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

Okay. Great. Good morning. Thanks, everybody, for joining us. I'm Marc Goodman one of the biotech analysts at Leerink and we are lucky to have Neurocrine Biosciences management here with us. I think everybody knows Matt Abernethy and Kyle Gano; and Todd Tushla, CFO, Chief Business Officer and IR. I think everybody knows that. And I appreciate you guys joining.

So why don't we just jump right in and talk a little bit about crinecerfont, which I think is probably one of the topics that everybody likes to hear about, and I guess, first question is, data was positive, but do you think everybody understands this product? Do you think it's well appreciated? Do you think the opportunity is understood. Maybe we can start there.

No, I think it's an incredible opportunity for patients. Patients haven't had any new treatment option for over 60 years. And when you think about what is congenital adrenal hyperplasia, it's a genetic disorder that inhibits patients from actually producing cortisol. And up until the 1960s, patients essentially died from having this disease because of the buildup of androgens. But then with the invention of hydrocortisone, patients have been given for the last 60 years, super physiologic levels of hydrocortisone and that's essentially been their standard of care. So I think that one of the pieces that is maybe a bit underappreciated is just how entrenched this patient population is. This is the only treatment option. In doctors, including KOLs and endocrinologists, this is the only way to actually treat these patients. So with crinecerfont, what we showed and demonstrated was the ability to reduce androgens and at the same time, reduce the glucocorticoids. And I think that's essentially a home run for patients to be able to think about the days, think about the weeks where they can have androgens under better control as well as live a lifetime with lower dose steroids. So I think that, that's a piece that goes unappreciated just understanding. There really wasn't anything until the 1960s, and they've been on the same treatment paradigm for over 60 years at this point. So I know before we got on, you asked me if we want to make any opening statements and I said no. But I do want to just caveat a couple of things, Marc. We feel really fortunate as a company. We have been around for over 30 years. And last night, we were talking at dinner, Kyle was here, and we are together. We actually -- our company was founded on CRF, and that was 30 some years ago, and sitting here today and having a CRF inhibitor that we're ultimately going to file an NDA on, it's quite humbling because we've failed, I don't know, a dozen times in CRF. We failed even with valbenazine before we got it approved. And you look at the landscape in biotech today and in CNS in particular, there's been some recent failures and we sit here today very fortunate and feel blessed to have the opportunity that we have. And INGREZZA is obviously a multibillion-dollar medicine for us and continuing to grow. But the idea that we're going to be able to help patients with a CRF inhibitor in congenital adrenal hyperplasia is something that is just amazing when you think back on over 30 years of effort trying to find a way to allow this mechanism to help patients. So really -- and thanks for having us here Marc.

Thanks for being here. So update us on the discussions with the payers and how you're thinking about pricing right now that product and where consensus is and your thoughts about looking at how consensus is...

Yes, it's a bit premature to get specific on where our pricing is going to be. There's clearly a lot of value here for patients, and we demonstrated significant efficacy as well as this is a very safe and tolerable medication. So I think we're -- consensus is, it's maybe around $125,000 to $150,000 per year, and I would say that's probably done with just a little bit of work on the sell side. So I think that base expectation is this is going to be 6 figures is for a rare disease that's going to be taken in a chronic way for the rest of their lives and -- but it's not disease modifying. So I think when you look at comps, you're thinking 6 figures, but below $0.5 million in terms of the annual cost, but we're going to continue to work through the value proposition and come up with a price to ensure that patients ultimately have access to this medicine. So to that end, we have had productive conversations with payers, they understand maybe not the disease itself, but they understand what the long-term implications are to patients who are taking high-dose steroids. There's other diseases that have that attribute, and so I think the feedback thus far has been positive. This is primarily a commercial payer environment because, like I said at the opening, the -- most patients died until the '60s. So this is -- the oldest patient right now is probably in their mid-60s with CAH. So this is largely a commercial setup, and like I said, Marc payer discussions are going well, but still early days.

That's specific to the United States.

Yes, how do we think about Europe?

Well, we're excited about Europe. It would be our first opportunity to launch and commercialize our own medicine there. We acquired a company called Diurnal a few years ago. And Diurnal has basically an extended release hydrocortisone that is used to help patients with congenital adrenal hyperplasia. And so they have really deep relationships with the KOLs throughout Europe. And so this is a natural fit for us to be able to file with the EMA and get approval. We have agreement with EMA in terms of what the data package needs to look like. And this is something that will likely trail the U.S. by, call it, a year, but we're still fine-tuning the time line there.

Does it trail by a year because of just putting resources behind it? Or is there a reason it's that much longer?

