What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-30 compared with 2024-08-01 · 73 added, 42 removed, 172 unchanged (40% 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 and our Quarterly Report on Form 10-Q for the three months ended March 31, 2024.

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

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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.

We estimate that tardive dyskinesia affects approximately 800,000 people in the U.S.

and approximately 90% of the 40,0000 people in in the U.S.

diagnosed with Huntington’s disease will develop chorea.

Key elements of our commercial strategy include maximizing the opportunity in INGREZZA through consistent and effective commercial execution, continued development of valbenazine as the best-in-class treatment for new patient populations and to lead the evolving understanding of VMAT2 biology and its role in disease.

INGREZZA net product sales accounted for approximately 99% of our total net product sales for the first nine months of 2024.

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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Business Highlights

• 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.

• Kevin Gorman, Ph.D., retired as Chief Executive Officer (CEO) effective October 11, 2024.

Kyle Gano, Ph.D., formerly Neurocrine’s Chief Business Development and Strategy Officer, succeeded Dr.

Gorman in the CEO role and also joined the Company’s Board of Directors at that time.

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

• 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.

• Deployed expanded 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.

• In October 2024, our Board of Directors authorized a share repurchase program to repurchase up to $300 million of our common stock, which we intend to execute by entering into an accelerated share repurchase transaction with a financial institution, subject to market conditions.

Pipeline Highlights

• Announced positive topline data for the Phase 2 study of NBI-1117568, a first-in-class, orally active, highly selective investigational M4 agonist, in development as a potential treatment for schizophrenia.

The successful completion of the Phase 2 study triggered a $35.0 million milestone payment to Nxera Pharma UK Limited (Nxera) in the third quarter of 2024.

We expect to advance NBI-1117568 into Phase 3 development in the first half of 2025, which would trigger an additional $15.0 million milestone payment to Nxera upon initiation of the Phase 3 study.

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

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

• 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

• Presented KINECT ® -HD2 interim data at the 2024 MDS International Congress of Parkinson’s Disease and Movement Disorders demonstrating robust and sustained improvements in chorea associated with Huntington’s disease through week 104 irrespective of antipsychotic use.

• Announced the ERUDITE™ Phase 2 study of luvadaxistat (NBI-1065844) in cognitive impairment associated with schizophrenia (CIAS) did not meet its primary endpoint.

In addition, we provided Takeda Pharmaceutical Company Limited (Takeda) with written notice of termination of the license agreement to develop and commercialize luvadaxistat and NBI-1065846.

The termination is anticipated to be effective in April 2025.

• Provided Idorsia Pharmaceuticals Ltd.

with written notice of termination of the license agreement to develop and commercialize NBI-827104.

The termination is anticipated to be effective in January 2025.

Results of Operations for the Three and Nine Months Ended September 30, 2024 and 2023

Net Product Sales by Sales Product.

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

( in millions)

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Total net product sales $ 616.6 $ 491.8 $ 1,709.4 $ 1,353.4

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.

Compared with the comparable period last year, the increase in total net product sales for the first nine 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

September 30, Nine Months Ended

September 30,

( in millions)

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

( in millions)

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Cost of revenues $ 8.0 $ 11.2 $ 24.7 $ 31.2

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.

Compared with the comparable period last year, the decrease in cost of revenues for the first nine 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

September 30, Nine Months Ended

September 30,

(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 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.

Compared with the comparable period last year, the decrease in late-stage expenses for the first nine 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 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.

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

Compared with the comparable period last year, the increase in research and discovery expenses for the first nine 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.

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.

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

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 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.

Compared with the comparable period last year, the increase in payroll and benefits expenses for the first nine months of 2024 primarily reflected higher headcount, partially offset by decreased non-cash stock-based compensation expense 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.

Compared with the comparable period last year, the increase in facilities and other expenses for the first nine 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

September 30, Nine Months Ended

September 30,

( in millions)

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Acquired in-process research and development $ 1.0 $ — $ 9.5 $ 143.9

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.

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

In the first nine 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

September 30, Nine Months Ended

September 30,

( in millions)

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Selling, general, and administrative $ 234.3 $ 204.2 $ 719.4 $ 668.7

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.

Compared with the comparable period last year, the increase in SG&A expenses for the first nine months of 2024 primarily reflected continued investment in our commercial organization, including the recent expansion of our psychiatry and long-term care sales team in September 2024, pre-launch crinecerfont activities, increased facility expenses related to our new campus facility 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 driven by a charge related to a change in equity grant agreement terms in the second quarter of 2023.

Other Income (Expense), Net.

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2024 2023 2024 2023

Unrealized (loss) gain on equity securities

Unrealized loss on equity investments

(16.9) (40.1) (35.2) (0.6)

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Investment income and other, net 23.4 14.5 68.5 33.9

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

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.

Total other income (expense), net

$ 6.5 $ (25.6) $ (105.1) $ 33.3

Compared with the comparable period last year, the increase in total other expense, net, for the first nine 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 investments, partially offset by increased interest income on our debt security investments.

Provision for Income Taxes.

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2024 2023 2024 2023

Provision for (benefit from) income taxes

$ 33.6 $ 26.1 $ 24.7 $ (0.6)

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.

Provision for income taxes $ 60.5 $ 32.5 $ 85.2 $ 31.9

The effective tax rate for the third quarter and first nine 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

September 30, Nine Months Ended

September 30,

(in millions) 2024 2023 2024 2023

Net income $ 129.8 $ 83.1 $ 238.2 $ 102.0

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.

Compared with the comparable period last year, the increase in net income for the first nine months of 2024 primarily reflected increased INGREZZA net product sales, increased interest income on our debt security investments, 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 investments, and continued investment in our commercial organization, including pre-launch crinecerfont activities, and expanded pre-clinical and clinical portfolio.

Liquidity and Capital Resources

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Information Regarding Our Financial Condition.

(in millions) June 30,

(in millions) September 30,

2024 December 31,

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Information Regarding Our Cash Flows.

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2024 2023

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Cash flows from financing activities (196.7) 29.9

Effect of exchange rate changes on cash and cash equivalents 0.3 —

Change in cash, cash equivalents, and restricted cash

$ 98.0 $ 31.0

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

The second phase of construction, consisting of two buildings relating to laboratory space, is scheduled for completion by the end of 2024.

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.

Share Repurchase Program.

In addition to the foregoing future capital requirements, in October 2024, our Board of Directors authorized a share repurchase program to repurchase up to $300 million of our common stock, which we intend to execute by entering into an accelerated share repurchase transaction with a financial institution, subject to market conditions.

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 June 30, 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 September 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