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

Okay. Let's get started. Welcome, everyone, to the 40th Annual JPMorgan Healthcare Conference. My name is Anupam Rama. I'm one of the senior Biotech analysts here at JPMorgan. I am joined by Priyanka Grover, [ Malcom Kuno ] and [indiscernible] Smith from the team. Our next presenting company is Neurocrine, and presenting on behalf of the company, we have CEO, Kevin Gorman. I want to remind all the attendees of this session that there is an ask a question feature in the portal and I would be happy to ask a question on your behalf, if you put a question in the portal. And with that, Kevin, take it away.

Thank you very much, Anupam, and thank you also, JPMorgan for the ability to present here today. I was really looking forward to meeting everyone in person, but we're back in this virtual world. I hope to be able through this presentation has been preparing for it to be able to generate and show you the excitement that we have here at Neurocrine. But let's get started. Basically, Neurocrine, before I get started, I put up our safe harbor here because I will be making forward-looking statements. Neurocrine is and always has been a neuroscience company. This is a very difficult field of science to work in, but because there are so many diseases and disorders of the CNS that are not being treated or very much undertreated. We are committed to this area nevertheless. In our view, Neuroscience encompasses the clinical disciplines of neurology, neuroendocrinology and neuropsychiatry. We are working to develop drugs in all of these areas. And one day soon, I hope to add neuroimmunology to this. Now our perseverance, the creativity and collaborations that we formed over the years have led to 4 commercial products led by our blockbuster INGREZZA. INGREZZA has now achieved blockbuster status. Last year, we surpassed $1 billion in sales going to approximately $1.1 billion in about 3.5 years. We are only just at the beginning of what INGREZZA is going to be offering to patients. We are treating at this point, maybe 10% of all undiagnosed -- all of all tardive dyskinesia patients, only about 20% of the 500,000 to 600,000 TD patients are even diagnosed at this point. We are more than just INGREZZA. We have over a dozen mid to late-stage programs in the clinic. And we have the capabilities, both from expertise and from financial capabilities to be able to commercialize all of these programs that reach the -- that make it through the clinic and to approval, both here in the United States and in Europe in the future. This is a representation of all of the diseases that we are currently marketing or developing drugs for. There's a wide variety here, as you can see. Now what is the strategy that we utilize to develop this pipeline and quite honestly, the strategy that we have utilized over the years in order to develop our company. First, it is an exquisite and singular focus on neuroscience. Second, we pursue medicines and mechanisms that can be applied to a variety of neurological disorders. A pipeline in a compound, if you will. But in addition, we have a deep appreciation and respect for the complexity of these diseases. So we further then take multiple mechanisms into the same diseases. Such as you can see here, schizophrenia, major depressive disorder and seizure disorders. We believe that having multiple mechanisms against any one disease and having mechanisms that we can apply to a number of diseases increases the opportunity of success that we have moving forward. We have applied this strategy across all 3 fields of neurology, neuropsychiatry and neuroendocrinology. This strategy has led us to 4 programs that are in registrational studies and then 8 additional programs that are in Phase II. Now we've worked for a number of years to develop this strategy and to develop this pipeline. So what can you look forward to seeing from us in the next 18 to 24 months? Well, we have worked now such that in -- within the next 2 years, you will see us deliver. We anticipate an NDA approval. We anticipate data on 3 of the registration programs and then Phase II data on 5 additional programs. Let's go into a little more detail about the significant milestones this year. First, with valbenazine. Last year, we read out the Phase III study in treating the chorea in Huntington's disease. It was extremely successful with a p-value of less than 0.0001 in on the Huntington's scale. We will be filing the sNDA later this year as we complete the 1-year safety database. There are approximately 27,000 patients who have chorea associated with Huntington's. And the vast majority of them, their chorea is being untreated by a VMAT2 inhibitor. Second, is a compound that is for essential tremor. And this compound is a T-type calcium channel blocker. We have it in a proof-of-concept Phase II program right now for essential tremor, which is the largest movement disorder that exists. Approximately 10 million patients in the United States and an equal number in Europe. They are involuntary rhythmic handshaking movements that get progressively worse with time and age. This compound will also read -- is in development in the