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

London Healthcare Conference. Really enjoying it so far. I have the pleasure of hosting Neurocrine. With us, we have -- by the way, my name is Akash Tewari. I'm one of the biotech analysts here at Jefferies. Today, I have the pleasure of hosting Neurocrine. Joining us today is Kevin Gorman, CEO; Matthew Abernethy, CFO; and then finally, Kyle Gano, Chief BD and Strategy Officer. Obviously, Neurocrine has been a huge winner for investors this year. How much are you guys up 40%? Something really impressive performers versus the market. And then I think for investors, it's interesting. I was sitting next to a long only. And they said, Akash, the way that health care investors look at the stock and the way that general slip to stock are totally different. We're always worried about what's going on in 2028, 2030 and all these kind of unknowable debates, what generalist tells me is, Akash, this company has 30% to 40% revenue and EPS acceleration. The PEG is too cheap. And I can't find companies like that in my portfolio. And that's what really stands out. I think the question becomes, as we go into next year, where does this team kind of go from here. So with that, I'll leave it off to Kevin to give some introductory remarks, and then we'll get into questions. Go ahead.

Thank you, Akash, and thank you, Jefferies, for the opportunity to present here. We're going to be making forward-looking statements, so I'd like to direct you to our recent SEC filings for all risks there. Neurocrine is a very young company. We've only been around for 31 years. And for about 25 of those years, we were purely an R&D company. For the last 5.5 years, we've been a commercial company. So we're still getting our legs underneath us from a commercial standpoint. We've always been a neuroscience company. And neuroscience to us means neurology, neuropsychiatry and neuroendocrinology. We have programs in each one of those areas, actually multiple programs in each one of those areas. And I would also say that the fourth leg of that stool, hopefully, one day will be neuroimmunology. But science is still a little early there. We're investing in it, but we don't quite yet have the molecular targets to do drug development. Our lead drug that we have is INGREZZA, drug that we fully developed ourselves, and we sell it, commercialize it in the United States. We have our partner, Mitsubishi Tanabe, who has gotten the drug approved in Japan and other Asian countries, and they sell the drug there. INGREZZA has done extremely well. It is a drug that the very first drug ever to treat a disease called tardive dyskinesia, TD for short. That's a disease that is caused by taking long-term antipsychotics, very important drugs, drugs that have changed people's lives, otherwise would not be able to function out in society. But unfortunately, it comes for reasons we don't understand at approximately anywhere from a 5% to 8% rate causes this irreversible off times devastating movement disorder, most often very pronounced in the face, the eyes, the mouth, the tongue the jaw, but also is there in the fingers and arms, the feet and legs and also the trunk. INGREZZA, as I said, was the first drug ever developed into this movement disorder. And the effects are pretty profound. You see the onset of action within 2 weeks, and it can completely eliminate the symptomology. Now when you come off of the drug, after about a month, the movements come back. So it is not a cure, but it is a once-a-day, very well-tolerated drug that has made real difference in these patients' lives. Prior to INGREZZA, out of the estimated 600,000 individuals in the United States that have tardive dyskinesia, maybe 2% had a diagnosis of TD. Today, through a lot of our efforts, it's approximately 30%, we believe, have been diagnosed with TD. But as of -- even at that low level, there's a lot of room to go. 7 out of 10 patients suffering with TD have not received even a diagnosis. Of that 30%, only about half of them get a VMAT2 inhibitor, which is recommended by APA guidelines as being the first route of therapy. In addition to INGREZZA, we have approximately 13 programs in the clinic right now, 12 of them are in Phase II or Phase III clinical trials. One is a new one that we started Phase I on this year. And again, it goes across neurology, neuropsychiatry and neuroendocrinology. We are a very active company in the business development -- we're also a very active company in our own internal research, which gave us INGREZZA, which gave us our other commercial drugs that AbbVie cells, ORILISSA and ORIAHNN for women's health, neuroendocrinology drugs. So I think with that, I'm going to stop.

