Neurocrine Biosciences, Inc. ($NBIX)

Welcome to the Goldman Sachs. [indiscernible] You don't have any questions, yes.

Very good. Well, thanks, everyone, for joining us here. We're thrilled to have the team from Neurocrine and Adam Green in the audience for our conversation here today. Maybe just to start, you guys have recently done a transaction. But maybe you could just talk about the core competencies of Neurocrine as a business and how you think then kind of strategically about which products you bring in-house and speak to the [indiscernible].

Can I ask a few questions along the way too?

Yes. I don't promise to answer.

Yes. We will be making forward-looking statements and part of that will be whether you want disperse or the next to win. So we will have an FLS for that. But yes, we have a lot going on at Neurocrine. I was just talking to a gentleman in the back, not Adam. And we were talking about how we went from INGREZZA only to a multiproduct company, and that's been just amazing. And you and I talked about that briefly yesterday. We're actually a real thriving company now, generating cash flows, investing in our pipeline, 20 to 20 or so commercial assets at this point. So we have a lot of great things going on at the company. INGREZZA guidance range this year, $2.7 billion to $2.8 billion. It's amazing 9 years after launch that it's still growing double digits. We get asked that question all the time, wow, how can you continue to grow INGREZZA and it really comes down to the fundamentals of the market. So many patients with tardive dyskinesia didn't have any help until 2017. And now we're helping those patients and continue to have great growth. CRENESSITY was the game changer for us, obviously, coming after INGREZZA. CRENESSITY was approved in a rare endocrine product or a disease called congenital adrenal hyperplasia. We've been able to help about 10% of patients in the first year of launch, and we have $150 million of quarterly revenue this past quarter. And then last, you mentioned this, VYKAT XR. It was a great acquisition, I think, for us, and I'll ask your perspective in a moment. But it brought to us another rare endocrine product. So we have 3 now, 2 rare endocrines or rare endocrine franchise and that was approved in Prader-Willi syndrome, and they had around $100 million of sales last quarter. So when you stack all 3 of those products up over $900 million of revenue at this point and 97% plus gross margin. So you think about the cash flow that is generated from these products, it's quite significant that then allows us to reinvest back into R&D at a rate of 30% to 35%. And as I said earlier, we have 20 clinical programs, the 3 headline programs inventory, which is in a Phase III study that's being studied in major depressive disorder. It's an [indiscernible]. The second is a Phase III program with direclidine in schizophrenia muscarinic agonist. Both of those programs will have data in 2027. And the second study for direclidine will read out in 2028. So a transformative year on the psych side next year. And then the third program on highlight is actually a Phase I study. I remember, we talked about this at R&D Day, I was sitting right next to you, [indiscernible], and it's in obesity. And it's CRF2 agonist, and we're going to actually have healthy patient obese patient data in the -- in late 2027. So a lot going on, on the pipeline front. And then with our capital, you can see we're generating non-GAAP net income of around $200 million at this point and only growing. We deployed our capital towards buying Soleno falling cash for $2.9 billion, and that acquisition will be immediately accretive to us. So a lot of great things going on at Neurocrine, and I think you asked about the Soleno transaction. How did that check the box for Neurocrine? And I think it's quite clear from a strategy perspective, a second rare endocrine product for us and adds to the diversification and scale that we would a leading neuroscience company. So there were 3 fundamental variables that we had to get comfortable with to underwrite the deal. The first one was peak penetration. And peak penetration would be at the higher end of the 30% to 50% because there is no other approved treatment option for Prader-Willi. This was literally the first treatment option ever available to patients. And our expectation is that this will have very nice penetration. The second piece was discontinuation. And this was a question that had been coming up to them as a company and we had to do our own diligence in looking at their patient data as well as looking at what other rare disease launches have done on the discontinuation rate. We underwrote it at around 25% or so discontinuation. And then lastly, we had to get comfortable with the intellectual property. And we found in reviewing their patent applications as well as their issued patents. We feel comfortable that the IP should extend out into the mid-20s and that's something that will be clear to -- the Street as we get later this year. So I think if we hit any of those variables, we're going to be at a spot where we drive shareholder value well in excess of that $2.9 billion. But what was your take on the transaction?

