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

All right. Good morning, everyone. Welcome back to Baird's Healthcare Conference. I'm Brian Skorney, I'm one of Baird's senior biotech analysts. Really happy to have with me as the next fireside chat presentation the management of Neurocrine Biosciences. We have Matt Abernethy, the CFO of Neurocrine and Eiry Roberts, the Chief Medical Officer of Neurocrine. Matt, Eiry, thanks so much for joining us today.

Maybe to just kind of start off, you can give us an overview of your business model, what areas you're focused on from a commercial and development perspective, and how success of INGREZZA, your lead commercial product pipeline expansion, evolve your focus?

Sure, Brian. Thanks for hosting us. And I would say we're going to make forward-looking statements. I would direct you to our latest SEC filings for the related risk factors and uncertainties associated with our company and then also our industry. So if you rewind 15 years ago, Brian, and you think where was Neurocrine? Neurocrine was -- had the failure with Indiplon. They had rightsized the company from around 700 down to 67. And the management team at that time, really, I guess, you'd say, pushed all their chips in behind elagolix and then valbenazine. And as a result of that, we sit here today. So with INGREZZA getting approved in 2017, we now have a multibillion-dollar medicine on our hands and what that has allowed us and afforded us to do was really reinvest into the business and build out our pipeline. So if you look back over the last 2 or 3 years, you really see that we've been able to in-license a significant number of assets from the outside. And that's making Eiry's job quite busy, as you can imagine, right now. But those investments really span neurology and neuropsychiatry and epilepsy. So we have a lot that we're looking forward to, a lot that we have going on. And so from a business model perspective, yes, we became commercial. And as a result of that, because of the rare, I guess, success of INGREZZA in a commercial launch, we've been able to reinvest back into the business. COVID clearly had a little bit of an impact on our growth trajectory. But over the last couple of quarters, we've really been able to get back on track. So Brian, if you were to ask me how is Neurocrine? How are we doing? What's going on? I would just say we're heads down. We're absolutely heads down executing on INGREZZA, executing on our pipeline. And we have the financial and people resources to be able to take it to the next level. If you -- you might know, early this week, we announced that we're going to be expanding our sales channel, and that's going to be something that takes place and is finished by the second quarter of next year. And that's something we continue to learn through this launch, and that's something that we're really quite enthused about as well. So heads down, executing and really getting out there, Brian.

Great. I mean one of the favorite phrases on the bio side is short the launch. It's very rare to see a launch go well. INGREZZA is definitely one of the exceptions to that rule. It's been a fantastic launch. Maybe you can talk a little bit about the mechanism of valbenazine and its first indication, tardive dyskinesia and why this has materialized from such an overwhelming success?

Yes, Brian. Good to see you, and thanks for having us. We're really happy to be here with you today. So yes, we've been very excited with the success of INGREZZA and the value it's been able to bring to patients with tardive dyskinesia. Just a little bit of background. So tardive dyskinesia is an involuntary movement disorder, it's irreversible in nature as well. And it tends to occur in patients who had exposure to over a moderate to longer-term period to antipsychotic medications. And we know that over the last years, the use of antipsychotic medications across a range of serious neuropsychiatric disorders has been growing very substantially. And so the problem of tardive dyskinesia also remains as a big issue for patients. It causes involuntary movements in many parts of the body. People recognize usually the orofacial movements, that pathognomonic of the disorder, but it can occur in other parts of the body as well, in the limbs, in the trunk. In addition to the actual problems with the movements themselves, you can imagine that the issue of having these involuntary movements has a major impact on people's social life, on their functionality and really can impact all elements of their life. And so it is believed that the mechanism of tardive dyskinesia is due to hypersensitivity to dopamine in the brain, in particular areas of the brain. And the way in which INGREZZA works is that it inhibits the presynaptic packaging of that dopamine, so that not so much dopamine can get into the synapse and cause problems associated with those movements. And so we were able to perform a very successful registration program, which resulted in INGREZZA being the first approved medication for the treatment of tardive dyskinesia in the United States. And it's a very simple medication. It's a once-a-day treatment. You have the opportunity to start the medication at a potentially efficacious dose with no need for titration. And so from that perspective, we've been able to bring significant value to many patients. Now we're only just touching the tip of the iceberg though. So we're really interested in understanding how to serve more patients, both in the context of tardive dyskinesia and as we'll probably get on to later the broader indication -- set of indications that we think could be served with that VMAT2 inhibition mechanism.

