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

Good morning, and welcome once again to Cowen & Company's 42nd Annual Healthcare Conference. I'm Phil Nadeau, I'm a biotech analyst here at Cowen. It's my pleasure to moderate a fireside chat with CEO of Neurocrine, Kevin Gorman. Those of you who follow our research know that we are fans of Neurocrine as we think there is much growth left in INGREZZA and an undiscovered pipeline. Kevin, maybe I'll hand it to you to give a brief state of the company overview, biggest trends, biggest challenges and what you think needs to happen for Neurocrine to drive outperformance over the next couple of years.

Thanks, Phil. Good to see you. I'm here in a hotel room in your [ fair ] city of Boston. So bear with me, I'm trying to make sure that at least the audio is going to stay very stable in here, the video may click around a little bit. So kind of working off of 2 devices here. And I will start out with that I will be making forward-looking statements, so I'd like to direct everyone to our recent SEC filings. So Neurocrine is and always has been a neuroscience company. And for us, neuroscience means neurology, neuropsychiatry and neuroendocrinology. I would say that the biggest strength that we have is that we have 12 compounds in late-stage clinical trials, Phase II or Phase III. We have a blockbuster drug in INGREZZA that surpassed $1 billion in sales and has a long runway to go there. And we plan on adding to that pipeline over time. I would say our biggest challenge is really right now is that with this pipeline, it's -- we've certainly got the financial resources. We've certainly got the people. We've been investing in ourselves as well as in external collaborations in building the company. But the challenge we have is -- quite honestly, it's execution right now. As I'm sure we're going to talk about, we've made a lot of new investments in INGREZZA. We have to execute on those. The opportunity is in front of us still; the vast majority of the opportunity. And then with our clinical pipeline with running so many clinical trials and in not easy areas to run them in, in the neuroscience field, especially within neuropsychiatry. It's really up to us to really perform on those. So -- and I look forward to the next 12 to 24 months. Over the next 18 months, we're going to have a number of Phase II and Phase III readouts that are going to be taking place. The 2 soonest are going to be in middle of this year, which is now just a few short months away is a Phase II proof-of-concept study in essential tremor, the largest movement disorder that exists. And then later in the year is going to be a very important Phase II study in the rare pediatric epilepsy Continuous Spike-and-Wave During Sleep. So just a lot of opportunity in front of us.

Maybe we'll start with INGREZZA. The drug is approaching its fifth anniversary of launch. We're curious to get your sense on how much growth remains. Our own analysis suggest that there are maybe 19,000 tardive dyskinesia patients on therapy. In the last year, a small minority of 600,000. Is that aligned with your estimates? And what do you think ultimately peak penetration of that market could be?

Yes. The vast majority of the opportunity is in front of us. It's a shame right now that still better than 80% of patients are either undiagnosed or not being treated appropriately who have TD. So when you look at the market, yes, you're right, there's 600,000 patients is what we estimate as TD. And just almost 5 years ago, when we launched, maybe 2% to 3% of those actually had a diagnosis for TD. Now we believe it's more in the 20% to 25% range have a diagnosis. But even then, even with that, what I would say is still real good progress, but a very low diagnosis rate. Only half of those that are diagnosed are being treated with a VMAT2 inhibitor. And that is in the face of updated APA guidelines last year that said that first-line treatment for tardive dyskinesia is a VMAT2 inhibitor. So we have a long way to go. I'm real proud of the progress that we've made in that diagnosis rate, bringing it up to nearly 25%. We're never going to reach 100%, but we're going to do a lot better than 25%. That's going to keep going up and up and up. What is the upper limit? Is it 60%, 70%, 80%? I don't know. But it's going to be a lot higher than that. And so what we're going to be doing is we've invested in our commercial capabilities with expanding our sales force here and then also expanding our outreach to patient education with our direct-to-consumer campaign. And so we gave guidance for the first time at our quarterly earnings call in February that our guidance range for 2022 is between 1.25 and $1.35 billion in net sales.

On that guidance, the midpoint of that range implies a healthy 20% year-over-year growth, which is a reacceleration from INGREZZA's 9% year-over-year growth in 2021. What are the factors that you think will help drive that expected reacceleration? What are the risks to achieving the guidance and maybe what could drive growth in excess of the guidance?

