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

Welcome, everyone. I'm Josh Schimmer from Cantor Fitzgerald Biotech Equity Research team. Very pleased to introduce the management team of Neurocrine Biosciences: Kyle Gano, Chief Executive Officer-Elect, so very soon; Matt Abernethy, Chief Financial Officer; and Todd Tushla, who heads up Investor Relations. Gentlemen, thanks so much for joining.

Kyle, maybe we'll start with you. Tell us, first, a little bit about your own background. And as you move into the CEO role of Neurocrine, what are your priorities?

Great. Thanks, Josh, for having us here. Real pleasure to be here with the Cantor team. We will be making forward-looking statements. I'll track everyone to our SEC documents for our risk factors. But coming back to your question, for those of you that don't know me well, I've been the Chief Business Development and Strategy Offer -- Officer at Neurocrine for the better part of the past decade, and most of my time at Neurocrine I had some role in business development. But I did start the company almost 25 years ago, 23 years ago to be exact, and I started at the company as a summer intern, believe it or not. And I came in the company working in business development and marketing. And over the past 20-plus years, I've had either in title or worked separately in every role within the company. So I've got a nice cross-section of what is taken to be successful at Neurocrine. Appreciate all the pitfalls that can happen in an R&D organization and feel like we can do a pretty good job of avoiding those. And likewise, when you see an opportunity, really doubling down on those and taking the company in those avenues that are fruitful. So really exciting time here at Neurocrine. Beyond talking about me, I'd like to spend the rest of the time talking about Neurocrine. It feels like we're on the cusp of a very significant leg of growth for company -- for the company. Feels very similar to our time back in 2017 when our first commercial medicine INGREZZA was approved for tardive dyskinesia. I feel that way for a couple of reasons. But let me just start with I think that our past successes has really propelled us to think about the opportunities in the future. As a drug discovery and development company, commercialization entity, we have 3 FDA-approved medicines on the market. If we pull out one of those and just talk about INGREZZA for a moment, as I mentioned, it was approved in 2017 for tardive dyskinesia. There are 600,000 patients in the U.S. today, roughly 80% of those patients are not receiving a VMAT2 inhibitor. This is the mechanism of valbenazine. 2/3 of patients are not diagnosed. And I start there because in Q2, we reported $580 million in revenue. That's over 30% year-to-year growth, about 15% quarter-to-quarter growth. And that was all driven by increased demand for the product, really strong demand in terms of the patients that are out there as well as some improvements in gross to net. But we also saw -- let's raise our guidance to $2.2 billion to $2.3 billion, which is about 25% year-to-year growth at the midpoint. If you combine where we are, over $2 billion in revenue with the significant growth that's still available out there for patients to receive treatment and long-dated LoE out to 2038, you can see why we're excited about the opportunity ahead of us for INGREZZA. But it's not all about INGREZZA. We have our second leg of revenue growth coming out here very soon with the medicine that's in FDA review. That's crinecerfont for CH. It's a rare endocrine disease, and CH is congenital adrenal hyperplasia. It's a CRFR1 antagonist, corticotropin-releasing factor 1 antagonists for CH. And we've been working on this target really since the earliest days of Neurocrine. So it's nice to see us finally moving medicine over the finish line and, hopefully soon, in the hands of patients. But like INGREZZA before it, like our other medicines on the market with AbbVie, all of these medicines are first-in-class. And I think that, that's a common theme that we apply to our thinking in drug development at Neurocrine, really changing the standard of care of patients. So revenue growth, revenue diversity, our diversification are things that are on our horizon. And then we turn to the pipeline, and the key for us is to show that we can replace the medicines that we have in the market, replace the medicines that come into the clinic through our research organization. And these are efforts that are well underway. We have 2 programs that reported out positive Phase II data this year, one's NBI-845, that's our AMPA PAM for MDD, and our other is NBI-568. This is our selective M4 agonist that we have in development for schizophrenia. With positive Phase II trials, those will move into Phase III next year. In a couple of years, hopefully, we'll be submitting those to the FDA for review and have the potential for new medicines by the end of this decade, so very exciting there. Our mid-stage pipeline is taking form with a number of other muscarinic agonists that we have and antagonist. We also have another approach to depression in NBI-77. This is an NMDA NR2B NAM program that we have in an active Phase II trial now, data next year. And we have, really, an R&D transformation that's underway right now that's going to be delivering a number of exciting programs to the clinic starting next year, and we'll see that accelerate into the future. So I really feel a really bright future is ahead of us, led by the growth by -- from INGREZZA and by crinecerfont if and approved here later this year.