Phase II study for a pediatric epilepsy, a devastating pediatric epilepsy known as continuous spike and wave during sleep. Again, this is a selective T-type calcium channel blocker. CSWS is more than just seizures that take place in these infants. It impacts their development and their behavior. So you will see in the next several months that we will have an sNDA filing and 2 Phase II data readouts. Now each year at the JPMorgan conference, I tried to go into a bit more detail mechanistically on programs. Last year, it was on our congenital adrenal hyperplasia program that is in 2 registration studies. What I'd like to do right now is talk a little bit more about NBI-104 here, which, as I said, will be reading out 2 Phase II results this year. I'm going to show you a bit of animation. And this has to do with how neurons actually transmit signals. They have a variety of channels. We're talking about T-type calcium channels that propagate and action potential when stimulated that releases neurotransmitters to the adjacent neurons. And if they're overstimulated, you can see by this representation, far too much amplification of signals. Here, you're seeing what happens with these T-type calcium channels when they are overstimulated. 104 is a highly potent inhibitor of just these T-type calcium channels. And it hits all 3 of the T-type calcium channels, 3.1, 3.2 and 3.3 in order to quiet the system down. Now this approach, as I said, is being taken both for the pediatric epilepsy and essential tremor. A similar approach is being taken in our sodium channel blocking program with NBI-352 and that is in a rare childhood epilepsy called SCN8A and also in focal onset seizures. Those studies will read out next year. Now while we have been developing drugs for many years here at Neurocrine, it's more than just the development program. It's -- what keeps us going is looking at the face of the patients that we treat. And several years ago, I played the videos that I'm going to be playing here in a moment, that really drive it home. We talk about INGREZZA as being a blockbuster drug. But let's talk about INGREZZA of what it does to individuals' lives. Here is a young man with severe tardive dyskinesia in with his psychiatrists. As you can see, he has abnormal uncontrolled mouth, facial and fungal movements. However, after only 2 weeks of treatment on INGREZZA here he is back in the clinic. If you have audio going on here, you would hear him talking about how he drove to the clinic that day and how he's going to be meeting with friends later that evening. Absolutely impossible for him before treatment with INGREZZA. We are truly fortunate to have a drug like INGREZZA. A drug that has such tremendous efficacy and nearly ideal pharmacological profile. And so like I said, we are only at the very beginnings of treating TD patients. There is such a long runway that we still have yet to go with this medication, both in TD and in several other indications that we're investigating. We have many years of INGREZZA in order to continue to invest in our patients. And as I said, we're looking at where we're filing the NDA for Huntington's disease with INGREZZA. And then we're also looking at it in several other neuropsychiatric and neurological disorders. But it's even more than that. What does INGREZZA offer Neurocrine? INGREZZA offers Neurocrine the ability to be able to pursue the pipeline that we've shown you. And that means that we get to treat many more patients from infants to the elderly and those individuals who are in the prime of their lives. And we're not done with that pipeline. We're going to continue developing this pipeline into the future. and we're going to be adding to this pipeline as we go forward. Now over the 30 years that Neurocrine has been in existence, we've had a number of setbacks as most everybody in this business has, but we have had tremendous success in spite of those setbacks. I'm sure we're going to experience setbacks going forward. But I'm actually more certain that we'll even have more success. Why is this? Well, number one, it's due to the tenacity and the dedication of all the employees here at Neurocrine. Second, it is due to the patients that we've been able to be involved in and how they continue to volunteer in order to try to help everyone with the diseases that they suffer from. And third, it's the strategy that I laid out for you on how we go into an area that has always been so difficult for drug development, and that is in neuroscience. It is looking at the breadth of neuroscience, neurology, neuropsychiatry, neuroendocrinology and it is also taking the approach of utilizing multiple mechanisms and multiple compounds in each of those. Now we're going to have a Q&A session that I wanted to allow for plenty of time for that. I want to thank you for your attention here. And as you noticed, I've left up this slide showing the faces of our patients because that's what motivates us. There's going to be a few seconds delay, and then we're going to go directly into Q&A. Thank you very much. [Break]

Who's with you in the room as well as virtually?

Certainly, I'll let them actually introduce themselves. Start with Kyle.

