Neurocrine(NBIX) - 2024 Q3 - Quarterly Report

Part I. Financial Information Presents the company's comprehensive financial data, including statements, notes, and management's analysis Item 1. Financial Statements Presents unaudited condensed consolidated financial statements, including balance sheets, income, equity, and cash flows, with detailed notes Key Financial Highlights (in millions) | Metric | September 30, 2024 | December 31, 2023 | Change | Change (%) | | :----------------------------------- | :------------------- | :------------------ | :------- | :--------- | | Total Assets | $3,535.0 | $3,251.4 | $283.6 | 8.7% | | Total Liabilities | $816.1 | $1,019.4 | $(203.3) | -19.9% | | Total Stockholders' Equity | $2,718.9 | $2,232.0 | $486.9 | 21.8% | Key Income Statement Highlights (in millions, except per share data) | Metric | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | Change | Change (%) | | :----------------------------------- | :---------------------------- | :---------------------------- | :------- | :--------- | | Total Revenues | $1,727.6 | $1,371.9 | $355.7 | 25.9% | | Operating Income | $428.5 | $100.6 | $327.9 | 325.9% | | Net Income | $238.2 | $102.0 | $136.2 | 133.5% | | Diluted EPS | $2.29 | $1.01 | $1.28 | 126.7% | Key Cash Flow Highlights (in millions) | Metric | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | Change | Change (%) | | :----------------------------------- | :---------------------------- | :---------------------------- | :------- | :--------- | | Cash flows from operating activities | $352.9 | $266.4 | $86.5 | 32.5% | | Cash flows from investing activities | $(58.5) | $(265.3) | $206.8 | -78.0% | | Cash flows from financing activities | $(196.7) | $29.9 | $(226.6) | -757.9% | | Change in cash, cash equivalents, and restricted cash | $98.0 | $31.0 | $67.0 | 216.1% | Condensed Consolidated Balance Sheets Presents the company's financial position, detailing assets, liabilities, and stockholders' equity at specific dates Condensed Consolidated Balance Sheets (in millions) | (in millions) | September 30, 2024 | December 31, 2023 | | :----------------------------------- | :------------------- | :------------------ | | Assets | | | | Cash and cash equivalents | $349.1 | $251.1 | | Available-for-sale debt securities (current) | $878.9 | $780.5 | | Accounts receivable | $481.1 | $439.3 | | Inventory | $45.8 | $38.3 | | Other current assets | $121.7 | $97.8 | | Total current assets | $1,876.6 | $1,607.0 | | Deferred tax assets | $454.4 | $362.6 | | Available-for-sale debt securities (non-current) | $643.9 | $687.5 | | Right-of-use assets | $257.3 | $276.5 | | Equity investments | $126.7 | $161.9 | | Property and equipment, net | $80.0 | $70.8 | | Intangible assets, net | $34.5 | $35.5 | | Other noncurrent assets | $61.6 | $49.6 | | Total assets | $3,535.0 | $3,251.4 | | Liabilities and Stockholders' Equity | | | | Accounts payable and accrued liabilities | $392.7 | $448.8 | | Convertible senior notes | $— | $170.1 | | Other current liabilities | $37.0 | $35.9 | | Total current liabilities | $429.7 | $654.8 | | Noncurrent operating lease liabilities | $251.4 | $258.3 | | Other noncurrent liabilities | $135.0 | $106.3 | | Total liabilities | $816.1 | $1,019.4 | | Stockholders' equity | | | | Common stock | $0.1 | $0.1 | | Additional paid-in capital | $2,623.2 | $2,382.0 | | Accumulated other comprehensive income | $14.5 | $7.0 | | Retained earnings (accumulated deficit) | $81.1 | $(157.1) | | Total stockholders' equity | $2,718.9 | $2,232.0 | | Total liabilities and stockholders' equity | $3,535.0 | $3,251.4 | Condensed Consolidated Statements of Income and Comprehensive Income Details the company's revenues, expenses, net income, and comprehensive income for specified reporting periods Condensed Consolidated Statements of Income and Comprehensive Income (in millions, except per share data) | (in millions, except per share data) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenues: | | | | | | Net product sales | $616.6 | $491.8 | $1,709.4 | $1,353.4 | | Collaboration revenues | $5.5 | $7.0 | $18.2 | $18.5 | | Total revenues | $622.1 | $498.8 | $1,727.6 | $1,371.9 | | Operating expenses: | | | | | | Cost of revenues | $8.0 | $11.2 | $24.7 | $31.2 | | Research and development | $195.0 | $142.2 | $545.5 | $427.5 | | Acquired in-process research and development | $1.0 | $— | $9.5 | $143.9 | | Selling, general, and administrative | $234.3 | $204.2 | $719.4 | $668.7 | | Total operating expenses | $438.3 | $357.6 | $1,299.1 | $1,271.3 | | Operating income | $183.8 | $141.2 | $428.5 | $100.6 | | Other income (expense): | | | | | | Unrealized loss on equity investments | $(16.9) | $(40.1) | $(35.2) | $(0.6) | | Charges associated with convertible senior notes | $— | $— | $(138.4) | $— | | Investment