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

Good afternoon. Welcome back to the Bank of America Healthcare Conference. It's my pleasure to have our next presenting company with us, Neurocrine. We've had the pleasure of covering Neurocrine now for several years. So sitting next to me are Kevin and Matt. I will let each of you introduce yourselves. And then maybe, Kevin, you can give us an overview of what's been happening with the company over the last year or so, and then we can go into a little bit more detailed Q&A, if that works.

That's great. Thank you, Tazeen. It's a pleasure being here in person with you and having the opportunity to be able to speak at this conference. So I'm Kevin Gorman. I'm the CEO of Neurocrine.

Matt Abernethy, CFO, joined the company about 4.5, 5 years ago.

And so as far as a brief overview of Neurocrine because I'd like to get into the questions is that we've been a commercial company for a little over 5 years now. The primary drug -- we've discovered and developed 2 drugs that have made it commercially right now. One of them is in women's health, and that is marketed by AbbVie in endometriosis and uterine fibroids, ORILISSA and ORIAHNN. And then we have the other drug, which is what we market exclusively in the United States, and that's INGREZZA. Now INGREZZA is a drug that's for a debilitating disease called tardive dyskinesia. Tardive dyskinesia is a progressive movement disorder that is caused by the long-term use of antipsychotics. So there's approximately 70 million prescriptions of antipsychotics in the United States last year. For reasons that are unknown, approximately 6% to 8% of people who take antipsychotics develop tardive dyskinesia. In the vast majority of them, over 70% of them, if they never touched an antipsychotic again, the disease continues and progresses. So it's not a side effect. It is a new disease that is introduced into the patient by taking antipsychotics. INGREZZA has -- had tremendous impact on those patients' lives. It -- the Phase II and Phase III programs that we ran on it showed a substantial efficacy in reducing all the movements within the face, the jaws, the tongue, the trunk, the hands and the legs. It's proven itself to be at least, if not more so, effective out in the real world that it's been used in. There are approximately 600,000 TD patients in the United States. There was never a drug before we got marketing authorization from the FDA in the United States to treat TD. So we are the first drug to ever treat TD. It was a marketplace that was not gone but was forgotten. Psychiatrist who is the primary caretaker of these patients were taught basically -- if they were taught anything over the last 30 or 40 years in medical school of their residency program about TD, it was that nothing good can ever come from discussing TD. And so it has been an interesting journey in going out there and educating physicians that TD is out there. It's in your practice. It's debilitating to your patients. You need to recognize it, and you need to prescribe it. We now have, I would say, total, I'd say, VMAT2 inhibitor, vesicular monoamine transporter-2 inhibitor. I would say that some total of those 600,000 patients may be somewhere between 20%, 25% of them have been -- have received now a diagnosis after 5 years of work in introducing the tools to the physicians to be able to confidently diagnose this movement disorder -- have been diagnosed. Yet only half of them will be being treated even though APA guidelines were last updated about 18 months ago to say first-line treatment is a VMAT2 antagonist. We gave guidance at the beginning of this year for the first time that we would have between $1.25 billion and $1.35 billion in sales this year. So we didn't stop there. Neurocrine has a very deep pipeline of neuroscience drugs. And to us, neuroscience means straight neurology, neuropsychiatry, neuroendocrinology, and hopefully, 1 day, neuroimmunology as that science develops. So we have a pipeline of approximately 12 medicines in each of those areas. We look forward to -- the 5 of them are pivotal studies, 7 of them are Phase II studies that are going on with these drugs. And then we hope to add a 13th to them, an M4 agonist, for schizophrenia a little later this year. We're in a very good cash position with a little over $1.2 billion in the bank. Fortunately, in this environment, we do not depend on the public markets to finance the company. We are -- we have a growing cash balance within the company. So I'm going to stop there.

Okay. You said a lot. Good. So maybe let's go into a little bit more detail about the quarter. So for 1Q, you always kind of guide cautionary statements, right, about all of the pushes and pulls that impact your quarter, but you did come in significantly above consensus expectations. But you did maintain your guidance range for the year. So from where we sit, you should at least comfortably be able to get to the higher end of that number. What would need -- what would you need to see in order to raise guidance for the rest of the year? Like what prevented you -- maybe it's a question for Matt, I'm not sure -- from adjusting that number higher?

