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

Good morning, and welcome once again to TD Cowen's 44th Annual Healthcare Conference. Phil Nadeau, one of the biotech analyst here at Cowen. It's my pleasure to moderate a fireside chat discussion with Neurocrine, one of the bellwethers of the industry. We have with us today, Matt Abernethy, the CFO; Kyle Gano, Chief Business Development and Strategy Officer; and Todd Tushla from Investor Relations. Guys, first, I'll hand it to you. Could you give a brief, state the company overview. Where is Neurocrine today? What are your challenges? What are your strengths? And what do you need to do to create shareholder value?

Yes. Thanks, Phil, and thanks for hosting us this year. The challenge and opportunity is pretty clear. It was my jumpshot last night, at the Boston Garden. It wasn't going that well, but [ Rachel ] was there to help me. But anyways, no, things are going great at Neurocrine. Feel quite fortunate to be here. The company has been around for over 30 years at this point, believe it or not. 33, Kyle? And in 2017, everything changed for the company with the approval of INGREZZA. We've grown that product for tardive dyskinesia from 0 to $2 billion at this point. Quite transformational for the company. The second piece, when I joined in '17, we had, I think, one clinical stage pipeline or program. We're now into double-digit mid- to late-stage pipeline programs in the -- that's highlighted by our congenital adrenal hyperplasia program that we announced, really extremely positive data for in the second half of last year, both on the efficacy and the safety side. We believe that's going to be another blockbuster medicine for the company. And then last but not least, since I'm the CFO, the financial profile of the company has improved dramatically. Over $1.7 billion in cash now, over 30% non-GAAP operating income that we're generating at this point in time. So it gives us a lot of flexibility in where to invest into the future. So I think you said what drives value the next 12 to 24 months? The first piece is just continued investment behind INGREZZA. We have 14 years of exclusivity left and the market is still very nascent. When we got the drug approved in 2017, of the 600,000 patients that had tardive dyskinesia, only about 2% of those were actually diagnosed. Now fast forward 6 years later, we're at a 35% diagnosis rate, and only half of those are actually being treated with the VMAT2 inhibitor. So 2 in 10 patients with TD are not being treated with the VMAT2 inhibitor today. So between the 14 years, plus the market opportunity, well worth our investment, and we believe it's going to continue to drive long-term shareholder value. The second piece is getting the Crinecerfont launch in congenital adrenal hyperplasia right. That had extremely great data. We're in process of filing an NDA. The team has locked in a room back in San Diego, filing all the final pieces of paper to get that submitted in Q2. The FDA did take a peek at our top line data, and we're granted breakthrough designation, which was very telling. So our hope is that we do get a priority review but we'll only know that once we -- [ clear ] in the filing process with them. The third piece and priority for investment is really on the mid- to late-stage programs that we have ongoing and in particular, the muscarinic class. Our lead asset is 568, it's an M4 agonist and it is in the study for schizophrenia, which we'll have data here in the second half of the year. If that's positive, we plan to push that forward in a registrational trial as well as explore other indications that we might have. And we have a handful of other muscarinic assets in our pipeline. And then last but not least, we highlighted this at our Research and Development Day in December. We're investing in our early-stage research platform to be able to produce a sustainable flow of development candidates. We believe that's incredibly vital to be a long-term leader in neuroscience is to be able to have our own internal discovery engine flowing and the team is doing an incredibly great job already and actually well ahead of schedule. So I know this has been a bit of a long monologue, Phil, but we do feel quite fortunate with what we have going on. You called us the bellwether. I would just say we feel fortunate and are going to continue to focus on driving the company forward and our content with where we're sitting today.

Maybe starting on a micro before moving to the bigger picture strategy pieces. On 2024 guidance, your guidance is for INGREZZA revenue of $2.1 billion to $2.2 billion. It seems to be relatively modest growth over the Q4 run rate of about $2 billion since you have $500 million in Q4 sales. Can you discuss the pushes and pulls in the guidance? What could be conservative and therefore be sources of upside? What are the risks to guidance?

