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

Great. Thank you very much for joining us today. One more session to go after that. So we are close to being done. Thank you very much. My name is Mohit Bansal. I'm one of the biopharma analysts here at Wells Fargo, and I'm very happy to have Neurocrine management team with us. We have Kyle Gano, the Chief Business Development and Strategy Officer at Neurocrine. And we also have Todd Tushla, the Vice President at Investor Relations. Thank you, Kyle and Todd, for joining us today.

Thank you.

So maybe if you can -- before we get into Q&A, Kyle, if you can give a brief overview of what you are doing right now? And in terms of what is -- like when you talk to investors, what is on top of everyone's mind, so we can just frame the question today?

Sure. I appreciate the question. First, thanks for having us here. And now that I know that we're keeping everyone between now and drinks here, I'll try to be efficient in my words. But maybe just to level set everyone, for those of you not familiar with the story or to level set, Neurocrine Biosciences is located in San Diego. Our commercial product that we have out there is one called INGREZZA for tardive dyskinesia. If you want to start at Q2, our earnings, we announced a few weeks back, Q2 sales for INGREZZA were $440 million. That represents about a 26% year-to-year growth, and that was largely driven by record NRx as well as continued strong compliance for the use of the product by patients. With that, we raised our guidance for this year to $1.7 billion to $1.82 billion. The previous high point of our guidance is now our floor. So that's a nice way to look at and think about the guidance for this year. It was a nice raise by the team and really reflects what we think is the opportunity in tardive dyskinesia. Roughly 30% of the patients are diagnosed, 70% not diagnosed. So there's still a large opportunity to grow the market moving forward. And recently, you may have heard that we got an sNDA approved for INGREZZA for the CRE associated with Huntington's disease. So very good commercial execution, resulting in a nice revenue growth trajectory for the product this year and certainly, in the future. In terms of the pipeline, we have 13 clinical stage programs currently. I'll save the specifics of those perhaps for some of our Q&A, but I would draw your attention to four clinical readouts that we have this year, two registrational studies for rare endocrine disease called congenital adrenal hyperplasia. That's what a small molecule that we have called the crinecerfont, a Phase II study in focal onset seizure disorder, that's within the [indiscernible]. And then rounding out the data readouts is a program in anhedonia, that's with the molecule [ NBI-406, ] and that's a small molecule that we have as well. In terms of the business overall, the fundamental has never been stronger. We have a really strong balance sheet, durable cash flows and attractive P&L profile. Our capital allocation, obviously, given some of the notes there on INGREZZA and the growth potential there is really investing in INGREZZA further in the coming years to continue maximizing the growth opportunity with that particular commercial product, and then investing in our pipeline for future organic growth and using business development to fill in as needed. So we think the combination of the commercial execution, the pipeline, strong fundamentals of the business really leads us down the path of being a leading neuroscience company.

Awesome. You have a lot of pipeline [indiscernible] coming up. So I'll save most of the time on that, or maybe let's look. Let's just start with the small product you sell, INGREZZA.

So in tardive dyskinesia, I mean, it's like every quarter, we think about probably you are hitting the peak and then you go out and find those patients. Can you talk a little bit about like -- and when you think about where are the patients, and like you have this -- you try to get into the long-term care market as well. So talk a little bit about the dynamic, and where are you finding these new pockets of the patient? And how your recent effort -- the new sales effort has been panning out in terms of finding those patients?