Yes.

Dr. Abernethy speaking.

I'm not a doctor, but my [ second brother ] is. We're just talking about that earlier. No, the first quarter was great. It exceeded our expectations. It exceeded Wall Street's expectations. And it really was a factor of 2: patients stayed on medicine, and we kept them on medicine through that transition from Q4 to Q1. And then the second piece is we exited Q1, we had a record number of new patients in the first quarter, and that really sets you up for the rest of the year. So we were encouraged, but we're only 1 quarter in. And we felt it was prudent just to wait until we had more detail before we made a move on our guidance. So...

So exiting the quarter, can you give us a little bit more detail on sort of the qualitative aspects that you're seeing that indicates continued strength?

No, I think we're going to continue to expect sequential growth moving from Q1 to Q2. As always, it might not be as high a growth as what we've seen historically. But I think what you're seeing is a factor of the environment is improving. The direct-to-consumer advertising campaign is really showing itself and generating a return. We initiated that DTC campaign last May. So we're about 3 quarters in to that cycle now, which is when you would typically start seeing the benefit of it. And then in the second half of the year, we actually would expect a benefit from our sales force expansion. As of April 1, we divided our sales force from a sales force of 215 that called on neuros and also psychiatrists. As of April 1, we split our sales force into 3 distinct channels with 214 psych-only territories, and then we added 140 more territories, split between neurology and then also LTC. So I think when you ask what data could we see throughout the rest of the year, that would lead to just a reconsideration of guidance. It's really the environment and then also how do we see the impact of the sales force going.

And the only thing I would add on to what Matt said, just for clarification, we do see a lift each and every year going from Q1 to Q2. Q2 is really a good quarter for us always. Q1 is a challenging quarter, as you said, because the seasonal dynamics with payers having to do -- we're a specialty drug, so you have to do all the reauthorizations and prior authorizations at the beginning of the quarter. That really backs up a lot of paperwork at the doctor's office at the pharmacy offices. This Q1, we got a lot better as we have. Along the way, we learn more, we get better at anticipating that, and in an extremely compliant way, making sure that the physicians' offices and the pharmacies are prepared for that. The difference between this Q1 was that back at the end of last year, we changed our distribution network a bit. And that caused a little bit of turmoil in Q4, which meant that there were a few scripts that didn't get filled in Q4 that ran into Q1. So Q1 got a bit of a lift from that. It still would have been a very good quarter. So we're just a little cautionary so that people don't get in front of themselves to see that, okay, I'm just going to apply the exact same metric in Q2 over Q1. Now Q1 was a little bit high. Q2 is still going to -- the -- we're on our way to that trajectory that we had pre-COVID with this. So I feel very good. And with the new sales force out there, as Matt has said, they're not going to have an impact. They were just launched in April 1. They're not going to have an impact until late Q3 or Q4. But I'm looking forward to this year. I think we're able to bring this important drug to many more TD patients, and we're still at the very, very beginnings of this marketplace.

Okay. Well, it's great to hear you feel this confidence that you're headed back to where you were pre-COVID. Now one of the big rate-limiting factors when COVID hit was your teams inability to be face-to-face in terms of, well, I guess, detailing to doctors, but also doctors seeing patients face-to-face.

Right.

Now how has the percentage of doctors being able to see patients again face-to-face changed? Is that the reason why you feel better that it's improving? Or is it because you've managed to learn how to navigate around a new reality?

It's actually both. I would say that when you look at the customers that our sales group calls on, there's basically 3. There are -- there's the neurologists. They see about 20% of TD patients. And they are -- by and large, they're all back in the office. 95% at least of neurology visits are in-person visits. Psychiatrists are still about 50% is telemedicine, which is, by far, the highest telemedicine users of any specialty that's out there. They are the slowest to come back into the office. The third aspect, though, is that if there was something about COVID that revealed itself to us is that the rise in the importance of the nurse practitioner out there, the psychiatric nurse practitioner, which they're referred to actually these days as the APPs, advanced practice professionals, that's probably the future of delivery of psychiatric medicine in the United States. And it was during COVID because they stayed out there servicing patients, and they have prescriptive authority in virtually all states. So that is a reason why I feel confident. And also that's one of the big reasons why we expanded our sales force because as we became aware, the number of prescribers out there increased dramatically that we saw with our understanding of APPs and their role in delivering psychiatric care.

