Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
NBIX > SEC Filings for NBIX > Form 10-Q on 31-Oct-2012All Recent SEC Filings

Show all filings for NEUROCRINE BIOSCIENCES INC

Form 10-Q for NEUROCRINE BIOSCIENCES INC


31-Oct-2012

Quarterly Report


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 below 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, 2011 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, 2011 and our Quarterly Reports on Form 10-Q for the three and six months ended March 31, 2012 and June 30, 2012, respectively.

OVERVIEW

We discover, develop and intend to commercialize drugs for the treatment of neurological and endocrine-related diseases and disorders. Our product candidates address some of the largest pharmaceutical markets in the world, including endometriosis, tardive dyskinesia, uterine fibroids, stress-related disorders, pain, diabetes, insomnia, and other neurological and endocrine-related diseases and disorders. To date, we have not generated any revenues from the sale of products. We have funded our operations primarily through private and public offerings of our common stock and payments received under research and development collaboration agreements. We are developing certain products with corporate collaborators and intend to rely on existing and future collaborators to meet funding requirements. We expect to generate future operating cash flow losses as product candidates are advanced through the various stages of clinical development. As of September 30, 2012, we had an accumulated deficit of $729.2 million and expect to incur operating cash flow losses for the foreseeable future, which may be greater than losses in prior years. We currently have eleven programs in various stages of research and development, including six programs in clinical development. While we independently develop many of our product candidates, we have entered into collaborations for several of our programs. Our lead clinical development program, elagolix, is a drug candidate for the treatment of endometriosis and uterine fibroids that is partnered with Abbott International Luxembourg S. r.l. (Abbott).


Table of Contents

Abbott International Luxembourg S. r.l.. In June 2010, we announced an exclusive worldwide collaboration with Abbott to develop and commercialize elagolix and all next-generation gonadotropin-releasing hormone (GnRH) antagonists (collectively, GnRH Compounds) for women's and men's health. Under the terms of our agreement with Abbott, we and Abbott will work jointly to advance GnRH Compounds towards commercialization. Abbott made an upfront payment of $75 million and agreed to make additional development and regulatory event based payments of up to $480 million and up to an additional $50 million in commercial event based payments. Under the terms of the agreement, Abbott is responsible for all development, marketing and commercialization costs. We will receive funding for certain internal collaboration expenses which includes reimbursement from Abbott for internal and external expenses related to the GnRH Compounds, which reimbursement includes up to approximately $24 million in personnel funding through the end of 2012. We will be entitled to a percentage of worldwide sales of GnRH Compounds for the longer of ten years or the life of the related patent rights. Under the terms of our agreement with Abbott, the collaboration effort between the parties to advance GnRH compounds towards commercialization is governed by a joint development committee with representatives from both Neurocrine and Abbott; provided, however, that final decision making authority rests with Abbott. Abbott may terminate the collaboration at its discretion upon 180 days written notice to us. In such event, we would be entitled to specified payments for ongoing clinical development and related activities and all GnRH Compound product rights would revert to us. Since the inception of the agreement, we have recorded revenues of $67.7 million related to the amortization of up-front license fees, $30.0 million in milestone revenue, and $23.2 million in sponsored development revenue consisting of reimbursement of internal and external expenses. In addition, at September 30, 2012, we had $7.3 million of deferred revenue related to the Abbott agreement, which is being amortized over the estimated remaining term of the collaborative development period.

Boehringer Ingelheim International GmbH (Boehringer Ingelheim). In June 2010, we announced a worldwide collaboration with Boehringer Ingelheim to research, develop and commercialize small molecule GPR119 agonists for the treatment of Type II diabetes and other indications. Under the terms of the agreement, we and Boehringer Ingelheim worked jointly, during a two year collaborative research period which ended in June 2012, to identify and advance GPR119 agonist candidates into preclinical development. Following the collaborative research period, Boehringer Ingelheim is responsible for the global development and commercialization of potential GPR119 agonist products, if any. We received a $10 million upfront payment, and we received research funding to support discovery efforts. We are eligible to receive up to approximately $3 million in additional preclinical milestone payments and payments of up to approximately $223 million in clinical development and commercial event based payments. We will be entitled to a percentage of any future worldwide sales of GPR119 agonists resulting from the collaboration. Under the terms of the agreement, the collaboration effort between the parties to identify and advance GPR119 agonist candidates into preclinical development was initially governed by a steering committee with representatives from both Neurocrine and Boehringer Ingelheim; provided, however, that the final decision making authority rests with Boehringer Ingelheim. The collaborative research portion of the agreement concluded, as scheduled, on June 15, 2012. Boehringer Ingelheim may terminate the agreement at its discretion upon prior written notice to us. In such event, we may be entitled to specified payments and product rights would revert to us. Since the inception of the agreement, we have recorded revenues of $10.0 million related to amortization of up-front license fees and $3.0 million in sponsored research.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations is based upon financial statements that have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, and related disclosures. On an on-going basis, we evaluate these estimates, including those related to revenues under collaborative research agreements and grants, clinical trial accruals (research and development expense), share-based compensation, lease related activities, investments, and fixed assets. Estimates are based on historical experience, information received from third parties and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The items in our financial statements requiring significant estimates and judgments are as follows:

