View Filing Data

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2011	Dec. 31, 2010
Current assets:
Cash and cash equivalents	$ 18,838	$ 54,051
Short-term investments, available for sale	96,322	72,814
Receivables under collaboration agreements	2,912	4,470
Other current assets	1,966	1,716
Total current assets	120,038	133,051
Property and equipment, net	1,263	1,532
Long-term investments		3,739
Restricted cash	6,104	6,102
Total assets	127,405	144,424
Current liabilities:
Accounts payable	932	810
Accrued liabilities	7,314	8,603
Current portion of deferred revenues	36,743	37,026
Current portion of cease-use liability	2,004	3,385
Current portion of deferred gain on sale of real estate	2,997	2,953
Total current liabilities	49,990	52,777
Deferred revenues	18,895	37,162
Deferred gain on sale of real estate	25,529	27,046
Deferred rent	1,628	1,413
Cease-use liability	5,704	6,580
Other liabilities	101	101
Total liabilities	101,847	125,079
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding
Common stock, $0.001 par value; 110,000,000 shares authorized; issued and outstanding shares were 55,236,896 as of June 30, 2011 and 54,882,129 as of December 31, 2010	55	55
Additional paid-in capital	782,933	781,607
Accumulated other comprehensive loss	(19)	(48)
Accumulated deficit	(757,411)	(762,269)
Total stockholders' equity	25,558	19,345
Total liabilities and stockholders' equity	$ 127,405	$ 144,424

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$ 4,858	$ (13,788)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization	414	788
Gain on sale of assets	(98)	(168)
Realized loss on sale of investments		186
Realized gain on sale of auction rate securities		(591)
Cease-use expense	176	281
Deferred revenues	(18,550)	70,890
Deferred gain on sale of real estate	(1,473)	(1,429)
Deferred rent	215	346
Amortization of premiums on investments	1,153	198
Non-cash share-based compensation expense	1,107	1,402
Change in operating assets and liabilities:
Accounts receivable and other assets	1,308	(465)
Accounts payable and accrued liabilities	(1,167)	(616)
Cease-use liability	(2,433)	(2,268)
Other liabilities		(1,436)
Net cash (used in) provided by operating activities	(14,490)	53,330
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments	(75,879)	(26,722)
Sales and maturities of investments	54,986	9,835
Deposits and restricted cash	(2)	(4)
Proceeds from sales of property and equipment	101	207
Purchases of property and equipment	(148)	(217)
Net cash used in investing activities	(20,942)	(16,901)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock	219	21,362
Net cash provided by financing activities	219	21,362
Net (decrease) increase in cash and cash equivalents	(35,213)	57,791
Cash and cash equivalents at beginning of the period	54,051	37,329
Cash and cash equivalents at end of the period	$ 18,838	$ 95,120

INVESTMENTS

6 Months Ended

Jun. 30, 2011

INVESTMENTS

3. INVESTMENTS

Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in comprehensive income (loss). The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are included in other income or expense. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income.

Investments consist of the following (in thousands):


	June 30, 2011		December 31, 2010
Certificates of deposit	$	3,599	$	2,397
Commercial paper		33,461		27,650
Securities of government-sponsored entities		—		4,498
Corporate debt securities		59,262		42,008

Total investments	$	96,322	$	76,553

The following is a summary of investments classified as available-for-sale securities (in thousands):


	Contractual Maturity (in years)	Amortized Cost		Gross Unrealized Gains(1)		Gross Unrealized Losses(1)			Aggregate Estimated Fair Value
June 30, 2011:
Classified as current assets:
Certificates of deposit	Less than 1	$	3,600	$	—	$	(1	)	$	3,599
Commercial paper	Less than 1		33,454		10		(3	)		33,461
Corporate debt securities	Less than 1		59,287		19		(44	)		59,262

Total available-for-sale securities (2)		$	96,341	$	29	$	(48	)	$	96,322


December 31, 2010:
Classified as current assets:
Certificates of deposit	Less than 1	$	2,160	$	—	$	(3	)	$	2,157
Commercial paper	Less than 1		27,657		1		(8	)		27,650
Securities of government-sponsored entities	Less than 1		2,000		—		(2	)		1,998
Corporate debt securities	Less than 1		41,047		5		(43	)		41,009

Total short-term available-for-sale securities		$	72,864	$	6	$	(56	)	$	72,814

Classified as non-current assets:
Certificates of deposit	1 to 2	$	240	$	—	$	—		$	240
Securities of government-sponsored entities	1 to 2		2,500		—		—			2,500
Corporate debt securities	1 to 2		997		2		—			999

Total long-term available-for-sale securities		$	3,737	$	2	$	—		$	3,739

(1)	Unrealized gains and losses are included in other comprehensive income.