Maybe I'll start, and then, Todd, you can fill in anything that I miss. In terms of tardive dyskinesia, I mean I think everyone needs to keep in mind that when we launched INGREZZA back in 2017, there was essentially no awareness of TD. Diagnosis rates were probably low single digits. Fast forward to where we are today, we think there's about 30% that are diagnosed. Of those that are diagnosed at 30%, only about 50% are getting a VMAT2 inhibitor. So there is a gap there in the patients that are diagnosed and those that are treated. On the other side of the coin, 70% of the patients are still not diagnosed. So there's still a lot of work to do, both in terms of educating the physician and patients to get that diagnosis that is still lacking out there and then to drive utilization to treat with the VMAT2 inhibitor. Physicians are still utilizing this common approach that they have in terms of reduce, replace or remove defending agent and the causes of the tardive dyskinesia. But that goes against what we know about the APA and the guidance that's been put out there in terms of the standard of care, which is the use of the VMAT2 inhibitor. So I think there's still a lot of work for us to do with physicians, again, on the education of tardive dyskinesia and what's best to treat tardive dyskinesia with the VMAT2 inhibitor. That's the reality. And the other thing I would add to that is the backdrop here is that the antipsychotic category continues to grow about 3% per year. So antipsychotics are what cause tardive dyskinesia in terms of the movement disorder over the long term. The growth rate of the general population in the U.S. is about 0.5%. So if you pull that through, TD is likely in the general population about 6x higher than the actual growth rate. So while we're doing our homework and doing our part to increase diagnosis and awareness, TD continues to grow at a rate that's outpacing the growth rate of our population. That's different than other disease states that you may be familiar with. So our work is cut out for us. We've got a lot more work to do. I don't know, Todd, if you want to add anything.

No, that covers it.

Great. So maybe to round it up. So for the LTC market, I mean, long-term care market, what kind of traction you have seen so far? And what could be the cadence of growth in that segment?

Right. So I think the three areas that we're targeting for TD are the prescribers, the neurologists, the psychiatrists, and then also those within long-term care. And in long-term care, what we're really talking about are rehab centers, group developmental homes, psychiatric institutions and other geriatric residences. So it's a variety of different types of facilities that we're interacting with and learning about the types of patients that they have. And there's a notable patient population there. We think about 10% to 15% of the addressable TD patient population could be within long-term care. So there's opportunity there, but there are also challenges. And when we started the commercialization of INGREZZA, we went after those customer segments, those prescriber segments that were more tractable for Neurocrine, a little bit more straightforward, and those were the psychiatrists and neurologists. We always knew we had to be in long-term care, but that was coming later, and that time is now. We've been a long term care for about 1.5 years. It's a long way of saying that long-term care is a very diverse setting. And what we've learned since we've started is that there's a revolving door of those individuals that we have to educate on tardive dyskinesia and INGREZZA. There's multiple physicians that came in and out of these institutions, nurse practitioners, orderlies and pharmacists. So we may be in a particular residents in 1 month, where we're speaking with one physician. The next month, in the same facility, it's a different person. So we have to start all over again on the education front. So we're making headway there, but it's got a longer-term game that we need to play on that, and investment is going to be continued there by Neurocrine. But make no mistake, the lion's share of the patients that we're going to access, at least in the near to midterm, are going to be coming from the neurologists, psychiatrists and then LTC. And our investment across those three groups will be commensurate with the patients that we have access to.

Got it. Super helpful. Congrats on the label expansion.

Yeah, thank you.

Talk a little bit about the challenges and -- not challenges, like talk about the market segment in Huntington's chorea market at this point. Because unlike the tardive dyskinesia market, this time, there is a player out there. There's a drug which is selling. So talk about -- talk a little bit about how you could expand the market versus taking the market share and versus AUSTEDO? And what could be the challenges there?

Yes, sure. So yes, thank you. That's thanks to the Huntington Study Group as well who collaborated with us on the registrational trial. So yes, we're excited and enthusiastic to bring a second indication with INGREZZA to grow that market, which right now, if you think about Huntington's, it's about 40,000 patients in the U.S. with Huntington's, 90% have some form of chorea. And today, we think only about 20% of them are being treated for their chorea. So why is that the case? There's a couple of reasons. The first being the patient may not realize that they have these kind of movements or their caregiver might not recognize the movements are bothering them. The second could be for safety concerns. The third could be the thinking that if the patient is on an antipsychotic, that they're getting some kind of benefit for their movements, which is not necessarily the case. As it relates specifically to deuterated tetrabenazine, Huntington's patients often times have dysphasia, so trouble swallowing due to tetrabenazine as a formulated product. So if the patient bites down on it, they could get this dangerous drug dump, right? So that's where the market is right now, 20% being treated. And now here with INGREZZA, we come to market. What do we offer? We offer very strong efficacy at each dose. We have a rapid onset of effect within -- as early as 2 weeks. It's a very strong safety profile. You can take INGREZZA with or without food. And then the final piece is the simplicity of it all. Ease of use matters in this patient population. And INGREZZA is the only one pill, once a day VMAT2 inhibitor out there. And so for all of those reasons, all of those attributes, that help contribute to us being the market leader in tardive dyskinesia. We think we can help more patients with their chorea movements associated with Huntington's disease, because the fact of the matter is the vast majority of the patients with chorea aren't being treated with a VMAT2 inhibitor. So we're very enthusiastic to bring this product to market.

