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

Okay. All right. We're ready to go. For our next session, we have Neurocrine Biosciences, and we're lucky enough to have Matt Abernethy, who's the CFO; and Todd Tushla, who's the IR. Thank you very much for joining us, guys. And so Matt, I'll let you make a quick comment before we jump into Q&A.

Yes. So we're going to make forward-looking comments as you can imagine and appreciate in this environment with direct you to our SEC filings. Marc, it sounded like you said, before you said Neurocrine.

No, I didn't.

And I took a little bit of a offence to that.

You are one of my favorite stocks, give me a break.

Yes. I mean we were talking earlier about how fortunate it is to have a mega blockbuster like INGREZZA this year alone, $2.5 billion to $2.6 billion in sales. And I know there's a lot of questions around where is that growth going to in the future? How are we defending competition? How are we thinking about the payer environment? So I'm sure that we're going to get into those questions today. But the big aspect with INGREZZA, and Todd Tushla, I'll say this about him. He has a little speech that he says, how do you drive shareholder value? And it's help more patients. And so for us, the name of the game is to help more patients with tardive dyskinesia, and we really believe that there's a tremendous market opportunity left to help more patients. The second piece that I'm sure we'll get into is Crenessity. We got an early Christmas gift. Middle of December, we got approval for Crenessity. It's the first drug or medicine in over 70 years for these patients. And there's around 20,000 patients with congenital adrenal hyperplasia and just the blessing to be able to have a product to go alongside INGREZZA in this market environment that I think gives us a strong footing. We also have a pipeline. Believe it or not, nobody asked us questions recently about that, but we have 11 mid- to late-stage programs. The lead programs are #1 in AMPA potentiator called osavampator, and that's being studied in major depressive disorder. We're starting our Phase III trials as we speak and would expect data sometime in 2026 (sic) [ 2027 ] and then we also -- thank you for that clarification, 2027. And we also have a Phase III trial that we've initiated in -- with our M4 agonist program in schizophrenia. We have a tremendous cash position, close to $2 billion in cash. We're generating profits. We're investing heavily in the pipeline to ensure that we can be a leader in neuroscience. So the last thing I'll say, there has been a lot of noise around the fourth quarter -- or sorry, around the first quarter dynamics. And I would just say you can see that sell side is starting to bring down the numbers in terms of expectations. Q1 is always noisy. They go -- patients go through a reauthorization process. You also have gross to net that you're dealing with. But this year, one thing that's unique is that you have one less order week that's going to impact revenue. So revenue is going to be noisy. But I think the most important aspects that investors can ask and think about and the most important things I'm looking at are number one, did patients stay on therapy throughout -- or did they stay on therapy through the reauthorization process. And then second, NRx helping more new patients is the lifeblood of INGREZZA. And I think how is that trending relative to what we saw in the second half of last year really going to tell the tale of how we're set up and how we're performing for the rest of the year. So hopefully, that gives you a brief background on Neurocrine. But Marc, we spent probably 2 hours plus -- 2 hours last night at a dinner and a whole lot of good discussion and really appreciated it. What were your main takeaways from the dinner last night? And how do you think we should flow the conversation from here?

Well, I would say that -- I'd say, first, the INGREZZA conversation is kind of twofold. It's the -- why is the market a little bit slower this year than we would have expected in general. So that's a your company plus Teva guidance that you both provided. It just seems lighter than what we would have expected, say, 3 months ago. And second of all, the more micro issue of what happened with respect to your company losing momentum in gaining some of these new patient starts relative to Teva in a market share and what you're going to do to kind of get that back. And I would say, I feel relatively comfortable that you've got the right strategy. I mean this is probably a good forum to kind of talk about both of those things a little bit.

