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

I cover mid-cap biotech and spec pharma at UBS. And with us, next company here is Neurocrine Biosciences. And I'm really excited that we have Kyle, Matt, Todd and [ Aaron ] from the team. So really excited to have you guys on here. And for the next, like 35 minutes, you want to just go over the focus of the business around INGREZZA and some of the pipeline. So maybe, I guess, Kyle, it will be helpful to actually like just get like a couple of brief opening remarks from you and then we can dive right in.

Sure. Thanks, Ash, and thanks to UBS for having us here today. I would like to say we will be making forward-looking statements. So I'd like to guide everyone to our document for the latest risks that we have in there. So where we are today at Neurocrine, a very exciting time here. We're at the cusp, I feel, of another growth phase for the organization. But it really does start with everything that we've been doing the past 7 years with INGREZZA. In Q3, we reported $613 million in revenue, which is about 25% year-to-year growth based on that Q3 number. And this is really largely strong demand and uptake by our patients within the tardive dyskinesia area. We have 2 indications in tardive dyskinesia and Huntington's disease chorea. A part of that, we raised our guidance for 2024 to $2.3 billion to $2.32 billion, which again, is right around that 25% year-to-year growth, which is just outstanding to think that we're reporting that level of growth 7 years post launch, just gives you some insights into the robustness of the market, how much opportunity that remains that's tied to INGREZZA and in the TD market. Related to that, we published in our Q2 earnings, our updated prevalence number for tardive dyskinesia. This is based on the acknowledgment that the past several years with the antipsychotic space, which is the source of tardive dyskinesia and INGREZZA for the patient population, is we reestimated the prevalence of TD within the U.S. market, and that number has increased from 600,000 to about 800,000 here in the U.S., which puts us in line with a longer range of other published numbers on the prevalence within TD. So while that's there, we've made great progress in terms of diagnosing patients within TD. We're actually a little bit further off from where we thought we were starting the year. About 85% of that 600,000 patient number is still not receiving a VMAT2 inhibitor. So I'll go back to my earlier remarks, a lot of work to do still in the TD space, but a lot of our opportunity. And because of that, we also just completed our sales force expansion within the TD market, specifically to help us continue to drive awareness within our patient segment that looks at treatment with psychiatrists, neurologists specifically, and we'll look to see the benefits of that in the first half of next year. So moving away from INGREZZA, I did mention a cusp of a whole new growth for the company, and that's really tied to crinecerfont. This is our medicine that we have an FDA review, with the opportunity to treat patients with congenital adrenal hyperplasia. The PDUFA dates for the 2 NDAs that we have are December 29 and 30 of this year. Assuming that we do get approval, we'll look on launching that medicine early in 2025. So very excited about that opportunity. Hopefully, we'll get the opportunity to speak more about that here today. But the idea is that the medicine that will be hopefully launching in 2025 will offer patients first medicine for CAH in over 70 years. And I think that's consistent with our goals here at Neurocrine to really change the standard of care for patients and diseases that we seek to develop and treat. So that's CAH. We have 2 other medicines that are moving into Phase III development. We have a couple into Phase II meetings in the incoming months for NBI-845 for major depressive disorder and NBI-568 for schizophrenia. Assuming those meetings go well, we'll look at launching Phase III programs for both of those in the first half of next year. You can consider a couple of years recruitment to get to couple -- to get to top line data, and we could have that information by the turn of 2027, '28, with the potential of launching new medicines by the end of the decade. And that's very rewarding for us. We'll be able to leverage the existing sales force and the infrastructure that we have in place for TD. Behind that, we have the largest and deepest muscarinic portfolio in the industry that range from M1 agonist pharmacology to M1/M4. We think this is a very important class of new medicines, and we look forward to developing those programs as we get phase into 2025. So that takes us with the pipeline. I think overall, if you look at the organization from a financial standpoint, we're -- we've never been stronger than we are today. And we look forward to continue investing in ourselves as we think about the end of the new year with the pipeline and research and R&D transmission that's currently underway. Maybe I'll pause there and put it back to you for any questions.

Yes, absolutely. I mean there is a lot to unpack here.

