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

All right. Welcome, everyone. It's Josh Schimmer from the Evercore ISI Biotech team. Very pleased to welcome -- we have Matt Abernethy and Eiry Roberts from Neurocrine.

A lot going on and a lot recently going on. I have to admit, I don't know a lot about M4 selective agonist in enrolling schizophrenia, but that seemed to be part of the basis for this new collaboration with Sosei. So just give a little bit of a backdrop of this collaboration? And what's exciting about the M4 selective agonist approach.

Sure, Josh. Thanks for welcoming Eiry and I. Really appreciate you hosting us this year. And hope we can be in Boston next year, that would be very nice. We will be making forward-looking statements so we'd direct you to the latest SEC filings for the related risk factors and uncertainties associated with our company and then also our industry. There's been a lot going on in the muscarinic space and, in particular, in neuropsychiatry. And we've had an interest for quite some time and this asset became available to us to take it into clinical development with our partner, Sosei Heptares and really, I think it fits very nicely as a Phase II asset that will be progressing over the next year or so into the clinic. But I'll let Eiry give more detail around the collaboration and what drew our interest from a scientific perspective.

Yes. Well, thanks so much, Josh. And we're really excited about the collaboration that we just recently announced with Sosei Heptares. I mean I think that we all know there's very significant unmet need that still exists in the treatment of schizophrenia and the vast majority of patients either don't get full response to their currently available antipsychotics or get relapses and need additional treatment. And so there's been a lot of interest in the muscarinic pathways in schizophrenia for some time now. And now I think there really is clinical validation for this M4 mechanism from a couple of other molecules in development. So we were particularly interested in the Sosei Heptares portfolio. Starting first on the M4 side, they have an M4 allosteric selective agonist. And the reason we were interested in that mechanism, particularly is as an agonist, it doesn't depend on acetylcholine drive. And also, it's very selective for the M4 mechanism, not invoking M2 and M3 because those have been associated with a lot of side effect problems in the past. And so when we think about the competition in this space, we really do believe we have an opportunity to have a best-in-class molecule here. And then with that in mind, we intend to go into Phase II trials next year in schizophrenia to assess the activity of this M4 selective allosteric agonist against acute -- the psychosis associated with schizophrenia. The other thing that was really fascinating and interesting to us is that this is a broad collaboration that spans not only M4 agonist, but also M1 agonist, which have been implicated in cognition for many years, and I think that gives us an opportunity for a much broader evaluation of this mechanism, both in the schizophrenia space and also even beyond into other indications, the so-called pipeline in the molecule. And then the unique approach of having a combined M1/M4 agonist, I think, is another area that gives us a huge opportunity. Also I just want to give a shout-out for our colleagues at Sosei Heptares. I mean they have a very skilled team there, and we were very impressed by the work that they've done on these molecules to date and look forward to continuing that work with them.

Got it. How do we think about some of the peripheral muscarinic effects that you alluded to some competitor programs? I'm guessing Karuna might be one, and they kind of have that peripheral inhibitor compared to Sosei. What is your strategy for kind of avoiding some of the systemic?

Well, the first strategy is the fact that we have a selective agonist. And it's very clear that some of the peripheral side effects that have been seen in the past say with the drug -- older drug, xanomeline, probably associated with some of the M2 and M3 peripheral effects. I mean, obviously, approaching that by adding in another molecule that will inhibit those effects peripherally is an interesting approach. Our approach, we believe, is to be more selective in which of the receptors we agonize. And as a result, I think that's a highly appropriate way of addressing that. And so as we said, I think that gives us an opportunity. We hope to have a best-in-class molecule against the M4 target.

Got it. Has there been any other M4 selective approaches to help validate that specific mechanism?

There is a molecule from Cerevel, which recently reported out a Phase II data in acute -- in schizophrenia as well and the management of psychosis. That is a positive allosteric modulator. What that means is that, that drug requires acetylcholine to be present in order to be effective. And so obviously, they have demonstrated in schizophrenia that they have efficacy which is actually encouraging for our molecule as well. But our -- we have a selective allosteric agonist that doesn't require acetylcholine to be present. And so we're very comfortable and encouraged by the opportunity that exists there.

