Neurocrine Biosciences, Inc. ($NBIX)

Thanks for joining us. I'm Marc Goodman, one of the Biopharma Analyst at Leerink, and it's great to have Neurocrine here. We have Matt Abernethy, who's the CFO; and Todd Tushla, who's the IR guy. Thank you very much for joining us. Matt, I'll give you a chance just to make an opening comment, maybe not too long, but just kind of set the stage.

I'll try to run out the clock if that's okay. And we'll pivot a little bit throughout this presentation. How about that, Marc? We will be making forward-looking statements. So we'll direct you to our latest SEC filings for the related risk factors and uncertainties associated with our company and then also our industry. Now that we have that fun fact behind us. We're at a great spot, Marc. We had -- how long was that dinner last night about 2 hours?

Yes, because they didn't serve the food very quickly.

Yes. They were still catching the salmon. But to be at a spot where you have 2 approved products at this point is just incredible. You have $2.7 billion to $2.8 billion guide for the year for INGREZZA. INGREZZA has actually been on the market 9 years now. And to be at a place to have double-digit growth still is just quite significant. We recently expanded the sales force. The sales force will be in place starting the beginning of Q2, but was at a national sales meeting a few weeks ago and just the energy is high to be able to help these patients with tardive dyskinesia. So a lot of excitement there. Our second approved product really transformed the company, I would say, and that was with CRENESSITY for congenital adrenal hyperplasia. It's the first product approved in over 70 years for these patients. The only option for these patients prior to CRENESSITY's approval was just to take high-dose steroids. So there wasn't a good option. And in the first year of launch, I think we had over $300 million in sales, 2,000 patients being helped and that really sets us up well for continued growth into the future. I think I read a recent IQVIA report that would put this launch actually within the top 10% of all rare disease launches of all time and so a big shout out to the team for being able to execute in that way. With INGREZZA and CRENESSITY, we're able to take that cash and reinvest it back into the business. We put around 35% of our revenue back into R&D. That's a capital allocation philosophy for us. We have 2 late-stage Phase III trials. The first one is in schizophrenia. The second one is in depression. We started those trials last year and we intend to read those out in 2027 and 2028. In addition to that, we highlighted at R&D Day, all the progress that Jude Onyia and team have been making. They're way ahead of schedule. But for us, as we think about creating a major company here that has a market cap of $30 billion to $50 billion, you have to have great commercial products, and you also have to have an internal R&D engine that can sustain your R&D pipeline into the future. And I think that, that's what Jude and team are creating. On the financial front, of course, being CFO, I like this part. We have over $2.5 billion of cash. We've accumulated a couple of billion in cash over the last handful of years. We've been able to pay down our convertible debt. And we have no debt at this point. So $2.5 billion in cash, no debt, 30% non-GAAP operating income. And so cash flow is quite good, even with all the investments that we're making right now. So we have a lot that we're looking forward to, and I feel quite fortunate and honestly, Marc, to be sitting here as CFO of Neurocrine.

So when you think about this year, what's most exciting to you? What are you focused on?

Well, what's most exciting? I think there's really 2 things that pop out to me. The first one is with CRENESSITY. CRENESSITY is near and dear to my personal heart. Many of you guys might know this, but my son has classic CAH. He's one of the 20,000 patients in the United States that have CAH. And I didn't know anybody who was working on a medicine for CAH until Neurocrine reached out to me 8.5 years ago about the CFO role. And so for me, the journey to move my family across the country to San Diego and then you fast forward 7 or 8 years later, and there is an approval for my son, that just is incredible. And so fun to be part of a company that's helping patients with CAH. And my son actually was the first commercial patient on product. So he's got the longest experience base. So I would just say, I feel quite blessed to be part of a company like this. I was at the sales meeting a few weeks ago, and the team is just ecstatic. The stories that we're hearing in terms of patient benefits, the stories as it relates to what the clinicians are thinking. There's no doubt in my mind that this can ultimately be a blockbuster medicine. And I'm sure we can get into more of the attributes of why we're bullish on the prospects for CRENESSITY this year. But for me, that's number one, and I know that's more personal and biased but a lot of optimism for this year. The second one is osavampator. Osavampator is an input potentiator that's being studied in major depression. I think we can all relate to patients that have depression and need a better option. This had tremendous Phase II data. And we're now executing those trials and ensuring that patient enrollment is done in a quality manner so that when we get the data in 2027, you're not going to be sitting wondering, was this a failed trial, you'd rather be a failed drug if the data does read out negatively. But we have a lot of reason for hope. And I'd say those are the top 2 items when you say, what am I most focused on or most excited about? I would lead with those 2.