Kyle, maybe it would be interesting just for the audience just to get a little bit of background on you and how things have transpired even over the last 7 years as a company, we've gone from not revenue generating to revenue generating. And I think Kyle's just heritage with the company, I think it would be a good perspective, if you don't mind, sharing a bit, Kyle.

I will say that my official movement and move in this role in early October, it's been quite a roll in, as you can possibly imagine. If you think about the announcement of our previous CEO's retirement in May of this year, getting out to meet many of you attending health care conferences and really with a different role in mind for the future. So there are still many aspects of my interactions today that are the first ones with you all being his role. And sometimes I take that for granted. So I appreciate that you bringing that up. So for me and my back, I've been with the company for almost 25 years. I've had virtually every role directly or indirectly that you can imagine in a small biotech company to the size that we are today, which has given me a considerable amount of knowledge and access to how a company like Neurocrine runs and able to see the pitfalls that biotech companies face and hopefully be able to avoid those moving forward, but equally important to be able to leverage those opportunities that we've seen in our path that we know are advantageous if we can take advantage of those. And that's really what I'm looking to do here at Neurocrine and moving forward. The past 10 years or so, just a little bit about roles that I've been doing specifically, have been more geared in the area of business development and strategy for our organization, looking at ways to build out our portfolio, especially being a small company for most of our existence, how do we build that portfolio to match the opportunity that we see with INGREZZA, to ensure that we not only have a deep and diversified portfolio today, but importantly, give us a shot to bring more medicines forward in the patient's hands in the future. And that's where I spent a good part of my past couple of years, and I'm sure we'll touch on some of those programs that we brought in. But really excited to serve in this role as CEO for Neurocrine. Very honored that the Board has entrusted me to take the company until its new next growth phase and really appreciate the opportunities that our team here at Neurocrine has provided the company in terms of our portfolio, our commercial assets and the support of our commercial medicines moving forward, I think it sets us up nicely for the future.

Excellent. That's great start. So yes, I wanted to sort of talk about some of the recent developments that have happened in the story, and just this feel in general for muscarinic. So as you might have seen some data coming out from AbbVie, your competitor program, to the extent that it has any kind of like a read across to you, I wanted to understand that. So in terms of like this Emraclidine data yesterday, not only did it like surprise negatively on like such a high placebo response, but also their own like efficacy was much lower versus what they showed in their earlier Phase Ib trial. So I want to understand like what are the implications of that for you, because you are effectively like starting a new study in this domain? And from a trial conduct perspective, like are there some learnings that you identified that might be relevant for your program?