Got it. So it's kind of a combination of growing the market from 20% plus some share from [indiscernible]?

Yes. It's more going to be not necessarily a switching strategy. We don't see a whole lot of switching in TD. We're not expecting a whole lot of switching in HD. So what we're focused on is the de novo patients who have -- who are not receiving treatment.

Got it. Got it. So eventually do like -- in your market research, do you think -- like how easy to go from this 20% to like 30%, 40%? How should we think about that?

Yes, I don't know. You can look at the TD market space and what we've done there with our educational efforts to grow diagnosis and treatment rates from near 0% upwards to where it's roughly 30% for diagnosis. We haven't provided any specific guidance about what the uptake is going to be, other than to say, we're in the early stage of introducing the product to the Huntington's community right now. The HD sales were not included in our sales guidance, because we haven't gotten approved yet. And as we introduce the product to the marketplace, we'll expect more tangible growth next year.

Got it. And these are typically protected classes, right? So they should be available to the patients right away?

Yes, I don't think that's going [indiscernible].

Yes. Got it. Super helpful. So I mean, one question we get, and I think I know the answer, but just the black box warning. It's not a surprise, but how should we think about that?

Yes, what I would say, it was reasonable to expect that the FDA would be conservative and indeed, they were conservative. So we did get a black box warning, a class warning specific to the VMAT2 class. And it's specific only to HD. But what I would say is that it is a similar box warning. It is not the same warning. And by that, I mean the competitors do have some additional warnings in there that INGREZZA does not have. Primarily, there's a contraindication for suicidality. There's another contraindication for depression. This patient population, there is frequent occurrence of both, depression and unfortunately, suicidality. And so we don't have that in the box warning. So that's another point of differentiation that we think is an advantage for INGREZZA.

Got it. Super helpful. Now coming to the interesting part of the story...

Yes, it's going to be up. At the end of the day, there's a couple of VMAT2 inhibitors out there now approved in the marketplace for HD. And the clinician will then have to assess, look at each product offerings and assess the risk benefit and then figure out which product to use.

Right. Fair point. That's super helpful. So let's just talk a little bit about the one pipeline asset everyone is focused on, the crinecerfont and CH study. So let's just talk -- first talk about the commercial opportunity here. Let's just talk about commercial later. But again, in terms of setting the expectations, can you talk a little bit about I mean what should be the base case from investor community here? And what you're looking forward to in that data?

Well, yes, we have two registrational Phase III studies for crinecerfont for the treatment of the classic form of congenital adrenal hyperplasia. And essentially, this patient population, there's about 30,000 of them in the U.S. and maybe an equal number or more in Europe. Inherently, what they're able to do is produce enough cortisol, and you need cortisol to live. So prior to the 1960s, if you had this condition, you died. Subsequent to the invention of exogenous glucocorticoids, now prescribers were able to treat the condition, primarily treat the cortisol deficiency, point one. But point two is that there's also hyper antagonism that goes on in this patient population. And the only way right now to treat that is to give super physiological levels of exogenous glucocorticoids. That's the only tool that they've had for the last -- since the '60s. And so what crinecerfont now does is it treats the excess antigen production, right? So theoretically, you shouldn't have to give such high levels of exogenous glucocorticoids to treat that part of the condition. And we've shown that in two Phase II studies, where crinecerfont does what crinecerfont is supposed to do, which is dramatically reduce the androgen levels. So now, hopefully, we have in these Phase III studies is can we also see a reduction in the need for the high levels of exogenous glucocorticoids? And I don't think anyone would argue that any reduction to exogenous glucocorticoids over one's entire lifetime is going to have benefits. There's cardiovascular issues that are caused, metabolic bone issues. So what we're looking forward to very much is getting close to the data here and turning the cards over and see what the clinical profile is that we've got.