(2)	The Company did not hold any long-term available-for-sale securities at June 30, 2011.

The following table presents information about available-for-sale investments in an unrealized loss position (in thousands):


	Less Than 12 Months					12 Months or Greater				Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
June 30, 2011:
Certificates of deposit	$	3,119	$	(1	)	$	—	$	—	$	3,119	$	(1	)
Commercial paper		9,982		(3	)		—		—		9,982		(3	)
Corporate debt securities		48,226		(44	)		—		—		48,226		(44	)

Total	$	61,327	$	(48	)	$	—	$	—	$	61,327	$	(48	)
December 31, 2010:
Certificates of deposit	$	2,157	$	(3	)	$	—	$	—	$	2,157	$	(3	)
Commercial paper		25,150		(8	)		—		—		25,150		(8	)
Securities of government-sponsored entities		1,998		(2	)		—		—		1,998		(2	)
Corporate debt securities		35,166		(43	)	$	—	$	—		35,166		(43	)

Total	$	64,471	$	(56	)	$	—	$	—	$	64,471	$	(56	)

INCOME TAXES

6 Months Ended

Jun. 30, 2011

INCOME TAXES

10. INCOME TAXES

In January 2007, the Company adopted the provisions of the FASB’s authoritative accounting guidance, which, among other things, related to uncertain tax provisions. Under the accounting guidance, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. There were no unrecognized tax benefits as of the date of adoption. As a result of the implementation of the guidance, the Company did not recognize an increase in the liability for unrecognized tax benefits. There were no unrecognized tax benefits included in the Company’s condensed consolidated balance sheet as of June 30, 2011 that would, if recognized, affect the Company’s effective tax rate.

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties on the Company’s condensed consolidated balance sheets at December 31, 2010 or at June 30, 2011, and has not recognized interest and/or penalties in the condensed consolidated statement of operations for the first six months of 2011.

The Company is subject to taxation in the United States and various state jurisdictions. The Company’s tax years for 1993 and forward are subject to examination by the United States and California tax authorities due to the carryforward of unutilized net operating losses and R&D credits.

At December 31, 2010, the Company had net deferred tax assets of $76.4 million. Due to uncertainties surrounding the Company’s ability to generate future taxable income to realize these assets, a full valuation allowance has been established to offset the net deferred tax assets. Additionally, the future utilization of the Company’s net operating loss and research and development credit carryforwards to offset future taxable income may be subject to a substantial annual limitation, pursuant to Internal Revenue Code (IRC) Sections 382 and 383, as a result of ownership changes that could occur in the future. The Company completed the IRC Section 382 analysis through December 31, 2010 and concluded that an ownership change had not occurred through December 31, 2010. Although the Company determined that an ownership change had not occurred through December 31, 2010, it is possible that an ownership change occurred subsequent to that date. The Company is in the process of updating its IRC Section 382 analysis subsequent to December 31, 2010. Until this analysis has been completed, the Company has removed the deferred tax assets for net operating losses of $238.0 million and research and development credits of $0.7 million generated through 2010 from its deferred tax asset schedule and has recorded a corresponding decrease to its valuation allowance. Due to the existence of the full valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact the Company’s effective tax rate. Any future ownership changes could limit the Company’s ability to fully utilize net operating losses and research and development credit carryforwards.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

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+ Details

EARNINGS (LOSS) PER COMMON SHARE

6 Months Ended

Jun. 30, 2011

EARNINGS (LOSS) PER COMMON SHARE

8. EARNINGS (LOSS) PER COMMON SHARE

The Company computes net income (loss) per share using the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and common equivalent shares outstanding during the period. Additionally, potentially dilutive securities, composed of incremental common shares issuable upon the exercise of stock options and warrants and the vesting of RSUs, were excluded from historical diluted income (loss) per share because of their anti-dilutive effect. For the three and six months ended June 30, 2011, the Company realized net income of $2.0 million and $4.9 million, respectively. This resulted in the addition of 1.2 million of potentially dilutive securities, consisting of employee equity awards, to the total diluted shares outstanding used in the calculation of net income per common share for the three and six months ended June 30, 2011. Options to purchase approximately 1.3 million shares of common stock were outstanding during the three and six months ended June 30, 2011 but were not included in the computation of diluted earnings per share as the options’ exercise price was greater than the average market price of the common shares.

