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

Welcome, everybody. My name is Chris Shibutani. I'm the newest member of the Goldman Sachs Biotech Equity Research team. Thank you for joining us for our 42nd Annual Healthcare Conference, virtual, hopefully, the last time we'd do a virtual one. Very happy to have joining us, Kevin Gorman, CEO of Neurocrine Biosciences. Kevin, thanks for joining us today.

Thank you for the opportunity, Chris, and thanks to Goldman Sachs also. And I'm with you. I do hope this is the last virtual time around. I much more enjoyed being in person with everyone.

Terrific. Yes. No. And I love that you're at your desk, coffee cup, the whole backdrop there. This is total workshop, Kevin, which I think a lot of people who know you. There's no fuss, no muss. Sleeves are -- sleeves should be rolled up. But they...

Yes. Sorry.

But the way you are presenting is very much in that way.

Thank you, Chris.

Okay. One thing that is just very topical and top of mind as we like to say at Goldman for investors really, since you're so focused on the neurologic disease space, is the Sentinel news, the earthshaking news that we all got yesterday. And you and I talked about this a little bit before in our virtual green room with the approval of aducanumab, Aduhelm. So just wanted to get your immediate thoughts in terms of what you thought -- what were you expecting? And what are your thoughts there?

I was betting on an approval. So I -- not knowing any more than anyone else, I was betting on an approval. I -- a big shout out to Biogen to Al Sandrock, in particular. This is a great day for Alzheimer's patients. I know how passionately everyone there at Biogen feels about being able to bring this medicine to their patients. So I think that's fantastic. As we were talking about, it may be a watershed moment for neuroscience at this point. Many other disease states have really benefited from having surrogate markers that they can rely on and then subsequently FDA could rely on in order to determine whether a drug was having an action or not. Biogen was one of the pioneers within MS in using gadolinium-enhanced MRI as a surrogate marker for them. So this is kind of not new ground for Biogen, not new ground for FDA, either. But in most neurological diseases, that isn't the case. What we've been working on here at Neurocrine in all of our programs is not just the functional primary end points, but developing surrogates or biomarkers that we can follow even for neuropsychiatric diseases now. We have less invasive ways that we can look to see are we having an impact with utilizing different imaging agents now. So what I'm hoping is, is that as we're seeing, I think all along, a real new age for neuroscience, we've been talking about this for several years, that we're looking at a renaissance in neuroscience right now. And I think this is one more step in that renaissance I'm hopeful for, that we can now start developing the tools that other diseases, metabolic diseases, oncology, have had for a number of years. And I'm hopeful that through real good science, we can start developing those tools that are going to help advance medicines and make our discovery processes go a bit more quickly.

Yes. No, I think one of the dilemmas that I personally have had as an analyst in thinking about therapeutics for different disease areas is that there's just no denying the magnitude of the unmet need across the spectrum for neurologic and psychiatric diseases, right? But then as an investor, you think about the risk profiles and designing and developing these clinical trials, choosing patients, defining your end points, deciding when you're going to measure, and particularly for a lot of the psychiatric diseases, the nemesis #1 practically is that placebo group, right? So it's -- there's an element of almost permissioning that happens here, though. Do you feel that your group in the clinical development strategy is seeing this as a watershed moment and perhaps thinking differently about how to design some clinical trials, again, for some of these vast unmet needs that are just really hard to peg? Do you see that evolving in a specific way as a consequence of this decision?