income and other, net | $23.4 | $14.5 | $68.5 | $33.9 | | Total other income (expense), net | $6.5 | $(25.6) | $(105.1) | $33.3 | | Income before provision for income taxes | $190.3 | $115.6 | $323.4 | $133.9 | | Provision for income taxes | $60.5 | $32.5 | $85.2 | $31.9 | | Net income | $129.8 | $83.1 | $238.2 | $102.0 | | Foreign currency translation adjustments, net of tax | $2.9 | $(1.4) | $2.5 | $0.7 | | Unrealized gain on available-for-sale debt securities, net of tax | $9.1 | $0.8 | $5.0 | $5.5 | | Comprehensive income | $141.8 | $82.5 | $245.7 | $108.2 | | Earnings per share: | | | | | | Basic | $1.28 | $0.85 | $2.37 | $1.05 | | Diluted | $1.24 | $0.82 | $2.29 | $1.01 | Condensed Consolidated Statements of Stockholders' Equity Outlines changes in stockholders' equity, including common stock, paid-in capital, and retained earnings - Total stockholders' equity increased from $2,232.0 million at December 31, 2023, to $2,718.9 million at September 30, 2024[9] - Additional paid-in capital increased by $241.2 million for the nine months ended September 30, 2024, primarily due to $129.1 million in stock-based compensation expense and $112.1 million from common stock issuances under stock plans[9] - Retained earnings shifted from an accumulated deficit of $(157.1) million at December 31, 2023, to positive retained earnings of $81.1 million at September 30, 2024, largely driven by $238.2 million in net income[9] Condensed Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities for the reporting periods Condensed Consolidated Statements of Cash Flows (in millions) | (in millions) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Cash flows from operating activities: | | | | Net income | $238.2 | $102.0 | | Stock-based compensation expense | $129.1 | $156.2 | | Charges associated with convertible senior notes | $138.4 | $— | | Impairment charges associated with leased properties | $14.0 | $— | | Depreciation | $17.3 | $12.9 | | Accretion of discount on available-for-sale debt securities, net | $(20.6) | $(12.0) | | Amortization of intangible assets | $2.7 | $2.7 | | Changes in fair values of equity investments | $35.2 | $0.6 | | Deferred income taxes | $(91.8) | $(77.3) | | Other | $3.9 | $(0.6) | | Change in operating assets and liabilities: | | | | Accounts receivable | $(41.8) | $(67.9) | | Inventory | $(7.5) | $6.3 | | Accounts payable and accrued liabilities | $(38.7) | $147.3 | | Other assets and liabilities, net | $(25.5) | $(3.8) | | Cash flows from operating activities | $352.9 | $266.4 | | Cash flows from investing activities: | | | | Purchases of available-for-sale debt securities | $(744.3) | $(892.7) | | Sales and maturities of available-for-sale debt securities | $716.7 | $681.6 | | Purchases of equity investments | $— | $(31.3) | | Capital expenditures | $(30.9) | $(22.9) | | Cash flows from investing activities | $(58.5) | $(265.3) | | Cash flows from financing activities: | | | | Issuances of common stock under benefit plans | $112.1 | $29.9 | | Payments to settle convertible senior notes | $(308.8) | $— | | 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, cash equivalents and restricted cash at beginning of period | $259.1 | $270.7 | | Cash, cash equivalents and restricted cash at end of period | $357.1 | $301.7 | Notes to the Condensed Consolidated Financial Statements Provides detailed explanations of significant accounting policies, collaboration agreements, and other financial disclosures 1. Organization and Significant Accounting Policies Outlines the company's structure and key accounting principles applied in financial statement preparation - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim information and SEC Form 10-Q[13] - No significant changes were made to the company's accounting policies as disclosed in the 2023 Form 10-K[13] - The company is evaluating the impact of recently issued ASUs 2023-07 (Segment Reporting) and 2023-09 (Income Tax Disclosures), effective for annual periods beginning after December 15, 2023, and December 15, 2024, respectively[14] 2. Collaboration and License Agreements Details key terms, milestones, and financial impacts of the company's various collaboration and licensing arrangements - Paid Nxera Pharma UK Limited a $15.0 million R&D milestone in Q2 2024 for NBI-1117568 long-term toxicity program completion and a $35.0 million R&D milestone in Q3 2024 for Phase 2 clinical study completion. Expects to advance NBI-1117568 into Phase 3 in H1 2025, triggering another $15.0 million milestone[16] - Provided Takeda Pharmaceutical Company Limited with notice of termination for the luvadaxistat and NBI-1065846 license agreement, effective April 2025. Paid Takeda a $7.5 million R&D milestone in Q2 2024 for NBI-1070770 Phase 2 clinical study initiation[16] - Provided Idorsia