Revenue Recognition. Revenues under collaborative research and development agreements are recognized as costs are incurred over the period specified in the related agreement or as the services are performed. These agreements are on a best-efforts basis, and do not require scientific achievement as a performance obligation, and provide for payment to be made when costs are incurred or the services are performed. All fees are nonrefundable to the collaborators. Prior to the revised multiple element guidance adopted by us on January 1, 2011, upfront, nonrefundable payments for license fees and advance payments for sponsored research revenues received in excess of amounts earned were classified as deferred revenue and recognized as income over the contract or development period. Estimating the duration of the development period includes continual assessment of development stages and regulatory requirements. If we enter into a new collaboration agreement or materially modify an existing collaboration agreement, we will be required to apply the revised multiple element guidance. Milestone payments are recognized as revenue upon achievement of pre-defined scientific events, which requires substantive effort, and for which achievement of the milestone was not readily assured at the inception of the agreement.


Table of Contents

Research and Development Expense. Our research and development expenditures include costs related to preclinical and clinical trials, scientific personnel, equipment, consultants, sponsored research, share-based compensation and allocated facility costs. We do not track fully burdened research and development costs separately for each of our drug candidates. We review our research and development expenses by focusing on four categories: external development, personnel, facility and depreciation, and other. External development expenses consist of costs associated with our external preclinical and clinical trials, including pharmaceutical development and manufacturing. Personnel expenses include salaries and wages, share-based compensation, payroll taxes and benefits for those individuals involved in ongoing research and development efforts. Other research and development expenses mainly represent laboratory supply expenses, scientific consulting expenses and other expenses.

Share-based Compensation. We grant stock options to purchase our common stock to our employees and directors under our 2011 Equity Incentive Plan (the 2011 Plan) and grant stock options to certain employees pursuant to Employment Commencement Nonstatutory Stock Option Agreements. We also grant certain employees stock bonuses and restricted stock units under the 2011 Plan. Additionally, we have outstanding stock options that were granted under previous option plans from which we no longer make grants. Share-based compensation expense recognized in accordance with authoritative guidance for the quarters ended September 30, 2012 and 2011 was $1.4 million and $0.9 million, respectively. For the nine months ended September 30, 2012 and 2011, we recognized share-based compensation expense of $4.2 million and $2.0 million, respectively.

Stock option awards and restricted stock units generally vest over a three to four year period and the corresponding expense is ratably recognized over those same time periods. However, due to certain retirement provisions in our 2003 Incentive Stock Plan, share-based compensation expense may be recognized over a shorter period of time, and in some cases the entire share-based compensation expense may be recognized upon grant of the share-based compensation award. Employees who are age 55 or older and have five or more years of service with us are entitled to accelerated vesting of certain unvested share-based compensation awards upon retirement. This retirement provision leads to variability in the quarterly expense amounts recognized in accordance with authoritative guidance, and therefore individual share-based compensation awards may impact our earnings disproportionately in any individual fiscal quarter.

For purposes of calculating share-based compensation, we estimate the fair value of share-based compensation awards using a Black-Scholes option-pricing model. The determination of the fair value of share-based compensation awards utilizing the Black-Scholes model is affected by our stock price and a number of assumptions, including but not limited to expected stock price volatility over the term of the awards and the expected term of stock options. Our stock options have characteristics significantly different from those of traded options, and changes in the assumptions can materially affect the fair value estimates.

If factors change and we employ different assumptions, share-based compensation expense may differ significantly from what we have recorded in the past. If there is a difference between the assumptions used in determining share-based compensation expense and the actual factors which become known over time, specifically with respect to anticipated forfeitures, we may change the input factors used in determining share-based compensation expense for future grants. These changes, if any, may materially impact our results of operations in the period such changes are made. If actual forfeitures vary from our estimates, we will recognize the difference in compensation expense in the period the actual forfeitures occur or at the time of vesting.

