Neurocrine Biosciences, Inc. (NBIX) Earnings Call Transcript & Summary

All right. Well, welcome once again to Cowen and Company's 40th Annual Health Care Conference. I'm Phil Nadeau, one of the biotech analysts here at Cowen, and it's my pleasure to conduct a fireside chat with Neurocrine Biosciences. These are truly exciting times for Neurocrine as INGREZZA is launching and doing quite well. So we're happy to have with us Kevin Gorman, CEO; Kyle Gano, Chief Business Development and Strategy Officer, and Todd Tushla from IR. Guys, thanks for joining us.

Maybe, Kevin, we'll start with you. Could you give us a brief state of the company overview, what are the biggest strengths, biggest challenges? And what needs to happen to continue to drive outperformance over the next year or 2?

Sure, Phil. And thank you very much for inviting us here, and it's a great opportunity, and we always enjoy coming to the Cowen conference. And I'll start out with that we all will be making forward-looking statements. So I would direct you to review our latest 10-K and -- for all the risks associated with the business and the industry in general. So Neurocrine's been around for 27 years now. We were just having a little discussion here off-line. We have always stuck to being a neuroscience company and particularly at the intersection of neuroendocrinology, neuropsychiatry. It's been an area that we've seen a lot of success in the last 10 to 12 years. And as Phil said, this is led by INGREZZA. We're real fortunate that we've been able to discover, develop and get 2 drugs approved, 1 with our partner, AbbVie, the women's health drug, ORILISSA, that is currently approved for endometriosis. We took that drug through Phase II clinical trials in the end of Phase II meeting with the FDA and then worked -- then partnered with AbbVie, worked with them in the Phase III program, and they have -- they're commercializing that now in the U.S. And AbbVie has done a great job in extending that. They have completed the Phase III program in uterine fibroids and that is in registration, and we're looking forward to the PDUFA date, which is in second quarter of this year. We also have INGREZZA. That is again another drug that we discovered, developed and took it all the way through regulatory approval and marketed here in the United States. We're into our third year with this drug in tardive dyskinesia, a disease that is a lifelong, very often devastating movement disorder that's caused by taking antipsychotics. It only affects maybe 5% to 8% of the individuals who take antipsychotics. But seeing how there's approximately 62 million scripts written for antipsychotics alone in the United States, we conservatively say there's about 500,000 patients with TD at this point in time. It's been a very satisfying but very challenging commercialization here. We were the first drug ever approved to treat tardive dyskinesia. So these patients were suffering basically in silence and in the shadows for approximately the last 30 years with TD. I say satisfying because it's a very good, very effective and safe drug for these patients to take. And so seeing the changes that it's been able to make personally in patients' lives has been very satisfying. Challenging. When we launched the drug, 2.5 years ago, maybe 2% of that 500,000 patients actually had a diagnosis of tardive dyskinesia. Something largely actively ignored by the psychiatric community. They didn't want to scare their patients off of the very important drugs that they needed to be taking, which were the antipsychotics. But that, unfortunately, causes this disease, and they had nothing to offer them, even if they were to have the discussion with them. And then over the decades, the psychiatric community basically lost the skills to be able to recognize or diagnose tardive dyskinesia. Now after 2.5 years through our efforts, we think that about midteens, maybe 15%, 16% of TD patients have been diagnosed. So we're making progress, but it's still very early days in this market for TD. In addition to that, we have another PDUFA date that's coming up here later this year with opicapone on April 26. And then we have 3 other drugs that are in pivotal studies here. And then we have about 5 other drugs that are in Phase II and some earlier stage drugs in Phase I. So we have a large and growing pipeline. We've been very active in business development. And obviously, we've had a very successful research and development engine. We also have approximately $975 million in cash in the bank. So we're well financed, and we're also profitable at this point with sales of INGREZZA last year being $750 million, and like I said, just scratching the surface of what we believe we can accomplish in this marketplace. So Phil, I'm going to stop there and so you can ask more questions.