Maybe then coming to INGREZZA. What do you see as the strongest growth drivers over the next 2 or 3 years, especially now that you've added Huntington's to the label? Is that going to be a top growth driver? Or is that patient population small compared to the opportunity you see to expand in TD?

Yes. I think I'll start there, where you ended there in the Huntington's piece. Huntington's disease is an area where there are a couple of other medicines in the category available for patients. There are about 30,000 patients in the U.S. with Huntington's disease, about 90% with chorea and about 70% that are moderate to severe. Those are kind of the -- that's kind of the addressable patient population, which comes down to about 20,000. We estimate about 5,000 of those patients are already on a VMAT2 inhibitor. So we like to think that we're really focusing on the 15,000 or so patients that are out there. If you compare that to the 600,000 or more patients with TD, you can see that the market between the 2 disease states is roughly 40 to 1. So we still feel that the opportunity moving forward in the future is heavily going to -- heavily weighted on tardive dyskinesia. And there, for us, going back to some of those facts that I started with in terms of 80% not on a VMAT2 inhibitor, 2/3 not being diagnosed with tardive dyskinesia, the opportunity there is to accelerate TD market awareness and drive diagnosis over the next couple of years. And that's the origins of our sales force expansion with a focus in psychiatry and LTC is to grow those lines of business where most of the patients are residing currently.

And you recently announced plans to continue to expand the sales force. Maybe you can provide a little bit more color, how many reps do you have now? Where is that number likely to go? And what do you think the impact will be commercially?

Yes. Our -- this is our third sales force expansion over the past couple of years. Really, there's no better use of our dollar on INGREZZA than to invest in the sales organization. It's such a rapid payoff in terms of driving patients to get diagnosis and ultimately being treated with the VMAT2 inhibitor. We haven't gone into the specifics of actual numbers, and I know that there are job position postings on our website. But the growth in our commercial organization really spans not only INGREZZA, but also crinecerfont right now as we build out the infrastructure required to do well in endocrinology. But going back to your specific question on the sales force build, I think the greatest lines of investment in terms of opportunities for new patients, new patient starts remains in psychiatry, number one, in an area that is growing in -- at its infancy is our work in the long-term channel, long-term care channel. There are about 1,600 facilities across the U.S. that are potential areas where patients may be residing. That's a lot of territory to cover, and we know that we can do a better job there by having more folks out there calling on those centers.

So it'll be kind of the focus of the expansion and will continue to drive long-term care.

That's correct.

But the -- we expect the growth to primarily still come through the psychiatry division. That's where 80% plus of patients are likely residing. So what we've learned through the last several sales force expansions is that calling frequency matters in a significant way to keep tardive dyskinesia on the radar of clinicians. These are psychiatrists, by and large. Their primary care is the underlying mental health condition of the patient. So what we've found is with that call frequency, tardive dyskinesia stays on the radar and a patient is much more likely to get diagnosed with tardive dyskinesia. So as Kyle said, this is by far our best dollar spent, Josh. I know a few years back, we expanded the channel. We also expanded into direct-to-consumer advertising. We got a lot of heat, I'd say, at that time, thinking about the level of investment. But that $200 million has really led to a very nice return with over $1 billion in growth. So I think that we shouldn't [indiscernible] us. But I also would say the market, in and of itself, is just incredibly rich for continued growth and helping more patients.

I'll just follow on quickly to what Matt said is this is the third time we've increased the sales force. And one question we get is, well, when are you going to start to see a return on that? Typically, it's been a couple of quarters later. So with this one, the new force is being higher this quarter, so you would anticipate to see the returns sometime like Q2, Q3.

We've directionally said, call it, third increase at this time. So it's not inconsequential, but it's between that as well as the preparation for the crinecerfont launch, Josh, which is amazing. We get asked a whole lot of questions about our pipeline, but we're in the midst of positioning ourselves to have a second potential blockbuster product with crinecerfont. So the sales force expansion is ongoing for INGREZZA, and then you also have just the new sales force that has been launched more recently within the CH community, so a lot of activity going on at Neurocrine.

Maybe one last INGREZZA question. There's a chance that AUSTEDO gets called out for IRA negotiation next year. How do you think AUSTEDO IRA price may impact INGREZZA, if at all?

