethindrone acetate capsules and elagolix capsules) in the United States in June 2020 for the treatment of heavy menstrual bleeding related to uterine fibroids in premenopausal women.

We receive royalties at tiered percentage rates on AbbVie net sales of elagolix.

Our partner Mitsubishi Tanabe Pharma Corporation, or MTPC, launched DYSVAL ® (valbenazine) in Japan in June 2022 for the treatment of tardive dyskinesia.

We receive royalties at tiered percentage rates on MTPC net sales of DYSVAL.

Business Highlights

In March 2022, Mitsubishi Pharma Tanabe Corporation, or MTPC, received Japanese Ministry of Health, Labour and Welfare approval for DYSVAL ® (valbenazine) for the treatment of tardive dyskinesia in Japan.

Under the terms of our license agreement with MTPC, we are entitled to receive a milestone payment of $20.0 million upon MTPC's first commercial sale of DYSVAL in Japan, which is expected to occur in the second quarter of 2022.

• In connection with MTPC's first commercial sale of DYSVAL in Japan in June 2022, we received a milestone payment of $20.0 million, which was recognized as revenue in the second quarter of 2022.

• In the second quarter of 2022, the FDA accepted our submission of an investigational new drug application, or IND, for NBI-1117568 for the treatment of schizophrenia, for which we anticipate initiating a Phase II study during the second half of 2022.

Based upon this progress, a milestone of $30.0 million was expensed as R&D in the second quarter of 2022, which we expect to pay to Heptares in the third quarter of 2022.

• Total debt outstanding decreased by $210.8 million to $170.4 million following our repurchase of approximately 55% of total debt outstanding in the second quarter of 2022.

The total aggregate repurchase price of $279.0 million was paid in cash and resulted in the recognition of a $70.0 million loss on extinguishment in the second quarter of 2022.

• In August 2022, the Phase IIa study of NBI-827104 in essential tremor did not meet specified endpoints.

Based on the totality of data from the Phase IIa study, at this time, we do not plan to proceed further with the clinical development of NBI-827104 in essential tremor.

Impacts of Macro-Economic Factors on Our Business

1 unchanged sentence

We continue to monitor the impact of the COVID-19 pandemic on our business, including our clinical trials, third-party manufacturers, suppliers and service providers.

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 have not experienced and currently do not expect any supply disruption;

and (3) advancing our clinical studies.

The extent to which COVID-19 may impact our financial condition and results of operations remains uncertain and is dependent on numerous evolving factors, including the measures being taken by authorities to mitigate against the spread of COVID-19, the emergence of new variants and the availability and successful administration of effective vaccines.

3 unchanged sentences

In February 2022, Russia commenced a military invasion of Ukraine.

The ongoing geopolitical turmoil and continuing military action in the region, together with widening sanctions imposed on Russia, have caused us to suspend all planned clinical trial activities for valbenazine and NBI-1065844 in Russia and Ukraine.

The duration and impact of the conflict between Russia and Ukraine is highly unpredictable and the extent to which the conflict may impact certain of our clinical development and regulatory efforts remains uncertain.

1 unchanged sentence

Risk Factors.

Results of Operations for the Three Months Ended March 31, 2022 and 2021

Results of Operations for the Three and Six Months Ended June 30, 2022 and 2021

Net Product Sales by Sales Product.

Three Months Ended

June 30, Six Months Ended

( in millions)

2022 2021 2022 2021

INGREZZA net product sales $ 349.6 $ 264.8 $ 652.2 $ 494.4

1 unchanged sentence

Total net product sales $ 352.0 $ 266.8 $ 657.0 $ 497.8

Compared with the comparable period last year, INGREZZA net product sales for the three months ended March 31, 2022 primarily reflected increased new patient starts.

Compared with the comparable periods last year, the increase in INGREZZA net product sales was driven by increased new patient starts and record total prescriptions, reflecting higher customer demand and increased commercial activities.

Collaboration Revenues by Category.

Three Months Ended

June 30, Six Months Ended

( in millions)

Elagolix royalty revenue $ 4.2 $ 4.5

Non-cash collaboration revenue and other

2022 2021 2022 2021

Royalty revenue $ 5.2 $ 5.9 $ 9.4 $ 10.4

Milestone revenue 20.0 15.0 20.0 15.0

1.0 1.2 2.4 2.3

Total collaboration revenues $ 26.2 $ 22.1 $ 31.8 $ 27.7

Collaboration revenues for the three months ended March 31, 2022 and 2021 primarily reflected royalties earned on AbbVie net sales of ORILISSA and ORIAHNN.

Royalty revenue.

Consists of royalties earned at tiered percentage rates on AbbVie net sales of elagolix and, beginning in June 2022, MTPC net sales of DYSVAL.