COMPREHENSIVE INCOME (LOSS)

6 Months Ended

Jun. 30, 2011

COMPREHENSIVE INCOME (LOSS)

9. COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) includes the Company’s net income (loss) and changes in equity during the period from transactions and other events and circumstances generated from non-owner sources. The Company’s components of comprehensive income (loss) consist of the net income (loss) and unrealized gains and losses on available-for-sale investments. For the three months ended June 30, 2011 and 2010, comprehensive income (loss) was $2.0 million and $(5.2) million, respectively. For the six months ended June 30, 2011 and 2010, comprehensive income (loss) was $4.9 million and $(14.3) million, respectively.

- Definition

The entire disclosure for comprehensive income. Includes, but is not limited to, the following: 1) the amount of income tax expense or benefit allocated to each component of other comprehensive income, including reclassification adjustments, 2) the reclassification adjustments for each classification of other comprehensive income and 3) the ending accumulated balances for each component of comprehensive income. Components of comprehensive income include: (1) foreign currency translation adjustments; (2) gains (losses) on foreign currency transactions that are designated as, and are effective as, economic hedges of a net investment in a foreign entity; (3) gains (losses) on intercompany foreign currency transactions that are of a long-term-investment nature, when the entities to the transaction are consolidated, combined, or accounted for by the equity method in the reporting enterprise's financial statements; (4) change in the market value of a futures contract that qualifies as a hedge of an asset reported at fair value; (5) unrealized holding gains (losses) on available-for-sale securities and that resulting from transfers of debt securities from the held-to-maturity category to the available-for-sale category; (6) a net loss recognized as an additional pension liability not yet recognized as net periodic pension cost; and (7) the net gain (loss) and net prior service cost or credit for pension plans and other postretirement benefit plans.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
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-Name Statement of Financial Accounting Standard (FAS)
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+ Details

Document and Entity Information - shares	6 Months Ended
Document and Entity Information - shares	Jun. 30, 2011	Jul. 22, 2011
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Trading Symbol	NBIX
Entity Registrant Name	NEUROCRINE BIOSCIENCES INC
Entity Central Index Key	0000914475
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		55,239,196

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2011	Dec. 31, 2010
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	110,000,000	110,000,000
Common stock, issued shares	55,236,896	54,882,129
Common stock, outstanding shares	55,236,896	54,882,129

SIGNIFICANT COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS

6 Months Ended

Jun. 30, 2011

SIGNIFICANT COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS

2. SIGNIFICANT COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS

Revenue Recognition Policy. Revenues under collaborative agreements and grants are recognized as research 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, 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 the Company on January 1, 2011, upfront, nonrefundable payments for license fees, grants, and advance payments for sponsored research revenues received in excess of amounts earned are classified as deferred revenue and recognized as income over the contract or development period. If and when the Company enters into a new collaboration or materially modifies an existing collaboration, the Company will be required to apply the new multiple element guidance. Estimating the duration of the development period includes continual assessment of development stages and regulatory requirements. Milestone payments are recognized as revenue upon achievement of pre-defined scientific events, which require substantive effort, and for which achievement of the milestone was not readily assured at the inception of the agreement.

Abbott International Luxembourg S.à r.l. In June 2010, the Company announced an exclusive worldwide collaboration with Abbott International Luxembourg S.à r.l. (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 the Company’s agreement with Abbott, the Company 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, regulatory and commercial milestone payments of up to approximately $530 million. Under the terms of the agreement, Abbott is responsible for all third-party development, marketing and commercialization costs. The Company 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. The Company 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 the Company’s 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 the Company 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 the Company. In such event, the Company would be entitled to specified payments for ongoing clinical development and related activities and all GnRH Compound product rights would revert to the Company. The Company’s participation in the joint development committee has been determined to be a substantive deliverable under the contract, and therefore, the upfront payment has been deferred and is being recognized over the estimated term of the joint development committee, which is expected to be through the end of 2012. During the three and six months ended June 30, 2011, the Company recorded revenues of $7.3 million and $14.5 million in amortization of up-front license fees, respectively. The Company also recorded $2.5 million and $5.4 million in sponsored research and development related to the Abbott agreement during the three and six months ended June 30, 2011, respectively. In addition, at June 30, 2011 the Company had $43.5 million of deferred revenue related to the Abbott agreement, which is being amortized over the collaborative development period.

