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

Good morning, and welcome to TD Cowen's Neuropsych Summit. I'm Phil Nadeau, one of the biotech analysts here at Cowen, and it's my pleasure to moderate a fireside chat with Neurocrine Biosciences. We have with us today Kyle Gano, the Chief Business Development & Strategy Officer and the CEO-elect; and Todd Tushla, the Vice President of Investor Relations.

Thought we'd start with a couple of brief strategy questions before diving into the neuropsych pipeline in a bit more detail. So Kyle, maybe first on the strategy, could you give us a brief overview of Neurocrine's strategy for developing and commercializing drugs for neurologic and neuropsychiatric conditions? In particular, which indications is Neurocrine most interested in? And what types of targets will Neurocrine prioritize?

Sure. Thanks, Phil. Appreciate the opportunity to meet and speak with you here today. Maybe just at a high level, very fortunate where we are here today at Neurocrine on the cusp for another potential launch here later this year with crinecerfont CAH. I think when we think about where we were this time last year, wondering what our Phase III data looked like with crinecerfont and really was -- exceeded all of our expectations. And it really set off a series of things in motion here at Neurocrine, including a breakthrough designation received from the FDA later in 2023, our NDA filings and priority review that sets us up nicely for PDUFA dates on the 2 NDAs that we have later this year, and then a launch in early 2025. So that kind of sets the stage here, because what we see is the pipeline and it's anchored by everything that we're doing with INGREZZA. And to think where we started in 2017 with a medicine that was first-in-class for patients with tardive dyskinesia and being 7 years into the launch and seeing the growth that we still see with INGREZZA is quite amazing to us that we're still here today talking about that growth. So in Q2, just to capture a little bit of that excitement, $580 million in revenue. That was about 30% year-to-year growth, 15% quarter-to-quarter growth. That's driven by strong demand and some changes in gross to net, but just really strong demand. We raised our guidance for the year to $2.25 billion to $2.3 billion, and that really just goes to show you this continued growth that I mentioned. 80% of the patients with TD today, tardive dyskinesia, are not getting a prescription for a VMAT2 inhibitor, ourselves or our competitor. And if you think where we are with sales today and 14 more years of market exclusivity, that really sets the stage for the future. So that's where I start with the strategy. You've got a very good product in INGREZZA for revenue growth. You've got another product coming to market with crinecerfont CAH, further driving revenue growth, and for the first time talking about revenue diversification. And then it's all about continuing to invest in our pipeline to show that we can have regenerative one in the sense that we can bring medicines from preclinical into the clinic, and in the clinic into commercial, and medicines in the hands of patients. So the focus is in those 3 areas, revenue growth, revenue diversity and the pipeline. So I think when you ask about strategy, where are we today? Well, we've got a couple of programs moving into Phase III next year. They're in the psychiatry space. One is NBI-'845, and that's in development for major depressive disorder. And the other, of course, NBI-'568 in schizophrenia. This is our selective M4 muscarinic agonist. And we have behind that, in Phase II, another antidepressant that we're developing, NBI-'770, this is NR2B NAM. We'll have Phase II data on that program next year. We have the most robust muscarinic portfolio in the industry, 5 programs in Phase I. And when we think about what's behind that, it's really an R&D transformation that we're in the early innings on right now, looking at moving away from small molecules to multi-modality programs from validated and non-validated targets, a right balance between both of those, I should say, versus being all in areas that are completely novel as we've done over our past 10 years or history. And then thinking about just the opportunity that you have moving into different biological classes with different modalities. For the first time, talking about disease modification and cures. So I think it's a really exciting time here at Neurocrine. We're just seeing the fruits to these efforts now. We have 2 gene therapy programs that are in the clinic next year. They represent really the tip of the iceberg for us in terms of our interest in other modalities. This concept of looking at the right diseases for Neurocrine in neuroscience, in psychiatry and endocrinology. But applying the right target and the right modality, we think, is really the way to improve probability of success and hopefully, reduce development time lines. So all that's underway right here today. It's a very exciting time at Neurocrine. It feels a lot like 2016 here when we're at the cusp of a whole another growth phase. And I know that's why Todd and I are extremely excited to see what's in store for us over the next couple of years.

You obviously have a lot going on internally. What is Neurocrine's business development strategy going forward? How would you prioritize all that you have going on with the internal innovation versus external innovation opportunities?