Okay. Got it. And so just to reiterate the time lines and the trial designs for us in sort of thinking about this program?

So we will be initiating a Phase II study next year. That's our plan in the treatment of schizophrenia. And obviously, we're still working with our colleagues and our external advisers and other experts to determine the exact nature of that trial.

The other item on the time line is we are still under the HSR period. So the expectation is that the deal would close either late this year or sometime in the first quarter. And with that, comes a $100 million payment that we would be making to Sosei Heptares. And then the other financial element that I would flag is that we will be covering all the expenses associated with the clinical development program as well as the research collaboration, and I'll provide more insight into the investment and what that looks like during our February earnings call.

Okay. Got it. And I guess the strategic challenge for Neurocrine is that it doesn't seem like you have any growth challenges for the next 10 years. And I get the sense investors are kind of hoping and looking for some diversification. Matt, I guess it gets to the question, what growth challenge are you trying to solve for? Are you trying to solve for like 2030? And is it just way too early to even have like much clarity on how to solve for that?

Well, I think when you look to the mid-2030s, you're right, it's -- you're in your teenage years at that point. If you just had a baby, and that's what we're trying to solve for at this time. I reflect back on when I joined the company and then also I rejoined the company, it might be surprising to think about this, but we only had 2 assets in the pipeline. We had CAH, and then we had the second indication for INGREZZA with Tourette. So you think about our goal and our desire to become a leading neuroscience company or the leader in neuroscience, you have to be able to expand your pipeline and you have to be able to invest. And over the last 2 or 3 years, we've got a handful of partners that have come to us that have made different strategic decisions and have allowed us to pick up a really nice pipeline. We have over 13 programs now, significant investment being on neuro psych, epilepsy and a handful of other indications that we're pursuing with those molecules. And the unfortunate part, and this is the pressure I get from investors, Josh, is, when am I going to see the data? And the unfortunate part is we have this growth trajectory with INGREZZA. And then you have this question of, okay, now let me understand your pipeline and when are those key catalysts coming. And it just takes time to be able to enroll and to ultimately get to data. But having double-digit programs that should read out over the next 2 or 3 years, we're excited about that. It's hard for us to say which one you should definitively bet on. neuro psych, neurology is a high-risk area. But I think what you've seen us invest behind is really to set ourselves up for a lot of shots on goal in some really interesting areas. And we're going to continue to invest in that manner. The last piece that I would flag, Josh, is everything we've done outside of the Voyager collaboration has been small molecule. So at the right time, if we see large molecule approaches that we could take, we'll be making those investments both for internal capabilities and then externally, as needed. So it is -- we're in sort of the -- I've called it recently an awkward like pre-teen, teenage year is where the company is at. And we're sort of unapologetic about that. We're investing. We're going to be growing and we're going to do everything that we can to become the leading neuroscience company.

Yes. No, I get that. That makes sense, and I think it's a very accurate characterization of whatever the company goes through ultimately as they -- if they're lucky enough to have a product like INGREZZA, which is maybe a good time to pivot to that program. And so on the last quarter, you indicated you're going to be ramping up commercial activities fairly heavily next year. What -- why focus on the long-term care facilities? I think you emphasized that. What gives you confidence that that's going to be kind of a winning commercial strategy? What have you seen so far that says that's stuff kind of...