Maybe I'll start that question. If I miss anything, I'll ask my colleagues here to join in. I guess where I would start is we have a lot of belief in the muscarinics as a new therapeutic area for medicines moving forward, not just in schizophrenia, but in other disease states. And I think that the first thing that we have to acknowledge is that this is a setback for patients as well as for the companies and employees that have worked on this who also have the patient in mind. But if you start there and then you start building back, building into what are the next steps and implications, I think where I would go when it comes to our own program, which is NBI-568, is that we have to appreciate that in our view, there can't be 2 different approaches to activating the M4 receptor than what we see between Emraclidine and NBI-568. Emraclidine is a muscarinic M4 positive allosteric modulator. And by definition that requires the presence of acetycholine, the endogenous ligand of M4, to activate the system. And that in itself introduces variability, because acetylcholine levels vary by individual. The other piece then when we look at NBI-568, it's the only medicine that selectively and directly activates M4 without the need of anything else to work in concert with it to get the efficacy, the safety and tolerability profile that's commensurate with the muscarinic agonist. So 2 different approaches, that we're taking here. And I think that is important, and we've always leaned on that. Now when it comes to the Emraclidine data, it is very fresh for us all. I think we're all trying to digest what we've seen, and there's not a lot out there yet. So having been an AbbVie shoes over the years, like many other programs we've had at Neurocrine that ran into challenges in Phase II, I would be -- I would think, at this point, reviewing all the data that they've come in -- that's come in. Perhaps they don't even have all the data. They'd be analyzing that to see how that is consistent or not what the data they've seen previously or may have preclinically and you'd also be looking at trial design and the oversight of the studies to make sure that those are all consistent with what they had in terms of their expectation. And at the end of the day, I would expect them to make an acknowledgment of whether or not they're moving forward with the program based on the totality of all the things that they've done. So I think that's something that will be determined here over the coming months on what their next steps are. If I move over to our program then, again, a direct and selective approach of activating M4, but what we have is really explicit data in a Phase II setting. I acknowledge some of the noise that we've gotten around our own study has been with in a regular dose response, which we didn't expect, but we're not surprised by that. We've seen that in other studies at Neurocrine and other programs over the years. But if we look at the dose that performed the best amongst all the doses in our Phase II trial, we see that the improvement in the PANSS score was a little over 18. We saw the placebo-corrected PANSS score of 7.5 points. We saw all the secondary measures be statically significant and clinically meaningful, even at the earliest time point study. We saw a very nice effect size of over 0.6, which is very strong in this space. We have a once-a-day medicine that's well tolerated, no titration and has no food effect. That really describes a profile of an antipsychotic that would be very well received by physicians, and we think many patients can benefit from that. So that's our anchor point for us. And if we just look at our data, and what we have, we're very excited to have that discussion with the agency and in the Phase II type of setting, get their feedback and then proceed to Phase III. Now of course, we're not going to move forward without trying to understand as much as we can about the Emraclidine data. And if there are learnings, there are things that we obtained from our discussions with the FDA that would change our plans for Phase III. We'll certainly share that at that time point. But right now, we're real happy with the position that we're in, not only with respect to NBI-568, but perhaps even more so that we have the portfolio of assets that range from M1 selective to an M1/M4 dual. It gives us a lot of opportunity to understand the pharmacology of this important system and be able to pick and choose the best profile, the best medicine to move forward.

So the main question is, was this a failed study by AbbVie? Or was it a negative study and what we mean by that or what I mean by that is operationally it was something off or by design was something off or pure and simple, does the mechanism not play the role that we thought that it would? And I think in hindsight being 2020 and like Kyle said, putting ourselves in AbbVie shoes, if you think about all the degrees that could have caused there to be -- this to be a potentially what we call a failed study, whether it's the randomization going 2:1 whether it's going from -- they only had 5 clinical sites in their Phase Ib trial up to 30 clinical trial sites. And use of CROs, how do they manage the study. So AbbVie is a very great organization. And I think that what we're interested in seeing is if they find out that this was a failed study and with good and proper oversight management design that this could be positive, they initiate a couple more Phase III trials. That wouldn't be a surprise to us, because based upon our review of our own internal data, we do believe M4 alone is just sufficient, but it was a sobering day yesterday, and I think a reminder of how difficult neuropsychiatry is in clinical development. So we're still piecing through a lot of that. I do think we'll get a better read from our -- from AbbVie when we see what they're going to do on the next steps of their program. But for right now, we're full speed ahead based upon what we had already talked through coming out of the trial.

And maybe just to add to that, just one reminder is that AbbVie is also the same organization that has a medicine called VRAYLAR, and that particular medicine had its own challenges through development and I think we'd all agree has done quite well today. So I know that's in the back of AbbVie's mind as well. So it just goes to show that neuropsychiatry is a challenging space and biology, trial design and trial operations, those are all things that are equally important.

Just like a quick question, a follow-up on this. So I think as companies like similar to you like trying to do like a Phase II meeting -- end of Phase II meeting with the FDA, right, is there a possibility that either AbbVie and this is I'm just asking your assumption, either AbbVie or you might be asked by the FDA that mechanistically or from how much of a placebo response we are seeing it might not make sense to continue development?

I mean anything that's possible when you have a discussion with the agency. I think that what I would lean on and I'm sure all of you are familiar with our Phase II data was actually our lowest dose that outperformed the higher doses. All the doses were active, but the lower dose did the best in terms of efficacy. Usually, the agency has commentary around whether or not your high dose has the appropriate or a dose has appropriate risk benefit profile. And what we're proposing to the agency is that the dose that we have at a minimum has an efficacy profile that is in the top quartile of all antipsychotics that have been approved in the past 20 years and is the lowest dose that we studied in our Phase II setting. So the risk-benefit profile really tilts quite nicely to the lowest dose that we saw in the Phase II setting. That being said, the agency could come back and they could ask us to study a lower dose. These are all things that we contemplate and will able to have discussions around when we meet with the agency over the next couple of months.