Let's talk about CRENESSITY just for a minute and talk about the -- just some of the numbers. I think one of the things that we're always focused on with these types of launches is where are the patients. And so talk about where these patients are and the patient -- the 2,000 patients that are on product today, where are they? And I guess the context is centers of excellence versus the community. Just give us a sense of what's going on there.

Yes, there's 20,000 patients with classic CAH that's what our best estimate is at that time. You also have 60,000 to 80,000 patients with what's called nonclassic CAH or what they've been coded that way. So part of the patient finding exercises is being able to sift through because there's not a specific ICD-10 code for classic CAH is trying to parse through classic versus nonclassic. But when we look at the marketplace, there's about 8 -- like full on centers of excellence accredited by the CARES Foundation. And there's another 20 or so that you would call what I call almost the COE. They don't quite fit the full criteria, but they see a lot of CAH patients. So in that, call it, 30 institutions, you have about 15% of the patient population, so about 3,000 patients. The rest are spread amongst different regional endocrinologists in different even primary care physicians and for women, OB/GYNs. So you have a disbursement outside of that concentration of 15% is where the patients are at right now. When you take a step into where did we get the first 2,000 patients from? Somebody asked me recently, like, wow, you've tapped out of the centers of excellence. You got most of your patients from there. The next leg of this lift is going to be so much harder than it was first. And yes, with every rare disease launch, you have patients who raise their hands or clinicians who are fast adopters upfront. But I really do want to reflect that less than 50% of the 2,000 patients came from centers of excellence. So you still have a significant amount of opportunity to gain access to patients at centers of excellence. And so as we look through our growth prospects, we have a lot of depth left still at COEs, a lot a depth with those clinicians who have written this first year. And then we also have people who have not written yet. And so a lot of effort is still going to go behind this launch, but we're very optimistic.

Talk about the COEs who've not written yet. And why have they not written yet?

Well, it's a good question for them. But what I would say is these folks feel like they're very skilled in the art to treat patients with CAH. They've dedicated their entire life's work towards that. So for those patients or for those COEs who haven't written with much depth at this point, I think the feedback is, one, I want to make sure this is safe in the long run for these patients. I also want to understand for pediatrics, you're really caring about the progression of the disease, in particular, with androgen control and how those that then translate to accelerating bone age versus chronological age. So I think part of what's holding COEs back is just simply wanting to see outcomes of how patients are doing on therapy. And thankfully, we have a very nice open-label extension study. We've shared some with investment community, but at a conference later this year at ENDO, we'll be really highlighting, especially on pediatrics, the improvement that patients are seeing in growth velocity and bone age advancement relative to chronological age. And so that will be a big event for us to be able to ensure that we can share the data that support this being efficacious, but then also safe. Any time you're talking about putting a medicine on board a young child, you're wondering about safety. And so far, it's been pretty much right to label and the experiences that we're hearing back from clinicians has been quite strong.

So how many doctors have written so far?