So we have seen some early wins in the long-term care arena, and that's been just from our organic sales force, and it really has piqued our interest and it's been something that we've monitored for quite some time. But if you take a step back, just for those who aren't as familiar with what we announced last quarter was that we're going to be expanding our sales force by about, call it, 2/3. And as part of that sales force expansion, we're going to form 3 separate stand-alone sales forces. One, and the largest being psychiatry, which is where our -- the majority of our business, call it, 80% of our business resides today. The second is neurology. And then the third is LTC. So the reason why we've expanded our sales force the way that we are is really the promotional sensitivity of the medicine. We see very clearly the higher the call activity, the more likely an NRx gets written. So as a result of this expansion, we're going to be able to increase frequency. And then we're also going to increase the breadth of who we're reaching in psychiatry, neurology and then now into long-term care. And so you may -- we get asked a lot, how do you -- why do you think INGREZZA is so promotionally sensitive. Why is it so attached to call activity? And if you take a step back and think about it, these patients are primarily being seen by psychiatrists. And psychiatrists driving to work every single day think about the underlying mental health condition of a patient, of course. They're not thinking about whether a patient has tardive dyskinesia they're going to see. So over the last 4 years, with the call frequency, with the increased confidence in how to diagnose tardive dyskinesia, what we've seen is call activity leads to TD being on the radar and ultimately getting the diagnosis. So we do expect LTC to be sort of a greenfield opportunity for us. Psych is still going to be where the majority of our growth ultimately comes from, Josh.

Got it. Are we in a new steady state when it comes to kind of care in psychiatry offices with this kind of split between telehealth and in person do you think?

No. Well, I'd say we're sort of at a stabilized point right now. Pre-pandemic, you had 10% of psych visits for telemedicine. At the peak, it was like 85% and now it's about, call it, 40%. But if you think, and this is the data that I look at, telemedicine is one aspect, but what gives me a sense that we're not quite at the new normal or a new steady state, I'll give maybe 3 other aspects that I look at beyond just telemedicine because I think we've talked a lot about telemedicine. The first one is just call activity by reps. Call activity is only at 80% of what it was pre-pandemic still, and 80% of those are in person. It used to be upper 90s in person. Now we're at 80%. So I think there's still room for improvement that we're going to expect to see. The second, and this is just a really confounding stat is that psych visits for patients, whether telehealth or in person is actually down double digits right now. And that admits a mental health crisis, right, in the U.S. So you think at some point, you're going to have more people ultimately getting seen by their psych with a higher frequency. And I think that, that ultimately moves a bit more into our favor. And then lastly, which is a bit more anecdotal. A lot of our patients and customers are part of community mental health facilities or centers. And in a variety of different cities, CMHCs are still shut down, you see are not open, not seeing patients. They may see patients once a week to administer LAIs or something like that. So it's still not business is normal, I guess, or the new normal. So it's going to be interesting to see how this all evolves, but not quite yet to a new steady state.

Any early feedback and commentary on the DTC campaign?

Well, if you think about what the DTC campaign is doing is, and like I said earlier, INGREZZA is a promotionally sensitive medicine. Sensitive for the clinician to keep TD on the radar, and it's also very, very sensitive to patients. Patients have a movement disorder. They don't know what caused this movement disorder. And it's not on their radar to talk to their psych about it. That'd be like asking a patient going into the dentist to talk to them about their ankle. So what the call to action is with the DTC campaign is these movements that you have, it may be attached to your underlying antipsychotic, go talk to your doctor and see if INGREZZA might be right for you. So we would expect that it will have a positive return. We have really nice website visits. We have how long they stay, the overall impressions. Those are all leading indicators, but the lagging indicator is ultimately interacts and how did it accelerate the development of the TD market.

Got it. Maybe we can shift to the Huntington's program. We've done a whole bunch of calls with movement disorder specialists. And I feel like they're all over the place in terms of the incremental room for INGREZZA relative to a status. So what are we looking for in the Kinect data that you're hoping will provide clear differentiation? And how much room do you think there is in Huntington's for INGREZZA?

