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

Good morning, and welcome to Day 2 of the Barclays Global Healthcare Conference. My name is Carter Gould, senior biopharma analyst here at Barclays. I am pleased to welcome Neurocrine Biosciences, just recently celebrating your 30th Anniversary. Joining us on stage, Kevin Gorman, CEO; and CFO, Matt Abernethy. Kevin is going to make some opening comments.

I will make -- I'll keep them brief. And I want to thank Barclays, I want to thank you, Carter, for the invitation here. We always love coming to this conference in Miami. I would also say that we are going to be making forward-looking statements. So I would -- you to our more recent SEC filings. So as Carter said, Neurocrine just recently celebrated its 30th Anniversary. We are a [indiscernible] world neuroscience company. What does neuroscience mean to us? That means neurology, neuropsychiatry and neuroendocrinology and hopefully, someday, neuroimmunology. We have a rapidly growing franchise in tardive dyskinesia with our drug INGREZZA. Also looking forward knock on wood that we have a PDUFA date for August 20 of this year to extend the indication base in the Huntington's disease. We have a nice deep pipeline of 12, 13 compounds, and there 12 are mid- to late stage, of those 5 are registrational studies. So we have data rich over the next 18 to 24 months. Just this year, we're going to be, as I said, looking forward to the August 20 PDUFA date for Huntington's disease. We're also looking forward to both of our Phase III studies in congenital adrenal hyperplasia reading out second half of this year. A TQT study and focal onset seizures are reading out in the second half. And then also late in the year, a Phase II study in anhedonia that is going to be reading out from our psychiatry portfolio. So we are well capitalized. We have, as I said, a growing franchise with INGREZZA. The drug is raised by patients and prescribe to be highly effective, really easy to use. So I'm going to stop there. And...

Perfect. Further questions you get to, but I wanted to talk over to Matt, just to start things off. Clearly, in the news today -- or not today, over the past few days around SEB banking and exposure there. Maybe you could help kind of frame any exposure you may or may not have?

Well, it's a pretty clear answer. We have no exposure. And I'd say we feel fortunate even though the capital markets are a little bit volatile at the moment. We feel quite fortunate to have a growing franchise in INGREZZA that's generating a lot of cash and allowing us to make a lot of investments in from where does our cash set perspective, very safe, high liquidity. So we feel fortunate to be where we're at, Carter.

Okay. Great. Let's move on to the meat of this. Let's talk about INGREZZA first. I'm not surprised there. You guys gave guidance not that long ago. When you think about the drivers that are going to drive that growth in '23 and beyond, can you help frame some of those for us as well as kind of touch where you think long-term diagnosis rates can go in?