Great. So you said -- you mentioned the tip of the iceberg, and it's something that I was going to bring up. Kevin refers to the tip of the iceberg quite often. And as Matt kind of talked about you have a press release earlier this week on discussing efforts to kind of target an even larger number of physicians who treat TD. So I guess, how do we kind of think about getting below that sort of tip of the iceberg? And what do you wind up seeing as the total addressable market that you can attack here and maybe even going a little more depth on the recent press release and the commercial efforts on inroads to start penetrating below that surface?

Yes. First of all, as a San Diego boy now, it's hard to talk about an iceberg, but I think the clearest way to say where we're at in the market development is 90% of patients with tardive dyskinesia are not treated today. It went from 0 to, call it, 10% now. So there's many more patients that we know can benefit from a VMAT2 inhibitor, and that's really our aim and focus as a company. I guess, 2 major investments, Brian, that we've made recently, one is the direct-to-consumer advertising campaign, and that's TD spotlight. And that's really an initiative if you think back about how we launched INGREZZA. What our first step was just educating psychiatrists. What is a movement disorder like TD? How do you diagnose it? And to keep it on the radar. A psychiatrist doesn't drive into the office thinking about a movement disorder. They're thinking about the underlying mental health condition of the patient. So really, our first phase was really just educating what is TD? How do you treat it? How do you diagnose it? We've now reached a phase where we want to engage patients in that conversation. A patient who has a movement, they don't know why they have the movement. They don't know why they should talk to a psychiatrist about a movement, that would be like you going to the dentist and talking to the dentist about your ankle. So what we're calling out in the DTC campaign is these movements, talk to your psychiatrist about it and see if INGREZZA might be right from you -- for you. So still educating. And then we're also pushing on the patient side at the moment. As it relates to the sales force expansion, what we've learned really -- it's been a learning launch ever since we entered into the market. We've used that term before. But what we've seen is that we can have a much -- we need to have a much broader reach to be able to service many more potential prescribers. And we're specifically -- we're not providing a lot of specifics right now due to some competitive reasons. But over time, it will become more known why we're -- why and how we're expanding our sales channel. But it is something that, as we think about accelerating INGREZZA to reach multibillion-dollar drug status, this is one of those items that we really firmly believe in investing behind. And the last piece I'd say is we still have a long road ahead of us. Our exclusivity window through IP will take us into the 2030s. So we're investing for the long run in this brand and developing it as quickly as possible. Eiry, is there anything I missed in terms of actions we're taking to further develop market?

No. I mean I think the only thing I'd add, you covered it very well, is that we still have a very significant medical affairs effort supporting the educational effort around teaching psychiatrists and other prescribers how to interact with patients and understand how to diagnose and treat tardive dyskinesia. In that area, we're focused very heavily as Matt, I think, alluded to on the differential diagnosis and also on the differentiation of INGREZZA as a medicine from other potential therapies that might also be used in that space.

Got it. So last quarter, you had $260 million in inventory adjusted product sales. I think that's a new high watermark for the product. It did have a bit of a negative impact over the sort of shutdowns from COVID, and that's maybe why it took a little bit to kind of reachieve that high watermark. I guess, what efforts have you made to kind of overcome some of the hurdles presented by COVID? And how do you kind of look forward at the product over the next quarter or so with sort of the Delta wave spiking, maybe it's nothing to walk around the streets of Midtown Manhattan today, it doesn't seem like people care. But just any thoughts on how to navigate through any further COVID speed bumps?

Yes. Well, first of all, COVID has not been helpful to our business. And when you think about psychiatry and asking psychiatrists to formally diagnose a movement disorder, that's a hard ask even when they're seeing patients in person, let alone when majority of their visits pivoted to telemedicine. So I do think $269 million of inventory adjusted sales, that was quite an achievement. And I think people closest to the story understand the sequential growth that we had from Q1 into Q2 was quite strong and really reflects continued adding of new patients even close to where we were pre-pandemic. And that's in light of 50% telemedicine still ongoing. So I think that the main aspects that we're focused on right now is control what we can control. Engage with those clinicians who are in the office. In addition to that, we're developing tools and educational initiatives around telemedicine to ensure TD stays on the radar as well as there is a comfort to make a diagnosis via telemedicine. So Delta variant, I would say, Brian, although -- and I had the Delta variant personally, my whole family came down with it. So I'm not going to make little -- light of COVID. But I would say from an impact on our overall business, we're not seeing the level of clinic shutdowns that we were before. Patient flow seems, like you said, to be similar to what we were seeing last quarter. So although impactful, nothing compared to what we saw in 2020 when the surges initially began.

