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

Okay. The green light is on. Welcome, everybody, to the final day of the Goldman Sachs Healthcare Conference. Thank you for all your dedicated stalwart, hard cores. We appreciate the opportunity here to continue here and kick off in our grand ballroom equivalent setting here with Neurocrine. With us, the Road Warrior CEO, Kevin Gorman; Chief Financial Officer, Matt Abernethy. And together with my colleague, Stephen Sloan, who everybody knows is the only reason that the models all sort of like align. We are very happy to have a discussion here. Lots to talk about in terms of your portfolio, the pipeline, you're also a particularly apt commentator. And I think that's one of the things that's makes very valuable discussions with you, Kevin and your team, when we think about some of the implications of the broader environment, macro as well as sort of policy changes. So we're going to delve into a bunch of those things.

But I'll let you kick off with a little bit of just the highlight of where we are in terms of 2023. Maybe touch upon some sort of areas of strategic focus.

Sure. Thank you, Chris. Really appreciate the opportunity to be here, and thanks to Goldman Sachs. Matt and I will be making forward-looking statements. So I'd like to caution you and have you review our recent SEC filings for all the risks associated with the industry and with Neurocrine. It's -- I don't think Neurocrine has ever been operating as effectively as it is now. We've really got a lot to look forward to. In 2023, we've accomplished a lot already -- we have still a marvelously growing franchise with INGREZZA that keeps performing. But in addition to that, with a pipeline of 14 clinical compounds going through, 5 of them in registration studies and 8 of them in mid- to late-stage studies and then one in Phase I. There's a lot in our pipeline, and I'm sure we will get to many of those things. They do cross all 3 of the areas that are the core therapeutic areas for Neurocrine which is neurology, neuropsychiatry and neuroendocrinology. We have 4 important readouts in Q4 this year. And 2 of those are the 2 Phase III clinical trials in congenital adrenal hyperplasia, CAH, 1 in adults, 1 in the pediatric population. We have another Phase II clinical trial that's reading out in focal onset seizures. And then we have another Phase II that's reading out in anhedonia. Anhedonia is the inability to feel pleasure. It is [ actual or ] joy. It is actually a devastating symptom that actually goes across many, if not most, psychiatric conditions. We chose to initially explore it in major depressive disorder. We're in a -- we've got a strong balance sheet. We've got a very clear strategic path that we're on with being mindful of our capital allocation, understanding that first priority is INGREZZA not only in bringing it to the tardive dyskinesia patients, which we've only scratched the surface thus far, but also Huntington's patients with a hopeful PDUFA date of August 20 of this year in order to have an approval in Huntington's disease. And then it's to invest in that pipeline that I just said to bring those compounds forward. And finally, it's to continue the investment in our internal research so that we have a continuous engine supplying us with new and novel molecules each and every year. So I think I'll stop there.

Yes. No, a lot to talk about. Obviously, the center of gravity with you guys is always about INGREZZA for TD. Perhaps, Steven, since you're most attuned to the model, you can give an organized sort of discussion around some of the key issues here just to sort of see where we are June 15.

Sure. Kevin, you mentioned that you just have started scratching the surface of the TD market. I was wondering if you can walk through what you see as kind of the key growth levers moving forward, whether that's expanding the TD market like you. Talk about the opportunity in Huntington's disease. Just talk through how you're thinking about the next leg of growth.

