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

Welcome to the Morgan Stanley Global Healthcare Conference. I'm Jeff Hung, one of the biotech analysts. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. For this session, we have CEO, Kevin Gorman from Neurocrine Biosciences. Good to see you again, Kevin.

Good to see you too, Jeff.

For those who may not be familiar with Neurocrine, can you provide a brief introduction?

Sure. And let me just start out with saying that I will be making forward-looking statements. So I'd like to direct people to our most recent giving SEC filings for all the warnings and risk factors. For those of you who are not familiar with Neurocrine, we've been around for pretty close to 30 years now. 26 of those, we've been purely an R&D shop. For the last 4 years, we've been very fortunate to have been able to have drugs successfully make it through the entire discovery development process and FDA approval. Significantly the drug that we market solely ourselves in the United States is called INGREZZA. INGREZZA is -- has been developed to treat a movement disorder and irreversible movement disorder known as tardive dyskinesia. Tardive dyskinesia is a disorder that affects about 600,000 patients in the United States and it is caused by the long-term use of important medicines to treat psychiatric diseases and those of the antipsychotics. Neurocrine, as I said, has successfully commercialized this and we're very pleased with what we've been able to do here in bringing this important medicine, the drug with -- to patients and for their treating physicians. It has been warmly received. It's the first drug ever to treat tardive dyskinesia and it is proved to be extremely beneficial to patients. What we have found now over this period of time in the 4 years has been that the expanded universe that we've discovered of potential treaters and actually prescribers that we have of the drug, but whereas we started with the notion of how many prescribers there might potentially be and then we discovered there were very many more. So about 2 years ago, we expanded our sales force. Well, yet again, what we have found in the last year is that -- and helped uncover through COVID as it turns out, that there's even a greater number of potential prescribers. And so we will be expanding our sales force again here. So we've been planning for it and that we're going to be launching on that effort to yet once again, expand our sales force. So that's a significant investment because the opportunity here is relatively untapped. Only about 20% of TD patients have a diagnosis of tardive dyskinesia and only half of those that have been diagnosed are being appropriately treated. So there's still the vast majority of this opportunity, even though the sales are approximately $1 billion is only just beginning. And then in addition to that, the finding that telemedicine and how it has been adopted by the psychiatric community, 50% of all visits by that sites are doing is telemedicine. And so adapting to that, we found will be significantly aided by a larger sales force. And then finally, I would add as an introduction to this is that by the end of this year, we will have 5 pivotal programs ongoing, and we will have 7 other mid-stage programs within our clinical pipeline. So we're in a strong financial position. And Jeff, that's my introduction.

Great. Thanks, Kevin. You mentioned that you're going to be expanding the sales force again. Maybe if you can just start by reminding us like, what's the time line? And how are you thinking about this? When should we expect that sales force to expand and by how much?

Yes. And so we're launching that just now as we move forward. And so what I would say is, is that we will have some of that expansion taken care of by the end of this year and then we'll have the further expansion probably take place into Q2 of next year. What we're very cognizant of is Q1 is always a difficult quarter for us and not just for Neurocrine, but for specialty products because of all the reauthorizations that come through. And so you want to minimize the disruption that you have in Q1 because everyone needs all of our commercial organization, there needs to be focus on getting all the reauthorizations, prior authorizations done in Q1. So we want to have the new -- the additions to the sales force on board as rapidly as possible, but we balance that with not minimizing the disruption in Q1.

And the last time you did the sales force expansion that happened kind of roughly the similar time frame or part of the year. And if I remember correctly, you had a period of time where there was a ramp-up for the newer sales members. And I guess maybe how should we be thinking about that for those individuals. Should we kind of use like the last time as kind of a proxy for that or is it different because of different sales cycles?

No, I wouldn't be for the last time as proxy for that because we kind of did that whole ramp where we brought everyone in and then add a bolus -- every -- all the new reps were trained and started at the same time. That won't be the way that we do it this time, number one; and number two, is that we've gotten much, much better with our training because we trained our current sales force at punctuated periods throughout the year. There are very specific training periods that they go through and we've always done that. So I think, again, as you grow in sophistication as a commercial organization, you're able to be tactically better at things. And we did find that last year and the first part of this year, we're really challenging with COVID. And so we learned a lot about ourselves and we learned how to improve during that, I think, going forward now.

