Neurocrine(NBIX) - 2022 Q1 - Quarterly Report

Part I. Financial Information This section presents the unaudited condensed consolidated financial statements and their accompanying notes Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, income, equity, and cash flows Condensed Consolidated Balance Sheets This table provides a snapshot of the company's assets, liabilities, and stockholders' equity at specific reporting dates Condensed Consolidated Balance Sheets | Metric | March 31, 2022 (in millions) | December 31, 2021 (in millions) | Change (in millions) | | :----- | :--------------------------- | :------------------------------ | :------------------- | | Total Assets | $2,144.5 | $2,072.5 | +$72.0 | | Total Liabilities | $753.4 | $698.5 | +$54.9 | | Total Stockholders' Equity | $1,391.1 | $1,374.0 | +$17.1 | | Cash and cash equivalents | $270.2 | $340.8 | -$70.6 | | Accounts receivable | $263.5 | $185.5 | +$78.0 | | Equity securities | $91.3 | $63.7 | +$27.6 | | Convertible senior notes | $377.7 | $335.1 | +$42.6 | Condensed Consolidated Statements of Income and Comprehensive Income This table details the company's revenues, expenses, and net income for the three-month periods Condensed Consolidated Statements of Income and Comprehensive Income | Metric | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | YoY Change (in millions) | YoY Growth | | :----- | :---------------------------------------------- | :---------------------------------------------- | :----------------------- | :--------- | | Total Revenues | $310.6 | $236.6 | +$74.0 | 31.3% | | Net Product Sales | $305.0 | $231.0 | +$74.0 | 32.0% | | Total Operating Expenses | $307.5 | $205.1 | +$102.4 | 49.9% | | Operating Income | $3.1 | $31.5 | -$28.4 | -90.2% | | Net Income | $13.9 | $32.1 | -$18.2 | -56.7% | | Basic EPS | $0.15 | $0.34 | -$0.19 | -55.9% | | Diluted EPS | $0.14 | $0.33 | -$0.19 | -57.6% | Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in the company's equity, including net income and stock-based compensation Condensed Consolidated Statements of Stockholders' Equity | Metric | December 31, 2021 (in millions) | March 31, 2022 (in millions) | | :----- | :------------------------------ | :--------------------------- | | Total Stockholders' Equity | $1,374.0 | $1,391.1 | | Net income | — | $13.9 | | Unrealized loss on debt securities available-for-sale, net of tax | — | $(7.6) | | Cumulative-effect adjustment due to adoption of ASU 2020-06 | — | $(32.3) | | Stock-based compensation expense | — | $37.0 | | Issuances of common stock under stock plans | — | $6.1 | - Adoption of ASU 2020-06 on January 1, 2022, resulted in a cumulative-effect adjustment that reduced additional paid-in capital by $106.8 million and accumulated deficit by $74.5 million, while increasing the carrying amount of 2024 Notes by $42.2 million and reducing deferred tax liabilities by $9.9 million[20][79] Condensed Consolidated Statements of Cash Flows This section details cash flows from operating, investing, and financing activities for the specified periods Condensed Consolidated Statements of Cash Flows | Metric | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | YoY Change (in millions) | | :----- | :---------------------------------------------- | :---------------------------------------------- | :----------------------- | | Net cash (used in) provided by operating activities | $(40.5) | $87.3 | -$127.8 | | Net cash (used in) provided by investing activities | $(31.6) | $63.1 | -$94.7 | | Net cash provided by financing activities | $6.1 | $15.1 | -$9.0 | | Change in cash, cash equivalents and restricted cash | $(66.0) | $165.5 | -$231.5 | | Cash, cash equivalents and restricted cash at end of period | $278.0 | $355.8 | -$77.8 | - Net cash used in operating activities for Q1 2022 primarily reflected increased investment in ongoing commercial initiatives (TD Spotlight advertising, expanded salesforce) and the clinical portfolio, alongside an increase in accounts receivable due to extended customer payment terms[115] - Net cash used in investing activities for Q1 2022 included a $7.7 million equity investment in Xenon in connection with the FDA's acceptance of the amended KAYAK study protocol[116] Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Organization and Significant Accounting Policies This note describes the company's organizational structure and key accounting policies, including ASU 2020-06 adoption - The company adopted ASU 2020-06 on January 1, 2022, using the modified retrospective transition method, which simplified accounting for convertible instruments by removing separation models and accounting for convertible debt wholly as debt[20] - The adoption of ASU 2020-06 resulted in a cumulative effect adjustment that increased the carrying amount of the 2024 Notes by $42.2 million, reduced deferred tax liabilities by $9.9 million, reduced additional paid-in capital by $106.8 million, and reduced the