What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-03 compared with 2022-11-01 · 64 added, 92 removed, 130 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, 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 and our Quarterly Report on Form 10-Q for the six months ended June 30, 2022.

At Neurocrine Biosciences, our purpose is simple:

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, 2022 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, 2022.

Neurocrine Biosciences is a neuroscience-focused, biopharmaceutical company with a simple purpose:

to relieve suffering for people with great needs, but few options.

For three decades, we have applied our unique insight into neuroscience to advance medicines for neurology, neuroendocrinology and neuropsychiatry-related disorders and diseases.

Our efforts have resulted in United States Food and Drug Administration, or FDA, approved treatments for tardive dyskinesia, Parkinson’s disease, endometriosis* and uterine fibroids* and a diversified portfolio of investigational therapies with the potential to address unmet clinical needs of patients worldwide living with neurological, endocrine and psychiatric disorders.

We are dedicated to discovering and developing life-changing treatments for patients with under-addressed neurological, neuroendocrine and neuropsychiatric disorders.

The Company’s diverse portfolio includes United States Food and Drug Administration, or FDA, approved treatments for tardive dyskinesia, Parkinson’s disease, endometriosis* and uterine fibroids* and a diversified portfolio of advanced clinical-stage programs in multiple therapeutic areas.

For three decades, we have applied our unique insight into neuroscience and the interconnections between brain and body systems to treat complex conditions and we will continue to relentlessly pursue medicines to ease the burden of debilitating diseases and disorders.

(*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 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.

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

INGREZZA net product sales represent nearly all of our total net product sales.

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

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Business Highlights

• In October 2022, we submitted a supplemental new drug application, or sNDA, with the FDA for valbenazine for the treatment of chorea associated with Huntington disease.

• On November 1, 2022, we acquired Diurnal Group plc in an all-cash transaction, for an aggregate value of approximately £48.3 million GBP, or approximately $56 million USD.

We believe the transaction presents an opportunity to accelerate the establishment of our clinical development and commercial capabilities in the United Kingdom to the benefit of patient communities and other stakeholders.

In the first quarter of 2023, we provided BIAL with written notice of termination of the license agreement to commercialize and market ONGENTYS ® (opicapone), an approved adjunctive therapy for patients with Parkinson's disease, in the United States and Canada.

We determined that continued commercialization of ONGENTYS is unsustainable.

The termination is anticipated to be effective in December 2023.

We intend to work with BIAL to ensure an orderly transition of the commercialization of ONGENTYS and to ensure patients have continued access to ONGENTYS.

Pipeline Highlights

Expanded strategic partnership with Voyager Therapeutics Inc., or Voyager, to advance multiple gene therapy programs, each enabled by Voyager's next-generation TRACER TM capsids, for the treatment of neurological diseases.

Upfront fee associated with the agreement totaled $175.0 million, including an equity investment valued at $31.3 million on the transaction date, with the remaining $143.9 million of the purchase price, which includes the applicable transaction costs, expensed as in-process research and development in the first quarter of 2023.

Impacts of Macro-Economic Factors on Our Business

COVID-19 Global Pandemic.

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.

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.

For more information on the risks and uncertainties associated with the evolving effects of COVID-19 on our business, our ability to generate sales of and revenues from our approved products and our clinical development and regulatory efforts, refer to Part II Item 1A.

We continue to monitor the impact of the COVID-19 pandemic on our business.

The extent to which COVID-19 may impact our financial condition and results of operations remains uncertain and is dependent on numerous evolving factors.

For more information on the risks and uncertainties associated with the evolving effects of COVID-19 on our business, refer to Part II Item 1A.

Risk Factors.

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Risk Factors.

Results of Operations for the Three and Nine Months Ended September 30, 2022 and 2021

Results of Operations for the Three Months Ended March 31, 2023 and 2022

Net Product Sales by Sales Product.

Three Months Ended

September 30, Nine Months Ended

September 30,

( in millions)

2022 2021 2022 2021

INGREZZA net product sales $ 376.4 $ 286.5 $ 1,028.6 $ 780.9

ONGENTYS net product sales 2.9 2.3 7.7 5.7

INGREZZA $ 410.4 $ 302.6

Other 4.9 2.4

Total net product sales $ 415.3 $ 305.0

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.