Well, you touched on something there that is part and parcel of our strategy is we would like to move away from more externally sourced programs to ones that were internally discovered. But these have a more healthy balance right now, if you look at our clinical portfolio. The vast majority of those programs came in from the outside, which is not a bad thing, but it's not something that you can always lean on out there to help fill a gap in your portfolio. Or if there is high competition for an asset, you may not be able to bring it in, in the time period that you need it. So you really need to have that other piece of the company that is research to contribute programs to the pipeline. But to your specific question on business development. The team that we have here continues to work with high urgency. I think we feel very fortunate where we are with another product potentially coming out next year with crinecerfont, a couple of Phase IIIs. We don't feel like we have to do something substantive right now, which really allows us to sit back and look at the universe of what's out there in neurology, in psychiatry, in endocrinology, and pick and choose those things that we want to learn more about. In terms of the things that excite us, I would say, innovative technologies that other companies are working on to solve some of the challenges that we have within drug development is areas that we're looking at right now. Things that are looking at differentiated modalities, not only small molecules, but other approaches to biologics that might be applicable for the first time for diseases within the CNS. It's always been a challenge taking some of the learnings that we see out there in immunology and oncology and applying those to diseases within the CNS. But ultimately, what really excites us is bringing in things that give us the opportunity to change the standard of care. We did that with INGREZZA in tardive dyskinesia. We're going to do that with crinecerfont CAH. That is an underlying theme that we apply to all the things that we spend our time investing in and dedicating resources. Of course, things like strong intellectual property, those all play out as well. I think one thing that's different now for Neurocrine than in years past is given our strong financial position and where we are as an organization from a capabilities perspective, we are open to later stage opportunities, even commercial opportunities, because those are all things that we could bring in now versus in years past. So that's new and different and does open the aperture a bit. But I would say, for the most part right now, the team is looking at ways that we can impact our research terms, our team's interest in programs that are within our wheelhouse to help accelerate the programs that are in play right now, so we can bring them the proof of concept as quickly as possible. So it's that organic growth that we're trying to help support, may not be a splashy license or an acquisition, but may be a technology or a tool that our researchers need to help them in some of their discovery efforts. And that's been pretty fruitful for us the past couple of years. And you'll see that playing out over the next couple of years.

Can you reference the NBI-'568 data that was recently released? It was a bit controversial among investors. Maybe we'll start with you guys just summarizing what you think were the highlights of the data and what was misunderstood by the investment community.

Well, I'll start with the Phase II trial outcome. It was a successful study for us. It was positive. We met the primary endpoint at the 20-milligram dose. This was an ambitious study in our minds for the Phase II program with '568. I'll give a little bit of context to that. There are 2 other companies in this space, now BMS and AbbVie. And unlike those programs, we were, in many ways, in a position that we had to learn a lot more about the pharmacology of our asset than the ones that they were developing. In particular, AbbVie is developing a medicine called KarXT, and that's been in clinical development -- I'm sorry, BMS was developing KarXT. It's going to take a while to get those 2 right, because we go back to the originator names. KarXT can lean on 20, 30 years of development experience from Lilly. So there's a lot of data that you can pick and choose and learn from. And for AbbVie and Cerevel, with emraclidine, they had a PET ligand that they could exclusively tune the doses that they think were important for study in patients. We didn't have any of those. So in order to catch up, we did conduct an ambitious study. We looked at different doses, different dosing regimens, that's with titration, without titration, once a day, twice a day. But ultimately, the theme that we have for our Phase II trial is we really wanted to preserve safety and tolerability as we moved through doses that we didn't have a lot of data on. And that added some complexity of the trial that folks probably weren't used to seeing. But ultimately, when we saw the data of the study, we were very pleased because the 20-milligram dose outperformed, as it has done in all the different types of studies that we've done over time, whether it's been animal studies or biomarker work in Phase I, the 20-milligram dose has always looked really good for us, and that's why we put it in the study. Being an acute patient population, it's important that we had a good idea that even the lowest dose would be one that was efficacious. And that's what we ended up seeing. We got a placebo-corrected PANSS score at the 20-milligram dose of about 7.5 point improvement. The total PANSS improvement was over 18. We saw an effect size of 0.61. In totality, this data is really in the top of all antipsychotics approved over the past 20 years. And I know folks like to compare the different programs in the muscarinic space. I think it stands up quite nicely to KarXT, in particular, if you build in all the good safety and tolerability that we saw, plus it's once a day, and there's no titration, it's a really clean profile, and we know that efficacy gets your foot in the door, but safety and tolerability is what wins the day here in this patient population. We know that from our work in schizophrenia. We know that from the success we've had with INGREZZA in the same patient population. So we're very pleased with the outcome. It's a data set that we'll be able to take to the agency shortly, have an end of Phase II meeting, and the plan is to start the pivotal program middle of next year with '568. And we'll pivot quickly also to second indication that we're finishing our thoughts there rolled out, and we'll go of that shortly, and we'll certainly be relating that out to all the external stakeholders and yourselves once we have more clarity on that.