Boehringer Ingelheim International GmbH. In June 2010, the Company announced a worldwide collaboration with Boehringer Ingelheim International GmbH (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 Company’s agreement with Boehringer Ingelheim, the Company and Boehringer Ingelheim are working jointly to identify and advance GPR119 agonist candidates into pre-clinical development. Boehringer Ingelheim will then be responsible for the global development and commercialization of potential GPR119 agonist products. The Company received a $10 million upfront payment, and is currently receiving research funding to support discovery efforts. Boehringer Ingelheim agreed to make additional preclinical milestone payments of up to approximately $3 million and clinical development and commercial milestone payments of up to approximately $223 million. The Company has assessed milestones under the revised authoritative guidance for research and development milestones and determined that the preclinical milestone payments, as defined per the agreement, meet the definition of a milestone as they are 1) events that can only be achieved in part on the Company’s performance or upon the occurrence of a specific outcome resulting in the Company’s performance (2) there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and (3) they result in additional payments being due to the Company. Clinical development and commercial milestone payments, however, currently do not meet this criteria as their achievement is solely based on the performance of Boehringer Ingelheim. No milestone payments were recognized during the periods presented. The Company will be entitled to a percentage of any future worldwide sales of GPR119 agonists. Under the terms of the agreement, the collaboration effort between the parties to identify and advance GPR119 agonist candidates into pre-clinical development is governed by a steering committee with representatives from both the Company and Boehringer Ingelheim; provided, however, that final decision making authority rests with Boehringer Ingelheim. Boehringer Ingelheim may terminate the agreement at its discretion upon prior written notice to the Company. In such event, the Company may be entitled to specified payments and product rights would revert to the Company. The Company’s participation in the steering committee has been determined to be a substantive deliverable under the contract, and therefore, the upfront payment has been deferred and is being recognized over the estimated term of the steering committee, which is expected to be through June 2012. During the three and six months ended June 30, 2011, the Company recorded revenues of $1.3 million and $2.5 million in amortization of up-front license fees, respectively. The Company also recorded $0.4 million and $0.8 million in sponsored research and development related to the Boehringer Ingelheim agreement during the three and six months ended June 30, 2011, respectively. In addition, at June 30, 2011, the Company had $4.8 million of deferred license fees related to the Boehringer Ingelheim agreement, which is being amortized over the collaborative research period of the agreement.

SUBSEQUENT EVENTS	6 Months Ended
SUBSEQUENT EVENTS	Jun. 30, 2011
SUBSEQUENT EVENTS	11. SUBSEQUENT EVENTS The Company has evaluated all subsequent events that have occurred after the date of the accompanying financial statements and determined that there were no events or transactions occurring during this subsequent event reporting period which require recognition or disclosure in the Company’s financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Revenues:
Sponsored research and development	$ 2,919	$ 1,286	$ 6,193	$ 1,309
Milestones and license fees	9,238	3,357	18,476	4,087
Total revenues	12,157	4,643	24,669	5,396
Operating expenses:
Research and development	8,176	7,283	15,493	14,859
General and administrative	2,809	3,116	5,965	6,315
Cease-use expense	76	134	176	281
Total operating expenses	11,061	10,533	21,634	21,455
Income (loss) from operations	1,096	(5,890)	3,035	(16,059)
Other income:
Gain on sale/disposal of assets	18	53	98	168
Deferred gain on real estate	737	715	1,473	1,430
Investment income and (expense), net	120	(65)	239	614
Other income, net	5	35	13	59
Total other income	880	738	1,823	2,271
Net income (loss)	$ 1,976	$ (5,152)	$ 4,858	$ (13,788)
Net income (loss) per common share:
Basic	$ 0.04	$ (0.09)	$ 0.09	$ (0.27)
Diluted	$ 0.04	$ (0.09)	$ 0.09	$ (0.27)
Shares used in the calculation of net income (loss) per common share:
Basic	55,209	54,836	55,097	50,750
Diluted	56,434	54,836	56,276	50,750

AUCTION RATE SECURITIES	6 Months Ended
AUCTION RATE SECURITIES	Jun. 30, 2011
AUCTION RATE SECURITIES	4. AUCTION RATE SECURITIES During the six months ended June 30, 2010, the Company sold one auction rate security which had a par value of $4.0 million for approximately $3.1 million. As part of this sale, the Company recognized a one-time gain on the sale of approximately $0.5 million in the Company’s condensed consolidated statement of operations for the six months ended June 30, 2010.

STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION

6 Months Ended

Jun. 30, 2011

STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION

6. STOCKHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

On May 25, 2011, the Company adopted the Neurocrine Biosciences, Inc. 2011 Equity Incentive Plan of (the 2011 Plan) pursuant to which 5,500,000 shares of Company common stock were reserved for future issuance. The 2011 Plan is the successor to the Company’s 2003 Incentive Stock Plan, 2001 Stock Option Plan, 1997 Incentive Stock Plan, 1996 Director Stock Option Plan and 1992 Incentive Stock Plan (together, the Prior Plans). Although we no longer grant equity awards under the Prior Plans, all outstanding stock awards granted under the Prior Plans will continue to be subject to the terms and conditions as set forth in the agreements evidencing such stock awards and the terms of the Prior Plans, as applicable.

The 2011 Plan provides for the grant of stock options that qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the Code), nonstatutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards and other forms of equity compensation, as well as performance cash awards.

Stock Option Assumptions

The Company granted stock options to purchase 155,000 and 2.0 million shares of the Company’s common stock during the six months ended June 30, 2011 and 2010, respectively. The exercise price of all stock options granted during the six months ended June 30, 2011 and 2010 was equal to the closing price of the Company’s common stock on the date of grant. The estimated fair value of each stock option granted was determined on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for the stock option grants during the three and six months ended June 30, 2011 and 2010:


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Risk-free interest rate		1.9	%		2.3	%		1.9	%		2.3	%
Expected volatility of common stock		85.4	%		90.1	%		85.0	%		90.0	%
Dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Expected option term		5.2 yea	rs		4.5 yea	rs		5.2 yea	rs		4.6 yea	rs

The Company estimates forfeiture rates for stock options based on past behavior for similar equity awards with further consideration given to the class of employees to whom the equity awards were granted.

Share-based Compensation Expense

The compensation expense related to the Company’s share-based compensation arrangements has been included in the condensed consolidated statements of operations as follows (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
General and administrative	$	0.2	$	0.4	$	0.6	$	0.7
Research and development		0.2	$	0.4	$	0.5	$	0.7

Total share-based compensation expense	$	0.4	$	0.8	$	1.1	$	1.4

As of June 30, 2011, total unrecognized estimated compensation cost related to non-vested stock options granted prior to that date was $2.3 million, which is expected to be recognized over a weighted average period of approximately 1.6 years.

Common Stock Activity

During the six months ended June 30, 2011, stock options for approximately 68,000 shares of the Company’s common stock were exercised for cash of approximately $219,000. The Company issued approximately 0.3 million and 0.4 million shares of common stock pursuant to the vesting of restricted stock units (RSUs) during the six months ended June 30, 2011 and 2010, respectively.

In March 2010, the Company completed a public offering of common stock in which the Company sold approximately 10.5 million shares of its common stock at an offering price of $2.20 per share. The net proceeds generated from this transaction, after underwriting discounts and commissions and offering costs, were approximately $21.4 million.

Committed Equity Financing Facility

In September 2009, the Company entered into a Committed Equity Financing Facility (CEFF) with Kingsbridge Capital Limited (Kingsbridge) pursuant to which Kingsbridge committed to purchase, subject to certain conditions, up to the lesser of 7.8 million newly issued shares of the Company’s common stock or an aggregate of $75.0 million newly issued shares over the three-year term of the CEFF. The Company may access capital under the CEFF by making draw downs up to a maximum of the lesser of (i) $15 million and (ii) the greater of (x) 1.75% of its market capitalization as of the date of delivery of the draw down notice once per calendar quarter and up to 1.25% of its market capitalization as of the date of delivery of the draw down notice for any additional draw downs during such calendar quarter and (y) the lesser of (a) 2.75% of its market capitalization as of the date of delivery of the draw down notice and (b) a number of shares determined by a formula based in part on the average trading volume and trading price of the Company’s common stock prior to the delivery of the draw down notice issued by the Company with respect to that draw down pricing period, subject to certain conditions, including a minimum share price threshold of $1.00. Kingsbridge may purchase shares of common stock pursuant to the CEFF at discounts ranging from 5 to 10 percent, depending on the average market price of the Company’s common stock during the applicable pricing period for a draw down. The CEFF will expire on September 15, 2012 unless otherwise terminated pursuant to the terms of the CEFF. As of June 30, 2011, the Company had not issued any shares under the CEFF.

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2011

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business. Neurocrine Biosciences, Inc. (the Company or Neurocrine) discovers, develops and intends to commercialize drugs for the treatment of neurological and endocrine-related diseases and disorders. The Company’s product candidates address some of the largest pharmaceutical markets in the world, including endometriosis, stress-related disorders, pain, diabetes, insomnia and other neurological and endocrine-related diseases and disorders. While the Company independently develops many of its product candidates, Neurocrine has entered into collaborations for six of its programs. The Company’s lead clinical development program, elagolix, is a drug candidate for the treatment of endometriosis.