Yes. So the guidance that we gave for INGREZZA, and it was only in TD. For 2023, we did not give -- we did not include anything potentially for HD in that because it's not an approved indication. And also, it's going to be happening very late in the quarter. But our guidance was $1.67 billion to $1.77 billion. The midpoint would be an increase of $300 million over the past year. So we really did quite well. There's a good amount of tailwinds that we have this year within INGREZZA is that, number one, I would say this is the first full year of having our expanded sales force last year on April 1, we had launched a 60% expansion of our sales force, probably as important as the size of the expansion. For the first time, we split the sales force into 3 different units. The largest of which calls on psychiatrists and health care providers in psychiatry. The next largest is then focused on neurology. And if you recall, that used to be one of our reps split those 2. So they were calling on both psychiatrists and neurologists, about an 80-20 split, I would say, that they did. But now we have them focused 2 different sales force focused solely on those 2 areas. And then the third area, which is brand new for us, which we've been wanting to go into for some time now with the opportunity to do it, it's in the long-term care environment. So that is like a completely large for us. We've not called on long-term care prior to this. So that expanded sales force, so is one of the real nice tailwinds that we have. In addition, we have refreshed and launched a new DTC campaign in January of this year. We had a -- our first DTC campaign full year was last year. We launched it, it was about 18 months that -- for 2 years prior to that, we had an unbranded direct-to-consumer campaign that went on. These direct-to-consumer campaigns have -- we found them to be very fruitful. All the aid metrics that you use to measure them, how much going to your website, length of the time they spend on the website, a number of clicks through the website, registering with us, all of those were well above our expectations in industry norms. And then probably most importantly, we finally contracted to have the ROI analysis done on the branded DTC, it came out quite positive. It was higher than the industry to produce. So we've re-upped again for all of 2030, as I said, with the fresh campaign, we are learning as we go along. That's -- that I'm very happy with. In addition, we've learned a lot on how to equip health care providers who are still very much in telemedicine today, I think we learned how to deal with that. I think we continue to get better, and we continue to develop more tools for those providers as time goes on. And I think that's going to be very important also for them. Did I leave -- and what I would say is that diagnosis rate is about 30% diagnosed, a long way to go. Yes, we're not going to get to 100% diagnosed, but we're going to do half of a lot better than 30%. Of those 30% that are diagnosed, still half of them are not being treated with a VMAT2 modulator. That means that when you add all that up, 85% of the patients are still suffering needlessly out there. This is an unclouded field, still have to stay. So there's a lot of blue sky out there for us to bring this treatment to patients. And also, as we've been talking about our -- we all -- we had started out by saying that our exclusivity based on intellectual property, took us to 2029. Then we got 2 years of match when that takes us to 2031, and then internal and external counsel now have told us that we can feel very comfortable with 20 Orange Book patents to be talking about exclusivity lasting mid-2030s. So that's why you see us investing so much into INGREZZA. And for a portion of that, I'll call it, valbenazine into HD, into our sales force, into DC -- into DTC, but you also see us going into utilizing valbenazine in a Phase III trial that will read out next year in an adjunctive treatment of schizophrenia. You see us in the dyskinesia associated with cerebral palsy that we have a Phase III study in. So there's a lot of investment because we have a lot of runway with a highly effective, easy to use and really nicely tolerated drug that we have there.

Perfect. So I think, Kevin, and we get asked this question a lot, Carter, just about the investment and how -- what's the financial return on that investment because when you think about the direct-to-consumer advertising campaign, it's around $100 million. The expanded sales force is always seeing financial leverage. And I think what you can see in our expense guidance this year, within SG&A, it's going up around $100 million. Top line is growing around $300 million. So we are showing about 300 basis points of operating leverage. It's just really a question of what do you do with the rest of that cash, which has been invested primarily into R&D. But as Kevin said, with the growth that we expect this year and for the years to come, you're going to continue to see SG&A leverage as we look into the future.

Okay. I wanted a couple of points to kind of dive in deep in there. First on the LTC segment. Is this just one of those things that's going to take time and it's going to take years of investments? Or are there certain obstacles that you think you need to get patents that will sort of start to unlock that opportunity?

So we've already been -- there have been years of investment leading up to it. We had planned on going into LTC back in about 2019, 2020 time frame? Well, that got kibosh. There -- even when we saw that the LTCs we're opening back up, so then we put the plan that we had in place, but on the shelf into motion. The first part of it is actually not the sales force. So one of the first obstacles that you have to go into is that there are certain pharmacies that dominate LTC. You first have to get on formulary of those. So we did the work we got on to those. So that was fine. Now we're launching it at LTC. And as I say, it's like a mean launch in LTC. There's a -- LTC, we use that one term, but it describes such a wide range of different treatment environments from group homes to inpatient psychiatric care, to elder care, to learning disabled facilities. We're in all of those. There's about 10% to 15% we estimate the TD population is in LTC right now. You have many different advocates within an LTC environment, and they're different from LTC to LTC that your salesperson and your medical people need to go into talk to, to educate, and then empower to diagnose and treat tardive dyskinesia. We're at the very beginning of that. I would say that it will -- I would think that it's going to match somewhat the way that we thought when we went into community mental health centers, which is the first place that we went into. You're going to start -- it takes a while to get going, but then you're going to start to see the ball really rolling back. But we haven't been an LTC before. So let's.