So yes, just to add on what Kevin was saying. We've seen a clear increase in availability for us and our reps to be able to engage directly with the health care provider, whether it's doctor or the APPs. The one piece that still hangs out there is the use of telemedicine within psychiatry. It has lessened a bit, but it's still well above prepandemic norm. So I think that when you ask, well, how are you generating all these new patients in telemedicine? We're, of course, trying to educate around telemedicine, but there's an importance of the DTC campaign that are engaging patients in the process of identifying TD.

So how do you think about what part of the population has the most room for penetration going forward, right? So you're more of a mature launch now, but you've also said that you think the majority of the market still is untapped. Do you want to tap all of the remaining portion of the market? Or is there subsegments that you're going to be focused on more?

I would say this that there is a tremendous amount of growth left to us. I mean a tremendous amount of growth. The vast majority of patients are still not suffering needlessly that are being seen by psychiatrists. So we -- basically, we didn't increase the size of our psychiatry sales force. It's still, by far, the largest of sales forces. But by removing any responsibility that they have in seeing neurologists, we basically made them 20% to 25% larger because they needed that. They needed to be able to go deeper and broader with the psychiatric base and the APPs. We went into -- we knew that we were not seeing -- we were not visiting enough of the neurologist office. And so that's why we then had a -- have a sales force now that is specifically going into the neurologist office. And then we always knew that within the psychiatric realm of long-term care, we knew there was an opportunity there, but we weren't sophisticated enough. We did not have the wherewithal when we first launched to be able to tackle that. And also, long-term care, many companies have gotten themselves in trouble from a compliance standpoint. Us being a new commercial organization, I wanted to understand how are we going to then set ourselves up from a compliance standpoint. And we are, I feel, extremely comfortable that we're going to be fine going in there. We're an extremely compliant organization. We have everything in there. And from top to bottom, there's a real emphasis on compliance. So I became very comfortable. Let's go into LTC. And just before the pandemic hit, that's where we made our plans. We were about to go into LTC, and then obviously, the pandemic hit. So it is just now that we brought those plans back up, hired and gone into LTC, which is completely untapped for us. So there's...

I guess what percent of TD patients do you think will come from there?

We're not ready to say a percentage. Let's see how we -- how it works and how it goes as we go in there. There's groundwork that needed to be done before we could set up the reps to go into LTC. One of them is that LTCs usually have their own pharmacy associated with them. So you need to make sure your drug is in those pharmacies before you start setting up demand within those centers. So we had to do that, and we got that underway. So I think that, again, there's where the growth is going to come from. Where wouldn't we go into? I would say right now, we would be ill-equipped to go into the largest psychiatric institute in the United States, which is the prison system. So that's just not something we or I see in the very forced near midterm us penetrating.

Okay. Now as you think about -- I guess we all have our view of where we think sales can peak, but contingent on that is, of course, IP. So it's not something that you guys talk much about, but you do have a really strong IP estate. So maybe, Kevin, can just give us a summary.

Yes. What I would say is that we have a composition of matter, a patent that at a minimum would be out to 2031. However, we have 19 patents issued in the orange book right now. And we feel...

There's a bunch that are new.

There are several that are new. There's those that are a bit older. But I would say we feel very confident that we have protection out to the mid-2030s. So...

Right. Do you think that's well appreciated?

No. I would say that we haven't -- you're right, we haven't been out there talking about it a whole lot, but it's not because of lack of confidence. It's that there have been other things to talk about in the last couple of years. And you see what we're doing. We took INGREZZA then into Huntington's disease, very successful Phase III trial. The sNDA now for Huntington's is going to be filed a little later this year. All we're waiting for is to complete all of the open-label extension to get the complete safety database in there. And so we -- knock on wood, that receives an approval from the FDA, and then we'll have that indication in the chorea associated with Huntington's disease next year. Then we're also doing 2 other disease states with INGREZZA. One is in adjunctive therapy for schizophrenia, so to be able to actually treat the underlying disease of schizophrenia in these patients. And then number two is the dyskinesia with cerebral palsy. So there's very good evidence in both that this mechanism is at work here. So we continue to invest in the drug itself as we bring other drugs up in our pipeline.

