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

Good morning, and good afternoon, depending on where you are. My name is Kelly Shi, one of the biotech analyst at the Jefferies. Thank you for attending our London Healthcare Conference. We are very pleased to have Neurocrine Management team for this session. From the [ Neurocrine ] are Mr. Kevin Gorman, Chief Executive Officer; Mr. Matthew Abernethy, Chief Financial Officer; and Mr. Kyle Gano, Chief BD and Strategy Officer. We will start out with the opening remarks by Kevin and followed by a fireside chat and the Q&A at the end. Kevin, welcome.

Thank you, Kelly, and it's good to be here in person for our first healthcare conference. I apologize for my voice. I've been getting over a cold. Yes, it's a cold that I have. Before I start out, I would like to take this opportunity to direct people to our latest SEC filings because we will be making forward-looking statements here. Neurocrine is a San Diego-based biotech company. We are and always have been a neuroscience company. We've been in existence nearly 30 years now. We discover -- develop a number of neuroscience compounds, and we have several that are now on the market, both with our partner AbbVie and also our blockbuster drug, INGREZZA, the first drug ever to treat tardive dyskinesia that we have in the market. We have robust pipeline that I'm sure Kelly will get into in just a little while, and we have a very sound financial footing with well over $1 billion in cash and investments in the bank. So Kelly, that's all the time I'm going to take on introductions and would love to get into your questions.

Thank you. It was very quick. So let's start with INGREZZA. INGREZZA has been the cornerstone of European growth for over several years. One question we get asked a lot is what is Neurocrine's [indiscernible] that has the most compelling value in your view? Maybe you can name [indiscernible].

So getting right into the pipeline, it's a great question, Kelly. When INGREZZA now has been on the market just under 5 years, it reached blockbuster status in year 4 in treating tardive dyskinesia. The pipeline that we have now is actually quite broad and deep. We have 12 Phase II or Phase III compounds currently in the pipeline. And approximately about 56 ongoing clinical trials that we're doing. And these are mostly worldwide studies that we're doing. It's a pipeline that was developed on novelty. I know it's an overused word, but it is. We look for great science, both internally and externally. And then it is a pipeline that is to really meet high unmet needs, again, a buzzword, but true. We're not looking to be fourth, fifth wave and the second in a class. We're not looking to try to treat something that is well treated as it currently is. It's also a pipeline that is set up to minimize risk as much as one can do in the field of neuroscience. Neuroscience is inherently one of the more riskier fields of research. But as I said, we've gotten several drugs on the market now with our approach. Within this, and how do we deal with the inherent risks in this. And we're basically in 3 different areas of neuroscience: one is neuroendocrinology; one is neurology; and the third is neuropsychiatry. So those are the 3 areas we're in with multiple compounds in each one of those areas. As an example, in neuroendocrinology, we have a drug that is in 2 pivotal studies: one in adults; and one in children with an inherited disorder called congenital adrenal hyperplasia, or CAH. So those are 2 worldwide studies that we have in there. We have compelling Phase II data that tick us into the Phase III programs in neuroendocrinology. So a highly defined patient population great surrogate markers that we -- that have been known for decades that we followed in Phase II and now we're in the confirmatory Phase III studies. Within neurology, here again, we've gone into with 2 different types of channel blockers. One, a sodium channel blocker; the other one, a T-type calcium channel blocker in the 2 rare inherited disorders that cause epilepsy in children. So each one of them -- each one of those 2 clinical studies that we've started. Those are in genetically defined populations where the drugs have been identified and targeted directly to those genetic abnormalities in there. Interestingly enough, in each one of those, whether you're talking about the sodium channel blocker. We have a larger epileptic program in there, which would be in focal onset seizures as well as in the T-type calcium channel. There is another much larger opportunity that is there that we have in Phase II proof of concept which is essential tremor. And there, that is the largest movement disorder that exists, 10 million patients in the U.S. and an equal number here in Europe. And then in neuropsychiatry, we have a suite of compounds that are in Phase II clinical trials right now, for adjunctive therapy for schizophrenia, for the cognitive impairment associated with schizophrenia, major depressive disorders and also anhedonia. So throughout this entire pipeline, I kind of went from the least risk to the most risk. And again, the way we deal with that is by having a balanced pipeline in there, balancing our investment in each one of these areas and letting the science, the data in humans is going to take us forward with those.

