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

Welcome to Global Healthcare Conference. I'm Jeff Hung, one of the Biotech analysts. [Operator Instruction] For important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. [Operator Instructions] So for this session, we have from Neurocrine Biosciences, CEO, Kevin Gorman; and CFO, Matt Abernethy. Welcome, guys.

Welcome, Jeff, and thank you very much for the opportunity to speak here today.

Yes. So for those who may not be familiar with Neurocrine, can you provide a brief introduction?

Certainly. And before I start, Matt and I will be making forward-looking statements, so I would direct you to our recent SEC filings. So Neurocrine has been around for nearly 30 years now. For that entire 30 years, we've been a neuroscience-focused company. We've been able to grow the company now over those 30 years so that for us, neuroscience is actually pretty multifaceted. That's neurology. That's neuroendocrinology, neuropsychiatry and what we hope to -- we're working on and the future is going to be neuro-immunology. We have a rich history of discovering, developing and marketing our own drugs at this point as well as a very strong history of developing partnerships that exist today. Neurocrine has 4 compounds medicines that are on the market currently: INGREZZA, which was discovered and developed here and we market in the United States; ONGENTYS, which is an in-license drug from BIAL Pharmaceuticals that we're very excited because we announced the launch of ONGENTYS today, and that will be marketed exclusively by us in North America. Then there's ORILISSA and ORIAHNN, which was discovered and developed at Neurocrine. The active ingredient within both, which is elagolix at Neurocrine through Phase II. And then we partnered with AbbVie and AbbVie completed the programs in both of those indications. So we're developing a deep and balanced pipeline. We have, in addition to those 4 products, we have 3 other investigational products that are in pivotal-clinical trials right now. And then we have 5 other potential products that are in mid-stage programs and then others that are in Phase I. So I'm going to stop there and let you ask us some questions.

Great. Well let's start with INGREZZA. Sales were strong in 2Q, even excluding inventory build. I guess what would you attribute this to?

Jeff, thanks for having us. For those not as familiar with tardive dyskinesia. Tardive dyskinesia is an involuntary movement that manifests itself in your face, your hands, even your trunk and it's caused by prolonged exposure to antipsychotics. And up until 2017, it was just an unfortunate byproduct of taking care of somebody's underlying mental health conditions. So at the time of launch in 2017, maybe only around 2% of the 500,000 patients with tardive dyskinesia were actually formally diagnosed. And we've had an incredible run over the last 3 years that really positioned us into this past second quarter, where we had over $250 million in sales, as you mentioned, inventory adjusted. And I think that's just a reflection of a really, really strong product that's helping many patients. And then particular, in Q2, you saw two dynamics play out. One, is a significant increase in overall compliance and persistency coming off of seasonally low Q1s -- Q1. And then the second aspect, we were a bit fearful heading into the pandemic. What we saw from market research is that there are 70% decline in inpatient -- in-person patient visits. And we thought NRxs could possibly be impacted to that extent. But what we saw wasn't that large of a drop, and the team did an incredible job continuing to develop this market for these patients who significantly benefit from a medicine like INGREZZA. I don't know if I mentioned this, but based upon how we performed through Q2, we estimate that around 20% of the market has been diagnosed at this time, with only around half of those individuals being treated with the VMAT2. So we feel like we're still at the very early innings. Obviously, navigating COVID as a dynamic that everybody is dealing with, but feel just quite proud of what the team has been able to accomplish thus far and then also very excited about what we have in the future.

And you mentioned COVID. So the impact from COVID on new patient starts was better than you feared. But in-person visits need to return to more normal levels to see the full potential of INGREZZA growth. How would you characterize in person visits in recent months? And did the impact on new patient starts improve over the summer?

Kevin, do you want to take those?

I was on mute. Sorry about that. Jeff, it's an improving situation, but still not near-normal situation. Prior to COVID, psychiatrists were the specialty that utilized telemedicine the most. And now as COVID has come in, psychiatry has embraced it even more than other specialties. You're starting to see in a big way that many of the other specialties have come back into the office as has psychiatry, but at a slower rate in psychiatry. So currently, what our sales force is doing is about 50% of their time is spent in the psychiatrist office meeting with staff and also meeting with health care professionals, but 50% of their time is still digital in their interactions. As Matt was saying, we adapted ourselves to being able to interact effectively with the psychiatrists and their staff digitally really well. What we're working on now is new initiatives new technologies, new things to bring to the psychiatrists, so they can more effectively work with their patients in order to be able to recognize and diagnose TD digitally. And so that is one of the big initiatives that we have here as the office is open back up, as there is more foot traffic in the offices, certainly, that's going to help quite a bit also.

Great. Typically, 3Q is one of the weaker quarters. But this year, you also have the potential pressure from COVID and potential inventory drawdown following 3 quarters of inventory build. I guess, how should we think about 3Q? Is that a fair characterization of the potential headwinds? And are there any other aspects that we should be considering?

