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

All right. Welcome, everyone. This is Josh Schimmer from the Evercore ISI Biotech team. Please introduce our next company, Neurocrine Biosciences, Chief Executive Officer, Kevin Gorman; and Chief Financial Officer, Matt Abernethy. Gentlemen, welcome. Great to see you again. Thanks for your time.

INGREZZA, powering through COVID, even though it feels like COVID is still impacting the psychiatry practice. Maybe give us a sense of what's worked so well as part of this recovery process or the segment of medicine that still seems very well known?

Yes, Josh, it's a good question. And good to see you, too. And thank you very much to you and to Evercore for the opportunity to speak here. Before I get going, we are -- Matt and I will make forward-looking statements. So I would like to direct people to our recent SEC filings. It's a great question. And I can't point to any 1 thing because we really did, as COVID set in, which seems eons ago, but it was about 2.5 years ago. We put a number of things in motion. Some worked, some didn't work. We double down on those that work. We abandoned those initiatives that didn't work. And then we kept putting in new things, listening to our reps, listening to our customers. So I can't point to 1 thing. What I will say, what are the things that we find that have been impactful and that have worked well in order to, as you say, we're back on a very nice trajectory with patients right now. So the things that have worked, it's a promotionally sensitive drug. So our commitment to direct-to-consumer advertising has been important. That's one. Number two has been are increasing our sales force and empowering them in many different ways. Number three has been giving our sales force and giving more importantly, the health care providers' tools that help them in a virtual environment, if not diagnosed TD to be able to recognize there's an abnormal movement here. I'm going to address this. And such as our MIND-TD website for physicians and even patients to go on. Those are a few of the things that we have done. There are many other behind the scenes, different trainings. We have kept up with peer-to-peer interactions obviously virtual during the time it was sort of appropriate to be virtual. But now those are more in person. And there's one other thing that if there's a good thing that came out of COVID was we were able to really recognize we knew about them. We had engaged with them, but their importance actually even grew during COVID and our recognition of them is the advanced practitioners, the APPs or they were used to be called psychiatric nurse practitioners. There, they, in most states have independent prescriptive authority. They, I think, are rapidly going to be, if not already, the major providers of psychiatric care to patients in the United States. So actually taking over for psychiatrists. These group of people are a group that we have focused on because they're thirsty for knowledge. They want to become more and more educated in tardive dyskinesia. And they have been a wonderful sounding board partner to work with as we've expanded now the universe of writers. And it's because of this recognition is one of the main drivers of why we expanded our sales force. There are so many more writers now that we're aware of now that we've fully engaged the APPs. So there is a lot that has gone in. There are new measures that we're going to continue to be rolling out and some of those will become very obvious, I think, as this year -- or I should say, I'm getting ahead of myself as 2023 rolls out. So the investments that we keep making is fairly substantial.

Is this shift to telehealth and psychiatry here to stay? Or do you see any movement back into office-based?

Yes. So psychiatrists were the largest utilizers of telehealth of any specialty prior to the pandemic. Approximately 15% of their practice was telemedicine. Why was that? It was because approximately 15% of the U.S. population was in a big white space, mainly in the center of the United States, where access to psychiatrists was really limited. And so that was one of the main genesis to telemedicine was to be able to bring psychiatric care to those patients and why all of the guardrails were always put around telemedicine. All that was relieved during the pandemic, during the public health emergency. So it went initially to 100% telemedicine. Then now it's kind of settled back down to for psychiatrists, particularly the ones we call on approximately 50% of patient visits is telemedicine. That's -- I would say that's been fairly stable now for quite some time. Where is it going to end up? Well, I think it's going to stay pretty much there while the public health emergency is in place. We know right now that the public health emergency was extended into January. The White House has said that they'll give 2 months' notice if they are going to not extend it. We're within that 2 months. We haven't heard anything. Our assumption is they will extend it then for another 3 months. And it's already there that once the public health emergency ends, there's going to be a 151-day extension for telemedicine and the carve-outs for telemedicine. So where we sit today is all of next year, we feel it's going to stay pretty much status quo. When will that end? How will the new Congress address this remains to be seen. We do see that CMS has already taken steps that when the PHE and that 151-day extension expires, they have put out guidance for the physician fee schedule such that they will then -- rather than the way it's been under PHE equal reimbursement for in-office versus audio-only or video and audio. Now they will be on 2 different scales, about a 20% to 40% decrease for audio and video versus an in-office visit. There's currently on the books. There will be a requirement that before the first reimbursement with the patient, they will have to see them in the office in-person, and they will have to see them at least once a year thereafter. So there -- these things are all in place that I believe will decrease eventually the amount of telemedicine usage by the psychiatric community, but it will not get down to the 15%. Our best guess, and it's just that, Josh, it's the best guess, it will be somewhere around 30% of where it is now, which will, again, still put psychiatrists much higher than any other specialty. Right now, basically, all the specialties are back. It's only psychiatrists that are like this. So it is an environment that we are comfortable in being able to detail to and educate. It's not as good as in-person, but it is an environment that we will have for the foreseeable future.