Cool. Thanks so much. So I love that intro, Kevin, because -- you go back to the pandemic and the growth starts to flatten out a bit, and it's funny. There are so many investors who tell me, I've never seen a drug stop growing and they never grow again. And now I will always say, no, INGREZZA absolutely started to grow again. it's been almost like a 35-degree angle since you've been able to get your sales force back out and improve the diagnosis rate. Let's start off by maybe talking about -- you were mentioning there are a lot of patients, who actually already have been diagnosed with tardive dyskinesia, only half of them are actually getting a VMAT2 inhibitor. Why is that even the case right now, right? Are these patients who are -- maybe stratify that market for us for diagnosed patients, are these patients who have severe TD, who simply -- you need to get on insurance, you need to get them access to care? Or what are really the barriers of entries for that 5 out of 10 patients who have been diagnosed, but yet are not on drug?

Yes. No. Actually, right now, being on formulary, getting with having patients being able to get INGREZZA, we have phenomenal access to it. When you look at that 30% and you look at the half that are not being treated, it really has less to do with the patient, more to do with the physician. Psychiatrists have been taught very, very, very little about tardive dyskinesia. And when they've been taught anything, one of the things they've taught is nothing good can ever come from discussing TD. So that was a huge barrier for us to get over initially. The second thing is that they still fall back on old, old habits, old habits that they didn't have to discuss with the patient about that when they were seeing movements, which quite often the psych didn't even understand. The psych had no idea what is causing these movements. Off times in there would send them off to a neurologist. The neurologist would then take an approach that the psychs then picked up, because there were no drugs to treat it. So what they would do is what we call the 3 R's. They would either reduce the dose of their antipsychotic, which has never shown any evidence of doing any good. As a matter of fact, paradoxically, in a very short period of time, if you increase their antipsychotic, you can lessen the TD, but only for a very short period of time and then it rages from that moment on. The other R is that you can replace it with another antipsychotic, still doesn't -- there's no evidence that, that has ever shown to do any good. And then the third one, if they are not a schizophrenic patient, if they're a bipolar patient, major depressed patient, who is on the antipsychotic, then they remove the antipsychotic. Unfortunately, once TD has started in better than 75% of the patients, it is irreversible. It is on a course. So that removing the offending agent doesn't do any good. That's why it's not a side effect. Side effects are relieved when you remove the offending agent. That is not the case here. This causes a disease in and of itself when you use it. Interestingly enough, also, if you look at the 70 million or so scripts that are written in the United States each year for antipsychotics. I think the number one use is in bipolar disease, the number two use is in major depression, I think number three is substance abuse, number four is sleeping, oh, number five is for schizophrenia and schizoaffective disorder. So you see so many TD patients because the use of antipsychotics has exploded over time.

So you grew INGREZZA 32% year-over-year or at least you're tracking for that midpoint of your guidance for 2022. Can you talk to us about how much of that growth was really increasing the amount of identified patients, who were suddenly getting access to INGREZZA. And was there something specific we're doing on the field that was increasing -- that was allowing that versus that kind of jump from 20% to 30% of the net diagnoses? Like do you have visibility on what's going on there?

Matt?

Yes. I think it's a promotionally sensitive medicine. When you think about the direct-to-consumer advertising campaign that we started running in 2022, that was a major driver to new patient additions this year. And then as you know, in the second quarter of this year, we expanded our sales force by 66%. And what you're looking for was going into the pandemic, it was a promotionally sensitive medicine. As you mentioned, it flattened out, and then exiting right now, it's very promotionally sensitive. So hard to tease out what the exact proportion is. I would say most of it is coming from new patients that are being diagnosed as compared to those that were diagnosed, not getting treated with the VMAT2. As Kevin mentioned, we still see the first reaction is to replace or reduce or modify the underlying antipsychotic offending agent.

Understood. So talk to me about kind of your prescribing base and how that's evolved kind of over the last 3 years, right? As you've increased your DTC efforts and as you've increased your sales force spend, what group of patients, whether it's geographically or like maybe there are another type of neuro subspecialty that you've been able to really engage with where -- maybe we're having the discussion back in 2019, you just weren't necessarily having them get INGREZZA prescribed?

