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Item 2. Management’s Discussion and Analysis

2024-08-01 compared with 2024-05-01 · 76 added, 55 removed, 138 unchanged (49% 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, 2023 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, 2023.

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

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The company’s diverse portfolio includes U.S.

Food and Drug Administration (FDA) approved treatments for tardive dyskinesia, chorea associated with Huntington's disease, adrenal insufficiency, and endometriosis and uterine fibroids in collaboration with AbbVie Inc.

(AbbVie), a European Medicines Agency (EMA) approved treatment for classic congenital adrenal hyperplasia (CAH) and a diversified portfolio of advanced clinical-stage programs in multiple therapeutic areas.

Food and Drug Administration (FDA) approved treatments for tardive dyskinesia, chorea associated with Huntington's disease, endometriosis and uterine fibroids in collaboration with AbbVie Inc.

(AbbVie), as well as a diversified portfolio of multiple compounds in mid- to late-phase clinical development across our core therapeutic areas.

We launched INGREZZA ® (valbenazine) in the U.S.

as the first FDA-approved drug for the treatment of tardive dyskinesia in May 2017 and for the treatment of adults with chorea associated with Huntington's disease in August 2023.

as the first FDA-approved drug for the treatment of tardive dyskinesia in May 2017 and for the treatment of chorea associated with Huntington's disease in August 2023.

Our partner Mitsubishi Tanabe Pharma Corporation (MTPC) launched DYSVAL ® (valbenazine) in Japan for the treatment of tardive dyskinesia in June 2022 and subsequently in other select Asian markets, where it is marketed as REMLEAS ® (valbenazine).

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Our partner AbbVie launched ORILISSA ® (elagolix tablets) in the U.S.

for the treatment of moderate to severe pain associated with endometriosis in August 2018 and ORIAHNN ® (elagolix, estradiol and norethindrone acetate capsules and elagolix capsules) in the U.S.

for the treatment of endometriosis in August 2018 and ORIAHNN ® (elagolix, estradiol and norethindrone acetate capsules and elagolix capsules) in the U.S.

for the treatment of heavy menstrual bleeding due to uterine fibroids in June 2020.

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Business Highlights

January 2024:

• Elected to settle all conversions of the convertible senior notes due May 15, 2024 in cash.

• Reported positive Phase 2 data for the completed Phase 2 study of NBI-1065845 in adult subjects with major depressive disorder.

The study met its primary and key secondary endpoints.

• Submitted two New Drug Applications to the FDA for crinecerfont as a treatment for adult and pediatric patients with classic congenital adrenal hyperplasia.

• Received approval from the FDA for INGREZZA ® SPRINKLE (valbenazine) capsules, a new oral granules formulation of INGREZZA capsules.

Results of Operations for the Three Months Ended March 31, 2024 and 2023

• Announced Kevin Gorman, Ph.D., will retire as Chief Executive Officer (CEO) on October 11, 2024.

Kyle Gano, Ph.D., currently Neurocrine’s Chief Business Development and Strategy Officer, will succeed him in the CEO role.

Gano will also join the Company’s Board of Directors at that time, and Dr.

Gorman will continue to serve on the Company’s Board.

• Announced positive topline data for the Phase 2 SAVITRI™ study.

This randomized, double-blind, placebo-controlled dose-finding study assessed the efficacy and safety of NBI-1065845 in adult subjects with major depressive disorder (MDD).

NBI-1065845 is an investigational alpha-amino-3-hydroxy-5-methyl-4-isoxazole propionic acid (AMPA) positive allosteric modulator (PAM) in development as a potential treatment for patients with MDD who have not benefited from treatment with at least one antidepressant in their current episode of depression.

• Announced FDA accepted New Drug Applications (NDAs) and granted Priority Review for crinecerfont for pediatric and adult patients with classic congenital adrenal hyperplasia (CAH).

The agency set Prescription Drug User Fee (PDUFA) target action dates of December 29, 2024 for the capsule formulation and December 30, 2024 for the oral solution formulation.

• At the Endocrine Society Annual Meeting (ENDO 2024), presented new Phase 3 clinical study data from the CAHtalyst™ registrational studies of crinecerfont in pediatric and adult patients with CAH due to 21-hydroxylase deficiency.

In parallel, announced that the primary study results from the CAHtalyst™ registrational studies of crinecerfont in pediatric and adult patients with CAH due to 21-hydroxylase deficiency have been published in The New England Journal of Medicine.

• Initiated Phase 2 study of NBI-1070770 in adults with MDD.

NBI-1070770 is a novel, selective and orally active, negative allosteric modulator (NAM) of the NR2B subunit-containing N-methyl-D-aspartate (NMDA NR2B) receptor.