Okay. You guys have been pretty straightforward in acknowledging the risk around IRA as well -- or even more important than that, I think you've acknowledged the uncertainty relative to some of your peers that I think see this is a more firmed up than maybe it is at this point. Against that backdrop, how do you sort of plan around the business around these potentially drastically different scenarios and more importantly, just the underlying uncertainty around what implementation may or may not look like?

Yes. It is something everyone hates uncertainty. We do, the markets do. Over the next 18 months to 2 years, at least through this -- through 2024, you're not going to see I think, done legislatively. It's all going to be through the administrate on CMS, how are they going to administer this. The rollout of it, the ones that are going to deal with it -- first are going to be the large pharmaceutical companies. And I think that's good. I would -- they are more sophisticated and better positioned in a number of ways in order to lead the way here on how that's going to roll. We're fortunate within biotech that we qualify towards the 2 of the exemptions of the IRA thus manufacturer in the small biotech, which means that the full effects of IRA phase into us from the Part D redesign from about 2025 to 2031 in that and actually the early years of that, it's a net advantage economically to us than how we take Part D right now. Then when it comes to drug price negotiation, I would say that if that -- as design sits here today, if it plays exactly the same, we will start feeling the drug price negotiations in 2029 phased in over 2 years. So 2031 would be the first thing we would feel it there. What I would say is that it changes really nothing about how we deal with INGREZZA. That is a -- that's just an exceptional one, and it's growing quite rapidly. And so whatever impact that we're going to have from price negotiations, it's going to be off of a very successful drug as we think about 8 to 9 years now. So whatever -- if that haircut does exist then, whatever that haircut that they're going to be put in place, it's going to be off of a very successful drug that is valued by patients and customers in at least I would hope 2 indications at that point potentially more. When it comes to the rest of our business, we have been investing in our R&D in order to acknowledge where the science has gone in the last 7 to 10 years. And that means that whereas neuroscience neurological disorders have mainly been addressed by symptomatic treatment utilizing orally active small molecules. That's not going to be the case. By the end of this decade, you're going to see that there are going to be neurological disorders that are going to be disease modified or potentially even curative utilizing large molecules. And so we've been investing heavily at Neurocrine into that area of not only protein therapeutics including antibodies, but also gene therapy. We have been doing that for several years. And we have all those capabilities just about concluded the [ accounts ]. You're going to see coming from us probably our first [ bridge ] molecules coming out in 2025, and you'll see multiple hitting the clinic from us each year after that. So that by the end of the decade, I looked at Neurocrine to be one of the leaders in neurosciences with, if not disease-modifying curative therapy, we'll still stick to our knitting when it comes to small molecules because when it comes to neuropsychiatry, you just don't see that large molecules really have a place yet in psychiatry, that is still always going to be [indiscernible] at least out as far as we look right now.

Okay. So it's a good segue as we think about business development. You clearly started off the year, doing Voyager. There was certainly a knee-jerk reaction to that deal in the marketplace. A couple of things. One, can you just talk about what gave you conviction to go back Voyager sort of 2.0? But also maybe Matt can comment on what this means about sort of your firepower to still do deals. And if Voyager rules in, rules out potential things going forward?

Why don't you take the second half first, and then...?

Yes. Yes. The second half is quite easy. It doesn't impact our financial capacity. If we wanted to invest in a larger transaction, we still have the firepower to be able to do that. It really comes down to making sure the asset that we would potentially acquire at scale. I think I've commented publicly $3 billion to $4 billion. It'd have to be something later stage or commercial that would really be transformative in particular to our medium-term revenue growth profile. So the Voyager transaction is really [ impress that ] we're making, as Kevin said, to be positioned to be in a place to do -- to have disease modifying or curative therapies center.