I do. Surrogates and biomarkers are really a cornerstone of clinical development, and they are with us also. And as you talked about, within neurological diseases, not just neuropsychiatry but all neurological diseases. As you mentioned, the placebo response is oftentimes just very difficult to get your hands around. If you look at our pipeline, if you look at INGREZZA for tardive dyskinesia, back in our clinical development, what we did there -- here's where you would expect to have a big placebo response because you're affecting dopamine, and dopamine is a reward mechanism. What we did there was we had a triple-blinded clinical -- Phase III clinical trial program. So not only did not the physician nor the patient have any idea who is on drug and who is on placebo, but the raters also did not know on the videos that they were seeing. We had central raters who, after the trial was over, looked at all videos and the videos were scrambled. So they didn't know who was on drug, who is on placebo or whether they were seeing a baseline measurement, whether they're seeing a week 4, week 6, week 12, they had no idea what video they were looking at. And we had virtually no placebo response there, like where you're seeing 4-point changes that we saw with drug-treated group, it was in the background of a 0.2 point change in the placebo group. That was so much the case that I didn't believe it when we first saw that. And because it -- and I had our CMO and our statisticians saying the p-value doesn't lie here, have them go back to a previous study that when it wasn't triple blinded. And it didn't show statistical significance because of -- potentially because of a placebo effect. And we triple-blind that all over again, ran it in retrospect. So this is not the rigor of a prospectively. They did that and we saw the same result. And so then we prospectively did the next Phase III trial and yet saw it again. So there was an instance where we utilized that in order to get over the placebo effect with our neuroendocrinology programs, with elagolix and with CAH. Here we're using hormone levels for our surrogates for efficacy. And so we're utilizing them there. And as we can talk about more as our neuropsychiatric programs go along, we'll talk about some of the exploratory work at the appropriate time of how we're using some biomarkers there. So I think this is where the field was progressing. And what we're seeing is it could be, as you call it, a watershed moment, but we'll see.

Yes.

Things go in fits and starts in our industry. So never a straight line.

Right. That's true. And we'll have to debate whether this moment is a fit or a start. So -- but let's talk about INGREZZA. So very much the signature product for many years. I think you always exceeded folks' expectations, right? And I think maybe that's not surprising given we're really kind of creating a market in many respects, right? And pandemic came along and really changed kind of the dynamic at which your team had been able to find a way to launch this product. And you talked about in the most recent quarterly call a decision you made to take a more aggressive approach, reaching out to patients with a direct-to-consumer type campaign. And I think some of the initial questions were why now and whatnot. So maybe I'll reiterate that. And now that the campaign has launched, maybe help us understand sort of the decision in the war room about why now. Where are you and how that's going?

So that -- the thoughts of the DTC campaign were there actually right from the very beginning of our launch and the timing of which was determined by how we launched. As you know, and as you said, our launch exceeded expectations. It exceeded our own expectations. We knew we had a big hill to climb here because we launched in maybe 2% of all TD patients that were diagnosed. It was a disease that was largely forgotten yet not gone. So the first step that we took was working with any advocates that we could find, and they were few and far between for tardive dyskinesia, there was no real advocacy group out there. But working with advocates that we found, working on our own to bring up the awareness that TD still exists. That was step 1 in our launch. Simultaneously with step 2 was engaging with health care professionals, the nurse practitioners, the psychiatrists, the neurologists, but particularly in the psychiatric field to be able to train them and have them look for abnormal movements, to be able to recognize them and then to be able to gain the confidence, given the tools, to gain the confidence to diagnose it. And then number 3 was as you know about 2 years ago, once we felt that we had increased awareness amongst the prescribing community with the nurse practitioners, with the psychiatrists and we feel that they were trained up sufficiently, not that everyone is, but there is a good group that we had trained up. Then to get the other side of the dialogue going, and we did 2 years of unbranded DTC and invested in that. And that was to reach out to patients and their loved ones and their caregivers so that if the physician or staff is not engaging the patient for a variety of reasons about their movements, the patient could start the conversation. And part of that unbranded was to give them some tools to ask questions of their caregivers, their health care professionals. And then number three, then after we did all of that, we then did the research that one would normally do. We do this periodically all the time is to go out there and do some primary market research with the patient population. And we did see that awareness had climbed about TD. But the biggest question, biggest concern, biggest comment that came back, "Well, now that I know that I may have TD, I just wished there was something that I could do about it." So they still weren't aware that a treatment exists. And so that's why the efforts on our DTC campaign launched way back in early 2019 to start the process of that. So this was the timing independent of everything else that we would have launched this DTC campaign. We had discussions internally as it was moving along its regular time line. Is this the right time because of the pandemic? Is it more appropriate to do it now? Is it less appropriate to do it now? Basically, we looked at the population and where all of those efforts for 4 years leading up to now left us, and we were unchanged in our opinion that now is the right time. This, at least now, not only does more to further educate patients and their loved ones but also then to give them the information that there is a safe and effective treatment for TD.

