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

All right. Great. Thanks, everyone, for joining. Happy to be sitting here with CEO of Neurocrine, Kevin Gorman; and Kyle Gano, Chief Business Development Officer. Is that right, Kyle?

Yes.

That's right. Close enough.

Thank you. I appreciate it. So I think everyone knows Neurocrine well. I'm just going to ask Kevin to kind of quickly set the stage, review the recent update on INGREZZA and the pipeline, and then we'll get into Q&A. So Kevin, thanks again, and please take it away. Appreciate it.

Thanks, Paul. Look forward to this, and thanks for the opportunity given by Stifel. We're going to be making forward-looking statements, so I would direct everyone to our most recent SEC filings. So Paul, as everyone saw, INGREZZA did not have the same trajectory in Q3 that we've all grown accustomed to for really an incredible launch of a drug for the last 3-plus years. And clearly, that is 100% due to the COVID pandemic. We -- and there are some reasons why I say that, Paul, is that Q1 was a tremendous quarter for us. The way that we performed in Q1, we had the largest new prescriptions ever in the history of our launch in Q1. So underlying demand and 2020 was setting up to just be a fantastic year of newly diagnosed TD patients and being able to serve them. And we were running at a great rate, which is part of the reason why going into Q2 when the pandemic hit hard, we had such a good Q2 because that's kind of like a wave from Q1 that flowed over into Q2. And in Q2, our sales force, when they were all locked down, when every doctor's office was locked down, such an experienced sales force, they turned to the one thing that they thought was the most important at the time. And that was focus on each and every patient who has a prescription and make sure that they continue to have their prescriptions, don't lose them throughout the quarter due to this pandemic. As you know, we've seen extraordinary compliance and persistence with this drug and beyond anything we ever would have anticipated prior to launch. And as you know, for several quarters into the launch, I said don't get used to this. We'll drop down to that 50% to 60% compliance persistence that you normally see, and we never came near that. It has stayed at that same steady level. Well, with the sales force focused on one thing and one thing only through Q2, which was keep people under, they actually bumped that compliance a bit. At the end of the Q2 call, we remarked on this, and I said that's unsustainable. And sure enough, in Q3, when they had -- the sales force then went back into what they have to do, which is continuing to educate the doc and however we can get a hold of their staff during Q3 and to continue to give them tools to recognize and diagnose TD, well, then compliance came down, if you will, to say it that way, it came down from that unsustainable level to what we've always traditionally saw, not below, came down to it, and that holds all the way through to when we had the Q3 call just a couple of weeks ago now or it could only be a week ago. So that is what -- that is the fundamental underpinnings right now that why we're doing as really well as we're doing in this environment is because our persistence is terrific. The physicians, the pharmacies, the patients, their caregivers, all recognize the importance of those patients being on INGREZZA, and they all work together in order to keep them on INGREZZA. The challenge is in our access. The challenge is that with the psychiatrists mainly being in telehealth, and it's a movement disorder, and they don't have the tools to be able to diagnose it via telehealth or not optimal tools to do it. There's the challenge. There's why we're a COVID-sensitive drug. But if you look at the market the way that it was prior to COVID, psychs utilize telehealth more than any other specialty. They -- 10% of their patient visits were via telehealth. Now as we sit here today, they are still at about 40% telehealth. The rest of -- the rest of the medical community is running at about 6%, all right? So they are still utilizing it at a very, very high level. We were developing tools even before the pandemic to help with telehealth because we saw that that's something we should do. But telehealth prior to the pandemic and telehealth under the emergency orders are very different right now. With the short-term tools that we've been giving psychs in their offices, I think that's working. I think the gradual reopenings we saw in late Q3 into Q4, we're seeing trends that are very encouraging. Unfortunately, I don't get that encouraged because I'm seeing, as you well are, as everyone is, COVID's running rampant across the country. And we're seeing more and more closures taking place. So that's going to affect the foot traffic that started, which is going to affect INGREZZA in the short term, which is why I caution that we could see an underlying demand in Q4 very similar to what we saw in Q3, so not seeing that tremendous growth that we normally see. I'm heartened by Pfizer's data that they came out with, with Moderna earlier today. That's just going to even shorten this temporary time frame -- this temporary pandemic that we're in. But we're going to continue over this short period of time working to give them the tools in order to be able to be more effective at telehealth and then be able to, as they open up, get back to that growth trajectory. That was long, more than 3 minutes. The last thing I'll say is that the pipeline is as robust as ever with us. And we're focusing on, particularly this year, CAH in adults and pediatrics, Huntington's and also are the negative symptoms of schizophrenia drug, NBI-844, TAK-831 that we got from Takeda, and I'm sure we'll go into all this in more detail over this call. So back to you.