Yes. And again, I hate to be a broken record, but I'm a broken record. When we launched this drug 6 years ago, there were only 2% to 3% of all TD patients had been diagnosed. This has been a disease that was long ignored, long forgotten but kept growing out there. We've done, I think, an outstanding job and now that approximately 30% of TD patients have received an actual diagnosis. That means 70% still haven't -- so it's still very much a blue sky that we have out there. Add on to that, of that 30% that have been diagnosed, only half of them are actually receiving what is APA guidelines front-line treatment, first-line treatment, virtually only line treatment, which is a VMAT2 antagonist, which is what INGREZZA is. So now you're seeing out there that 85% of the population is not receiving appropriate care for their tardive dyskinesia. So it goes back to, Steve, it goes back to what we have been doing that's been very effective that leads to year-over-year growth that's in the high 20s, 30% growth continuously -- is that you need to educate the prescribers. You need to educate all the staff, even those staff that are not prescribers in a community mental health center in the physician's offices in long-term care settings. All of them have to be educated. And you would say, well, after 6 years, haven't you educated all of them, the turnover within the psychiatric field is immense in all these offices. Our sales professionals, build relationships, do a lot of in-service programs get very good traction as evidenced by how well the drug is doing. And 3 months later, when they walk in, half the faces have changed in the office. So you're going back again. And it's not just onetime in to educate, it's not 2x. It takes multiple visits in order to get the group, as I will call them, health care providers, the script writers and all the support staff where they feel confident and comfortable to be able to say, there's an abnormal movement that's going on in this patient. It needs to be diagnosed to determine is it TD or is it something else, a drug-induced Parkinsonism or Parkinson's disease or a tic disorder. You need to get them confident enough that they know how to diagnose it and then the call to action that this is having a significant impact on this patient's life and their mental well-being and therefore, they need to be treated for it. So it is continuing to do what we've done and use evolving technologies and the learnings of what we have been successful in, in the past and the things that didn't work and then just move them forward and double down on them. So that's the main lever for continuing this growth, which there's a substantial amount of growth to go. You mentioned Huntington's disease. So everything that is made INGREZZA, the market leader in tardive dyskinesia, really is even that much more important in the Huntington's population. Of the approximately 20,000 Huntington's patients in the United States, there, again, our Phase III trial in Huntington's disease showed just how effective this drug is in treating the chorea in Huntington's disease. It's every bit as effective in Huntington's as it is in TD when you look at the profound changes in the movements. Again, only a small fraction, maybe 20% of those 20,000 patients with Huntington's disease are being prescribed to VMAT2 inhibitor. And there's a variety of reasons for that. INGREZZA, knock on wood, if approved for Huntington's disease later this year, will surmount a number of those barriers to bringing a VMAT2 to those patients. So I think that will be a very nice lever for growth. As you see, we are investing heavily beyond tardive dyskinesia beyond Huntington's disease with INGREZZA. So we have 2 Phase III trials going on now, one as using INGREZZA as an adjunctive treatment for the actual disease of schizophrenia. And the other is utilizing INGREZZA in the largest movement disorder in children, which is the dyskinesia and cerebral palsy. So there's the investments that we continue to make in INGREZZA. And 2 of the big investments that in the commercialization that you see one is we increased the size of our sales force last year. So this is going to be the first full year of having that increased sales force. Not only did we increase substantially by 60% the size of the sales force but we, for the first time, split them into 3 different sales groups, the largest of which still goes to psychiatrists. Then the second largest goes to the neurologist. And then finally, the third going into a new area for us where we believe maybe 15% to 20% of the tardive dyskinesia populations exist is in the long-term care. Finally, you've seen that we continued our direct-to-consumer advertising. With all the work that we've done over 6 years in bringing education and the message to health care providers, you need the other side of the equation to be able to have a conversation and that is the patient and their loved ones. And that's why we started several years ago on an unbranded direct-to-consumer and then about 1.5 years ago on branded and it's been extremely effective. And so we're continuing that through the rest of this year.

Great. I appreciate all the commentary there. Very helpful. Sort of thinking about this year, and maybe, Matt, I'll turn to you in terms of the revenue profile for this year, I think 1Q is very strong. Some people might have been expecting that potentially raise guidance on this. As currently the midpoint would imply come just low single-digit growth quarter-over-quarter. Can you talk about how you're thinking about the revenue profile throughout this year and how we should be thinking about performance? It seems like it could be fundamentally very strong.

No. I mean what we saw in the first quarter was tremendous record numbers in new patients, and that's in a quarter where you typically have seasonal pressure. So coming out of Q1 and what we said on the call is we're very bullish about the growth prospects of INGREZZA. We felt it premature to do anything with guidance, just 1 quarter in. It's something that we're going to get through the first half of the year, and then we'll reevaluate guidance. But overall, I think the growth initiatives that Kevin laid out: number one, on the educational side, that really comes down to the sales force expansion that we did. We're seeing great progress from both the leading indicators and then also the lagging indicators of NRx. That seems to be going very well. And then as Kevin mentioned, on the direct-to-consumer patients are seeing that they can get a benefit from this medicine and are bringing it up to the clinicians. So from a fundamental perspective, things are very good. The one nuance that we brought up in the first quarter, which was just to simply flag what to expect for Q2, is that we did have a bit of inventory build at the end of Q1 that we know will dissipate in Q2. So we'll see how Q2 shakes out, and then we'll reevaluate guidance.