Well, I like hearing that you think we have the right strategy because I think that's what we're trying to do. And in terms of share of voice, last year, our competitor won the share of voice battle. And I think that's what caused the trajectory in the market to be so strong last year as our competitor had 3 major initiatives, late '23, early '24 that drove momentum for them as well as the market. The first one is they went from a 2 times per day dosing to a onetime per day dosing. They also expanded their sales force significantly for their LAI risperidone drug, which allowed them to increase overall call frequency. And then lastly, they went back on air after a long time off for direct-to-consumer advertising campaign. So they stoked a whole lot of demand, and they drove some momentum. And we saw in the second half of last year, in particular, some of our new patient starts -- started to wane. And I think that was a dynamic that led to slower momentum coming out of this year. And so you fast forward to what is the mark on it. So what are we doing about it? Number one, the highest correlated activity that Neurocrine has ever seen in terms of bleeding to new patient starts is call frequency. And call frequency matters significantly in this TD market because patients with tardive dyskinesia are going into a psychiatrist office. And rightfully so a psychiatrist is thinking about the mental health condition of the underlying patient. They're not thinking about whether the patient has tardive dyskinesia or not. So what our sales reps do is put tardive dyskinesia on the radar for the clinicians, make sure that they're comfortable making the diagnosis and also are there if a script is being -- if a script is being challenged through the reimbursement process, they're also there to be able to help alleviate that stress. So we have -- at this point right now, we have never had as much call frequency in the span of the last 8 years. So in terms of leading indicators, call frequency matters in a significant way. The second aspect that we're focused on, what are we doing about it is making sure that clinicians understand the differentiation in terms of how highly effective INGREZZA is from an efficacy perspective. It's selectivity. And then ultimately, on the 40-milligram dose from dose 1, you're at a place where you can have -- it's an efficacious dose. So differentiation is sort of the second stool of activity. And then third is in the area on the payer utilization front, engaging at the pharmacy level, ensuring we understand why scripts are maybe not getting through the entire process and engaging with payers to see if that can alleviate the valve...

Can you talk a little bit more about that? What happened? What are they doing? What are the payers doing to make it more difficult? Because it's interesting your first guess is always price volume. And you said that pricing would be relatively the same, right, the average selling price. So it's like interesting that you guys are doing something that hurt you on volume without impacting price?

It's interesting. Our formulary position in '24 is the same -- our formulary position in 2025 is the same as what it is in 2024. So no major change in formulary status. And whether you're on formulary or off formulary, we saw incremental pressure in the second half of that last year. And we've been very successful since the beginning with INGREZZA, we've always selectively contracted. Where we thought it made sense, where it helped get new patients through the process at a reasonable rate, we would contract. But there leaves a large portion that we weren't contracted. And so what we see in this environment is when a new script gets written by the psychiatrist office, it's sent to the pharmacy. The pharmacy is then filing for the claim, so they can fill the script. There seems to be incremental information required that's never been required before. And our sense is that it's just payers adding a bit more complexity to the process to slow things down a bit. And ultimately, because you're dealing with the psychiatry office that's not used to handling prior authorizations at great volume and scale. What we're finding is it's not necessarily the INGREZZA patient getting switched to AUSTEDO. What we're finding is that it's an abandoned script through the process because it's become more -- a bit more difficult. So a lot of our activities and insight right now is trying to figure out how can we ensure that these scripts and the claims that are being worked on them, they're not just set to the side and ultimately abandoned. So that's a strategy that we don't have 100% figured out. We have some elements that we're working on right now. But the most important thing for us is if a script is written for INGREZZA that a patient ultimately gets on INGREZZA.

Is there anything that they're doing that's not workable? For instance, if they're asking a couple of extra questions in a different way, and it's a little bit longer. These are still solid.

That's what it is. It's tactical things to come up the system and slow down when a new patient gets drug or if it's abandoned.

So then you need to get tactical...

We have reimbursement experts that are on top of it, but it's just something we saw pick up in the second half of last year and continue into 2025. And I don't think it's a coincidence with the IRA in place now that the payers are responding this way.

Yes. And are you feeling about maybe getting more aggressive with contracting, given what's going on? Do you think that makes sense?

It might make sense in the right ZIP code from a cost perspective. I think it's the easiest lever people think is you can just contract and everything goes through smoothly. I don't think that's the silver bullet here. And I think there's a lot that we can do even outside of contracting to help get through this process. But if we thought that it ultimately made economic sense to contract, I think we will. Our main focus right now, Marc, is between now and 2029, which is our [ ipay ] moment with the government.

Good segue look have talked about...

