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

All right. Good afternoon, everybody. Thanks for joining us. I'm Marc Goodman, one of the biopharma analysts here at SVB Securities. Thanks for joining us at our conference. Very lucky to have the team from Neurocrine joining us here, Kevin Gorman, the CEO; Matt Abernethy, CFO. Everybody knows these guys. Thank you so much for joining us. Obviously, one of the leaders in the CNS space. If you went back years ago, it was like, well, how big is this tardive dyskinesia drug going to be? And I think we probably started out as even a $500 million drug. And today, the overruns probably moved above $2 billion, and it could even be $2.5 billion right now. It's probably kind of the number that everybody is talking about. But I think also the discussion is, okay, they've done just an amazing job with the first drug. We'd love to see a second job. That's kind of like what we keep here, and I know you all hear it, too, all the time. So Kevin, maybe I'll give you a chance to make some opening comments. But in that opening comment, maybe you could just talk about your philosophy, the real philosophy or how you're building out the pipeline? How do you think about what you're focused on?

Sure, Marc. And thank you very much to you and to SVB for making it possible to speak here today. Before I start, we will be making forward-looking statements, so I'd like to direct everyone to our recent SEC filings. So -- very briefly for those who are new to the Neurocrine story, we're a neuroscience company, what neuroscience means to us is 3 areas now, which is neurology, neuropsychiatry, neuroendocrinology and poised to go into neuroimmunology in the future. So actually, neuroscience is quite a broad field, and that's why we stick to our knitting. We've always been a neuroscience company, and I see us as being a neuroscience company for a very long time. We've been around about nearly 30 years, as you said. We have a very good product on the market that we market ourselves in North America discovered and fully developed here at Neurocrine. We also have another product that our partner, AbbVie is selling that was discovered, developed through Phase II clinical trials, partnered with AbbVie, worked together on the Phase III, they filed the NDA and it's in women's health, so neuroendocrinology, ORILISSA and ORIAHNN for endometriosis and uterine fibroids. So when you look at Neurocrine, as you said, we have this tremendous product that physicians and patients and their families have embraced, which has heard a disease state that when we launched about 5.5 year well, nearly 6 years ago now, I don't think anyone had ever heard the term tardive dyskinesia. And it is a debilitating movement disorder, largely irreversible. It is caused by taking antipsychotics -- very important drugs. There's probably about 80 million prescriptions of antipsychotics each year in the United States. Small percentage of patients develop tardive dyskinesia. And even if they never touch an antipsychotic again, this is a disease that once kicked off continues and continues to progress and will be their entire life. It's characterized by extreme movements in the entire facial area, the eyes, the mouth, the tongue, the jaws, but it also is in the hands, the arms, the trunk and the legs and feet. INGREZZA has been an amazing drug, extremely well tolerated and helps the vast majority of these patients relieve, if not all, but the majority of their symptoms. It is a drug that we've invested in heavily because these are generally patients that have severe neuropsychiatric conditions. And so it takes a large investment to be able to touch these patients to educate them, their caregivers, the HCPs on the disease that, frankly, physicians were trained to ignore because there was nothing they could ever do for these patients. And the disease had been around since the very first typical antipsychotics, the first generation, but even the second-generation causes that. So when we launched 6 years ago, maybe 2% of TD patients had been diagnosed -- now we're up to maybe 25% to 30% diagnosis. That still means 7 out of 10 patients aren't diagnosed. So there's still a lot of work for us to do and a lot of opportunity out there. But even stepping back, where we've made that first step in being able to get 30% of the patients diagnosed, only half of those patients are [Technical Difficulty], and that means that the size of the patient population that can be treated even if nobody else is diagnosed is double where we are today. And as the guidance that we gave just a couple of weeks ago, we gave guidance that this year we'll be selling between $1.67 billion and $1.77 billion with INGREZZA. And that's better than a 20% growth rate.

