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

Good morning, and welcome, everybody. The Wednesday, the Goldman Sachs Healthcare Conference. My name is Chris Shibutani. I'm a member of the research team, together with my esteemed colleague, Stephen Sloan. We provide coverage on Neurocrine. We're part of the biotech and pharmaceuticals team. We're thrilled to have an in-person gathering after all of this time with the team from Neurocrine, Kevin Gorman, CEO; and the ridiculously tall Matt Abernethy, CFO.

I was born this way.

Yes, indeed. If anybody have seen the infamous Todd Tushla, he's got a great haircut going. So it's great to see everybody in-person, live and in action. Obvious thematic around your story is the innovation, the pioneering on INGREZZA, right? TD, the journey that this drug has been on, and I go back to a bunch of years, almost thinking about, how no one ever thought it was going to get to certain levels and whatnot. You continue to deliver. But then there were all sorts of changes in the dynamic. COVID has changed some of the dynamics here. So maybe I'll let you open with some comments here. Obviously, classically, we're very focused on INGREZZA, but give us a sense for where you think we are overall and then we'll dig deeper into some of the specifics.

Sounds good. And yes, it's great to be back in-person. It's been quite a while since we've seen each other in person. Obviously, before we get started, we're going to be making some forward-looking statements. So I would advise you to look at our recent SEC filings for all the warnings and all the risks that are inherent there. So, yes, Neurocrine is known for our drug INGREZZA in tardive dyskinesia. It is -- it's been a real interesting journey with that, where we were the first and only drug ever to be approved for this indication. So it has been a market building launch. And I keep calling it a launch, even 5 years later because with all our efforts, we've brought the diagnosis rate up in those 5 years from maybe about 2% or 3% of the 600,000 TD patients in the United States were diagnosed. That's it. Up to about 25% today. So lots of progress, but a long way to go with this. INGREZZA was discovered and developed at Neurocrine. It's not the only drug that we discovered and then developed and we partnered with AbbVie with ORILISSA. And it's actually got 2 brands associated with that ORILISSA and ORIAHNN. And AbbVie is now -- we work together on the Phase III on that AbbVie got it approved. They are solely the marketers of that. We have no role in that, but that's out there for women's health in endometriosis and uterine fibroids. But in addition to that, having discovered and developed 2 drugs that are now commercial, we have a pipeline of 12, Phase II or Phase III assets currently. We're going to be adding a 13th, very shortly here, which I'm sure we're going to get to. We are a diagnosable neuroscience company. And what does that mean? We have been around now for 30 years. Neuroscience test means neurology, means neuroendocrinology, means neuropsychiatry. And hopefully, sometime in the not-too-distant future, it's going to be neuroimmunology. We're getting a better and better grasp of that, but we're not quite there with knowing we know the pathways, but we don't know the actual molecular targets yet that we're going to be going after, but we think that, that will be coming. We are a company that is dedicated to neuroscience. We've never changed our focus throughout all the years in neuroscience and that's going to remain the same. We have a lot of data readouts that are going to be coming now between now and the end of next year, I think we're going to have 8 or 9 data readouts from those Phase II and Phase III studies, and we'll get into those a little bit later. Going back to INGREZZA, it was a drug that had a fabulous launch. Did really well. COVID came. It flattened things out a bit for us until we got our legs underneath this. And now we are getting back on that trajectory that we did pre-COVID. We have 4 consecutive quarters of growth with it. And Q1 really outperformed even our expectations. So we're a fortunate biotech company in this marketplace. We have a growing blockbuster drug. We have a big, deep pipeline. And we have a lot of cash on hand to deploy both for continuing to invest in INGREZZA, which is our first best use of capital, and we can talk about that in a little bit. Growing our pipeline, both investing in ourselves to grow internally from our internal R&D engine. But also externally in doing deals, which we've done quite a number of in the last couple of years, and I'm sure we'll do many more going forward. So Chris, there, I'll leave it.