Yes. 3Q does present itself differently than Q2. And it has -- I wouldn't say consistently, but at least 2 out of 3 years in the past, you're right. Q3 has a seasonal impact. We don't entirely understand that. We think it may be due to vacations and other things taking place. So that is something that we deal with every year. You are correct also about the inventory. We had approximately $12 million of inventory build at the end of Q2. And we had given guidance that there's going to be some drawdown to that, but we don't exactly know how much during Q3. And then as we've been talking, there is the effect of COVID on Q3. And so that, as I said, is going to be something that we're going to be dealing with as the office is reopened, but we're aware that telemedicine is here to stay. This is going to be part and parcel of the psychiatry practice, in particular. So we're investing quite a bit and have been investing quite a bit in new technologies and new programs to assist the physician and their staff. We actually believe that this is going to be a real advantage for helping the physician bring INGREZZA to patients in the future. We think that the advent to telemedicine plus the in-office visits are probably going to be better for patients than just in office visits alone. So as Matt has said, we've only just begun to scratch the surface here. Any near-term blips, we really don't have any impact or bearing on what the long-term potential of INGREZZA is.

Jeff, the only thing I'd add is just we're trying to characterize the inventory builds or declines as looking at our sales ex the inventory -- ex the inventory fluctuation each quarter, that's something we've disclosed and we're going to continue to disclose. I think it better represents what the underlying demand is. So as we were talking earlier for this past quarter, for example, although we reported in the upper $260s, we think about our underlying demand in Q2 was in the mid-$250s. So just something that we've been communicating to the analysts community. That is something that we'll continue to disclose so that there is transparency around inventory fluctuations.

Okay. That's helpful. And then on the 2Q call, you reported discontinuation of your second-gen VMAT2 candidate. How are you thinking about studying INGREZZA in additional indications versus potentially investing more into a next-gen VMAC2?

Yes. Both of those things are taking place. We have a number of next-generation VMAT2 antagonist. INGREZZA has set a very high bar for what a next-generation is going to look at. The one that we removed from the clinic was an extremely good set of studies that we did on that, both preclinically and in humans. It was -- it taught us a lot. There's a lot we still have to learn about the VMAT2 mechanism. And so we did learn a lot from this. We are taking INGREZZA into other indications. Huntington's, obviously, is the one that's in a Phase III trial right now, there will be others. And then the next-gen work is continuous -- continuing in earnest. I've always said you're going to see us put multiple VMAT2 compounds into the clinic. And that is clearly going to be the case going forward.

Okay. Maybe let's talk about crinecerfont, which you're developing for CIH. Can you remind us of what you saw in Phase II and what gives you confidence for the Phase III?

Yes. The Phase II program that was done in adults was an adaptive-trial design, so we were able to explore the drug in adult patients whose HPA access was not well controlled, but we kept them on stable glucocorticoids. And maybe I'll step back for just one moment that congenital adrenal hyperplasia is a disease that the patient is born with. They're unable to make cortisol. Cortisol is necessary for life. So in the past, up until the early '60s, then all of those babies died because they could not produce cortisol. They're lacking that enzyme. In the '60s, hydrocortisone became available. And so that allowed for those children then to live. And now we're getting our firsts into their 50s now from that. But it is not enough in order to control the disease to just give replacement amount of hydrocortisone. So let's say, bring you back to a physiological level because that -- this axis that exists, the hypothalamic pituitary adrenal axis, it makes most of our sex steroids, most of -- and so there are feedback loops there. Cortisol plays an important role in that feedback to tampen down the system. Without cortisol, now you have to rely on hydrocortisone to do it, it's not nearly as effective. So you have to get very high levels of hydrocortisone daily in order to try to bring these androgen levels down and bring the system under control. So there's this teeter totter that the physician is constantly doing. Because having too high androgen levels have devastating health consequences, having too high hydrocortisone levels that you're taking have devastating medical consequences. So they're always trying to balance them out. What we've developed is an orally-active small molecule that brings that access back into balance, meaning it lowers those androgens. And that's what our Phase II study showed that over 2 weeks, key enzymes that we're able to follow in that HPA Axis, ACTH, 17-OHP, Androstenedione in the majority -- the vast majority of the patients, we reduced those significantly at much greater than 50% of their pre-trial levels. What we're doing in the Phase III is now we have to show now that we've recaptured that HPA system and you now back off the hydrocortisone. And then bring the hydrocortisone levels down significantly.

Okay. And then you're studying crinecerfont in kids as well. What differences are there between treating adults and children with CIH? And then are there differences to the regulatory path?

The regulatory pathway is identical. It is, again, creating that balance so that the physician isn't constantly putting them in and out of control constantly and doing the best they can. So it is very much the same system that you're dealing with. Obviously, the health consequences, you can have a more profound effect, the earlier you can treat a patient. Some of the effects of growth that high levels of hydrocortisone cause you're beyond that for the adults, right? So you're not going to help there. But the metabolic situation in the adults, the type 2 diabetes that they deal with, those you can have a very good effect on. So with the kids though, the -- in the Phase IIb trial that we're currently in, again, an adaptive design, very similar to what we did with the adults, is to show the impact on the androgens. Get the dosing correct as we did with the adults and then go to the agency with that. We were really well received by the FDA and the EMA on the adult study such that we were able to gain agreement on a single Phase III clinical trial necessary for registration and that's what we've kicked off.

But others are also developing potential treatments for CIH, including other CRF1 antagonists. How does crinecerfont profile compare? And how do you view the market potential for multiple therapies?