Well, we're going to, of course, fight for our turf to continue to be there. And existing patients -- by and large, it's a sensitive patient population. This is a 2-drug class. And I guess just to take a step back for those who aren't as familiar, we've qualified for an exemption within the IRA, and that exemption has delayed us from being negotiated with the government until 2029. So Teva is more than likely going to get selected for negotiation, which would have a pricing effect in '27 or in '28. So you're talking about a 1- to 2-year gap. And Josh's question is getting -- during that 1- to 2-year gap, how much exposure do you think we have? I think on existing patients, very little. As it relates to new patients, that's something that we're, of course, going to work hard to ensure. If a prescriber wants their patient on INGREZZA, that they're ultimately going to get INGREZZA. So that's really the key focus during that period of time. The cone of uncertainty around the IRA is quite large. But for us, a few pieces of certainty, one is on this rebate scheme. Any medicines that go into the catastrophic phase right now have to pay 20% rebate. Given the exemption that we qualified for, we have a phase-in of that rebate. It starts at 1% in 2025 and then phases up to 20% by 2031. When you fast forward to 2029 when we do expect to be negotiated with the government, there's actually a collar of between 25% discount and 34% discount is the maximum discount that we can ultimately walk into during that negotiation in 2029. There's also some offsets like you don't have to pay the rebate to the government any longer. So at least for us, it does provide a level of certainty of this is going to be a dip in INGREZZA's revenue, but it's not going to be a cliff event. There's going to be a lot of durable revenue and cash flows that come following that negotiation event, Josh.

Maybe turning to crinecerfont. PDUFA date, late December. Have we passed the window where there might be an AdCom? Or what are you expecting from that?

Yes. We're -- we continue to plan for an AdCom. There hasn't been any change in the FDA's position on not having one. But in case there is, we're prepared. We did the same type of thing for INGREZZA when we were going through the review for tardive dyskinesia. We find the exercise of actually going through it is very helpful, and you get to consolidate your thinking and organize your data in a way that is meaningful. So we'll continue to prep, as needed. But right now, we're just keeping our eye on any questions that come in for the FDA review and planning for the PDUFA dates in late December.

There are 2, I guess, commercial challenges that we've kind of picked up talking to specialists and for this indication. Number one, a lot of -- at least when we try to find specialists, you see -- you find a lot of endocrinologists whose practices like 80% to 85% obesity and diabetes, and then they'll have like a small number of CH patients. So it kind of feels like a very spread out patient population if you really want to uncover all those patients. The other thing we tend to hear is a little bit of prescribing malaise from endocrinologists who may not necessarily appreciate the shortcomings of trying to manage the disease with steroid supplement, who don't necessarily have the urgency to treat patients as one might have expected. So as you're thinking about your approach to this market, how do you think about addressing those considerations?

Well, you're always going to have a bifurcation in a prescribing population. But here, as you said, most endocrinologists care most about diabetes, obesity, other metabolic disorders, and rare endocrine is very low on the totem pole of them caring, I would say. But they do have patients with CAH, 1 to 2 in their entire life. So that is a challenge, and you just addressed that and acknowledged that. You do have about 25 centers of excellence or centers of almost excellent, and those are the KOLs that have devoted their life primarily to rare endocrine disorders, including CAH. And those KOLs are going to be critical in understanding how crinecerfont is being used and how it's helping patients. And those local endocrinologists who aren't going to invest as much time, effort, energy into learning about the tinkering that's going to have to go on with crinecerfont, those KOLs are going to be the ones that are engaging with those local endocrinologists. And that's being done even today in caring for a CAH patient. There's a lot of dialogue that goes back and forth every single day as these specialists try to help the overall endocrinologists. So that's a big part. If you ask me, what do we expect out of the launch? We don't expect there to be a major bolus of sales that come through upfront. We expect that the KOLs are going to trial this. They're going to understand which patients it work best on, how they down-titrate glucocorticoids. And then after that's done, the patient access is going to expand, and those local endocrinologists are going to get more engaged. So that's one major element of how we're trying to get through that malaise, and we would acknowledge that challenge. And that's part of the reason why we launched our sales force early. We actually hired our sales force, launched them 6 months in advance of the medicine potentially being approved by the FDA, and they're out engaging with those local endocrinologists now. And what we've heard is, I just know to treat CH. I just give them really high doses of steroid. I see him in 6 months. I checked their levels and see if I need to change their corticoid again. But their urgency to find a new standard of care, there's just not been anything for 70 years. So they have an invested time and they're truly understanding the disease and how it manifests itself. So a lot of the discussion is talking through how the disease manifests itself, the downstream implications of high-dose hydrocortisone for a patient's entire life. Those have been very productive conversations thus far, and I do think there's an appetite. Sorry, this is a long-winded answer. What we also are hearing, there's a lot of patients asking for this medicine, whether it's to the local endocrinologist or it's to the KOL. And I think that's because -- it's a very motivated patient population, especially children. Any parent doesn't want their kid on high-dose steroids for their entire lives. So they hear about a potential new medicine that can reduce the glucocorticoid. And I'd just say that there's a lot of patient demand, but there's also the feedback from the endocrinologist, "Well, let's wait and see, let's see the drug when it comes out, you might be eligible."