Right. Now recently you've sort of taken the steps to reposition valbenazine as a pipeline in a drug with a Phase III study ongoing Huntington's chorea as well as programs in adjunctive treatment in schizophrenia and dyskinesia associated with cerebral palsy. What do you sort of see as the addressable market for each of these indications beyond sort of being rather a TD opportunity?

Yes. Brian, happy to take that. I mean I think we've always known we had an interest in the opportunity for VMAT2 inhibition to add value for patients much more broadly than tardive dyskinesia. And so the success of INGREZZA in the marketplace has given us the opportunity to invest in other indications. So we're doing that pretty aggressively right now. If you think about Huntington's chorea, first of all, the chorea in Huntington's disease affects about 30,000 patients. And of that, 90% plus have the chorea, of which about 70% of patients have moderate-to-severe chorea, which is -- requires treatment. Interestingly, even with that in place and there being currently approved VMAT2 inhibitors and other much older medications, only about 10% to 20% of patients actually receive treatment with a VMAT2 inhibitor. And we can talk a little bit more about why we think that might be if that's of interest to people. The second indication that we're pursuing is adjunctive treatment to schizophrenia. And we obviously have a lot of experience of treating patients with schizophrenia with INGREZZA in the context of treating the tardive dyskinesia. But schizophrenia itself is a disorder that affects about 3.5 million people just here in the U.S. And of that population, only about 30% get a really great response to their current medication and approximately 30% of the population do not respond. And so there's a significant unmet need for -- and a need for adjunctive treatment to add on to currently used antipsychotics in treating that patient population. And there are no currently approved antipsychotic adjunctive treatments. And so we saw that as a very significant opportunity to add value for patients. The third indication is dyskinetic cerebral palsy. This is the most common movement disorder, particularly in children affecting about 3 in 1,000 patients. And as a disorder, it also progresses -- continues into adulthood. There are no approved medications currently for treatment of the dyskinetic movements associated with DCP. And so again, we believe with the mechanism that we have in VMAT2 inhibition with valbenazine, there's excellent rationale for a potential value in that indication. And so we're pursuing that as well, in registration trials right now.

Okay. So as you sort of alluded to, there's a lot of overlap in terms of the treatment of tardive dyskinesia and patients who are schizophrenic. So I was just wondering if there's any sort of anecdotal data that you've heard from investigators or any sort of investigator-based studies kind of evaluating, any sort of the role that valbenazine can have as an adjunctive treatment in schizophrenia?

Well, obviously, we hear anecdotal information, but I think there are other elements of the story that are kind of more compelling to us than even any anecdotal information we've receive. First, if you think about it from a mechanistic point of view, antipsychotic medications that are effective in treating schizophrenia right now, they act by blocking dopamine postsynaptically in the brain of schizophrenic patients. And as a result, obviously, this reduction in dopamine is helpful in the management of the psychotic symptoms in schizophrenics. We know from a lot of clinical data that's been performed mechanistically that heightened dopamine activity presynaptically is the cause of inadequate response to treatment in at least a group of schizophrenics. That's been shown through imaging studies and other things over the years. And so the fact that a VMAT2 inhibitor works by damping down that presynaptic dopamine activity would make it very reasonable to suggest that a drug that could inhibit the synaptic dopamine could have an impact in improving symptoms in those patients where remaining symptoms occur. Obviously, the challenge for us in our previous work in tardive dyskinesia is the patients coming into those trials were stable in terms of their psychosis. And so we were very pleased that we saw no detrimental impact to VMAT2 inhibitor in that patient population, but it was impossible to look at an improvement in symptoms in patients who are already stable. The trials that we're doing right now are really focused on understanding patients who are acutely psychotic and have remaining symptoms and how we can potentially reduce those with presynaptic dopamine inhibition.