Really, it's just the frequency of calls. We've been monitoring where are these patients coming from anywhere new, any difference in terms of neurology, psychiatry, community mental health. The one piece that I'd say is new to us, and we're still at the very early innings is long-term care. We've historically not called on long-term care. And you would expect that we're going to continue to see some fruits from that. And -- but now it's pretty early in the launch. Really, what we're seeing is you have to call with a lot of frequency within psychiatry to make sure TD stays on the radar rightfully, so a psychiatrists is primarily focused on treating the mental health condition of a patient. And that's spot on. We would never want them to move from that. So the more frequent a rep is in the clinician's office and the more frequent there's education going on, that's where you see a prescription ultimately being written. So no real change in patient demographics and then also no real change in prescriber mix either.

Well, the only thing that I would add to that is one thing that we did learn because as Matt said, I would say all along 80% of our scripts came from the psychiatrists, about 20% would come from the neurologist. Psychiatrist -- psychiatric offices are where these patients are. Neurologists get them in a variety of ways, but not nearly at the density that these patients show up at their offices. But within the psychiatric field, that is really changing dramatically in the United States. Psychiatric care in the very, very near future, if it hasn't already, is dominated by psychiatric nurse practitioners or now as they referred to APPs or advanced practice professionals. So we find that they are seeing in person a far higher number of patients than psychiatrists in the United States are seeing in person. Psychiatrist in the United States are still 50% telepsychiatry. The APPs are not. They're out there. They're in the offices, they're seeing patients. So if there's a good thing that came from COVID within our business, even though things slowed off -- slowed down for about 3 quarters was the fact that we recognized APPs are the dominant providers of psychiatric care in the United States. And so that's one of the main reasons why we increased our sales force. Because now we understood that there are tremendous greater number of prescribers because the APPs have independent prescribing authority in the vast majority of states. So that's where we spend more time with APPs than we do with psychiatrists. And again, in the not-too-distant future, we're talking a handful of years, less than 5. That is going to be the -- by far, the dominant provider of psychiatric care in the United States.

Understood. So we had 2 -- there's 3 VMAT2 inhibitors. I mean you have Xenazine, which is definitely not the same as your drug and then you have AUSTEDO and then your medication, you differentiate by not having obviously some of the black box warnings we've seen with AUSTEDO. But early on in both -- when you talk to Teva, you talk to Neurocrine, it seemed like both companies, there's plenty of space in TD. We're not necessarily competing head-to-head the way that maybe Wall Street thinks we are. And both companies are kind of coexisting in this market and being able to consistently grow. Obviously, as time goes by and there's more and more patients that are getting treated. I think one of the questions I often get from investors is how has that dynamic maybe shifted from early on into the launch to now. Do you feel like there is maybe more head-to-head competition versus AUSTEDO? And as you think about your profile versus the Teva medication, how do you feel like you've been differentiating when you see it on the ground? Or is it still kind of that same dynamic where there's just plenty of patients out there, and we're not seeing that head-to-head competition?

Yes. I think the -- our competition is ignorance on the side of the practitioner. So it is education, education, education of the APP, of the psychiatrist and even to a certain extent, the neurologist, but we don't have to teach them about how to recognize TD. What we do need to do is give them more of a call to action that you now have a very safe and effective treatment. But with -- in the psychiatric community, it is just education. And that's where the vast majority of our efforts lie. And just for those of you who like the weeds, I can't help myself sometimes. So give me this 1 minute; tetrabenazine and deuterated tetrabenazine. Those are the 2 other drugs. Only deuterated tetrabenazine has a label for TD. It's a common assumption that, well, what is correct is that when one takes deuterated tetrabenazine or tetrabenazine, it is made in the human body into 4 stereoisomers. It is felt that what Neurocrine did is that Neurocrine made a -- took one of those isomers. And we developed one of them, modified it. But during its metabolism, it becomes -- regardless of its modification, it becomes one of the metabolites, one of the isomers of deuterated tetrabenazine. The reality is, has now been published in the human body deuterated tetrabenazine, if this is the metabolite, we share in common, it's almost undetectable in the human body when given deuterated tetrabenazine or tetrabenazine. It makes the other 3, it makes vanishingly little of that one. All we make is that one. So our drug is a highly specific VMAT2 antagonist. There is another metabolite of tetrabenazine and deutetrabenazine that does bind to the somewhat lower affinity to VMAT2, but all 3 of them bind to many other receptors. So what we've proven is that to maximally treat tardive dyskinesia and Huntington's disease, although we don't have an approval for that yet, we've submitted the sNDA, but had a very successful Phase III program in it. What you want to do is you want us very specifically inhibit VMAT2. And so we are completely different drugs. A, valbenazine does not exist in the human body when given tetrabenazine or deutetrabenazine and also valbenazine gets metabolized into a drug that is really not present when given tetrabenazine or deutetrabenazine. So they are entirely different drugs. Ours again, has no black-box warning as it's once a day, there's no titration. So it's very convenient, easy-to-use drug. And you also -- it's not formulated. So you never have to worry about biting down on it and getting it dangerous drug dump as you do with deuterated tetrabenazine.