I'm not on stage right now, but I mean, I think, generally speaking, talking is that you're already annualizing at $400 million in sales. It's already profitable from even just a financial picture. You don't have to think a whole lot of growth room here in order to be comfortable with the deal. But I do want to talk about the growth room here, which is -- as you think about it and you did -- it sounds like a good amount of diligence on your own before underwriting this asset. What have you anticipated lease to get to that and how do you think about the puts and takes could inform cost?

In the pace as quick as possible. But I think when you look back at rare disease launches, you typically get to a path to peak of between 3 and 5 years. And so that's our base expectations. There will be some noise in the early stages First of all, let me back up. I can't take any credit for how the launch has gone so far because this was not underneath our wings and the team did a really excellent job, number one, getting it approved. That was a big feat. And then second, getting it to market. And as I said earlier, if you think about these patients with hyperplasia, they have is unrelenting like obsessive seeking of food and think about the hungriest moment you've ever had and that hunger never goes away even if you're eating. So think about the devastation that's having on families. I know you have a family yourself and I could only imagine the disruption that has to the patient, to the family and over the long run, some very serious health implications. So getting this approved was an amazing feat for the company -- and then at the time of launch, you had a bolus of patients that rushed to getting treated. And of course, it was on our radar and trying to understand the dynamics there. So you had a bolus of patients in the first quarter and then you've gotten now into more of a steady state of patient additions where Q1 was very similar to what they saw in Q4. And so from a modeling perspective, I know it gets nuanced in a bid complicated quarter-to-quarter because you have that natural discontinuation rate from the bolus of patients that were added early in the launch. But ultimately, what you'll find is steady patient adds will stack and compound on top of each other. And over the next, call it, 12 to 18 months, I think we'll be on a good trajectory to become a blockbuster medicine. But there will be some nuances in the near term just because of the bolus effect and as it goes through the natural rate of discontinuation. But we're still early. I mean, we've owned for 3 weeks, so I can't [indiscernible] be an expert, but we're excited to have this part of our franchise within rare endocrine.

You mentioned thinking you could get to kind of the 50% range in terms of penetration. And I guess what does that translate to in terms of revenue potential?

Yes. I mean we see this as clearly a blockbuster medicine. There's 10,000 patients with PWS and if you think about 5,000 patients on therapy or net that down for those who discontinue , it doesn't take a lot to become a blockbuster medicine at the price points that are here, and it's very similar in terms of pricing relative to CRENESSITY. So I think the team that we've inherited are very motivated to help these patients. They've been there from the beginning. There's a lot we're learning. This is a very complex patient universe, but the feedback that we're getting from the field has been quite strong. The feedback that we look through when we are underwriting the deal. It sounds like the medicine works. I was on a KOL call yesterday talking about CAH. And this doctor also treated or it was part of the VYKAt trials and I asked them, does it work? He said absolutely, it works. And so that was always gratifying to hear the benefit that it's having on patients. So I think it's just a matter of time and getting through some of the learnings how to titrate the medicine and getting a cation out there. And after that, I think we're going to see nice growth. From an investor perspective, it feels a lot like the CRENESSITY [indiscernible] where we said CRENESSITY is going to be a blockbuster. We believe it's going to be a great product. And then this past quarter, Q1, I think the Street is starting to feel that way as well. For VYKAT XR, we said it's going to be a blockbuster. That's only story, I think [indiscernible]

Recognizing it's already profitable even kind of in the first couple of quarters of launch of a much smaller company. I guess, could you talk about the potential synergies you see between VYKAT XR, both in terms of competencies in terms of OpEx?