Milestone revenue.

Consists of license fees earned under the terms of our license agreements with AbbVie and MTPC.

Milestone revenue for the six months ended June 30, 2022 reflected the achievement of a $20.0 million milestone in connection with MTPC's first commercial sale of DYSVAL in Japan in June 2022.

For the comparable period last year, milestone revenue reflected the achievement of a $15.0 million milestone in connection with MTPC's submission of a marketing authorization application for valbenazine for the treatment of tardive dyskinesia with the Ministry of Health and Welfare in Japan in April 2021.

Operating Expenses

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

( in millions)

2022 2021 2022 2021

Cost of revenues $ 4.8 $ 3.1 $ 9.4 $ 6.0

Compared with the comparable period last year, cost of revenues for the three months ended March 31, 2022 reflected increased INGREZZA net product sales driven by increased new patient starts.

Compared with the comparable periods last year, the increase in cost of revenues primarily reflected increased INGREZZA net product sales driven by increased new patient starts and record total prescriptions reflecting higher customer demand and increased commercial activities.

Research and Development by Category.

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(in millions) 2022 2021 2022 2021

7 unchanged sentences

Consists of expenses incurred for product candidates in Phase II registrational studies and all subsequent activities.

Compared with the comparable period last year, late-stage expenses for the three months ended March 31, 2022 primarily reflected increased investment in our Phase III programs for valbenazine in schizophrenia and dyskinetic cerebral palsy, partially offset by lower spend related to the completion of the Phase III KINECT-HD study in the first quarter of 2022.

Compared with the comparable periods last year, late-stage expenses primarily reflected increased investment in our Phase III programs for valbenazine in schizophrenia and dyskinetic cerebral palsy, partially offset by lower spend related to the completion of the Phase III KINECT-HD study in the first quarter of 2022.

Early Stage .

Consists of expenses incurred for product candidates after the approval of an investigational new drug application by the applicable regulatory agency through Phase II non-registrational studies.

Compared with the comparable period last year, early-stage expenses for the three months ended March 31, 2022 primarily reflected increased investment in support of our advancing Phase II epilepsy and neuropsychiatry programs.

Compared with the comparable periods last year, early-stage expenses primarily reflected increased investment in support of our advancing Phase II epilepsy and neuropsychiatry programs.

Research and Discovery.

Consists of expenses incurred prior to the approval of an investigational new drug application by the applicable regulatory agency.

Compared with the comparable period last year, research and discovery expenses for the three months ended March 31, 2022 primarily reflected increased investment in our preclinical development programs.

Consists of expenses incurred for development and regulatory milestones in connection with our collaborative arrangements.

Compared with the comparable period last year, milestone expenses for three months ended March 31, 2022 reflected $7.3 million of expense recognized in connection with the FDA's acceptance of our amended KAYAK TM study protocol in January 2022.

Compared with the comparable periods last year, research and discovery expenses primarily reflected increased investment in our preclinical development programs.

Consists of development and regulatory milestone expenses incurred in connection with our collaborative arrangements.

Milestone expenses for the six months ended June 30, 2022 primarily reflected $30.0 million of expense recognized in connection with the FDA's acceptance of our IND for NBI-1117568 for the treatment of schizophrenia in June 2022 and $7.3 million of expense recognized in connection with the FDA's acceptance of our amended KAYAK TM study protocol in January 2022.

Payroll and Benefits.

1 unchanged sentence

Stock-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 stock-based grants are issued.

Compared with the comparable period last year, payroll and benefits expenses for three months ended March 31, 2022 primarily reflected increased personnel expenses driven by higher headcount, partially offset by a non-cash stock-based compensation charge of $6.4 million in the comparable period last year related to the modification of certain share-based awards.

Compared with the comparable periods last year, the increase in payroll and benefits expenses was primarily due to higher headcount and increases of $7.0 million and $4.5 million, respectively, in non-cash stock-based compensation expense for the three and six months ended June 30, 2022 primarily related to unvested performance-based restricted stock units, or PRSUs, to our executive officers, for which attainment of the performance-based criteria was determined to be probable and an equity grant in August 2021 of approximately 0.5 million restricted stock units, or RSUs, to our full-time employees other than our executive officers, which are vesting over a 2-year period.

The six months ended June 30, 2021 included a non-cash stock-based compensation charge of $6.4 million related to the modification of certain stock-based awards.

Selling, General and Administrative.