Pharmaceuticals Ltd. with notice of termination for the NBI-827104 license agreement, effective January 2025[17] - Expensed a $5.0 million R&D milestone in Q1 2024 under the 2019 Voyager Agreement for Friedreich's ataxia (FA) program development candidate selection[20] - Under the 2023 Voyager Agreement, expensed $3.0 million R&D milestones in both Q2 and Q3 2024 for GBA1 program development candidate selection[22] - Received $3.3 million and $9.8 million in elagolix royalty revenue from AbbVie Inc. for the three and nine months ended September 30, 2024, respectively[22] 3. Available-for-Sale Debt Securities Details the company's investment in available-for-sale debt securities, including fair values and unrealized gains/losses Available-for-Sale Debt Securities Summary (in millions) | (in millions) | September 30, 2024 Fair Value | December 31, 2023 Fair Value | | :----------------------------------- | :------------------------------ | :----------------------------- | | Commercial paper (0 to 1 years) | $37.3 | $53.5 | | Corporate debt securities (0 to 1 years) | $532.3 | $382.1 | | Securities of government-sponsored entities (0 to 1 years) | $309.3 | $346.1 | | Corporate debt securities (1 to 3 years) | $495.0 | $483.5 | | Securities of government-sponsored entities (1 to 3 years) | $148.9 | $201.1 | | Total Fair Value | $1,522.8 | $1,468.0 | - Unrealized losses on available-for-sale debt securities were primarily due to changes in interest rates, but these investments are of high credit quality, and the company does not intend to sell them before recovery of their amortized cost basis[24] 4. Fair Value Measurements Explains the methodology and hierarchy used to measure the fair value of financial assets and liabilities - The fair value hierarchy categorizes financial assets into Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[28] Summary of Financial Assets Measured at Fair Value (in millions) | (in millions) | September 30, 2024 Fair Value | Level 1 | Level 2 | December 31, 2023 Fair Value | Level 1 | Level 2 | | :----------------------------------- | :------------------------------ | :------ | :-------- | :----------------------------- | :------ | :-------- | | Cash and cash equivalents | $349.1 | $349.1 | $— | $251.1 | $251.1 | $— | | Available-for-sale debt securities | $1,522.8 | $— | $1,522.8 | $1,468.0 | $— | $1,468.0 | | Equity investments | $126.7 | $126.7 | $— | $161.9 | $161.9 | $— | | Total | $1,998.6 | $475.8 | $1,522.8 | $1,881.0 | $413.0 | $1,468.0 | 5. Other Balance Sheet Details Provides additional details on specific balance sheet accounts, including inventory, accounts payable, and cash balances Inventory (in millions) | (in millions) | September 30, 2024 | December 31, 2023 | | :----------------------------------- | :------------------- | :------------------ | | Raw materials | $23.7 | $21.5 | | Work in process | $10.6 | $9.7 | | Finished goods | $11.5 | $12.3 | | Less inventory reserves | $— | $(5.2) | | Total inventory | $45.8 | $38.3 | Accounts Payable and Accrued Liabilities (in millions) | (in millions) | September 30, 2024 | December 31, 2023 | | :----------------------------------- | :------------------- | :------------------ | | Sales rebates and reserves | $138.9 | $139.3 | | Accrued employee related costs | $77.1 | $86.2 | | Current branded prescription drug fee | $42.7 | $45.7 | | Accrued development costs | $38.3 | $44.3 | | Accounts payable and other accrued liabilities | $95.7 | $133.3 | | Total accounts payable and accrued liabilities | $392.7 | $448.8 | Cash, Cash Equivalents, and Restricted Cash (in millions) | (in millions) | September 30, 2024 | September 30, 2023 | | :----------------------------------- | :------------------- | :------------------- | | Cash and cash equivalents | $349.1 | $293.7 | | Restricted cash included in other noncurrent assets | $8.0 | $8.0 | | Total cash, cash equivalents, and restricted cash | $357.1 | $301.7 | 6. Goodwill and Intangible Assets Details the company's goodwill and intangible assets, including their net carrying amounts and amortization schedules - Goodwill balance remained at $0.1 million as of December 31, 2023, and September 30, 2024[34] Intangible Assets, Net (in millions) | Asset Type | Useful Life | Net Carrying Amount (Sep 30, 2024) | Net Carrying Amount (Dec 31, 2023) | | :----------------------------------- | :---------- | :----------------------------------- | :----------------------------------- | | Developed product rights | 10 years | $30.6 | $31.9 | | Acquired IPR&D | Indefinite | $3.9 | $3.6 | | Total intangible assets, net | | $34.5 | $35.5 | Approximate Future Annual Amortization Expense (in millions) | Year | Amount | | :----------------------------------- | :----- | | 2024 (3 months remaining) | $0.9 | | 2025 | $3.8 | | 2026 | $3.8 | | 2027 | $3.8 | | 2028 | $3.8 | | Thereafter | $14.5 | 7. Leases Outlines the company's operating lease arrangements, associated costs, and key lease terms and discount rates - Operating leases for office space and R&D laboratories, including corporate headquarters, have terms expiring from 2025 through 2036[36] Supplemental Operating Lease Information (in millions, except weighted average data) | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net operating lease cost | $26.6 | $12.0 | | Cash paid for amounts included in operating lease liabilities | $24.0 | $13.4 | | Weighted average remaining lease term (Sep 30, 2024) | 10.3 years | 7.2 years | | Weighted average discount rate (Sep 30, 2024) | 5.0% | 5.4% | - Recognized $14.0 million in impairment charges in Q2 2024 related to Right-of-Use (ROU) assets and tenant improvements for vacated office space as the company occupies its new campus facility[39] 8. Convertible Senior Notes Details the settlement of convertible senior notes, associated charges, and their impact on earnings per share - The company settled $169.8 million in aggregate principal amount of 2.25% fixed-rate convertible senior notes due May 15, 2024, for $308.2 million in cash during the second quarter of 2024[40] Charges Associated with Convertible Senior Notes (in millions) | Category | Amount | | :----------------------------------- | :----- | | Accretion of debt discount associated with derivative liability | $126.6 | | Change in fair value of derivative liability | $9.6 | | Loss on extinguishment of convertible senior notes | $2.2 | | Total charges associated with convertible senior notes | $138.4 | Earnings Per Share (in millions, except per share data) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic EPS | $1.28 | $0.85 | $2.37 | $1.05 | | Diluted EPS | $1.24 | $0.82 | $2.29 | $1.01 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, revenue growth, pipeline advancements, liquidity, capital resources, and future financial requirements - Neurocrine Biosciences is a neuroscience-focused biopharmaceutical company with FDA-approved treatments for tardive dyskinesia (INGREZZA), chorea associated with Huntington's disease (INGREZZA), endometriosis (ORILISSA), and uterine fibroids (ORIAHNN)[44] - INGREZZA net product sales accounted for approximately 99% of total net product sales for the first nine months of 2024, driven by strong patient demand and improved gross-to-net dynamics[44][48] - Key business highlights include the retirement of CEO Kevin Gorman and succession by Kyle Gano, INGREZZA qualifying for the Specified Small Manufacturer Exception under the Inflation Reduction Act, settlement of convertible senior notes, expansion of sales teams, and authorization of a $300 million share repurchase program[45] - Pipeline advancements include positive Phase 2 data for NBI-1117568 (schizophrenia) and NBI-1065845 (MDD), FDA Priority Review for crinecerfont (CAH), initiation of new Phase 1/2 studies, and FDA approval of INGREZZA SPRINKLE. The company also terminated license agreements for luvadaxistat/NBI-1065846 and NBI-827104[46][47] - Net income for the first nine months of 2024 increased to $238.2 million from $102.0 million in the prior year, primarily due to increased INGREZZA sales and investment income, partially offset by charges related to convertible senior notes and increased commercial/R&D investments[60] - The company believes existing capital, anticipated INGREZZA sales, and investment income will be sufficient for at least the next 12 months, but future capital requirements are substantial, including potential milestone payments up to $17.7 billion under collaboration agreements and a $300 million share repurchase program[62][65] Overview Introduces Neurocrine Biosciences as a neuroscience-focused biopharmaceutical company and highlights its core product portfolio - Neurocrine Biosciences is a neuroscience-focused biopharmaceutical company dedicated to discovering and developing treatments for neurological, neuroendocrine, and neuropsychiatric disorders[44] - The company's portfolio includes FDA-approved INGREZZA for tardive dyskinesia and chorea associated with Huntington's disease, and collaboration products ORILISSA and ORIAHNN with AbbVie for endometriosis and uterine fibroids[44] - INGREZZA net product sales constituted approximately 99% of total net product sales for the first nine months of 2024[44] Business Highlights Summarizes key corporate developments, leadership changes, and strategic initiatives during the reporting period - Kevin Gorman, Ph.D., retired as CEO effective October 11, 2024, and was succeeded by Kyle Gano, Ph.D.