accumulated deficit by $74.5 million[20] 2. Collaboration and License Agreements This note details the company's various collaboration and license agreements, outlining potential milestone payments and royalties - Collaboration with Heptares (effective Dec 2021) for M1, M4, or dual M1/M4 receptor agonists, with Neurocrine having exclusive worldwide rights (excluding Japan) and potential future payments up to $2.6 billion in milestones plus royalties[21][22] - Collaboration with Takeda (2020) for early to mid-stage psychiatry compounds, including luvadaxistat, NBI-1065845, NBI-1065846, and four non-clinical stage compounds, with potential future payments up to $1.9 billion in milestones plus royalties[25][26] - Collaboration with Idorsia (2020) for NBI-827104 (T-type calcium channel blocker) for rare pediatric epilepsy and essential tremor, with potential future payments up to $1.7 billion in milestones plus royalties[30][31] - Collaboration with Xenon (2019) for sodium channel inhibitors, including NBI-921352. A $15.0 million regulatory milestone was paid in Q1 2022 for FDA's acceptance of the amended KAYAK study protocol, including a $7.7 million equity purchase and $7.3 million expensed as R&D. Potential future payments up to $1.7 billion in milestones plus royalties[33][35][36] - Out-licensed rights to valbenazine in Japan and other select Asian markets to MTPC (2015). MTPC received Japanese approval for DYSVAL (valbenazine) in March 2022, triggering a $20.0 million milestone payment expected in Q2 2022, plus potential future sales-based milestones up to $35.0 million and tiered royalties[46][47][48] - Out-licensed global rights to elagolix to AbbVie (2010). Recognized elagolix royalty revenue of $4.2 million for Q1 2022, down from $4.5 million in Q1 2021. Potential future payments up to $366.0 million in milestones plus tiered royalties[49][50] 3. Debt Securities This note provides information on the company's debt securities, including amortized cost, fair value, and unrealized losses Debt Securities Portfolio | Security Type | Contractual Maturity | Amortized Cost (March 31, 2022, in millions) | Fair Value (March 31, 2022, in millions) | Unrealized Loss (March 31, 2022, in millions) | | :------------ | :------------------- | :------------------------------------------- | :--------------------------------------- | :-------------------------------------------- | | Commercial paper | 0 to 1 years | $99.1 | $98.7 | $(0.4) | | Corporate debt securities | 0 to 1 years | $163.7 | $162.6 | $(1.1) | | Securities of government-sponsored entities | 0 to 1 years | $134.6 | $133.4 | $(1.2) | | Corporate debt securities | 1 to 3 years | $341.8 | $336.6 | $(5.2) | | Securities of government-sponsored entities | 1 to 3 years | $209.3 | $204.4 | $(4.9) | | Total | | $948.5 | $935.7 | $(12.8) | - As of March 31, 2022, 168 debt securities were in an unrealized loss position, primarily due to changes in interest rates. The company does not intend to sell these investments before recovery of their amortized cost basis[52] 4. Fair Value Measurements This note explains methodologies for fair value measurements of financial instruments, including debt and equity securities - Investments in debt securities available-for-sale are classified as Level 2, with fair values estimated using third-party pricing services and industry standard valuation models[60][63] - Equity security investment in Voyager was transferred from Level 3 to Level 1 during Q1 2022 as the associated holding period restriction expired, resulting in an unrealized gain of $20.8 million included in earnings[65] 5. Inventories This note presents a breakdown of the company's inventory components, including raw materials, work in process, and finished goods Inventories Breakdown | (in millions) | March 31, 2022 | December 31, 2021 | | :------------ | :------------- | :---------------- | | Raw materials | $9.2 | $11.2 | | Work in process | $4.4 | $3.6 | | Finished goods | $15.4 | $15.7 | | Total inventories | $29.0 | $30.5 | 6. Cash, Cash Equivalents and Restricted Cash This note provides a reconciliation of cash, cash equivalents, and restricted cash for the specified periods Cash, Cash Equivalents and Restricted Cash Reconciliation | (in millions) | March 31, 2022 | March 31, 2021 | | :------------ | :------------- | :------------- | | Cash and cash equivalents | $270.2 | $352.6 | | Restricted cash included in other assets | $7.8 | $3.2 | | Total cash, cash equivalents and restricted cash | $278.0 | $355.8 | 7. Leases This note details the company's lease agreements, including a new corporate headquarters facility and associated liabilities - On February 8, 2022, the company entered into a lease agreement for a new four-building campus facility in San Diego, expected to be the new corporate headquarters, with a 13.6-year initial lease term and options for two five-year renewals[70] - Monthly base rent for the new campus facility will