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions of the Securities and Exchange Commission (SEC) on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, the condensed consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of the Company’s financial position and of the results of operations and cash flows for the periods presented. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2010 included in the Company’s Annual Report on Form 10-K filed with the SEC. The results of operations for the interim period shown in this report are not necessarily indicative of the results that may be expected for any other interim period or for the full year. The balance sheet at December 31, 2010 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

Impact of Recently Issued Accounting Standards. In October 2009, the Financial Accounting Standards Board (the FASB) issued an Accounting Standard Update which replaced the concept of allocating revenue consideration amongst deliverables in a multiple-element revenue arrangement according to fair value with an allocation based on selling price. The amended guidance also establishes a hierarchy for determining the selling price of revenue deliverables sold in multiple element revenue arrangements. The selling price used for each deliverable will be based on vendor-specific objective evidence (VSOE) if available, third-party evidence if VSOE is not available, or management’s estimate of an element’s stand-alone selling price if neither VSOE nor third-party evidence is available. The amendments in this update also require an allocation of selling price amongst deliverables be performed based upon each deliverable’s relative selling price to total revenue consideration, rather than on the residual method previously permitted. The updated guidance is effective for the first annual reporting period beginning on or after June 15, 2010, and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or materially modified after the adoption date. The Company prospectively adopted the updated guidance on January 1, 2011 and will apply the amended guidance to revenue arrangements containing multiple deliverables that are entered into or significantly modified on or after January 1, 2011. The Company now allocates revenue consideration, excluding contingent consideration, based on the relative selling prices of the separate units of accounting contained within an arrangement containing multiple deliverables. Selling prices are determined using fair value, when available, or the Company’s estimate of selling price when fair value is not available for a given unit of accounting. As the Company did not enter into any new collaborations or materially modify any existing collaborations during the first six months of the year, adoption of this guidance had no impact on the Company’s results of operations for the three and six months ended June 30, 2011.

Effective January 1, 2011, the Company adopted the FASB’s revised authoritative guidance for research and development milestone recognition. The revised guidance is not required and does not represent the only acceptable method of revenue recognition. Milestones, as defined per the revised guidance, are (1) events that can only be achieved in whole or in part on either the entity’s performance or on the occurrence of a specific outcome resulting in the entity’s performance (2) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and (3) that would result in additional payments being due to the Company. The Company evaluates events under this guidance at the inception of an arrangement to determine the existence of milestones and if they are substantive. The adoption of the revised guidance has not had, and is not expected to have, a material impact on the Company’s results of operations as it is consistent with its historical practice of milestone revenue recognition.

In May 2011, the FASB issued updated accounting guidance related to fair value measurements and disclosures that result in common fair value measurements and disclosures between GAAP and International Financial Reporting Standards. This guidance includes amendments that clarify the intent about the application of existing fair value measurements and disclosures, and change a principle or requirement for fair value measurements or disclosures. This guidance is effective for interim and annual periods beginning after December 15, 2011. The Company does not believe the adoption of this guidance will have a material impact on its consolidated financial statements.

Research and Development Expense. Research and development (R&D) expense consists primarily of salaries, payroll taxes, employee benefits, and share-based compensation charges, for those individuals involved in ongoing R&D efforts; as well as scientific contractor fees, preclinical and clinical trial costs, R&D facilities costs, laboratory supply costs, and depreciation of scientific equipment. All such costs are charged to R&D expense as incurred. These expenses result from the Company’s independent R&D efforts as well as efforts associated with collaborations and in-licensing arrangements. In addition, the Company funds R&D at other companies and research institutions under agreements which are generally cancelable. The Company reviews and accrues clinical trial expenses based on work performed, which relies on estimates of total costs incurred based on patient enrollment, completion of patient studies and other events. The Company follows this method since reasonably dependable estimates can be made of the costs applicable to various stages of a research agreement or clinical trial. Accrued clinical costs are subject to revisions as trials progress to completion. Revisions are charged to expense in the period in which the facts that give rise to the revision become known. Historically, revisions have not resulted in significant changes to the Company’s results of operations.