Yes, I look at it as kind of 2 ends, what internally is driving the growth here in 2022 and beyond and then what are the external factors that we take into it. So one of the great things about INGREZZA is not only the fact that it has an extremely good efficacy and safety profile, like you'll probably remember when -- in the early days, when we spoke after the launch, all of the feedback that we were getting from psychiatrists in particular, is that they're just not used to having a drug put in their hands that works as advertised, right? All the antipsychotics, all the antidepressants were always touted upon launch as this is going to work for all your patients. And that, as we know, didn't turn out to be the case. But the data in real world for INGREZZA is working out at least as well, probably even better than the clinical trial data had shown for it. So that, coupled with ease of use and a great tolerability profile, INGREZZA is very sticky. Persistence and compliance from day one has always been very good, and it's kept up with that. That surprised me. It can -- it doesn't surprise me anymore, but you look at this patient population, which is generally a highly noncompliant patient population. And our compliance is spectacular, and it has stayed that way from day one. So that's one of the good internal factors is great persistency and compliance when a patient is prescribed INGREZZA. The next is and why we invest in this is that the avenue to growth is not just holding on to those patients that we have, it's new prescriptions. So that's where we focus on with all of our investment in here is getting new prescriptions. And that is where the increase in the sales force has come about the DTC, as I said, although most of that we're going to see pay off, if you will, in the second half of this year. We're only just now launching at the end of this quarter, our new sales teams out there. And the DTC is going to also be one that shows its true effects towards the second half of this year. Now the external factors, as we all know, is the impact of COVID on patients access in the clinics and leading to higher than what we've seen before, telemedicine use. Neurologists, like all specialties who are one of our customers, they're back in the office. Their telemedicine use is actually pretty low right now. Psychiatrists are the slowest to come back into the office of all the specialties out there, I would say, and they're our primary prescriber. I would say that the universe of psychiatrists that we detail to, approximately 40% to 50% of their practice is telemedicine right now. We've invested a lot in giving them additional tools over the last 2 years in order for them to be better able to recognize, in the telemedicine environment, abnormal movements and even to make the formal diagnosis there. But nothing is as good as seeing their patients in person. So -- but throughout both, all the way through the range that we provided, our base assumption is, that the emergency health order is going to continue to be renewed and will go on through the end of this year. And so we do not see that as changing with this, and that is part and parcel of the range that we gave.

So just so we're clear, in terms of the use or the in-person visits to psychiatrists, does the guidance assume a tick-up through the year as COVID hopefully subsides? Or do you think that, that increase will require the reimbursement changes or reimbursement policies regarding telemedicine will change?

The range does not take into account the reimbursement policies to take place over the emergency health order to run out. The range takes into account an opening up of society with COVID waning, knock on wood. Hopefully, we're seeing that taking place now. But the range also takes into account that COVID remains to be unpredictable throughout the year, and we have ways of additional COVID that goes on. So we try to capture that entire range within this guidance.

That's helpful. In terms of Q1, specifically, you've noted headwinds going to the quarter, specifically a higher gross to net due to Medicare that are all to lower refill rate as patients must undergo insurance reroutes at the start of the year. In the past, that lower refill rates limited TRx growth during Q1. So TRx grew by about 600 scripts total quarter-over-quarter last year. Is that the magnitude of the disruption we should expect in the first quarter of 2022?

Yes. So what we've always said and what we've always seen is that Q1 is a difficult quarter. And it is pure and simple, not just us, but all specialty drugs is that you see that in Q1, the reauthorization process has to take place for both government-paid patients and for those in prior -- with private insurance. So that leads to a tremendous amount of paperwork that goes on. We have a specialty pharmaceutical distribution. So that paperwork just keeps flowing from the physician's office into the SP pharmacies and then into the insurers. So it's really a tale of 2 quarters. The first 6 to 7 weeks of Q1 is just catching up on that paperwork. The second half is then when you get more into the normal course of business for the quarter. And so that we then -- that's why we see that Q1 gets depressed versus Q4 of the previous year. But what we always see is then Q2 is usually a strong rebound from Q1. Q1 of 2021 was especially difficult. I don't anticipate Q1 of 2022, as we said on our earnings call, to be as difficult as Q1 of 2021. And also, the Q1 is when we see the biggest hit to our gross to net because of patients going -- public-pay patients going through the donut hole and then getting through the copays and everything for private insurers. Gross to net gets better and better as the year goes on. And also, as we guided to, the average gross to net or the average revenue per prescription in 2021 was about $5,400. That's going to be the same average revenue in 2022. So we don't anticipate seeing any degrading of gross to net in 2022.

Another potential driver of INGREZZA's growth is Huntington's disease, where there was recently a positive Phase III data. Can you quantify how big INGREZZA's opportunity is in Huntington's? And as INGREZZA will be launching after Austedo, how do you expect INGREZZA will differentiate itself and capture share?