be $6 per square foot, subject to annual escalations of 3%, following a 10-month rent abatement period after each building's lease commencement date[70] Operating Lease Liabilities | (in millions) | Amount | | :------------ | :----- | | Total operating lease payments | $150.3 | | Less accreted interest | $30.9 | | Total operating lease liabilities | $119.4 | | Noncurrent operating lease liabilities | $102.5 | 8. Convertible Senior Notes This note describes the company's outstanding convertible senior notes, including principal amount, carrying value, and interest expense - As of March 31, 2022, $381.2 million aggregate principal amount of 2.25% fixed-rate convertible senior notes due May 15, 2024, remained outstanding[81][122] - The company irrevocably elected in December 2021 to settle the principal amount of the 2024 Notes in cash upon conversion and any conversion premium in either cash or shares of common stock[84] Convertible Senior Notes Carrying Amount and Fair Value | (in millions) | March 31, 2022 | December 31, 2021 | | :------------ | :------------- | :---------------- | | Net Carrying Amount | $377.7 | $335.1 | | Fair Value | $491.7 | $464.7 | Convertible Senior Notes Interest Expense | (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------ | :-------------------------------- | :-------------------------------- | | Coupon interest | $2.2 | $2.2 | | Amortization of debt discount and issuance costs | $0.4 | $4.2 | | Total Interest Expense | $2.6 | $6.4 | 9. Earnings per Share This note presents the calculation of basic and diluted earnings per share for the three-month periods Earnings per Share Calculation | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | YoY Change | | :----- | :-------------------------------- | :-------------------------------- | :--------- | | Net income - basic and diluted | $13.9 | $32.1 | -$18.2 | | Weighted-average shares outstanding (Basic) | 95.3 | 94.2 | +1.1 | | Weighted-average shares outstanding (Diluted) | 97.6 | 98.2 | -0.6 | | Earnings per share, basic | $0.15 | $0.34 | -$0.19 | | Earnings per share, diluted | $0.14 | $0.33 | -$0.19 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of financial condition and results of operations for Q1 2022 versus Q1 2021 Overview This overview highlights Neurocrine Biosciences' core purpose, key commercial products, and collaboration activities - Neurocrine Biosciences' core purpose is to relieve suffering for patients with neurological, endocrine, and psychiatric disorders, leveraging three decades of neuroscience insight[93] - INGREZZA (valbenazine) for tardive dyskinesia, launched in May 2017, represents the significant majority of total net product sales[93] - ONGENTYS (opicapone) for Parkinson's disease, launched in September 2020, is an FDA-approved add-on treatment[93] - Collaborates with AbbVie on ORILISSA (endometriosis) and ORIAHNN (uterine fibroids), receiving tiered royalties on net sales[93] Business Highlights This section summarizes key business achievements, including regulatory approvals and associated milestone payments - MTPC received Japanese Ministry of Health, Labour and Welfare approval for DYSVAL (valbenazine) for tardive dyskinesia in March 2022[94] - This approval entitles Neurocrine to a $20.0 million milestone payment upon MTPC's first commercial sale of DYSVAL in Japan, anticipated in Q2 2022[94] Impacts of Macro-Economic Factors on Our Business This section discusses the effects of global events, such as COVID-19 and the Russia/Ukraine conflict, on operations COVID-19 Global Pandemic This subsection addresses the company's response to the COVID-19 pandemic, focusing on patient safety and clinical study continuity - The company prioritizes patient and caregiver safety, continued access to INGREZZA (no supply disruption expected), and advancing clinical studies amidst the COVID-19 pandemic[94] - The financial and operational impact of COVID-19 remains uncertain, dependent on mitigation measures, new variants, and vaccine effectiveness[95] Russia/Ukraine Conflict This subsection outlines the impact of the Russia/Ukraine conflict on clinical trial activities and future development timelines - All planned clinical trial activities for valbenazine and NBI-1065844 in Russia and Ukraine have been suspended due to the ongoing conflict[96] - The duration and impact of the conflict on clinical development and regulatory efforts are highly unpredictable[97] Results of Operations for the Three Months Ended March 31, 2022 and 2021 This section analyzes the company's financial performance, detailing revenues and operating expenses for the specified periods Revenues This subsection provides a breakdown of total revenues, including net product sales and collaboration revenues Total Revenues Breakdown | Metric | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | YoY Change (in millions) | YoY Growth | | :----- | :---------------------------------------------- | :---------------------------------------------- | :----------------------- | :--------- | | Total Revenues | $310.6 | $236.6 | +$74.0 | 31.3% | | Net Product Sales | $305.0 | $231.0 | +$74.0 | 32.0% | | Collaboration Revenues | $5.6 | $5.6 | $0.0 | 0.0% | Net Product Sales by Sales Product This subsection details net product sales for INGREZZA and ONGENTYS, highlighting their individual contributions Net Product Sales by Product | (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | YoY Change (in millions) | YoY Growth | | :------------ | :-------------------------------- | :-------------------------------- | :----------------------- | :--------- | | INGREZZA net product sales | $302.6 | $229.6 | +$73.0 | 31.8% | | ONGENTYS net product sales | $2.4 | $1.4 | +$1.0 | 71.4% | | Total net product sales | $305.0 | $231.0 | +$74.0 | 32.0% | - Increased INGREZZA net product sales primarily reflected increased new patient starts[98] Collaboration Revenues by Category This subsection categorizes collaboration revenues, primarily from elagolix royalties and other non-cash contributions Collaboration Revenues by Type | (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | YoY Change (in millions) | | :------------ | :-------------------------------- | :-------------------------------- | :----------------------- | | Elagolix royalty revenue | $4.2 | $4.5 | -$0.3 | | Non-cash collaboration revenue and other | $1.4 | $1.1 | +$0.3 | | Total collaboration revenues | $5.6 | $5.6 | $0.0 | - Collaboration revenues primarily reflected royalties earned on AbbVie net sales of ORILISSA and ORIAHNN[99] Operating Expenses This subsection summarizes the company's total operating expenses, including cost of revenues, R&D, and SG&A Total Operating Expenses | (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | YoY Change (in millions) | YoY Growth | | :------------ | :-------------------------------- | :-------------------------------- | :----------------------- | :--------- | | Cost of revenues | $4.6 | $2.9 | +$1.7 | 58.6% | | Research and development | $102.2 | $73.2 | +$29.0 | 39.6% | | Selling, general and administrative | $200.7 | $129.0 | +$71.7 | 55.6% | | Total operating expenses | $307.5 | $205.1 | +$102.4 | 49.9% | Cost of Revenues This subsection analyzes the cost of revenues, primarily driven by increased INGREZZA net product sales Cost of Revenues Analysis | (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | YoY Change (in millions) | YoY Growth | | :------------ | :-------------------------------- | :-------------------------------- | :----------------------- | :--------- | | Cost of revenues | $4.6 | $2.9 | +$1.7 | 58.6% | - The increase in cost of revenues was driven by increased INGREZZA net product sales, reflecting higher new patient starts[100] Research and Development by Category This subsection breaks down R&D expenses by stage, including late-stage, early-stage, research and discovery, and milestone payments Research and Development Expenses by Category | (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | YoY Change (in millions) | YoY Growth | | :------------ | :-------------------------------- | :-------------------------------- | :----------------------- | :--------- | | Late stage | $14.4 | $13.0 | +$1.4 | 10.8% | | Early stage | $16.6 | $5.5 | +$11.1 | 201.8% | | Research and discovery | $15.9 | $9.4 | +$6.5 | 69.1% | | Milestone | $7.3 | $0.0 | +$7.3 | N/A | | Payroll and benefits | $37.3 | $35.5 | +$1.8 | 5.1% | | Facilities and other | $10.7 | $9.8 | +$0.9 | 9.2% | | Total research and development | $102.2 | $73.2 | +$29.0 | 39.6% | - Early-stage expenses increased due to higher investment in Phase II epilepsy and neuropsychiatry programs[104] - Research and discovery expenses increased due to higher investment in preclinical development programs[105] - Milestone expenses included $7.3 million recognized in connection with the FDA's acceptance of the amended KAYAK study protocol in January 2022[106] Selling, General and Administrative This subsection details the increase in SG&A expenses, primarily due to commercial initiatives and expanded salesforce Selling, General and Administrative Expenses | (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | YoY Change (in millions) | YoY Growth | | :------------ | :-------------------------------- | :-------------------------------- | :----------------------- | :--------- | | Sales, general and administrative | $200.7 | $129.0 | +$71.7 | 55.6% | - Increased expenses reflected higher investment in ongoing commercial initiatives, including the TD Spotlight-branded direct-to-consumer INGREZZA advertising campaign (launched May 2021) and deployment of an expanded salesforce[108] - Personnel expenses also increased due to higher headcount and increased non-cash stock-based compensation[108] Other Income (Expense), Net This subsection analyzes other income and expenses, including interest expense and unrealized gains