Right. And I think everybody online, you can even go to YouTube and Google, I've seen the commercial. I think there's one other 1-minute commercials with the woman who is working in the office and picking her dress that's out there. If you also search, obviously, AUSTEDO has also commenced a program as well. So naturally, they're a competitor. And yet, I think with 2 sort of voices out there in the marketplace, do you see some benefit from the fact that the 2 of you are kind of out there somewhat in tandem, both making noise?

Only 20% of the population is diagnosed right now. And of that 20%, half of them are being -- are not being treated appropriately, meaning with the VMAT2 inhibitor. The other half are being treated old school, which we call the 3Rs, which is reduce the dose of their antipsychotic, replace the antipsychotic with another one or remove the antipsychotic altogether, none of which have been shown to be effective. And as a matter of fact, about September time frame or October time frame last year is the first time in 20 years that the APA updated their guidance for TD, and they recommend that first-line treatment for tardive dyskinesia is a VMAT2 inhibitor. So that is something that during this time of pandemic, we're making sure that nurse practitioners, psychiatrists, they have that information from their -- from the APA.

20 years, wow. So I'm trying to think about what that says about kind of the specialty, to a certain extent, right? There's obviously great traditions that go back, there's kind of schools of teaching and whatnot, the whole idea of intervening in diseases with therapeutics is still relatively nascent when we think about, I don't know, high blood pressure, other medical conditions, so to speak. And so when you think about the -- how you're going to measure the success of this campaign, you know that Wall Street is very much impatient and want to sort of see, it's like, "Oh, cool, are we going to see this in 2Q numbers, et cetera." Frame for us the expectations for the time line at which we're going to be able to be fair in our assessment of seeing whether or not this is having an impact. And I realize this is going to be occurring in synchrony with gradual reemergence, especially in the U.S. from the pandemic, but how are you going to measure the return on your investment from this?

Yes. So we have the traditional measures that we're going to be doing and looking at so we can determine the ROI on this as isolated as we can from all the other efforts that we're doing. And as you say, the macro situation of the marketplace, society opening up. But as far as the timing, generally, it takes multiple views before you get the motivation, that call to action from a patient in a television ad. So no, I don't plan on seeing impact in Q2 from this. We will see impact from this later this year. I think the majority of the impact from this is going to be seen next year. So we'll see a gradual build. It's not a step function. We're going to see a gradual build going into 2022 with this, but not anything that's going to be dramatic in Q2.

Right. Everything in the world is about post-pandemic recovery, whether it's airport traffic, foot traffic through retail. When you think about how psychiatrists, your most populous group of physicians who are prescribing, had transitioned to telemedicine. You commented about how there was a little bit more of a lag and not a return to direct inpatient interactions, et cetera. Do you expect that to return to pre-pandemic levels? If so, when? Or is there something inherent about the psychiatric practice that enables people to sit there and say, I'm sitting in my chair, you're in your couch, I may look at you, but I don't touch you, telemedicine, that's going to work okay. What are your thoughts about the post-pandemic recovery? Do we ask them to go back fully or not quite yet there?

No. I don't -- telemedicine is here to stay. Psychiatrists were the largest user of telemedicine before the pandemic. Approximately 10% of their practice was telemedicine. Designed originally because psychiatrists were in short supply so there were parts of the country that just could not see a psychiatrist. And so telemedicine was the answer to that and a very good answer. When everything shut down, psychiatrists went virtually to 100% telemedicine. In our universe right now, the physicians we call on, neurologists are all back in their office. I mean many of the specialties are all back into their office. Psychiatrists are about 50% still, at least 50% still telemedicine. And what that means is, is that it doesn't mean that all psychiatrists are doing 50% telemedicine in their practice. It can mean there's 50% -- and it also doesn't mean 50% of psychiatrists are 100% telemedicine. It cuts all the way across that. But they are far more utilizing telemedicine than any other specialty. It won't get back to 10%. It's not going to stay probably as high as 50%. Where it settles out in the middle, we'll just have to see. But it's -- if I had to guess, I'd say it's going to be somewhere around between 20% and 30% is going to be telemedicine. So it is here to stay. And that's what we're positioning for. We have invested quite a bit in helping health care professionals diagnose TD virtually. We -- and you can -- and anyone listening can go on to mindtd.com and you can see a lot of the efforts that we have put in place to help them do that. There will be more that we're going to be putting in place later this year. So this is something we're investing heavily in. We will continue to because it's here to stay. I think ultimately, this is going to actually increase the reach for potential diagnosis of TD and then for the treatment, utilizing INGREZZA. It will just take a little bit of time in order to actually expand even greater the market than what it would have been without the pandemic. So it is disruptive in the past year. I think it will be constructive going forward.