No, that's fair. So when we talk to doctors, we get like two different schools of thought, like one is like any reduction is good. And one is, basically like these patients are at 25-milligram or so dose. Even if you reduce it by 5, it's still a super high dose. So do you hear that? And what is the count?

Yes, there's enough -- sell-side research has been out there and some [indiscernible] where you have a variety of different potential hopes for an outcome. But what we hear consistently across the key opinion leader community for endocrinologists is any reduction is going to be good. So now we're really close to the data, let's just wait until we can turn those cards over.

Got it. Got it. And then would Neurocrine consider studying crinecerfont in pure -- poor controlled patients versus the good disease control CAH population similar to the...

Yes. We don't artificially bifurcate the study that way. The study was designed with feedback from the FDA and the EMA and KOLs and patients and advocacy groups and payers. And what we have here is enrolling patients who had baseline antigen control -- a range of baseline antigen control.

Got it. Got it. And then, I mean, if you have to think about the opportunity with CAH -- again, if you think about TD, tardive dyskinesia there, you've actually had to grow the market and develop the market. In this particular case for CAH, I think the patients are identified.

Yes, they're genetically identified, right.

So when you think about like the commercial opportunity there, like what could be -- what should we focus on? What would be the challenges versus the opportunity there?

I think one of the biggest challenges, there's been nothing new for these patients. So it's going to be similar to what we did with INGREZZA in TD is it's going to be about education for the clinicians and for the patients and what kind of benefit crinecerfont can bring to them, not only for today, but for the rest of their lives.

Got it. Got it. And then maybe let's just talk a little bit about the NBI-352 program, the one with Xenon. So again, how are you thinking about this program? And then what could we learn about there?

So NBI-352 is a selective NAV1.6 inhibitor. We licensed this from Xenon in 2019. Just a little bit of background. This program is in development for focal onset seizure disorder. Currently, in the U.S., there's about 1.8 million patients with focal onset seizures. And for us, in this program, what we're looking to do is really play out of the knowledge that sodium channel blockade is quite important in seizure disorders but utilize the selectivity and potency of our molecule to optimize the efficacy and ameliorate some of the safety and tolerability side effect that's known with the commercially available sodium channel blockers, and a little bit on those. If you've been with those commercially available products now, you get to a mix of products like lamotrigine, lacosamide, valproic acid, topiramate and some of the old phenotypically discovered compounds, oxcarbazepine and carbamazepine. Just that bundle of sodium channel blockers is over 50 million prescriptions in the U.S. each year, and they have a multitude of side effect and tolerability issues, ranging from Stevens-Johnson syndrome, which is known to be an issue with lamotrigine, likewise, QTc with lamotrigine, because it also knocks down the sodium channel 1.5, which is on the heart. We've got late-game hair loss, liver damage, blood test monitoring that you have to do with that valproic acid. So all these different things really complicate the care for the epilepsy patient and likely also contribute to not getting as much efficacy they need from the sodium channel blockers. So by leveraging 352, what we hope to do is knock down one of the major contributing channels of the sodium channel system and hopefully, be able to find that right spot of maximizing efficacy, while minimizing safety and tolerability issues. In the study then with about 100 subjects, we're looking at really a signal-seeking type of study output, looking at our range of doses versus placebo. And really the magnitude that we're looking at here is something that we would see doubling whatever PD effect or metric that we're using in the study relative to placebo. So if it was a [ seeded ] reduction endpoint that we're looking at, we'd like to see that go from 15% in placebo to 30% in the active. And that type of range is something that you would see as fairly standard across the board in CNS trials. But with this particular study, that will give us an idea of the doses that are important, and then we can plan for a registration quality study from there next year.

So for the registration study, I mean the path -- there are a lot of trials going on. So like there's a set kind of path or not -- I should not say set, but again, obviously, your partner, Xenon, is doing already their trials. So would there be any big difference in terms of how you run the trial? Because Phase II is signal-seeking versus Phase III would probably be a more longer-term study there. So how should we think about that?