Use of Estimates. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

- Definition

The entire disclosure for the organization, consolidation and basis of presentation of financial statements disclosure, and significant accounting policies of the reporting entity. May be provided in more than one note to the financial statements, as long as users are provided with an understanding of (1) the significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement with a VIE, (2) the nature of restrictions on a consolidated VIE's assets reported by an enterprise in its statement of financial position, including the carrying amounts of such assets, (3) the nature of, and changes in, the risks associated with an enterprise's involvement with the VIE, and (4) how an enterprise's involvement with the VIE affects the enterprise's financial position, financial performance, and cash flows. Describes procedure if disclosures are provided in more than one note to the financial statements.

+ References + Details

FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2011

FAIR VALUE MEASUREMENTS

5. FAIR VALUE MEASUREMENTS

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:


Level 1:		Observable inputs such as quoted prices in active markets;

Level 2:		Inputs include quoted prices for similar instruments in active markets and/or quoted prices for identical or similar instruments in markets that are not active near the measurement date; and

Level 3:		Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The Company’s assets which are measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010 were determined using the inputs described above (in millions):


				Fair Value Measurements Using
	Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
June 30, 2011:
Classified as current assets:
Cash and money market funds	$	23.2		$	23.2		$	—		$	—
Certificates of deposit		3.6			—			3.6			—
Commercial paper		33.5			—			33.5			—
Corporate bonds		60.9			—			60.9			—

Total		121.2			23.2			98.0			—
Less cash, cash equivalents and restricted cash		(24.9	)		(23.2	)		(1.7	)		—

Total short-term investments(1)	$	96.3		$	—		$	96.3		$	—

December 31, 2010:
Classified as current assets:
Cash and money market funds	$	56.4		$	56.4		$	—		$	—
Certificates of deposit		2.2			—			2.2			—
Commercial paper		27.6			—			27.6			—
Securities of government-sponsored entities		2.0			—			2.0			—
Corporate bonds		44.8			—			44.8			—

Total		133.0			56.4			76.6			—
Less cash, cash equivalents and restricted cash		(60.2	)		(56.4	)		(3.8	)		—

Short-term investments		72.8			—			72.8			—
Classified as non-current assets:
Certificates of deposit		0.2			—			0.2			—
Securities of government-sponsored entities		2.5			—			2.5			—
Corporate bonds		1.0			—			1.0			—

Total	$	76.5		$	—		$	76.5		$	—

(1)	The Company did not hold any long-term available-for-sale securities at June 30, 2011.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 133
-Paragraph 44A, 44B
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15C, 15D
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15A
-Subparagraph a-d
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15B
-Subparagraph a, b
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 3, 10, 14, 15
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 157
-Paragraph 32, 33, 34
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 159
-Paragraph 17-22, 27, 28
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 21
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 28
-URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612

Reference 11: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 10
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611

Reference 12: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 30
-URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612

Reference 13: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 16
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13504-108611

Reference 14: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 5
-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258

+ Details

REAL ESTATE

6 Months Ended

Jun. 30, 2011

REAL ESTATE

7. REAL ESTATE

In December 2007, the Company closed the sale of its facility and associated real property for a purchase price of $109.0 million. Concurrent with the sale, the Company retired the entire $47.7 million in mortgage debt previously outstanding with respect to the facility and associated real property, and received cash of $61.0 million net of transaction costs and debt retirement. Upon the closing of the sale of the facility and associated real property, the Company entered into a lease agreement (Lease) with DMH Campus Investors, LLC (DMH) whereby it leased back, for an initial term of 12 years, its corporate headquarters comprised of two buildings located at 12790 El Camino Real (Front Building) and 12780 El Camino Real (Rear Building) in San Diego, California. The Company entered into a first lease amendment (First Lease Amendment) in December 2008 and a second lease amendment (Second Lease Amendment) in September 2009 (collectively, Amendments). The Lease has been characterized as an operating lease for financial reporting purposes.

Under the terms of the Lease and the Amendments, the Company pays base annual rent (subject to an annual fixed percentage increase), plus a 3.5% annual management fee, property taxes and other normal and necessary expenses associated with the Lease such as utilities, repairs and maintenance, etc. In lieu of a cash security deposit under the Lease, Wells Fargo Bank, N.A. issued on the Company’s behalf a letter of credit in the amount of $5.7 million. The letter of credit is secured by a deposit of $6.3 million with the same bank. The Company has the right to extend the Lease for two consecutive ten-year terms and will have the first right of refusal to lease, at market rates, any facilities built on the vacant lot included in the real property sold by the Company. The terms of the Lease also require that the Company maintains $50.0 million in cash and investments at all times, or increase the security deposit by $5.0 million.