So in 2023, we had a record sales year. We grew our sales over $400 million, and that was quite an incredible feat. And if you look at the top end of our guidance range and as every company, you try to outperform your guidance, that would be $350 million of year-over-year growth. So another significant growth year for the company. Really, the 2 big items, Phil that drive both the top and the bottom end of the guidance. The first one is something that happens every year during the first quarter. Patients go through a reauthorization process with their insurance providers to get their first prescription fill. So how effective we are in ensuring that patients stay on medicine and get their first fill really sets us up for whether we have a great year or just a good year. The second piece really comes down to the generation of new patients and the cadence of that. As I said earlier, only 2 in 10 TD patients are receiving treatment today and the growth that's going to come over the coming years is going to be all about generating new patients. So really, that's the main push in terms of getting to the top end of the guidance range.

On the 2 in 10 patients, so if there's 600,000 patients in the U.S. that suggests that there's maybe 120,000 -- 100,000 -- 120,000 on therapy. In our own model, we come out to 30,000 on INGREZZA. So it sounds like our model is somehow very, very low. I guess are we way off in our base model?

You're way off. No. No, I think you're generally correct. The 2 in 10 patients are those who have been offered over the last 6 or 7 years, a VMAT2 inhibitor. And so you do have patients who try it and do fall off. So that includes anybody who's discontinued and no longer taking the medication. So -- somewhere north of 30,000 is what the patient count is, but it's not something we give a lot of granularity. But I think reflects, as you said, a 600,000 patient market at minimum, there's still a lot of room left in terms of diagnosis and importantly, helping patients with -- control their involuntary movements.

What does Neurocrine think your peak penetration could be? So I think one of the questions we get from investors is in terms of INGREZZA and tardive dyskinesia, are we entering a phase which really going to decelerate or are we approaching a plateau. How much growth do you think is left? What could be peak penetration?

Well, we're going to -- we want the peak to be as high as possible. But I would say between ourselves and our competitor, we see a really frothy market. We see a lot of room left for growth in both diagnosis and ultimately, treating and helping many more patients with their TD. We've made investments over the last handful of years that really are helping drive forward growth and those investments continue to drive forward growth. And I'll just highlight too maybe, Phil. The first one was when we launched the medication, we chose not to call on the long-term care facilities. That was something that just wasn't in our platform in terms of what we were trying to build. But we knew around 10% to 15% of patients with TD were actually in the long-term care facilities. So we launched a sales force about 18 months ago now in long-term care, and that continues to generate very nice growth. Within psychiatry, it's been amazing to see how consistent the growth is. But I think the growth -- what that tells you is, it's very reflective of the need for continued call frequency, biopsychiatry, a division with the psychiatrists. Rightfully so a psychiatrist that's driving into the office, thinking about the underlying mental health condition of a patient. Probably second, third, fourth or maybe fifth is thinking about tardive dyskinesia. So the greater the level of call frequency, the more likely it is going to stay on their radar when they say, see patients day in, day out. And in addition to that, the psychiatrists aren't largely trained in being able to diagnose tardive dyskinesia. So these are things we've been doing since launch. And you may ask, well, why do you have to continue to do it is, one, you have to keep it on the radar. The second piece was through the pandemic, there is a massive shift to the use of telemedicine. I think 90% of psychiatric visits went to -- we're seeing via telemedicine. Now it's around 50-50 but the influx of advanced practice practitioners are those who are actually seeing the patients today. So a lot of training with what we call APPs and that is paying dividends at this point as well.

What do you think the launch in Huntington's disease will do for trends this year?

What do you think, Kyle?

