NEUROCRINE BIOSCIENCES INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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, 2025 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, 2025. Overview Neurocrine Biosciences is a neuroscience-focused, biopharmaceutical company with a simple purpose: to relieve suffering for people with great needs. We are dedicated to discovering, developing, and commercializing life-changing treatments for patients with under-addressed neurological, psychiatric, endocrine, and immunological disorders. Our portfolio of products includes U.S. Food and Drug Administration (FDA) approved treatments for tardive dyskinesia (TD), chorea associated with Huntington's disease, classic congenital adrenal hyperplasia due to 21-hydroxylase deficiency (CAH), and endometriosis and uterine fibroids in collaboration with AbbVie Inc. (AbbVie). In addition, we have a diversified portfolio of multiple compounds in mid- to late-phase development across our core therapeutic areas and an expanding early-phase pipeline that includes a range of modalities including small molecules, peptides, proteins, antibodies, conjugates, and gene therapies. We launched INGREZZA ® (valbenazine) in the U.S. as the first FDA-approved drug for the treatment of TD in May 2017 and for the treatment of chorea associated with Huntington's disease in August 2023 and launched CRENESSITY ® (crinecerfont) in the U.S. as a first-in-class FDA-approved treatment of CAH in December 2024. We estimate that TD affects approximately 800,000 people in the U.S., that approximately 90% of the 40,000 people in the U.S. affected by Huntington’s disease will develop chorea, and that CAH affects at least 20,000 people in the U.S. Key elements of our commercial strategy include maximizing the opportunities in INGREZZA and CRENESSITY 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 vesicular monoamine transporter 2 (VMAT2) biology and its role in disease. 2026 Business Highlights • Total net product sales for the first quarter of 2026 increased $247.3 million, or 43.9%, to $811.0 million, reflecting increased net product sales of CRENESSITY, which was launched in the U.S. as a first-in-class FDA-approved treatment of CAH in December 2024, and INGREZZA, driven primarily by volume growth and record new prescriptions on strong patient demand. • In April 2026, we entered into an Agreement and Plan of Merger (the Merger Agreement) to acquire all of the outstanding shares of common stock of Soleno Therapeutics, Inc. (Soleno) for approximately $2.9 billion. Pursuant to the Merger Agreement, we commenced a tender offer to purchase all of the outstanding shares of common stock of Soleno for $53.00 per share in cash, without interest and subject to any required withholding of taxes. On April 27, 2026, at 11:59 p.m. Eastern Time, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR Act), applicable to the tender offer expired, satisfying the closing condition relating to the expiration or termination of the waiting period under the HSR Act. We expect the transaction to close in the second quarter of 2026, subject to the tender of at least a majority of the outstanding shares of Soleno common stock and the satisfaction of other customary closing conditions. • On January 21, 2026, we completed the sale of Neurocrine Group Limited to Immedica Pharma AB for $63.2 million in cash. As a result of the transaction, during the first quarter of 2026 we recognized a pre-tax gain on sale of $28.6 million in "Gain on sale of business, net of transaction costs" within income from continuing operations. • Promoted Andrew Ratz, Ph.D., to the executive management team as the Chief Technical Operations Officer. In his new role, Dr. Ratz will lead the company's global technical development, manufacturing, and supply chain functions, supporting Neurocrine's expansion beyond small molecules into biologics and device-based therapies. 18 2026 Pipeline Highlights • Initiated and dosed the first patients in a Phase 2 clinical study of NBI-1117570, a dual M1/M4 selective agonist in adults with schizophrenia. • Presented new real-world evidence demonstrating that adult patients with tardive dyskinesia receiving INGREZZA (valbenazine) capsules showed higher treatment persistence compared to those on AUSTEDO XR (deutetrabenazine). The findings were presented at the Academy of Managed Care Pharmacy 2026 Annual Meeting in Nashville. • Presented the first expert consensus recommendations focused on screening, diagnosis and treatment of tardive dyskinesia among older adults in long-term care settings. The recommendations address persistent gaps in recognizing and managing tardive dyskinesia in this higher-risk population. Findings were presented at the Society for Post-Acute and Long-Term Care Medical Association (PALTmed) PALTC26 Annual Conference in Anaheim, CA. • Presented new two-year CRENESSITY data demonstrating durable hormonal control, reduced glucocorticoid exposure and meaningful clinical improvements in pediatric patients with classic congenital adrenal hyperplasia. The findings were presented at the Pediatric Endocrine Society 2026 Annual Meeting in San Francisco. Results of Operations for the Three Months Ended March 31, 2026 and 2025 