The other piece that I'd add is just the importance of direct-to-consumer advertising in this paradigm to get a patient to ask about their movements to a health care provider, whether it's in in-person or via telemedicine. That's critically important. And I think is a large driver to what you've seen in our growth and powering through, I think, as you said, Josh, through COVID and through telemedicine. So we've been quite pleased with that. And structurally, as Kevin said, we assume telemedicine is here to stay.

Maybe we can talk about some of the other growth drivers for INGREZZA. First, for Huntington's, do you have an estimate for the percent penetration status achieved in that setting? And where do you think INGREZZA can get with a clean label and -- or if you end up with kind of the class black box warning, how does that answer change?

Yes, I'll take the second half of that. And Matt, why don't you take the first half about the penetration. When it comes to the possibility of black box warning, that is going to be up to the FDA. I think that we have some very, very good scientific arguments there on why that would be. And there's a historical perspective on how the black box warning ended up on [indiscernible] . It had to do with how they did their regulatory approval in Huntington's. It was through a 505(b)(2) where they accepted the label from tetrabenazine, which was quite old, came on the heels a very bad experience that the industry had with a very old VMAT2 inhibitor that was an irreversible binder and did show some real negative side effects when it came to mood and suicidal ideation and actual suicides. Very different day and age now. We are a completely different drug than deuterated tetrabenazine and we have a publication record that actually shows that. But at the end of the day, that's going to be up to the FDA. It really doesn't impact to any great extent what we feel the uptake will be or how we're going to be -- how we're going to be communicating with physicians. Recall that we have been detailing the same -- very same neurologists that deal with TD, deal with HD. They're very familiar with INGREZZA. They're very comfortable with the safety profile of INGREZZA. So that's a to be determined. But really, it's not going to significantly or even probably have any minor changes to our approach to the market. And Matt, do you want to talk about the first half of it?

Yes. So really quickly, there's 20,000 patients with moderate-to-severe chorea. What we've been able to glam in the claims data is that around 20% of those are actually being treated with the VMAT2 today. So as Kevin mentioned, with our profile, our direct call activity with the movement disorder doctors, we feel very good with our ability to expand that market penetration for VMAT2. So just as a reminder, we did submit our IND -- or sorry, our SNDA last month, and we'll expect that hopefully to have an approval in the second half of next year will fit very nicely into our sales channels hands.

Then on the cerebral palsy trial, it seems like the [indiscernible] cerebral palsy trial is completed and no news. So I think there may be some assumption that it was not successful. Is there a read-through to INGREZZA or how many of the trials or designs be different if indeed it did turn out that the [indiscernible] trial was not successful?

It is difficult for me to talk about any read-throughs in the absence of the data to understand what those read-throughs might be, but it's a fair question that you asked. So our understanding at this point is that the data is coming by year-end. Well, we're just about at year-end here. So we look forward to seeing what that data is. Our trial is up and running and enrolling. So it's a good topic for us to discuss in the future when we actually see what their data is.

That's fair. So there's another potential growth driver actually in the Inflation Reduction Act, which maybe we can spend a little bit of time talking about. And that's the expansion of Medicare to the LIS the benefits to now 150% above the poverty level. Any thoughts as to what potential impact there may be to INGREZZA for that?