Understood. Great, fair point...

And I would say for all those reasons, that's why it's the market leader in TD approximately 2/3 to 1/3.

Got it. Now as we think about kind of consensus next year and I understand no comments on consensus, I promise you. But one thing that passed it out is consensus is modeling kind of low teens growth into next year. You grew 32%. I mean even if you had a substantial drop in the mutation adds year-over-year, it seems like you would be able to grow something in the mid-teens fairly comfortably unless something changes in terms of your new patient adds year-over-year. To me, it sounds like you started your spend that's going to start to really pull through even more as we get into 2023 and beyond. So no comments on guidance, but if we were to think about your new patient adds and the sales force campaign that you've launched, do you feel like the kind of benefits of that are going to flatten out as we go into next year or potentially start to accelerate even more?

Well, we'll talk more about that in February. I will say this very clearly, 7 out of 10 patients with tardive dyskinesia are not diagnosed right now. And when you think about the market opportunity, it's going to be another good growth year for INGREZZA. We have a lot of momentum. We expanded the sales force in April of this year, and we're going to reap the benefits that. So we'll, of course, provide the update in February, and we're very optimistic about the growth that we have ahead, not just for next year, but for years to come.

Well, I guess maybe if you could give commentary about like the ROI of that new sales force April, they're obviously not going to be immediately getting patients on to INGREZZA. It might take some time to get relationships with psychiatrists, neurologists, et cetera, et cetera. Have you seen an increase in kind of the ROI from that sales force expansion as you've gotten into the back half of the year? Or has it been actually, no, Akash, you're wrong, we've had a pretty consistent ROI since we've launched out of the gate?

No, we know based upon studying call activity and how that translates to new patients. It takes time for a new sales force, not just the normal educational curve, but just what's the response from increased call activity. So we've said what we saw in the last launch of -- or expansion of the sales force, it took 3 or 4 quarters to really get to a level of KPI development that you'd seen in the existing sales channel. So I'd say we are seeing an ROI on that sales force expansion in Q3, but that's going to only expand as we get into 2023.

Understood. Okay. That's very helpful...

And the other part that's been just wonderful about INGREZZA, and I think it really reflects the benefit that patients are seeing with it is, once a patient is on INGREZZA, by and large, they stay on INGREZZA, and they take it quite often, it helps them with their movements. And I think the compliance rate is something that if you ask Kevin and I, what's been the surprise to the upside, of course, growing INGREZZA takes new patients. But patients, by and large, that get added to the medicine, tolerate it well, see the efficacy and stay on medicine. So compliance rates have continued to stay very high.

Well, maybe to hit on that again. So if we were to think about your adherence rate, like, let's say, a patient, who started the drug in January, let's say, 100 patients started the drug in January. By the time we get to year-end, how many of those patients are still on therapy? So that's question one. And then question number 2 is, if we were to look at your current scribing base, what percent of those patients are patients, who have been on this drug for well over a year?

Very well done, but we haven't ever disclosed our compliance rates, but kudos.

I try -- yes. Okay.