Yes, around $300 million year-over-year increase. And I think, Marc, as you said in the opening remarks, many people had expected this maybe to only be $0.5 billion. And as Kevin said, a lot of opportunities still ahead.

And so going to the second part. So obviously, we -- there's a tremendous amount of runway and growth that we see with INGREZZA throughout this decade and beyond. But right from the moment that shortly after we launched INGREZZA, we said, okay, someday, way off in the future, we're going to have a loss of exclusivity here. At that time, we had our composition of matter was expiring in 2029. We've been extended the 2-year Hatch-Waxman extension to 2031. We've now been talking, giving clearance by our patent councils internally and externally that the 20 orange book patents that we have will take us out at least until the mid-2030s. But when we launched them, we started to build up Neurocrine not only to take advantage of bringing INGREZZA to as many patients as possible. We also realized that we have the opportunity now here to really spread Neurocrine into all of the areas of neuroscience that we want to. And so we started working heavily and towards that goal of that in a decade or more, more than a decade from now, we want to be a very different looking company than we are today. So we have 12 -- 13 compounds in the pipeline, 12 of which are Phase 2 and beyond. 4 of them are -- 5 of them are registrational studies that we have going on. And we have within our research and preclinical development, a vast array of targets that we're progressing forward and different than where we were several years ago. These aren't all orally active small molecules that we have earlier on that are following up. These are peptides, proteins, antibodies and also gene therapies that we're going to be introducing into the clinic over the coming years and have as products by the end of the decade. So where we are working from now with a robust pipeline is a highly differentiated portfolio of products that not all of them are going to make it to market, but several of them probably will. And that is going to be, again, in neuropsychiatry and neurology and neuroendocrinology. And then following with those are going -- and they are all symptomatic treatments. But following with those, what we're working on today, we look by the end of the decade, introducing products that are going to be disease-modifying or even curative in neurology. And so I'm going to stop there, and I put a lot on the table for us to talk about.

Let me ask you this, like you have multiple approaches to schizophrenia, right? So did you decide we want to play in schizophrenia, we're going to diversify that risk within schizophrenia. Is that -- because it's also interesting, like if you look at the muscarinic, we've got people developing M1, M4s, M1 M4s, you're doing them all. You know what I mean. So like I'm just trying to understand how your philosophy behind it all.

Yes. The philosophy is -- you're right on. We know that neuroscience as a whole is one of the most risky areas of drug development. How do you mitigate that risk because we are 100% dedicated to neuroscience. So the way we do that is twofold. When we find a mechanism that we think has a tremendous amount of potential. We like mechanisms that we can drug that mechanism, get a molecule for it, and that mechanism is involved in multiple neurologic diseases. So we can explore it in multiple diseases. That's number one. So you've invested in a mechanism in a compound in that mechanism, and you have multiple diseases to go to. We also, as you point out, there are disease states that we're highly dedicated to schizophrenia, major depression and epilepsies. But let's stick with the psychiatric ones, highest risk. So if you look at schizophrenia, if you're just going to use one mechanism to go after schizophrenia, boy-oh-boy, that's risky to do that. So we take multiple mechanisms into a disease state. So now what you're overlaying is mechanisms that have multiple diseases they can go into, and we have multiple mechanisms going into single disease states. And that kind of overlay that we put on it gives us a higher probabilities of success. And the obvious thing is that what we try to do here is we either try to kill early or show successfully. And that's what we do. So we'll go into an area, design a trial that's going to tell us, is this going to be fruitful or not? We follow the science. Whatever the data comes out, -- those programs that have great data, they get more investment. Those that don't, we put on the side. We're not lacking really interesting targets, interesting and highly unsatisfactorily treated diseases to go into.

Yes. It's just so interesting with the muscarinic, right? I mean obviously, Karuna has demonstrated some good data with a couple of studies with an M1 and 4. So everybody is like, okay, well, the M1 M4 works. But who's to say that an M1 or an M4 alone would be a better product than the combo, right? And I think your approach is we're not sure we'll figure this out, and that's the what we're going to move forward.