[45] - INGREZZA qualified for the Specified Small Manufacturer Exception pertaining to the Part D redesign of the Inflation Reduction Act[45] - The company settled the convertible senior notes due May 15, 2024, in full in cash upon maturity[45] - Expanded INGREZZA psychiatry and long-term care sales teams to enhance patient service for tardive dyskinesia and chorea associated with Huntington's disease[45] - The Board of Directors authorized a $300 million share repurchase program in October 2024[45] Pipeline Highlights Details recent advancements in the company's drug development pipeline, including clinical trial results and regulatory updates - Announced positive topline data for the Phase 2 study of NBI-1117568 (M4 agonist for schizophrenia), triggering a $35.0 million milestone payment to Nxera, with Phase 3 development expected in H1 2025[46] - Announced positive topline data for the Phase 2 SAVITRI™ study of NBI-1065845 (AMPA PAM) for major depressive disorder (MDD)[47] - FDA accepted New Drug Applications (NDAs) and granted Priority Review for crinecerfont for pediatric and adult classic congenital adrenal hyperplasia (CAH), with PDUFA target action dates in December 2024[47] - Initiated Phase 2 study of NBI-1070770 (NMDA NR2B receptor NAM) in adults with MDD and Phase 1 studies for NBI-1117567 (M1/M4 selective muscarinic agonist) and NBI-1076968 (M4 subtype-selective muscarinic antagonist)[47] - Received FDA approval and launched INGREZZA SPRINKLE (valbenazine) capsules, a new oral granules formulation[47] - Terminated license agreements for luvadaxistat and NBI-1065846 with Takeda (effective April 2025) and NBI-827104 with Idorsia (effective January 2025) following study results[47] Results of Operations for the Three and Nine Months Ended September 30, 2024 and 2023 Analyzes the company's financial performance, including revenues, operating expenses, and net income, for the specified periods Revenues Examines the sources and trends of the company's net product sales and collaboration revenues Net Product Sales (in millions) | Product | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | INGREZZA | $612.9 | $485.7 | $1,698.4 | $1,335.8 | | Other | $3.7 | $6.1 | $11.0 | $17.6 | | Total net product sales | $616.6 | $491.8 | $1,709.4 | $1,353.4 | - Total net product sales for the first nine months of 2024 increased primarily due to higher INGREZZA net product sales, driven by strong underlying patient demand and improved gross-to-net dynamics[48] Collaboration Revenues by Category (in millions) | Category | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Royalty revenue | $4.6 | $5.6 | $13.5 | $14.6 | | Other | $0.9 | $1.4 | $4.7 | $3.9 | | Total collaboration revenues | $5.5 | $7.0 | $18.2 | $18.5 | - Collaboration revenues primarily reflect royalty revenue earned on AbbVie's net sales of elagolix and MTPC's net sales of DYSVAL[50] Operating Expenses Analyzes trends and components of cost of revenues, research and development, and selling, general, and administrative expenses Cost of Revenues (in millions) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Cost of revenues | $8.0 | $11.2 | $24.7 | $31.2 | - The decrease in cost of revenues for the first nine months of 2024 was primarily due to decreased ONGENTYS net product sales and lower ONGENTYS inventory reserves, partially offset by increased INGREZZA net product sales[51] Research and Development by Category (in millions) | Category | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Late stage | $21.6 | $24.2 | $68.9 | $82.2 | | Early stage | $19.2 | $25.4 | $77.6 | $77.9 | | Research and discovery | $42.1 | $28.4 | $103.9 | $74.9 | | Milestone | $38.8 | $0.3 | $71.4 | $0.3 | | Payroll and benefits | $55.4 | $52.2 | $167.9 | $157.4 | | Facilities and other | $17.9 | $11.7 | $55.8 | $34.8 | | Total research and development | $195.0 | $142.2 | $545.5 | $427.5 | - The increase in R&D expenses for the first nine months of 2024 was primarily driven by higher milestone expenses from collaborations with Nxera, Takeda, and Voyager, increased investment in preclinical development (including gene therapy), higher headcount-related payroll and benefits, and increased rent expense for the new campus facility[54] Acquired In-Process Research and Development (in millions) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Acquired in-process research and development | $1.0 | $— | $9.5 | $143.9 | - The decrease in acquired IPR&D expense for the first nine months of 2024 reflects lower payments for upfront fees compared to the $143.9 million expense recognized in 2023 for the Voyager collaboration expansion[55] Selling, General, and Administrative (SG&A) (in millions) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Selling, general, and administrative | $234.3 | $204.2 | $719.4 | $668.7 | - The increase in SG&A expenses for the first nine months of 2024 was primarily due to continued investment in the commercial