Outstanding. A very comprehensive encapsulation of really where you're at. In particular, what I'm drawn by was this whole notion that you have dedication and this resilience. I mean you didn't come up with some name that means something else in Esperanto that Neurocrine, right? And yes, leveraging that into thinking about other opportunities, neuropsychiatry, neuroimmunology that's going to be fascinating to see. And I think from an investor standpoint, you like to see that you're finding a vehicle where there's -- you have a sense for where they're going. They're not going in all these disparate directions that there's also some strategic intent and definition of who you are, recognizing that women's health and the AbbVie partnership was there. You've also been equipped with some very strong people on your team, Kyle Gano, Business Development, has incredible scientific chops. He's been with the company for over a dozen years. And so...

25 years.

Right. So this pipeline, which actually we'll have Stephen delve into after we talk about INGREZZA, really has so many different opportunities. And we are very much to the investors and the audience at this cup. Where you could have argued as like we've been kind of waiting, waiting, this preservation of INGREZZA commercial, data is going to be rising, visibility is going to be coming up on this pipeline items. So we'll feature some of the discussions there and we're starting to get peaks of some of those headline things.

So let's get through the necessaries, the commercial side of INGREZZA, right? You talked about different environments. One of the things that you did to address this was to kind of change the level of investment in the sales effort, put some more muscle behind that, that cost some stuff. Matt had to write some more checks, change some of the trajectory. And at a year 4, 5 period to do that, again, the environment had changed. So it seemed to be talk us through that decision and what that return on investment has been because sometimes potentially what we'd love to see is, either further leverage, you either diminish or you get a slingshot effect perhaps, talk us about the decision and what the returns have been like here?

Yes. So I think that there's 3 main things that we have done in investing in INGREZZA in the last 2 years that are different from the previous 3. One, necessitated and accelerated by COVID, which when doctors' offices closed, all of a sudden, now it's telehealth. Now psychiatrists have always been the greatest users of telehealth. It accounted for about 15% of their practice prior to COVID. But they are the ones who have persisted with telehealth far beyond what any other specialty has. Even today, psychiatrists, approximately 50% of their practice is telehealth. It was 100% for the vast majority of the first 12 to 18 months of COVID. We had always -- because psychiatrists were heavy users of telehealth, we had efforts in giving them tools so that they can better in a video environment, be able to recognize abnormal movements and to be able to then narrow it down and make the diagnosis of tardive dyskinesia. But as I said, COVID really kicked that into a higher gear. So we've given them a number of tools. over the last 2 years. We've developed more and more, and we are developing more and more that are going to be coming out that I think are going to be very exciting to see because telehealth is going to be here for the long term. Is it going to be as high as 50%? I hope not. Nothing to do with us, but to do with patients. We've already shown now in a telehealth environment we can reach -- we can get our TD patients diagnosed and get them on drug. We've shown that. Telehealth has a great place in medicine going forward, but particularly for psychiatric patients and severely mentally ill patients. That's not the way you can treat them. They need to be face-to-face with a health care practitioner. One of the great things is that, while psychiatrists are actually using telehealth to a large extent in their practices, that is not the way that psychiatric medicine is going to be provided to Americans going forward. It really is changing right now that the -- what used to be called the psychiatric nurse practitioner but now they have a new designation. I think that really does -- that does describe the importance that they have in our mental health system today, and that's advanced practice professionals. And we -- that's the other thing that we have done. And one of the main reasons why we expanded and divided our sales force is really understanding the role of these [ APPs ] in the delivery of psychiatric medicine. In most states, they have prescriptive authority. They can work independently of a psychiatrist, although many of them still work within an office where there would be a psychiatrist. But the APPs are, by and large, they're in the office. They are seeing patients face-to-face. And as time goes on, it will become more and more apparent that they will dominate the landscape of delivering high-quality psychiatric care in the United States. So we were -- we recognize that during COVID. We said we need to concentrate now because there's so many more prescribers with these APPs. We knew about them, but COVID actually brought it to the fore of just how many they are and how important they are. So that's why we then made a big investment, the second investment after the telemedicine, is to break out -- we had about 215 sales reps that called 80% of their time on psychs, 20% of their time on neurologists. We then added 150 more reps. And so what we did is, we still have that about 215 psych reps, but they only call on psychiatrists and the APPs, that's it. Our second largest sales force is now neurologist focused. So we knew all along that there was a more opportunity. We needed more time. We needed to go deeper and farther in the neurology offices. So now we're able to do that. And then something else that we were going to be doing right before COVID hit, we had put all the plans in place. And that is understanding that there's a significant population of patients with tardive dyskinesia that are in long-term care facilities that would really benefit from having their TD treated. Obviously, when COVID hit, there is no way to launch into long-term care. They were locked down as well as they should have been and wished that it was locked down harder than what it turned out. But now as things opened up, we now formed a long-term care sales force, and that is a completely new area for us to be in, and we do think that there are quite a number of patients who will benefit significantly from it. So there's our second investment. The third largest investment that we have done is, as some of you may know, we were doing unbranded disease education direct-to-consumer for almost 2 years. And then middle of last year, we started for the first time, a branded direct-to-consumer campaign on television. And that has -- is working out well, albeit expensive. And so we have dedicated that we're going through this entire year. We've re-upped our direct-to-consumer advertising campaign. We've done an intermediate look at ROI and the ROI is very good on it. But that's an intermediate look. We have to look at a full 12 months of this going forward. We've always seen we have -- and this is our second increase in sales force. And we've always seen that the sales force gives us probably the best ROI of almost anything that you can do here because this is not a typical cell that our sales force does here. This is teaching. This is education with the prescribers. And so we see as last times, we expect to see the lift from this new sales force coming in the second half of this year. Even with a very good Q1, the sales -- new sales forces were not deployed at that point in time. So that -- that was just -- that was the way we had been going on that. So those are the 3 significant investments that we've made in INGREZZA.