Yes. The synergies for this were clearly strategic and commercial, not necessarily an OpEx synergy with already a profitable company to be able to grow sales and leverage that infrastructure as well as our infrastructure. I think it's naturally going to flow through and be quite an accretive business to us. But the deal wasn't done for cost synergies [indiscernible]. There, of course, will be some level of redundancy that we'll work through over time. But the strategic lens is that we'll for a long, long while, have a stand-alone VYKAT XR sales force focused on helping people with PWS and we'll have a stand-alone CRENESSITY sales force that is focused on CAH. And I think for both of those products, the price, the unmet need, the first time ever launching a product in those markets that deserves full attention. And that's our focus, let's invest behind growing sales. And I think the profit flow-through is in quite significant.

Maybe it's a good segue to CRENESSITY itself, which has obviously been a huge focus over the past 1.5 years post launch. Recognizing you're no longer sharing patient start metrics, I guess, what could you share about what you're seeing the launch year-to-date. And I know you just saw some doctors yesterday, so maybe you could tie that -- those conversations into that answer.

Yes. I -- well, let me give a quick anecdote story. In [indiscernible] last week at a different conference, and I met with the major AOL there. And she is a really interesting word. She used the word fun when describing using CRENESSITY. And I was sharing with her, as many of you guys know, my son has congenital adrenal hyperplasia, and that's the reason why I joined Neurocrine. And so we were talking about treating patients. She has given me a little bit of advice and we're talking about her use of CRENESSITY and he mentioned how fun it was she said that she was talking to another colleague who prescribed CRENESSITY for the first time. And 6 weeks later, that doctor called her and said, "You're right, this is really fun, " when they looked at the lab values. So I think that this is something that as we continue to develop the market as people are seeing the results as we're able to publish longer-term data, which you'll see later this week at Endo. I think the confidence is only growing in terms of the potential for CRENESSITY to benefit in patients. There's some natural limiters on the pace adoption patients only go and see their clinician 1 to 2 times per year. So they're infrequent and in terms of visiting. The second piece is it's a really fragmented patient population. You have about 85% of the patients spread across many prescribers that maybe only see 1 to 3 patients in a year. So you have CRENESSITY from -- or sorry, CAH for the most part, being a very phenomenal part of a practice of an endocrinologist, a local one. And then the patients are only going in 1 to 2 times per year. It sets itself up for the need for continued education of the need for continued momentum on the patient side and them actually asking for the therapy. And we're seeing good progress, but I'd call it steady. And that's been the operative word, very steady and consistent new patient start forms as you think about Q4 and Q1.

Great. So you have shared that a majority of physicians who started to prescribe CRENESSITY, have done it for one or a selective number of patients. Can you talk about this versus the number of patients those doctors might be seeing in a year? And how are you thinking about unlocking greater depth for the product?

Yes. I think that there's an opportunity here on REP and up. We recently expanded our sales force and the main reason is, number one, ensure that we touch every clinician that we can that potentially has a classic congenital adrenal hyperplasia patients. So the sales force activity is going to be an important aspect here. These clinicians, as I mentioned earlier, maybe only see 1 to 3 patients in the entire year. So there is an opportunity to go deeper with those as they get more experience and seeing the first patient do on therapy. It's usually about a 6-month cycle of getting androgen levels reducing or modifying with corticoids seeing how those are going. So I think there is a little bit of learning that's going on and trying to identify how is it working and then ultimately, what patients could benefit from the medicine. In our clinical trials in our 2-year data, we've been able to show that this works for 70% to 80% of patients who try it. And I think that, ultimately, that's the goal in the marketplace is that we would get to a really significant peak penetration level similar to what I mentioned on VYKAT XR, can we get to 50% or so. That's our goal, and that's the hope here. But really, in terms of where does the next patient come from? We have opportunities that are left still at our centers of excellence, significant opportunity there. But then beyond that, it really is fragmented across many prescribers across the United States.

[indiscernible] gave a good example of the story about Chicago, where the physician had spoken to the other physician who's just trying it now endocrinologist or kind of classic thinkers but I think internally, what we feel those kind of stories are going to continue to replicate. So you're going to have this network effect over time, which gets you to peak sales pretty quick versus INGREZZA, which is still trying to find a seat.

How are you thinking about the competitive clinical landscape in CA recognizing there's other development stage programs? And what do you think the differentiating features will be of CRENESSITY over time?