All right. Great. Thank you, Kevin. So one follow-up on the COVID impact on INGREZZA. And that -- I think the irony is if you go back to clinical development, your clinical data were actually much more clear-cut, and you're smiling because I think you know what I'm going to say, when you implemented video raters. So what is it about the dynamic or the psychology of the physician in diagnosing tardive dyskinesia, that means you really need to be seeing someone in person?

Yes. Somehow I knew you were going to go there. And it's great because it is one of those things that -- where it all worked, like you saw in the clinic is when we went to central rating, not just central rating during the trial but also a central evaluation, just overall in order to say before they're admitted in the trial, who has COVID -- who has TD and who doesn't. There is a very big fundamental difference here. Number one, those were done by movement disorder specialists. So we have been giving the physicians, the psychiatrists training and tools and really making progress, great progress on face-to-face in-office visits for the last 3 years. But we haven't been giving them all the tools and concentrating to be able to allow them to be able to do this in a suboptimal environment like telehealth. So that's one, just even in the best telehealth environment, they still haven't been trained by us in order to be able to do that, getting there, and we will get there. But let's talk about what's the main difference. I actually really like those horizontal sunshine lines.

Yes, it was kind of our secret. But yes, please going.

The real difference is the difference between telehealth pre-COVID and telehealth now. Remember, pre-COVID telehealth was highly, highly regulated. And the patient had to go to a specific site with high quality video and have a health care professional with them at that other site in a secure HIPAA compliant link with the physician that they were dealing with. There was a very specific set of criteria that the physician had to go through. And all these things were necessary in order to get reimbursement on the physician's side by either private insurance or a CMS. And they could only -- and to throw in, they could only do this within the state that they are licensed in. With the emergency health orders that have been put in place, all that was relieved. And so where, as I say, even now what was 100% telehealth, what's now been 40% telehealth and psych. And I would say with -- that's overall psych. I would say in the offices that we deal with, it's higher than just 40%. Half of those are not even video, half of those are just a telephone, okay? The other half that are video, it's a TD patient holding a cell phone, not great quality. They don't have another health care professional there to help with doing different activating exercises, being able to see. There are shortcomings in the way telehealth is done now versus where telehealth will get back to at the end of this. But the bottom line is telehealth is here to stay, Paul. And it probably won't go down to the 10% that it was. It will probably be somewhat higher than that. It won't be up at the 40% where it is now. But there's -- we're developing the tools that we need for the short-term to help the physician and the intermediate term and long term, which long term I'm talking about maybe a year, in developing some real interesting tools and technologies. We will -- actually, I believe it will be a real advantage to INGREZZA and to patients in the future with telehealth. I think that's going to be a net positive for us. And -- I'm sorry, we have a call that seems to be coming in. There. So again, not an optimal medium that we're in.

Okay. That's a great example. All right. So last INGREZZA question before we get on to the different pipeline programs because I want to do some quick hits there. But I guess the one -- so I'm a total believer in INGREZZA. We've done a lot of physician survey work. And when this setback happened, we defended the stock. But the one thing that I hear from investors that definitely resonates with me is, hey, look, even if you're right that this is totally pandemic and the peak sales potential, the drug hasn't changed. If I'm an investor, how long do I have to wait to kind of have any sense of that? Do I have to basically wait until Neurocrine reports Q2 in August of 2021, which maybe that's not that far but it feels kind of like an eternity. So what can you do as you think about giving us visibility into your business to help us kind of understand how you're observing recovery when the time comes, say, in the 2021 period?

Yes. And what I would say is probably twofold: number one is we're real transparent. Yes, we don't give guidance. That's true. But we're real transparent with what we see, what encourages us and what are potential headwinds, if you will. And I try to be very transparent. Now we see some real nice indicators at the time of our call, but I stay cautious because of the shutdowns that we see. It's not going to be a light switch, like you say sometime in August about we see it. What we're going to see is when as foot traffic picks up, as we have given them, the physicians better tools to diagnose, you're going to see us making progress back to that very nice growth curve that we've always been on. So you stand a chance of missing that when it happens. If you just decide, I'm going to play this out for another 9 months, and then I'll come back to Neurocrine. Number two is that our pipeline has never been as deep and as broad and as diversified by not just number of compounds but by stage of development and by therapeutic areas that we're in under the umbrella of neuroscience. We're going to be reading out data next year. We're going to be have -- in the first half of the year, we'll have the NBI-844, which was TAK-831, that's a significant drug if the data works out well. That's a real significant drug, and that's a very big Phase II trial that, that is in, multinational, all around the world with the negative symptoms of schizophrenia. Number two, we're going to be adding to the INGREZZA franchise and that's opening up Huntington's disease to us with late in the year, having the Huntington's data come out with valbenazine. You're going to see real progress with one of our most exciting pipeline assets and the one that we concentrate on the most, which is our CAH, both in adults and in pediatrics. And that's just taking a portion of the pipeline that we do. Those 2 things, I think, are real value drivers, and then you can never discount Kyle just sitting on his hands over the long term.