Exactly right. I think that, especially in psychiatry, animal models are getting better, but I'm not going to stand up here and defend psychiatric animal models. You need to get into humans in order to understand what you have in psychiatric diseases. Fortunately, we now have Phase II studies that can be predictive of success in Phase III. It wasn't that long ago that psychiatry didn't have that at all. Phase 2 is certainly just kind of dose finding and then you hope for the best in Phase III. That's not the situation the field is in anymore. Phase I and Phase II, we don't have biomarkers per se, but we have noninvasive surrogates that I think are more highly dependable. And like you say, the muscarinic is something that we didn't just get into it when we did the deal with Sosei Heptares. We've been doing muscarinic research here for about 7 or 8 years, both on agonists and on antagonists. So what you see us and, as you said, we've got the M4 agonist that's in the clinic and we're enrolling really well in schizophrenia right now. That's the lead. We have an M1, M4 mixed agonist that's going to be going into the clinic this year. We have an M1 agonist that's in the final stages of preclinical. Let's see how that comes through so that hopefully, it can be nominated into the clinic this year. And then we even have an M1 antagonist that we're bringing up. So we're going to be able to, and I think we're the only company who can do this is fully interrogate this. And our goal here with this highly relevant mechanism and receptor systems is to be able to pick the right compound, the right pathway for the right disease.

I go back to Voyager and do another deal with them. That is a question that I've gotten from investors quite a bit over the past 3 years or so, we go after it.

Yes. So the bottom line is that, as I said back when we first did the first Voyager deal several years ago that by the end of the 2020s, prior to going into 2030, there will be curative medicines in the neuroscience space. We've already seen a couple of those that have come up early on. We are, as I said, dedicated to be a neuroscience company have been all these years. And we have a goal of being a preeminent neuroscience company. In order to do that, you have to plan that you're going to actually cure and modify neurological diseases. And so gene therapy holds the greatest promise of that. I've been in the business long enough to see that new therapeutic modalities go through a torturous road to get to that. I watched and was in the industry when IDEC got the first monoclonal antibody that was ever commercialized. And if you recall, way back then, monoclonal antibodies were still out of favor. They just weren't working. They went through a huge excitement phase. They lulled back down, looks a lot like gene therapy today with the fits and starts. But we compress those cycles now with technologies. You go through the cycles quicker. So we needed to get into gene therapy several years ago. Voyager appeared to be a company that had some interesting technology to get into gene therapy where you -- where you're still delivering the vectors centrally, but you can deliver into the brain. So we got into it there. We learned a lot. We built a lot of internal capabilities that people just don't see in that. But ultimately, those first-generation capsids and second-generation capsids, they weren't sufficient to be able to do peripheral administration, cross the blood-brain barrier in a targeted fashion and be able to reach the regions that you want to. In those intervening years, Voyager has undergone a number of changes. And they are now top 2 in the world with technology that has just that, the best capsids -- and the way of developing those capsids, discovering and developing those capsids using nonhuman primates as the selection as the SIV and not just one species, but multiple species in nonhuman primates. In order to have capsids delivery vehicles that can be given peripherally preferentially in a markedly preferential way to get into the brain and then be able to deliver the genetic payload into the brain. If you're not going to be a part of that now, you're not going to have an opportunity in the future to be a part of it. Compared to the rest of our investments, it's a relatively -- I'm not going to discount the upfront payment, but it's relatively modest compared to what we can do in business development. And we did that deal. And now I would argue that between the first deal, which we're now applying the newest generation capsids to and the targets there. And this second deal, bringing in even more targets into that, we probably have the largest pipeline of neurological gene therapies of any company that exists.

The Voyager made a lot of advancements basically is what you're saying?

Exactly right.

Last couple of years.

Yes.