It is a very broad pipeline. And when we look at the Q3 number for INGREZZA, [ scrapping ] volume increased to the highest since the COVID. To give a better understanding of the INGREZZA growth, could you provide more details on what you're saying in terms of the total prescriptions and the new prescriptions? And how it compared to a prepandemic levels?

I'll take that one. Yes, it's been nice to see growth return back to pre-pandemic levels for the most part. NRxs right near where we were prepandemic. That's in an environment that's still very difficult. So we're quite encouraged by what we're seeing and are also optimistic about what we expect moving forward. Really 3 key dynamics we expect to drive growth as we look into the future. The first one being an improving environment as telemedicine declines or use declines as additional clinical sites open back up, we would expect to benefit there as well as the continued rollout of our direct-to-consumer branded advertising campaign that we started in May of this past year or this year. And then lastly, we recently announced the expansion of our sales force, which I'm sure we'll touch on a bit later. The promotional sensitivity of this medicine and the overall development of the TV market is very clear to us. So I think that, that's going to be another nice leg to the growth story that will likely start contributing more in the second half of next year. So overall, very encouraged with what we've been seeing, given the environment.

Great. And then also wondering what's the impact of the telemedicine used on the new patient starts? And how did the diagnosis levels change during COVID compared to the pre-pandemic levels.

Yes. Before I answer that question, let me just take a step back for those of you who might not be as familiar with Neurocrine is we're talking about INGREZZA, which is our lead drug that we discovered, developed and market ourselves in the United States. The disease is tardive dyskinesia, which is an irreversible debilitating movement disorder that is caused by the long-term use of antipsychotics for reasons that are unknown. About 5% to 8% of the patients who take antipsychotics develop tardive dyskinesia. INGREZZA was the first drug ever to be able to treat effectively TD, and it is a very effective drug. So here's an interesting situation. That's a movement disorder that would -- you would think that's in the purview of neurologists. But it's caused by antipsychotics that puts the patient squarely in the psychiatrist office. That's where the vast majority of those patients exist. About 80% of them are in psychiatrist office. About 20% are in the movement disorder specialist neurologist office. So what we have been doing over the last several years in this launch has been training the psychiatrist, the psychiatric nurse practitioners and actually a lot of the front office staff in all of these offices, to recognize tardive dyskinesia. There's never been a drug for it. So they have never had the impetus to recognize, diagnose any call the treatment. And it has been a disease that psychiatrists, not to the fault of their own, but through good management of their psychiatric conditions caused the disease. So you can imagine that there's been a lot of reticence over the last 25 years to recognize and diagnose this disease. So there's been a lot of training that we have done over the years here with our sales and our medical personnel. So you're training them to visually look at a patient who can have uncontrolled movements in their eyes, their face their mouth, their tongue, their jaw. It can be in their hands, their fingers, their arms, their toes, their legs. And all of a sudden, overnight, all the psychiatric clinics close, when COVID hits. All of a sudden, it's all telemedicine that's being done. And when we're talking about telemedicine for many of these psychiatric patients, at the telephone is what it went to. Now as you can imagine, diagnosing a movement disorder over a telephone and even diagnosing a movement disorder over video is not nearly as good as being able to have the patient in front of you. So we, very quickly, pivoted. We saw all of a sudden a great decrease in the new prescriptions as soon as COVID hit. But we were able to pivot and develop tools for the psychiatrist and the psychiatric nurse practitioners to be able to allow them in a video-only environment and even in an audio-only environment, to be able to, not necessarily diagnose TD, but to be able to say, "Oh, I think this person does -- my patient does have a movement disorder. I need to get them in at the appropriate time, and I can do that." So psychiatrists were the largest users prior to the pandemic of telemedicine. Approximately 15% of an average practice was telemedicine because there were such large white spaces in the United States where there was no psychiatrist readily available. They went to virtually 100% telemedicine during the pandemic. And then they have been slowly coming back, probably still the greatest users in this -- I'm not going to say post pandemic yet, but let's keep our fingers crossed, in this much, much improving pandemic environment in the United States. They are probably still 40% to 50% telemedicine. But what we've been able to do with them gradually reopening with our ability to give them more and more tools that they can apply. We've now seen new prescription growth come close to what it was pre-pandemic. We've seen real good growth over the last 2 quarters to INGREZZA sales. And as we have said in our third quarter call, we expect that good growth now to continue through the efforts that we have and as things open up more. We also, as Matt said, invested in direct-to-consumer advertising, too, so that the conversation can happen 2 ways now, not just always the physician starting the conversation, I suspect you might have a movement disorder, but the patient and their family members or their caregivers starting the conversation back to them. So we are seeing a nice improvement that's taking place now. We would expect that to continue in the velocity to increase in the future.