on equity securities Other Income (Expense), Net | (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | YoY Change (in millions) | | :------------ | :-------------------------------- | :-------------------------------- | :----------------------- | | Interest expense | $(2.6) | $(6.4) | +$3.8 | | Unrealized gain on equity securities | $19.9 | $0.7 | +$19.2 | | Investment income and other, net | $1.0 | $1.4 | -$0.4 | | Total other income (expense), net | $18.3 | $(4.3) | +$22.6 | - The increase in other income, net, primarily reflected periodic fluctuations in the fair values of equity security investments[109] Provision for (Benefit from) Income Taxes This subsection discusses the company's income tax provision and the factors influencing its effective tax rate Provision for (Benefit from) Income Taxes | (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | YoY Change (in millions) | | :------------ | :-------------------------------- | :-------------------------------- | :----------------------- | | Provision for (benefit from) income taxes | $7.5 | $(4.9) | +$12.4 | - The effective tax rate for Q1 2022 was higher than federal and statutory rates primarily due to excess tax expense related to stock-based compensation[110] Net Income This subsection analyzes the drivers behind the change in net income and diluted earnings per share Net Income and Diluted EPS | (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | YoY Change (in millions) | YoY Growth | | :------------ | :-------------------------------- | :-------------------------------- | :----------------------- | :--------- | | Net income | $13.9 | $32.1 | -$18.2 | -56.7% | | Diluted earnings per share | $0.14 | $0.33 | -$0.19 | -57.6% | - The decrease in net income was primarily due to increased investment in ongoing commercial initiatives (TD Spotlight, expanded salesforce) and an expanded clinical portfolio, offsetting increased INGREZZA net product sales[111] Liquidity and Capital Resources This section assesses the company's ability to meet financial obligations, covering liquidity sources, financial condition, and cash flows Sources of Liquidity This subsection discusses the company's current capital resources and potential future funding strategies - The company believes existing capital resources and anticipated revenues will cover funding requirements for at least the next 12 months[112] - The company may seek additional funding through public/private equity markets, debt financing, or strategic alliances, but cannot guarantee availability on acceptable terms[112] - Disruptions in global financial markets, such as those from the COVID-19 pandemic, could make accessing capital more difficult[112] Information Regarding Our Financial Condition This subsection provides key metrics related to the company's financial position, including total assets, liabilities, and working capital Key Financial Condition Metrics | (in millions) | March 31, 2022 | December 31, 2021 | | :------------ | :------------- | :---------------- | | Total cash, cash equivalents and marketable securities | $1,205.9 | $1,272.0 | | Total current assets | $1,018.2 | $972.8 | | Total current liabilities | $253.5 | $245.8 | | Total working capital | $764.7 | $727.0 | Information Regarding Our Cash Flows This subsection summarizes the company's cash flow activities from operations, investing, and financing Summary Cash Flow Activities | (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | YoY Change (in millions) | | :------------ | :-------------------------------- | :-------------------------------- | :----------------------- | | Net cash (used in) provided by operating activities | $(40.5) | $87.3 | -$127.8 | | Net cash (used in) provided by investing activities | $(31.6) | $63.1 | -$94.7 | | Net cash provided by financing activities | $6.1 | $15.1 | -$9.0 | | Change in cash, cash equivalents and restricted cash | $(66.0) | $165.5 | -$231.5 | Net Cash (Used in) Provided by Operating Activities This subsection analyzes factors influencing net cash flow from operating activities, including commercial initiatives and accounts receivable - Net cash used in operating activities for Q1 2022 was $(40.5) million, compared to $87.3 million provided in Q1 2021[114] - This change reflected increased investment in commercial initiatives (TD Spotlight advertising, expanded salesforce) and the clinical portfolio, as well as an increase in accounts receivable due to extended customer payment terms[115] Net Cash (Used in) Provided by Investing Activities This subsection details cash flows from investing activities, including debt security investments and equity purchases - Net cash used in investing activities for Q1 2022 was $(31.6) million, compared to $63.1 million provided in Q1 2021[114] - Fluctuations were primarily due to timing differences in purchases, sales, and maturities of debt security investments and changes in portfolio-mix[116] - Q1 