Yes. So if you look at the Huntington's market, there's about 30,000 patients in the United States who have Huntington's disease. 90% of that have chorea. 70% of those have chorea severe enough to require treatment for it. So we're talking approximately 20,000 patients in the United States with chorea. I think that that's obviously much smaller than is the TD, but I think it's a really important market for us to be going into and will add to the sales line that we have. Now you're absolutely right, Austedo has been in that marketplace for a few years now. That's what they originally approved for. And then there are some generic drugs that are also in there. However, I think that the advantages that INGREZZA has over any competition that makes us the market leader by about 2/3 to 1/3 in TD is even more important and more magnified for the Huntington's population. The Huntington's population, by and large, has Dysphagia, problem swallowing. So pill burden can be a very, very significant problem for them. INGREZZA is one pill once a day. Competitors in the space are multiple pills, multiple times a day, that's #1; #2 is they have a lot of jaw dyskinesia, a lot of clenching, they can break pills and capsules. With deuterated tetrabenazine, that's a real problem. You can get a dangerous drug dump if you would happen to break that. There is no such liability. We are not a formulated modified release drug. So you could certainly bite down, you could chew on INGREZZA capsules without any problem. There's no complex titration here. Your first dose can be an efficacious dose with INGREZZA. There's no black box warning. There's no food effect. So really a very simple drug for this complicated patient in Huntington's. And I would add that for all the reasons that I said are the drawbacks for the current therapies for Huntington's, that's probably why there's only 20% of those Huntington's patients are on a VMAT2 inhibitor. We think there's a real big opportunity even though we're coming into this several years after some of these drugs. I think there's a very substantial opportunity, and we would look at having the kind of market dominance in Huntington's that we have in TD.

With that, I think we'll move to the pipeline. You referenced the events coming up this year, particularly for 827104. Maybe we'll talk about the essential tremor data midyear. What do you think is a clinically meaningful improvement in ET symptoms in terms of reduction in tremor amplitude, by the TETRAS score? What other endpoints could be clinically relevant?

Yes. So just to step back a little bit. So the 104 compound is a highly potent and very specific calcium channel blocker. It is specific to the calcium channel 3.1, 3.2 and 3.3. And as important as its specificity is its potency. This is probably the most potent sodium channel blocker that's existed right now. That's important with the fact that less potent drugs have been having to be given in much larger doses, which can then lead to off-target binding and then to side effects. We are hopeful that's not going to be the case here. So what we're doing with this Phase II ET study that is going to read out in the middle of this year is we have moderate to severe ET patients here. And it's a crossover design study. And so we're going to get a good understanding of -- to get the beginning of what does the effect size look like. Now we're evaluating them on a number of endpoints. They are going to be evaluated on postural tremor and that's going to be an objective. So it's going to be a measure with both hands with accelerometers on them. They're also going to -- we're also going to be looking at them on a clinical scale assessing tremor activity, the TETRAS scale. And then we're also going to be looking at it on the TETRAS activity of daily living score. So we're going to take in all of that information, and we're going to see holistically what is the data telling us, what is the robustness of the data. So what we're looking for here is to give us the go sign in order to be able to go into with great confidence, a large Phase II clinical study so that we can get a very good handle on the dose range that we're going to want to explore in that large Phase II study. There's 10 million people in the United States with essential tremor, 12 million over in Europe. It's by far the largest movement disorder that exists in humans. If you look at Parkinson's disease, that's approximately 1 million people in the United States. So there's a huge unmet medical need. The last drug to be approved was propranolol back in 1970. And so it is one where there hasn't been a lot of drug development. It is one where there's going to be a lot of partnership that we'll be doing with the regulatory agencies, both FDA and EMA in order to reach agreements on the correct primary and secondary endpoints that we're going to be pursuing, and as I said, to give us a real good signal up here is from this study to tell us that it's hopefully, knock on wood, go. And here's kind of the parameters of the dose ranges that we should be looking at.

So it sounds like you're going to be looking at the totality of the data to base your decision. Today, there's no specific endpoint that is paramount to that decision.

That's correct. That's correct. Like I said, what we're looking at is postural tremor as the overtreatment and the amplitude of peak frequency. We're doing that subjectively, talking to, and then using, as I said, TETRAS as a subjective measure. We'll talk with the agencies about how they want us to be able to use these and go to them with data to show the performance of the drug in each of these.

And the second event this year is Phase II in pediatric patients with epileptic encephalopathy with Continuous Spike-and-Wave During Sleep. Kind of a similar question there. What do you think would be good proof-of-concept in that study? What are the most clinically relevant endpoints and how big is that market?