Three Months Ended March 31, (in millions, except per share data) 2026 2025 Revenues $ 814.5 $ 572.6 Operating expenses 621.1 549.0 Operating income 193.4 23.6 Other income (expense) 53.4 (8.9) Provision for income taxes 48.9 6.8 Net income $ 197.9 $ 7.9 Earnings per share, diluted $ 1.91 $ 0.08 Weighted average common shares outstanding, diluted 103.4 102.5 Revenues Three Months Ended March 31, ( in millions) 2026 2025 INGREZZA net product sales $ 656.9 $ 545.2 CRENESSITY net product sales 153.3 14.5 Other 0.8 4.0 Total net product sales 811.0 563.7 Collaboration revenues 3.5 8.9 Total revenues $ 814.5 $ 572.6 Net Product Sales Compared with the comparable period last year, the increase primarily reflected increased net product sales of CRENESSITY, which was launched in the U.S. as a first-in-class FDA-approved treatment of CAH in December 2024, and INGREZZA, driven by volume growth in total prescriptions and record new prescriptions on strong patient demand, partially offset by a lower net price compared to the first quarter of 2025. Collaboration Revenues Collaboration revenues for all periods presented primarily reflected royalties earned on AbbVie net sales of elagolix and Tanabe Pharma Corporation (formerly Mitsubishi Tanabe Pharma Corporation) net sales of valbenazine. 19 Operating Expenses Cost of Revenues Three Months Ended March 31, (dollars in millions) 2026 2025 Cost of revenues $ 13.8 $ 9.2 as a % of total revenues 1.7 % 1.6 % Compared with the comparable period last year, the increase primarily reflected increased royalties payable on net product sales of CRENESSITY and increased total net product sales. Research and Development We support our drug discovery and development efforts through the commitment of significant resources to discovery, research and development programs, and business development opportunities. Costs are reflected in the applicable development stage based upon the program status when incurred. Therefore, the same program could be reflected in different development stages in the same reporting period. For several of our programs, the research and development activities are part of our collaborative arrangements. Three Months Ended March 31, (dollars in millions) 2026 2025 Late stage $ 65.8 $ 35.3 Early stage 25.9 21.7 Research and discovery 56.3 50.9 Milestones 22.6 45.4 Payroll and benefits 84.5 75.0 Facilities and other 41.1 34.9 Total research and development $ 296.2 $ 263.2 as a % of total revenues 36.4 % 46.0 % Late Stage. Late stage consists of costs incurred for product candidates in Phase 2 registrational studies and all subsequent activities. Compared with the comparable period last year, the increase primarily reflected progression of the Phase 3 programs for osavampator in MDD and direclidine in schizophrenia. Early Stage . Early stage consists of costs incurred for product candidates after the approval of an investigational new drug application by the applicable regulatory agency through Phase 2 non-registrational studies. Compared with the comparable period last year, the increase primarily reflected increased investments in the Phase 1 program for NBIP-01435 in CAH and our early-stage obesity and immunology programs. Research and Discovery . Research and discovery consists of costs 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 primarily reflected continued investments to expand our discovery and preclinical programs across therapeutic areas and modalities, including endocrinology and metabolic disease (including obesity) and immunology, and expanding our capabilities in biologics (including peptides and antibodies) and gene therapy. 20 Milestones. Milestones consists of costs incurred in connection with the achievement of development milestones under collaborative arrangements. The following table presents milestones expense by collaboration partner. Three Months Ended March 31, (in millions) 2026 2025 Nxera Pharma UK Limited $ 22.5 $ — Takeda Pharmaceutical Company Limited — 37.5 Xenon Pharmaceuticals Inc. — 7.5 Other 0.1 0.4 Total milestones $ 22.6 $ 45.4 Refer to Note 7 to the condensed consolidated financial statements for more information on our significant collaboration and license agreements. Payroll and Benefits. Payroll and benefits consist 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 primarily reflected higher headcount to support our expanded discovery and preclinical programs across therapeutic areas and modalities, including endocrinology and metabolic disease (including obesity) and immunology, and expanding our capabilities in biologics (including peptides and antibodies) and gene therapy. Facilities and Other. Facilities and other consists of indirect costs incurred for the benefit of multiple programs, including facility-based expenses (such as rent expense) and other overhead allocations. Compared with the comparable period last year, the increase primarily reflected increased facility-based expenses related to our new campus facility. Acquired In-Process Research and Development (IPR&D) Three Months Ended March 31, (dollars in millions) 2026 2025 Acquired in-process research and development $ 21.2 $ 0.1 as a % of total revenues 2.6 % — % Compared with the comparable period last year, the increase reflected