Three Months Ended

June 30, Six Months Ended

( in millions)

2022 2021 2022 2021

Sales, general and administrative $ 182.8 $ 143.2 $ 383.5 $ 272.2

Compared with the comparable period last year, sales, general and administrative expense for the three months ended March 31, 2022 primarily reflected increased investment in ongoing commercial initiatives, including our TD Spotlight-branded direct-to-consumer INGREZZA advertising campaign which launched in May 2021 and deployment of our expanded salesforce, and increased personnel expenses driven by higher headcount and increased non-cash stock-based compensation.

Compared with the comparable periods last year, the increase in sales, general and administrative expense was primarily due to increased investment in ongoing commercial initiatives, including our TD Spotlight-branded direct-to-consumer INGREZZA advertising campaign which launched in May 2021 and deployment of our expanded salesforce, and increased personnel expenses driven by higher headcount and increases of $13.9 million and $20.5 million, respectively, in non-cash stock-based compensation expense for the three and six months ended June 30, 2022 primarily related to unvested PRSUs to our executive officers, for which attainment of the performance-based criteria was determined to be probable and an equity grant in August 2021 of approximately 0.5 million RSUs to our full-time employees other than our executive officers, which are vesting over a 2-year period.

Other Income (Expense), Net.

Three Months Ended

June 30, Six Months Ended

(in millions) 2022 2021 2022 2021

Interest expense $ (2.2) $ (6.2) $ (4.8) $ (12.6)

Unrealized gain on equity securities 19.9 0.7

Unrealized (loss) gain on equity securities (7.4) — 12.5 0.7

Loss on extinguishment (70.0) — (70.0) —

Investment income and other, net 1.6 0.9 2.6 2.3

Total other income (expense), net $ 18.3 $ (4.3)

Compared to the comparable period last year, other income, net, for the three months ended March 31, 2022 primarily reflected periodic fluctuations in the fair values of our equity security investments.

Provision for (Benefit from) Income Taxes.

Total other expense, net $ (78.0) $ (5.3) $ (59.7) $ (9.6)

Compared to the comparable periods last year, other expense, net, for the three and six months ended June 30, 2022 primarily reflected a $70.0 million loss on extinguishment recognized in connection with the repurchase of $210.8 million aggregate principal amount of our convertible senior notes for an aggregate repurchase price of $279.0 million in cash in the second quarter of 2022 and periodic fluctuations in the fair values of our equity security investments.

(Benefit from) Provision for Income Taxes.

Three Months Ended

June 30, Six Months Ended

(in millions) 2022 2021 2022 2021

Provision for (benefit from) income taxes $ 7.5 $ (4.9)

The provision for income taxes for the three months ended March 31, 2022 reflected an effective tax rate that was higher than the federal and statutory rates primarily due to excess tax expense related to stock-based compensation.

The benefit from income taxes for the comparable period last year reflected an effective tax rate that was lower than federal and statutory rates primarily due to excess tax benefits related to stock-based compensation.

(Benefit from) provision for income taxes $ (6.4) $ 15.2 $ 1.1 $ 10.3

The benefit from and provision for income taxes for the three and six months ended June 30, 2022, respectively, reflected an effective tax rate that differs from the federal and state statutory rates primarily due to credits generated for research activities and certain nondeductible expenses, including the premium paid on the repurchase of our convertible senior notes.

The provision for income taxes for the three and six months ended June 30, 2021, reflected an effective tax rate that was lower than the federal and statutory rates primarily due to excess tax benefits related to stock-based compensation.

Based upon available Federal net operating losses and tax credits, we expect to begin making cash payments for Federal income tax beginning in 2022.

Net (Loss) Income.

Three Months Ended

June 30, Six Months Ended

(in millions) 2022 2021 2022 2021

Net income $ 13.9 $ 32.1

Diluted earnings per share $ 0.14 $ 0.33

Compared with the comparable period last year, net income for the three months ended March 31, 2022 primarily reflected increased INGREZZA net product sales driven by increased new patient starts, offset by increased investment in ongoing commercial initiatives, including our TD Spotlight-branded direct-to-consumer INGREZZA advertising campaign which launched in May 2021 and deployment of our expanded salesforce, and increased investment in support of our expanded and advancing clinical portfolio.

Net (loss) income $ (16.9) $ 42.3 $ (3.0) $ 74.4

Compared with the comparable periods last year, the change in net (loss) income primarily reflected a $70.0 million loss on extinguishment recognized in connection with the repurchase of our convertible senior notes in the second quarter of 2022, increased milestone expenses incurred in connection with certain of our collaborative arrangements, and increased investments in ongoing commercial initiatives and our expanded clinical portfolio, partially offset by increased INGREZZA net product sales driven by increased new patient starts and record total prescriptions, reflecting higher customer demand and increased commercial activities.

Liquidity and Capital Resources

7 unchanged sentences

Information Regarding Our Financial Condition.