Yes. What I will say is that, as Matt said, there was always a seasonal impact of Q1. Q1 was very difficult, not just for us but for many specialty medicines because of your patient base. Many of them need to get reauthorizations at the beginning of the New Year for their insurance, many of them at the beginning of the new year are switching insurances. And so you can -- it can take more time to that first refill there. And then because that is taking place, then the new prescriptions that are being written in that quarter fall into a larger stack. And as we are more and more successful, that stack got bigger and bigger in Q1. We've gotten, I think, really good at handling that with having a group of dedicated personnel that are there in order to facilitate in a highly compliant way. Getting those paperwork done by the offices and starting in Q4, working with the offices that they can identify the patients that are going to need this. So we've gotten very, very good at that. And that's great. So that -- that's why you've seen in the last couple of Q1s we're not having as much seasonal impact. It also means that you don't have that big delta then between a low Q1 and the super high Q2 because you're not having that spillover of the patients from Q1 to Q2. So it does a nice job of more evening out Q1 over Q2. And that's why we give annual guidance. We don't give quarterly guidance because the dynamics can change, and that's why we gave that. And as Matt said, we're still a fairly young commercial company, and we're certainly a young company when it comes to giving guidance. And so when we give guidance, as Matt said, after one quarter changing guidance just does not seem to be a good proposition for us. And in addition, the low end of our guidance was really, if you recall at the beginning of the year, all the clouds that are hanging over and everyone talking about an economic recession taking place for. So we kind of envision well, we're not economists but we gave our best analysis to what that low end of the guidance should look like under those circumstances.

Okay. Great. That's all very useful as we're thinking about this year. So it seems like your sales force has gained experience to kind of smooth out that 4Q to 1Q transition. And so congrats to the team. Maybe one last area on INGREZZA before we move on to the pipeline. Competitively, I think, recently have kind of planted a stake in the ground saying that they plan to achieve over $2.5 billion in peak sales with the VMAT2 inhibitor. Curious how you view that number? I know you historically haven't given any sort of peak sales guidance. And then they recently launched their extended-release version of the VMAT2 inhibitor, which is once daily in needing a titration scheme. Just wondering if you see kind of any competitive pressure from that product launching.

So to go with the first part, I think what Teva and Neurocrine firmly agree on is this is a huge underserved market at this point. As we talked about right at the very beginning in my opening remarks, there's a wide-open space there. And Neurocrine is the market leader there. And we anticipate we will remain the market leader in TD having 2/3 of the scripts versus 1/3 for Teva and deuterated tetrabenazine. As far as them developing an XR formulation, the second formulation that has been developed for deuterated tetrabenazine, first, taking it from 3 to 4 times a day to a twice a day and then more recently down to once a day. I don't really think that's going to change the dynamics that we have there in the marketplace. Frequency of dosing throughout the day was only one small part of a much broader differentiation and of INGREZZA over deuterated tetrabenazine. There are many other points of differentiation that are far more important than a once versus twice a day. The XR formulation still needs to be titrated. So there is a complex titration. There is no titration with INGREZZA. Secondly is that INGREZZA still is only one pill once a day. For most -- well, all but one of their stable final doses that they come to, it's multiple pills of different strengths that need to be taken. So that's still a pill burden that's there and having 2 different dose strengths in most of their final doses. That's a bit daunting. But fundamentally, the difference is that they are 2 completely different drugs. INGREZZA does one thing and one thing only, that we can measure throughout the entire discovery and development of this molecule all the way to today with all the efforts we put in. There's only one receptor system that we see that INGREZZA touches, and that's just VMAT2. And when you're presented as a physician with a very complex patient in front of you, and now they've presented with tardive dyskinesia and you're balancing on average 7 other daily drugs with that patient. You just want to treat the TD. You don't want to give them a drug that is going to be hitting numerous other receptor systems that you really don't know what the impact of that is. INGREZZA is the only drug that does that.