Okay. Yes. So from a peak sales perspective, it's the time line that might be different, but you see some potential for that to expand. Let's talk about some additional indications. So in Huntington's, there's obviously an ongoing North American trial. Remind us exactly what you think the time line is for us to hear about some data there and how we should frame the results in terms of what will be a competitive offering, comparatively speaking. Will all do unfair things like make cross-trial comparisons, et cetera? But what should we expect and when?

Yes. So our Huntington's trial is on track. We've been saying that it would read out top line data by the very end of this year, and we're still on track for that. I do have to really thank the Huntington's study group, who we're working with in doing this. They're the best group that you could imagine in running a large study like this, and they've been outstanding in really, really challenging times and in particular also with the setbacks that we've seen with some outstanding medicines that weren't able to go forward in Huntington's disease recently. You can't underestimate the willingness of this population to invest themselves in trying to find new and better treatments for Huntington's. When it comes to our study and our drug, it's not a curative. But it is still a very important treatment because the chorea that these patients suffer from, about 90% of all Huntington's patients have chorea. About 70%, the chorea is severe enough that it warrants treatment. Yet with the VMAT2 inhibitors, tetrabenazine, deuterated tetrabenazine that are already on the market for Huntington's, only about 20% of patients are being treated with them. There's a variety of reasons for that in our work that we've done. One is that it's a complex titration that takes place and very time-consuming. It increases the pill burden substantially multiple doses per day with multiple pills per day. There's the black box warning for suicidality, which, with a high background rate of suicidality in Huntington's, makes physicians a bit wary of adding the drugs on top of them. And it is those things that we believe that that's where INGREZZA brings a real differentiation. It's 1 pill, once a day. And hopefully, in Huntington's, as it's done in tardive dyskinesia, shows that from the very first dose, the very first dosage level, you're working with an efficacious dose. And so you don't have any of those burdens. In addition, Huntington's patients have a real problem swallowing. That's why the pill burden is so high. And INGREZZA is one where not only is it just 1 pill once a day, but you could actually open the capsule and you can put it into food, into pudding, anything we want, makes it a lot easier for the patient. It may sound simplistic but that's a big deal. So I think a lot of the things that have made INGREZZA the market leader in TD bode well for us to enter into the Huntington's population.

Right. Now the sprinkling it into food. It's a dessert topping. So I think we've certainly seen that for potentially deficit drugs, et cetera. Just people finding the way to titrate to the effect that they're looking for. So lastly with INGREZZA, there's some additional indications that you've been kind of stealth on in terms of the neurologic and psychiatric indications. You have this vast database of experience from patients looking at safety and making sure that patients who are staying on their, say, baseline antipsychotic medication that may have prompted the development of their TD, that the clinical benefit that they were seeing from that psychiatric medicine wasn't diminished. My sense is that for the indications that you believe that might be for psychiatric disease, which you haven't specifically revealed, you're inferring that there is some benefit for psychiatric condition from INGREZZA on a primary basis. Can you speak at all to sort of the source of the data points? Because I think maybe I had just always assumed that while we're not doing anything with the therapeutic and psychiatric side, but clearly you see a path there. Can you share any insight?