Awesome. Great. Glad you took a shot at Kyle. That's perfect. Kyle, on the schizophrenia asset, you do, I know, really in-depth diligence and I guess the flip side of that though is psychiatry is hard. And I think for negative symptoms specifically, you really don't have any animal models. The NMDA system is extraordinarily complicated. There's multiple different preceptor subtypes and things like that. And so I know there's this interesting basic science rationale for NMDA modulation in schizophrenia. But beyond that, what got you the confidence of the optimism to take a real bet here and put money up ahead of proof-of-concept data?

Yes. I think, well, first of all, the collaboration we have with Takeda is very wide-ranging. And obviously, for the lead asset here, while we pick up the cost for the remainder of the study, they're actually quite minimal relative to the totality of the number of assets that we got that are included in the collaboration and the Phase I programs moving into Phase II are part of a cost share. So appreciating your point on the challenges in psychiatry, this really is a derisked overall collaboration and structure that we have here that makes it quite attractive to Neurocrine and having the opportunity to get multiple shots on goal. When you look at 844, you're right, there is some, I'd say, more than strong underpinnings and linkages between NMDA hypofunction and schizophrenia. Hypofunction in glutamatergic signaling has been shown to be linked to the pathophysiology of schizophrenia, it's well in the literature. And then you can actually look to compounds like ketamine or amphetamine, PCP. These are compounds that are NMDA receptor antagonists that flip patients to having episodes of psychosis. So what we're trying to do here is very elegantly increase D-serine in vivo and D-serine, as you know, is an agonist of the DNA receptor system. And that's what we're playing on in terms of an angle here. The science underpins that relationship and then having access to an endogenous agonist of the NMDA receptor system. Now when it comes to what attracted to this program, other than those pieces there which are quite large when you think about most people taking programs forward in the psychiatry, is that Takeda did an excellent job looking at translational medicine between work within nonhuman primates, rodents to man. And they're able to show through the different species target engagement and also what type of enzyme occupancy you need to maximize D-serine production and they've be able to show D-serine production in a dose/minute fashion in the CSF in healthy volunteers. So we have a very good idea that we're engaging the target that we want, and we're -- have a very high probability of engaging it with the doses that we're studying maximally. So then it just comes to testing the hypothesis that is an agonist of the NMDA receptor can lead to enumeration of the symptoms of the negative symptoms of schizophrenia. And when it comes to psychiatry, if you can combine all those pieces together, it's really the best that you can ask for. In a totality, that's what brought us to having a high interest and conviction in this particular program.

And Paul, I'd say that what Kyle just touched upon there is something that goes throughout Neurocrine's approach to neuropsychiatry and all of our CNS areas that we're working in. We've reached a level now that I think the translational medicine and the tools that are available to us is greater than it's ever been before. I think we're getting close to what you could even call surrogate markers. Not meaning that there's something that's acceptable to FDA. But as drug developers, we're actually in CNS diseases getting some surrogates in what we are looking at, the way we're developing it and the heavy emphasis that we put on translational medicine at Neurocrine. That really helps derisk. And I for a high-risk area like psychiatry and neurology overall, that's kind of the holy grail that we hope is going to lead to more success as we move forward.

Right. And so what constitutes a positive outcome in this study? Can you just talk about endpoints and the effect size you're hoping for?

Yes. So the primary endpoint is the PANSS, the positive and negative syndrome scale that's commonly used for the approval of schizophrenia products. Mostly the dopaminergic atypicals are playing off efficacy through the positive symptoms, right? We're not be able to show symptoms on the negative side of the equation. So what we're looking at here for the Phase II trial that we'll read out midyear is 3 doses of active versus placebo. This is all on ct.gov. It's 50, 125 and 500 milligrams are the 3 active arms dosed once-daily versus placebo. It's a 3-month trial, again, with the primary endpoint looking at PANSS. Now there's probably...

Yes. Is it adjunctive -- Kyle, adjunctive treatment?