But I would say, Akash, because we get asked this question a lot on the prescriber side of the equation, how much of our growth is coming from new prescribers? How much of it is prescribers going deeper? Of course, we are getting some scripts from new prescribers. But by and large, it's new prescribers or their practice with the advanced practice practitioners, going deeper within their existing patients. So that's really where most of the new patients are being identified right now.

Understood. Now I'm sure you're going to get an IRA question. And I'm going to try to push you beyond, we have to deal with it in 2029, which I think we all agree it's probably a problem later down the road. But like some of the work that we've published, one of the things that came out in our analysis is that the CBO report doesn't take into account that there are already existing Medicare discounts on a lot of these drugs, right? That nuance is actually not in that $100 billion impact. So I've always felt like, okay, if there is an IRA impact, the idea that INGREZZA's price is just going to fall off a cliff initially, at least the way -- if as long as they follow the price versus ceiling dynamic, I don't know if that's necessarily going to occur, right? So to the extent you guys are comfortable commenting, let's say, 2029 comes around, and you guys are going to get negotiated under the IRA, should we -- is there any color you want to give on existing Medicare discounts? Or how competitive this class is that might help an investor who's worried, "Oh my God, in 2029, there's -- this is just going to necessarily fall off a cliff? What is the work and diligence you've seen on the IRA impact thus far internally?

Yes. So IRA is a very new legislation. So I'm going to try to answer in some specificity in 50 seconds for a bill that...

You can go over that.

Okay. So what I would -- I'm going to answer it in several parts. We have great coverage throughout Medicare. All the big Medicare providers we have contracted with. We have great coverage. We've not disclosed our gross-to-net, but we have said that the drug is going to -- basically, it's got a $5,600 gross -- net revenue to us. That's next year, and that is different from a $5,400 gross revenue -- net revenue to us this year. There are 3 main aspects, I would say that, to pay attention to within the IRA. One is the inflation caps. You don't have to worry about that with us. It really doesn't apply. The price increases that we've taken year-over-year track really nicely with inflation, so there's not going to be any payback or any true-up that comes from Neurocrine, when this in some form or another becomes enacted. The second part has to do with we benefit from having the small biotech exemption in the IRA. So that means that as we pick up more and within that is the small manufacturer, so as we pick up the more and more of the catastrophic phase of the patient population doesn't start for us until 2025 and is implemented over a 7-year period of time. So actually, in the first few years, it's a net benefit in that. We're actually paying less in the Medicare than what we otherwise would. The next aspect that comes into, it is the price negotiations. You can -- if you want to see a path that the soonest we can be available for price negotiations would be 2029. And then if we are in that, then it is implemented whatever that negotiated price is, in 2030 and '31 is when you see the full impact of it. So it goes -- both of these go out to about 2039 -- 2031. The thing that I will say is that legislation was passed. Now we have to see how it's enacted. With Obamacare, when you look at the legislation, if you look back at the legislative history of Obamacare and then look how it's been enacted, it's radically different than the legislation that was passed. The extra congressional actions that are taken over -- and it takes several years, can dramatically change because of all the wide open gray space that there is and negotiations that take place. So the one thing I can say with confidence is when the IRA becomes enacted or becomes implemented, it will look very different than what we know today. How is it going to look different, I can't tell you. Some parts almost certainly will be better, some parts will be worse. What the proportion of those are, I don't know, but it will be very, very different than what it looks like today. It's going to be something that the entire industry deals with. I would say that the way that we feel, and I think many of our colleagues feel on the biotech side is we're not the tip of the spear here in having to deal with the IRA first. It's all the multinational major pharmaceutical companies. You've seen how they've dealt with it from the day that it passed. They challenged it on almost every level from the legal standpoint. They have many, many good arguments and they're going to fight with that. And we, as members of bio and all of the pharmas, as members of pharmas, are going to work together in order to challenge the aspects of the IRA that we think have many unintended consequences. And those, one of which that you pointed out, that really doesn't make a whole lot of sense at all. So I wanted to -- I addressed it specifically, but I also addressed it from a larger scale that I don't think that you can say, okay, this is going to be effect in here and now this is going to be effect here and now. There's a lot more that's going to happen with this bill.

Understood. And with that, I thank you guys for the time.