Right. Now I think that the next step would be we get the data this quarter, or Q4, and the next step would be to take that data set to the agency. And obviously, we would have done our own homework there by that time on what types of studies we think are appropriate for a registrational program, and we would get that less from the agency. I would be hard-pressed to think that it wouldn't vary -- that would vary much from what we see from Xenon given that's a contemporary program going in this space. But you can see that it'd be two type of registrational quality studies with an open-label extension looking at seizure reduction and counts as a primary endpoint.

Got it. Super helpful. And then maybe 846 in anhedonia. How should we think about the commercial opportunity there? And then I think there is just a part here, but I'll just start with the commercial update.

Yes. So anhedonia is a disease state, where no commercially available medicines exist, and it's probably for a number of reasons. But one, obviously, it's a very challenging disease state to develop from a clinical perspective, and we'll rightly admit that. There are no clinically validated endpoints at this point. So we're continuing down the Neurocrine history of validating end points as we develop the molecule of interest. So anhedonia, by definition, is really the lack of ability to experience pleasure, and it's very common across a variety of underlying psychiatric diseases. In this case, our studies in MDD patients were virtually all MDD patients suffer from some degree of severity of anhedonia. And our approach here is to use an agonist of the GPR139 receptor. It's an orphan receptor in the habenula in the brain. And the habenula circuitry is important because it regulates the serotonin and dopamine pathways, which are responsible for reward and the sense and feeling of pleasure. In an earlier trial that our collaborator, Takeda, had run in schizophrenia patients looking at anhedonia opportunities with this molecule, they noted that when they presented schizophrenia patients a reward, placebo patients in a Phase II trial did not see a spike in their ventral striatal activity using that as a biomarker. But they did see that in patients using 846 or being administered 846 in the clinical study, and that result was statistically significant. So I think that gave them and us a reason to believe and also the disposition of the target and the habenula that this would be a worthwhile investment to study in anhedonia, and that's the study that we're doing now. That's about end of 85 or 90, and we'll be looking at reading that study out next quarter as well.

Got it. A lot going on. So basically, I mean, is there a -- like how should we think about a scenario where it shows benefit on MADRS score, but not on the DARS score, which is an anhedonia scale?

Yes. I think in a perfect world, you would see a good signal in both, the anhedonia scale, which is we're using the DARS, which is the dimensional anhedonia rating scale, which is not a clinically validated end point, at least from the perspective of the agency quite yet. And the MADRS score, which is also something that we'll be looking at, given we're in the depression patient population. So ideally, you'd hit on both. If we look at the possibility of just hitting on the DARS, the anhedonia scale, I think what we'll have to do is take that data set to the agency and really get their thoughts on what a registrational type of quality program would look like there, given that we are in unchartered territories here. But it would certainly go a long way in validating the scale that we're using in the study if we're able to show its utility in a placebo-controlled trial. So I would say, stay tuned on that. Let's see what the data looks like, and we'll be able to come back to you with a path forward, depending on what the results look like.

Awesome. Maybe before we move on to the strategic question, but like any update on the muscarinic programs? So you have two now.

Yes. So the lead program is NBI-568. It's a selective M4 agonist. We have that in an ongoing Phase II trial currently. It's a U.S.-based study. Our recruitment is going well. We would expect to report top line data sometime in the second half of next year. So that's that study, and we recently started -- we have a CTA accepted for NBI-570. It's a dual M1-M4 agonist that would be in the clinic. Again, we'll be looking at the possibility of using this particular molecule profile for psychosis diseases like schizophrenia. But given it's linked into M1, there is also a possibility of moving into cognitive disorders.

And there's also a basket of other muscarinic that we plan to bring forward as well. So this is just the first two.

Got it. I like it actually. That's great. So I know -- at JPMorgan, another [ vocal ] contract. You mentioned that I mean there is a thought that you would move into or focus your R&D into large molecules versus -- like because of the IRA and all, so can you talk a little bit about I mean is there any particular areas of focus when you think about internally or externally developing some assets, like peptide-based [indiscernible] proteins or things like that? And even for indications, do you have any thoughts about moving beyond the Neurocrine type of diseases?