We have the maximum number of patients on therapy as possible. So with IRA, we have the small biotech exemption -- small biotech exemption puts us at a place where the earliest we could be selected for negotiation is 2027, and the price would ultimately take effect in 2029. That negotiated price is based upon this really obscure measure. It's basically your 2021, call it, your net sales price increased for inflation for 5 or 6 years, and that's your basis of negotiation with the government. That discount that we will be negotiated down is, thankfully, thanks to our good government affairs team, there's a cap in terms of how much we can actually be taken down from that 2021 [indiscernible] what it's called. And that's a discount of between 25% and 34%. So we know what the range is of potential discounting from the IRA. And so for us, we're incentivized to get as many patients on medicine as possible between now and then. And if you give up a little price along the way, it won't impact the floor to where you ultimately go down. And so that's our current strategy in terms of how does that play into contracting. This is such a dynamic environment right now. And I'll just say we've been an adaptable company since the launch of INGREZZA, and we're going to continue to adapt and feel like there's going to be a long durable stream of cash flows coming behind INGREZZA for the next 13 years.

And what happens with INGREZZA when AUSTEDO actually is IRA earlier? Like how does that play? Talk about that dynamic.

First of all, it's hard to say with 100% assurance, Marc, that you know exactly how it's going to play out. But a couple of interesting pieces is once they're, I guess, IRA, we'll call it -- once they're IRA in '27, they're on all formularies, their rebates to those plans go away. And so there's an incentive economic dynamic there that they're at a low net price and the plans are no longer getting rebates, they may prefer having a rebated drug or a medicine like INGREZZA on the formulary as well. The second piece is I really truly believe that in this class of medicine, having 2 medicines matters significantly. I think clinicians want choice and I think that it's not going to be the case where INGREZZA gets written and it's not available. Medicare has done a good job for patients where a clinician wants the patient to be on a specific medicine, there's a very defined process called the coverage determination form process and patients can ultimately get access to the medicine. And so that's something we've been dealing with over the last 7 to 9 years, whether we've been on or off formulary. And so that gives us a bit of confidence that we believe that, that's going to continue to be the case. The last comment that I'd make in this regard is just a reminder, this is 100% specific to new patients. We have seen historically with formulary changes, existing patients on INGREZZA or existing patients on AUSTEDO are largely left alone. Changing therapy for this patient population is something that has not been seen. So that's one other aspect that gives me confidence in the durability of the INGREZZA revenue.

Let's talk about the first quarter. I guess you started to bring up the one last week. Obviously, there's the normal messiness of the first quarter. But what about just more broadly, new patient starts, the claims data that you were referring to last year. What does that claims data show for January, February, if you've seen it? And is there any other comment you want to make about the first quarter?

Like I said earlier, it's going to be a noisy revenue quarter. And that revenue nets itself out through the rest of the year. It's just basically order patterns. And so I do think the NRx piece is going to be an important aspect for us to comment maybe in a bit more granularity than we have in the past, Marc, because of the slowing NRx in the second half of last year. I think what -- giving some insight to what we're seeing in NRx in the quarter really will paint the picture of are you starting to see the benefit of the sales force expansion? Is that same recipe of call frequency still working in this market? And then the second aspect just has to do, too, with the payers, how are they managing in this environment. So I think we'll learn a lot through the first quarter. And I would say all of what we're talking about is in terms of the first quarter dynamics are included in our annual guidance. It's just something we're just trying to make sure is not a surprising aspect if revenue dollars are noisy in Q1.

Yes. Well, I mean, 1 week is a great deal of revenue given how big the drug is. So it's having 1 week from 1 quarter to the next is a big...

Just the one order, it's 8% of revenue for a quarter. And you also have the gross to net dynamics that I threw out was about 3% headwind sequentially and you stack on top of that a little less momentum going from Q4 to Q1. It's going to be a bit of a noisy quarter. But we're up for the challenge as a company. I really believe the commercial team is doing a great job. And like I said, engaging with more customers than they ever had before. And if the recipe is stays like it has been, we should start seeing the early fruits of that sales force expansion. It was started in October. You should start seeing some benefit in Q1, more benefit in Q3 or Q2 and then accelerating growth in the second half of the year.