Yes. So getting into -- we did the first deal with Voyager almost 4 years ago. And over that period of time, we worked with Voyager carefully. We built up a lot. And what we always do with collaborations, whether we're the larger party or the smaller party collaborations are more than just a drug-by-drug specific there to build up capability expertise. So we built quite a bit of expertise over the last 4 years in gene therapy and us. Working closely with Voyager what we were able to say, we have -- we had 3 initial targets that we brought in, which we still have in that collaboration that we haven't disclosed that our targets that were the first-generation capsids that they had, we are working on. One of them was Friedreich's ataxia, so that has been disclosed. There are 2 others that have yet not. We were seeing Voyager making amazing progress, I would say, industry-leading progress in designing that next and much, much better generation of capsids. What is better about them? Well, two things. Number one is their ability to hone in on those areas that you want to deliver the payload to. And for us, that's the CNS. So you have CNS tropic capsids. So now we don't have to deal with having to centrally administer the capsid. It can be given IV. Second is to be able to deliver the payload highly efficiently once it's in that area. And they've made amazing progress there. So once we saw that kind of progress, and with their lead compound that they have internally at GBA1 in Parkinson's and Gaucher's, we did that deal in order to be able to acquire that lead assets, plus again, 3 more. So I think that what we have that we're working on with Voyager is 7 gene therapy assets for the CNS. FA and GBA1, the 2 that are furthest along in that. And having that leading technology put us up against just about anybody for CNS gene therapy right now. And so that's why we did the deal. It again fits very nicely into our large molecule focus that we've developed internally. And I know it sounds a little bit odd, but peptides, proteins, antibodies, gene therapy, they share one very fundamental aspect that goes across all of them, and that's protein engineering. It is all protein engineering. And I think that we've built an amazing protein engineering group within Neurocrine. So again, proof is in the pudding. Starting in 2025, you're going to see the fruits of these investments.

Okay. We got about 2 or 3 minutes left. I wanted to do a little bit of essentially key dating as we go through some of these pipeline readouts coming up. Maybe first on focal onset. Can you talk at a high level around sort of the hurdle moving forward here? Clearly the Xenon asset just kind of set the bar, but it seems like there's still room even if you don't match that efficacy. Is that a fair characterization?

That's a fair characterization. As you said, I think Xenon with their potassium channel compound had very nice results in Phase II and they're in their Phase III. We collaborated with Xenon Care with the sodium channel block that we have going after 1.6, specifically. So we know that sodium channels are involved in [indiscernible] because there is very old, very dirty sodium channel blockers that have been on the market for decades. We're going at it with much more precision. Data is coming out second half of this year. As you and others are well aware of within the antipsychotic market, generally, patients are on a couple of antipsychotic space cycle through them. So they have real new mechanism that can bring some real good efficacy, and it's hopefully a much better side effect profile and tolerability. There's a lot of room in this marketplace.

Okay. Plug for a deep dive from last year on this topic. Maybe one follow-up there. Why do the study ex U.S.?

Availability of patients.

Okay. Great. I mean moving on to crinecerfont, key data this year. Can you maybe help frame sort of the level of [indiscernible] decrease, that's clinically relevant and the expectation we should get both these data sets together or at least no?

Yes, we're going to have to see how they close out. Both trials are fully enrolled. So enrollment is within those trials. If not at the same time, pretty close together. I would think that this [indiscernible] that really does depend on how the trials looked out as we go through that process. When you're -- what's -- we're going to success. That's what everyone wants to look at and wants to know in advance is success. Any -- the best I can say, and I said this for years leading up to unblinding our tardive dyskinesia data with INGREZZA and the AIMS, what is crinecerfont significant 0.5 point change in AIMS, so 1 point change, 2, 3, 4-point changes. It really was, let's look at the data, let's get staff on the data, and then we and the field will be able to say is that important? I gave the same direction here. All the KOLs out there, the regulators, any decrease in glucocorticoids is important, But the stating with it. Let's then look at it, let's -- let experts weigh in, and we'll be able to say that's important.

Okay. Well, we're out of time. Kevin, Matt, thank you very much.

Thank you.

[indiscernible] in the crowd. If you have any follow-up questions as well. Thank you, guys.

Thank you.

Thanks, Carter.