Well, I think just to keep everyone or just level set with everyone. When we talk about Huntington's disease, there are 3 elements of the disease itself. There's cognitive decline, there's psychiatric symptoms, which is mainly depression, and there's a movement disorder piece. That's the Chorea. In Huntington's disease Chorea which is really what we're talking about here for INGREZZA. About 30,000 patients in the U.S. with Huntington's disease, about 90% with chorea and about 70% with moderate severe -- 90% with chorea moderate -- 70% moderate to severe. That takes you down to about 20,000 patients that we see as the addressable patient population for VMAT2 inhibitor. We think about 5,000 are our current VMAT2 inhibitors, that be tetrabenazine or deutetrabenazine. So we're really focusing on the 15,000. So we think that there's significant opportunity within HD but if you think about overall, that preceding the prevalence of TD, I think the lion's share of the growth will still come from the TD opportunity. We see all the benefits of INGREZZA and TD being a factor in HD, mainly the reason why patients are using VMAT2 inhibitors at such a low volume is because of administrative complexities, dosing regimen, things like dysphasia and safety and tolerability all play a role here. With INGREZZA, we've got a simple once-a-day medicine that doesn't require titration. You start off on an efficacious dose and that could be the one that gives you the efficacy you need. It's very simple, very able to receive messaging, so we look forward to offering that to patients as we move along here.

We lack a couple of contraindications that generated -- that was also [ negligible ].

There's 2 Phase II trials in INGREZZA going on, one in schizophrenia, one in cerebral palsy. I believe you've guided the data from both of those in 2025 versus that -- am I correct on the time lines? And second, how do those trials, those indications fit into the long-term strategy for INGREZZA?

For the active treatment of schizophrenia, that's one of the studies that are ongoing right now. Schizophrenia, as you know, is a leading cause of disability globally. There are about 3.5 million patients in the U.S. with schizophrenia. We believe about 1/3 of those are inadequately treated by their current antipsychotics, so that kind of underscores the unmet need in this type of patient population of the broader schizophrenia market. The reason that we believe here that there's an opportunity for VMAT2 inhibition is, one, mainly, we hear from physicians that patients do better in terms of their underlying disease when they're using INGREZZA from a mechanism perspective, we're operating in a similar manner as antipsychotics, mainly we're depleting dopamine across the synapse, although we're doing that via a different way. And lastly, all the same animal models, albeit animal models that are used to discover and develop antipsychotics for the ones that also show efficacy with valbenazine alone and synergistically with antipsychotics. So a lot of reasons there to believe we have to do the study though and get the data and that's what we're working on right now. The study is a sample size of about 400 looking at the [ pan ] score as the primary endpoint at week 10 and that's something that we'll look at for having data in 2025 to your point on that one. The other study that's ongoing right now is a study in dyskinetic cerebral palsy. Cerebral palsy, if you're not familiar, is a disease state or a consequence of prenatal trauma in [ neuro ] or during child birth in general. What this results in is brain damage in multiple areas of the brain, which has a consequence in a variety of different motor complications. One of those is dyskinesia, and that's what we're focusing on for our program. In the U.S. there are about 75,000 to 150,000 patients with GCP. For those patients who undergo imaging, we find out that the damage to the brain that's most commonly preserved is in basal ganglia. And that's important because that's the same region that we rely on for the dopaminergic hypothesis that gives rise to VMAT2 inhibition in TD and HD. So there's a lot of reasons here also to preserving VMAT2 inhibition with INGREZZA in this patient population, and that's what we have ongoing now in a single registrational trial of about 80 subjects, and we're looking at the total [ motor], chorea scale. It's a subset of the UHDRS, and we're looking at the change from baseline, looking at the mean between week 12 and week 14. So that study is also recruiting now. And again, as we move on further this year, may be able to fine-tune the time line the data in 2025.

Perfect. One last question on INGREZZA before moving on to CAH. One issue that used to be front and center in investors' minds is, does seem to have faded a bit. But that's the impact of IRA on INGREZZA's commercial life. What's Neurocrine's most recent thinking of the impact of IRA? What's your best estimation for INGREZZA's commercial life [span]?