Yes. And when we shortcut, it's trailing by a year, and we've said that for quite some time, it's just a reflection of the priority to be able to get this commercialized in the U.S. market, but there wasn't any data gap that we are waiting for longer-term data to support the data package. There's around 30,000 patients in the United States with classic CAH. There's a similar number over in Europe in the main markets that we're going to be focusing on. So we're, of course, taking a prudent approach in terms of the investment profile and how much resource we're actually putting over into Europe. But this launch and in of itself lends itself to a pretty concentrated call point, even in the United States as well as in Europe. And so infrastructure wise, we'll be able to leverage it significantly and expect it to be accretive to Neurocrine in short order.

Yes. I think the other upside, too, on a year delay or a year launch into Europe is that there's a lot of learnings that you'll get from the U.S. market that you'll be able to apply for the regions that we're launching in.

Yes. Okay. Good. Let's move to the rest of the pipeline, talk about some of the other things going on this year. I mean I think first of all, maybe let's exclude muscarinic for one second and maybe just -- we'll come back to muscarinic, but just ask about like what's the other kind of underappreciated assets in the pipeline that we're going to update on in the next year or so, you can talked about.

Sure. So we have 3 Phase II studies that will read out this year. One of them is muscarinic, so we'll save that one for that piece. The 2 other Phase II trials that we will read out, we have one that will be coming up in Q2. That's with NBI-845. This is our AMPA potentiator. It's currently in a study looking at MDD patients. The study details are that the sample size is just about 200 in number. We'll be looking at the MADRS as a primary endpoint at the 1-month time point. And the reason why we're excited about this Phase II study is that the AMPA potentiator works through the NDA pathway that we have a comparable out there that's esketamine in terms of success and depression. And so what we have with the AMPA approach is a little bit downstream of ketamine in the ketamine NDA pathway. Specifically, we're looking at activating the AMPA receptors on the postsynaptic neuron, which is a long way of getting there from esketamine by first inhibiting the GABAergic interneurons, which causes a buildup of presynaptically with glutamate and that indirectly then activates the AMPA receptors postsynaptically. So the idea here is that we can be more targeted, more precise in activating what we think is the important target of esketamine in the depression pathway. So the compound that we have is one that's part of our collaboration with Takeda currently, and they spent years trying to optimize the molecule that we're developing together with them. And we think we've got the best one of the bunch that's been taken forward to the clinic, which allows us to test a multitude of different doses above the efficacy that we've seen in terms of exposures preclinically. So I think we got the best shot here to see about this hypothesis and impression, and that will be the first study that we have coming out again in Q2. Later this year, we have our luvadaxistat program. This is our DAAO inhibitor that we're looking at the cognitive impairment associated with schizophrenia. The mechanism here is that we're looking at is targeting what we think is an important pathway that gives the symptoms of schizophrenia that is hypo-glutamatergic signaling that leads to basically an inactivation of a certain pathway that's important. And with our DAAO inhibitor, we can increase intracellular levels of D-serine, which is common within the body, but has a very short half-life. And by using our DAAO inhibitor, we increase D-serine in key compartments of the brain, which act as an agonist on the NDA receptor. So it activates the glutamate system in this particular case. And we've seen some really good data preclinically. Obviously, we didn't have the symptoms that -- or the outcome that we wanted in the treatment of the negative symptoms of schizophrenia, which is a trial that was ongoing when we started our collaboration with Takeda. But we saw some really interesting results on the cognitive scales that we're using, in particular the BACS and SCoRS, and the BACS is the brief assessment of cognition in schizophrenia, that's the primary endpoint for the study. This study is also about 200 in sample size, and we'll be looking at the BACS scale as the primary endpoint. And if you looked at the outcome of our INTERACT study, that was the acronym of the study for negative symptoms, you saw about a 4-point change on the BACS scale, and that would be the magnitude effect that we're looking for this particular study. So those are 2, and what was the third one that was...

The third one was coming in the second half.

Let's talk about it.

One thing that's interesting on that CIAS trial was that we in-licensed this asset from Takeda. And they had really debated internally whether they would pursue negative symptoms or CIAS. So it was interesting to get their perspective on the scales in particular, and what we saw in Phase II, and it informed us to move forward. So I think that's something that we're hopeful for to see a positive sign, but it's also something that doesn't get much interest externally. Kyle, one of the pieces of question, I think Marc asked last night as well as just any sleeper programs beyond the 2 before we go to the muscarinic.