Well, so when we go into an area, we constantly do research on that area not just during the drug discovery portion or the drug development portion but far longer. Even when we hit roadblocks, we constantly want to understand the mechanism that we're working with when we're in an important area. Take a look -- I'll diverge for a second. Take a look at our work with corticotropin-releasing factor, CRF. We've been around as a company 28 going on 29 years now. If you looked at our original business plan, written there is, number one, what were we founded on? To discover and develop orally active small molecule CRF antagonist. And here, 28 years later, that's what we're doing, CAH, crinecerfont is the CRF receptor antagonist. We've created thousands of them. We first were doing it because we are a neuropsychiatric company in our founding. And for many, many years past that, we worked with multiple large pharma partners along the way in that effort. And we were able to develop highly potent, highly selective CRF receptor antagonist, safe CRF antagonists and -- for anxiety and depression. But we showed that at least with the state-of-the-art that we're in today, we could not show a psychiatric benefit with the CRF receptor antagonist. But we've always worked on the mechanism. We've always done that. And we went down -- we went back to basics that corticotropin-releasing factor is just that. It's a releasing factor, a hormone releasing factor. So we went back to basics and said, that's what it does. It works on the pituitary and then it has multiple downstream effects in CAH when you're talking about going down to cortisol formation in androgens, that's what CRF does. And so because of our constant work there, continuously working on it for 28 years, we brought that to bear on CAH, and that's working out extremely well for us, and we're in Phase III clinical trials both in adults and pediatrics worldwide now. With the VMAT2, it's the same way. We've always continuously worked on looking at all the different pathways with VMAT2 inhibition. And so within that, we're very well aware of that it affects monoamines and their delivery into the synaptic cleft, and so that naturally takes us over into neuropsychiatry. And it's work that we've been doing in there. And as you've said, observations that we're able to make in 4 years being on the market within the psychiatric population that brings us to going into a psychiatric indication and also an additional neurologic indication a little later this year. And as they're posted on clinicaltrials.gov, that's when they will be -- you'll see what are those indications exactly, what are the clinical trials designs look like.

When should I have my search engine looking for those clinicaltrials.gov posting?

Yes. I think it will pop up pretty -- on there. It will be later this year. We started the year saying that we wanted to start 8 mid- and late-stage clinical trials this year, and we upped it to 9 late- and mid-stage clinical trials, and we are on track to do all of them thus far.

Got it. You had made reference to crinecerfont, which is the, I think, pipeline item which is most intriguing to some folks, really, really difficult area scientifically. Obviously, there have been efforts from companies like Melinta that have done the company in. So it's definitely not for the faint of heart. You're pursuing 2 trials, 2 groups of patients, pediatric and the adult. I think there's some -- remind us, there are some differences in the end points and the trial design between those 2 populations. Can you just remind us sort of how we should think about the data sets that are going to be coming forth? And do we know which one will be presented first and whether there should be any kind of read across? So that's...

I'll give -- probably later in this year, I'll give more of a guideline to time lines for each of the trials as we're able to get them more fulfilled in enrollment. So I have a better idea of what enrollment is looking like. As you know, there are both international studies. And Europe is still struggling mightily with COVID. CAH, the patients are diagnosed at centers of excellence, both in the U.S. and in Europe. So in the U.S., it generally requires patients to be traveling across state lines, which a few months ago, that was difficult. In Europe, it means traveling between countries, which is currently extremely difficult for patients to do. So we're concentrating. While Europe is more of a challenge to get studies really enrolling at the rate that you want them to, we concentrate our efforts and doubled down on the U.S. where we can have an effect and have Europe mainly coiled so that as they open up more, which it shouldn't be too much longer where Europe is going to be able to, hopefully, knock on wood, be in the same position the U.S. is right now, that those trials will spring into action there. One of the things that is so important to us about CAH is there's not been a drug approved for these patients in 50 years. I mean hydrocortisone, that was it. And so they desperately need a change in their standard of care. They have 2 things going on. Number one, the genetic lesion that doesn't allow them to make cortisol so that they need cortisol replacement. But that not being able to make cortisol then shunts everything down into making high levels of the androgen. That needs to be taken care of. And then the fact that to take care of that currently, you have to give super physiological doses of hydrocortisone to try to recapture that hypothalamic pituitary adrenal axis. So you've got this constant rebalancing of every patient where you're either undertreating them, and therefore you're getting too much of the androgen drive going on, or you're overtreating them and you have a whole lot of hydrocortisone going into the patient and all the side effects there. What we've shown in real good Phase II data right now is that we can with crinecerfont recapture the HPA Axis. We can dramatically reduce the amount of shunting into that pathway for the androgens. So we've shown that really well. Logically, it seems then, since we have taken care of the underlying defect of the disease there, it should be able to bring down the glucocorticoids, but that's what still needs to be shown in our Phase III studies. Now as you point out the Phase III study, the single Phase III study in adults is slightly different in the primary end point that we take place in the kids. One is with glucocorticoid reduction, the other one is with androgen levels. Yet, their secondary end points crossover, right? So they're -- both of those are in both of the studies. The reason for wanting to look primarily at the androgen levels in the kids is that because of the profound effects it has on bone and it has on growth, and then as they're growing, also on fertility that can have long-term consequences. So that's why the androgens are so -- it's a primary importance in the kids. Not that they're important -- not important in the adults, but it's more secondary in adults. In the adults, it's really those high glucocorticoid levels that they're having to take, which is causing much of their metabolic cardiovascular problems there. So that's why you see the different focus of each of the trials, but they are basically measuring both in each of the trials in complementary to one another.