So we're going to learn a lot more here later this year in October. The first 10 drugs that are being negotiated. We're going to understand what the price implications are for those medicines. The fortunate part for us is we do qualify for 2 different exemptions that both delay the impact in which we could be negotiated and the impact of the rebate scheme and then we also have protection on how far down the government could actually take our price. So the latest estimate is, we believe that we could be negotiated with starting in 2027 with the price impact being felt in 2029. And so that's our base case assumption. As we look at our own internal planning, we expect this to be a dip, not a cliff event. And as I think you mentioned earlier, Phil, we have 14 years of exclusivity left. We settled our ANDA litigations until March of 2038. So we expect this to generate meaningful cash flow for us over the next 14 years, irregardless of implications of IRA. But I think everybody in the industry would probably say, Phil, none of us have it figured out 100% correctly. We're fortunate to have a little bit of a delay and a little less impact.

Moving to [ Crinecerfont ]. Congratulations on the pivotal data. Can you give us an update on the filing time lines as well as preparations to launch Crinecerfont?

Yes. The data were incredible. For those who aren't as familiar with what is CAH, it is a genetic disorder that essentially disallows patients to produce cortisol. And up until the 1960s, all the patients died because of the surge of androgens that will ultimately ravage their bodies. In the 1960s, hydrocortisone was developed. And the protocol became, give these kids super physiologic levels of hydrocortisone 3 or 4 days -- or 3 or 4 times per day and that's ultimately how you can treat CAH patients. There's been no new innovation in the space for the last 60 years. And so the aim of our trial was to do 2 things. One was to reduce androgens to a more normal level because most androgen levels are very -- exceed the normal range. The second piece, and we had proved that out in our Phase II trial. The second piece was, could you also control -- while keeping androgens under control, reduce the amount of hydrocortisone that patients are being given? And what we saw that is, it exceeded our own internal expectations on the efficacy side. And just as important, Phil the safety was very clean. And I think that -- and when you ask, could this have adoption? You take away a lot of the barriers, especially when you're talking about children with the minimal side effects that we saw. So from a filing time line perspective in the U.S., we anticipate filing here in the second quarter. That is on track. And as I said earlier, we do hope, given the [ stage ] response and the breakthrough that we would receive a priority review, but that's something we'll learn, keep everybody posted on that at a later date. And it positions us to be able to launch the medication in the United States sometime early in 2025. So -- we're in the midst of preparing for that launch right now. We've started hiring our sales force, which will be less than 100, actually less than 50, more than likely. We've hired all of our sales managers. We're going to hire all of our reps and have them in place here for the second half of the year to really focus on disease state education, the implications of androgen surges and variability as well as corticoids and really develop the relationships heading into launching the medicine knock on wood next year.

Can you discuss the market, how many patients have it? How many could be appropriate for therapy? And what price neighborhood should we be thinking about?

Yes. In the U.S., there's around 30,000 patients with CAH. And with what we saw in our clinical trials, our KOLs are pretty adamant in saying that around the 80% of patients could benefit from a medicine like Crinecerfont. So both bringing androgens under control and then also lead to a reduction in glucocorticoids. So from a market perspective, it seems like it would benefit most patients. In terms of motivation to treat, the highest motivated patient group are going to be your pediatrics. Parents understand the androgen control and how important it is, especially in little girls and somewhat in boys. And then also the thought of giving your child high-dose hydrocortisone for their life, that's not something that any parent likes to do. So I think from a motivation to treat perspective, you have the -- you have the pediatric population, second to that, you do have the female population. And so I do think this is going to be a great launch, a great opportunity. We have all the right ingredients to make it a good launch. But until you mix it together and get out into the market. All of this is conjecture but based up on the clinical data, it does seem to be good. On the pricing, we're of course, going to price to the value and we're going to price to ensure that patients have access to the medicine. Most of these patients are commercial and under 65 just because all the CAH patients before the 60s had passed away. So I think from a market segmentation perspective, largely commercial, this would clearly support rare disease pricing that would be chronic, but not disease modifying. So in the 6-figure range but we haven't gotten more specific than that.