A little bit over 1,000. So there's about 8,000 clinicians in our call universe, you could basically say if you have 3,000 to 5,000 patients that are ultimately prescribing, that gets you more to the peak penetration would be. When we -- also coming out of the last call, there's been a lot of questions around the step-down that we've seen in enrollment forms each quarter. And when we go back and look at all the rare disease launches, that's not surprising. There's ebbs and flows of new patients being put on to therapy. This is one that is only prescribed as patients actually go into the clinician's office 1 or 2 times per year. And ultimately, those who got on medicine early, it takes 6 to 12 months to see the benefit of what those patients are seeing and experiencing. So I don't think it's abnormal to see ebbs and flows but still what you're asking is, number one, does the medicine work? Number two, is it safe? And then from a company perspective, are we getting reimbursement? So what we've been surprised to the upside on are that feedback has been the drug is working as advertised, it's safe, and we have very strong reimbursement at this point. So with those characteristics and studying even what other rare disease launches have ultimately done, peak penetration of between 30% and 50% is the median of what you see rare disease launches get to. And I don't see any reason why we couldn't get into that ZIP code given the efficacy and safety and even some of the KOLs and clinicians have said that they believe 80%, 8-0 percent of patients with classic CAH could benefit from a medicine like CRENESSITY. So a lot of excitement. And I think when you accumulate patients over time, this ultimately becomes a very nice and big drug for the company.

So you started to talk about reimbursement. Just give us a sense of the evolution of the reimbursement over year 1 and what's going to happen in year 2?

Yes. So when we launched the medicine, I think we conditioned the Street that we would have most patients going on free drug the beginning of launch. And then over time, it would progress into a reimbursed script. The opposite was true. And I think that, that was because, number one, we had a great pharmacy partner and PANTHERx. They're very skilled at the art here. The second piece is, I think as you talk to plans and commercial plans, these are complex patients and it's pretty easy to understand high-dose steroids aren't good for patients over the course of their entire life. And since 70% of these patients are commercial, what we ultimately found is this is being managed through an exceptions process, each claim. And we've been very encouraged by what we've seen. Typically after 3 to 6 months to get a 12-month authorization, you're typically looking for feedback from the clinician that androgens are being suppressed and that's about it. So I don't think we could ask for anything better on the reimbursement side, and we had a team out engaging with payers for 6 months prior to launch. And so I think that's really what set the foundation for success.

Marc, you got like steady new patient adds in an unmet need area. You've got very strong compliance and persistence for existing patients, and you have very strong reimbursement. So all that sets up for a blockbuster product. I think internally, the question for us is it's similar to kind of where INGREZZA was, how big can this be? And we don't know yet, but it's going to be a blockbuster.

Right? So the reimbursement today is just not an issue, like patients.

Over 80% of prescriptions are being reimbursed.

And the ones that are -- it's just a small pushback?

Yes, or they have a -- yes, a small pushback. And even the actual ultimate patient percentage that get a reimbursement is higher than that 80% because that reflects those who maybe had a month or 2 of free medicine and then ultimately get on to reimbursed. But in those limited instances where insurance won't cover it for whatever reason, as long as they're a classic CAH patient, they get free medicine. And that's been the push to the clinicians that if you write a prescription of CRENESSITY, your patient is going to get CRENESSITY within the first 10 days. And I think that's another piece when you brought up earlier, why have some COEs not written it, it's just the faith of are my patients really going to get on medicine and what is going to be the complexity of having to care for CRENESSITY being on board for the patients. And I think we've made it as easy as possible.

And for those COEs that haven't written, it's not a matter of if it's going to be when. But we'll get in there.

And just mention persistence again. So what are we talking about?

Very high along the lines with the open-label extension study. So you're talking north of 80%.

Yes, amazing. And one last thing is product awareness just to kind of come back to those 8,000 doctors. You mentioned 1,000 have written so far. So you've increased the sales force a little bit to kind of go after more. Just give us a sense of how many of those 8,000 have been touched so far. Did they even have product awareness, so to speak?

