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

All right. I think we're ready to get started. Welcome, everyone. This is Josh Schimmer from the Cantor biotech equity research team. We're very pleased to have from Neurocrine Biosciences, Matt Abernethy, Chief Financial Officer; Eric Benevich, Chief Commercial Officer; and Todd Tushla, who heads up Investor Relations. Matt, maybe I just kind of want to set the stage here, give us a snapshot of where Neurocrine is today and if there are aspects of the story that you think investors are really missing or not appreciated.

Well, first of all, thanks for hosting us. It's always good to be with you. And good to see your name is Bill Joshua and I'm Matthew. So we got our formal names going on today. So that's always a good thing. We will be making forward-looking statements, and so we direct you to our SEC filings. So we have a lot of great things going on at the company. It's amazing to think just 2 years ago, we were a single product company. Now we're a multiproduct company. Going from one product with INGREZZA to now INGREZZA, CRENESSITY and VYKAT XR. Last quarter, we had about $1 billion in sales. And it's just -- we pinch ourselves and find ourselves quite fortunate to have 3 growing brands, 3 brands that are helping many patients. And I would just say kudos to the teams that have been involved in that and being able to help so many patients across these different therapeutic areas. In addition to that, if you just rewind 3 to 5 years ago, we probably had 3 pipeline programs. Now we have close to 20. And you think about where is our pipeline and you stack that up against anybody else in the industry, I don't know if there's anybody that has a broader bigger pipeline from Phase I to Phase III than what Neurocrine has. And I think that's reflective of the strategy that the team has laid out in terms of investing in early-stage research that's now allowing us to put new programs into the clinic, and that spans psychiatry. That's our later-stage programs, neurology, immunology, which we'll touch on more later this year and then also endocrinology. So a lot of great things going on in the pipeline. Of course, the headline are there are 2 major Phase III programs that we're going to have next year. One of them is osavampator, which is an AMPA potentiator that's being studied in major depression. And then we also have direclidine, which is a muscarinic program that is focused initially in schizophrenia. That data will read out in 2027 and 2028. Those are transformational programs for our company. And so we're looking forward to executing those trials and getting to that data. And then lastly, strong financial position that gives us a lot of flexibility. I think you mentioned what are investors missing or maybe might be overlooked. And I know today, it's important we'll get into nuances of each of our brands. We'll get into nuances of our pipeline program, and it's important for investors to understand those nuances. But I also would encourage folks to take a step back and look at Neurocrine. In the elevator after our meeting earlier this morning, I was writing up and somebody says to me, Wow, I was -- I've been an investor 15, 20 years ago in Neurocrine. And he says, now you're a big real company. And I think that's an appropriate perspective. We have 3 products with durable top line growth, durable cash flow, and we're working to have a durable, sustainable R&D engine. And I think those allow itself to have us valued in the long run as an enterprise, not as a single product company, not as a binary outcome from a data readout. But we are a company striving to help as many patients as possible, and that's the mission that we're on today. So we're looking forward to being here, and we'll take your questions. However you want to go, Josh.

Sure. Thank you. Well, why don't we begin with INGREZZA. What's probably so remarkable about INGREZZA. It's kind of a product that keeps on giving growth, right, and becoming such an important part of Neurocrine, but it's also a product that's -- for a product that's been on the market for so long, there's still so much to talk about, right? Maybe we can start with the recent sales force expansion that you've completed and how do you think that positions now INGREZZA in the coming quarters and years, especially as you undergo some of the dynamics we'll talk about next under the IRA.