Yes. So I think the way that we're typically asked the question of what other children do you have in the pipeline that you like? And it's really hard to pick your favorites. But I think where we go naturally is our NBI-770 program. This is in our NR2B NAM program that we have in development for depression. We just started a Phase II trial, and this directly works on the same mechanism of esketamine, ketamine, but selectively on the NR2B NAM side of the NR2B receptor. And we think this is a really exciting target. We think it's validated. We've seen it through esketamine, ketamine studies as well as there are some other NR2B NAM programs that have made it to Phase II all the way through suboptimal IV formulations and shown good proof of concept. But we have as an oral once-a-day medicine that we're developing for MDD and the trial that's recently started is one that has about 70 subjects, and we'll be looking at the MADRS score, again the depression scale for the primary endpoint at day 5. So we're really looking for a quick or fast onset of action here. We think this is going to be the differentiator impression where SSRIs, as you know, can take 4 to 6 weeks before they kick in and really help patients. So the bar is set high for the study, as we've shown for other Phase II programs that we've had recently at Neurocrine. We want to make sure that we're delivering meaningful medicines for patients, and this is what we're looking at for 770. Beyond that, I think the other program that I'd point out is one that we know a lot about, and that's NBI-890. That's our second-generation VMAT2 inhibitor, so this would be our follow-on program to valbenazine. And as you know, INGREZZA has a very nice profile. It's been difficult to find molecules that perform better than valbenazine. We think we've got an opportunity here with 890 in the sense that very highly potent molecule, much more potent than valbenazine and has other physical chemical properties that will allow it to be formulated into a long-acting injectable. So that's a program now that started Phase I as well. And given what we know about moving the program forward in tardive dyskinesia that could be a program that moves quickly through clinical development to trail valbenazine and TD or even if we look at what we're doing with valbenazine in the adjunctive treatment of schizophrenia, that could be an indication that we move 890 into for Phase II. So I would point people to those programs, they'll be moving pretty quickly through clinical development.

I just wanted to make sure we get to those before we start the muscarinic, it seems like the muscarinic is a more topical discussion. So maybe we can talk about that now. Obviously, Karuna, I guess, has set the bar with respect to the profile of one of these assets, certainly. So maybe you could talk about your overall strategy just a little bit, maybe get specific about what to expect this year.

Sure. I think, firstly, it's good to acknowledge that KarXT, Karuna and Cerevel, what they've done with Emraclidine is impressive. They've done a great job of validating a target place across the muscarinic that really was not well understood over the past 20, 30 years and have shown the opportunity here for generating a whole new class of antipsychotics. So I think they've set the bar in terms of what other companies may want to do in the muscarinic moving forward. What we've done here at Neurocrine, we've taken approach of leveraging a collaboration that we have with Sosei Heptares and moving forward multiple compounds that have different flavors of M1 to M4 activity as well as selectivity. Our lead molecule is NBI-568. This is the program that's currently in a Phase II study, this is a selective M4 orthosteric agonist that Phase II study that will read out in the second half of this year comprises a study design that's about 200 subjects in number, and we'll be looking at the PANS at the primary endpoint at week 6. In terms of the other molecules, just to round out the story. We've got 3 other muscarinic agonists who are moving forward and they're in Phase I, I'd point you to the one that's high interest -- of high interest to us is the M1 M4 dual agonist. So equally weighted in terms of selectivity potency across M1 and M4. This is the program that we moved into Phase 1 subsequent to our development in with 568, so this particular molecule would be most closely aligned with the profile of Xanomeline, but it doesn't require an add-back medicine to block peripheral effects. The selectivity for the muscarinic and the selectivity for the CNS were something that were dialed in upfront in the medicinal chemistry program. So for all of our molecules, whether they're M1 or M4 selective or different flavors in between none of our programs require an add-back medicine to block or to mitigate side effects of off-target muscarinic activity. So I think that's a key differentiator relative to KarXT. For the other molecules, then we've got an M1 preferring agonist that's NBI-567, the M1 target has been associated with potential benefits in cognition. So we'll be able to test the hypothesis. And we also have an M4 preferring agonist that's NBI-569. So why are we taking all these molecules forward, well, I think we understand the value of M4 in psychosis driven diseases. We've seen Emraclidine via Cerevel show very nice data there. We also see potentially even better efficacy with an M1, M4 agonist in the same patient population. So it's really up to Neurocrine to understand what ratio, what potency across the different subtypes might provide the optimal balance between efficacy and safety and tolerability. And we're able to do that for the first time with the molecules that we have. So I think that would be something to look forward to as we move forward here. Parallel Phase I studies across 567, 569 and 570, so we can look at differences between safety and tolerability with those different M1, M4 ratios and potencies as well as typical biomarkers that you could look at in Phase I. It's not inconceivable that we take multiple programs into Phase II and compare data sets in a given patient population, then we'll just have to wait and see what the Phase I data that we have that we're collecting now with our earlier-stage programs to deliver on that. So right now, we're really focused on 568 and delivering, hopefully, good data there in schizophrenia. And if that is good data, strong data, we'll be looking at taking that into registration studies as a next step as quickly as we can. We're not going to be waiting for the learnings from the earlier stage programs to see what we're going to do with 568. The data set is good. We're moving forward in schizophrenia, and you'll likely see us expand in other indications as well.