Let's move on a little bit to the next product that people are going to be watching out for, bringing the crine part of Neurocrine a little bit more to the [ fore ]. With crinecerfont, CRF1 receptor antagonist, congenital adrenal hyperplasia, CAH. I think it's really, we often are left with trying to figure out how to interpret data and read through into the future what we have in hand. We have some Phase II data, and I think there's been some updates in terms of that. You showed that there is a correlation between the baseline hormone level and change from baseline 2 weeks out, 14 days later. And so this becomes another data point, in essence, that helps us put together this mosaic. And I think everybody on the street is fairly confident, but it's one of these things where, A: we recognize how challenging endocrine diseases can be from a longitudinal standpoint; B, kind of CAH has been kind of a slayer of other efforts. You guys have a very robust and well-established clinical development team. So help us get confident with the Phase III.

First, I'll start out with -- I've always appreciated one of the things about you, Chris, is that you actually do pronounce Neurocrine correctly and you understand where the crine comes from, in the name. So thank you very much. So there was a lot there that you asked about this. The Phase II program that we ran both in adults and in the pediatric population, showed extremely clearly that crinecerfont, a nonsteroid, substantially lowers the endogenous hormones that are out of control in CAH patients. I think importantly, what the new data that we've come out with is that crinecerfont does that regardless of what dose of daily hydrocortisone these patients are on. So whether you're on a high dose of hydrocortisone that isn't controlling your androgens, crinecerfont lowers those androgens significantly. If you're on a low dose of hydrocortisone and your androgens are out of control, it lowers it there. If you're on a high dose and it's having some effect on your androgens, keeping them down, crinecerfont lowers them yet even still. So crinecerfont is working, if you will, to do exactly what it's designed to do independent of hydrocortisone, it lowers your endogenous androgens. That's great. because the promise that goes on top of that, and it's -- I say it's a promise because we -- that's what the Phase III is to show. Phase II showed we lowered the androgens as I just said. Now because the androgens have been lowered down off times to a range of normalcy. Can you now stop taking the super physiological doses of hydrocortisone and bring them lower, any lowering of a daily dose, all your life of glucocorticoids is beneficial. All key opinion leaders agree on that. Any lowering is beneficial. So the Phase III program in a larger, more robust population has 2 things to show. Show again that crinecerfont does what crinecerfont does. It substantially lowers the androgens. It recaptures the fundamental defect within CAH. It recaptures the hypothalamic pituitary adrenal axis. What it needs to show in addition in Phase III would be that you can then lower the glucocorticoids. It makes perfect sense that you should be able to do that. The only risk is, did we design these trials? They've never chased trials have never been done before. Did we design them correctly so that it will show that. We've conducted them correctly because we have all the belts and suspenders in there, and we have the blinded and unblinded external investigators in here. Everything I know today says we have conducted this trial exceptionally well. Did we design it? I think so. We got all the input from FDA, from EMA, from all the key opinion leaders around the world. Our best scientists internally put it together, design these trials. Come early Q4, we'll know.

So the overall logic is very clear. And I think we're quite confident in the team's ability to execute on that. Yet there's always kind of a -- some sort of level of threshold. And so when we think about endpoints and how those get met, particularly from a regulatory standpoint, can you share with us the extent that we have an approvable endpoint definition and an agreement from the FDA and the EMA?

Yes. So we do have those agreements. And we do have agreements that what we -- what is necessary here is to show the 2 things, and that is the lowering of the androgens and the lowering of the glucocorticoids. In the pediatric population, lowering the androgens as the primary endpoint, lowering glucocorticoids as the secondary endpoint. In the adult population, it's flipped. Primary is lowering glucocorticoids. Secondary is the lowering of the endogenous androgens. So we've designed a robust study -- studies to do that. They are independent studies. But I think taken together, they're going to give us a wealth of data, and I think they will give the regulatory agencies a wealth of data to the benefit that crinecerfont can bring to these patients. And it's the first drug developed for CAH since the early '60s. So again, much like TD, one of Neurocrine's fundamental tenants is we go after helping patients whose diseases have been left behind in drug development.

Yes. No, certainly taking on some difficult tasks. So -- and that also means that there probably hasn't been anything new branded to commercialize. So Matt, should we be lurking on the website and looking for postings of commercial openings for regional heads and stuff like that? There's a second derivative indication that we're getting warm and warmer, just how do you think about commercializing this?