So let me just start with the latter part of that question. In terms of room for valbenazine in Huntington's disease, I think we really appreciate that Huntington's is still very a significant unmet need that is undertreated. If you look at the fact that there really are currently available VMAT2 inhibitors that are indicated for use in Huntington's disease, still only about 20% of the population that could be eligible for treatment are actually receiving treatment. And so as you can imagine, we've done a fair bit of work to try to understand that. And there clearly are characteristics associated with currently available treatments that are less than satisfactory for that population, including complex titration, challenges that patients don't get to the dose they need because of side effect profile associated with the titration. The requirement of multiple times a day dosing for patients with Huntington's disease, many of whom have dysphagia and other issues, that's a real problem at times. And so it's very clear that there's a significant unmet need still. It's also clear that VMAT2 inhibitors have the opportunity to provide benefits for patients with Huntington's disease. And so our trial is designed to be able to demonstrate that benefit in patients. And the primary endpoint for the trial is the UHDRS, which is the standard total chorea score within that overall movement disorder score, measured between baseline and week 10 to 12. And we're looking for a several point change in that 2- to 3-point change in that is kind of indicative of the other trials that have been done in this area. Importantly, however, though, there are other endpoints within that trial like functional endpoints, the quality of life endpoints. And so as we look at the overall value of valbenazine, we will be looking at all the data from the trial. And hopefully, as we read that out before the end of the year now, we'll be -- if successful, we'll be then going forward to seek registration. I think we're very confident in the tolerability and efficacy profile that we have for INGREZZA in tardive dyskinesia. And obviously, we have a very large safety database in that setting right now. And so all of that, coupled with the simple once-a-day dosing, simple titration, all make us feel very confident about the opportunity that exists for us to be helpful in Huntington's disease if we have a positive outcome for our trial.

And does a clean safety data set ensure a lack of kind of class black box warning on kind of suicidal risks that [indiscernible] has? Or is that still kind of an open question to be determined?

I mean obviously, that would be an extensive discussion with the regulators and -- but we have a high level of confidence in the safety and tolerability data set that we have currently for valbenazine.

So we've introduced a number of new applications of INGREZZA as well. Maybe in the last minute or so, can we walk through the indications and the time lines for when we may see some data? And for each of these, do you have kind of anecdotal experiences that give you confidence in the profile?

Let me start with ATS. This is adjunctive treatment of schizophrenia. Obviously, you mentioned earlier about the significant unmet need that exists in that space. Obviously, we have a lot of data in patients with schizophrenia who suffer from tardive dyskinesia that receive INGREZZA. And so there are anecdotal reports is also good biological reasoning behind why valbenazine would potentially have an impact for patients with ATS. And we're right in the middle of starting up that Phase III trial right now. And it's a little early to predict around enrollment and data delivery, but I will say the start-up of that trial is going well, and it's very indicative of the fact that we have a significant unmet need here in the prescribing environment. The other indication is dyskinetic cerebral palsy. No currently available medications are approved for treatment of this, which is a very prevalent movement disorder, particularly in children. And so again, we think there's a real opportunity given what we know about the role of dopamine in this condition that the VMAT2 inhibitor could have a beneficial effect. And that Phase III trial is right now getting up and running as well. So we're really well on our way with both of those programs now.

And for that latter, dyskinetic cerebral palsy indication, we've seen success in the tardive dyskinesia and chorea, not as much success in Tourette's. Is kind of –- Physiologically, is dyskinetic CP kind of closer to tardive and Huntington's than it is to Tourette's that might also kind of help kind of draw a circle around Tourette's to...

Yes. I mean we obviously learned a great deal from the Tourette's program. I think Tourette's as a disorder is very heterogenous . A lot of other concomitant disorders happening in those patients as well. And challenges across the board, even in identification of patients, the end points that need to be used and that are well established are very crude tools. The tools that we have for the dyskinetic movement disorder environment like tardive dyskinesia and dyskinetic cerebral palsy and Huntington's actually are much more established, and I think we have a lot more information about how to use those. We're also employing many of the techniques that we use to manage areas like placebo response with a lot of use of central raters and specialized oversight. And so I think we have a high level of confidence in terms of how we're approaching these different disorders currently.

All right. Well, we are out of time. There's obviously a lot more to talk about at Neurocrine, which is part of the excitement going in the years ahead, Matt, as you kind of grow out of those teen years, which it seems like you're much on track to do. So thank you so much for joining us. And thanks, everyone. Happy holidays.

Thank you, Josh.

Yes.