                 THREE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

Revenue

The following table summarizes our primary sources of revenue during the periods
presented:



                                                       Three Months Ended
                                                          September 30,
                                                      2012            2011
                                                          (In millions)
         Revenues under collaboration agreements:
         Abbott                                     $    8.7       $     39.4
         Dainippon Sumitomo Pharma Co. Ltd. (DSP)        0.7              0.7
         Boehringer Ingelheim                             -               1.5

         Total revenues                             $    9.4       $     41.6

The $32.2 million decrease in third quarter revenue from 2011 to 2012 was primarily due to two milestones, totaling $30.0 million, which were achieved under the Company's collaboration agreement with Abbott during the third quarter of 2011. Sponsored research and development revenue has also decreased as substantially all of the workload for elagolix has been transferred to Abbott, for our GnRH program. Additionally, the Boehringer Ingelheim sponsored research portion of the collaboration, for our GPR119 program, was completed as planned in June 2012.


Table of Contents

Operating Expenses

Research and Development

The following table presents our total research and development expenses by
category during the periods presented:



                                                      Three Months Ended
                                                         September 30,
                                                     2012            2011
                                                         (In millions)
          External development expense:
          Elagolix                                 $     0.6       $     0.8
          VMAT2                                          2.2             1.0
          Other                                          0.8              -

          Total external development expense             3.6             1.8
          R&D personnel expense                          3.7             2.9
          R&D facility and depreciation expense          1.5             1.6
          Other R&D expense                              1.1             1.2

          Total research and development expense   $     9.9       $     7.5

The $2.4 million increase in third quarter research and development expense from 2011 to 2012 was primarily due to increased external development expenses as our VMAT2 program continues in Phase II development. Our personnel related expense also increased due to increased research and development headcount coupled with a $0.5 million increase in share-based compensation expense.

General and Administrative

General and administrative expense decreased to $3.3 million in the third quarter of 2012 compared with $3.8 million during the same period in 2011. The decrease in general and administrative expense is primarily due to one-time severance costs of $1.0 million incurred during the third quarter of 2011 offset by an increase in non-severance related share-based compensation expense of approximately $0.3 million.

Net (Loss) Income

Our net loss for the third quarter of 2012 was $3.1 million, or a net loss of $0.05 per share, compared to net income of $31.4 million, or net income of $0.56 per fully diluted share, during the same period in 2011. The change in operating results from 2011 to 2012 was primarily a result of lower revenue recognized under our collaboration agreements with Abbott and Boehringer Ingelheim, coupled with increased research and development expense primarily related to our VMAT2 program and increased share-based compensation expense.

                 NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

Revenue

The following table summarizes our primary sources of revenue during the periods
presented:



                                                       Nine Months Ended
                                                         September 30,
                                                       2012           2011
                                                         (In millions)
          Revenues under collaboration agreements:
          Abbott                                     $    25.8       $ 59.3
          Dainippon Sumitomo Pharma Co. Ltd. (DSP)         2.2          2.2
          Boehringer Ingelheim                             3.2          4.8

          Total revenues                             $    31.2       $ 66.3

Revenues for the first nine months of 2012 were $31.2 million, compared to $66.3 million for the same period in 2011. The decrease in revenue was due primarily to two milestones, totaling $30.0 million, which were achieved under our collaboration agreement with Abbott during the third quarter of 2011. Sponsored research and development revenue has also decreased as substantially all of the workload for elagolix has been transferred to Abbott, for our GnRH program. Additionally, the Boehringer Ingelheim sponsored research portion of the collaboration, for our GPR119 program, was completed as planned in June 2012.


Table of Contents

Operating Expenses

Research and Development

The following table presents our total research and development expenses by
category during the periods presented:



                                                      Nine Months Ended
                                                        September 30,
                                                      2012           2011
                                                        (In millions)
           External development expense:
           Elagolix                                 $     1.8       $  3.4
           VMAT2                                          5.3          2.6
           Other                                          1.4           -

           Total external development expense             8.5          6.0
           R&D personnel expense                         11.0          8.8
           R&D facility and depreciation expense          4.4          4.8
           Other R&D expense                              4.2          3.3

           Total research and development expense   $    28.1       $ 22.9

The $5.2 million increase in research and development expense from 2011 to 2012 was primarily due to an increase in external development expense as our VMAT2 program continues in Phase II development, partially offset by a decrease in elagolix related expenses as work continues to transition to Abbott. Personnel related expense also increased due to higher research and development personnel headcount, coupled with a $1.4 million increase in share-based compensation expenses due to the timing of stock option grants. Additionally, increased laboratory related costs for basic research accounted for approximately $0.6 million of additional expense in the first nine months of 2012.

General and Administrative

General and administrative expense increased to $10.1 million in the first nine months of 2012 compared with $9.8 million during the same period in 2011. The increase in expense can be primarily attributed to increased share-based compensation expense, due to the timing of stock option grants, of approximately $0.8 million.