Yes. I guess I'll take a crack at that. Hi, everyone. I'm Eric, and that is my full name. So for those of you that may be a little bit less familiar with INGREZZA, when we think about INGREZZA, we primarily think about the tardive dyskinesia indication. That's the vast majority of our business. It's been on the market for 9-plus years now. And Josh, as you were saying, it keeps delivering robust growth. In fact, in Q2 of this year, we reported a record NRx or new patient starts. We also reported record TRx, which is unusual for a product this far into its life cycle, though I will say that it has a long runway ahead with exclusivity out to 2038. So if this was a baseball game, I'd say we're in like the fourth inning or fifth inning maybe. But bottom line is that this is still a rapidly growing category, the tardive dyskinesia market. We're on a pace this year for growth in the mid-teens. And certainly, we expect to be able to continue to deliver robust growth going forward. You were talking about '27 and beyond. One of the investments that we recently made was an expansion of our field sales team, and that was completed at the end of Q1 and the expanded team rolled out in Q2 of this year. So it's relatively fresh. I would say that the expanded sales force is a contributor to the momentum that we've seen, but certainly not the only investment that's delivering these results. This is the most recent expansion. And as we were chatting about earlier, over the years, we've expanded our field sales team 4x. And I think that's really in response to the growth of the category, the growth of the prescriber base for VMAT2 inhibitors. At the time that we announced this most recent expansion last fall, we said that the base of VMAT2 riders had grown by 30% over the prior 2 years. And so in some ways, every time we expand our team, it's to keep up with the growth of the category to make sure that we're calling on the prescribers that are treating these patients with diagnosed or nondiagnosed tardive dyskinesia. We estimate today that the size of the prevalent population is at least 800,000 in the U.S. Roughly half of those folks have been given a diagnosis to explain their uncontrolled abnormal movements. And yet only about 10% of TD sufferers are currently being treated with one of the 2 approved VMAT2 inhibitors. So there's a lot of headroom from an organic growth perspective. And certainly, the investments that we make, whether it's in sales force or whether it's in branded DTC, medical education, omnichannel marketing, they all work together to continue to drive recognition, diagnosis and treatment with INGREZZA. So we feel really good about the first 9 years of the launch, but our aspiration is to continue to drive diagnosis and treatment with INGREZZA because there's a whole lot of people still that could be benefiting from treatment.

What's the extent of the sales force expansion that went from when to when? And when do you expect that to really start to reflect in sales? Is it third quarter?

Yes. I would say, based on our historical experience, it does take a couple of quarters to, I would say, have the sort of tangible full benefit of a sales force expansion. The TD market is a little bit different than other categories within psychiatry or behavioral health. Our folks, they have a little bit of a broader scope of role than maybe what you see in antidepressants or antipsychotics. They do a lot of disease state education. They really help educate the providers, especially those that are earlier in career or newer in behavioral health to understand drug-induced movement disorders to distinguish TD from other hyperkinetic or hypokinetic movement disorders, certainly educating them on VMAT2 inhibitors and INGREZZA in particular. So it takes a little bit longer to get up to speed when you're coming into this therapeutic area. I do think that some of the momentum that we saw in Q2 was due to the expanded sales team that I also believe that we'll see the full impact of the expansion as we exit this year. So ultimately, our learnings as we go forward is each time we do an expansion, I think we get a little bit better at telescoping that time from onboarding to effectiveness. The way that we look at the impact of the expanded team is their ability to drive new patient starts. So it's really about NRx. And ultimately, that's one of the reasons that we have a lot of confidence going into next year.

So $2.85 billion is the midpoint of our guidance range this year, and that reflects 13% year-over-year growth. And included in that is a 4% price headwind. So when you put in context how is INGREZZA growing today and how is the overall TD market growing today, our underlying volume is in the mid- to upper teens. And that's quite significant when you think about how promotionally sensitive the market is to the investments that Eric has been alluding to. So we continue to invest behind INGREZZA as a growth engine. We understand it's going to be profitable to us all the way until our IP exclusivity window ends in 2038. There'll be some different nuances, and I'm sure we'll talk through those different chapters in terms of price.

Why don't we do that now? That's a perfect segue into '27, '28, '29 because there's a unique shift each year, whether it's catastrophic exposure, whether it's AUSTEDO being negotiated, whether it's INGREZZA being negotiated. Kind of take us through how you anticipate each year playing out primarily with regards to price, price headwinds and access?