Great. And actually, that was going to be my next question was, given everything that's gone on with COVID and Delta variant, are there any things that we should be thinking about in terms of -- as you ramp up and expand your sales force in terms of any potential impacts on that or how your strategy is to avoid any impact from COVID?

Yes. What I would say is 2 things, is that the Delta variant, this wave that we're seeing now is -- from an effect on our customers and patients and then from us is nothing like what those first 2 waves of COVID were like. There isn't this wholesale closing down and shuttering throughout the psychiatric community. There are punctuated areas throughout the country that we have seen. And in those punctuated areas, some clinics may actually close up and go 100% to telemedicine, but that doesn't mean all in those very specific areas. And then there are broad areas of the country that have not had to step back at all. So where there's a little bit of bumpiness that has taken place, it's nothing like the whole from Q2 of 2020 on through Q1 of 2021 by any stretch of the imagination. As we said at our end of Q2 call, we came out of Q1 with good momentum. That momentum was carried through very nicely through Q2. And as of July, when we had spoken, that momentum had carried right into July.

And has there been any change to that momentum and has the impact from the Delta variant continued to ramp up in recent weeks?

Yes. Like I said, I -- not to give any inter-quarter guidance or anything, but this is what not minimizing the impact of Delta has had on our country, it has not had the impact on our business as previous COVID has done.

And then in terms of quarterly versus annual guidance, is the plan to provide quarterly guidance until you shift over at some point to annual guidance? Or are the 2 more separate? And I guess how long do you anticipate providing quarterly guidance?

Yes, what we've wanted to do is we wanted to be more prescriptive for our investors and our potential investors during this remarkably unusual time that we've had with COVID. And so that's been important to us. And so we've been much, much more forthcoming on how quarters will look like. I would not foresee us continuing to do that. I would foresee us eventually going to a yearly guidance number. And also because of kind of the bumpiness that is within our business, psychiatry. Looking at quarter-by-quarter is not the right way to look at it at the performance of INGREZZA. It's over a 1-year period of time. It's the much better way to look at it. So annual guidance is in our future.

Great. Last quarter, you achieved your highest quarter NRx performance in over a year, which attributed to the increased sales force activity. I guess with offices starting to restrict access to you, would you expect NRx performance to be reduced? Or are there other sales force activities that can offset the impact of Delta variant?

Yes. Again, our Delta has not been something that has the headwinds that have been -- that would be like the first 2. And also, we have gotten much, much better. We've gotten much smarter over the last 18 months in developing tools in order to better interact with our customers, the psychiatrists predominantly. Neurologists have been back in the office and continue to be back in the office 100%, but we've also developed tools over time that have really aided the psychiatrists in their telemedicine environment to be able to pick up on abnormal movements and then bring those patients into the office for a definitive diagnosis. So those are the -- the sales team and the entire commercial team has done a real good job of being able to do that. I would characterize 2020 was a really difficult year for us. It was a year that we saw more flatness to INGREZZA, but I think what you're seeing is you're seeing that pick back up. And we have record TRx and we have NRxs that are very close to approaching what pre-pandemic levels were like. So I'm feeling very good about that, but we always do keep a very careful eye on the external environment as it deals with COVID.

And to what extent is there a seasonal component to the NRx performance versus the increased sales force activity?

Yes, there's always been, and I believe there always will be a seasonal component to this. As we had discussed there, as I had said just a little earlier, Q1 is always the toughest quarter. We've always talked about it as kind of a tale of 2 quarters. The first 6 to 7 weeks is just an onslaught in the flood of all the reauthorizations that have to be done for Medicare. All the people who are changing plans, and so they have to be reauthorized again. And then there's resetting of prior auths that come through, too. So that hits at 2 levels, right? That hits very much at the physician's office and then it hits very much at the pharmacies that have to go through that. In a highly compliant way, we have specific teams that help as much as we're allowed to do with that but that takes -- and our continued success in growing the number of patients every single year just makes that more challenging each and every quarter. It's then by about halfway through or a bit more in Q1, that we then get back down to business as usual, and that's where we build our NRxs for the quarter, substantially is in that second half. Q2 is usually a very strong quarter for us. Q3, you see the rate of growth trim a bit from Q2. To be quite honest, those are still -- that's still for reasons that I don't think we truly understand. It's not just us, it's most psychiatric drugs is that way. It may be just due to prescribers and their vacation patterns. It may be due to patients and their travel patterns, I don't know. Q4 then is usually another good strong quarter for us as we go through. Again, a reason for looking at INGREZZA on a yearly basis rather than just these predictable fluctuations by quarter.