Great. So as you said, Matt, at the beginning, maybe 8 years ago, company went all in on really INGREZZA and elagolix. And since then, sort of an exponential expansion of the pipeline. So when we kind of look at the rest of the pipeline and the activity that you've had on the BD front, can you give us a quick rundown of what you sort of see as the most promising programs right now and what catalysts around those could make them a meaningful part of the valuation in the coming year, 1.5 years?

Yes. Well, I think the -- it's interesting you bring up where we were at and I always appreciate these kinds of conversations because it makes you really reflect not having been with the company when they made the decision to go all in on elagolix and valbenazine. When you're really capital constrained, you really have to focus on just a few items. So all of a sudden, we went from a constrained company to a medicine growing significantly like INGREZZA, and it really opened up the door for us to expand our pipeline. And so Kevin would say, he loves all of his children, talking and referring to the programs. But I believe the items from a catalyst perspective that are upcoming, we should have some essential tremor data in the first half of next year, and that's with the Idorsia asset that we're working on and Eiry can touch on that if of interest. And then the second program in epilepsy was with Xenon and that's for both the rare pediatric indication as well as focal onset seizures. So you think about what we could do with those 2 in-licensing transactions is you're building a potential to make an impact in the epilepsy market across many of the different varieties of epilepsy. The second program or group of programs is within neuropsychiatry. Neuropsychiatry brings a whole lot of risk behind it. And it's hard to beat our chest and say yes, this is going to create a whole lot of value in the near term because the studies we have to get to data. We absolutely have to get to the data, and we're not the type of company to overhype in that regard. But we do see a significant unmet need within neuropsychiatry. We do believe we know more about the mechanisms that are at work and we are very enthused with the Takeda program. So Eiry could touch on both epilepsy and then also neuropsychiatry. And then the last piece which isn't within the in-licensing, but we'd say it's our highest priority program is within congenital adrenal hyperplasia. That's in Phase III study right now in both adults and in pediatrics. And we've not given a formal update on where we are at in an enrollment perspective. But if you recall, a lot of our conversations have been about getting into the pediatric population and intervening early to reduce the steroid exposure that these patients are taking as they're in childhood development. So that's also, I guess, if you said what's our highest priority program? That's it there, Brian. So Eiry, I'm not sure if you want to touch on epilepsy programs in neuropsychiatry.

Yes. I mean I can touch on each of those. Just kind of a general comment about the pipeline. I think our philosophy, as we invest in these molecules, you alluded to it earlier, Brian, I mean, I think we're very interested in mechanisms where there is a breadth of opportunity across different indications and therefore, an opportunity to serve patients broadly. And you see that definitely with our epilepsy programs. And then, obviously, within that, we have to be looking for ways in which we're going to be able to differentiate for the patient population, particularly in the face of some of those targets already being validated in some patient populations. And so for the Xenon collaboration, the Nav1.6 inhibitor, our initial foray that you see us undertaking is into a genetically mediated rare pediatric epilepsy SCN8A where the Nav1.6 target is known to be directly implicated in the cause of that disorder. And so we believe that gives us a very good opportunity to truly test the hypothesis of a selective precision medicine against the sodium channel Nav1.6. Similarly, I think in the calcium channel antagonist that we in-licensed from Idorsia, our reason for being interested in that area is obviously calcium antagonists have been used quite broadly in epilepsy in the past and to some lesser degree of success in essential tremor and other areas. But most of the medications have been low potency and have been associated with a lot of side effect issues and therefore, an inability to dose to the kind of levels that produce the true efficacy. So here we have a very much more highly potent molecule defined in the chemistry environment in a very specific way that allows us to hopefully dose to -- doses that will be effective for patients without the type of side effect profile that have been seen before. So that's part of our philosophy is how we're able to differentiate in that space. Same is also true for the Takeda assets. Several of the molecules in there, the mechanism is unknown to a certain degree, although not fully validated in the clinic. But if you think about the nature of those molecules, we've been very encouraged by the work that Takeda has done before us getting our hands on those molecules as well to differentiate [ the type of ] mechanism in a very different way. So we have a unique opportunity.