And certainly as you outlined the constraints in terms of executing these trials amidst the pandemic internationally, what's a reasonable time frame for us to think about when we're going to see some data from both of those studies?

Well, what's listed in clinicaltrials.gov is that everything is done including the whole safety database that goes on in their 1 year follow, it's in 2023. But we're working as hard as we can to move those forward. But like I said, I'll give more updates as the year goes on.

Okay. Terrific. Just briefly on 844 and luvadaxistat. So I think there was a secondary end point that you were looking to pursue now for cognitive impairment for schizophrenia. My sense from talking to investors was that there was a bit of a surprise. Talk to me about the go/no-go decision and when you'll have that ability. You're continuing to pursue development here for a specific indication opportunity set, how compelling should we be thinking about this, particularly after...

Yes. So Takeda designed and really ran a great Phase II trial there in the negative symptoms of schizophrenia. And when they had first designed that several years ago and before they were launching it, within Takeda, quite honestly, the DAAO inhibitor, which luvadaxistat is, that mechanism had equal data weight to take it either into negative symptoms of schizophrenia or cognitive impairment associated with schizophrenia. Takeda made the call to make the primary end point the negative symptoms and the secondary end point, they utilized 2 scales for cognition, the BACS and the SCoRS. And personally, I think that was the right decision that Takeda make at the time that they did that with the weight of the data they had. Better to have 1 primary end point than 2 primary -- co-primary end points going in there. But as we saw, it did not seem to have an effect on the negative symptoms. But what was seen was a statistically significant and clinically significant impact on both of those scores, of BACS and SCoRS. And as far as we know and our Takeda and our advisers know, no other drug in the trial -- single trial has hit on both of those cognitive scores. Had we only hit on one of them, we wouldn't be here talking about this. The fact that it hit on both is really intriguing. So we have designed a clinical study. We will be starting it by year-end. It will be up on clinicaltrials.gov. And you'll see that study to go into and we're moving as rapidly as possible to see was that spurious that it hit there? They were secondary end points after all. Or is that signal real? And so we're doing that Phase II trial to uncover that. We feel that it is such a serious unmet medical need, the cognitive defects in schizophrenia. It affects probably 90% of schizophrenics that we have to run this down. So that's what we're doing.

Got it. Well, we're at the top of our hour, but I just have to ask you one thing. So I noticed in your backdrop that there are some that look like dollar bills thumbtacked to your bulletin board there. So you see that sometimes at restaurant, right? It's like this is the first customer that we had, the first pizza that we sold. Is that the cash that Todd had to like shuffle out of his wallet after he lost the bet on the Aduhelm results? Or tell me just what's the story on those bills there?

One of them is we're in a high-risk business so my wife doesn't allow me to bet any more than $1 on sports or anything else. So those are particularly satisfying $1 bets that I've won over the years. If you notice, there's not a lot of them, so I'm not really a betting man. And the other thing that's been called out is my collection of sunscreens that are over there. And when you're a fair-complected redhead who's lived in Southern California virtually his entire life, you are always slathered in sunscreen. Chris, it's been a pleasure.

Thank you so much. Really appreciate it. We look forward to seeing you in person hopefully soon. Thank you, everyone, for joining us.

Take care.

Bye-bye.