So maybe if we talk about Huntington's chorea coming out. So Teva kind of owns that space right now with AUSTEDO. It's the flip of how we think about TD, really. So how should we be thinking about where Neurocrine could be in terms of that opportunity relative to taking share from AUSTEDO as well as being the choice for new patients?

Yes. There's that -- Teva has been -- that was what they were first approved in. And Teva's deuterated tetrabenazine has about 20%.

15% to 20%.

Yes, 15% to 20% of the chorea market. And that really hasn't changed over a period of 4 years. There's -- I think the aspects of INGREZZA that lead it to be the market leader in tardive dyskinesia are exact -- that -- those aspects are even more important for the Huntington's population. Unlike multiple pills a day, it's 1 pill once a day. That's important for the Huntington's population. It has real problems swallowing, that to take a pill burden of several pills twice a day to 1 pill once a day. Number two, there's not a complicated titration. Your first dose is an effective dose with INGREZZA. And third, because of the dysphagia, the choking and the problems that the Huntington's patients have and the clenching of their jaws, they could break the deuterated tetrabenazine, which is a modified release formulation, and give a dangerous drug dump if they did that. There is -- INGREZZA is not formulated. You can bite through the pill. You could do almost anything with it, and you can more easily take it. And it could be even through an esophageal tube, it can be given. So those aspects of INGREZZA are very important to the Huntington's population. So I would anticipate that it'll be welcomed into that patient population.

What percent of AUSTEDO sales are from Huntington's, do you know?

They say that it's approximately 20%, correct?

Yes. Between 15% and 20%.

Of their sales.

And do you think that the portion that they have the market in is sort of low-hanging fruit for you?

I don't know about what switching would look like. That's not -- I imagine some will come from that. That's not really going to be where our emphasis is going to be. It's going to be the patients who have not gone over to a VMAT2 inhibitor.

Okay. And then for the 2 other indications that you're looking at for INGREZZA, do you have a sense of how big those market opportunities can be?

For the dyskinesia associated with cerebral palsy, that's the largest movement disorder in pediatrics that exists. It's about the same size as tardive dyskinesia. So that is a patient population, which has nothing that's been developed into it and really underserved population. So we -- by mechanism and by the opportunity to bring something that can hopefully be as transformative in that population as it has been in TD, we're looking forward to that. With the adjunctive therapy to schizophrenia, there's a lot of switching that goes with the schizophrenia population. In our clinical trials for INGREZZA, we had stable schizophrenics. They were on an average of 7.5 daily meds in our Phase III studies. Off-times, they were on 2 and maybe even 3 antipsychotics at a time. So there really is a very high unmet medical need. The antipsychotics are basically an extremely important wonder drug for schizophrenics whether you're talking about the typical of the atypicals that have been on the market. That allows the schizophrenic and schizoaffective population to be able to function. But still 30% of those patients are poorly treated by them. And so that's kind of the opportunity that we look at in bringing INGREZZA if it shows itself to be effective in conjunction with their antipsychotics. So we'll see.

Yes. I want to clarify, just for those who are listening, Kevin's demographic comments were specific to the TD trial just for people to understand that.

Right.

And one of the common questions that we get is in regards to pricing and where would we see this fit in. We clearly look at this as an adjunctive therapy. It might be second or third line. And we, of course, would market it correctly from a pricing perspective. But it could be a big opportunity for us. We still have a bit of a way to go before we get to the data.

Okay. Well, when I speak with investors, a common observation that people make is, oh, well, it would be great if Neurocrine have a pipeline. But you just spent a few minutes talking about additional indications that you're looking at for INGREZZA. You obviously are looking at other things. You have a program in essential tremor. We can talk about that. You have an M4, which other companies are getting a lot of credit for. So what's your reaction when people say would be great if Neurocrine has a -- had a pipeline?