• Initiated Phase 1 study of NBI-1117567 in healthy adult participants.

NBI-1117567 is an investigational, oral, M1/M4 (M1 preferring) selective muscarinic agonist for the potential treatment of neurological and neuropsychiatric conditions.

• Initiated Phase 1 study of NBI-1076968 in healthy adult participants.

NBI-1076968 is an investigational, oral, M4 subtype-selective muscarinic antagonist for the potential treatment of movement disorders.

• Received notification from the Centers for Medicare and Medicaid Services that INGREZZA qualified for the Specified Small Manufacturer Exception pertaining to the Part D redesign of the Inflation Reduction Act.

• Settled the convertible senior notes due May 15, 2024 (the 2024 Notes) in full in cash upon maturity.

• Announced planned expansion of the INGREZZA psychiatry and long-term care sales teams to better serve patients by accelerating the number of people who are diagnosed and treated for tardive dyskinesia and chorea associated with Huntington's disease with INGREZZA.

• Received approval from the FDA for INGREZZA ® SPRINKLE (valbenazine) capsules, a new oral granules formulation of INGREZZA capsules, and subsequently launched new sprinkle formulation of INGREZZA capsules for the treatment of adults with tardive dyskinesia and chorea associated with Huntington’s disease.

• Research and development expense for the first six months of 2024 included approximately $30 million of expense for development milestones achieved under our collaborations with Nxera Pharma UK Limited (Nxera), Takeda Pharmaceutical Company Limited (Takeda) and Voyager Therapeutics, Inc.

Results of Operations for the Three and Six Months Ended June 30, 2024 and 2023

Net Product Sales by Sales Product.

Three Months Ended

June 30, Six Months Ended

( in millions)

2024 2023 2024 2023

INGREZZA $ 579.5 $ 439.7 $ 1,085.5 $ 850.1

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Total net product sales $ 583.8 $ 446.3 $ 1,092.8 $ 861.6

Compared with the comparable period last year, the increase in total net product sales primarily reflected increased INGREZZA net product sales driven by strong underlying patient demand and improved gross-to-net dynamics.

Compared with the comparable period last year, the increase in total net product sales for the first six months of 2024 primarily reflected increased INGREZZA net product sales driven by strong underlying patient demand and improved gross-to-net dynamics.

Collaboration Revenues by Category.

Three Months Ended

June 30, Six Months Ended

( in millions)

2024 2023 2024 2023

Royalty revenue $ 4.7 $ 4.9 $ 8.9 $ 9.0

1.7 1.5 3.8 2.5

Total collaboration revenues $ 6.4 $ 6.4 $ 12.7 $ 11.5

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Three Months Ended

June 30, Six Months Ended

( in millions)

2024 2023 2024 2023

Cost of revenues $ 9.2 $ 11.5 $ 16.7 $ 20.0

Compared with the comparable period last year, the change in cost of revenues primarily reflected increased INGREZZA net product sales, offset by decreased costs due to the termination of our license agreement with BIAL, which became effective in December 2023, to commercialize and market ONGENTYS ® (opicapone) in the U.S.

Compared with the comparable period last year, the decrease in cost of revenues for the first six months of 2024 primarily reflected the impact of decreased ONGENTYS ® (opicapone) net product sales and lower ONGENTYS inventory reserves in connection with the termination of our license agreement with BIAL, which became effective in December 2023, partially offset by the impact of increased INGREZZA net product sales.

Research and Development by Category.

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Three Months Ended

June 30, Six Months Ended

(in millions) 2024 2023 2024 2023

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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, the decrease in late-stage expenses primarily reflected the successful completion of the Phase 3 programs for crinecerfont in CAH in the third quarter of 2023.

Compared with the comparable period last year, the decrease in late-stage expenses for the first six months of 2024 primarily reflected the successful completion of the Phase 3 programs for crinecerfont in CAH in the third quarter of 2023 and lower spend on certain of our late-stage VMAT2 programs.

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, the change in early-stage expenses primarily reflected increased investment in advancing Phase 2 programs in psychiatry, offset by decreased spend on early stage programs in epilepsy.

Compared with the comparable period last year, the increase in early-stage expenses for the first six months of 2024 primarily reflected increased investment in our muscarinic programs and advancing Phase 2 programs in psychiatry, offset by lower spend on early stage programs in epilepsy.

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, the increase in research and discovery expenses primarily reflected increased investment in preclinical development programs.

Compared with the comparable period last year, the increase in research and discovery expenses for the first six months of 2024 primarily reflected increased investment in preclinical development programs, including our gene therapy programs.