I'll just add, internally, we really tortured the data, internal experts and external, to try to put holes in the 20 mg dose, and we couldn't do it. So there is a lot of enthusiasm. We don't know why there wasn't a dose response. The other doses did work. They just couldn't beat the 20. So while we don't know why there wasn't dose response, we know we have a strong anchor dose to go into Phase III trials.

And given that it was the lowest dose in the trial that worked, how confident are you that you have the right dose? Is it possible that an even lower dose would be better?

Well, I'll start with -- you heard what I mentioned about KarXT and emraclidine, what they've had and the benefits of time and research with those molecules. For us, it was a more traditional approach to selecting a dose for the Phase II trial. It's the same one that we used for '845. It's the same one we used for INGREZZA. It's the same one we used for crinecerfont. When you don't have things like PET ligands and you don't have years to do multiple Phase II trials, so you start with your animal studies, and we all know that those are terribly unpredictive, but it's the best that we have. And you can make comparisons about how your different molecules in a certain therapeutic area compare. And for us, if we look at the 20-milligram dose, in particular, the exposure that's tied to that 20-milligram dose, that exposure works very well in all of our animal models. So again, that's where you start. We also know that we've gotten good target engagement across those animal models and in all of our tox studies. And by target engagement, I think we all are comfortable now in saying that one of the on-target effects of muscarinic agonism is an increase in heart rate. And we see that target engagement manifest itself in a dose-related way in all of our studies. When you increase the exposure of '568 in efficacy models and tox studies, you see a dose-related increase in heart rate. We see that same target engagement finding in our Phase I studies, just as you've seen with KarXT, just as you've seen with emraclidine. In our biomarker work, which is often a side study or an adjacent study that's performed with your healthy volunteer study, here we used the mixed match negativity study as well as the auditory steady-state response model. In healthy volunteers, the 20-milligram dose responded very nice in both those biomarker studies with an effect size just north of 0.7. So we know that's a rare air kind of territory for effect size, and that 20-milligram dose is the one that won through all those different types of studies and target engagement and biomarker-type work here at Neurocrine and at Nxera, who started to work on this molecule. So I think we're very, very confident in the 20-milligram dose. I think Todd touched on it. We're wondering if we're leaving anything on the table in the Phase II trial in terms of would titration have a different outcome? Would higher doses have a different outcome? Would splitting the doses into a BID dosing regimen help? And what we can say is that, at least by this trial design, the higher doses, the different dosing regimens, they are active, they provide a treatment that's efficacious, but not nearly so as just a simple once a day 20-milligram dose.

And I know you said you don't really understand, but any theories as to why that would be?