You got to wait until the final label negotiations, I think.

Makes sense. One of the debates on Crinecerfont among investors is whether payers are going to get it, whether payers will be willing to pay an orphan price for a disease against today [Technical Difficulty] generics there -- or what are you doing with payers and is your preliminary sense that they do understand the unmet need?

Yes, it's been very encouraging. And the data is so clear in terms of understanding androgen reduction control plus the reduction in glucocorticoid. So with clear data we've been encouraged with the initial conversations with payers and understanding what segment of their patient universe actually has CAH. It's not that many. And so I'd just say we've been encouraged, but...

I think if you talk to Eric Benevich, who's the Chief Commercial Officer. He'll tell you that he's been pleasantly surprised by the payer reaction in terms of the payer universe understanding not only the benefit of controlling [ androgens ], but also bring down the level of hydrocortisone that you got to take over your entire life.

That's an area that's well published on in terms of long-term consequences. That's an easy message that they can receive.

Moving to the muscarinic pipeline. I think investors have been become keenly focused on your muscarinic pipeline, is I'm sure, you are aware. I think people are particularly looking to the Phase II data from 568 to the second half of this year. Can you talk about what you, as [ never ] can hope to learn from the trial, what quality of data would you consider, proof of concept that warrants advancement?

Yes. So for those of you that don't know, we have 4 muscarinic agonists in the clinical development stage now. They range from M1 preferring agonist to M4 selective agonist and that's the one that we're talking about here being in a schizophrenia trial right now in a Phase II study. This is your typical dose range finding Phase II trial. We'll be looking at the end of the study a couple of things. One is we want to be able to map out the minimally efficacious dose to the maximum tolerated dose. So the things that -- language that the FDA likes to talk about moving into Phase III that you know that full dose range moving into larger registrational quality study. The second one would be, is we know from competitors in this space, namely AbbVie and BMS now on the types of magnitudes of effect that you would see in these types of trials and usually see pan scores, which is the primary endpoint in the 10 to 12 range. So we had that in the back of our mind as well. Other antipsychotics that have been approved over the years have pan scores in the 5% to 9% range. So we have an idea of where we need to be from an efficacy perspective. And then the last piece, it kind of goes to the dose range finding side of the equation is how safe and how well tolerated is your medicine in the Phase II setting. So once we get out, we'll look at the totality of the data, we'll select a dose or doses that we think are knock on wood that the study is positive first that we'll take into registrational quality study as fast as we can.

How could 568 be differentiated from the other M4 agonists?

I think if you look at the field right now, there are 3 flavors of approaches of activating the M4 receptor. And I'll say, activating because we have some more represent -- appropriate representation here. There's one category is the PAM category, the positive allosteric modulators. You can't calm an agonist because they don't activate the receptor themselves. They require the endogenous ligand to be present, they open the receptor in the endogenous ligand in this case [indiscernible] activates the receptor. That would be the AbbVie approach or the former [ cerebral ] approach. The other approach that we talk about is the BMS [Karuna] approach is where you have a pan muscarinic agonist that gets in the brain. That gets in -- it's active in the periphery, it agonizes M1 through M5. You don't want to agonize M2, M3 and M5. The only ones that are relevant for the diseases that are [indiscernible] and cognition and psychosis are M1 and M4. So the way that they block those off-target effects, if you will, is they add back a peripheral muscarinic antagonist in the case of BMS, is trospium, other companies are using different flavors of their own preferred muscarinic antagonist. The challenge there is that you get the perfect blockade of the off-target effects while maintaining your optimal efficacy. And what you end up often doing is undershooting on that, and you get some side effects of the pan agonist still manifesting themselves as well as some of the side effects of the muscarinic antagonist. So I think ultimately, the combination approach is not a very contemporary one for drug discovery and drug-drug development. The more contemporary approach is to build in the selectivity you want upfront in your chemistry and that's what we have with the molecules that we're taking forward led by NBI-568. It's a selective M4 agonist only. It's got selectivity over the other subtypes of more than 100-fold. And we think that this is the right way to turn on the receptor. I mean, the analogy that I like to use for a PAM is if we have these lights in this room here and they're connected to a light switch, the power here is electricity. That's the state of [indiscernible]. If that power goes off, it doesn't matter if you turn that light switch on or off, the lights aren't going to come on. What we have with 568 is a way to bypass that cord and add our own power to turn on these lights, if you will. And we think that's going to be differentiating in schizophrenia as other disease states as well.