Sure. Maybe we'll start with INGREZZA. That is a key focus of investors today. It's -- the consensus during each of its 11 quarters in the market, investors continue to expect this to decelerate, which hasn't really happened. So what are your expectations for 2020? What new prescribers, what new patients will go on therapy? What keeps driving growth here?

Yes. So we don't give guidance, but I will talk about 2020 qualitatively and then maybe go into a little bit more about Q1. We see this -- we had about 80% growth between 2018 and 2019. As I said, that -- we've just scratched the surface of that. Let's say, 16% that we believe that are diagnosed, only half of those patients are being treated with the VMAT2 inhibitor, which is the appropriate treatment. The other half of the patients that have been diagnosed are -- the psychiatrists are falling back to some very, very old ways, which was replace their antipsychotic with another one, reduce the dose of their antipsychotic or if they're not a schizophrenic patient, to actually remove the antipsychotic. Antipsychotics are more frequently used in bipolar disease, major depression, anxiety, substance abuse, sleep disorders than they're actually used in the schizophrenic patients. APA is coming out with written guidance later this year that will say that those doing any sort of adjustments with their antipsychotics, there's no literature that would point to that having any effect on tardive dyskinesia. So there's a lot of work to be done. I would say also that of our prescribers that we have out there, while the drug is seeing great success, the prescribers are only still what we call dabblers. They're treating 3 to maybe 4 patients in their practice, yet we know they have far more TD patients in their practice. It's for a variety of reasons that still comes down to educating them on identifying the patients, getting them more comfortable with the diagnosis. They're getting more comfortable in recognizing TD in the mouth, the jaws and the face, but TD hits the arms and the legs and the trunk. And there, they don't yet have comfort that they can diagnose that as TD. So that's where a lot of our work is. And then we've -- last year was our first year to do an unbranded direct-to-consumer advertising. So that the conversation can be started by the patient and/or their loved ones or caregivers with the physician in their office. So we're going to continue that here in 2020. And so as I said, we look at 2020 as, again, being another year of very good growth that we'll see and bringing this to more and more patients than we did in 2019. There is a seasonality, however, to INGREZZA. In Q1 is where we see the biggest challenges for INGREZZA, the headwinds that we see. Because this is a specialty product, a lot of our patients need to be reauthorized, another prior authorization needs to be done come January 1. And that really ties up the physician's office and the specialty network of pharmacies that we have. And to go through the whole reauthorization process for those whose insurance or their Medicare programs require that and also those that have changed, usually at the beginning of the year is when you're changing providers, they also require a reauthorization there. That, in effect, decreases the number of scripts that are written per patient in Q1 than in Q2, 3 and 4. As a matter of illustration, if you had -- if you were decreased by, let's say, a quarter of a script per patient overall in Q1, we have now a much larger base of patients. So that means that you could have 4,000 to 5,000 less scripts in Q1 than you did in Q4. And at approximate net value of a script, net revenue of a script is $5,600 per month, you can see that that can lead to a $20 million to $30 million decrease in Q4 versus Q1. That's the biggest headwind that we face, and that will always be the case in Q1. As well, there's the donut hole in Medicare Part D, which can lead to about a 4% to 5% delta between 4 -- Q4 and Q1. And then a minor one is that because of the day of the week last year-ended, we had probably 1 additional order from one of our pharmacies of about -- so we ended up with about $11 million more, if you call it, inventory starting Q1. That will -- good portion of that will be worked through, through Q1. So Phil, you and Cowen, I think, have done a very good job of understanding all of those dynamics that are in Q1. Many other of the sell side have not had that great of an understanding. But the important aspect here of not just understanding what the headwinds are for Q1 and always will be is the fact that that's talking only about fulfillment and it's specific to Q1. Demand is still there and growing throughout. And that's why 2020, as with 2019 and 2018, they're -- I anticipate to be a very good year for INGREZZA, just Q1 is a challenge.

What is your thinking on guidance? When could you begin to provide revenue guidance?