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

Milestone expense for the first quarter of 2024 primarily reflected $5.0 million of expense recognized in connection with our selection of a development candidate under the Friedreich’s ataxia program pursuant to our collaboration with Voyager Therapeutics, Inc.

Compared with the comparable period last year, the increase in milestone expenses for the first six months of 2024 primarily reflected expense recognized in connection with development milestones achieved under our collaborations with Nxera, Takeda and Voyager.

Payroll and Benefits.

Consists of costs incurred for salaries and wages, payroll taxes, benefits and stock-based compensation associated with employees involved in research and development activities.

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, the increase in payroll and benefits expenses primarily reflected higher headcount, including an increase of $3.2 million in non-cash stock-based compensation expense.

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 and timing of expense recognition related to performance-based restricted stock units, which is generally recognized ratably over the expected performance period once the predefined performance-based criteria for vesting becomes probable.

Compared with the comparable period last year, the increase in payroll and benefits expenses for the first six months of 2024 primarily reflected higher headcount, partially offset by decreased non-cash stock-based compensation expense primarily driven by a charge related to a change in equity grant agreement terms in the second quarter of 2023.

Facilities and Other.

Consists of indirect costs incurred for the benefit of multiple programs, including depreciation, information technology, and other facility-based expenses, such as rent expense.

Compared with the comparable period last year, the increase in facilities and other expenses for the first six months of 2024 primarily reflected increased rent expense related to our new campus facility.

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

Three Months Ended

June 30, Six Months Ended

( in millions)

2024 2023 2024 2023

Acquired in-process research and development $ 2.5 $ — $ 8.5 $ 143.9

In the first quarter of 2024, we recognized $6.0 million of IPR&D expense in connection with the payment of the upfront fee pursuant to our collaboration with Biocytogen Pharmaceuticals (Beijing) Co., Ltd.

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

Compared with the comparable period last year, the decrease in IPR&D expense for the first six months of 2024 reflected lower payments for upfront fees in connection with our collaborations.

In the first six months of 2023, we recognized $143.9 million of IPR&D expense in connection with payment of the upfront fee pursuant to the expansion of our collaboration with Voyager.

Selling, General and Administrative, or SG&A.

Three Months Ended

June 30, Six Months Ended

( in millions)

2024 2023 2024 2023

Selling, general and administrative $ 242.0 $ 221.8 $ 485.1 $ 464.5

Compared with the comparable period last year, the change in SG&A expenses primarily reflected continued investment in our commercial organization, including pre-launch crinecerfont activities, offset by decreases in other general and administrative costs.

Compared with the comparable period last year, the increase in SG&A expenses for the first six months of 2024 primarily reflected continued investment in our commercial organization, including pre-launch crinecerfont activities, and impairment charges of $14.0 million associated with leased office space that has been vacated as we continue to occupy our new campus facility, partially offset by decreased non-cash stock-based compensation expense primarily driven by a charge related to a change in equity grant agreement terms in the second quarter of 2023.

Other (Expense) Income, Net.

Three Months Ended

June 30, Six Months Ended

(in millions) 2024 2023 2024 2023

Interest expense $ (1.1) $ (1.1)

Unrealized gain on equity securities 1.6 2.2

Unrealized (loss) gain on equity securities

(19.9) 37.3 (18.3) 39.5

Charges associated with convertible senior notes

(49.7) — (138.4) —

Investment income and other, net 22.8 10.7 45.1 19.4

Total other (expense) income, net $ (46.8) $ 48.0 $ (111.6) $ 58.9

Compared with the comparable period last year, the change in total other (expense) income, net, primarily reflected $88.7 million of expense recognized in connection with the bifurcation of the embedded conversion option of the convertible senior notes, partially offset by increased interest income on our debt security investments.

Benefit from Income Taxes.

Compared with the comparable period last year, the increase in total other expense, net, for the first six months of 2024 primarily reflected $138.4 million of expense recognized in connection with conversions of the 2024 Notes upon maturity in May 2024 and periodic fluctuations in the fair values of our equity security investments, partially offset by increased interest income on our debt security investments.

Provision for (Benefit from) Income Taxes.

Three Months Ended

June 30, Six Months Ended

(in millions) 2024 2023 2024 2023

Benefit from income taxes

Provision for (benefit from) income taxes

$ 33.6 $ 26.1 $ 24.7 $ (0.6)

The effective tax rate for the first quarter of 2024 varied from the federal and state statutory rates primarily due to credits generated for research activities, certain nondeductible expenses including debt extinguishment, excess tax benefits related to stock-based compensation, 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 period last year, the effective tax rate varied from the federal and state statutory rates primarily due to excess tax benefits related to stock-based compensation.