organization (including sales team expansion), pre-launch crinecerfont activities, increased facility expenses, and $14.0 million in impairment charges for leased office space[56] Other Income (Expense), Net. Details non-operating income and expenses, including unrealized gains/losses on investments and charges from convertible notes Other Income (Expense), Net (in millions) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Unrealized loss on equity investments | $(16.9) | $(40.1) | $(35.2) | $(0.6) | | Charges associated with convertible senior notes | $— | $— | $(138.4) | $— | | Investment income and other, net | $23.4 | $14.5 | $68.5 | $33.9 | | Total other income (expense), net | $6.5 | $(25.6) | $(105.1) | $33.3 | - The increase in total other expense, net, for the first nine months of 2024 primarily reflects $138.4 million of expense from the 2024 Notes conversions and periodic fluctuations in equity investment fair values, partially offset by increased interest income[58] Provision for Income Taxes. Discusses the company's income tax expense and the factors influencing its effective tax rate Provision for Income Taxes (in millions) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Provision for income taxes | $60.5 | $32.5 | $85.2 | $31.9 | - The effective tax rate varied from statutory rates primarily due to research credits, certain nondeductible expenses (including debt extinguishment), excess tax benefits from stock-based compensation, and foreign losses for which no tax benefit was recorded[59] Net Income. Summarizes the company's net income and the key drivers behind its changes for the reporting periods Net Income (in millions) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income | $129.8 | $83.1 | $238.2 | $102.0 | - The increase in net income for the first nine months of 2024 primarily reflects increased INGREZZA net product sales, higher interest income, and lower total payments for upfront fees and development milestones, partially offset by $138.4 million of expense from 2024 Notes conversions, equity investment fluctuations, and continued investment in commercial and R&D activities[60] Liquidity and Capital Resources Assesses the company's ability to meet its financial obligations, manage cash flows, and fund future operations - The company believes its existing capital resources, anticipated INGREZZA net product sales, and investment income will be sufficient to satisfy funding requirements for at least the next 12 months[62] Financial Condition (in millions) | Metric | September 30, 2024 | December 31, 2023 | | :----------------------------------- | :------------------- | :------------------ | | Total cash, cash equivalents, and marketable securities | $1,871.9 | $1,719.1 | | Total working capital | $1,446.9 | $952.2 | Cash Flows (in millions) | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Cash flows from operating activities | $352.9 | $266.4 | | Cash flows from investing activities | $(58.5) | $(265.3) | | Cash flows from financing activities | $(196.7) | $29.9 | | Change in cash, cash equivalents, and restricted cash | $98.0 | $31.0 | - Future capital requirements are substantial, including potential future payments of up to approximately $17.7 billion upon achievement of certain milestones under existing collaboration and license agreements[65] - The Board of Directors authorized a share repurchase program in October 2024 to repurchase up to $300 million of common stock[65] - There were no changes to critical accounting policies as disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023[66] Item 3. Quantitative and Qualitative Disclosures About Market Risk Addresses market risks, primarily interest rate risk, and includes a cautionary statement regarding forward-looking statements and inherent uncertainties - The company maintains a diversified investment portfolio of low-risk, investment-grade debt securities with maturities up to three years[67] - A 1% unfavorable change in interest rates as of September 30, 2024, would not have a material effect on the fair value of the investment portfolio[67] - The report contains forward-looking statements that involve risks and uncertainties, and actual results may differ materially from those anticipated[68] - Readers are urged not to place undue reliance on forward-looking statements, which speak only as of the report date, and the company assumes no obligation to update them[68] Interest Rate Risk Assesses the company's exposure to fluctuations in interest rates and their potential impact on its investment portfolio - The company's investment portfolio consists of low-risk, investment-grade debt securities with maturities up to three years, including commercial paper, government-sponsored entities' securities, and corporate bonds[67] - A hypothetical 