Well, number one, being first to market is a great place to be. And especially when you have an efficacious product that's safe and that we're going to have significant data over time here the primary market, the #1 most motivated market is in pediatrics. And in pediatrics, the doctor was with yesterday, the question was, does it work? And what are the side effects. And the side effect profile of CRENESSITY, I think, is quite strong. And the longer-term data that we have, it would be hard to imagine that you could displace an entrenched products like CRENESSITY that's working in that safe. And we're going to do everything we end to defend our turf. We're committed to helping CAH patients, and we're going to continue to do so over long run.

We've set the bar really high for the Classic CAH patient population with CRENESSITY competition, including our own internal molecules, like we have a tough standard. We have next generation CH products that are coming out. So when you look at the totality across efficacy, safety and tolerability that CRENESSITY has, it's going to be a tough [indiscernible]

Maybe switch gears a little bit. You're coming off a couple of quarters of record base growth even this many years into launch, and you mentioned still try [indiscernible] I guess what do you attribute the success in terms of driving record patient growth? And how sustainable do you think that will continue to be?

It's been a tremendous market for us. I think at the time of launch, we expected peak revenue to be $600 million. That just shows you how good people are forecasting. Now we're at $2.7 billion to $2.8 billion of sales, and it's just a reflection of...

Better for numbers to go that direction.

That's right.

It's better for the [indiscernible]

But you want to make sure you make the right investment behind it if it's going to be higher. But you do have tardive dyskinesia carry movement disorder that's caused by prolonged exposure to antipsychotics. As you know, and up until 2017, there was absolutely no treatment options. So there is no reason in a diagnosis of tardive dyskinesia. So over the last 9 years now, we've slowly but surely ended up diagnosis, which is now about 50% of patients have been diagnosed with tardive dyskinesia. So when you think about what does it take to continue to grow these record patients each quarter, it's diagnosis which is aided by our sales force expansion. And second is keeping tardive dyskinesia on the radar of those clinicians. Clinicians rightfully so are driving and thinking about the underlying mental health condition of the patient they're not necessarily thinking about [indiscernible] dyskinesia. So sales rep calls, part of dyskinesia is now on the radar. And then the third piece I would mention is just patients. Patients have these movements. They have no ideas caused by their antipsychotic and the likelihood of them asking a psychiatrist about those movements is like thinking about going to the dentist and asking the dentists to look at your ankle, it's not a natural thing to do. So direct-to-consumer advertising is something that we've been heavily investing in. You'll probably see some during the world up if you watch it. But yes, we have a great opportunity to help many more patients. But it really comes down to this being naive market that continues to grow and grow mildly.

There's 2 other tailwinds to add on here, though, in terms of the prevalence, we initially thought there were probably 500,000 patients in with this. That has grown to 800,000. The reason why is because antipsychotic use continues to the growth of the patient or the U.S. population. So the prevalence number continues to grow. And then the second piece is the prescriber community, particularly in psych, we have a whole new class of folks called advanced practice providers, he's a nurse practitioners and what's now called physician associates who have prescriptive authority, and that has grown by about 30% over the last 3 years. You have those 2 factors that are also contributing to this ongoing growth that we're seeing in the [indiscernible]

Because of the volume headwinds, you were able to deliver relatively flat quarter-over-quarter revenue in the first quarter despite pricing headwinds. As we start to lap those, how should we about revenue growth through the balance of the year and maybe tie that to the guidance that you've already provided? .

