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

Thanks for joining us. I'm Tazeen Ahmad. I am one of the senior SMID biotech analyst here at Bank of America. Thanks for joining us at our conference again this year. It's my pleasure to present our next management team Neurocrine Biosciences. Sitting with me are too familiar gentlemen. To my left is Kevin Gorman, who is, of course, CEO; and to my right is Matt Abernethy, who is the Chief Financial Officer. Gentlemen, thanks for joining us again.

Thank you very much, Tazeen, and also thank you for letting us speak here again.

Of course. So I think, Kevin, at this point, most people know about the company and what it does, but maybe you could just give us a quick 1-minute intro about Neurocrine and then we can go straight into Q&A.

I see how you put that time constraint only 1-minute.

Just a minute, just a minute.

So Neurocrine is a neuroscience company, has been throughout the entire history of the company. Neuroscience test means neurology, neuropsychiatry, neuroendocrinology. We have our leading product that we sell that was discovered and developed at Neurocrine is INGREZZA. This is for an irreversible movement disorder caused by antipsychotics. It's called tardive dyskinesia. The product's been on the market for 6 years now, and we've given annual guidance for this year of $1.67 billion to $1.77 billion. So it's been truly life-changing for TD patients. Having said that, we're still only hitting a small fraction of the TD population. So there's a tremendous amount of growth with this product. We have been building over the last several years a pipeline in all 3 areas that I collectively said make up in neuroscience, and I'm sure we're going to talk about those. It's approximately 14 drugs that we have in the clinic, and we'll be adding to that later this year. And I would say that we have a very healthy balance sheet that we're constantly looking to put to work. So that was the 1-minute.

Yes. Perfect. Thank you. So let's talk about INGREZZA. This is a mature launch now, but at the same time, there's still a lot of upside opportunity. So you did have a good quarter relative to, I think, previous cycles. I think the gap between 4Q and 1Q results wasn't a dip in the way that historically it had been. Should we expect that to be the case on a go-forward basis now that the drug has normalized in so many different fashions, you can better predict a lot of what's happening. And of course, you do have a lot more resources on it.

Lots there. So you're right. The drug is a drug that's performing really well. What I would note is that if you look at it from a sales perspective, in our sixth year, this is a 36% increase year-over-year. That's pretty remarkable for a drug. But let's talk about the base business because that really tells you the health of your franchise and the health of the company. The base business is over 30% year-over-year growth still in year 6. When you -- we have a seasonality to the drug, as you alluded to there, Q1 is usually our most difficult quarter. Why is that? Well, we're a drug that is a specialty drug, meaning that in Q1, a lot of patients are changing insurance or a lot of insurances, whether it's government or whether it's private pay, require that you get reauthorized, all happening in Q1. And every year as we grow the number of patients that we have under care. That means that, that reauthorization pile gets larger and larger. We've gotten pretty good now. I think at doing that. We do still get some surprises, I think, in some years where we have instituted policies in order to, in a very compliant way, be able to help prescribers and pharmacies be able to deal with that influx in order to make sure that there -- the patients all stay on drug throughout Q1 and into Q2. So as you said, normally, there's a dip from Q4 into Q1. We did not have this here. Normally, you see a weakish Q1 because we call it 1/4 of 2 tails. The first half, everybody in the field is just trying to make sure that patients get through the reauthorization and get their first refill for the year. They're not out there doing what they really like to do, which is bringing the medicine to new patients. And so they only have the last 6 weeks generally to do that. Our team really outperformed this time. They got basically everyone on drug pretty rapidly, and we set a new record for new prescriptions, NRxs. To have that happen in Q1, we would have told you that can never happen in Q1. So it really was quite good. We've -- in our earnings call just was that a week ago or 2 weeks ago...

Just last week.

They are in together, yes.

It seems like months ago.

I think people got a little bit nervous when we said, hey, Q1 was outstanding. When you've seen us have a low Q1, that means we didn't get everybody in, in Q1. That means all those patients, all those prescriptions then flowed over into Q2. Q2 is a lot better than relatively to Q1. We had a great Q1, not that flow over of patients in the Q1. We're going to grow in Q2, absolutely, we're going to grow in Q2. Is the delta percentage-wise, the absolute dollar-wise going to be as big as what it is when you have a bad Q1, let's say, or a more traditional Q1? No. It can't for that. But on the other side of that, so a little bit of lumpiness between Q1 and Q2. But on the other side of that, when you have a Q1 like this. When you get all those patients reauthorized and a record number of new patients all in Q1, they're with you the entire year because INGREZZA is an incredibly sticky drug. The patients, their family members, caregivers, all of them, the nurses, the doctors, all the health care providers, it's immediately obvious the impact that INGREZZA has on their movements and on their life. So they're with us all through the year. And so the more you bring in Q1, the more those refills go. So Q1 has set us up for a great 2023.

Okay.

So it's our second straight year of sequential growth. Q4 to Q1, historically, we saw a large step down. And when you think about the dynamics that Kevin laid out, there's also a gross to net headwind that always occurs in Q1 as well from the donut hole that patients go through. So when you think, as Kevin said, the fact we grew TRx sequentially, and we delivered in dollars, it was a nice quarter for us.