And we -- I mean, we don't make these investments lightly. And it's something our board holds us accountable to. It's something that we hold our entire commercial team accountable to. And as Kevin said, on the direct-to-consumer advertising campaign, it does look like we're getting a positive response. As we commented during our earnings call, Q1 had a record number of new patients. And if you think about the environment that we were performing in COVID had peaked in January. We also had a significant portion of patient visits still being telemedicine, and we are able to generate a significant number of new patient additions. So I do think the investments that we're making are having a benefit thus far. But as Kevin said, more heavily in the second half of the year, we should see the benefit from our expanded sales force. And you used the word leverage, which is a finance word. And it's -- it doesn't go past us lightly that we somewhat went backwards in leverage this year in terms of SG&A percentage of sales. Our expectation is fully as we get into 2023, we're expecting to leverage SG&A by continuing to grow INGREZZA.

Okay. Let's get a little bit Wall Street, little bit micro, talk about some of the quarters, very strong trends in the first quarter. Some of the commentary that Matt you've become now famous for is sort of like helping put clouds in the sky or set the stage for what the next quarter could be and in sort of a cautious way, there was something that sort of described perhaps not the same pattern of sequential growth into Q2, we're now in June. Tell us how you're feeling about what adjectives you would continue to ascribe there? And the debate that we got immediately the inbounds were like, what's it going to take for them to raise guidance? Do we see these trends. So what's it going to take raise guidance?

Yes. No, I'd say on the guidance front, this is our first year providing an annual guidance. So we're, of course, going to be careful in looking at the trends. And given the environment between 2 major investments, DTC, sales force expansion, and then the third is more exogenous. What does COVID look like? What's the impact going to be? So we've been appropriately cautious. But as Kevin said in the intro, Q1 exceeded not just Wall Street's expectations, it also exceeded our expectations. And that was really driven by 2 aspects. One, the record numbers of new patients. It was very strong. And then the second is what you alluded to, what adjective would I use. During the first quarter, we had a dip in refill rate per patient, but it wasn't as big of a dip as what we've seen historically as patients work through that initial authorization process at the beginning of the year. Because we did well on that front in Q1, you're going to see less of a sequential recovery as you move from Q1 to Q2 and a refill rate per patient perspective. So we have cautioned that the growth element as it relates to a recovery and refill rate per patient may not be as significant as what we've seen historically. But I would just say business fundamentals, growing new patients is something that we saw in Q1, which really gives you that nice organic growth when and Kevin always jabs me. He was probably hoping you'd ask me a question around inventory or something like that. When you really get to the core of what are we trying to do to grow INGREZZA. It's all about diagnosis, and it's all about generating new patients. We've done a great job keeping patients on medicine once they've been on medicine. But our primary focus is, the core business fundamentals of growing patients was very strong during the first quarter.