increased payments for upfront fees in connection with our collaborations. Selling, General, and Administrative (SG&A) Three Months Ended March 31, (dollars in millions) 2026 2025 Selling, general, and administrative $ 318.5 $ 276.5 as a % of total revenues 39.1 % 48.3 % Compared with the comparable period last year, the increase primarily reflected continued investment in our commercial organization, including the recent expansion of our INGREZZA and CRENESSITY sales teams in the first quarter of 2026. Gain on Sale of Business, Net of Transaction Costs Three Months Ended March 31, (dollars in millions) 2026 2025 Gain on sale of business, net of transaction costs $ (28.6) $ — Compared with the comparable period last year, the change reflected a pre-tax gain, net of transaction costs, recognized on the sale of Neurocrine Group Limited in January 2026. 21 Other Income (Expense) Three Months Ended March 31, (in millions) 2026 2025 Unrealized gain (loss) on equity investments $ 25.3 $ (30.6) Investment income and other, net 28.1 21.7 Total other income (expense), net $ 53.4 $ (8.9) Compared with the comparable period last year, the change reflected periodic fluctuations in the fair values of our equity investments and increased interest income on our debt security investments. Provision for Income Taxes Three Months Ended March 31, (dollars in millions) 2026 2025 Provision for income taxes $ 48.9 $ 6.8 Effective tax rate 19.8 % 46.3 % For the first quarter of 2026, the effective tax rate varied from the federal and state statutory rates primarily due to foreign tax effects, including the impact of net CFC tested income (NCTI) (formerly referred to as global intangible low-taxed income (GILTI)), credits generated for research activities, certain nondeductible expenses, and state income tax effects including fluctuations in state effective tax rates. For the first quarter of 2025, the effective tax rate varied from the federal and state statutory rates primarily due to credits generated for research activities, certain nondeductible expenses, excess tax benefits related to stock-based compensation, fluctuations in state effective tax rates, and losses in foreign and domestic 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. Liquidity and Capital Resources Sources of Liquidity We believe that our existing capital resources, funds generated by anticipated INGREZZA and CRENESSITY 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. 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. However, we cannot provide assurance that adequate funding will be available on terms acceptable to us, if at all. In April 2026, we entered into the Merger Agreement to acquire Soleno for approximately $2.9 billion in cash, as described above. The transaction is expected to close in the second quarter of 2026, subject to certain customary closing conditions. If the proposed acquisition is consummated, we expect to fund the transaction with cash on hand and available investments, which would significantly reduce our cash, cash equivalents and investment balances. We also plan to optimize our capital structure by taking on a modest amount of pre-payable debt to preserve additional liquidity. Information Regarding Our Financial Condition (in millions) March 31, 2026 December 31, 2025 Total cash, cash equivalents, and marketable securities $ 2,647.2 $ 2,543.4 Working Capital: Total current assets $ 2,436.1 $ 2,522.7 Less total current liabilities 831.7 743.4 Total working capital $ 1,604.4 $ 1,779.3 22 Information Regarding Our Cash Flows Three Months Ended March 31, (in millions) 2026 2025 Cash flows from operating activities $ 145.8 $ 64.8 Cash flows from investing activities (506.2) 14.2 Cash flows from financing activities (86.1) (117.9) Change in cash, cash equivalents, and restricted cash $ (446.5) $ (38.9) Cash Flows from Operating Activities Compared with the comparable period last year, the increase primarily reflected increased net product sales of INGREZZA and CRENESSITY, partially offset by continued investments in our commercial organization, including the recent expansion of our INGREZZA and CRENESSITY sales teams in the first quarter of 2026, and expanded pre-clinical and clinical portfolio. The increase in accounts receivable was primarily driven by higher total gross product sales, and to a lesser extent, timing of collections at the end of the first quarter of 2026. The increase in income tax assets and liabilities was primarily due to timing of income tax payments. Cash Flows from Investing Activities 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 first quarter of 2026 also reflected $63.2 million in cash proceeds from our sale of Neurocrine Group Limited in January 2026. Cash Flows from Financing Activities Compared with the comparable period last year, the change reflected decreased repurchases of our common stock under the $500.0 million 2025 Repurchase Program that was authorized by our Board of Directors in February 2025, decreased proceeds from issuances of our common stock, and increased taxes paid related to net share settlement of equity awards (shares withheld for taxes). Material Cash Requirements In the pharmaceutical industry, it can take a significant amount of time and