Compared with the comparable period last year, the increase in total net product sales primarily reflected increased INGREZZA net product sales driven by record total prescriptions on higher customer demand and increased commercial activities.

Collaboration Revenues by Category.

Three Months Ended

September 30, Nine Months Ended

September 30,

( in millions)

2022 2021 2022 2021

Royalty revenue $ 6.1 $ 5.9 $ 15.5 $ 16.3

Milestone revenue — — 20.0 15.0

2.5 1.3 4.9 3.6

Total collaboration revenues $ 5.1 $ 5.6

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 nine months ended September 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.

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

Operating Expenses

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Three Months Ended

September 30, Nine Months Ended

September 30,

( in millions)

2022 2021 2022 2021

Cost of revenues $ 8.5 $ 4.6

Compared with the comparable periods last year, the increase in cost of revenues primarily reflected increased manufacturing costs in connection with our supply of valbenazine drug product under our collaboration with MTPC and increased INGREZZA net product sales driven by increased new patient starts and record total prescriptions, reflecting higher customer demand and increased commercial activities.

Compared with the comparable period last year, the increase in cost of revenues primarily reflected increased INGREZZA net product sales driven by record total prescriptions on higher customer demand and increased commercial activities, increased manufacturing costs in connection with our supply of valbenazine drug product under our collaboration with MTPC, and amortization costs related to our acquired intangible assets.

Research and Development by Category.

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Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2023 2022

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

Compared with the comparable periods last year, late-stage expenses primarily reflected increased investment in our Phase III programs for valbenazine in schizophrenia and crinecerfont in classic congenital adrenal hyperplasia, 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 period last year, late-stage expenses primarily reflected increased investment in our Phase III programs for crinecerfont in CAH and valbenazine in schizophrenia.

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 periods last year, early-stage expenses primarily reflected increased investment in support of our advancing Phase II programs in epilepsy and luvadaxistat and NBI-1117568 in schizophrenia.

Compared with the comparable period last year, early-stage expenses primarily reflected increased investment in our Phase II programs for NBI-1117568 in schizophrenia, NBI-921352 in epilepsy and luvadaxistat in schizophrenia.

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

Compared with the comparable period last year, research and discovery expenses primarily reflected increased investment in our preclinical development programs, including our epilepsy, VMAT2 and gene therapy programs.

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

Milestone expenses for the nine months ended September 30, 2022 primarily reflected $5.0 million of expense recognized in connection with the approval of our clinical trial application for NBI-1070770 for the treatment of major depressive disorder in July 2022, $30.0 million of expense recognized in connection with the FDA's acceptance of our investigational new drug application 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.

For the nine months ended September 30, 2021, milestone expenses reflected $5.4 million of expense recognized in connection with the European Union's approval of our clinical trial application for NBI-921352 for the treatment of focal onset seizures in adults in September 2021.

Milestone expenses for the first quarter of 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.

Payroll and Benefits.

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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 to the comparable period last year, payroll and benefits expenses for the nine months ended September 30, 2022 primarily reflected higher headcount and an increase of $7.4 million in non-cash stock-based compensation expense primarily related to an August 2021 equity grant of approximately 0.5 million restricted stock units to our full-time employees other than our executive officers, which are vesting over a 2-year period, and unvested performance-based restricted stock units to our executive officers for which attainment of the performance-based criteria was determined to be probable.

The nine months ended September 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.

Compared to the comparable period last year, payroll and benefits expenses primarily reflected higher headcount, including an increase of $1.3 million in non-cash stock-based compensation expense.

Acquired In-Process Research and Development, or IPR&D.

Three Months Ended

September 30, Nine Months Ended

September 30,

( in millions)

2022 2021 2022 2021

Sales, general and administrative $ 186.3 $ 154.6 $ 569.8 $ 426.8

Compared with the comparable periods last year, the increase in sales, general and administrative expense was primarily driven 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 sales force.