Yes, I'd only expect you and everybody else to be scouring all of our open positions. And if you want to join the company, there might be a spot for you guys. But no. I think from a commercial perspective, we're -- this is something where the patients are treated in a very concentrated way. There's around 30,000 patients in the U.S., somewhere around 30,000 to 50,000 patients outside the U.S. So -- from a commercialization perspective, this is something that we think we can do very well, very successfully with fairly nominal investment, especially relative to what we have invested behind INGREZZA in tardive dyskinesia. So we got to get to the data and with the data that will help inform, obviously the approvability, but then also the price that we can ultimately yield from the medicine. When you think about the patients themselves, the pediatric population, which is about 1/3 of the patients, those are going to be the most motivated parents to get a reduction. Hopefully, in glucocorticoid exposure for the kids. So we expect a large portion of those patients benefit from a medicine like crinecerfont. The second most motivated would be the female population, obviously, because of the surge of testosterone and different androgens in the untoward side effects that, that has. And then lastly, the longer tail is going to be converting adult patients and motivating them to get adult male patients to get treatment. So we're enthused about the opportunity and look forward to the data early in Q4.

And without much lurking. You can actually see that our confidence is backed up by our efforts. We purchased a small U.K.-based company, Diurnal, who's really got some phenomenal talent in endocrinology and particularly in CAH. And one of the reasons why we did that is to get the beachhead over in Europe in anticipation of commercialization there and the deep relationships they have with all the European KOLs.

Right, absolutely prudent. Nothing happens very quickly in that regard over in Europe. So we've got about 8 minutes left. Stephen, why don't we touch upon some of the pipeline aspects, maybe muscarinic because it's trending and then leave me a couple of minutes at the end to tag team and ask a little bit about the BD outlook.

Sure. That sounds great, Chris. Yes, maybe we can start with kind of overall portfolio strategy for your muscarinic. Obviously, you do have multiple mechanisms here, targeting both M1 and M4 and each of these individually. So yes. Explain to us how you think about these different mechanisms? Does -- we're waiting for the data, we'll let the science guide us? Or do you have a hypothesis of which strategy might ultimately be the best for patients.

So 2 things. Number one is that we've had an active research program on the muscarinic, all of the receptors for several years, both antagonist and agonists because it is a fundamental and important receptor system within the central nervous system. But having said that, drugging it has been very, very difficult up until lately. And so we had been keeping tabs on watching different companies seeing what they were doing, forming relationships helps inform what we were doing internally. And I have to give kudos to Karuna and to Cerevel. Both of those companies did an outstanding job in demonstrating for the first time that agonizing the M4 has a significant role to play in the treatment of schizophrenia. We were then poised, as you saw as soon as Karuna's data came out, but that didn't quite nail it, right, because that's a pan muscarinic agonist. But then Cerevel's data came out and which is a -- which is specific for M4. That's when we pulled the trigger on a relationship that we've had long-standing in conversations with Sosei Heptares and brought in their muscarinic program, married it to our internal efforts, the lead program being a highly specific pure agonist at M4 does not need the endogenous ligand in order to exert its function. That's different from Cerevel. It's highly specific. That's different from Karuna. They both created real good data sets. I think that there is plenty of room here for us to differentiate from them. But the proof is in the pudding. We have to create that data set, which is going extremely well in a Phase IIb study that we have ongoing right now. The clinicaltrials.gov shows that the readout should be in December of last year. But the enthusiasm for this molecule in the clinical community has been very good. So I'm hoping that with -- if enrollment stays the way that it has been, we're going to be able to pull that data readout sooner next year. So the other thing is that M1 seems to potentially have a role in cognition. Now does M1 have to be with M4 in order to have that? Does M1 alone have any effect to have its effects in cognition? Will M1 with M4 have any additive or negative connotations with schizophrenia and other psychological diseases? Well, you don't know the answer to that. But Neurocrine is in the ideal situation, and the only company to date that's in the ideal situation that we have M1 specific agonist. We have M4 specific agonists, and we have dual M1, M4. So it's animal models can only take you so far as you try to explore this complex receptor system. It's going to be the human condition that does, and we're taking all of those into humans. So I think you're going to be able to see us as being the ones who will be able to lead the field into understanding this receptor system and having the molecules that, again, knock on wood as they progress through the clinic can actually be real drugs.

