Neurocrine(NBIX) - 2024 Q2 - Quarterly Report

Part I. Financial Information Financial Statements The company's H1 2024 financial statements show significant revenue growth, improved net income, and a stronger equity position after debt settlement Condensed Consolidated Balance Sheets As of June 30, 2024, total assets increased, liabilities decreased significantly, and stockholders' equity grew after debt settlement Condensed Consolidated Balance Sheet (in millions) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $1,669.8 | $1,607.0 | | Total Assets | $3,305.0 | $3,251.4 | | Total Current Liabilities | $398.5 | $654.8 | | Total Liabilities | $795.8 | $1,019.4 | | Total Stockholders' Equity | $2,509.2 | $2,232.0 | Condensed Consolidated Statements of Income and Comprehensive Income Q2 2024 revenues grew 30% year-over-year, but net income decreased due to charges, while H1 2024 net income improved Financial Performance (in millions, except per share data) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $590.2 | $452.7 | $1,105.5 | $873.1 | | Operating Income | $145.4 | $73.6 | $244.7 | $(40.6) | | Net Income | $65.0 | $95.5 | $108.4 | $18.9 | | Diluted EPS | $0.63 | $0.95 | $1.04 | $0.19 | - A significant charge of $49.7 million related to convertible senior notes was recorded in Q2 2024, impacting net income for the quarter. For the first six months of 2024, these charges totaled $138.4 million[5] Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased to $2.51 billion by June 30, 2024, driven by net income and stock compensation - Key drivers for the increase in stockholders' equity during the first six months of 2024 were net income of $108.4 million and stock-based compensation of $87.6 million[8] Condensed Consolidated Statements of Cash Flows H1 2024 operating cash flow significantly increased, while financing activities resulted in a net cash decrease from convertible note settlement Cash Flow Summary (in millions) | Activity | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Cash from Operating Activities | $194.9 | $54.4 | | Cash from Investing Activities | $(83.2) | $(168.0) | | Cash from Financing Activities | $(223.1) | $11.1 | - Financing activities in H1 2024 included a $308.8 million cash payment to settle convertible senior notes, contrasting with H1 2023 which had no such payments[11] Notes to the Condensed Consolidated Financial Statements Key notes detail collaboration milestone payments, convertible senior note settlement, and an impairment charge for vacated office space - In Q2 2024, the company paid development milestones of $15.0 million to Nxera, $7.5 million to Takeda, and $3.0 million to Voyager, which were expensed as R&D[15][22] - The 2024 Convertible Senior Notes were settled in full in Q2 2024 for $308.2 million in cash. This resulted in total charges of $138.4 million for the first six months of 2024, which were recorded in other expense[43][44] - The company recognized impairment charges of $14.0 million in Q2 2024 on right-of-use assets and tenant improvements for vacated leased properties as it moved to its new campus facility[42] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong financial performance to INGREZZA sales, highlights key business developments, and discusses increased operating expenses and future liquidity Business Highlights Key business highlights include CEO transition, positive clinical trial data, FDA priority review for crinecerfont, and INGREZZA sales expansion - CEO Kevin Gorman will retire on October 11, 2024, to be succeeded by Kyle Gano, Ph.D., the current Chief Business Development and Strategy Officer[50] - The FDA granted Priority Review for crinecerfont for CAH, with PDUFA target action dates of December 29 and 30, 2024[50] - The company announced a planned expansion of its INGREZZA psychiatry and long-term care sales teams to accelerate diagnosis and treatment[51] Results of Operations H1 2024 net product sales increased, while R&D and SG&A expenses rose, and other expenses were dominated by convertible note settlement INGREZZA Net Product Sales (in millions) | Period | 2024 | 2023 | | :--- | :--- | :--- | | Three Months Ended June 30 | $579.5 | $439.7 | | Six Months Ended June 30 | $1,085.5 | $850.1 | - R&D expenses for H1 2024 increased, reflecting higher investment in muscarinic programs, preclinical gene therapy programs, and $32.6 million in milestone payments[56] - SG&A expenses in H1 2024 increased due to continued investment in the commercial organization, pre-launch activities for crinecerfont, and a $14.0 million impairment charge on vacated leased office space[58] Liquidity and Capital Resources The company maintains strong liquidity with $1.68 billion in cash, but faces substantial future capital requirements for collaboration milestones Financial Position (in millions) | Metric | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total cash, cash equivalents and marketable securities | $1,676.7 | $1,719.1 | | Total working capital | $1,271.3 | $952.2 | - The company may be required to make potential future payments of up to approximately $17.7 billion upon the achievement of certain milestones under its existing collaboration and license agreements[66] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk on its investment portfolio, with no material effect expected from a 1% rate change - The company's main market risk exposure is to interest rate changes affecting its investment portfolio, which consists of low-risk, investment-grade debt securities with maturities up to three years[68] Controls and Procedures Management concluded disclosure controls were effective, and internal controls were modified following a new ERP system implementation - The CEO and CFO concluded that disclosure controls and procedures were effective at a reasonable assurance level[70] - A new company-wide ERP system was implemented in Q1 2024, and internal controls were modified accordingly. No other significant changes to internal control over financial reporting occurred in Q2 2024[71] Part II. Other Information Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business - The company believes that no pending claims or actions are likely to have a material adverse effect on its business[73] Risk Factors The company outlines numerous risks including INGREZZA commercialization, intense competition, healthcare legislation, and CEO transition - The Inflation Reduction Act of 2022 could adversely affect business through Medicare price negotiations and a new Part D manufacturer discount program. The company believes it qualifies for a temporary 'specified small manufacturer' exception, which lessens the immediate impact[109][110] - INGREZZA faces intense competition from AUSTEDO®, marketed by Teva, for both tardive dyskinesia and chorea associated with Huntington's disease[78] - The upcoming retirement of CEO Kevin Gorman, Ph.D., and transition to Kyle Gano, Ph.D., is identified as a risk, as leadership transitions can be viewed negatively by stakeholders and potentially disrupt operations if not managed effectively[84] - The company depends on a limited number of specialty pharmacy providers and distributors, with four customers accounting for approximately 93% of total product sales for the first six months of 2024[94] Other Information Several executive officers and directors adopted Rule 10b5-1 trading plans for pre-arranged sale of company securities in Q2 2024 - Executive officers David Boyer (Chief Corporate Affairs Officer) and Kevin Gorman (CEO), along with Director William Rastetter, adopted Rule 10b5-1 trading plans in June 2024[134] Exhibits This section lists exhibits filed with or incorporated by reference into the 10-Q report, including corporate governance and compensatory plans Signatures - The report was signed on August 1, 2024, by Matthew C. Abernethy, the Chief Financial Officer[137]