Well, what we've said is that we're not going to be providing revenue guidance in 2020. At some point, we will provide guidance. It won't be quarterly guidance. It'll be yearly that we'll provide. We're still in the early stages. I know that sounds very strange after about 2.5 years, but we really are still in the very early stages of developing this marketplace and bringing this drug to all the patients that need it. As an example, there's still lot for us to learn. And yes, I know it always sounds like it's on the upside that we're always learning this. But if you recall, in 2018, we talked that potentially Q3 could be a quarter of slower growth. And yes, it turned out to be that way, but we said we don't understand why Q3 is that way. For psychiatric drugs, it appears to be the case. So then we guided, if you will, qualitatively in 2019 that Q3, we would anticipate, again, for reasons we don't understand, a bit of slower growth. That turned out not to be the case. Q3 worked really well. And I got that kind of look from you and others when that did that again. There's still things for us to learn. The one thing that we do know is we have a very good drug that is having wide acceptance and is growing very nicely.

Maybe 1 last question on INGREZZA, and that's on the competitive environment. Teva's AUSTEDO is also launching. How do you perceive the competition? Has there been any disruption having 2 drugs out there?

No. I think there's certainly enough room in this market for 2 drugs in the marketplace. If you look by dollar sales, what has held very steady now for 5 to 6 quarters is that AUSTEDO sales have been approximately 1/3 and ours have been 2/3 of VMAT2 sales. Now AUSTEDO was approved in Huntington's as well as tardive dyskinesia. So it's a little difficult for us to try that because they don't report out Huntington sales versus TD sales. But we try to, as best we can, tease that out. And I think that our share in TD has stayed at least 70-30, maybe 75-25 now, like I said, for the last 5 or 6 quarters.

Shifting gears to the pipeline. Can you discuss your overall strategy in assembling a pipeline in these programs?

Yes. And as we switch gears to pipeline because it is -- and we're not going to be able to get through all this pipeline in just a few minutes we have left, but what I'd like to do is start out with opicapone. Opicapone is a COMT inhibitor, that's an enzyme that degrades levodopa. And so for Parkinson's patients, you want to inhibit that enzyme in order to allow the -- to optimize your levodopa levels and the treatment of these patients. So we filed the NDA last year. We have a PDUFA date of April 26. That review appears to be going well with the FDA. I have no updates for you on that. We have all of our launch supplies in place and we've been preparing for launch. However, we don't control our supply chain. Our supply chain is 100% under the control of our partner, BIAL, in Portugal. And BIAL has had a disruption in the supply chain due to an incident at one of their contract manufacturers. And so while we have all of our launch supplies, we keep a very careful eye on because we think this is going to be a well-accepted drug in the United States as we launch into it. We keep our eye on resupply into 2021 with this. We don't have visibility, as I sit here today, to tell you how resupply is going to look. We need to get more information from BIAL as they're working through this in real time. So what I would say to you, I don't know what effect this would have on our launch timing. But stay tuned, I'll be able to let you know that in the coming weeks as we communicate with our partner, BIAL. But again, we're 100% reliant on them. I do want to say it has nothing to do with COVID-19. That is nothing. It's an incident at a manufacturing site. And to expand just a little bit, we have -- Neurocrine has no reliance on INGREZZA, its raw materials, its finished products on China at all nor for any of our pipeline drugs do we have any reliance on China with that. So we don't have any exposure, if you will, to COVID-19, at least in the highest impacted area.

What about the AbbVie?

What about ORILISSA was the question.

Yes. ORILISSA is -- what impact does that have there. AbbVie has not brought up to us at all, which -- we communicate with AbbVie often and well. And so all I can say is the lack of them saying anything publicly or to us leads me to believe that they are fine with supply chain there.

Sorry, Kevin.

No problem.

Just on the opicapone comments, so it sounds like this is an approvable -- this is not an issue with approval. So all the manufacturing lots you need for approval are submitted and they're fine...

Yes.

Just resupply. Would you wait until you have visibility on whether you can supply the market before you launch the product?

I'm...

How would that work?

Yes, I'll keep you posted, but what is the prime importance to us is we would never get ourselves anywhere near a situation where there would be any discontinuity in care. So I would always want to make sure that I have a very solid insights into the entire supply chain and how much I can depend on it before I would launch.