Great. Super helpful. Maybe I want to just elaborate a little bit on that and if I have the right understanding. So telemedicine implementation in your view, not only our strategy to deal with the COVID environment, but also you see the benefit to help the patients to get access, especially for those patients who used to have like no access to psychiatrist office. And so this is a way actually to engage new patients who used to have no ways to get a diagnosis and a treatment.

Yes. Telemedicine is definitely here to stay, Kelly. It's -- as I said, the psychiatrist used it about 15% of their practice prior to the pandemic. It's 40% to 50% now. It will settle out somewhere in between that. Where? we don't exactly know. Time will tell. Different legislation going through Congress right now from CMS, the Centers for Medicare and Medicaid services, are defining that patient's first visit to a psychiatrist has to be in person. And then they have to be seen no more than 12 months later, and usually, that's much more. So that will bring more and more psychiatrists back into the offices. But telemedicine is a really important tool for all physicians they have and also for psychiatrists to have. But it is not a replacement for that in person, that personal touch. As I think everyone at this conference is probably enjoying now being back together again. This is a heck of a lot better than looking at a screen.

Great. And then what is your expectation of telemedicine is used for Neurocrine into 2022 in terms of scale and also generation?

Well, if I understand your question correctly, it's how much do we think it's going to be in the future and how long it's going to go.

Exactly.

Yes. So -- the -- like I said, it's about between 40% and 50% of their practice now. It's going to go down from that. The emergency health orders that are in place right now, there's a strong incentive, financial incentive for telemedicine there because audio only, meaning just the telephone call, audio and video and an in-person are all now reimbursed by Medicare at the exact same level. That was not the case pre-pandemic, audio wasn't reimbursed at all, and video was only a percentage of the in-person visits. That will change. We don't know how yet. CMS hasn't come out with the physician fee schedule yet. We expect that to come out by the end of the year. I would expect that audio is probably going to get some reimbursement, and then we'll have to see what the delta then going forward is for video versus in person. I'd imagine there is going to be a delta there. And those economic incentives will then drive how practices go forward. We look at the emergency health orders. Will the next time that they would be rolled over into another 90-day period will be mid-January. We certainly expect that they will be rolled over in mid-January. And actually, we run the business as if we will be under emergency health orders in the United States all through 2022. That may not take place, but it's best for us to plan that way. And as I said, we've adapted really well to this environment. We can see pre-pandemic like growth take place even in this environment. And the psychiatric practices are opening up more and more on their own.

Great. And do you say [indiscernible] to continuously increase the size of your sales force INGREZZA going forward?

Yes. So we initially started out with the sales force of approximately 140 salespeople across the United States. And we've always called this a learning launch for us. It's really interesting -- there's not too many times when a company gets to be the first to have a treatment for a disease. And especially for a disease that, for a variety of reasons, is not diagnosed. And so when we launched this drug 4.5 years ago by doing a bunch of triangulations in this population of approximately 500,000 patients at that point in time. Less than 3% were diagnosed with tardive dyskinesia. So that's what you go into. Now through our efforts, 2 things: number one, we have better data. It's probably a little -- much closer to 600,000 patients. And we have greater than 20% diagnosis rate going on. That's very good. 4.5 years of getting there going from 3% to 20% to 25% has been tremendous progress. But we now understand, and this was pre-pandemic. We understood that there were a number of health care providers that we've been identifying far more than what we knew before. And I'd point out to them -- to you that, as I've talked about before, a lot of these are nonphysicians, a lot of these are these psychiatric nurse practitioners or APPs, advanced practice professionals. And with a larger patient population and with a larger prescribing population, we see now that we need to increase our sales force yet once again. and we'll go from approximately 210 reps up to probably closer to 350. And in addition, what we're going to do is we're going to create 3 different sales forces, the largest of which is the one that we have going now, which will remain largely untouched, which is calling on psychiatrists but they call on psychiatrists. They call on neurologists, and they've been going into when their territory let them to it, some long-term care facilities, psychiatric long-term care. But that's not been a focus for us up until now. Well, now what we're going to do is we're going to leave all of those reps calling now only on psychiatrists. So basically relieving 30% of their time that they were in the non psychiatrist office. So that's like a 30% increase in the psychiatric field representatives. And then we're going to form a completely freestanding neurology practice, so we can go deeper in with the neurologists and then we are going to form a long-term care specific sales force because we've realized, and it takes time for a company to mature to understand its market, to understand its patients that there are a number of patients who are on long-term antipsychotics in these other care settings that we have not been reaching to date, and it's important to reach them. And so now we understand what those look like. We're not talking about geriatric long-term care facilities. We're talking about psychiatric group homes that are long-term care. We're talking about other developmentally delayed with psychological problem homes. So those are the type of places that we will be concentrating on going forward. And we think that, that's going to allow our sales representatives even more of a chance to touch more prescribers in order to educate more prescribers and their staff and to continue to expand the use to bring this life-changing medicine, I might say, INGREZZA to these patients.