Yes, maybe I'll start and you can help round out the story. So I think regardless of IRA, we were going down that path of expanding our modalities into other areas besides small molecules. And the reason for this is just an appreciation that in the CNS, given the technologies that are available, it has opened the door to using monoclonal antibodies, proteins, gene therapy peptides, making these particular modalities that have been difficult to getting CNS that's not possible. And there's just a number of targets and disease states that I've learned -- we've learned personally through the years that you can't tackle. You're not trackable with a small molecule. So in order to think about being a player in the CNS today, and a decade from now, it was important for us to start moving into other modalities, and that began approximately 5 years-or-so ago and then accelerated recently with the hire of Jude Onyia, who's now our CSO, who came from Lilly. Brought in a lot of expertise in the cytoprotein engineering, which opens up the door to things as [indiscernible] into the spectrum has proteins, to the other in gene therapy, and we have programs in both of those areas now. We have been a peptide company in years past, and some of the expertise that relies -- resides in that area has remained. So we do have programs that are ongoing in the peptide space as well. And we hope to see some of the fruits of those efforts start paying off in terms of being in the clinic over the next 2 to 3 years. So stay tuned on that. But I would also just point out that if you look at CNS as a category, and you can pick your metric, how many programs or the number of programs are in development, the dollars that are going into start-ups from BCs, over 50% of all those different metrics are in modalities outside of small molecules. So that's the future. We want to be able to stick with our knitting and be a small molecule company because in some disease states, an oral medication is always going to win. But we also need to branch out and be successful and have expertise in these other modalities, either for our own internal efforts or to help us diligence then if we've seen them from the outside from a business development perspective.

The only thing that I would add to what Kyle said is that when you talk about focus areas, we're going to remain solely focused on neurology, neuroendocrinology, neuropsychiatry and someday, neuroimmunology. So those would be the four areas.

Got it. And I'm sure you never get this question, but I'll ask it. In terms of size of the deals, like how are you thinking about if you have to do an external opportunity, I mean I think if I remember correctly back in February, when I met Kevin, he mentioned that you can do a bigger deal, but it has to add a lot more value than for a company like Neurocrine. So what's the -- how are you internally thinking about all that?

Well, maybe I'll just start by saying, from a business development perspective, our team always works with a great deal of urgency. We always want to try to keep up on what's going on in our field. And if there are opportunities that present themselves, it won't come out as a complete surprise, and we will have done our homework on all those assets that might be available. That being said, we don't feel like we have to do something right now. We've got a very full pipeline. If I look back at where we were in 2017 versus where we are now, the pipeline is deep. It's diversified by mechanism of action, stage and phase. And we also have some of our collaborations, have some unique cost sharing to help us risk manage during the most challenging times of clinical development. And we really created it both, organically and through business development, to be one that delivers data catalysts for the years to come. So I think what we're really focused on externally is to making sure that we continue to deliver on a pipeline that looks similar to what we have right now. And over time, that will pay off, both in terms of positive data readouts and hopefully, medicines for patients. Whether that comes from an in-licensing deal or something that's more substantive we're really agnostic to that. But the larger deals obviously cost a lot more, and those will have to have a lot more scrutiny around those if we're considering them.

Great. In last 100 seconds, my favorite question. September 2024, I hope you are here. I hope I'm here as well. And we are sitting here. And if I ask you the question, like, so what -- like, basically, if I ask you a question like, "Looking back 1 year, what would make you feel like, yes, this is a great year for us?"

Well, I think the obvious one, and there's both, one for the company and a personal one would be the opportunity to say that we've got good data in crinecerfont CAH. That would be good for the company, good for patients. And having been at the company for 20 years, CRF, the corticotropin releasing factor, which is the target that we're using for crinecerfont, was really what the company was founded on back in the early '90s. And to see this come full circle from the vision of our scientific founder, Wylie Vale, would be very rewarding for me personally as well. So I think that, that would be something that I'd love to be able to talk about more this time next year.

Yes, and for me, to add to that, I'd be talking about continued INGREZZA growth in PD and HD and wishing you a happy 41st birthday next year.

And I hope you like the venue. So this venue will bring you up again.

I'd sing happy birthday to you, but no one wants to.

Thank you. Appreciate it. Thank you very much. Really appreciate you joining us.

Yes. Thank you.

Thank you so much.