Net (Loss) Income

Our net loss for the first nine months of 2012 was $4.5 million, or a net loss of $0.07 per share, compared to net income of $36.2 million, or income of $0.64 per fully diluted share, during the same period in 2011. The change in operating results from 2011 to 2012 was primarily a result of lower revenue recognized under our collaboration agreements with Abbott and Boehringer Ingelheim, coupled with increased research and development expense primarily related to our VMAT2 program and increased share-based compensation expense.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities during the first nine months of 2012 was $26.4 million compared to $11.7 million used during the same period in 2011. The $14.7 million increase is primarily related to $30.0 million in milestones achieved under the Abbott collaboration agreement during 2011, of which $10.0 million were received during the third quarter 2011 and $20.0 million were carried as a receivable at September 30, 2011. Additionally, research and development expenses increased by $5.2 million as a result of expanded work in basic research and on our VMAT2 program.

Net cash used in investing activities during the first nine months of 2012 was $62.6 million compared to $3.1 million during the same period in 2011. The fluctuation in net cash used in investing activities resulted primarily from the timing differences in investment purchases, sales and maturities of investments, and the fluctuation of our portfolio mix between cash equivalents and short-term investment holdings. Additionally, we purchased $0.9 million of capital equipment during the first nine months of 2012.


Table of Contents

Net cash provided by financing activities during the first nine months of 2012 was $83.4 million compared to $0.3 million during the same period in 2011. The increase in cash provided by financing activities was primarily due to net proceeds of approximately $83.0 million from our public offering of common stock in January 2012.

At September 30, 2012, our cash, cash equivalents, and investments totaled $182.8 million compared with $129.1 million at December 31, 2011.

Equity Financing. In January 2012, we completed a public offering of common stock in which we sold 10.9 million shares of our common stock at an offering price of $8.10 per share. The shares were sold pursuant to our effective shelf registration statement with the Securities and Exchange Commission (SEC). The net proceeds generated from this transaction, after underwriting discounts and commissions and offering costs, were approximately $83.0 million.

Shelf Registration Statement. In December 2010, the SEC declared effective a shelf registration statement filed by us earlier that month. The shelf registration statement allows us to issue shares of our common stock from time to time for an aggregate initial offering price of up to $125 million. The specific terms of offerings, if any, under the shelf registration statement would be established at the time of such offerings. As of September 30, 2012, we had approximately $37 million still available under this shelf registration statement. The specific terms of future offerings, if any, under the shelf registration statement would be established at the time of such offerings.

We believe that our existing capital resources, together with interest income and future payments due under our strategic alliances, will be sufficient to satisfy our current and projected funding requirements for at least the next 12 months. However, we cannot guarantee that these capital resources and payments will be sufficient to conduct all of our research and development programs as planned. The amount and timing of expenditures will vary depending upon a number of factors, including progress of our research and development programs.

We may require additional funding to continue our research and product development programs, to conduct preclinical studies and clinical trials, for operating expenses, to pursue regulatory approvals for our product candidates, for the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims, if any, the cost of product in-licensing and any possible acquisitions, and we may require additional funding to establish manufacturing and marketing capabilities in the future. We may seek to access the public or private equity markets whenever conditions are favorable. For example, we have an effective shelf registration statement on file with the SEC which allows us to issue shares of our common stock from time to time for an aggregate initial offering price up to $125 million (of which approximately $37 million remains available). We may also seek additional funding through strategic alliances or other financing mechanisms. We cannot assure you that adequate funding will be available on terms acceptable to us, if at all. Any additional equity financings will be dilutive to our stockholders and any additional debt may involve operating covenants that may restrict our business. If adequate funds are not available through these means, we may be required to curtail significantly one or more of our research or development programs or obtain funds through arrangements with collaborators or others. This may require us to relinquish rights to certain of our technologies or product candidates. To the extent that we are unable to obtain third-party funding for such expenses, we expect that increased expenses will result in increased cash flow losses from operations. We cannot assure you that we will successfully develop our products under development or that our products, if successfully developed, will generate revenues sufficient to enable us to earn a profit.

INTEREST RATE RISK

We are exposed to interest rate risk on our short and long term investments. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in highly liquid and high quality government and other debt securities. To minimize our exposure due to adverse shifts in interest rates, we invest in short-term securities and ensure that the maximum average maturity of our investments does not exceed 12 months. If a 10% change in interest rates had occurred on September 30, 2012, this change would not have had a material effect on the fair value of our investment portfolio as of that date. Due to the short holding period of our investments and the nature of our investments, we have concluded that we do not have a material financial market risk exposure.

NEW ACCOUNTING PRONOUNCEMENTS

. . .

  Add NBIX to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for NBIX - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.