So one of the key aspects, just to talk through the lower dose and just to be clear, one of our main goals given trying to optimize the trial design for positive outcome will be a preference for a 1:1 randomization versus a 2:1. So if there was a differentiation in dosing requested, we would likely try to do that outside of the 20 mg study. I mean based on the learnings like we're talking about from what we've seen in the space, but did want to make that clarification. So those are the types of things we're trying to game out with the FDA. And I think on the safety side, you're always concerned. But for us, from what we saw in our safety, it was clean. And having your lowest dose is most efficacious dose as well, it's something that we're enthusiastic about what we saw but proof is going to be in the pudding for us to execute this Phase III trial and get to the other end of results here in a few years.

Great. So maybe just like a switching topics. So you have this potential upcoming launch of crinecerfont. Maybe let's talk about that a little bit. I know on the third quarter conference call, you mentioned that like you still positive upbeat about like patient adds. But in terms of like the revenue realization, it might be a little bit slower because of like how the commercial insurance is going to work out. Can you elaborate on that dynamic a little bit? And I guess like the most important thing for me is that would you be providing like patient numbers to the Street on where you are?

It's -- I mean that's a lot in that question, but yes, absolutely. There's going to be a lot that we learn in this launch. I mean this is the first medicine in this entire patient population that's been launched in 70 years. So we don't have it all figured out. But what we do know is that there's a lot of patient demand at the moment. But given that 60% to 70% of these patients are actually commercial patients, there's more than likely going to be some form of a block on that new medicine. And as a result of that, there's going to be a delay in reimbursed scripts. So early on, there may be patients taking the medication that is not reimbursed, and so that's where your question comes into, would we be willing to provide patient numbers who are on therapy? That's something that we're still trying through from a disclosure perspective. The other aspect that we think about that might impair ultimate adoption and the reality of this space is that these patients, by and large, only see their clinician 1 to 2 times per year. So when you think about the just natural flow of them, seeing their clinicians, it's he's not going to be a bolus effect of patients that are knocking on the door from day 1 that will get this prescribed, it will be prescribed as they come in, as clinicians get experience with this medication, how do they down titrate any of the glucocorticoids. So there's still a lot to be learned in the commercial market, but all the feedback that we're getting, whether it's from patients, whether it's from clinicians, people can't wait to get their hands on the methane to see how it can start helping these patients with congenital adrenal hyperplasia.

There are a lot of similarities there in terms of how we view the launch in terms of a learning launch. So as we used to say a lot about INGREZZA and still feels like we're learning a lot about TD market, but there's a lot of things that we can use that are similarities between TD and the CAH space. You can assume that without a medicine in over 7 years, it's basically acts like an area that there's been no medicine ever approved. And that's the same thing that we had with INGREZZA at the time of launch. There's education that's required for both disease states in terms of the prescriber as well as the patient and their family members. So those are things that we have in the back of our line. But when it comes to crinecerfont, I just want to maybe double down on the things that really get us excited is the great efficacy that we saw in Phase III. The safety and tolerability that comes along with the medicine. We've been in over 1,000 subjects now in many cases, well over a year in terms of longer-term treatment. We have an indication in a disease state that we're going to be able to treat both children and adults. And we have 2 different formulations that address the needs of those 2 different age groups. So you put all those together, and there's no reason -- that's the reason why we hear from physicians in the space that they think that more than 80% of patients with CAH can benefit by crinecerfont. It gives us all the reason to continue to this hard and do our best to get this medicine in the hands of physicians and patients as soon as after approval as possible.

I know you've previously talked about there's like 8,000 patients in the Cares Foundation, which are kind of like activated patients, right, out of the 30,000 total prevalence. Is that still the assumption that like those, to your point, Matt, that like would they be early adopters and might be in active care under physician that that's like the low hanging fruit that you might get a quick ramp in?