I'll just add that the analogy with INGREZZA was it's going to be an educational launch, just like INGREZZA was. So educating the endocrinologist, educating the patients and their -- on their parents about the benefits of a new, better way to treat their condition.

Where we're all aligned here, really, it's just talking about getting the process, is having as few hurdles as possible. Where we all align is this is a very serious disease. The body, we have -- we're talking about mutations in the CYP21A2 gene that leads to the lack of or the inability to produce enough cortisol to survive. And that's something that we can all align on with physicians and patients, and that's a very serious outcome that they don't take their cortisol. So everyone has it on their radar when you're diagnosed with CH. The other piece that we feel very fortunate to have is very strong data here. That's not only in adults, but also in children. It's a medicine that's very safe and well tolerated. And we've got formulations that match the needs of the patients as they go throughout the course of their life. All these things will help us as we think about a learning launch and rolling this out to a patient population that hasn't seen a medicine in over 70 years.

How do we think about the incremental SG&A spend if you've already hired at least part of the sales force 6 months ago?

Yes. We gave guidance on the last call. $125 million year-over-year is going to be the investment for both the sales force expansion with INGREZZA as well as the launch of CAH. So we're trying to be pretty specific about what to expect next year. And bottom line is what we know. You have to invest early to ensure that you get the growth over the medium term. And I think our shareholders appreciate that, based upon what they've seen historically from our SG&A investment.

With -- between the SG&A investment, R&D may bump up to fund some of the programs we're about to talk about. Crinecerfont will be laying the foundation, but you kind of said it'll be a gradual steady launch. Should we not expect a little bit of margin compression in '25 before we pop out of that or no?

Well, it comes down to revenue growth, right, on the top end. And we feel confident in INGREZZA. We also feel confident that there'll be some contribution, of course, from CAH next year. So we don't plan to take a step backwards in terms of operating income, but we also -- I would say you're not going to see a whole lot of leverage like you've seen. I think the last 3 years or so, we've generated 1,000 basis points of SG&A leverage, going from 53% down to around 42%. And so I think we've demonstrated, once we have a bit more of a fixed cost base, that we can generate leverage. But on the R&D side, yes, it is going to be a big step-up in spend next year as you think about funding 2 major Phase III programs in psychiatry. Once we get clarity around what those trial designs may look like, and we haven't talked as much about this year yet and I'm sure we'll get there, but initiating 2 major psychiatry trials in major depressive disorder and then also in schizophrenia with the muscarinic program, those are going to be major investments.

So maybe we can talk about 568 and the Phase II data that you recently reported very strong signal at the 20-milligram dose that wasn't necessarily carried through to the higher doses. What about that data set gives you the confidence to push aggressively into Phase III?

Yes. I think that when we saw the data, we spent a lot of time interrogating all the results across all the endpoints for some time across all the doses. And where we landed at the 20-milligram dose is -- which is the dosage strength and regimen at the primary endpoint, is that it wasn't just the primary endpoint. It was looking upstream, the total PANSS improvement and, then downstream, taking into consideration things like standard deviation, looking at effect size, looking at the secondary endpoints like the Marder Factor Scores, the positive and negative symptom score separately. All the endpoints were positive. All the important secondary endpoints and the primary endpoint were also statistically significant. We saw [ suppuration ] early in the course of the 6-week study. In particular, the primary endpoint was statistically significant at week 3, and it was maintained statistically significant through week 6. So all that helps. And then you overlay on top of that, the magnitude of effect across all those endpoints beats all the current antipsychotics that have been approved over the past 20 years. So it's a really competitive profile. I know that the investment community is really interested in compare and contrasting to the muscarinics. But I think the muscarinics, as a category, have really taken up the efficacy relative to antipsychotics that have been approved the past decade or so. So we're very happy to be in the same space with what we have in the 20-milligram dose. Ultimately, we know that efficacy is the table stakes. It gets your foot in the door for schizophrenia. But all the medicines that we've seen in the antipsychotic space is a good example here. They all win on safety, tolerability, dose, dosing regimen. And in the 20-milligram dose, we saw a really clean, safety and tolerability profile. It's once a day. There's no titration. There's no food effect. It's going to do well on all the different patient populations. So all that, in total, makes us really excited, and it's going to be, certainly, a good dose for us to move forward into Phase III.