So we'll see data on both positive symptoms, obviously, but also negative symptoms and potentially cognition as well?

Well, I think what you typically see in these early schizophrenia trials, as you look at the PANS score overall, can make some comments about the positive and the negative symptom side of the scale as well. Cognition is probably not the key here. We'll be looking at for an M4-only compound.

Yes. Okay. Fair enough.

And Marc, Kyle just covered the muscarinic agonist portfolio that we think is the most broad and deep in industry. We also have a muscarinic antagonist.

Antagonist, yes, let us talk about that a little bit because that's unique.

So with M4 antagonists, it's an interesting platform that we developed here at Neurocrine. We've actually been evolved in the muscarinic side of things for well over a decade, and that's led us to have a long-standing conversation with Sosei Heptares that led eventually to our collaboration. But we've been playing both sides of the target in terms of wanting to discover both agonists and antagonists and what we have with our M4 antagonist, this is NBI-986 is a better version of, say, like an Artane or trihexyphenidyl. And it gives you really the Artane movement to a variety of different movement disorders. Parkinson's disease tremor, for example, dystonia. These are things that we know a lot about being a movement disorder company, and this is a program that can move really quickly through the clinic given the validation of the target and the known clinical designs of studies within the disease states I just mentioned.

And when we see data on this?

It just moved into Phase I. So it's a typical healthy volunteer study, but I think you could pivot quickly into studies and patients upon seeing that data set in '25.

I think it's interesting, Marc, you and I were speaking last night about this, just how the company has transformed over just the last 12 months. Conversations have changed from 90% INGREZZA to 40% muscarinic and 20% INGREZZA. And I think you can hear the excitement in our voice for crinecerfont as well as what's going to come up in the muscarinic franchise, but that doesn't mean we're not still super focused as a company in executing on INGREZZA. There is a significant amount of opportunity left for us to continue to grow that product. And -- but I just sit here reflecting on our conversation last night and how fortunate we are to have multiple assets that could be blockbusters, a lot of good potential data readouts coming up over the next 12 to 18 months. We're very busy at Neurocrine operationally and -- but at the same time, feel very fortunate.

Well, it's a good pivot to ingress. I mean we should definitely talk about just what are we doing this year that maybe is different than last year or the year before, just from a marketing perspective to keep this thing going?

I think it's going to be a boring answer, just that admittedly and sometimes the best things in life can be boring and repetitive. It's all about education. So tardive dyskinesia is an involuntary movement disorder that's caused by prolonged exposure from antipsychotics, as you know, Marc. And a lot of the activity that we have underway and have had underway for quite some time, is just engaging with the clinician who is largely a psychiatrist, you know that tardive dyskinesia is maybe second, third or fourth on their line of care day in, day out. They're primarily thinking about the underlying mental health disorder of a patient. So the more frequent we have call activity, if you say, what's the #1 metric that we know will drive NRx. It's call activity. And that call activity includes educating about tardive dyskinesia also educating on how to make a diagnosis. If you're a psychiatrist, thinking about making a diagnosis where they haven't naturally been trained on it, that's a difficulty. And then educating on why they should care about this for their patients. And so a lot of our activity just continues to be focused on the educational side. And one segment that we opened up a few years ago was in our long-term care in long-term care setting. This was an area that we had not invested in previously. We estimate around 10% to 15% of the 600,000 patients with tardive dyskinesia are based there. So that's early innings, but that's still education, education, education. So that's one element. The second piece is engaging with patients and educating patients. They have a movement. They may not know why they have this movement and so you'll probably see on TV direct-to-consumer advertising for INGREZZA essentially pointing out that these movements might be tardive dyskinesia, talk to your psychiatrist about this. And what we have found is there's great unaided recall for the ad at this point. We find that patients are actually asking for the medication, but it's not a natural ask. I use this analogy all the time. It's like going to a dentist in asking them about your ankle. You're going to your mental health provider, you're not thinking about asking them about a movement that's sort of out of bounds. And so we've seen some nice traction, but we just continue to see nice, steady growth in something we expect for some time to come. At this point, from a market perspective, we estimate that around 35% of patients have been diagnosed with tardive dyskinesia. That was around 2% in 2017. So we've made great progress on the diagnosis front. However, only half of those have been offered a VMAT2 inhibitor. So the shortcut saying that I always comment on, Marc, is that 2 out of 10 patients with tardive dyskinesia have been diagnosed and offered treatment with the VMAT2 inhibitor. So still a significant amount of opportunity left for this market to develop.