Yes. I mean a lot of these, if you're talking about 20,000 patients and you have 17,000 of those at non-COEs, they're spread out. And you have many doctors who see maybe one. And so what you're trying to do is figure out how do you engage with that clinician when they're only seeing one patient a year and they're sort of it's not the priority. How do you ensure you time of visit of product awareness with when that patient is coming in. So there's some pretty cool data-driven call point activities where you can potentially see, for example, in a de-identified way when labs might be being done and they're ordered by a clinician and that would maybe trigger going and making sure there's product awareness. So I think the biggest aspect is, number one, just the feedback that is the drug working and hearing that, whether it's at ENDO or other endocrine society meetings and then timing and awareness visit in proximity to when the patient is actually coming in to keep it on the radar, I think, is part of the recipe here for continued progress, but all good. And I mean, it's exciting to be part of the -- it's exciting to be part of the company. There's -- in drug discovery, you have a really high rate of failure. We're experts at family and you have to celebrate the win. And for us to have 2 internally developed compounds make it all the way into the promise land and being selling well, it's quite encouraging. And even hearing in the landscape positive data from other companies, biotech is an important vehicle to be able to help society. And I think there's been a lot of negative rhetoric that has put some pressure on the industry. But when you take a step back and think about transforming lives of people who struggle, it's very rewarding and very satisfying and very proud of where we're at as a company.

Let's flip gears to INGREZZA, $2.7 billion to $2.8 billion. Give us a sense of volume versus price in the expectation? And then break it down a little bit how you're thinking about each one.

Yes. So price is the most straightforward because we entered into contracting last year. throughout the year that expanded our access with Medicare Part D from around 40% to over 70% by the end of the year. So there was a lot of noise and confusion that occurred last year with INGREZZA and that's all behind us at this point. So if you think about price just running it through 2026, sequentially, very consistent with how we exited the year. However, when those price impacts occurred throughout last year, you still have the year-over-year headwinds associated with that. So for the year, I'd expect net price to be down year-over-year close to 4 -- call it, 4% to 5%, more heavily weighted or most heavily weighted in Q1 and then a little bit of price compression in Q2 and then more flattish year-over-year in price in the second half of the year. Our $2.7 billion and $2.8 billion implies about at the midpoint, almost 10% growth. And so if you remove the 4%, you're talking about a 14% to 15% growth year volume-wise for the company. So this blockbuster all comes down to volume, it all comes down to developing the tardive dyskinesia market. Even 9 years into launch between ourselves and our competitor you have only 10% of the 800,000 patients actually taking a VMAT2 inhibitor today. So call frequency matters in a significant way to put tardive dyskinesia on the radar of these mental health clinics and facilities. And so we recently expanded our sales force to continue to ensure that we have the right level of call frequency to be able to drive that volume. So if you ask within the range, what's going to be the key factor of being at the high end or the low end, it all comes down to new patient generation. And that's going to be on the heels of our sales force expansion as well as some of the direct-to-consumer advertising effort.

It's volume. Pricing is kind of locked in for this year.

Yes.

What about for next year pricing? How do you think about?

We'll figure out pricing throughout this year. We're going through the negotiations with the plans right now. But for those who aren't as close to the story or maybe understand the background of your question. This time last year, I remember a lot of conversation was Teva was selected for negotiation for their medicine, which was going to have an MFP in 2027. And there was fear that if that price was going to be so low that there is going to be price compression on INGREZZA or we'd be kicked out of formulary in a way that would allow patients not to get access to INGREZZA. So I think 2 things have happened over the past year that have been encouraging that make us feel like it's going to be a manageable window of time for us. One, their negotiated price ended up becoming public and the discount was not as bad as what people had feared. The second piece is it's also become clear in terms of their XR and their milligram pricing strategy that the price is actually going up on a net basis. And so where we sit as a position product in a payer's mind, were in our mind or perspective, a better product at a very affordable price. We don't see a major reason why we won't continue to have strong access through '27 and '28. So we'll get through the negotiations. We'll find out if we're on or off formulary at the end of this year. But ultimately, we do expect that we'll have strong access in '27 and '28.