Yes. And so as I've said from the very beginning when I got to see how after 2 years of being on the market, you don't look at INGREZZA from a quarter-to-quarter basis because there's just nuances in this market, some structural features, the Q1 is always going to be a difficult one because of the insurance processes for a specialty drug. Q2 is always going to be one that you get a lift for. Q3 is one that's not as big as Q2 as far as they growth, it is always growth. But the quarter-over-quarter growth, Q3 is not as strong for reasons we still don't understand, who knows. And then Q4 comes back with a nice strong growth. But at the end of every year, what you see is what a hell of a drug. It just keeps growing. And we gave guidance that it will be between $1.25 billion and $1.35 billion this year. So kind of the quarter-to-quarter vagaries. We don't spend a whole lot of time on. But we just look at the overall growth trajectory of the drug, and there are so many more patients that need to be diagnosed. So many -- and of those diagnosed only half of them get on a VMAT2 inhibitor. We've got to get that up. And so that's what we spend our time on.

Yes, totally makes sense. I mean as you've established this market, it really is that multiyear long-term mark. We're just going through so many dynamics that we haven't seen before, unprecedented. And just everyone is always trying to grasp that next rock to touch the wall and to figure out how to deal with the transitions.

Yes.

I do feel a very important part of the story is thinking about what's next with the pipeline. And so there's some additional questions, if we can go to INGREZZA, but I would like to now shift the discussion over to the pipeline. So Stephen, take it away. There's quite a few assets here that we'd love to update on.

Sure. And yes, maybe we can just start with actually INGREZZA or valbenazine in the chorea, in Huntington's disease indication you expected to file sNDA later this year. The top line data that came out last December and then additional data AAN was very positive. Didn't have any of the safety effects that come on to the label of your competitor AUSTEDO by Teva and then a more favorable titration regimen there. So how do those factors -- like how will that influence the commercial opportunity in this new indication?

Yes. So just to take one little step backwards, everything you said was absolutely correct. Thank you. It was great data that came out, and we are on track for filing the sNDA later this year, knock on wood, have an approval next year. The Huntington's market, there's about 20,000 Huntington's patients that is the addressable market for us. And only about 20% of them are taking a VMAT2 inhibitor at this point in time. So there's still, again, an -- even though one might say, well, we're several years we moved from Teva being there and from generic tetrabenazine is being there. They're not being used a whole lot, and there's reasons for that. And we think the reasons for that are really the ones that make for a great opportunity for INGREZZA. The things that cause us to be, by far, the market leader in tardive dyskinesia, I think, are even more important to the Huntington's population. Number 1 is that we're one pill once a day, not multiple pills twice a day. That actually is extremely important to Huntington's patients. Their chorea is causing them to be dysphagic, really difficult to swallow. And so pill burden is a huge issue for them. Number two, they get jaw clenching. That happens pretty frequently with these patients with a drug like deuterated tetrabenazine, which is a modified release formulation, they could crush that pill and then cause a dangerous data dump -- drug dump into them. INGREZZA doesn't have any of that. Our once-a-day long half-life is due to the inherent properties and the molecule has nothing to do with any formulation. So it actually can be put with food, anything that makes it much easier to swallow. There's no complex titration with it. As our data showed, the very first dose you take is an effective dose, an efficacious dose in -- with these patients. And the safety profile is very nice also with the drug. We saw no new treatment emergent adverse events that came up in the Huntington study than what we've seen in the tardive dyskinesia studies and what we're seeing with all the post-marketing surveillance for the last 5 years.

Okay. Great. And maybe in the interest of time, we'll just hop around to some other aspects. Crinecerfont and CAH, your team came out with some new data this week in adolescents, Phase II data there. How does this fit into overall program and what learnings are there from this short-term smaller end study into the Phase III programs that will read out next year.