Good morning, everyone. Kyle Gano, Chief Business Development and Strategy Officer.

Good morning, everyone. Eric Benevich, Chief Commercial Officer.

Hi there, everybody. Eiry Roberts, Chief Medical Officer.

Good morning. Jude Onyia, Chief Scientific Officer.

Good morning, David Boyer, Chief Corporate Affairs Officer.

And I'm very pleased actually to have Jude with us today. He's the newest member of our senior management team and will be directing all the science in Neurocrine going forward. Matt Abernethy is remote from us.

Not by choice. Nice to see everybody.

Before we start, I got to say, Eric, I think your hair gets longer every JPMorgan meeting, and I am super gel that I cut off my here. So I just I wanted to start with that. But you guys pre-reported -- preannounced INGREZZA 4Q sales numbers. I wanted to talk a little bit about that number in terms of what were the key metrics we should be thinking about here for 4Q in terms of scripts growth, gross to net, inventory, any impact from COVID, if we could just address kind of the key levers there in the quarter that you wanted to highlight?

Yes, I'll start out with that the time and then Eric will jump in. What I'll start off by saying is that was in February, we're going to be doing our earnings call, and that's where we're going to go into a lot more detail. But what I think that we would want to say here in looking at all the things that you just highlighted there. We have seen our third quarter consecutive quarter of growth. We have seen record total prescription numbers here with this. I do believe that we could have done better in that quarter than what we did. There were certain challenges. And again, we're going to be discussing those and how we meet those challenges in the future. As far as gross to net, we'll get into that more next quarter, the gross to net changed slightly in Q4, more having to do with pay forward that we have to do for Medicare in Q1. But Q4, what we saw in gross to net in 2021 is going to be virtually identical in 2022. There won't be any more degradation of gross to net that we would see in 2022. Eric, what would you like to add?

Yes. Probably the only thing I'd add is that we were glad to see strong year-over-year growth and sequential quarterly growth, as Kevin said, third consecutive quarter of growing our franchise. We did expect that this could be a challenging growth environment in Q4, and we had guided to just over $300 million, which is where we ended up. And we're continuing to focus on execution, continuing to drive diagnosis and new patient starts. And really, that's what's going to be the driver for our growth to continue in 2022.

Just a few clarifying comments on gross to net because we have had a handful of questions coming out of the quarter on that. And as Kevin alluded to, there's an accounting dynamic where you take incremental reserves on your channel inventory for what it's going to sell through as in the first quarter. And then in addition, we had spoken last quarter about the distribution expansion. And with that distribution expansion came a bit of cost. But importantly, as Kevin mentioned, access, we expect to remain strong for next year. Net revenue per script was around $5,400 in 2021. And we expect it to be right around $5,400 per script in 2022. And of course, there'll be a little bit of seasonality, a slight step down going from Q4 to Q1, but then improving throughout the year. So I wanted to provide a little bit more color on that based upon the questions that I've been receiving on the call.

Just -- I'm sorry, just to remind folks that we will be giving yearly guidance for the very first time in our February earnings call.

Yes. Yes. I don't know what I'm going to ask on the 3Q call anymore now that you guys are giving guidance. Can you remind us of the key considerations for 1Q '22 as we think about quarter-over-quarter trajectory? How do we think about that seasonality?

Eric?

Yes. There's really sort of 2 buckets or categories of issues that we have to navigate every in Q1. But first are really related to issues that could impact mostly patient refills. And so INGREZZA is a specialty medicine, most Medicare plans in particular, require reauthorization for refills come the turn of the calendar year. And essentially, what that causes is for patients that are continuing treatment. All of a sudden, they need to get the paperwork going again through their provider. And so historically, that causes issues with delayed refills and so on. And that's something that we've gotten better at each year in terms of helping the pharmacies and helping the prescribers navigate that process. And then there are issues that really affect the gross to net. As Kevin and Matt mentioned, the reset of the donut hole contribution at the beginning of the year. patients with commercial insurance have a reset of their out-of-pocket contributions and so on. And so that's why you tend to see a step down going from Q4 to Q1 from a gross to net perspective. So those 2 issues, reauthorizations affecting refills and then the gross to net are the -- really the challenges that we have to navigate every Q1. And as I said, from year-to-year, we've gotten a little bit better at navigating those issues.