And I think, Marc, the questions are really coming in from investors because you started off this conversation and really what's next for Neurocrine beyond INGREZZA. And a deal like that, that's going to evolve over the next 5 to 10 years is something that I think doesn't satisfy investor appetite right now, but we do believe in the science. And I think if you reflect on where we're at, we have a great medicine. We have a long-dated patent life as Kevin talked about. But from a financial perspective, we have plenty of flexibility left. And I would say even though we know we have time from an IP perspective, that doesn't mean we don't have a sense of urgency to continue to develop and evolve our company. So we have a lot of important data readouts coming up, one in particular, we haven't touched on yet, which is the crinecerfont data that will be out later this year, which could be if data is good, a blockbuster medicine. And then as Kevin said earlier, a lot coming out over the muscarinic over the next several years. So how this unfolds, how our story unfolds. We're very excited about it over the next 3 to 5 years.

Yes. And so just to put a final note on this, and we can get into individual programs, if you'd like. The current pipeline that we have offers us multiple products, important products over the next 5 years. Voyager deals, all the work that we do internally on peptides, proteins and other gene therapies that we have, that's that 5 years afterwards. And we're extremely active in continuing to -- from a business development aspect to be able to look at opportunities that give us late-stage opportunities that can even be products even earlier than that over the next 5 years.

Let's talk about crinecerfont. I think you used the word blockbuster. I think today, blockbusters as a $1 billion drug. I don't want to put words in your mouth, but is that what you think this drug could be? And if it could be that, how does it get there?

So when you look at crinecerfont, you have something that reminds you an awful lot like tardive dyskinesia. When we launched INGREZZA 5 years ago, 6 years ago, there was never a drug developed for tardive dyskinesia. And here, we have one for that population, a population that was largely ignored. If you look at patients who have congenital adrenal hyperplasia, which they can't make cortisol. And so therefore, since they can't make cortisol, you have to give them a replacement dose of hydrocortisone. That's the last drug that was developed into this back in the 1960s, like 1964. So that's their one and last drug that was ever developed. And it was clear that you could give them very small doses of hydrocortisone to replace their lost cortisol, and that kept them alive. But what wasn't -- what became clear quickly is because they can't make cortisol, all the precursors for cortisol pile up and they get shunted into another pathway where they make massive doses of androgens. How do you control that massive dose of massive amounts of antigens if they had a normally functioning hypothalamic pituitary adrenal axis, then naturally occurring, cortisol would go back, shut off the signal on a 24-hour basis about keeping their androgens at a normal level. The only way taking hydrocortisone daily multiple times a day can do that is they give them very high doses of hydrocortisone. That's the only way they can start dampening down those endogenous androgens. So you have this seesaw that the endocrinologist does with these patients, let their HPA access go completely out of control and have these kids growing up with massive amounts of antigens, stunts their growth has a lot of metabolic effects in addition or give them massive doses of hydrocortisone every single day. And then that controls the androgens, but then there's the whole host of problems that come with massive doses of that. Crinecerfont, recaptures. It's not a stem it actually recaptures that HPA access and lowers the androgens down to normal. We've shown that in Phase II, so the drug works. It follows if crinecerfont does the job to lower androgens, then you should be able to take the hydrocortisone and bring it down to just replacement levels, not these massive doses that you have to give each day. That's what the Phase III program is all about with this. There's about 30,000 patients in the United States with CAH. There is about another 30,000 to 40,000 in Europe. We plan on commercializing this ourselves. Obviously, in the United States, we can handle that easily, but also this is a perfect drug to do our foray to internationalize Neurocrine and to be able to market it ourselves over in Europe. You look at those 2 regions for having a drug that will completely change the face of treating CAH patients from babies, all the way up to now, we have CAH patients who are in their late 50s. And that is the promise that we have for the…

So it's a game changer. It's first in and it could be a high-priced product given those 2.

It's an extremely high-value drug, we believe, knock on wood, that our Phase III trials show what we anticipate them showing. And with that high value, we plan on pricing it appropriately.

And your view globally is this could be a $1 billion drug between our regions.