Net Income (Loss).

The effective tax rate for the second quarter and first six months of 2024 varied from the federal and state statutory rates primarily due to credits generated for research activities, certain nondeductible expenses including debt extinguishment, excess tax benefits related to stock-based compensation, 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, 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.

Three Months Ended

June 30, Six Months Ended

(in millions) 2024 2023 2024 2023

Net income (loss) $ 43.4 $ (76.6)

Compared with the comparable period last year, the change in net income (loss) primarily reflected increased INGREZZA net product sales and decreased IPR&D expense in connection with our collaborations, partially offset by $88.7 million of expense recognized in connection with the bifurcation of the embedded conversion option of the convertible senior notes and increased investment in our expanded clinical portfolio.

Net income $ 65.0 $ 95.5 $ 108.4 $ 18.9

Compared with the comparable period last year, the increase in net income for the first six months of 2024 primarily reflected increased INGREZZA net product sales and lower total payments for upfront fees and development milestones achieved in connection with our collaborations, partially offset by $138.4 million of expense recognized in connection with conversions of the 2024 Notes upon maturity in May 2024, periodic fluctuations in the fair values of our equity security investments, and continued investment in our commercial organization, including pre-launch crinecerfont activities, and expanded clinical portfolio.

Liquidity and Capital Resources

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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.

We may seek to access the public or private equity markets whenever conditions are favorable or pursue opportunities to obtain additional debt financing in the future.

We may seek to access the public or private equity markets whenever conditions are favorable or pursue opportunities to obtain debt financing in the future.

We may also seek additional funding through strategic alliances or other financing mechanisms.

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Information Regarding Our Financial Condition.

(in millions) March 31,

(in millions) June 30,

2024 December 31,

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Information Regarding Our Cash Flows.

Three Months Ended

Six Months Ended

(in millions) 2024 2023

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Cash Flows from Operating Activities.

Compared with the comparable period last year, the change in cash flows from operating activities primarily reflected increased INGREZZA net product sales and lower upfront payments in connection with our collaborations, partially offset by $88.7 million of expense recognized in connection with the bifurcation of the embedded conversion option of the convertible senior notes and increased investment in our expanded clinical portfolio.

Compared with the comparable period last year, the change in cash flows from operating activities primarily reflected increased INGREZZA net product sales and lower total payments for upfront fees and development milestones achieved in connection with our collaborations, partially offset by increased cash paid for income taxes and increased investment in our expanded clinical portfolio.

Cash Flows from Investing Activities.

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Cash Flows from Financing Activities.

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

Compared with the comparable period last year, the change in cash flows from financing activities primarily reflected the settlement of the 2024 Notes in full for $308.8 million in cash, partially offset by increased proceeds from issuances of our common stock.

Material Cash Requirements

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

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

• the commercial success of INGREZZA, ORILISSA, ORIAHNN, DYSVAL, and/or any of our other products;

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

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• the time and costs involved in obtaining regulatory approvals;

• the cost of commercialization activities and arrangements, including our advertising campaigns;

• the cost of manufacturing of our product candidates;

• the costs involved in filing and pursuing patent applications, enforcing patent claims, or engaging in interference proceedings or other patent litigation;

• costs associated with securing adequate coverage and reimbursement for our products;

• competing technological and market developments;

• developments related to any future litigation;

• the cost of commercialization activities and arrangements, including our advertising campaigns;

• the cost of manufacturing our product candidates.

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

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The first phase of construction, consisting of two buildings relating to office space, was completed in December 2023.

As we begin to occupy our new campus facility, we will sublease certain of our existing leased premises when we determine there is excess leased capacity.

As we continue to occupy our new campus facility, we will sublease certain of our existing leased premises when we determine there is excess leased capacity.

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.

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 (the 2024 Notes).

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, 2024, $170.4 million aggregate principal amount of the 2024 Notes remained outstanding.

Until the close of business on the scheduled trading day immediately preceding May 15, 2024, holders of the 2024 Notes may convert the 2024 Notes at any time.

In January 2024, we provided notice to the holders of the 2024 Notes electing to settle all conversions of the 2024 Notes which occur on or after January 15, 2024 in cash.

As a result, upon conversion, holders of the 2024 Notes will receive the principal amount of their 2024 Notes and any conversion premium, calculated based on the per share volume-weighted average price (VWAP) for each of the 30 consecutive trading days during the observation period (as more fully described in the 2017 Indenture), in cash.

As of March 31, 2024, the fair value of the 2024 Notes was $309.5 million.

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

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

Refer to Note 8 to the condensed consolidated financial statements for more information on the 2024 Notes.

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 March 31, 2024, 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, 2024, 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