Yes. So the -- so now we've published both the adult Phase II data and now the pediatric Phase II pediatric adolescent. Phase II data. Both of them are just really strong, excellent studies. What those studies told us is that -- and again, stepping back congenital adrenal hyperplasia. We have 2 Phase III studies running on it now. The -- it's an orally active pill that one takes. These individuals are born with a genetic defect that doesn't allow them to make cortisol. So back until the early 1960s, all these kids with classic, all the babies born with Classic CAH would die because you need cortisol in order to survive. Hydrocortisone was developed and the endocrinologists immediately latched on. We can now replace their cortisol levels by giving them exogenous hydrocortisone. Unfortunately, like every endocrine, all the aspects of the endocrine system, there's feedback loops that potentiate and that downregulate. So there's wonderful feedback loops. In CAH, one of the things that happens is that you no longer have the feedback loop of their endogenous cortisol to go back up into the brain and the pituitary to say, okay, shut off making ultimately all these androgens. When you take exogenous hydrocortisone, yes, the individual gets to survive because now they have hydrocortisone. But you can't just give them physiological doses of it. That's not enough to try to recapture this feedback loop that takes place there. You have to give them extremely high levels of exogenously added glucocorticoids. As we all know, anyone who's been on a prednisone or hydrocortisone, you're only given at -- the physician only gives it to you for a very, very brief period of time, and then you have to taper off because of very serious side effects. Now imagine you're taking this every day of your life, nearly from birth. So these patients are constantly playing a teeter-totter with their physician. They let their disease go out of control in order to reduce their hydrocortisone burden and they're getting massive amounts of androgens piling up, which has their own problems. They then up their hydrocortisone so they can lower their androgens. Now you have all the problems, long-term side effects of high glucocorticoids. What our drug does is recaptures that feedback loop. So what we've shown now in Phase II studies in both the kids and the adults as we lower all of those androgens and their precursors. What are we trying to show in Phase III now. By virtue that we've recaptured this feedback loop, now you can start lowering the exogenous hydrocortisones and then get rid of those side effects. So the drug actually allows to recapture the HPA Axis, the underlying disease, and then allows for you to reduce the side effects of the only treatment that's ever been out there for them. So that's what we learned from the Phase IIs going into the Phase IIIs. The Phase IIIs are large. They're complicated. They require a lot from the physicians who are our partners in doing this and also for the patients in order to be in the study. So it is -- we're on track to complete enrollment in both the pediatric and the adult Phase IIIs by the end of this year.

Okay. No, that's very helpful. And I recognize your Chief Medical Officer, isn't here. But maybe a detail on the results that just came out, I believe, it was in adolescents ages about 14 to 17 and the pediatric Phase III recruiting, I believe, goes as low as age 2. Should we expect that similar results from this population they just reported on?

Yes, we would expect the same level of response, the lower that we go in age. When we had started that adolescent study, we had yet to finish all of the developmental toxicology work that needed to be done. In order to go into the lower ages, that's all been completed, very clean, and that allows us in the Phase III program to go down to as low as 2 years old.

Okay. Great. And enrollment seems to be on track.

The pediatric study actually has enrolled faster than expected. The adult study is a more difficult study to enroll. But like I say that we still anticipate being able to have both of these studies completely enrolled by the end of the year.

Got it. Okay. Great. And maybe we'll move on to most near-term readout, NBI-827104, your T-type calcium channel inhibitor, acquired from Idorsia. We expect essential tremor data Phase II midyear. What -- can you frame your expectations for kind of the magnitude of effects you'd like to see that would give you a positive signal to move into later-stage trials?

Sure. So this essential tremor study is a signal finding study, is what it is. It's 28 patients that we have in a crossover design. And we have a variety of endpoints. So the primary endpoint is an objective measure of the tremor using accelerometers on both risks in order to measure the frequency of tremor at its peak amplitude. And so that means with the arms out stretched. We also are using as a secondary endpoint, the validated measure that I'm sure would FDA would want in a pivotal studies, which is called TETRAS. It is a functional multi-domain endpoint that looks at function of the tremors and then the CGI in that. There's 10 million ET patients in the United States, probably about 12 million over in Europe. So it's the largest movement disorder that exists. This study, like I said, a signal finding. Yes, we powered it for that primary endpoint with a lot of assumptions powering it there. We're going to look at the totality of the data. We need to see what does the accelerometer tell us, what does TETRAS tell us, what does each one of the subdomains of TETRAS tell us, what a CGI tell us. And what we're looking for there is -- and I'm not discounting that I'm not saying anything about we don't expect to see a positive p-value. I'm just saying that we're not going to be slavishly wed to that. It is a signal-finding study. We have a high bar to convince us that there is a really meaningful effect that we're going to see across all of these. We'll take the totality of the data and then usually about, as is usually the case with us, just 24 hours, 48 hours after we know the data, you're going to know the data. And we'll give you enough detail on it that you'd understand a decision to go forward or understand the decision not to go forward with it. And as you say, that will just be coming up here midyear.