1% unfavorable change in interest rates as of September 30, 2024, would not have a material effect on the fair value of the investment portfolio[67] Forward-Looking Statements Provides a cautionary note regarding statements about future events, emphasizing inherent uncertainties and potential for variations - This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, and actual results could differ materially from those anticipated[68] - Forward-looking statements are based on management's good faith judgment and current known facts, but are inherently subject to risks and uncertainties[68] - The company assumes no obligation to update its forward-looking statements, even if new information becomes available in the future[68] Item 4. Controls and Procedures Management concluded disclosure controls were effective and noted no material changes in internal control, except for ERP system modifications - Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of September 30, 2024[69] - Based on the evaluation, the CEO and CFO concluded that the disclosure controls and procedures were effective at the reasonable assurance level[69] - During Q1 2024, the company implemented a new company-wide enterprise resource planning (ERP) system, assessing and modifying internal controls as necessary[71] - No other significant changes in internal controls over financial reporting occurred during Q3 2024 that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[71] Disclosure Controls and Procedures Describes the company's controls to ensure timely and accurate reporting of information required by the Exchange Act - The company maintains disclosure controls and procedures designed to ensure timely recording, processing, summarizing, and reporting of information required by the Exchange Act of 1934[69] - Management, including the CEO and CFO, concluded that these controls and procedures were effective at the reasonable assurance level as of September 30, 2024[69] Changes in Internal Control over Financial Reporting Reports on any material changes to the company's internal control over financial reporting during the quarter - A new company-wide ERP system was implemented during the quarter ended March 31, 2024, leading to an assessment and modification of internal controls[71] - No other significant changes in internal controls over financial reporting occurred during the quarter ended September 30, 2024, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[71] Part II. Other Information Presents additional disclosures not covered in the financial statements, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings The company faces ordinary course legal proceedings, believing none will materially affect its financials, though outcomes are unpredictable - The company may become subject to legal proceedings or claims arising in the ordinary course of its business[73] - Management currently believes that none of the pending claims or actions are likely to have a material adverse effect on the company's business, financial condition, or results of operations[73] - The outcome of litigation is inherently unpredictable[73] Item 1A. Risk Factors Outlines various risks and uncertainties that could materially affect the company's business, operations, and financial condition - Risks include the ability to successfully commercialize products (e.g., INGREZZA), market acceptance, intense competition, and potential delays or failures in clinical trials[76][77][79][80] - Dependence on collaborators, potential side effects of approved products, challenges in managing organizational growth, and retaining qualified personnel are significant risks[76][81][83][84] - Reliance on third-party manufacturers and suppliers, intellectual property protection, government and third-party payor pricing controls, and the need for additional capital pose financial and operational risks[78][86][87][88][94] - Regulatory changes (e.g., Inflation Reduction Act), stock price volatility, cybersecurity threats, and data privacy obligations are key industry-related risks[101][107][117][123] Summary Risk Factors Provides a high-level overview of the most critical risks impacting the company's business and financial prospects - Risks associated with the inability to successfully commercialize INGREZZA or other products, and lack of physician/patient acceptance[76][77] - Impact of healthcare reform, drug pricing measures (including the Inflation Reduction Act of 2022), and intense competition[76][79] - Potential for clinical trial delays or failures, technological uncertainty in product development, and dependence on current and future collaborators[76][80][81] - Risks related to product side effects, managing organizational growth, retaining qualified employees, and reliance on third-party manufacturers