Well, I'd say for any parent or anybody with CAH, it's like a 4-letter word, you don't understand what it truly is and how it reads havoc and the burden of taking really high-dose steroids 3 or 4 times a day and the ramifications it has on the life. And I would just say the Cares Foundation was established, I don't know, 15 or 20 years ago. And their whole focus has been just on creating some network for these patients, some establishment of clinicians who actually specialize or care about treating patients with CAH. Because up until the 1960s, all of these patients died because they couldn't produce or code cortisol. And as a result, they would have this huge surge of androgens and ultimately would pass away. So at the advent of the hydrocortisone, that's really where things have started. So over the last 15 years, 20 years, education, awareness, patient advocacy has really ramped up and Cares has been a huge help in this regard. So when you ask who could be the earliest adopters? I think that kids in particular, are going to be those who are going to be the most motivated to seek treatment. However, any kid or any parent if they ask the clinician, and they're going to listen to the clinician. And so I think getting clinician expertise, getting their insight, many of them participated in the trials. These parents or these patients are ultimately going to rely on what the clinician say. So we do have a motivated patient population. We do have the defined patients that are part of the Cares Foundation. But I really think the adoption is going to ultimately come down to the clinicians, how comfortable are they prescribing the medicine? What types of patients are they going to try this on first? But as Kyle said, with the rich data that we saw in both efficacy and there's very little downside from what we saw in terms of safety. Our sense is that up to 80% of patients would be typical candidates for this type of medication. So we're enthusiastic about the long-term potential. It may take a little while for this to convert to revenue, but I would expect this to be a quicker ramp to peak than per se as compared to the tardive dyskinesia market.

Excellent. So yes, in the time that we have remaining, I wanted to ask a couple of questions about just how are things going with INGREZZA. I mean, clearly, the strong quarter, sort of surpassed the expectations, still continuing to do really well, to your point. The updated guidance that you provided on like the prevalence number, right, like the 800,000 versus it was 600,000 before. Is that like -- is there any varying degrees of severity that like -- is it like less severe patient population or a broader, let's say, criteria that you're applying to get to that number versus what you did for 600,000.

We use the same kind of view on severity when it comes to TD for making this assessment of the 800,000 patient population within TD. I will say that severity really is also a function of how functioning you are as a patient and whether or not a lower level of severity is important to you if you're out in the workplace, for example, versus those that may be even more severe, but being cared for by a loved one or a family member or caregiver and be less important. So I think it's -- it's important to look at all the symptomology from mild to severe, and that's what we've always done in terms of giving you that number because the TD can be impactful regardless of the severity status.

Got it. Great. So I guess the other thing that I wanted to ask about pricing. So Matt, going back to your comment at the conference call on the third quarter, I think you mentioned that you expect on a year-over-year basis, like pricing per script to be flat year-over-year. Just like if you can talk about it quickly on the pushes and pulls. I know you have the Medicare Part D redesign, any kind of like price increase and contracting, anything that you would highlight on those factors?

Well, I think you laid out the 3 primary drivers there. Typically, you have a price increase. Price increase is a big cap based upon inflation because we are a Medicare Part D product, primarily. And as a result of that, you want to avoid the CPI penalty from price increase. But you would expect a modest price increase. You also have -- we have actually a little bit of a tailwind as a result of the IRA redesign from a rebate perspective, being a small biotech, we are phased in on the rebate scheme in catastrophic. So instead of paying 20% rebate, we actually only pay 1% next year. So it's a slight benefit relative to where we are right now. But the other offset really comes down to contracting and contracting strategy. Some years, you're negotiating in a place where you want to ensure that access remains smooth for INGREZZA and that may come with some incremental discounts. Other years, you may decide the specific contracts not profitable and you opt out of that contract, and it might be a windfall to your net revenue per script. As we think about what we know today, we would expect net revenue per script to be very similar in '25 as compared to '24. But I just want to make -- just to be clear here, 8 in 10 patients with tardive dyskinesia are not being treated with the VMAT2 inhibitor. So the name of the game is to ensure that patients who are diagnosed with tardive dyskinesia and prescribed INGREZZA, ultimately have access to INGREZZA. And that's the majority of the conversation that we have associated with pricing. And given that the oil market that has grown to about $4 billion, believe it or not at this point, and we still think there's a lot of room left to go. These contracting trade-offs are something that we are making every year, Ash.