The Company initially deferred the gain on the sale of its facility and associated real property due to a repurchase right. The Company initially established a long-term liability of $108.7 million upon the close of the transaction, which represented the gross proceeds from the real estate sale. The First Lease Amendment terminated the repurchase right and the Company removed from its balance sheet the long-term liability of $108.7 million and the previously conveyed real estate related assets of $69.6 million during the fourth quarter of 2008. Additionally, the Company began to recognize the deferred gain of $39.1 million on the sale of the real estate over the remaining term of the Lease. The Company recognized $0.7 million of the deferred gain during each of the three months ended June 30, 2011 and 2010. During the six month periods ending June 30, 2011 and 2010, the Company recognized $1.5 million and $1.4 million, respectively, of the deferred gain and will recognize the balance of the deferred gain over the remaining term of the Lease.

In December 2008, the Company entered into the First Lease Amendment which provided for the renovation of the Front Building in a manner that facilitates multiple tenant usage and establishes a mechanism for the Company to terminate its use of the Front Building. The Company continues to occupy the Rear Building except the portion of the Rear Building that is subleased as discussed below.

Pursuant to the terms of the First Lease Amendment, the Company is obligated to reimburse the landlord for the total cost of renovating a portion of the Front Building such that the Front Building becomes suitable for multiple tenant usage. The Company made a one-time payment of $1.0 million toward renovation costs in January 2009 and is reimbursing the landlord for the balance of the renovation costs over a four-year period through an increase in monthly rental payments (currently estimated at $108,000 per month) which began in October 2008.

As a result of signing the First Lease Amendment and physically vacating the Front Building, the Company triggered a cease-use date for the Front Building and has estimated lease termination costs in accordance with authoritative guidance. Estimated lease termination costs for the Front Building under the First Lease Amendment included the net present value of future minimum lease payments, taxes, insurance, construction, and maintenance costs from the cease-use date to the end of the Lease, net of estimated sublease rental income. During the fourth quarter of 2008, the Company recorded an expense of $15.7 million for the net present value of these estimated lease termination costs. During 2009, the Company increased the liability by approximately $6.0 million in response to the declining economic conditions in San Diego by extending the expected period to sublease the Front Building.

In September 2009, the Company and DMH entered into the Second Lease Amendment. The Second Lease Amendment obligated the Company to vacate the Front Building and make an immediate payment of $4.0 million to DMH as an initial release fee, which was paid in October 2009. The Company continues to occupy the entire Rear Building except the portion of the Rear Building that is subleased as discussed below. Upon payment of the initial release fee, the Company was released from its obligations with respect to the Front Building, except with respect to 1) certain indemnity obligations for events prior to the payment of the initial release fee, 2) certain operating expenses for the Front Building in accordance with the terms of the Lease through July 2011, and 3) 50% of tenant improvement costs between $65 and $100 per square foot in connection with initial leases between DMH and other third parties for space in the Front Building. As of December 31, 2009, the Company had completely satisfied its obligation with respect to payment of tenant improvement costs. Pursuant to the Second Lease Amendment, the Company is also obligated to pay DMH an amount equivalent to the rent on the Front Building through July 2011 and then approximately $44,000 per month beginning in August 2011 through December 2019 as a rent differential payment for the Front Building, which such rent differential amounts may be prepaid by the Company in its sole discretion. Should the Company be in monetary default under the Lease beyond the normal cure periods and prior to repaying the entire rent differential balance, the rent differential payment will double.

In December 2010, the Company concurrently entered into a sublease agreement (Sublease) for approximately 16,000 square feet of the Rear Building and triggered a cease-use date for the subleased space. The Sublease is expected to result in approximately $0.6 million of rental income per year over the three year term of the Sublease, with an option to extend for two one-year renewal periods. The income generated under the Sublease is lower than the Company’s financial obligation under the Lease for the Rear Building with DMH as determined on a per square foot basis. Consequently, at December 31, 2010 the Company was required to record a cease-use liability for the net present value estimated difference between the expected income to be generated under the Sublease and future subleases and the Lease obligation over the remaining term of the Lease for the space that is occupied by the subtenant. This transaction resulted in approximately $2.3 million of cease-use expense, recorded as a separate line item on the condensed consolidated statement of operations, net of a reversal of associated deferred rent of $0.2 million, recorded in December 2010.

The following table sets forth changes to the accrued cease-use liability during the three and six months ended June 30, 2011 and 2010 as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Beginning balance	$	8,851		$	10,532		$	9,965		$	11,530
Accrued cease use costs		76			134			176			281
Payments		(1,219	)		(1,123	)		(2,433	)		(2,268	)

Ending balance	$	7,708		$	9,543		$	7,708		$	9,543