and suppliers[76][83][84][86][87] - Challenges in protecting intellectual property, government and third-party payor pricing controls, increased expenses, customer concentration, and the need for additional capital[78][88][91][92][94] Risks Related to Our Company Details specific risks inherent to the company's operations, commercialization efforts, and internal management - The company may not be able to continue to successfully commercialize INGREZZA or any other products, or any product candidates if approved, due to factors like market acceptance, pricing, and competition[77] - Intense competition from other biotechnology and pharmaceutical companies, including generic equivalents, could reduce demand for the company's products[79] - Clinical trials may be delayed or fail to demonstrate safety and efficacy, preventing or significantly delaying regulatory approval, with geopolitical tensions (e.g., Russia-Ukraine conflict) also posing risks to clinical development timelines and supply chains[80] - Dependence on current collaborators (e.g., AbbVie, MTPC, Nxera, Takeda, Voyager, Xenon) for development and commercialization subjects the company to risks such as lack of control, disputes, or termination of agreements[81][82] - The company's rapid organizational growth and implementation of new systems (like an ERP system) may lead to difficulties in management, potentially affecting operations and financial results[83] - The company relies entirely on third-party manufacturers and a limited number of third-party suppliers, exposing it to risks of production difficulties, quality control issues, and supply disruptions[86][87] - A high concentration of customers (four customers accounted for ~93% of product sales and ~98% of accounts receivable for 9M 2024) makes the business vulnerable to the loss of a significant customer[92] - The company expects increased expenses and may not sustain profitability, with future operating results fluctuating due to various factors including seasonality, Medicare Part D coverage, and R&D costs[91][96] - The price of the company's common stock is volatile, influenced by sales, clinical trial results, regulatory developments, and general market conditions[101][103] Risks Related to Our Industry Covers broader industry-specific risks, including healthcare reform, intellectual property, regulatory compliance, and cybersecurity threats - Enacted healthcare reform and drug pricing measures, including the Inflation Reduction Act of 2022, could adversely affect the business by imposing government price controls, increasing manufacturer liability, and impacting reimbursement for products like INGREZZA[107][109] - The company's ability to protect its intellectual property (patents, trade secrets) is crucial, as competitors could develop and market products based on its discoveries, potentially reducing demand[111][113] - There is a risk of liability if regulatory authorities determine the company is promoting products for unapproved 'off-label' uses, which could lead to significant fines or sanctions[116] - The company is highly dependent on information technology systems and third parties, making it vulnerable to cyber-attacks, ransomware, and data breaches, which could disrupt operations, lead to claims, and harm its reputation[117] - Stringent and changing data privacy and information security obligations (e.g., GDPR, CCPA, HIPAA) impose significant compliance costs and risks of fines, litigation, and reputational harm, especially concerning cross-border data transfers and the use of generative AI technologies[123][125][127] - Failure to obtain or maintain orphan drug designation or other regulatory exclusivity for product candidates could harm the company's competitive position[119] - The company faces potential product liability exposure far in excess of its insurance coverage, which could decrease cash reserves and stock price, and damage its reputation[122] Item 6. Exhibits Lists all exhibits filed or incorporated by reference, including organizational documents, equity plans, and CEO/CFO certifications - Exhibits include the Certificate of Incorporation, Bylaws, and Form of Common Stock Certificate[130] - The Neurocrine Biosciences, Inc. 2011 and 2020 Equity Incentive Plans, along with related stock option grant notices, are filed as exhibits[130] - Certifications of the Chief Executive Officer and Chief Financial Officer, pursuant to SEC rules and the Sarbanes-Oxley Act of 2002, are included[130] Signatures The report is duly signed by Matthew C. Abernethy, Chief Financial Officer of Neurocrine Biosciences, Inc. on October 30, 2024 - The report was signed by Matthew C. Abernethy, Chief Financial Officer of Neurocrine Biosciences, Inc.[132] - The signing date for the report was October 30, 2024[132]