Super helpful. And about the DTC, direct-to-consumer campaign, Neurocrine is running [ for ] TD. Can you talk about metrics for determining the effectiveness that [ it's having ]? And what else are you thinking in terms of [ establish ]and continue to drive INGREZZA revenue growth?

Yes. So direct-to-consumer advertising, right now, what we can say we've -- Matt said it was just earlier this year that we started that. In case people don't know that for 2 years though, we did unbranded DTC. So again, pure education, nothing to do with Neurocrine, nothing to do with INGREZZA, just pure education in print, television and then wrap around internet to help start the conversation. Only recently did we then come around because we thought it's the appropriate time to do it is to brand the DTC. And the leading indicators that we use are then how many -- each of the commercials that we do drives people to websites or telephone numbers to call for more information. So you capture that. And then within that, you capture how long they're spending on the website, how many pages deep do they go into it? You have a chance to register in the website in order to get more information or find a doctor who can treat TD in your area. Those are all leading indicators that there are a lot of great data for what the industry standards look like. We're well above the industry standards and all of those. It will be -- so -- but that's not the complete answer to your question. When it comes to more of the nitty-gritty of how effective this has been? How many patients does it send in the office in order to have a discussion? That is going to take a little longer. It's probably going to take into the early parts of Q2 of 2022 because there are metrics that one uses there that can detangle what is the effect of DTC versus what is the effect of a growing sales force versus what is the effect of more opening up of clinics, so we can detangle those things. That just takes a little while longer.

Makes sense. And then moving to the rest of the pipeline. The top line data in TD trial is a [ wrong counter ]. So the [ final ] endpoint is total maximum Korea score from that baseline. And investors asked us about [ like ] -- so what should be the benchmark given that the patient [indiscernible] other VMAT2 inhibitor are also included on this trial.

So for the Huntington's Korea study, that is going to read out next month. So we have a single pivotal study there. And it is the total Korea score that we're looking at there. So I would say that a benchmark that exists for approval that leads to patient improvement and the use is about a 2- to 3-point change in that. We'll see what the study shows. There are -- there is another VMAT2 inhibitor that is already in that patient population. However, we think that those attributes that define INGREZZA and make it by far the market leader in tardive dyskinesia are even more important than the Huntington's population. One pill once a day, not multiple pills multiple times a day. In the Huntington's population, that's very important. They have a real problem swallowing pills, taking medicines. Our pills, you could crush, you could open up sprinkle on puddings or anything like that, you could take them any ways if that's what the caregiver finds as an easier way to take the pill. There is no black box morning or complex titration at all with our drug. So those are things that are very appealing to the Huntington's population. Right now, out of the patients in the Huntington's population that are appropriate. Their -- Korea is severe enough to warrant treatment with a VMAT2 inhibitor. Only 20% are treated. And so we see that there's a very large opportunity to service the Huntington sufferers with INGREZZA.

Great. So you think the production attributes of about valbenazine, like the dosing convenience and the fast onset of action were translated to the commercial competitiveness, even if -- only a similar efficacy shown to [indiscernible].

Absolutely. And I don't speculate on the efficacy because I'm going to wait to see, I know about the attributes that we currently have that are very positive. But I'm not going to speculate on the efficacy until I -- until we see the efficacy.

Sure, absolutely. And then next, I want to touch upon on the very interesting CAH program, congenital adrenal hyperplasia. But can you talk about what should be the expectation in terms of what is the clinically meaningful [indiscernible]? And how do you think about the commercial opportunity?

