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

Welcome, everyone, to the Jefferies London Virtual Healthcare Conference. My name is Biren Amin. I'm one of the biotech analysts here at Jefferies. I'd like to introduce our next company. We have Neurocrine Biosciences, Kevin Gorman, their CEO; Matt Abernethy, CFO. And I guess Matt raided my closet and found a similar shirt this morning. So thanks for coordinating on this, Matt.

Yes. No problem. I forgot my glasses at home, but we -- you at least have hair, and I don't. So that's one thing I'll never have again. So thanks for hosting us, and wish we were in London. It's such a beautiful time of the year. But Kevin and I are looking forward to spending time with you today.

Great. So let's just talk big picture. I think most investors can say that so far the INGREZZA launch has tracked relatively well, outside of, I guess, one outlier, which was last quarter. Maybe let's just focus on that. Where do you see trends, I guess, in TD? This is, I guess, one of the biggest questions that's out there for the company is, at least from an investor standpoint, is where's the trajectory going to go?

Thanks, Biren. Before I get started, we are going to make forward-looking statements. So I would just suggest everyone -- direct them to our most recent SEC filings. Biren, you're correct there, we did have our first down quarter in nearly 3.5 years from the launch. And it is 100% due to COVID. We -- INGREZZA was on an amazing trajectory starting in 2020. A lot of the educational efforts that we've been working on for 3 years they've been taking hold. They were continuing to take hold. We, in Q1 of this year, had the largest number of NRxs since our launch. That is we were -- and so we were looking at 2020 was really going to be a great, record-breaking year for INGREZZA. That spilled -- that tremendous wave in Q1 then spilled into Q2 just as COVID hit. So you didn't see an impact of COVID really on us in Q2 because that strong Q1, the momentum that we had built up that we went into there. However, then you did see the impact of all the closures, the lack of patients going into the psychiatrist offices in Q3. Even as things were starting to slightly open back up in Q3, psychiatrists are the last to go back into their office. They're utilizing even today, as we talked about in our Q4 call last week -- or our Q3 call -- earnings call last week, psychiatrists are on average utilizing telemedicine about 40% of their patient visits. It's a bit higher than that actually, probably higher than 50% for the sites that are in our call universe, whereas other -- the rest of the medical community is now down to about 6% telemedicine. So we do have a particular challenge. We are -- INGREZZA is particularly sensitive then to COVID. But that being said, we are adapting. And we do know that psychs, even prior to COVID, were the highest users of telemedicine. Approximately 10% of their patient calls or patient visits were telemedicine. And we've been working on that. We've actually been doing a lot of exploratory work on it. And now that psychs are utilizing it dramatically more, it is going to be something that's here to stay. I mean it's not going to stay at this 40% to 50% rate, certainly. As the acute aspect of COVID wanes, they'll go down again, but it will be more than 10%, I would say, going into the future. And so we have a number of initiatives to take care of the short-term period here that we've been rolling out to our -- our commercial group has been rolling out to our sales reps. But we have some intermediate and long-term things that we're working on, technologies, that at the end of the day it's going to make INGREZZA even a stronger drug in the future than what we had even anticipated prior to COVID. So 2 things are going to occur in the short-term period here, as I directed in the call. It's going to be challenging for us. I had said that as we were 1 month into or even close to 5 weeks into Q4, we were seeing some nice leading indicators in Q4. And that is very nice, and that is encouraging to see the efforts that we're putting in were getting through this. But I cautioned that we are all seeing this dramatic increase of COVID across the entire United States, all 50 states at this point. We're seeing some of those states closing up. So our enthusiasm of the leading indicators that we have is tempered by how this year is -- how this quarter is going, how COVID is really on the march right now. So that's why I had said that it is probable that this is going to be the underlying demand that we'll see in Q4. It's probably going to be very similar to what we saw in Q3. But again, intermediate and long-term, it's never looked better for our INGREZZA franchise.

And I -- sorry, Matt.