Great. That's really helpful. I guess, as sort of the biggest priority or later stage asset in the pipeline with crinecerfont, maybe you could just kind of talk through a little bit about the market opportunity in CAH as you see it. And when eventually we see some Phase III data here, what the expectation should really be in terms of what's a clinically meaningful improvement?

Yes. So as a reminder, I think Matt alluded to it as well, we have an ongoing registration program in congenital adrenal hyperplasia in both adult patients and in pediatric patients. There's a significant unmet need in both of those patient populations. The unmet need is just a little different in pediatrics versus the adult population. I'll just mention that briefly. In terms of the numbers of patients with CAH, we see about population of approximately 30,000 in the U.S. and probably about closer to 50,000 outside the U.S. and Europe. And our program is running currently in the U.S. and outside the U.S. and Europe. The key issue with congenital adrenal hyperplasia is that the patients lack both the usual [ product type ] that they need to survive, but also as a result of the enzyme blockade that -- absence of the enzyme in that disease, they have raised androgen levels and those raised androgen levels and raised ACTH cause problems in and of themselves, particularly in children around growth, around later in life fertility and other things of that sort. And so to control those androgens and prevent the problems with the underlying disease, patients need to take very high doses of steroids in order to suppress those androgens to more normal levels. So the intent of our program is that crinecerfont, through its mechanism of action, can control those androgen levels at a more fundamental level of the disease level without the requirement for those excessive steroid doses that cause problems in and of themselves, metabolic bone and other issues. So our program is designed to understand the effect of crinecerfont directly on androgen control plus the ability to reduce steroids in patients in a controlled way within the study so that we can show that the reduction in steroids that those patients will receive can also be beneficial for them. And so when we come to the end of the trial, we will be in a position to be able to describe both the control of androgens and control of the disease itself that crinecerfont produces and to describe the type of reduction in steroids that we've been able to demonstrate and the value that, that has potentially by linking to longitudinal data and other data sets that already exist in the external environment.

Right. That's helpful. Matt, on the BD front, I mean, as we kind of discussed, you guys have expanded a lot in the pipeline, there's always a question of increase in numbers of shots on goals versus exhausting bandwidth. I mean how do you guys kind of sit right now on the BD side of things? Do you have a lot more bandwidth to do more deals? And what sort of deals are the ones that Neurocrine is likely to be looking at?

Well, I'd say from a financial perspective, we have plenty of bandwidth. I mean we have $1.2 billion in cash. Our investment in R&D is not quite to where you would want to be over time to be able to have a sustainable business model. But Kevin and I have also, and the management team, committed we're not going to just spend money to increase shots on goal unless we really like the asset. We really like the science, and we really feel like we could add some value to it. So we're looking at things that span in-licensing, acquisition ranging from early stage, even commercial. And those are things that we've been betting over the last 2 or 3 or 4 years. But I would say with the pipeline where it's at today, of course, you always want more shots on goal, but we feel very good with what we have right now. So I would describe us as heads down focused on what we have. But at the same time, Kyle and team and all of us still think strategically. And if we saw the right deal out there that would set us up for long-term value creation, we would not shy away from doing it. But we aren't at a place where we feel desperate like you have to. We have a nice pipeline. We have really nice exclusivity with INGREZZA. INGREZZA continues to grow. So I would just say we're focused on executing with what we have. And then as things pop up, we'll pull the trigger if it makes sense for us.

I think we've addressed most of the questions that I've had. We could talk forever. But in the last minute here, is there anything that you think I missed or you really want to accentuate for investors listening?

No. I've really appreciated engaging with a lot of the investment community over the last quarter or so. And I think biotech has different capital rotations. It's definitely been a time of volatility. There's been capital migrating to different pockets of biotech. And part of that is out of our control. And so when we look at our performance, the value potential of INGREZZA, the value potential of our pipeline, we're quite enthused by that. So we're staying focused. We're doing everything that we can to continue to grow INGREZZA, that's our #1 capital allocation priority. And then beyond that, advance the assets that we have in hand and control what we can control. So we're hard at work here in San Diego and look forward to connecting with everybody post our Q3 results in early November. So thanks, Brian, for hosting us.

Well, thank you, Matt, Eiry. A pleasure as always. Everyone online, thanks for joining, and hope we'll pick out some of you in the next session. Bye.

Thanks so much, Brian. Good to talk to you. Bye.

Thank you, Brian. Bye.