Yes. quarterly year-on-year growth rates are going to be sort of distorted this year for a few reasons. If you recall, there were a couple of quarters last year, we had one less and one more billing week or order week. And then you had year-on-year, the price that you mentioned. We invested in expanding our access last year. We had one major formulary addition in the second quarter, and then we had another one in the third quarter. So I think for an investor, I would just take a step back and look at our annual guide of $2.7 billion to $2.8 billion. It implies about in the mid-teens volume growth offset by an annual 4% to 5% year-on-year price headwind. That price headwind is more pronounced year-on-year in the first half, like you said, but over the second half of the year, it will be pretty flattish in terms of year-on-year price. So this product is going to be driven. The growth is going to be driven by continued diagnosis continued new patients being put on therapy. And we had record numbers of new patients in Q1. So Q1 was a great quarter. That was a surprise for us. We didn't expect to have that level of new patients, and I think it's a testament team, testament to the product, a testament to the market. And of course, we'll go through the normal process that we have and review our guidance range once we get through the first half of the year. Just out of policy, we don't think one quarter is enough to call early in the year. So we've been asked that question a lot. Why didn't you change your guidance with such a good quarter. We said, look, it's good through the first half of the year, and then we'll reassess consistent with what our internal policy is for reviewing guidance.

And as you approach the entrance of IRA negotiated prices in the category next year, how does the volume growth that you've now set up kind of inform what you just do with respect to competitive dynamics as you move into that period? .

Yes, I think the biggest aspect to volume growth is access and ensuring that if a patient is prescribed INGREZZA that they get INGREZZA. So access is something that we invested in last year. We now have coverage at around 70% or so of patients are on Medicare Part D formularies. And we would expect that to be pretty similar when we go into next year. From a financial perspective, how does that translate to revenue dollars, more likely, we're in the early stages of negotiation. Obviously, but we'll have some level of price concession. But between it being a great market and good strong volume, we would expect it to be a quite manageable period of time for us next year.

One of the things you guys have invested in commercial businesses sales force. Do you anticipate making any further investments in sales force infrastructure across these products?

I would say every time you make a sales force expansion, you expect it to be your last and so I think that for now, we feel quite good with our sales force. All frequency is a significant driver to sales growth. But when you look at the tiering of clinicians and the number of tons you can reach those clinicians with the size of our sales force, we feel quite good with where we're at. However, in [indiscernible] were positive and we wanted to start laying a greater foundation for launching future psych products. That's probably when we'd reassess should we add more reps now and maybe it a bit harder and then be in a position to jump quickly into the new products once they launch. So a lot of strategic things I will be thinking through over the long term. But right now, based upon the call activity and the new patients feel quite good with where we're at.

Well, you said before from a capital allocation perspective, there's been no better investment than putting it into INGREZZA, which is then the fuel behind feeding the rest of the pipeline. .

Right. That's a reasonably good segue to the development program. So maybe we can start with Osavampator, you highlighted as one of the headline agents. And you anticipate Phase III data next year. Could you just like remind us in that you can drive from Phase II results into those Phase III?

Well, you have a validated pathway with what you see with esketamine. So we know the pathway has been validated there. The Phase II results were really compelling. So as a reminder, there were 2 doses of 1 mg and 3 mg. They both performed. They both worked. The 1 mg worked a little bit better than the 3 mg. So on day 28 of [indiscernible] was a little bit over 4% change for baseline with an effect size of over 0.5 super compelling. And then it continued to be better at day 56, with 7 -- over 7 change in [indiscernible] size is more than 0.7%. So we've got already a validated pathway. We've got really compelling strong Phase II data. It's safe, well tolerated, in fact, in Phase I MAD SAD studies, we studied it out credit [indiscernible] for developing this. It had been studied up to 18 milligrams, right? So this is -- we're going forward with the 1 mg dose. In 5 studies, 3 of the main ones for MDD is a randomized withdrawal study and there's an open-label extension study. But as you said, we're expecting data for those to come next year. And without a doubt, if I had to weight the impact of the pipeline readouts next year, of which there are 10 [indiscernible].

Okay. Assuming success in that program, I guess, what role do you see playing an NBD market? And how should we [indiscernible]

[indiscernible] a brand-new mechanism of action, everything SNRIs and SSRIs right now. So we have a chance to have a big impact here of the 20 million people who have MDD. This would be an adjunctive treatment as a subset of that. But assuming we can get close to replicating what we saw in Phase II, we got a really great opportunity to help a lot more people.