One clarification that I've been getting questions on is what's going on with inventory. Over the last 4 quarters, we've had over $30 million of build in inventory. And at some point, we would expect that's going to bleed down. So we've been trying to caution The Street and then also provide the information to look at us on an inventory adjusted sales approach, which is much more reflective of underlying demand. So as Kevin said, something similar Q3 to Q4 on an underlying sales basis. I believe underlying sales last quarter were around $248 million. So we just throw that out there because we could at some point experience a $30 million bleed. It could be in Q4; it could be in Q1. That's really hard to predict, really hard for Wall Street to predict. But it's something that we're disclosing so that people can understand how much inventory is moving our numbers each quarter. We intentionally stay away from managing the inventory just to avoid the optics of channel stuffing. But when Kevin says underlying sales, the metrics that we look at NRx, underlying demand, TRx, that's what gives us that sense of confidence. But just want to make sure that's clear for the investment community based upon questions I've gotten following our Q3 call.

And Biren, just one last thing I like to add. The one thing that you can count on with INGREZZA, which you and I talked about this for 3 years now, where I kept saying, "Hey, these patients on all their meds usually have a compliance persistence rate of 50% or 60%. So that's what we'd expect for INGREZZA." And from day 1, it's been dramatically higher than that. And I said, "Well, don't count on that continuing for the first couple of 3 quarters." But it has for 3.5 years. And we see through COVID, it has not gone down a bit. So we still have -- it's a very, very sticky medicine. Patients and doctors and caregivers really understand the importance of it. So once you've gotten that script of INGREZZA, you stay on INGREZZA. And that's great because then you know that the base that we keep building quarter after quarter, it's there.

And then maybe a follow-up on Matt's comments on inventory. What's leading to the increases in inventory? Is it a COVID situation where there's potential risk on disruption or some other driver?

Yes. I think what we saw at one of our distributors is some increased stocking and even setting up another site for redundancy reasons because of COVID. My sense now is that, that major distributor is now managing their inventory on a global basis rather than warehouse by warehouse. So that's when I say I'm pretty confident that inventory will bleed down. It was basically they set up redundancy and now they're managing their inventory on a more global basis. Now we do have agreements with our distributors, and they're able to keep 2 to 4 weeks of stock on hand. That's what we ask. And they're sitting at about 3.5 weeks. With the price of this drug and the predictability and turnover, you would expect that it'd be much closer to 2 weeks, which is our historical norm. So 1.5 weeks of sales is around $30 million net and that's -- like I said, at some point, they're going to pull that inventory back down. Their business model is working capital efficiency. And so I think that we'll see that at the right time. But our pulse, how we manage our business is really on the underlying demand.

And the one thing that the distributors don't have to worry about is any interruption in supply of INGREZZA. We have multi-redundancies worldwide on both API and drug product. We have -- we keep on hand years of API and about 18 months to 2 years of drug products. So there's really no -- it would be hard to foresee any situation where we would have a problem with drug supply.

And I guess maybe when we get to somewhat of a normal world, hopefully, at some point in 2021, what are your thoughts in terms of new patients and identifying new patients for INGREZZA? Is this a matter of identifying undiagnosed moderate-to-severe patients or potentially identifying more milder patients than what you're currently seeing in terms of U.S.?

Once we've gotten foot traffic, the psychiatrists are back in their office and we've stabilized and gotten foot traffic back in the office, I really don't see any change in the dynamic of what we were doing and getting back to that trajectory that we've been on for several years now. It is going to be -- the definition of what's mild, moderate, severe is directly the perception of the patient, is how is their TD affecting them. It's not a number on an AIMS score, that there is no formal designation. And so what we see is that physicians are treating and patients are asking for INGREZZA based on how TD is affecting their lives. And so I don't think that that's going to change. To date, we started out the launch, and there were maybe 3% of all TD patients had a formal diagnosis. Now we're above 20%, little squishy numbers, but it's about 20%, maybe between 20% and 25%. The vast majority of the market is still yet to receive a diagnosis. And even those 20% that have a diagnosis, only half of them are being treated with a VMAT2 antagonist. So there's even a doubling of patient numbers just by getting the optimal treatment to these patients.

And then can you maybe talk about the Huntington's chorea indication? The trial is currently in Phase III. So when can we expect data? How much off-label use is currently coming from Huntington's? And what does the sales potential look like for this indication?