Just to provide a bit more specificity around the gross to net aspects. As I mentioned before, we had about a net revenue per script of around $5,300 in Q4, and we'd expect that to be very similar to what you would see in Q1. You do have a bit of an elevated gross to net, but offset by some of the price increase that we had taken during the fourth quarter.

Okay. I just want to remind all the attendees that if you would like, you can e-mail me a question in the question portal, and I'm happy to ask on your behalf, and we do have actually a question in the question portal which is, can you talk about your ongoing evaluation of new assets and essentially basically, what is the threshold for bringing another product in to increase shareholder value?

Certainly. We have Kyle here who's done every deal that we've done over the past 15 years or so, Kyle.

Well, thanks for the question. I think One thing that I would like to say on the outset as you can see from the pipeline that we've created a number of programs that in total represent a goal for us, and that is to have a balanced portfolio that has programs across a range of different therapeutic areas, stages, different modalities and patient or diseases that are attacking disease states that are high prevalence and low prevalence. In particular, the low prevalence is each day you often talk about orphan drug diseases and targeted approaches that give you the opportunities for higher probability of success. So in total, these are the things that are in the back of our minds, and we review different types of programs and technologies. I think the other piece that it's probably obvious to you that when we look at our use of capital that a lot of our dollars go into INGREZZA and making sure that, that can be as good as it can be. So the second piece is in the portfolio and business development. So it is an aspect in terms of BD of something that is top of mind and continuing to add to the portfolio. Those things that we're looking at. We're looking at companies that offer technology or have expertise that complements our own. We do like innovative science that's going on out there in neurology, there's certainly platforming on outside of our labs. And what this drills down to for us are platform technologies and access to new and differentiated modalities. So I think that you've seen bets and pieces in these and all of the collaborations that we struck. And I think we'll continue to look at for the right opportunities moving forward and if they make sense for the company and the portfolio. We'll continue to bring those in.

And as you've seen, we brought in opportunities that are in various stages, Phase I, Phase II, Phase III, even preclinical assets that come with that fall in the Jude shop, we will look again at the entire breadth of toolboxes all the way up to commercial opportunities. And we continue to do that. We also continue to invest heavily and now even more so with Jude onboard in our internal research.

We've got another question in the portal here, which is basically what impact did you see from the new variant in 4Q? And how are you thinking about COVID impact in 2022?

Yes. So we will discuss that more in our earnings call in February. I think what you can say right away is this doesn't help, right? It doesn't help any of us. It doesn't help our economy overall or life in general. However, it certainly doesn't hurt as much as it used to in 2020 and 2021. We've got much better at dealing with it, and we will continue to get better with it. And I would say let's hope that Omicron is something that goes by us quickly.

Kevin, one of the things that you've talked a lot about in the prior earnings calls and in forums like this, and this is in line with some of our first. The survey work is the psychiatrists have been a little bit slower to return to the office. And what your market research suggests about what changes that dynamic?

Yes. So you're absolutely right. Psychiatry is probably the one discipline that specialty that has been has embraced telemedicine more, and it's been much slower to come back into the offices. I would say of our call universe, all of the neurologists are back in practice, and psychiatrists still are 40% to 50% of their practices are telemedicine. As you recall, it was about 10% prior to COVID. So they've been one of the largest users all along. But many of the aspects with the telemedicine were relieved in the emergency health order. You can practice across state lines or even practice if you're outside the United States, you don't have to use secured lines any longer. And importantly, that reimbursement to the physician now is identical, whether they're seeing that patient in person, whether they're seeing them on video or whether it's audio only. So telemedicine is here to stay, but probably not at the levels that we're seeing now. So as more and more psychiatrists are seeing their patient in person, that will, of course, make it quicker and easier for them to be able to diagnose TD. And then as the emergency health orders relieved and we see what the new guidelines are going to be for telemedicine, then we'll adapt for that. We would anticipate that payments with tier, again, the lowest of which would be audio-only interactions and then more for video and then more yet for in-person. What we've seen already is that CMS has put down that already the guidance that when the emergency health order is relieved that a psychiatrist has to see a Medicare or Medicaid patient in person for their first visit, and then they have to see them at least once a year after that. So I think that will be very helpful. But we have to continue with all the efforts we put in place that are important for you, and those that we are working on for the future in order to be able to better serve, give those psychiatrists the tools that they need in order to diagnose -- to feel confident in diagnosing TD via telemedicine. And then the last thing I would say is that and we can talk about this more later. One of the big driving forces of us increasing substantially our sales force is the fact that we -- there are so many new and varied prescribers that we've identified. And probably the largest of those are nurse practitioners, psychiatric nurse practitioners or as they are known today, as APP, advanced practice professionals. They utilize telemedicine far less and they have prescriptive authority and they can work independently of a physician. So I think that what we're seeing is more and more psychiatric care being provided by APPs. And so we've engaged them quite a bit.