I think the goal, if it's efficacious and safe is that it would be second line treatment. I think as Todd said, you want somebody who had a little bit of a response from the -- an underlying first product, and then this would be the second one. I think it has all the attributes. As Todd said, in the Phase II, but it really comes into a competing Phase III, and that's like -- the main focus of our clinical team right now is to make sure that we're enrolling the trial enrolling it with quality patients and enrolling it -- or sorry, in monitoring those patients and those sites in a really controlled way our goal and not have a runaway study here. We want to be able to get a clean read does this drug work or not work to have a failed study isn't going to be acceptable. We'd rather see a failed drug. But our hope, based upon what we saw in Phase II is a new agent that can really help so many people who struggle with depression and need better treatment on.

We kind of have an [indiscernible] who is managing room who have previously been at Johnson & Johnson and [indiscernible]. So he knows what it takes to run high-quality trials.

You also have a broad muscarinic portfolio. Can you talk about how you think the opportunity for that category will play out, particularly in the context of commercial results so far for the more advanced drugs in the loss?

Well, we're rooting for [indiscernible], to be clear. That's another -- that pathway has also been validated and with our lead program is a little bit different than Cobenfy, where Cobenfy is pan-muscarinic agnostic given with the peripheral antagonist. So it has some GI tolerability issues, food effect, multiple doses with our lead program, direlidine, which is Phase III studies in schizophrenia. It is a direct agonist of M4. So hopefully, we won't see this tolerability issues that Cobenfy has, they can be taken with or without food. It's one dose. And we'll have that data for the first of 2 studies next year. The second study right now is going to read out some time in 2028, we're also studying [indiscernible] bipolar mania, that's Phase II study just started this year.

I think the -- we get asked this question a lot and we always say I think anybody is going into the -- in the antipsychotic market like this. Schizophrenia is sort of a foot in the door but really in terms of value creation, it goes to what's the next indication is going to be that's added on top of this. So I do think there's clearly a differentiation that we'll have on the tolerability and use side of the equation. But ultimately, whether it's them or us or other companies in this space, it's really taking it beyond schizophrenia. Our first entry is by Bolarmania that we have a study going right now. And then we'll be looking at both our M4 as well as our M1 and 4 that I think the thesis is that it also plays a role in cognition that we would be able to study that compound in a few other indications. So I think if you fast forward to probably 18 months from now beyond the schizophrenia data, the whole of the data coming together the further indication strategy for Neurocrine will become quite clear. But right now, we do have a heavy investment in the muscular nice. We do think they play a clear role in psychiatry and also in cognition and we're going to you invest behind it, get the data, and then we'll decide where we go from there.

How are you thinking about the value of having like the spread of portfolio versus investing behind the single product, assuming like [indiscernible]

Yes. Psychiatry is interesting. You've spent so many years trying to understand why certain things work. And I think if you have one shot, you may not make it. So we'd be happy with the lead program, solving all disease states. But you also want to take as many different types of shots on goal, and you might be surprised to see the benefits that somebody may have within broader psychiatric or cognitive condition. So we'll continue to run those tests run those experiments because we are committed to psych. But from a broader pipeline perspective, if you look at our pipeline chart, we talked a lot of the site programs. like is high risk. In a Phase III trial, you have a 50-50 like typically, is the medicine going to actually work in that's the lowest of any other therapeutic areas. So one of the strategies as a company is we have moved towards diversification in therapeutic areas. As I mentioned earlier, we do have a lot going on in obesity. We also have other elements in immunology that we'll be touching on at R&D Day later this year and the diversification, not that we don't care about site we love psyche, but we would like to also be talking about other programs across neurology, endocrinology and immunology. And so I really truly feel like when you take a step back and think about Neurocrine, we're just getting started going from a single product to a multiproduct company in just 2 years with last quarter, over $900 million of sales, including VYKAT SR, a lot of their readouts coming over the next 18 months with a lot more coming behind that. We feel quite [indiscernible] be in the position that we're in today, [indiscernible]

Right. I think that's a great place to end unless you do want to find on the next [indiscernible]. And with that, I think...

[indiscernible] fan.

Well, I don't know what to do with that.

Thank you, Corinne. I appreciate it. .

Thanks.