2022 also included a $7.7 million equity investment in Xenon related to the FDA's acceptance of the amended KAYAK study protocol[116] Net Cash Provided by Financing Activities This subsection explains the sources of cash from financing activities, primarily from common stock issuances - Net cash provided by financing activities was $6.1 million in Q1 2022, primarily from issuances of common stock under benefit plans[117][15] Material Cash Requirements This subsection outlines future capital needs, including potential milestone payments, debt obligations, and lease commitments - Future capital requirements are subject to numerous uncertainties, including commercial success of products, R&D progress, regulatory approvals, and commercialization costs[118][119][121] - The company has potential future payments of up to $10.8 billion upon achievement of certain event-based milestones under existing collaboration and license agreements[119] - As of March 31, 2022, $381.2 million aggregate principal amount of 2024 Notes remained outstanding, requiring interest payments of $8.6 million in 2022, $8.6 million in 2023, and $4.3 million in 2024, plus the principal amount at maturity[122] - The company entered into a new lease agreement in February 2022 for a four-building campus facility in San Diego, which will serve as its new corporate headquarters[124] Critical Accounting Policies and Estimates This subsection confirms no changes to the company's critical accounting policies and estimates from the prior annual report - No changes were made to critical accounting policies as disclosed in the 2021 Annual Report on Form 10-K[126] Interest Rate Risk This section assesses the company's exposure to interest rate fluctuations and its impact on the investment portfolio - The company maintains a diversified investment portfolio consisting of low-risk, investment-grade debt securities with maturities of up to three years[127] - A 1% unfavorable change in interest rates as of March 31, 2022, would not have had a material effect on the fair value of the investment portfolio[127] Forward-Looking Statements This section cautions readers about forward-looking statements, highlighting inherent risks and uncertainties - The report contains forward-looking statements that involve risks and uncertainties, and actual results could differ materially from those anticipated[128] - Readers should refer to Part II, Item 1A "Risk Factors" for factors that could substantially harm the business, results of operations, and financial condition[129] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section cross-references the discussion of market risk, specifically interest rate risk, to the MD&A section - The discussion on market risk, including interest rate risk, is cross-referenced to Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the heading "Interest Rate Risk"[131] Item 4. Controls and Procedures This section details the company's disclosure controls and procedures, confirming their effectiveness as evaluated by management - The CEO and CFO concluded that disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2022[133] - No significant changes in internal control over financial reporting occurred during the quarter ended March 31, 2022, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[134] Part II. Other Information This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings This section outlines ongoing patent infringement lawsuits filed by the company against ANDA filers for generic INGREZZA - The company received notices from Teva, Lupin, Crystal Pharmaceutical, and Zydus Pharmaceuticals regarding ANDA filings for generic INGREZZA, each containing a Paragraph IV Patent Certification[136] - Lawsuits were filed in the U.S. District Court for the District of Delaware against these ANDA filers, and the cases have been consolidated with a trial scheduled for January 2, 2024[137] - The company believes that none of the pending claims or actions are likely to have a material adverse effect on its business, financial condition, or results of operations, but litigation outcomes are unpredictable[140] Item 1A. Risk Factors This section details various risk factors that could materially affect the company's business, operating results, or financial condition Summary Risk Factors This subsection provides a concise overview of the primary risks, including commercialization challenges and macroeconomic impacts - Risks include challenges in commercializing INGREZZA and ONGENTYS, intense competition, and technological uncertainty in product development[142] - Clinical trials may be delayed or fail due to safety reasons or the conflict between Russia and Ukraine[142] - The business could be adversely affected by health pandemics (COVID-19) and disruptions in third-party operations[142] Risks Related to Our Company This subsection details specific risks pertaining to the company's operations, commercialization