Yes. That's a really devastating disease in these infants and children. And so what are we measuring here in this? This is an inpatient study and you're doing an EEG on these kids. And you're looking at the percent of seconds in the first hour of non-REM sleep. So we're talking about kids who are having seizures at an extremely high rate. We're looking at the number of seconds within there. You're getting kids that are having 70%, 80% seizure frequency as far as the number of seconds in that first hour of non-REM sleep. What we're looking for here with this drug is to have a real significant impact on this and hopefully taking us close to zero as we can in this. The trial is adequately powered. So I think we have a good study that's going on here. And we will see how the drug test out in this study. This is an orphan disease. There are only several thousand kids who have this, but it's important that they receive treatment.

Moving to Crinecerfont. Are the results from Crinecerfont's pivotal Phase III still on track for 2023? I believe one of your potential competitors announced a delay. We're curious if your study is having any of the same issues?

Yes. We are on track. We will complete enrollment this year, and we will be reporting out both of the Phase III studies, the Phase III study in the adult population and the Phase III study in the pediatric population in 2023.

What's Neurocrine's assessment as to the data that must be produced in order for Crinecerfont to become standard of care?

I think that, again, here we have a disease that hasn't had any new drug developed in it for over 50 years. It was basically exogenously added corticosteroids has been the only thing that's been developed here. And so the treating physician with these patients is constantly playing a balancing act. They're treating their patients either heavily with corticosteroids in order to keep the disease at bay, meaning keep their endogenous androgens at a low level or they're, in order to avoid the side effects of corticosteroids daily at a high level, they're bringing them down and undertreating the disease and letting then the androgens run uncontrolled and it's just always trying to do this. At times, they get them balanced, but those are infrequent than they have them balanced, then they go out of balance. The goal -- the ultimate goal here, what have we shown in Phase II? What we've shown in Phase II is we can powerfully lower androgen levels. So we've shown the mechanism of this CRF receptor antagonist is absolutely there. Now what we have to show in Phase III, and it seems obvious, but you have to show the magnitude that you can do this with is once that you regain now control of the HPA access and you can downmodulate significantly the androgens, can you now start downmodulating the corticosteroids because the high levels of corticosteroids are being given not just to replace cortisol, but to be able to have those really high levels in order to try to drive down the androgens. With Crinecerfont driving down the androgens, can we now bring down the amount of exogenous cortisol. Key opinion leaders, they've written a lot on this, much like we see in other diseases, asthma, lupus, rheumatoid arthritis, childhood arthritis, any reduction that you can do in a daily dosage of exogenously added corticosteroids is important. Let's see how our results point out, let's see how low we can bring them down now.

In your opening remarks, you noted that there are a number of other data events that are coming over the next 18 to 24 months. Are there any that you'd care to highlight what other pipeline programs should we begin to dig into?

No, there are so many, you're asking me to choose between my children. I think as we talked about, CAH is a real important one that we're looking at coming up. We have focal-onset seizures also with our sodium channel blocker that I'm really looking forward to seeing how that works out. And then again, with that sodium channel blocker, there's another indication, which is again, a rare pediatric epilepsy in SCN8A patients. So I would like to see that data. That's going to be very interesting. Again, nothing for those kids to be able to be used there. With valbenazine, INGREZZA for TD, if you will, that drug, we have in Phase IIIs for the dyskinesia and cerebral palsy, and we also have it in for the adjunctive treatment of schizophrenia. So topline data there in 2023 also. So that's real important, the investment that we put into INGREZZA. So we see -- start out with TD. We've got nice positive data in Huntington's that we'll be submitting to the FDA this year and then 2 other disease states with Phase III data next year on that. There's a Phase II study that we're starting up in schizophrenia with our newly acquired M4 agonist, but we're not going to have data in 2023 for that. That will be a bit longer. But getting that up and going, I'm really looking forward to. Then there's the assets that we have in collaboration with Takeda for treating a major depression in anhedonia. And then -- so there's -- I just keep going on. It's -- you followed us for a lot of years, we've talked a lot. You know this is the largest pipeline that we've ever had, and it's a pipeline that we spent a lot of time over the years, how are we going to build this, how are we going to be. We have a 3-legged stool here, what we call neuroscience; it's neurology, neuroendocrinology and neuropsychiatry. And we have now multiple programs that I think will change the standard of care in all 3 of these. Yes, everything isn't going to work. We both know that. But we have, I think, chosen great molecules. The onus is on us, like we talked about in the beginning. Let's execute well. Let's give these drugs the best chance that they have with these because any one of them hitting and there will be more than one of them hitting, but any one of them hitting can be transformational.

That is great summary. With that, I think we are out of time. Kevin, thank you again for appearing at the Cowen conference. We always appreciate your participation.

Thank you, Phil. Thank you for the invitation. Take care.

Thank you. Safe travels.