Yes. So access is incredibly important in this class. And that's something that we found last year once we were added on to formularies, we went from about 30-some percent to it was about 70% coverage in Med D plans. And I think that's part of the reason why you're seeing stronger volume growth this year as Eric and I have been alluding to. So preserving access is incredibly important. So the questions we get around 2027 have to do with our competitor has gone through a negotiation with the government where there is a defined MFP. And they're going to be covered up by 100% of plans by statute. So the question has been what is going to happen to INGREZZA within all of these formularies. Fortunately, where we sit today, we do feel as if we're going to be able to maintain coverage at the same levels that we have today. And that was incredibly important strategically as we negotiate -- or as we navigate 2027 and 2028 before our official IRA MFP moment. So how to think about 2027, there's 2 price headwinds. One is statutory where you go from a 2% statutory rebate to a 5% statutory rebate, and that's because we have the small biotech exemption and the phase-in of the catastrophic coverage rebate. So that's a direct price headwind. The second is to maintain that access, we have had to offer some modest rebates that would allow us to preserve access. But when you take a step back and you think about the underlying volume in the market, what we expect to achieve, we absolutely expect to have strong growth still next year. It will just be a bit offset by these pricing dynamics that we highlighted. In 2028, we do have another step-up of statutory rebate and price going from 5% to 8%, and that's by statute, but don't see any other price headwinds at the moment. And then we get to our IRA moment in 2029. And fortunately, our IRA negotiation was pushed out 2 years based upon qualifying for the small biotech exemption. In addition to that, we have a defined range of what the potential outcome of negotiation is between 25% discount to 34% discount from a metric called non-FAMP. So there will be a price impact in 2029. There will likely be a dip in overall revenue for INGREZZA as you transition from '28 to '29, but still a very profitable brand and growing from there.

Just one clarifying point. The statutory rebate that Matt was describing applies only to our Medicare business, which is about 2/3 of our volume. So it goes from 2% this year to a 5% next year to 8% in 2028. And that's across all of the Medicare business.

Yes. Got it. Did the 4% price headwind in '26 include that kind of 2% catastrophic exposure, you factored that in?

Yes. In 2025, it was 1%. And then in 2026, it was 2%. So it did contribute about 1% of that year-on-year price impact. But the larger price impact this year had to do with gaining formulary coverage in the middle of 2025.

So kind of inferring, it sounds like '28 may come in again around 4%, maybe even a little higher if you've got that 3% step-up plus some discounting to stay on formulary?

In '28?

'27.

'27. Yes, we haven't been given the formal guide. We'll see where CMS lands with formularies and finalize that, and we will give an update either later this year or as part of our guide early next year.

And then when you get to '29, as you enter into that 25% to 34% discount to non-FAMP. I guess, first, as we clarified this morning, that's actually versus 2021 non-FAMP with some adjustments. But also at that time, the catastrophic obligation will go away as an offset. Are there other offsets to consider other reimbursement dynamics that will kick in, in '29?

Yes. What goes away in '29 when you have a negotiated maximum fair price for Medicare is the catastrophic contribution, like we described, that's being phased in now, that goes away and any voluntary rebate agreements go away. So any contracting that we do today, that goes away.

That's quite a potentially meaningful offset so that 2029 impacts, even with that, you don't think volume growth can keep that franchise flat that year.

It's hard to sit here today and give a 2029 guide. I don't want to dismiss the impact of the negotiated price. And we will get to that being known actually in 2027 by the end of next year. And once we get through that negotiated price window, hopefully, we'll be able to provide a bit more color as to what to expect in 2029. But there is also an element to that, that it bleeds into best price for Medicaid and a few other dynamics. So it's something that we look at as it will be a little bit of a wound, but it's not a generic like event where you have to completely rightsize your business. This is something as we've thought about sales force investments and positioning ourselves for the future, continued investment behind INGREZZA, continued investment behind our VMAT2 franchise, including our follow-on molecule, which we'll have some data on next year, which we would intend to take in as a long-acting injectable. Our view and one of our strategic pillars is to own and continue to dominate the VMAT2 class. And so you do see some aspects within our pipeline that will point us there over this time horizon. So I know the nuances of this might be difficult to grasp.

You do a really good job explaining it.