Yes. So with congenital adrenal hyperplasia, again, let me step back and talk about this. The children are born with the inability to produce cortisol. Up until the 1950s, early 60s, all these babies died. Without cortisol, you can't live. Then hydrocortisone was invented and obviously, mostly for inflammation, but the endocrinologists recognized immediately, we can replace their missing hydrocortisone. That allowed them to live, but that's not enough. You can't just give them replacement levels of cortisol. You have to use super therapeutic doses because when you don't have the cortisol pathway to go into, then you're basically shunting all of the steroid precursors into androgens, and you're making a tremendous amount of androgens because the feedback loops that in the hypothalamic pituitary adrenal [ access ] aren't there any longer. Cortisol isn't there to shut down that signal that keeps driving the production of androgens. If you then give very, very high levels of hydrocortisone, then you can start impacting that loop. So what do endocrinologists have at their disposal for the last 50 years? They have hydrocortisone. So they're constantly doing this balancing act, all their patients' lives. Do I let their androgens go completely out of control so that I don't expose them to these super high levels of hydrocortisone or do I expose them to the very high levels of hydrocortisone to keep their androgens in control. And it's just this balancing act. We all know that when you're giving a pack of prednisone or whatever, it's a 7-day course, right, do not stay on it any longer. These kids and adults are on high doses of these steroids every day all their lives. So what are we doing with our drug [ CH ] orally available one pill once a day and it's a corticotropin-releasing factor antagonist. In that HPA access, It's the P, the pituitary. It then reregulate and recaptures that HPA access. So we've shown in Phase IIs, we can dramatically lower the androgens that take place there. Now what we're showing in Phase III is by virtue of recapturing the HPA access, lowering those androgens, you now can lower the amount of glucocorticoids that you have to give exogenously. Now the question becomes what is meaningful. It's not much reduction. Well, much like in lupus, RA, other studies that have been done. Any reduction is considered clinically meaningful because of the deleterious effects. But what we hope to see is a substantial reduction going on here. So with agreement with FDA, EMA, we have 2 worldwide trials going on, as I said, both registrational. One in the adult population, one in the pediatric population to show that we can recapture their HPA, which we've done in Phase II, but also now show that we can lower the burden of glucocorticoids.

Very insightful. And lastly, wondering where you sit on the BD front? Do you continue to look for bolt-on acquisitions in the pipeline?

Put that over to Kyle, our Head of BD and strategy.

Thanks for the question. I think what you've seen over the past couple of years is we've tried to build the pipeline through partnerships. And through that, we've been productive in growing out new franchises in the areas that Kevin mentioned earlier, in neurology, neuropsychiatry, in particular. And I think what we find attractive to us are companies that have innovative science, platform technologies or new approaches to some of the new modalities that we've seen out there in the field, and they represent [ our ] tied to mid- to late-stage programs. And if you look at that kind of theme, that's what we've done here, we're growing the pipeline. I think moving forward, we'll be looking at certainly those opportunities that are similar to that. And like everyone in this space, we wish we could find a commercial product that would make sense to bring in the pipeline. And as those are presented to us or we find those, we will, of course, look at those as well. We've got a growing pipeline. We've got a commercial team that's been very successful and those elements can be attractive to others as well and certainly want to leverage or leverage the folks that we have in the neurocrine and on the R&D side of things and on commercial, if it's a later stage or commercial product as much as we can.

Great. Thanks. This session has been very comprehensive and set forth, we will wrap up our conversation here and now open the floor to investments. We have an onset moderator to help.

Thank you very much, Kelly.

Thank you.

Why don't you start, and I'll read the...

[indiscernible]

Yes. Well, INGREZZA isn't available in Europe because there would be comparative pricing with a very, very old drug here that was approved in late 50s, early 60s just like for movement disorders. That would be our price comparator and that just would be a nonstarter. As I said, we're probably running as many studies in Europe as we are in the United States. So our first footprint into Europe is one of an R&D footprint into Europe. And there are several of these products that we believe we would retain marketing rights in Europe and that would give us a beachhead over here. CAH has one. Europe has a great registry of the CAH patients. They're treated at centers of excellence. That would take a small, highly focused commercial group over here. That's very tractable for us to do. The rare pediatric epilepsies would be the next ones in line. Again, same as CAH, very tractable over here in Europe. So we can bootstrap our way up with those as these larger indications, if successful, start coming up. The larger epilepsies, the essential tremor that comes up the psychiatric indications that we're following up here. That's how we view our internationalizing of Neurocrine. Thank you.

Thank you, Kevin, Matt and Kyle, for spending time with us. Looking forward to another productive year for Neurocrine 2022. Thanks, everyone, for attending this session.