That makes sense. Let's switch gears to CRENESSITY. Obviously, very excited to have a second drug, very unique when companies get to finally launch their second drug. It kind of changes the whole dynamic. Talk about how the year is going to progress with CRENESSITY, how we should expect it? Talk about the adult population, the peds population, how you expect kind of the ramp to occur?

Yes. Well, first, so CRENESSITY is our brand-new drug to treat congenital adrenal hyperplasia, and there has not been a new therapy for this patient base in 70 years. So the current treatment is with high-dose steroids, which everybody understands is bad over the life of treatment. And so as Matt mentioned at the outset, we got approved in December. This has all the hallmarks of a blockbuster product, and we believe it's going to be the standard of care treatment for these patients. We do think it's going to be a measured launch, though, at the beginning for a number of reasons. One is just the normal patient flow of when a pediatric or an adult patient comes in to see their endocrinologists. It's typically somewhere between 1, 2, 3 times a year. So there's the flow issue to deal with. There's reimbursement dynamics that we're working through, which are not unique to any orphan drug. So what we have is a quick start program. So a patient can be prescribed CRENESSITY and our reimbursement experts and our pharmacy that supports us PANTHERx has a reimbursement expert that works through the adjudication claim over the course of a month. If it's not figured out by then, there's another month worth of free drug while the reimbursement gets worked out. This is the same playbook we used for INGREZZA. And what we saw with INGREZZA back then was it took about 6 to 8 weeks before you got reimbursement all lined up. So what that will mean is in the back half of the year, you'll start to see new patient starts, which is what we're going to provide on the Q1 call, line up a little bit more closely with revenue. And then we also have the third point is we have an open-label extension that is continuing on. So there's no bolus of patients that are going to flip to commercial. And so for the first couple of quarters, you're going to have this measured approach. And then we think you'll start to see the momentum pick up in the second half of the year and into 2026. But all the feedback that we're getting internally, all the feedback that you and your other sell-side peers are collecting from doc checks, the receptivity of this product has been very positive across endocrinologists, the payer community, the patient advocacy groups. And as to quote Eric Benevich, when asked last week how the launch is doing, he said, so far, so great. So it's early days, but we're enthusiastic that this like INGREZZA is going to change the standard of care.

Help to quantify the population and then the differences in how you think the adults will get treated versus the kids?

So we have -- there's around 20,000 to 30,000 patients on -- with classic CAH in the United States. And so how they're treated right now, you have around 15% of those going to centers of excellence. And there's about 20 centers of excellence across the country. And essentially, these kids primarily are flying in and making sure they're getting treatment. The most motivated patient population for a medicine like CRENESSITY, no parent likes putting their kid on high-dose steroids and giving them those steroids every single day. So in terms of motivation to ultimately get treated, a parent is going to be talking to their clinician about whether CRENESSITY could help them control their androgens and then as a result of that, reduce the steroids. So the pediatric population is about 1/3 of the market, but I would expect it will be closer to half the sales or more. So I think that, that's the most motivated to treat patient segment. The second would be females. Females, especially if they're interested in being able to have their own child. I think that, that's something that this is going to be a very of high interest and let alone just controlling the male hormones that are being produced in their bodies. I think that females are going to be the second highest motivated group. And then lastly, a stubborn old men, we feel like we're not going to get any better. I do believe that there is significant benefit in being able to control androgens and bring down steroids. It's sort of like smoking. There is benefit to stop smoking even if you've smoked for 40 years of your life. So I do think that there's going to be different segments. All of them can benefit from it. I think [ Dr. Akus ], a leading thought leader said, based on the clinical data and what he's seen, his expectation is that 80% of the population would benefit from a medicine like this.

What's the plan for Europe?

We're still thinking through Europe right now. We've been very focused on the U.S. in terms of launch. The patients over there are in the open-label extension study. We want to find a way to be able to expand access outside of Europe, but some of the complexities of that market plus just the primary focus being in the U.S. for now, it's focused in U.S., and we'll keep everybody apprised in Europe.

But you fully expect you'll be in Europe and you fully expect that to be a real opportunity?