Yes. No. I think there -- with the Inflation Reduction Act, while there are many things in that, that were passed by Congress that I think are onerous for the entire industry and potentially could be big changes. There are some things in there that actually I think many of us throughout the industry support and have advocated for, for quite some time. You bring up one of them, which is the low income subsidy for those patients who are then -- they're also called dual eligibles. They can have Medicare and Medicaid which means for any particular prescription that they get, their maximum amount of pocket cost, no matter what is about $8 that they would have. That is extremely helpful to those individuals. As you said, in the IRA, the new provision is to raise the minimum income level or maximum income level of those people by about 50%, which is great. That will capture more people in for that benefit. How that -- I think that will only have a very small effect for us. It's hard for us to quantify, but I don't think that, that's going to have a really major impact. I think another aspect that's very good with the Inflation Reduction Act that we all support is the maximum amount of pocket costs now has been capped for a Medicare patient at $2,000 a year. That's excellent. That may actually have a bigger impact for INGREZZA than the raising of that. So I applaud those 2 aspects of there, and I think all of my colleagues throughout the industry and probably as you have heard, also applaud it.

Can we just focus then on the low-income subsidy? And I guess, why don't you think it might not be more...

Because it is -- yes. What we have found is that the vast majority of our patients, better than 85% of all of our patients for a specialty medicine, when the script is written for INGREZZA, it gets filled. And also, not only does it get filled, but the average cost to our patients is probably less than $15 a script that they're having to deal with. So there are many different avenues that patients are already able to take advantage of in order to be able to get this medicine, and they and their doctors work hard together to be able to do that because of the importance of the medicine. That, coupled with, it's not clear to me how -- in our patient population, what that number of patients would be. That would be then due to that. Those are the 2 reasons why I say right now, as I sit here, I don't see a big impact here. Access is already excellent for INGREZZA.

So another part of the Inflation Reduction Act that will kick in, in the next few years is -- and the details of the system are still -- not all of us are fluent including myself. But it seems like the CAR-T plans up until now have not had significant exposure in the catastrophic phase of coverage for the low-income subsidy patients, but that is going to change under the IRA. Any sense of what impact do you think that might have in terms of access?

Yes. Sure, Josh. If I could just take a step back for just a minute here because you're right. The Inflation Reduction Act is a huge complex bill. Let's talk about just what 3 of the main features are that have to do with drug pricing and all. There are 3. There's inflation caps. There's a Part D redesign, as you've just spoken to, both for manufacturers and for payers. And then there's a negotiation part to the bill. Taking them one at a time and looking at how they will work. The inflation caps, I don't think is going to be for many or most of us a big deal. Neurocrine has any price increases that we've taken have always been right in line with or underneath inflation rates. The Part D redesign, as we spoke about, the good parts of it is the 2,000 -- capping at a $2,000 out of pocket in the catastrophic phase. And then the other aspect of it is that -- and I really hate using the word term manufacturer, it makes us sound like we make widgets. The inventors -- now the donut hole concept goes away. We pay a 10% discount in the initial phase after their $2,000 is over. And then we pay a 20% discount in the catastrophic phase as the bill is written. Through a lot of work by our government affairs group and others as the bill was being put together, we got 2, I think, very important exemptions in there, and Neurocrine qualifies for both. One is a specified manufacturer exemption and the other one is a specified small manufacturer exemption. And what that means is that those reductions that we have there or those discounts are not immediately in place. They are staged in place over 7 years from 2025 to 2031. And actually, in the early stages of that, it could be a net benefit as written over what the current design is to the inventors here because of the donut hole. The third is the negotiation. And that's where HHS is able to negotiate starting in 2025 is when those first kick in to negotiate the maximum price for a drug starting with the top 50 Part D drugs in 2027 to '28 than Part B drugs come into that situation there. If you look at it just as written and you make several assumptions. The earliest possible time that Neurocrine with INGREZZA would be subject to a negotiation would be 2029. So there are substantial changes to the way that drug pricing has worked in the United States that I've just outlined there. However, we are in the very, very early days of this. And by that, I mean, now this is going to go from a legislative process that is exclusively been into an implementation process, which is where CMS comes into play and CMS then gets to make a lot of -- there's a lot of negotiation left to go. There's a lot of changes that are going to happen. And the one thing I can be certain of, there will be substantial changes.

Yes. I know from timing perspective.

We can pick this up at a later date. There are a bunch of nuances here to further delve.

Exactly right. It's too early to do, Tim, for us, in this, and we think that the changes will be many and substantial. We can't talk about which, we can't really say which way they're going to go. They will be changed. So it doesn't affect our business at all as we sit here and talk, Josh.

Understood. Well, thanks so much, Kevin and Matt. Great to see you again. Happy holidays in the room, and thanks, everyone, for tuning in.

Thank you, Josh. Take care.

Thank you. Bye-bye.