Yes. And both companies obviously are trying to grow the market. Where is share of those new patients today roughly?

So new patient share, at least our internal information would put us at about 55% new patients, and they're at about 45% new patients.

And that's data as of like last quarter or last month?

We track it every week. But that's probably on average the last...

Last couple of weeks...

Second half of last year. That's a pretty good proxy.

So it's pretty much the whole second half, you were running more share than they were.

Yes. And that's different than what we had exiting 2024. We had been at a spot between the XR launch and then also their expanded sales force that we were actually at a place where we were not gaining as much and they were at a higher share. And so we've seen that reverse throughout 2025, and that led to record numbers in new patients in Q2 and Q3 and about the same in Q4 as what we saw in Q3. So a significant progress being made on the new patient side of the equation last year.

Switching gears. One investor comment that I hear quite often, and you hear this, I'm sure, too, is wow, at Neurocrine. Great company, great products, but boy they sure do spend a lot of money. So I guess maybe you can address that as a general question. But I think interesting -- a second part of the question is, wow they're moving into obesity? I mean, like how much are they going to spend on obesity. It's a huge crazy space to get into like I think it's important to help people understand like how you're thinking about obesity? Well kind of 2 questions, but it's a...

Yes, that's a buzzword. Anytime you say obesity, I think why are you running into such a competitive space. And I think we're fortunate, honestly, we have an endocrine division that's been in place for quite some time. We have experts that we've hired from all the major companies. And Jude Onyia, our Chief Scientific Officer, actually was the originator of all the large molecules at Lilly. So I think we know what we're getting ourselves into. And I think we know how we might be able to differentiate. I think it's clear there's not going to be just one winner in this space. There's going to be a lot of different forms in terms of book mechanism as well as ultimately the ease of administration or the frequency of administration. So I think there's a lot for us to continue to pursue in obesity. And from an investment perspective, it's pretty modest to get to patient level data or at least a healthy obese patient level data. We'll start a trial this year. We'll get some data next year, and we'll let data do the talking in terms of where we go from there. The magnitude of investment goes up significantly when you get -- especially in the Phase IIb or a Phase III setting. But in terms of our capital allocation strategy, we want to invest around 35% of revenue back into R&D. And if you have the quality assets to be able to invest behind that and reach a threshold decision that's data-driven, that's the approach that we're taking right now. Every analysis that we do, Marc, on shareholder value, what drives shareholder value. The #1 factor is correlation to medium-term revenue growth. And so you can see our #1 capital allocation priority is to invest behind continuing to drive revenue growth. So we'll get critiques around sales force investments, direct-to-consumer investments. We, of course, could find a way to be more profitable in the short term, but we're looking at trying to create long-term shareholder returns here on the SG&A front. And like I said, on R&D, you have to be able to show a sustainable pipeline, and that's something that we're doing within R&D at the 35% investment clip. And lastly, just to be clear, we're very profitable. I mean 30% non-GAAP operating income. We are committed to staying profitable. It's just we're not focused on maximizing short-term profitability. We do feel like the investments we're making will set us up for long-term success.

And where does business development kind of fit in? Give us a sense of BD last year and how you're thinking about it now?

We did a lot of smaller deals to really enable Jude Onyia's group. I think Samir Siddhanti and team did close to 10 business development transactions.

Many we didn't hear about.

Many of you didn't hear about. They're just smaller in nature and things that you could throw into your development candidate pool. And and go through and see what you have. So we've been focused on the early stage and we're also very focused last year on getting the Phase III trials up and running. So if you think about the capacity of the company, we had CRENESSITY launching, you had the pipeline expanding. Our focus last year from a BD perspective is more small internal tuck-ins. But we, of course, have the financial flexibility if the right asset came across our plate at the right time, we would, of course, be in a position to act. But right now, feel good with what we have.

Good. Good. Thank you. Thanks for joining us. Appreciate it.

Thanks. Always fun.