Compared with the comparable period last year, sales, general and administrative expense for the nine months ended September 30, 2022, also reflected increased personnel expenses driven by higher headcount and an increase of $23.6 million in non-cash stock-based compensation expense primarily related to an August 2021 equity grant of approximately 0.5 million restricted stock units to our full-time employees other than our executive officers, which are vesting over a 2-year period, and unvested performance-based restricted stock units to our executive officers for which attainment of the performance-based criteria was determined to be probable.

Acquired in-process research and development $ 143.9 $ —

In the first quarter of 2023, we recognized $143.9 million of IPR&D expense in connection with our payment of the upfront fee pursuant to our expanded strategic partnership with Voyager.

Selling, General and Administrative, or SG&A.

Three Months Ended

( in millions)

Selling, general and administrative $ 242.7 $ 200.7

Compared with the comparable period last year, SG&A expenses primarily reflected increased payroll and benefits expenses on higher headcount, including the deployment of our expanded sales force in April 2022 and an increase of $1.6 million in non-cash stock-based compensation expense, and continued investment in our commercial initiatives.

Other Income (Expense), Net.

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2023 2022

Interest expense $ (1.1) $ (2.6)

Unrealized gain (loss) on equity securities 11.1 (8.2) 23.6 (7.5)

Loss on extinguishment — — (70.0) —

Unrealized gain on equity security investments 2.2 19.9

Investment income and other, net 9.8 1.0

Total other income (expense), net $ 10.1 $ (14.0) $ (49.6) $ (23.6)

Compared with the comparable periods last year, the change in other income (expense), net, was driven by periodic fluctuations in the fair values of our equity security investments and decreased interest expense in connection with our adoption of ASU 2020-06 on January 1, 2022.

Compared with the comparable period last year, other expense, net, for the nine months ended September 30, 2022, also reflected a $70.0 million loss on extinguishment 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.

Provision for Income Taxes.

Total other income, net $ 10.9 $ 18.3

Compared with the comparable period last year, other income, net, primarily reflected periodic fluctuations in the fair values of our equity security investments and increased interest income on our debt security investments.

(Benefit from) Provision for Income Taxes.

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2023 2022

Provision for income taxes $ 29.4 $ 8.0 $ 30.5 $ 18.3

The provision for income taxes for the three and nine months ended September 30, 2022, 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 nine months ended September 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.

(Benefit from) provision for income taxes $ (26.7) $ 7.5

The effective tax rate for the first quarter of 2023 varied from the federal and state statutory rates primarily due to excess tax benefits related to stock-based compensation.

For the comparable period last year, the effective tax rate varied from the federal and state statutory rates primarily due to excess tax expense related to stock-based compensation.

Net (Loss) Income.

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2023 2022

Net income $ 68.5 $ 22.5 $ 65.5 $ 96.9

Compared with the comparable periods last year, the change in net income 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.

Compared to the comparable period last year, net income for the nine months ended September 30, 2022, also 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 and increased milestone expenses incurred in connection with certain of our collaborative arrangements.

Net (loss) income $ (76.6) $ 13.9

Compared with the comparable period last year, the net loss for the first quarter of 2023 primarily reflected increased upfront payments pursuant to our expanded strategic partnership with Voyager and continued investment in our commercial initiatives and expanded clinical portfolio, partially offset by increased INGREZZA net product sales.

Liquidity and Capital Resources

Sources of Liquidity

We believe that our existing capital resources and anticipated revenues will be sufficient to satisfy our current and projected funding requirements for at least the next 12 months.

We believe that our existing capital resources, funds generated by anticipated INGREZZA net product sales and investment income will be sufficient to satisfy our current and projected funding requirements for at least the next 12 months.

However, we cannot guarantee that our existing capital resources and anticipated revenues will be sufficient to conduct and complete all of our research and development programs or commercialization activities as planned.

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However, we cannot provide assurance that adequate funding will be available on terms acceptable to us, if at all.

In addition, the disruption of global financial markets caused by the COVID-19 pandemic, if sustained or recurrent, could make it more difficult for us to access capital, which could in the future negatively affect our liquidity.