The most recent Parkinson's launches have had the exact opposite problem and that's -- there's been no demand. What have you learned from those launches? And is there anything that you can do once you have sufficient supply to make sure opicapone does launch well?

Yes. So the Parkinson's market is an interesting marketplace. There are several things you have to realize. I think paramount among them is that the Parkinson's market is a highly price-sensitive market. It is primarily Medicare. These patients are on multiple drugs. And those recent launches that you talked about, they have specialty pricing that went into their decision-making. Not all high-priced drugs bring high value to a patient and not all high-value drugs bring a high price to the system. So opicapone is going to be a very high-value drug to the patient, to the physician, but we've made the decision that we're going to price it under the specialty tier. And so that means the specialty tier starts at $670 per month. We understand the price sensitivity of these patients, particularly the out-of-pocket costs. And so access means everything to us, and so that's why we've decided to do that.

Maybe one last question on opicapone. There are other COMT inhibitors out there. What differentiates opicapone? In your opinion, what will create its compelling commercial profile?

Yes. So there's basically one that you need to talk about. The first one that came out was removed from the market because of severe liver toxicity leading to death. It was reintroduced with a black box warning, and I don't think that one's even worth talking about. This was about a dozen years ago. Shortly after that one was out, then came -- entacapone came on to the market. There was a lot of excitement and enthusiasm among neurologists and Parkinson's docs for this mechanism and entacapone. Unfortunately, entacapone did not fulfill the promise of a COMT inhibitor. The promise of a COMT inhibitor is that you're going to take the fluctuating levodopa levels that happen throughout the day and smooth them out. So the patient has significant decrease in off-time and a significant then increase in on-time without troublesome dyskinesia, meaning uncoordinated movements. Entacapone needed to be given every single -- with every single dose of levodopa, very short half-life. So it didn't do what you want a COMT inhibitor to do, number one. And number two, it had a side effect profile that was not good for these patients. It had diarrhea associated with it. It also had a drug-induced ulcerative colitis associated with it. So that really soured the field. They were really waiting for these 2 drugs to come out and they both roundly disappointed. Opicapone, however, has very good potency as a COMT enzyme. It's given once a day and has been shown to increase on-time by over 2 hours per day without troublesome dyskinesia, very well tolerated. And we believe that that kind of profile finally is the one that has no GI effects, it doesn't have any liver toxicity effects. That kind of profile is the first drug that can actually satisfy or meet the promise of COMT inhibition. The real key to us is that, unfortunately, the drug was completely developed in every other region of the world except for the United States. So U.S. neurologists have never had the drug in their hand in order to treat patients with. And so when we launch this drug, it's going to be an education -- a reeducation of the physician about COMT inhibition and bringing that to the patients, and the advantages that it has not only because it's easy. Nothing's easy actually in launching a drug. It's easier to be able to displace entacapone for the reasons that I just gave you. But that's not real success here. Real success with this drug is to replace the other 2 classes of adjunctive therapies that are used in about 400,000 of the 1 million Parkinson's patients and those are the dopamine agonists and the MAO-B inhibitors, and a COMT inhibitor should be used in front of them. And as a matter -- so bringing it way upstream, because right now COMT is last in line that they use. Only about 8% or 40,000 patients in the United States receive a COMT inhibitor. And even more than that, where we aim to is move it even farther upstream, that when a physician is thinking about increasing the frequency of levodopa from, let's say, 3 times a day, where that's easier for a patient to deal with, they're taking it morning, midday, evening, when they go to 4 times a day -- now the patient is setting an alarm waking up in the middle of the night in order to be able to take their levodopa, so they're not frozen in the morning. And so rather than increase to that fourth dose, no, use opicapone. Take it once a day, goes in throughout the entire night, you can stay at 3 times the dosing. Or when they're making the transition to twice a day dosing to 3 times, that's another opportunity that the physician should be looking at, optimize the gold standard for treatment of the disease with levodopa. And for the first time, they'll have the tool to do that with opicapone.