Okay. And I realize we're coming up to the end time. Maybe one just quick question on the lead asset here, 568, the selective M4 agonist. What signal an ongoing Phase II study would really give you the conviction to move forward if you can give -- kind of frame the change in PANSS score?

Yes. So I think, again, I would go back to Karuna and to Cerevel. I think that if you look back on their data, if you look at the very nice strong signals that they have, it would have to be something in that ballpark that would tell us that here's the conviction for us to move forward with this. I think there's also we look at safety and tolerability, and we look at a number of other important secondary endpoints that we'll be looking for. But when you just go straight out to the PANSS score, that's what you're looking at. Okay?

Got it.

Great. Let's close a little bit on business development. I think the company had a recent anniversary milestone, 20, how many years is the company? I mean basically, bottom line is you're no longer in an adolescent. You talked about being a young commercial organization. We get that. But you guys are the adults in the room in the space. And so that means that you have a purview to take a look, you have all sorts of infrastructure within your company to fold in commercial assets, development assets, you have a long arc sort of objective. So 2 quick questions. So Matt, remind us what's the latest commentary that you're going to provide in terms of the size range of capacity that you have, the firepower to give the unflappable Kyle to go ahead and do things. And then, Kevin, give us a sense for what your appetite is to do things that are more earlier versus kind of closer to commercial.

So I'll take the first part of that, and I'll take the last part of that, but I'll go first.

You have full right to do that, Kevin.

Thank you very much. We've -- there's a lot of business development that just doesn't get seen that we do out there. For a number of years, we've been developing our capabilities within our basic research and within our preclinical groups. In order to move not just being solely orally active small molecules, but for several years, we've been growing out our ability to be able to discover and develop large molecules. And that's been a lot of business development that you don't see that we bring in a lot of tools, a lot of things that have helped jump-start that after over the last 4 or 5 years. You will see the fruits of that starting in 2025 when we'll be introducing several large molecules into the clinic. And you will see multiple large molecules going in every year after that. And I can say that, because we have a huge substrate that we're working from now in research and preclinical on this. It may sound like, well, you're defocusing, you're going to do peptides. You're going to do recombinant proteins, you're going to do antibodies, you're going to do gene therapy. At the end of the day, it's all protein engineering. And we have developed, I think, one of the industry-leading groups in protein engineering. But that everyone is blind to right now. The proof will be in the pudding coming in 2025 there. As far as business development goes broader than that, I think that -- we've got a very nice pipeline the way that it stands now. We have put in a lot of things -- we just talked about the muscarinics. We have proof of concept there. We talk about CAH. Clearly, we have proof of concept there, and that's for -- and that's homegrown. When you look at the rest of that pipeline, that Phase II pipeline, those still lack a proof of concept in them. Not all of them are going to work, expect or need all of them to work. You need just some of them to work in and you're off to the races here. I don't know what our appetite is for more pre-proof of concept type of things. If there is something that is very useful, that's earlier, another bolt-on earlier type of thing, sure, those deals are real easy to do. They're small. They don't affect your bottom line. But we've got a really good pipeline that we believe in tremendously right now. We've got a commercial engine that is humming along extremely nicely. And we've got a research group that we can depend on from now for the next dozen years to be able to supply that pipeline with multiple Phase I compounds each year. It would take something special then for us to put money and effort out there in further business development. We look, but there we are.

There we go. So from a size perspective, we obviously have a lot of financial flexibility. But as Kevin said, we feel great right now with how we're operating with INGREZZA, the pipeline data readouts that we have upcoming. And we could, of course, flex our financial capacity upwards. But right now, we're controlling what we can control and growing INGREZZA and getting to data and in the meantime, ourselves, our Board, the rest of the management team, we, of course, look externally, but really focused on continuing to operate Neurocrine.

And the last thing I'll say since we're over time here, but the fundamental thesis that we work from is to bring life-changing drugs to patients. And to everything we do is focused on value creation.

Sounds like you guys are a genuine or is a genuine biopharmaceutical company. Kevin and Matt, on behalf of Steve and myself and the Goldman team, thank you very much for joining us. We appreciate it...

Thank you very much.