And you've indicated that only 20% of TD patients are diagnosed and of those only half are being treated according to guidelines. What do you see as the greater challenge from here raising the proportion of diagnosed patients that are treated or increasing the diagnosis of TD.

Both. I think they're each mountains to climb, and we've shown that we can climb those mountains, but they are both challenges and that means they're both great opportunities. I mean when you think about it, even if we never got another patient diagnosed, we can double the number of INGREZZA scripts just by getting -- educating the treating physician that these patients, they've diagnosed, the correct and the best treatment is to go on a VMAT2 antagonist. And that's not just us saying that. Last year, for the first time in 15, 18 years, APA revised their guidance on the treatment of tardive dyskinesia by saying there is no evidence for reducing the dose of their existing antipsychotics on TD. They're replacing it with another antipsychotic or removing the antipsychotic from the patient's regimen and that first-line treatment is treatment with a VMAT2 inhibitor. So that's powerful. That message hasn't gotten out widely to the psychiatric community. So that's going to be something that's been very useful to us in the education of physicians. So that's that half of it. But then 80% of patients are still without a diagnosis. That's a tremendous number of patients that are suffering needlessly right now and that's where we need to really spend even more time and effort in the education in order to get them diagnosed.

Great. Well, maybe moving to chorea and Huntington disease. Your Phase III study is on track for top line data by year-end. Can you remind us of the study design and what do you need to see to be clinically meaningful.

Yes. So this is a study, as you said, looking at the chorea associated with Huntington's disease. And we're using the UHPRDS as the primary endpoint in the chorea scale within that. And so what we are looking at here is to have a statistically and clinically meaningful decrease in their scores there in their total maximal chorea score after 10 to 12 weeks of treatment. 70% of Huntington's patients have moderate to severe symptoms of chorea. And yet only 20% of them are being treated with a VMAT2 inhibitor. Their generic tetrabenazine, several generics that are in the Huntington's market. There is deuterated tetrabenazine was there, yet only 20% are being utilized there. We think that, that is while us coming later into that disease state. We think there's a big opportunity still there for us and that those differentiations of our drug over all of those are even more important to the Huntington's patients than it is in the tardive dyskinesia patients. Number one, we're once a day and we're only one pill once a day. That is very important to the chorea population who has a high pill burden and a very difficult time in swallowing. There's also not a danger if you would chew or crush our capsules. There's no drug dump that would take place there. We're not a formulated drug as is deuterated tetrabenazine. And as a matter of fact, you can open up our capsules, sprinkle them on to soft foods that are much easier for the chorea patient to take. And in addition, whether you're using -- knock on wood with an approval, where you'd be using a 40 milligram, 60 milligram, or 80 milligram dose, it -- you're going to be looking -- you're going to be seeing efficacy right from the very first dose that is it's an efficacious dose, right, from the very beginning, knock on wood, if the clinical results show the same as we did see in tardive dyskinesia.

And what kind of placebo-adjusted difference in TMC score do you need to see? Is it the 2.5 that was seen with AUSTEDO? And how important are the placebo-adjusted PGIC and CGIC?

Yes. So we would anticipate seeing something that would be at least as good as deuterated tetrabenazine here on placebo adjustment and the trial is really well powered for that. PGIC and CGIC are important, and we would hope to have those in the label. So we would hope to see significant impact on those also.

Okay. And then are there plans to report top line data in a press release. And I guess, if so, what would you expect to report? And would you provide the difference in TMC score by arm and [indiscernible] just broadly, how should we think about how we might be seeing this?

Yes. We have a variety of options in front of us to be able to quickly release the data because it's coming in right at the year-end. We're discussing those now. We haven't picked how we're going to be doing it. And you would certainly get sufficient information once we would see what the results look like in order to be able to evaluate how successful the trial was.

Okay. Great. Maybe moving on to additional indications for INGREZZA. You recently announced 2 new potential indications. Can you talk about these 2 indications? And what is the mechanistic rationale for treating these with VMAT2 inhibition?