Well, I mean I think where you go there is you lean on what you've heard historically when people see irregular dose responses in clinical trials. And we're not the first ones to say what I'm about to say in terms of potential options. But I will start by mentioning, if you go out and look at the antipsychotics that have been approved since about 2000, you'll see 2/3 to 3/4 of them have an irregular dose response. So for some reason, it's very common in schizophrenia trials. I'd also say that it's common in depression trials and programs. So the CAPLYTAs of the world, the VRAYLARs, all these have very unusual dose responses in Phase II and Phase III. In some cases, the high doses work, some doses in some studies, they do not. So what do we lean on? What do people typically talk about? One, as they say, bad luck, trial design was not in your favor here. You had something that was unique to happen during the course of your study that confounded the patient population in a particular dose. We'll learn more about that as we move into Phase III, and we can do a more simple design and we can revisit that type of angle on the other side of Phase III. The other piece is, you often talk about, in particular for agonist, is there desensitization occurring, tachyphylaxis. And I go back to that target engagement piece here. We see in all of our tox studies that super physiological doses or super therapeutic doses that the heart rate effects are maintained throughout long-term tox. So that would not be consistent with tachyphylaxis or desensitization. We've also done longer-term efficacy studies, and we don't see efficacy waning in preclinical models of disease. And I think we also see -- I do see, in the Phase II trial, very nice results that persist over the course of the 6 weeks of the trial. In all the different dose arms, we saw continued benefit in the different efficacy parameters over the course of the 6 weeks. So it doesn't seem like desensitization is at play here. I think that's only reinforced by seeing -- there's no tachyphylaxis with KarXT, there's no tachyphylaxis with emraclidine. So I don't think this is an on-target type of phenomenon. But those are where people most often go. I mean, you could also just say it's bad luck, whatever that means. But for us, going back to that 20-milligram dose, it's all about putting that into a Phase III trial, greatly simplifying the trial design. So going from 2:1, which is what we used in the Phase II trial, to a 1:1 ratio, active to placebo, no adaptive trial design, it would be parallel design, meaning the active and placebo start their treatment at the same time. That's going to help as well. That will make sure that your patient population across active and placebo is the same throughout the course of the study. There will be some takes in the Phase III trial. Obviously, we're going to have to scale up the sample size. We had a smaller cohort per arm in this Phase II trial, and we'll have to increase that in Phase III just as we saw with KarXT and emraclidine. But I think that it's not going to be as much as a leap for us as it might have been for say, emraclidine, because our sample size is pretty large overall for a Phase II trial of 200 or so. We also have to increase the sample size a bit more. We have 15 -- or the site number, we're about 15 for this Phase II trial. We know that we're probably going to have to go around 25. But that expansion from 15 to 25 is nowhere near as close to the expansion that Cerevel had to go from their 5 sites in their Phase Ib up to 25 or 30. I don't know how many they use. So there'll be some puts, simplifying the study, going to 1:1, no adaptive trial design. There'll be some takes, increase in sample size, increase in the number of sites. And there'll be some things that are just neutral. I don't think the expectation bias or the placebo effect phenomenon can get any worse for this target as we think about moving into Phase III. You've had two companies that have been acquired for $10 billion to $15 billion in valuation. We've had them published on every little bit of information. All this occurred during the course of our Phase II trial. So if you want to think about things that can change the outcome of the study, it's those types of events. We had a very nice placebo response in our Phase II trial that was Phase III-like. We feel very confident that we can replicate that in Phase III. So I think we're setting the stage for a very nice, very clean Phase III program anchored by that 20-milligram dose. And we'll see what the agency has to say about moving forward with just that dose or if they'd like another dose, and what that looks like.

Have you done any KOL feedback on our Phase II results?

We have a call with KOLs this afternoon, actually.

Okay. All right. So what we found so far externally is that the feedback has been really strong. So the external validation of the results, we've been pleased to hear that coming from the KOL community, but we'll see what your KOLs will say today.

As you suggested, the placebo-adjusted PANSS score was controversial among investors, because it seemed to be a bit lower than what people were expecting. But the effect size was every bit as good as what we've seen before and the decline from baseline was every bit of what we've seen before. It was just the placebo group, Kyle, as you noted, seemed to have more of a placebo effect than what we've seen others in other Phase IIs. As investors try to contextualize the data, what endpoints are particularly important for them to look at? What do you think investors are kind of missing in their focus on the placebo-adjusted PANSS?

Well, it's an interesting question, because in our view, one of the reasons why we disclosed more Phase II data than we normally have done is that we've heard from the different stakeholders out there, the different types of the endpoints used in the study are important. Some people like looking at the placebo-corrected PANSS score, some people like looking at the total PANSS improvement, some people are looking at effect size. So I think for us, it really does look at -- we're interested in the totality of the data. I mean if you want to pick out any one of those, I will say that the data that we have for this Phase II trial are really in rare air If you look at the other antipsychotics that have been approved over the past 20 years. And I'll keep leaning on that is something that we need to keep in the back of our minds. Very robust efficacy across the board here for this muscarinic class of compounds, of which '568 is one. I think that a learning here for Neurocrine moving forward, we went out and did something that we don't typically do. And we talked about certain things, certain types of outcomes that we thought were scenarios that represent a win for Neurocrine in the program. And one of those was about 8 or so placebo-corrected PANSS improvement. And we had 7.5. We met or exceeded our other areas that we've shared, but not that particular one. I think people really dialed into that, unfortunately. And that's lesson learned here by Neurocrine. We won't make that mistake again in the future. But overall, I mean, I think it's a very nice data step, very clean with respect to efficacy. And touching on Todd's point, we did torture the data and what you see, no matter which endpoint you're interested in, there's always a separation that starts around week 1. And we see stat sig separation from week 3 to week 6 across the primary endpoint and most of the other endpoints, quite frankly. They all move in the same direction and improve throughout the course of the study. It's exactly what you would predict from a muscarinic agonist. So I think overall, again, very excited with what we have here. And I think the goal for us right now is to put our nose down to the grindstone and really just execute on getting that Phase III stood up and well executed from a quality standpoint as quickly as we can.

I think the other piece that's underappreciated by the investment community is the safety and tolerability of the drug, which clearly clinicians and those that are practicing in the field value highly. And you see that play out with the atypical antipsychotics with some drugs that may not be the most efficacious, but they're used because of the tolerability profile.