Information Regarding Our Financial Condition.

(in millions) September 30,

(in millions) March 31,

2023 December 31,

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Information Regarding Our Cash Flows.

Nine Months Ended

September 30,

Three Months Ended

(in millions) 2023 2022

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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.

Compared with the comparable period last year, cash flows from operating activities primarily reflected increased upfront payments pursuant to our expanded strategic partnership with Voyager, increased INGREZZA net product sales, and continued investment in our commercial initiatives and expanded clinical portfolio.

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.

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

Cash flows from investing activities for the periods presented also reflected equity investments of $31.3 million in Voyager in the first quarter of 2023 and $7.7 million in Xenon Pharmaceuticals, Inc.

in the comparable period last year.

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.

Cash flows from financing activities reflected proceeds from issuances of our common stock for all periods presented.

Material Cash Requirements

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

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

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

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

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• developments related to any future litigation.

• the impact of the COVID-19 pandemic on our business.

In addition to the foregoing factors, we have significant future capital requirements, including:

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With respect to our existing collaboration and license agreements, we may be required to make potential future payments of up to $16.9 billion upon the achievement of certain event-based milestones.

On November 1, 2022, we acquired Diurnal Group plc in an all-cash transaction, for an aggregate value of approximately £48.3 million GBP, or approximately $56 million USD.

Refer to Note 2 to the condensed consolidated financial statements for more information on our significant collaboration and license agreements.

Our operating leases that have commenced have terms that expire beginning 2024 through 2031 and consist of office space and research and development laboratories, including our corporate headquarters.

On February 8, 2022, we entered into a lease agreement for a four-building campus facility to be constructed in San Diego, California, pursuant to which we also secured a six-year option for the construction of a fifth building and an option to purchase the entire campus facility, which will consist of office space and research and development laboratories, in the future.

Upon completion of construction, we expect to utilize the campus facility as our new corporate headquarters and expect to begin subleasing our existing leased facilities.

Refer to Note 8 to the condensed consolidated financial statements for more information on our leases, including a presentation of our approximate future minimum lease payments under non-cancelable operating leases.

Convertible Senior Notes.

On May 2, 2017, we completed a private placement of $517.5 million in aggregate principal amount of 2.25% fixed-rated convertible senior notes due May 15, 2024, or the 2024 Notes.

In the fourth quarter of 2020 and second quarter of 2022, we entered into separate, privately negotiated transactions with certain holders of the 2024 Notes to repurchase $136.2 million and $210.8 million, respectively, aggregate principal amount of the 2024 Notes for an aggregate repurchase price of $186.9 million and $279.0 million, respectively, in cash.

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

In 2020, we repurchased $136.2 million aggregate principal amount of the 2024 Notes for an aggregate repurchase price of $186.9 million in cash.

In 2022, we repurchased $210.8 million aggregate principal amount of the 2024 Notes for an aggregate repurchase price of $279.0 million in cash.

As of March 31, 2023, $170.4 million aggregate principal amount of the 2024 Notes remained outstanding.

At our election, we may redeem all or any portion of the 2024 Notes under certain circumstances.

Further, as the conditional conversion feature of the 2024 Notes was triggered as of September 30, 2022, holders of the 2024 Notes may convert the 2024 Notes at any time during the period beginning on October 3, 2022, and ending at the close of business on December 30, 2022 .

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.

With respect to the 2024 Notes, unless earlier converted, redeemed, or repurchased, we would be required to pay interest of $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.

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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Refer to Note 9 to the condensed consolidated financial statements for more information on the 2024 Notes.

Upon completion of construction, we expect to utilize the campus facility as our new corporate headquarters and expect to begin subleasing our existing leased facilities.

Refer to Note 7 to the condensed consolidated financial statements for more information on our leases, including a presentation of our approximate future minimum lease payments under non-cancelable operating leases.

Critical Accounting Policies and Estimates

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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 September 30, 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 March 31, 2023, it would not have had a material effect on the fair value of our investment portfolio as of that date.

Forward-Looking Statements

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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