One thing to add there on that, that maybe not everyone appreciates is the underlying disease are caused by actually using antipsychotics, as Matt pointed out, and they continue to grow at a growth rate that exceeds the growth rate of the general population. And it's rare that we talk about disease states here that we're developing medicines for where the growth in terms of the prevalence or incidence of the disease states growing more than we are growing as a country. So there's still ample opportunity here for us, and it's going to require continued education for all the reasons that Matt described on that. So I think that still a lot of room left for INGREZZA. And just to remind everyone, we've got a good spot there on our IP with 2038 as our LOE at this point.

Talk about the numbers just a little bit maybe for the next 2 years, 3 years, 4 years, how we can think about the operating leverage that we're going to see, we've talked about all the stuff going on, that's going to have R&D spend. So how do we think about like the R&D spend in the next couple of years and the SG&A leverage?

Well, let me take SG&A leverage, and then maybe Kyle can highlight a little bit about what we're doing and investing in R&D. So we invested 2 years ago behind direct -- or 2.5 at this point, direct-to-consumer advertising, and we expanded our sales force by about 75%. And at the time, we got a lot of pushback because we essentially invested the growth that we had seen in INGREZZA back into INGREZZA. And so in 2022, I think we had 53% of sales, we're going towards SG&A. You fast forward 2 years now in this year, we're already going to be around 43% SG&A. So 1,000 basis points of leverage over a 2.5-year period of time is quite good, and I think shows the power and profitability of the investments that we've made. So I would expect that we're going to have continued operating leverage as we go forward. We'll, of course, have to make investments in crinecerfont and getting that up and running. But included in the 43% I just mentioned is a $50 million investment in crinecerfont because we're in the process of hiring our sales force. We actually have -- our sales managers are already hired. We're going to have the infrastructure in place by the middle of this year to start disease state education. So I would expect that we'll have great leverage, but we will have a bit of time where we're going to have to invest in crinecerfont. So at this point, on a non-GAAP basis, our operating leverage is over 30%, so quite strong. So I would expect that to continue to grow from here. As it relates to R&D investment, this is always -- I'll talk about the financial aspect. Kyle will talk about a little bit what we have going on. As a company, we have made a clear decision that we think to be a leading neuroscience company, you have to be at a place where your internal R&D can produce a sustainable flow of development candidates. And we've started to make that investment. We highlighted that at our R&D Day earlier this year. I've externally commented that 30% is what we're targeting from a rate of reinvestment. And that's fully dependent though on the quality of the assets. It was a smart question, should you focus on dollars, Matt? Should you focus on rate of reinvestment? I think depending on the quality of the assets is really going to determine how much we want to invest. And I think the more success you have, the more allowance you're going to have to invest behind programs. Right now, we're very focused on investing in crinecerfont, very focused on investing in the muscarinic franchise. And I know we're not going to have time to get to what Kyle is going to say. But we've really shifted our focus as well in dollars and where they're being spent on things that we believe have a higher probability of success, we have moved from unvalidated targets closer to validated targets. We have moved from only being able to use small molecule to being able to use multiple modalities. We're going to focus a bit more on neurology as compared to psychiatry. So I think a lot of what we're working on is going to lead to greater R&D productivity and ultimately, profitability. We feel fortunate, over $1.7 billion in cash right now, and we continue to generate cash flow each quarter.

The reason I was asking about the operating margin as you'd figure crinecerfont should be different as far as the way it ramps up than like a INGREZZA where you've got to teach people about the market here. We have an established group of people who we don't have anything really. So it should be a pretty fast ramp, shouldn't it? I mean in relative.

Yes, the ramp is going to be interesting to see how much trialing is done initially by the KOLs and to get experience with it, and then to then maybe a quicker ramp, but I do think we'll have a different curve for sure than INGREZZA.

I was saying so, it should be.

And the infrastructure required to launch crinecerfont, it's going to have less than 100 field-based people, there'll be less than 50 reps in territories. So I think from an infrastructure, it takes to launch a medicine like this, which we believe could be blockbuster I do agree with you that over the right period of time, that it should be margin expanding for the company.

Good. Thank you. Thanks for joining us guys. I appreciate it.

Thanks, Marc.

Good luck this year.