Yes. So the Huntington study was paused there earlier this year due to COVID. It has been restarted, and I'm really pleased with the way that it restarted and with the enrollment that we have going. We have to see now how this additional wave of COVID, how that's going to affect it. However, we're working with the Huntington Study Group, which there's no better group to work with in doing a clinical trial there. And number two, while we were paused working with HSG, we put in place several of the visits can now be done virtually so in case -- just in case the situation that we may see building now would take place after we restarted. We are planning on having top line data late next year in 2021. The Huntington's market is a market of approximately 30,000 individuals in the United States. 90% of them have chorea associated with that. About 70% of them, it's a moderate to severe chorea that they're suffering from, yet less than 20% are receiving either generic VMAT2 inhibitor or deuterated VMAT2 inhibitor right now. It has to do with because of the complexity of dosing for those drugs and also side effect profiles. The advantages that we see with INGREZZA in the TD population, I think, are going to even be that much more pronounced in the Huntington's population. So I think we have a very nice opportunity there to bring this drug into the Huntington's population. The other aspect of it is, again, it's a single pill. These Huntington's patients have a real tough time swallowing. So having multiple pills per day is a real burden to them. We're a single pill. They also have jaw control problems, so they can crush. And deuterated tetrabenazine is a formulation -- a modified release formulation. So if they were to bite down and crush it, they would get a big drug dump that takes place there. That does not occur with INGREZZA. So there's some real tangible advantages here. So we're looking forward to bringing that to the Huntington's community. In addition, that will just build our presence in the neurologist's office. As you know, we do -- approximately 80% of our calls is in psychiatry; about 20% is in neurology. And what we found now with the launch of ONGENTYS is that we are being welcomed into the neurologist's office even more because of their interest in learning about ONGENTYS. And when our reps are in there talking about ONGENTYS, they can pivot immediately to, dear doctor, we haven't spoken about INGREZZA and TD for a while, and then they can bring that to top of mind. So we're offering 2 medicines there to the neurologist right now. With the Huntington's indication, that will be 3 different indications that we'll be in the neurologist's office for. So I think overall it's going to be a lift to our entire commercial business.

And you -- so you mentioned ONGENTYS. There's, I think, about 1 million Parkinson's patients in the U.S. How should we think about early adoption? Clearly, you had a lot of success with INGREZZA. Are there similar dynamics in place with ONGENTYS?

No, there aren't. It is different. And by that, I mean that with TD, we were the first drug ever to treat TD. And like we've said, the vast majority of the TD patients were not diagnosed. Here's the opposite situation. Parkinson's disease, you don't have to treat -- you don't have to teach a neurologist how to recognize and diagnose Parkinson's. They are doing that every single day and have been for years. So that's not the challenge and the opportunity that we have in front of us there. What we bring here is a different one is that neurologists by and large were very, very disappointed with the first 2 COMT inhibitors that came out about 15 years ago and rarely used them. And they used them late in their treatment cycle in paradigm because while it was very exciting and they were looking forward to COMT inhibition to come out 15, 16 years ago, it didn't fulfill the promise at all of what it was going to be. So that was then compartmentalized way out of their mind. And they haven't thought about COMT inhibition for a long time. So if there's an educational effort here and where the similarity is, it's bringing back the importance of inhibiting both of the enzymes that break down levodopa or break down dopamine. The levodopa is never given alone, right? It's always given levodopa/carbidopa. They don't even -- neurologists are so in tune with that, they don't even realize they're giving an adjunctive therapy immediately when they give levodopa by giving carbidopa because that's inhibiting 1 of the 2 main enzymes that break down levodopa. They've forgotten there is the second one, COMT. And that's what we're doing. And that's where the great opportunity is, is to bring COMT inhibition now very much early on. As soon as after they're on 2 doses of levodopa/carbidopa per day, and they start having motor fluctuations again, instead of increasing their doses or increasing the amount of levodopa/carbidopa that is given or the number of doses per day, use ONGENTYS. Bring that right in early on. And that's where we're aiming for this medication.

Got it. Okay. And then I guess, can you just talk a little bit about payer and what your interactions have been with payers around ONGENTYS? I think you've said historically that you want to price it below specialty pharmaceutical product. So what's their perception been of ONGENTYS? Are they going to require patients to have failed entacapone?