capital resources to successfully complete all stages of research and development and commercialize a product candidate, which ultimate length of time and spend required cannot be accurately estimated as it varies substantially according to the type, complexity, novelty and intended use of a product candidate. The funding necessary to execute our business strategies is subject to numerous uncertainties and we may be required to make substantial expenditures if unforeseen difficulties arise in certain areas of our business. In particular, our future capital requirements will depend on many factors, including: • the commercial success of INGREZZA and CRENESSITY; • continued scientific progress in our research and clinical development programs; • the magnitude and complexity of our research and development programs; • progress with preclinical testing and clinical trials; • the time and costs involved in obtaining regulatory approvals; • 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; and • the cost of manufacturing our product candidates. 23 In addition to the foregoing factors, we have significant future capital requirements, including: External Business Developments In addition to our independent efforts to develop and market products, we may enter into collaboration and license agreements or acquire businesses from time-to-time to enhance our drug development and commercial capabilities. With respect to our existing collaboration and license agreements, we may be required to make potential future payments of up to $15.39 billion upon the achievement of certain milestones. Refer to Note 7 to the condensed consolidated financial statements for more information on our significant collaboration and license agreements. In April 2026, we entered into the Merger Agreement to acquire Soleno for approximately $2.9 billion in cash, as described above. The transaction is expected to close in the second quarter of 2026, subject to certain customary closing conditions. We intend to fund the transaction with cash on hand. Share Repurchase Program In addition to the foregoing future capital requirements, in February 2025, our Board of Directors authorized the 2025 Repurchase Program under which we may repurchase up to $500.0 million of our common stock, subject to market conditions. The 2025 Repurchase Program is in addition to the $300.0 million 2024 Repurchase Program that was announced in October 2024 and completed in February 2025. Under the 2025 Repurchase Program, we repurchased 0.4 million shares on the open market for a cost of $56.0 million during the first quarter of 2026. As of March 31, 2026, we had $276.3 million remaining under the 2025 Repurchase Program. Critical Accounting Policies and Estimates There were no changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025. Interest Rate Risk We maintain a diversified investment portfolio consisting of low-risk, investment-grade debt securities with maturities of up to three years, including investments in commercial paper, securities of government-sponsored entities and corporate bonds that are subject to interest rate risk. 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, 2026, it would not have had a material effect on the fair value of our investment portfolio as of that date. Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. Although our forward-looking statements reflect the good faith judgment of our management, these statements can only be based on facts and factors currently known by us. Consequently, these forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements. Forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “hopes,” “may,” “will,” “plan,” “intends,” “estimates,” “could,” “should,” “would,” “continue,” “seeks,” “proforma,” or “anticipates,” or other similar words (including their use in the negative), or by discussions of future matters such as the development of new products, technology enhancements, possible changes in legislation and other statements that are not historical. These statements include but are not limited to statements under the captions “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as other sections in this report. You should be aware that the occurrence of any of the events discussed under the heading in Part II titled “Item 1A. Risk Factors” and elsewhere in this report could substantially harm our business, results of operations and financial condition and that if any of these events occurs, the trading price of our common stock could decline and you could lose all or a part of the value of your shares of our common stock. The cautionary statements made in this report are intended to be applicable to all related forward-looking statements wherever they may appear in this report. We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except as required by law, we assume no obligation to update our forward-looking statements, even if new information becomes available in the future. Item 3. Quantitative and Qualitative Disclosures About Market Risk A discussion of our exposure to, and management of, market risk appears in Part I, Item 2 of this Quarterly Report on Form 10-Q under the heading “Interest Rate Risk” and is incorporated into this Part I, Item 3 by reference. 24