Yes. So we have initiated 2 registrational studies now, one in the adjunctive treatment of schizophrenia and the other one in the dyskinesia due to cerebral palsy. So ATS, adjunctive treatment of schizophrenia, a psychiatric condition. So there, we would be further detailing to, if positive, the psychiatrist -- psychiatric community as we are now and then in DCP, or the dyskinesian cerebral palsy, that is a neurological indication. And again, we are currently detailing to movement disorder neurologists with INGREZZA for tardive dyskinesia. So the nice part is these are extremely synergistic to -- from a commercial standpoint to what we're doing. And with ATS, antipsychotic meds alone are often inadequate to address all the symptoms and the functional disabilities with patients with schizophrenia. And so there's a significant unmet need there. Valbenazine's mechanism of action of reducing presynaptically dopamine and therefore, having less dopamine in the synapse is a differentiated pharmacological profile, but it makes mechanistic sense on how this could help schizophrenics since most -- since all of the antipsychotics work postsynaptically there in order to block the D2 receptor. So less dopamine coming in for the D2 receptor, looks like that should be beneficial also. We also have an extensive safety database now with TD. And then third, and what I put the least amount of weight on, by the way, is all the anecdotal evidence that comes from being on the market, treating schizophrenic patients and hearing from prescribers back to us. If you look at our Phase III program for INGREZZA, there, we had all patients in the study were stable schizophrenics. So their scores were already quite low. So there was no opportunity to look at moving those scores. They had stable schizophrenia. However, we did see no worsening of this schizophrenia during the -- during those clinical trials in the short term and in the long term. And as a matter of fact, we did see a numerical decrease even from those very low scores that we had there. So that is with ATS. With the dyskinesia due to cerebral palsy, that's the most common childhood motor disability. And it's approximately 15% of those patients that have that. There is no approved treatments for this dyskinesia. And patients are taking multiple drugs off-label and getting very little satisfaction. But again, it's the same rationale with this dyskinesia is that a hyperactive dopaminergic system that we can tone down by reducing presynaptic dopamine release.

And how is dyskinesia due to cerebral palsy different from tardive dyskinesia?

Yes, the phenotypes are very, very similar, especially in the limbs. So that is a very familiar part of these. It's not as much in the oral-buccal-facial, but where we also see that valbenazine works in TD, in the trunk, in the arms, legs, fingers and toes, that phenotypic similarity is the same in DCP.

Great. Maybe one last question. Of the 9 mid- to late-stage study starting this year, I guess, are there any that you would highlight and which are likely to result in data readouts in '22?

Gosh, I really like all of the programs that we have here. I think we've been very thoughtful and very careful in how we balance the pipeline, this mid- and late-stage pipeline that we have between neurology, neuroendocrinology and neuropsychiatry. And I think that we balance them by risk also in the way that we've -- with the late stage, we're building the foundation that we've had for many years with valbenazine and expanding that with crinecerfont in the 2 Phase III trials. It's in independent programs, one in adults with CAH and one in pediatrics with CAH. We're building upon very solid and very convincing Phase II efficacy studies. And then as you move down, there, we have very targeted precision medicine in the -- in both of the epilepsy programs that we have, one that is targeting sodium channels, but sodium highly specific to sodium 1.6 channel. And then the other one, very specific for just T-type calcium channels. So the specificity of those 2 and their role in each one of them in an orphan pediatric devastating epilepsy conditions, with the Na(v)1.6 in SCN8A and the calcium -- the T-Type calcium channels in CSWS, but each one of them have potentially multiple larger epilepsy programs that we can go into there. One of them with the calcium channel is within essential tremor. So we've started that Phase II proof-of-concept study. That will read out in the first half of next year. So we will see that. That's the largest movement disorder that exists in the world. Approximately 10 million patients in the United States alone, equal number over in Europe. And then when you move into our neuropsychiatric portfolio, unfortunately, coming to the end of our time here, we have multiple compounds here. They each have backups. And with each of these compounds, we have multiple psychiatric indications that we'll be going into. So multiple compounds to use and then multiple indications within each of those compounds. And our collaboration with Takeda is one that is a cost and profit share so we then further derisk our neuropsychiatric portfolio, which is important. These are some of the largest devastating undertreated diseases that exist, but they're also the hardest to treat. So we've tried to derisk in every stage that we -- that's possible.

Great. Well, it looks like we'll have to leave it there. Thank you so much for your time, Kevin. Appreciate it.

Thank you, Jeff. Really appreciate it. Take care.

You too.