Shifting to 74788. We'll get full results from the Phase II trial in adult CAH at ENDO at the end of this month. What should we pay attention to in that data release that wasn't disclosed in the top line release last year?

Just about everything because we didn't give you any information in that press release last year. We fully acknowledge that. What we said was that we were looking for at least a 50% decrease in -- of hormone biomarkers in 50% of the patients. And that would inform us to go on to our pivotal study in CAH, adults with CAH, which will be starting middle of this year. We've reached agreement with both FDA and EMA on the pivotal study, the single pivotal study that we need to do. And that will be a worldwide study in Europe and in the United States. At ENDO, what you're going to see is that was an adaptive Phase II study in adults. So there were 4 cohorts that we did. You will now see the actual data on all of the -- all the hormones that we measured. And you'll see them in aggregate and on a patient-by-patient basis. Now to talk a little bit more about the CAH program, the most important population, not discounting the adults, they need a therapy. There hasn't been a therapy other than exogenously adding glucocorticoids in 50 years. But the sooner you can treat these patients with our drugs, the better because our drug will do 2 things, what we have shown already in adults and we have a Phase II pediatric study ongoing right now. But what we've shown in adults is that we can treat the underlying disease. The underlying disease in congenital adrenal hyperplasia, or CAH, is these kids are born without the ability, because of a genetic mutation, to make cortisol. When you can't make cortisol, you die. It wasn't -- and they all died until the early '60s when hydrocortisone came on to the market, mainly for inflammatory diseases, but it was used in this patient population, that keeps them alive. But they still -- the underlying disease, the buildup of androgens, huge buildup of androgens still take place. We've shown that we can affect the underlying disease. Now what we need to show in Phase III is that we do that again, and we can also then -- because we are controlling the androgens, less reliance on the exogenously added hydrocortisone because they're taking very high doses of that. Be able to drop them down significantly so they don't have all the devastating side effects of taking an exogenously added glucocorticoid for their entire lives.

With the last minute, maybe we can explore business development a bit. Can you talk about your overall business development strategy? What capabilities do you feel like you need to add to the company? Where will your efforts be focused as you augment your pipeline?

All right. That's a great question. I think Kevin spent some time talking about opicapone. And I think that serves as a good kind of transition to our interest here in terms of bringing in highly differentiated assets with a good patent protection or a good market exclusivity window. And opicapone fills that role, and we've seen some of that play out in other collaborations that we've undertaken, most recently, the Xenon collaboration that we struck late last year. And then more recently, January, we announced an option for a license with Idorsia. 2 different types of ion channels that bring to Neurocrine highly differentiated assets in the ion channel space. So for Xenon, we've got a sodium channel blocker program selected for 1.6, IND filing middle of this year and then starting a program in SCN8A, a rare pediatric epilepsy, the second half of this year with a research program to complement our lead compound to potentially move into other disease states. With Idorsia, very similar type of opportunity with the calcium channel. Here, we're looking at, again, bringing the program in the middle of this year with an IND acceptance from Idorsia and then starting a second trial in a rare pediatric epilepsy with that particular program with the subsequent research collaboration. So we have a lead compound in these and we complement that with further compounds behind that to explore the novel chemistry that these companies discovered into new disease areas.

And both of these clinical trials that -- for the Xenon compound and the Idorsia compound will both be at a minimum Phase II trials that we'll be in.

Great. Well, you've answered all my questions. Is there anything I should have asked you that you'd want to address or any concluding remarks?

I think that what you're seeing here is the evolution of Neurocrine over the last 10 years. The company has grown substantially. But we've been able to do that by an exquisite focus on patient populations that have been underserved and actually living in the shadows, when you go from TD, endometriosis, pediatric -- rare pediatric epilepsies. These are the types of diseases that we want to bring meaningful medicines that not only are highly differentiated, but really have a substantial impact on quality of life. And that's what we're going to continue to do and we're just going to continue to focus on patients and let the other distractions that take place around us take place. Because as long as we stay focused on having a meaningful impact on patients' lives, that's just going to lead to success.

Well, great. Thanks for your time. Thanks for the update.

Thank you, Phil.