I would hope. But the reimbursement environment in Europe is also something that you have to fully think about in terms of making sure you have the right data to support an adequate price point. So there might be a lag in terms of getting to Europe to make sure that you can get adequate reimbursement that would be fair for a specialty medicine like us. And I think there's -- it's not unique to CRENESSITY in terms of it lagging the U.S. market. But I fully expect CRENESSITY could be a blockbuster alone easily in the U.S. And then we'll figure out where we go with Europe later.

Let's talk about the pipeline a little bit.

We do have one.

Yes, yes. Well, I think the muscarinic portfolio is kind of probably the biggest focus for people. So I guess the question is the strategy of having an M1, M1/M4 having everything, are they all going to just completely move forward if they're all positive? And just how you're thinking about titrating the spend on at all? And then second part of the question is there's a lot of confusion around like was the quality of the efficacy of 568 good enough to really move forward what I mean. And so it's kind of 2 questions there.

Well, let me take the efficacy side first. There was noise around dose response associated with our data readout. If you were to ask our medical colleagues, they would say all doses worked. They're all active. You could see it was engaging target. You saw heart rate increases. And I think that biomarker helps validate that they were -- that it was actually working. We did get agreement with the FDA in terms of dose selection, which will be the lowest dose. And in terms of when -- how we pick the low dose to begin with, we wanted it to be an efficacious dose. Anytime you're putting an acute psychiatric patient into essentially an inpatient facility for many weeks, you want to make sure you're giving them a chance to have an efficacious dose. So it wasn't overly surprising that we had a dose that worked from the lowest. So we will be going forward that low dose will be a simple trial. My basketball coach used to run a play called KISS, keep it simple, stupid. And I think that, that's going to be the MO for the schizophrenia program, 1:1 randomization, strong site control, making sure that we understand exactly what's going on with the raters and the quality of the raters and get a good outcome. I think our competitor, Cerevel and AbbVie, I think they had a lot of elements to their trial that led to it being a failed study, not a failed drug. And I think for us, it gives us a place where we can be second to market. And I think we're excited. So having the smorgasbord of options is a good approach. And I would just say for a few reasons. After you get through schizophrenia, where the money is going to be made off of any of these muscarinic programs is what other indications do you go to next. And you could see, like we've announced our lead program, our M4 agonist is going into bipolar disorder later this year. As you think about the M1/M4 dual, which is the one we're most high on going through Phase I, we're going to start that in schizophrenia, but you could see that go more towards areas of cognition into the future or even having attributes of being able to be developed into a long-acting injectable, which would be important in this type of patient population. So there's going to be -- there's an environment where you could have 2 commercial assets. And so we're learning a lot here. It's still early days.

With different indications.

With different indications. And so we're learning a lot, and we'll see where the science take us. But if we have a positive study with M4 agonist in schizophrenia, that's going to be a real foundation for the psych sales force that we already have in place and going to be able to continue to leverage our strength in the psych.

So is the M1/M4 through the SAD/MAD work yet? Or is it almost done? Will we see the data this year?

It's -- I would say we see it in real time as it's going through and what we've been seeing, we've liked. In terms of will the Street see the data, historically, we've not provided a tremendous amount of Phase I data. But later this year, we are contemplating hosting -- having an R&D Day, hasn't been defined yet, but these are the types of things that we would likely highlight between more information on the Osavampator MDD program as well as some more incremental information on the Phase II program for the M4 and some things in the clinic.

Excellent. Excellent. Any last minute comment or last second comment, I should say. We really don't have any more time, but...

Well. I would just say it's obviously an environment where uncertainty is being punished right now, not just for us, but for every company. And I understand some of the uncertainty associated with the tardive dyskinesia market is exaggerated in this type of a market environment. So for us, our heads are down. We're adapting. We're going to make sure we get through this strong and to be able to have CRENESSITY alongside of that. Absolutely a nice setup for us and the company. And so we're going to work hard to execute for our shareholders and appreciate the support along the way, Marc.

Certainly, on a relative basis, I mean, even if the product only grows 10%, CRENESSITY grows on top of that, it's pretty good top line growth. So...

Yes. We'll be happy with that...

Relative to a lot of other companies. So thanks very much for joining us. We appreciate it.