What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-01 compared with 2023-05-03 · 50 added, 49 removed, 145 unchanged (41% 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, 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:

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

Business Highlights

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.

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.

Russia/Ukraine Conflict.

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 luvadaxistat 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.

For more information on the risks and uncertainties associated with the evolving effects of the conflict between Russia and Ukraine on our business and certain of our clinical development and regulatory efforts, refer to Part II Item 1A.

Risk Factors.

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

Results of Operations for the Three and Six Months Ended June 30, 2023 and 2022

Net Product Sales by Sales Product.

Three Months Ended

June 30, Six Months Ended

( in millions)

2023 2022 2023 2022

INGREZZA $ 439.7 $ 349.6 $ 850.1 $ 652.2

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Total net product sales $ 446.3 $ 352.0 $ 861.6 $ 657.0

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.

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

Collaboration Revenues by Category.

Three Months Ended

June 30, Six Months Ended

( in millions)

2023 2022 2023 2022

Royalty revenue $ 4.9 $ 5.2 $ 9.0 $ 9.4

Milestone revenue — 20.0 — 20.0

1.5 1.0 2.5 2.4

Total collaboration revenues $ 6.4 $ 26.2 $ 11.5 $ 31.8

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.

Milestone revenue for the first six months of 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.

Operating Expenses

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Three Months Ended

June 30, Six Months Ended

( in millions)

2023 2022 2023 2022

Cost of revenues $ 11.5 $ 4.8 $ 20.0 $ 9.4

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.

Compared with the comparable periods last year, the increase in cost of revenues primarily reflected increased amortization costs related to our acquired intangible assets, an increase in our reserves for obsolescence, increased INGREZZA and other net product sales, and increased manufacturing costs in connection with our supply of valbenazine drug product under our collaboration with MTPC.

Research and Development by Category.

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Three Months Ended

June 30, Six Months Ended

(in millions) 2023 2022 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 period last year, late-stage expenses primarily reflected increased investment in our Phase III programs for crinecerfont in CAH and valbenazine in schizophrenia.

Compared with the comparable periods last year, late-stage expenses primarily reflected increased investment in our Phase III programs in CAH.

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 primarily reflected increased investment in our Phase II programs for NBI-1117568 in schizophrenia, NBI-921352 in epilepsy and luvadaxistat in schizophrenia.

Compared with the comparable periods last year, early-stage expenses primarily reflected increased investment in our Phase II program for NBI-1117568 in schizophrenia and our advancing Phase II programs in psychiatry.

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 primarily reflected increased investment in our preclinical development programs, including our epilepsy, VMAT2 and gene therapy programs.

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

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

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.

Milestone expenses for the first six months of 2022 primarily reflected $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.

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 primarily reflected higher headcount, including an increase of $1.3 million in non-cash stock-based compensation expense.

Compared to the comparable periods last year, payroll and benefits expenses for the second quarter and first six months of 2023 primarily reflected higher headcount and increases of $7.6 million and $8.9 million, respectively, in non-cash stock-based compensation expense primarily driven by a charge related to a change in equity grant agreement terms.

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

Three Months Ended

June 30, Six Months Ended

( in millions)

2023 2022 2023 2022

Acquired in-process research and development $ — $ — $ 143.9 $ —

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Three Months Ended

June 30, Six Months Ended

( in millions)

2023 2022 2023 2022

Selling, general and administrative $ 221.8 $ 182.8 $ 464.5 $ 383.5

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.

Compared with the comparable periods last year, SG&A expenses for the second quarter and first six months of 2023 primarily reflected continued investment in our commercial initiatives, including our branded direct-to-consumer INGREZZA advertising campaign and deployment of our expanded salesforce in April 2022, and increased payroll and benefits expenses on higher headcount and increases of $11.4 million and $13.0 million, respectively, in non-cash stock-based compensation expense primarily driven by a charge related to a change in equity grant agreement terms.

Other Income (Expense), Net.

Three Months Ended

June 30, Six Months Ended

(in millions) 2023 2022 2023 2022

Interest expense $ (1.3) $ (2.2) $ (2.4) $ (4.8)

Unrealized gain on equity security investments 2.2 19.9

Unrealized gain (loss) on equity security investments 37.3 (7.4) 39.5 12.5

Loss on extinguishment of convertible senior notes — (70.0) — (70.0)

Investment income and other, net 12.0 1.6 21.8 2.6

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.

Total other income (expense), net $ 48.0 $ (78.0) $ 58.9 $ (59.7)

Compared with the comparable period last year, the change in other income (expense), net, for first six months of 2023 primarily reflected an increase in the fair value of our equity investment in Voyager, increased interest income on our debt security investments and decreased debt extinguishment charges in connection with the repurchase of our convertible senior notes in the second quarter of 2022.

Provision for (Benefit from) Income Taxes.

Three Months Ended

June 30, Six Months Ended

(in millions) 2023 2022 2023 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.

Provision for (benefit from) income taxes $ 26.1 $ (6.4) $ (0.6) $ 1.1

The effective tax rate for the second quarter and first six months of 2023 varied from the federal and state statutory rates primarily due to credits generated for research activities, certain nondeductible expenses, the impact of changes in the state effective rate, and losses incurred in foreign jurisdictions for which no tax benefit was recorded as management cannot conclude that it is more likely than not that the tax benefit of such losses will be realized in the future.

For the comparable periods last year, the effective tax rate varied 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 in the second quarter of 2022.

Net Income (Loss).

Three Months Ended

June 30, Six Months Ended

(in millions) 2023 2022 2023 2022

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.

Net income (loss) $ 95.5 $ (16.9) $ 18.9 $ (3.0)

Compared with the comparable period last year, the change in net income (loss) for first six months of 2023 primarily reflected increased INGREZZA net product sales, an increase in the fair value of our equity investment in Voyager, decreased debt extinguishment charges in connection with the repurchase of our convertible senior notes in the second quarter of 2022 and decreased milestone expenses in connection with our collaboration with Heptares, partially offset by increased upfront payments in connection with our expanded strategic partnership with Voyager in the first quarter of 2023 and continued investment in our commercial initiatives and expanded clinical portfolio.

Liquidity and Capital Resources

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Information Regarding Our Financial Condition.

(in millions) March 31,

(in millions) June 30,

2023 December 31,

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Information Regarding Our Cash Flows.

Three Months Ended

Six 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 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.

Compared with the comparable period last year, cash flows from operating activities primarily reflected increased INGREZZA net product sales and lower milestone payments in connection with our collaboration with Heptares, partially offset by higher upfront payments in connection with our expanded strategic partnership with Voyager 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 our purchases, sales, and maturities of debt security investments and changes in our portfolio-mix.

Periodic fluctuations in cash flows from investing activities primarily reflected 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.

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

Cash flows from financing activities for the six months ended June 30, 2022 also 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

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Our operating leases that have commenced have terms that expire beginning 2025 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.

On February 8, 2022, we entered into a lease agreement for a new four-building campus facility in San Diego, California.

This campus facility, comprised of office space and research and development laboratories, will serve as our new corporate headquarters upon completion of its construction.

Under the terms of the lease, we also secured a six-year option for the construction of a fifth building and an option to purchase the entire campus in the future.

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.

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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.

As of June 30, 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.

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.

With respect to the 2024 Notes, unless earlier converted, redeemed, or repurchased, we would be required to pay interest of $1.9 million in 2023 and 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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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, 2023, 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, 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