Yes. It's really an impediment having $1 billion plus drug because you can understand, and especially in this type of market, that's where we're going to focus on. We have a blockbuster drug that just continues to grow right now. So that kind of blinds people to what is there. And especially with as long a patent runway that we have, there is not this need to say what's going to replace it. Well, we're thinking about that already. So that's why there's 12 drugs in development in our pipeline, and we have late-stage drugs there. I'd say the one that we're most excited about is our congenital adrenal hyperplasia drug. It's in 2 Phase III studies right now. We're on track to finish enrollment of those 2 Phase III studies, and they're worldwide studies, in Europe and the United States, and then have top line data next year. And that will be a drug that internationalizes Neurocrine. That will be the first drug for CAH patients in 50 years.

It's also a rare disease, right?

It's a rare disease.

[indiscernible] disease.

Right. Yes. And so that -- we have that, as you pointed out. We have 2 important data readouts that are coming this year. Now it's the same drug, but 2 different indications. And it is a T-type calcium channel drug, and the first indication is an essential tremor. That will be towards the middle of this year, that Phase II study is going to read out. It's the largest movement disorder in the world. 10 million people in the United States suffer from essential tremor, probably an equal number a little bit more over in Europe. And then we also have the same drug that's going to be reading out late this year in a rare pediatric epilepsy, CSWS, of which there's no approved drug for. So those are 2 important data readouts for us this year. And then we have, what, about a half a dozen more Phase II and Phase III readouts next year. So there's a lot of dataflow that we have coming out, and including, by the way, hopefully, an approval in Huntington's next year, too.

So with ET, what would be good data?

We're looking at the -- it's a small trial. It's a signal-seeking trial that we're doing here. The drug was rationally designed for the CSWS population, but there's been good data building up over the years that by affecting calcium -- T-type calcium channels, you're going to have an effect in essential tremor. So we decided we're going to look at both of them simultaneously. Again, it's nice being a company that has the resources that we can do that at this point. So...

So the signal finding means what?

Signal finding means that we -- it's only 24 patients in this study. And what we're looking at is we wanted to look at a completely objective measure of the tremor. So let's pick patients who are moderate to severe, meaning that they've got essential tremor that's bilateral, and we put accelerometers on them. And so it is a completely subjective looking at -- is looking at the tremor by accelerometers. We then have a number of secondary endpoints that we're looking at. TETRAS is the scale that has routinely been used, which is a physician-rated scale. There's an activity of daily living. We will look at all of that together and say, do we feel confident that we're having a very significant signal here? And it is not -- it is something that we will be really rigorous on that because, as you can imagine, in a market that has 10 million potential patients in it, that's going to be a large clinical program that would follow from there. So we're going to make sure that we do have -- believe that there's going to be -- that our drug really has a role to play, not only from efficacy, but safety because the essential tremor population is primarily an elderly population. So you better be nice safe drug.

And you would want to keep that asset?

That we would keep ourselves also. Yes. Definitely in the United States, we -- it's real early days. We'll see about Europe there. Our rare diseases that we have, the rare pediatric epilepsies that we're in because there's 2 of them, and then CAH, those are things that I think we're well positioned to be able to internationally -- internationalize Neurocrine and sell those both in Europe and the United States.

Okay. And maybe I'll sneak in the last question, which is -- everybody asks me this all the time, which is, why is it that Neurocrine is named as a takeout candidate, and it's also named as a company that should buy somebody else? So which do you prefer, Kevin? Do you prefer to be bought? Or do you want to buy someone?

Well, we definitely prefer to be the buyer. It has been the goal of Neurocrine to be the world leader in neuroscience. And I think we're well positioned. There's a number of really interesting young neuroscience companies out there. I think we can be a partner of choice for them. We have been so far with a number of deals that we would -- that we have made already. And just to sum things up, we are constantly out there talking, collaborating with a number of companies. And it is something that I don't care about what the structure of the deal is, is that if it fundamentally changes the standard of care, if the science is great, if the IP is very good to give us a nice long runway and if the value is appropriate for both us and the other company structure, I can care less about them.

So structure means that you'd buy...

It could be a license. It could be a JV. It could be an acquisition.

And would you be willing to issue debt if it was an acquisition to do it and purchase?

Sure. But we have a big capacity right now to do a substantial size deal.

Yes. Okay. Great.

Okay.

All right, guys. Thanks for coming.

Thank you.

Thank you for your time.

Thank you.