[indiscernible] Will it make sense though -- I mean, the data [indiscernible] gave us a lot to talk about. Would it make sense to maybe have an intermediate-type trial before you embark on severity [indiscernible] history to, I don't know, either [indiscernible] really, commit yourself that -- I mean, to that dose or that -- the efficacy [indiscernible]?

Well, I would say that for the 20-milligram dose, if we look at the exposures that are on that dose, that's the exposures that outperformed in all of our preclinical studies, albeit the preclinical animal models. But still, that exposure played out quite nicely for us. It also did well in our biomarker work in Phase I. We have to appreciate that this Phase II trial, all of the muscarinic trials are done in an acute inpatient setting. So you're going into this study hopefully adding or offering a dose that's going to be efficacious. And for us, that 20-milligram dose was always that dose for us. So the fact that it was the one that worked was not terribly surprising. We were wondering if the higher doses would give us some additional efficacy because we haven't studied those higher doses in a multiple dose fashion prior to the Phase II trial. Now in terms of doing intermediate study, I think that we can look to learnings from the field and see what other companies have done in the space. Cerevel did a very nice program in Phase Ib and got some good results there in that small study. Their lower dose, as you know, outperformed their higher dose, and they took the lower dose into Phase III. And in their 2 Phase III trials, they're studying adjacent to that lower dose, lower dose is still 2 separate distinct lower doses. So those are things that we think about. But we're going to put our plan together for Phase III, and we'll be taking to that the agency. And they'll tell us their thoughts, and ultimately, we'll make sure that we move forward with their blessing.

But with the safety profile and efficacy, all the feedback we get from KOLs and any clinicians says this looks like an incredibly great medicine, if this were to hold true into Phase III. Now how does it compare to Cerevel? We'll see when that data comes out. But in this drug class, there's a lot of turnover in medicines that patients are taking. And we also look forward into what the future indications might be with this medicine and the safety, tolerability profile really lend itself to test it in other indications. So this is a very clean, safe drug, and so that's really what gives us confidence to not have to do an interim study.

Can you [ undo ] your explanation as to what happened in the higher dose [indiscernible]?

Well, I would say you start by looking at -- real quick, just to repeat the question. I'm sorry. The question was can we -- do have any explanation to what happened with the higher doses is, in essence. So I would say that if you go back and look at the antipsychotics that were approved in schizophrenia in the past 25 years, 3/4 of them -- 2/3 of them did not have true dose response. So look at CAPLYTA, look at Latuda, those all had similar outcomes in Phase II and Phase III. That's something that we're familiar with at Neurocrine. We've seen that across our other programs over the past 20-plus years I've been at the company. So for us, it's not terribly new, new to us. The explanations that range for why don't you see a dose response can range from trial design [ intricacies ], changing in the nature of the subjects that entered the study over time. It is a good reminder that during the course of our Phase II trial, all of Karuna's Phase III trials read out. And both companies were -- Cerevel and Karuna were purchased for $15 billion, $10 billion. That's certainly something that is all out in the news, and you wonder if that changed the outcome of the higher doses. But ultimately, the study that we took on, just sticking with the trial theme -- design theme, physically ambitious study. It was designed to optimize for safety and tolerability at higher doses, of which we didn't have data on. It was not optimized for efficacy. That's something that we can work on in Phase III. Doing a study that's one-to-one active to placebo is going to benefit, a study that's done with a true parallel design is going to benefit the outcomes of the studies. And those are things that we're looking for. Things beyond trial design, you can look at desensitization, which we didn't see in the study, didn't see preclinically. Those are things that typically companies move towards. But ultimately, end of the day, we may never ever have an answer. But we do have an answer on a dose and a dosing regimen today, and that's the 20-milligram dose. And that's the one that we'll -- we're really excited about moving forward with.

You talked a little bit competitive, Cerevel [indiscernible].

Yes. I mean, if you look at the great arbiter, the great comparator endpoint is effect size, and they all look very similar. You're going to win on safety and tolerability, dose, how well you can be used in different patient populations. 568's the only medicine that selectively and directly drives [ 84 ] activation. All the other medicines and approaches rely on something else, trospium to block side effects or acetylcholine to drive efficacy. 568 works just fine by itself.

One quick cleanup item, just so people don't think we changed our guidance for INGREZZA revenue. Our revenue guidance stays at -- it's $2.25 billion to $2.3 billion. You accidentally said $2.2 billion to $2.3 billion. I just wanted to clarify.

Thanks, Matt.

That's why we're all up here.

That's why Matt's the CFO.

Excellent. I think we're out of time. Thank you so much. There's a lot of moving parts in Neurocrine. We didn't have a lot of time to cover, but it's the beauty of being here.