(in millions) March 31,

(in millions) June 30,

2022 December 31,

6 unchanged sentences

Information Regarding Our Cash Flows.

Three Months Ended

Six Months Ended

(in millions) 2022 2021

Net cash (used in) provided by operating activities $ (40.5) $ 87.3

Net cash (used in) provided by investing activities (31.6) 63.1

Net cash provided by financing activities 6.1 15.1

Cash flows from operating activities $ 97.6 $ 190.5

Cash flows from investing activities (0.2) (27.7)

Cash flows from financing activities (270.3) 18.1

Change in cash, cash equivalents and restricted cash $ (172.9) $ 180.9

Net Cash (Used in) Provided by Operating Activities.

Compared with the comparable period last year, net cash used in operating activities for the three months ended March 31, 2022 primarily reflected increased investment in ongoing commercial initiatives, including our TD Spotlight-branded direct-to-consumer INGREZZA advertising campaign which launched in May 2021 and deployment of our expanded salesforce, and increased investment in support of our expanded and advancing clinical portfolio.

In addition, we experienced an increase in accounts receivable due to extended customer payment terms attributed to the expansion of our distribution network at the end of 2021.

Net Cash (Used in) Provided by Investing Activities.

Periodic fluctuations in net cash (used in) provided by investing activities primarily reflected timing differences related to purchases, sales and maturities of debt security investments and changes in our portfolio-mix.

Net cash used in investment activities for the three months ended March 31, 2022 also reflected a $7.7 million equity investment in Xenon in connection with the FDA's acceptance of our amended KAYAK TM study protocol in January 2022.

Net Cash Provided by Financing Activities.

Net cash provided by financing activities primarily reflected proceeds from issuances of our common stock for all periods presented.

Cash Flows from Operating Activities.

Compared with the comparable period last year, cash flows from operating activities primarily reflected increased INGREZZA net product sales driven by increased new patient starts and record total prescriptions, reflecting higher customer demand and increased commercial activities, partially offset by increased investments in ongoing commercial initiatives and our expanded clinical portfolio.

In addition, we experienced an increase in accounts receivable due to extended customer payment terms attributed to the expansion of our distribution network at the end of fiscal 2021 and an increase in accounts payable driven by $30.0 million of milestone expense recognized in the second quarter of 2022.

Cash Flows from Investing Activities.

Periodic fluctuations in cash flows from investing activities primarily reflect timing differences related to purchases, sales and maturities of debt security investments and changes in our portfolio-mix.

Compared with the comparable period last year, cash flows from investing activities also reflected an increase of $7.6 million in capital expenditures driven by increased investment in our new campus facilities and scientific equipment and a $7.7 million equity investment in Xenon in connection with the FDA's acceptance of our amended KAYAK TM study protocol in January 2022.

Cash Flows from Financing Activities.

Compared with the comparable period last year, cash flows from financing activities primarily reflected the repurchase of $210.8 million aggregate principal amount of our convertible senior notes for an aggregate repurchase price of $279.0 million in cash in the second quarter of 2022.

Material Cash Requirements

2 unchanged sentences

In particular, our future capital requirements will depend on many factors, including:

• the commercial success of INGREZZA, ONGENTYS, ORILISSA and/or ORIAHNN;

• the commercial success of INGREZZA, ONGENTYS, ORILISSA, ORIAHNN and/or DYSVAL;

• continued scientific progress in our research and clinical development programs;

18 unchanged sentences

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 notes would become due and payable.

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.

As of March 31, 2022, $381.2 million aggregate principal amount of the 2024 Notes remained outstanding.

In the fourth quarter of 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.

In the second quarter of 2022, we entered into separate, privately negotiated transactions with certain holders of the 2024 Notes to repurchase $210.8 million aggregate principal amount of the 2024 Notes for an aggregate repurchase price of $279.0 million in cash.

As of June 30, 2022, $170.4 million aggregate principal amount of the 2024 Notes remained outstanding.

With respect to the 2024 Notes, unless earlier converted, redeemed, or repurchased, we would be required to pay interest of $1.9 million in 2022, $3.8 million in 2023, and $1.9 million in 2024 and pay the aggregate principal amount outstanding of $170.4 million upon maturity of the 2024 Notes.

9 unchanged sentences

The primary objective of our investment activities is to preserve principal and maintain liquidity.

If a 1% unfavorable change in interest rates were to have occurred on March 31, 2022, it would not have had a material effect on the fair value of our investment portfolio as of that date.

If a 1% unfavorable change in interest rates were to have occurred on June 30, 2022, it would not have had a material effect on the fair value of our investment portfolio as of that date.

Forward-Looking Statements

12 unchanged sentences

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