And you mentioned the other 4 muscarinics in the pipeline. Are there any of those in particular that investors should focus on, the work to do, work on the next generation?

Well, certainly, being in the CNS space for a long time, we see the value in dual pharmacology. So the idea of moving quickly with our 1:1 ratio, M1, M4 agonist is attractive to us. That's the one that's trailing 568 most closely and the one that we've got our peddle to the middle there and bringing that one forward. It offers a couple of advantages. One is if you need more efficacy, if you will, in schizophrenia, probably you're going to get that from a dual agonist. And second of all, if you have an interesting cognition and cognition attached to M1, you're not going to get that from an M4 selective agonist. So I think we'll be able to potentially do more with that dual. The other molecules that we have are different flavors of M1 and M4 in terms of being preferring. We need to see what the exact ratio would be optimal for diseases of cognition and psychosis. And we're fortunate enough to have molecules of each kind to take forward and fully profile.

In December, you held an R&D Day where you announced a new R&D strategy or maybe describe it in new R&D strategy. Can you talk about the basics of that strategy? What indications are prioritized, what modalities, what risk spectrum is Neurocrine looking to build in this portfolio?

Well, I think I'm going to -- try to steal some of Matt's thunder here a little bit on the -- on -- just at a high level, we're really excited for multiple reasons. We've got this growing blockbuster in INGREZZA, with a long-dated LOE in 2038. We've got a second leg of revenue growth with Crinecerfont that we think is going to be a blockbuster and it's going to be a commercial opportunity driving revenue growth in Europe for us as well. When we think about the pipeline then, we also have a transformation that's undergoing here as well. And I think just to talk a little bit about that we're going from a pipeline that's been externally derived over the past couple of years to one that we're going to be investing one ourselves and having that be coming from our own labs, so internally discovered -- you've got a reliance that's been historically on small molecules, and we're moving into programs that are in other modalities. We have a focus that's been historically in difficult targets that may have been unvalidated in certain areas to validated targets. You look at the muscarinic, for example, there and then offering patients from symptomatic to disease modifying and curative therapies. So that in and of itself takes you into a different territory. I think ultimately, if you look at our pipeline now, it's a little bit over-indexed in psychiatry. It's always hard to play these things out exactly how you want it. But if you take in consideration what I just said in terms of the pipeline transformation. What you're going to see over time is a more waiting towards disease states and targets within neurology. We called out about 50% of the portfolio would like to be in neurology and the reason for that is there just tends to be more validated targets in that space. And the endpoints that you want to use in clinical development tend to be more objective, not always the case, but that generally is the case. About 25% in psychiatry, about 15% in endocrinology and about 10% in immunology. So that's where we would like to go. What we'd like to avoid is saying we need this many shots on goal because and ultimately, we're not investing in that way. We're investing in the science and letting the science direct us where we want to go across that transformation, but knowing that in the future, we'd like to be more in neurology and more internally focused and externally.

So maybe a last comment on financials because we get asked the question, well, how much is this going to cost? All this investment -- our current lens is that we're going to invest around 30% of our revenue back into R&D. We feel like that's an appropriate level. We'll, of course, depend on the quality of assets but in the meantime, we'll continue to drive SG&A leverage that will ultimately drive increase in overall operating income percentage for the companies. So fortunate, like you said, Kyle, to have a growing product that allows us to continue to make investments and a lot of good things to come.

That's perfect. With that, I think we're out of time. Thanks for interesting discussion.

Thanks, everyone.