Yes. Okay. And obviously, efficacy will be one aspect, I know safety, clearly, another aspect that will be important. Maybe the Phase I did show some dizziness, somnolence, headache. Just curious if you can comment on what magnitude of those effects may be seen as undesirable for this patient population.

Yes. And so the patient population is kind of bimodal. There's a number of patients that get essential tremor in their 20s. But that's not the majority. The vast majority is elderly. So it's 50s and 60s and beyond that you start developing essential tremor. So when you're in an elderly population, you need a drug that's very safe. You're right in Phase I as we push the doses. We saw some of those side effects. Thus far, there's no real concerning treatment emergent adverse events in this 28-patient study thus far. If I have to say anything in Phase Is -- if I didn't see headache with a CNS-acting drug, I'd be very concerned. That kind of dizziness, headache, those seem to be the hallmarks as you push dose in Phase I that tell you, okay, my drug is in the brain. It's active. That -- and when you don't see those, then you start going, oh, man. But again, in Phase II, those do not seem to be emerging.

Got it. Okay. And I realize we're almost out of time. So maybe one last question for me on business development as it relates to pipeline assets. I know on our West Coast bus tour, there was a comment that if you saw the right asset, a deal could be made potentially in the range of $3 billion to $4 billion, if the science is right, there is a good pipeline fit. How has your thinking evolved since we talked a few months ago?

Matt, do you want to?

Well, nothing's really changed. We get asked a lot of questions around the environment. Does the environment lend itself to being able to more easily do a larger deal. The types of companies that we're looking at are high quality, and it's not a bargain hunting mission that we're on. It's really focused on, if there was something that had significant value that could be added into our company, into our pipeline and be transformational, we would be willing to spend up to that level. Do we have to? Are we going to? I know that's the question people are trying to tease out. It's nice, as Kevin said, we do have the financial flexibility. But we wouldn't say this environment in and of itself lends itself to more easily getting meaningful BD done just because of the quality of the names that would be attractive to companies like ourselves.

Can you just a little bit, in terms of like realm, you talked about neuroimmunology. Is there something there that you can just leave with a couple of breadcrumbs to think about directionally portfolio shape?

Well, neuroimmunology, I think has something that the company was founded on, 30 years ago as a neuroimmunoendocrine company as I think I wrote the business plan, way to hell back then when I was young. And that has been the -- it seems intuitive that the nervous system is involved in every other human biological system. But back then it became obvious that the connections had not been -- had been worked out in immunology. So we kind of put that aside. I think more recently, there's been a lot of great work, mainly in academia, which we collaborate with, in starting to outline some of the cell types, some of the systems circuits that exist between the nervous and the immune system, but we don't quite have the molecular targets yet. And you need a molecular target in order to do rational drug design. But I think those are going to be coming very quickly. And I think we're going to be extremely well positioned on that. And to add on to what Matt said about looking externally to add to our pipeline with that. And I do have to agree with them 100%. A difficult financial environment is not one that really does then make it just so much easier to do deals and find assets. Investors, you are all smart. VCs are all smart. You guys are allocating your money to the same companies that we find attractive. We're all focusing on the same small group of companies that we all find attractive. And there's a reason for that. They have great products. They've done a really good job of developing their science. You're putting your money behind it, and we're talking to them. So we have our list. And nothing has really changed just because of this environment.

Certainly well positioned. And I have to say, Kevin, that you would have been like a dream undergraduate biology professor that was perhaps the most succinct and clear in logical explanation of crinecerfont. And I completely like to screw it up by feedback loops. Go to the transcript for that one. I'll tell you later. Gentlemen, thank you very much for joining us.

Thank you very much.

Thank you, everyone for informative session.

Take care.