efforts, and financial stability - The ability to successfully commercialize INGREZZA and ONGENTYS depends on market acceptance, effective sales/marketing, and adequate third-party reimbursement, which can be impacted by pricing controls and coverage limitations[143][146][147] - The COVID-19 pandemic continues to pose risks, including limited access for sales representatives, increased telehealth use impacting diagnosis of movement disorders, and potential disruptions to supply chains and clinical trials[145][153][154][155] - The conflict between Russia and Ukraine has led to the suspension of planned clinical trial activities in those regions, potentially delaying development timelines for valbenazine and increasing costs[170] - The company relies heavily on current collaborators (AbbVie, MTPC, BIAL, Xenon, Idorsia, Takeda) for development, manufacturing, and commercialization, exposing it to risks related to control, funding, disputes, and intellectual property[171][172] - Managing rapid organizational growth, including an expanded salesforce, and retaining qualified personnel are critical challenges that could impact development and commercialization goals[175][176][177] - Dependence on a limited number of third-party manufacturers and suppliers for INGREZZA and ONGENTYS creates risks of production difficulties, supply delays, and compliance issues[178][180][181] - The company's $381.2 million in convertible senior notes due 2024 could adversely affect liquidity if conversion features are triggered, requiring cash settlement[189][190] - The company has a history of losses and expects increased expenses for the foreseeable future, requiring significant revenues to achieve and sustain profitability[193][194][195] - Customer concentration is a risk, with three customers representing approximately 77% of total product revenue and 81% of accounts receivable as of March 31, 2022[209] - The company may require additional funding for R&D, clinical trials, regulatory approvals, and commercialization, and cannot guarantee that adequate funds will be available on reasonable terms[210] Risks Related to Our Industry This subsection outlines industry-specific risks, such as intense competition, technological uncertainty, and regulatory compliance challenges - Intense competition from academic institutions, government agencies, research institutions, and biotechnology/pharmaceutical companies, including generic equivalents, could reduce demand for products[158][159][160] - The development of product candidates is subject to technological uncertainty, with only a small number of programs resulting in commercially successful drugs, and potential products may fail in clinical trials or regulatory approval[162][163][164][165] - Failure to obtain and protect intellectual property (patents, trade secrets) could allow competitors to market similar products, leading to costly infringement claims and potential loss of proprietary rights[215][216][217][218] - Healthcare reform measures, such as the ACA and other legislative initiatives, could adversely affect business by imposing pricing controls, limiting coverage/reimbursement, and increasing compliance costs[219][220][226][227][228] - Relationships with healthcare professionals and customers are subject to federal and state healthcare laws (e.g., Anti-Kickback Statute, False Claims Act, HIPAA), and non-compliance could lead to significant penalties, reputational harm, and operational restructuring[230][231][232][234] - Promoting "off-label" uses for drug products could lead to significant liability, including civil and criminal sanctions[236] - The company is highly dependent on information technology systems and faces risks from security breaches, ransomware, and cyber-attacks, which could interrupt operations, lead to data loss, and harm reputation[237][238][239][242] - Stringent and changing data privacy and information security obligations (e.g., EU GDPR, UK GDPR, CCPA, CPRA) require significant resources for compliance, and failure could result in substantial fines, litigation, and operational restrictions[255][256][257][258][259][260] - Potential product liability exposure from clinical trials and commercialized products (INGREZZA, ONGENTYS) could exceed insurance coverage, leading to financial losses, decreased demand, and reputational damage[253] Item 6. Exhibits This section lists all exhibits filed as part of or incorporated by reference into the Form 10-Q - The report includes exhibits such as the Certificate of Incorporation, Bylaws, Indenture and First Supplemental Indenture for the 2024 Convertible Notes, and certifications from the CEO and CFO[263] Signatures This section contains the legally required signatures, confirming the report's authorization on behalf of Neurocrine Biosciences, Inc - The report is duly signed on behalf of Neurocrine Biosciences, Inc. by Matthew C. Abernethy, Chief Financial Officer, on May 4, 2022[267]