Right. So I think Kevin mentioned the record number of new patient starts, for example, in Q1. Where do you think that's coming from? Is that from your investment in your sales force? Is it just patient awareness continues to grow or is it something...

So we did 2 big investments that were last year and also into this year because it's an ongoing investment. One is that we grew our sales force and I'll talk about that just a little bit more in a second. And we reinvested in direct-to-consumer advertising and launched our new DTC called Impressions. We have used all the metrics. We've had a DTC campaign, an unbranded campaign that went on for a couple of years, several years ago. We've had a branded campaign that's been going on 2 years now. When you use the normal industry standards in order to evaluate ROI, the DTC has been highly ROI positive beats out the benchmarks we set up for ourselves, beat out the benchmarks that is normal and customary for the industry. So we're going to keep that DTC campaign going throughout this year. That helps bring patients in, obviously. But probably the biggest thing is sales reps, that person to person detailing that takes place. Not only did we increase substantially our sales organization. But importantly, we went from a single sales force that 80% of their calls were on psychiatrists, 20% were on neurologists to now, we broke them into 3 sales forces. The psychiatry sales force stayed the same size, which is our largest number of reps. But they only call on psychiatrists and advanced practice professionals, which are psychiatric nurse practitioners as what they used to be known as. But it's like we increased them by 20% because they no longer call on any other specialties, just psychs. We then formed the second largest sales group, which is the neurology sales group because we knew that there were more patients we could go deeper in the neuro area and knock on wood someplace, that in August 20 of this year, we're going to have the second indication hopefully approved for INGREZZA, which would be in Huntington's disease, which is a purely neurological sale point, neurologist sale point there. So we rightsized ourselves to be able to do both tardive dyskinesia and Huntington's disease into there. And then third, something that we always wanted to go into, but we couldn't bite off all of that when we launched and when we were ready to launch into this third area, COVID hit, that was long-term care facilities. So we had a plan. We had it on the shelf as soon as everything with COVID subsided, we launched now an LTC sales force. We estimate that maybe up to 15% of TD patients are in a long-term care environment. Now getting directly to your question that you asked. You only gave me a minute for opening remarks.

Take as long as you like.

The psych sales force, they, as I said, they're our largest -- they're the ones that stayed -- all the territories stayed intact. There was no change to any of their territories, minimal disruption that we're doing there. I would say that the bulk of our growth that we've seen comes from that psych sales force. Next comes our neurology because this was all launched. This was all launched back in April of last year, usually takes 2 to 3 quarters until new reps are starting to really get their feet, understand their territory and start performing like what we call legacy reps. So the psychs did that quickly. The neurology sales force, I think, is next in line, and you're seeing them adding more and more now. They're really getting up to speed. The last one is that new area that we've gone into, which is long-term care. So while we hired in that sales force with a lot of experience in long-term care, none of them were experienced in INGREZZA. So they've come up to speed on INGREZZA. They've been prospecting their business. LTC is a very different area to go into than community mental health centers, or going into a private offices of psychs or private offices of neurologists. They're very different. They're group homes, they're behavioral health homes. They are long-term care facilities, actual facilities. There's some geriatric centers, there's learning disabled centers that you go into. These are wildly different from one another. But we think that most of the TD patients are probably in just a few thousand of the many, many, many thousands of what are clumped together as LTC. So they're the ones that we haven't seen the impact yet, all right? That's going to be -- as this year goes on, we will then see their contribution.

So a couple of questions. Thanks for being descriptive on that, Kevin. How should we be thinking about the contribution from long-term care this year?

Yes. I would say that they will be very much outstripped by psych and neurologists. But as the year goes on, you're just going to see a step function as they contribute more and more. And like I said, we think that up to 15% of TD patients are in LTC. So it really should be a meaningful area for us to be in. And also, there are Huntington's patients in LTC facilities. So we'll be training up again if we get approval on August 20, which we have all the confidence in the world, but you never know, that we will have that approval in Huntington's disease, we'll be trading up the LTC sales force also on Huntington's.

Okay. So everything you just described to me are all positive trends, upward trends. So based on the results that you got for sales in the first quarter, maybe this is also a good question for Matt. How are you thinking about sales guide? Is that something that potentially could be revised as the year progresses?

Yes. I mean, our goal is to continue to grow INGREZZA to maximize the opportunity we have ahead. It's amazing. I think you called it a maturing launch. The growth that we're seeing in our seventh year now is pretty amazing. And I think it just reflects the opportunity we have ahead. So we had a great Q1. It sets us up for a really nice year. And I think once we get through Q2, we'll see how we're performing and look at our guidance at that point. But we're very optimistic about what we have ahead of us for INGREZZA. Now one comment or note because I was asked this morning, and Kevin just alluded to it. We have not included anything for Huntington's disease in our annual guidance range. We don't expect it to be a big contributor in -- later this year just based upon the timing of when the indication might get approved, be more meaningful in 2024. But wanted to make that clarification.