Yes. That's a good point, Todd. And really, if you think about the acquisitions that were in the space, they're not because of the schizophrenia indication. That's a table stake that gets your foot in the door. It's really how can you expand into other indications. And for us, it's the same thing. We certainly value the unmet need in schizophrenia and we'll pursue that schizophrenia indication as quickly as we can. But the safety and tolerability that we have with '568 is quite differentiating. And that's what we needed to see to invest in other areas, when you think about moving into the elderly, whether it's Alzheimer's disease, psychosis, or just the elderly population in general. You need a very safe and well-tolerated medicine. And if wrapped into that as a once a day dosing regimen with no titration, that makes things really easy for you in terms of clinical trials and sets you up the best you can for success.

Great. It looks like we have about 5 minutes left. So I did want to touch on some of the other candidates that are moving along, '845 for depression. Can you give us a brief overview of the highlights of the Phase II data that were released earlier this year? And where do you see '845 fitting into the treatment paradigm?

Sure. So we released Phase II data in Q2 this year. This is our AMPA positive allosteric modulator. It's interesting to take a quick stop at the mechanism, because with our '568 molecule, which is a selective M4 agonist, is orthosteric agonist, we chose to use an AMPA PAM for the depression program. And the reason for this is that we believe some of the toxicities that have been associated with this target have been because of overstimulation of the AMPA receptor. And by using a PAM, you can't overstimulate it, because you really rely on the endogenous ligand to activate system, which is glutamate here. But in our Phase II trial, we studied 2 doses versus placebo. And this is a sample size of about 180, so a reasonably-sized Phase II trial. And both doses were efficacious in this MDD trial. One dose we saw at week -- sorry, at month 1, which was the primary endpoint, a MADRS improvement of about 4.5 points, and that continued to improve out to 2 months out to about 7.5 point improvement on MADRS, which is just huge. When you think about the effect size here, it ranges from 0.55 at month 1 to 0.75 at month 2. And that's really some of the most robust depression data I've seen in this industry over the past -- well, my career here at Neurocrine, both in terms of programs that we've supported as well as reviewed. The other dose that we saw the month 1 improvement was about 3.5 point improvement on MADRS, and 3 to 3.5 point between month 1 and month 2. And the effect size there ranged from about 0.35 to about 0.4. So again, very robust results there as well. Those are stat sig. So very nice overall data there, and wrapped around that, similar to '568, a very nice clean safety and tolerability profile, with the only thing that seemed to separate from placebo was headache. So very nice. You don't see that in depression trials. We are going to take that also to the agency in the Phase II meeting this year, and that will set us up for the pivotal program to start earlier in 2025, earlier than '568. And these would be outpatient kind of classical depression trials, and we'll be able to share more details on those study designs once we align on that with the agency. But we could have data on that program 2 years after the start of the clinical program, the Phase III program that is. So that's something that's a pretty rapidly moving Phase III registration quality program. And other than the excitement around the data itself, this is something that would fit nicely into our commercial bag that we have right now with INGREZZA, that has a pretty sizable footprint in neurology, psychiatry and LTC.

Have you said when you present the Phase II data?

We haven't yet. I told the clinical team to focus on the end of Phase II meeting and getting the Phase III study up and running. And then we'll worry about working up the data. There are a couple of other pieces other than just resourcing in terms of getting data out there. And one is that this program is part of a cost and profit share with Takeda. And when we started the Phase II trial that we would put off any IP kind of strategy and discussions until we saw the Phase II data and knew what the Phase III plans are. Those are almost done. So we'll have any remaining IP patents that we want filed out there. So that will help. The other piece is that we think one of the real benefits of kind of keeping the data under wraps here is that we keep that expectation bias extremely low. AMPA and [ NMDA ] as a target has been one that's been attached to many failures over the years. And the more that we can not -- or the more we can control the exuberance around a novel target for depression, we think ultimately gives us the best chance for replicating the Phase II data. So that's another piece. We'd like to make sure we give ourselves enough time to get the study up and running and the investigators focus on the trial design, not so much on the noise that's attached to the data and target. And the other piece is Neurocrine has a long history of creating its own competition, and we would hate to put out there all the data in a road map for someone else to step in with one of the many other AMPA programs that are on the shelves out there. Let's get some lead here, and then we'll release the data or share the data down the road.

Yes. A potential competitor could have like a 6-person study and start researching that.

That's right.

Well, with that, I think we're out of time. Thanks, guys, for giving us time.

All right. Thank you. Thanks, Phil. Thanks for the support.

Thanks, Phil. Appreciate it. Have a great day.