We've got a question maybe, Kevin, on along the lines of commentary is, how does the telemedicine portion of psychiatry impact diagnoses and how those trends being during the pandemic?

Yes, I'll leave that actually, what Eric and Eiry may be able to talk about that since both of the organizations play a big role in assisting physicians.

Yes. I'll start off by saying that at the beginning of pandemic, when clinics and practices essentially shut down to in-person care. What we found was that -- and providers were really transitioning over to mostly telehealth visits. The feedback that we got from providers is that they found it, especially in psychiatry, more challenging to make that TD diagnosis. And so we invested pretty heavily in developing tools and techniques to really help facilitate that diagnostic process to make providers -- give them some very specific techniques to help them be more comfortable advancing the diagnostic process. And so if you'd like to get a little bit more detail as to what that looks like specifically. I would suggest visiting the website that we created for health care providers called mind-td.com. And what you'll see there is screening tools, patient cases, educational videos really developed by an expert panel of psychiatrists and neurologists that we work with, specifically focusing on identifying and diagnosing TD on telehealth platforms, including, as Kevin mentioned, even when it's only an audio-only visit, there are questions that you can ask. There are vocal exercises that you can have the patient do to try and tease out where they're experiencing abnormal movements. And so what we found is over the course of the pandemic that providers have gotten more comfortable and more confident in terms of their ability to recognize abnormal movements and just to be more proactive and straight forward.

Eiry, anything to add?

Yes. No, I think you described it very well, Eric. The only thing I'd add is that to build on line TD, we continue to make significant investment in understanding how to apply other technology more broadly to help with that diagnosis in telemedicine environment, whether it's through video or through audio and also to continue to advance our educational processes to enable clinicians to continue to feel even more confident around their ability to diagnose in that more distant environment.

Yes. So final thought here. The fact that we've been able to grow in this environment, I think, is a testament to the fact that we're helping our customers to navigate even when they're not seeing their patients in person, the TD is still top of mind that they need to screen for that they need to make that diagnosis. And we'll continue to facilitate that environment even in the, I'll call it, the post-COVID world where there's less telehealth because regardless, there's going to continue to be use of telehealth and psychiatry going forward.

We've got one final question in the e-mail portal here, which is given your strong balance sheet and potential significant free cash flow from INGREZZA, have you considered using some of that cash flow for share repurchases?

Matt, I'll let you talk about that.

Yes, with over $1.3 billion in cash and generating cash flow every quarter, it does give us a variety of options as we look forward to our balance sheet, but then also more importantly, I think, is the investments that we want to make. We're investing behind INGREZZA right now with the DTC campaign as well as the sales force expansion. I think we noted that last quarter as well as all of the R&D programs and the most recent in-licensing of the M4 asset from Sosei Heptares. So our view right now is completely on investing in the business and building the premier neuroscience company. If we evaluate all lenses of use of capital, including share repurchase. But right now, the priority is investing behind the business.

Right, and on upon just to put a clear point on that, our use of proceeds, number 1 is INGREZZA to make that the drug that we know it can be. Number 2 is to invest internally in our research and development. And number 3 is as we see opportunities externally that fit into our strategy well that we will do those deals.

Okay. Kevin and team, I want to thank you guys so much for a super productive session. And I hope you guys have an awesome rest of the conference.

Thank you, Anupam. A real pleasure. Bye-bye.

Thank you.

Thank you. Take care.