The good news is that 80% of our prescriptions are filled regardless of formulary status in those patients that go on to get INGREZZA medicine, they're out of pocket monthly basis less than $10. So those are the guiding principles, maximizing the access, ensuring that the vast majority of patients can get a prescription and when they do have to pay, it's a nominal amount.

So just one last question on INGREZZA. So I think there's increasingly, like investors are trying to understand like, let's say, Teva's AUSTEDO ends up on the list for 2027. What is the sort of the -- if there is any indirect impact of that to you? I understand that you have the small by day exception, so that takes it out the impact to further away, but just in terms of the competitive indirect pricing impact?

I think where we'd start on that. It's a unique situation, because what we would be talking about is our competitor in the space going through their IPAY or IRA moment in 2027. And then we would be another brand in the same category that's not affected in the same way. One of the things that we get by being in our shoes here at Neurocrine is that our -- we have the ability to sit back and watch what happens with the most recently negotiated medicines in the next tranche as well to see what the dynamics are between those products that are negotiated and those that are within the same category still branded and not affected by that, and we'll see if there's some learnings there. What we do have from the first 10 that went through is that we saw that their overall kind of net discount was around 15%. So maybe the differential there is not as great as what we think or thought it was going to be. But ultimately, at the end of the day, where AUSTEDO and Neurocrine are is that there are -- our payers, there are insurers that look at both of these products in different ways, sometimes deuterated tetrabenazine advantage, sometimes INGREZZA is. One of the things that's common that we've seen over time with INGREZZA, it's a very sticky medicine. We have very high compliance and persistence. What that means is that moving forward and thinking about the future, we're really talking about the patients that are new, new to INGREZZA, new to a VMAT2 inhibitor. And these instances that we've had in past where we're a medicine that's not the same formulary status of AUSTEDO is that there are an exemption process that we go through in the vast majority of our patients that go through that process go on to get INGREZZA. As I mentioned about 80% or more patients or prescriptions for INGREZZA are going and get filled regardless of formulary process or a status. So there's an opportunity for us to continue doing that strategy moving forward in the case where we're disadvantaged relative to deuterated tetrabenazine a couple of years down the road. But ultimately, we're going to sit back, we're going to see what's going on with these medicines and how they're negotiated in the next couple of years. We're going to see how that impacts the other brands in that same category that are not affected by price negotiation, there's going to be learnings there. And I fully expect that there are going to be changes overall to the process, those that can't contemplate what they are, but with the new administration, and we'll see how that affects this whole process as well.

Great. Just one last quick question for me, and we can wrap it up. So I guess, positively surprised by the ASR that you announced, $300 million. It's becoming a little bit more common in the biotech land to see that. For you, do you think that this is sort of like a onetime reset? Or can buybacks become more prominent part of your capital allocation strategy going forward?

This was clearly opportunistic. We're buyers of our state level for sure. And I was thankful the Board with support of wanting to move forward with a direct shot like this in retiring these shares. We know, I think most of the biotech knows that long-term shareholder value is going to be driven by revenue growth and advancing and expanding our pipeline. And so looking forward, Ash, the large majority of our capital is still going to be invested behind R&D, potential business development into the future. But of course, this will always be on the radar if we do have excess capital and our stock price feels very dislocated. I think our Board will continue to be supportive. But I would -- but with that as a backdrop, knowing that investing as a growth company, is the utmost priority for us as a company.

I'll agree with everything you said, and I'll add to that, given my history at Neurocrine, there have been moments in time in our history where our valuation has been dislocated from the value that we have in the portfolio or portfolio and product. And we haven't been in the position to do what we just did with the ASR. I'm also very aware in my history at Neurocrine, these moments of dislocation are fleeting and the market eventually gets it right and usually gets it right fairly quickly. So to be able to take advantage of this situation. I can't think of a better way to return value to our shareholders in the near term. and keep all the options, all the same options on the table for us for the future.

Excellent. Thanks a lot for your insights. Thanks for taking the time to participate in this fireside chat. I'm very happy that we have you here and looking forward to more interactions like this.

Thanks, Ash and UBS for having us.

Thank you.