Neurocrine Biosciences Inc (NBIX) 2002 Q3 法說會逐字稿

I'd like to turn the call over to your host Gary Lyons.

Good morning to Neurocrine's third quarter update. This is Gary Lyons Joining me is Paul Hawran, Executive Vice President and Chief Financial Officer, Henry Pan (ph), Chief Medical Officer. The agenda will be for Paul to review third quarter and nine month earnings results. I then will go through a product update on primarily the insomnia product but also give you an updated status of each of the other products and then open this up for questions. With that let me turn this to Paul Hawran to cover financials.

Once again welcome to the third quarter web cast. In summary, for the third quarter, we've had a rather successful quarter. We've moved our programs along. And simultaneously we've contained our burn rate. For the third quarter, revenues for the quarter were $5 million as compared to the same quarter of last year of 21.6 million dollars. As indicated in the press release, the revenues in the third quarter of last year were benefited by a 15.5 million dollar milestone payment received from Glaxo.

Operating expenses for the quarter were up from 20.4 million last year to 27.5 million. Research and development was up 18.3 million to 24.2 million, an increase of approximately six million dollars, due to increased development expenses of three and a half million and increased salaries and wages associated with increased scientific personnel. G&A was up slightly to 3.3 million, primarily due to increase in marketing related expenses. Other income was up from 1.3 million to 2.3 million, primarily as a result of higher interest income associated with higher cash balances, offset by lower interest rates. The net loss for the quarter was 20.2 million, or 66 cent loss per share.

As we indicated, we ended the quarter with approximately 275 million dollars in cash and cash equivalents. For the nine months ending September 30, we recorded revenues of 14.2 million, as compared to the same period of last year, 28.4. As with the three month results, the nine months revenues for 2001 were benefited by a $15.5 million Glaxo milestone achieved in the third quarter of last year. Operating expenses for the nine months rose from 56.9 million to 76.5. Research and development expenses rose from 49.5 to 67.4, or 17.8 million, due primarily to an increase in development expenses of 13.5 million, and a two million dollar increase associated with increased staffing of scientific personnel.

G&A was up 1.8 million to 9.1 million, due primarily to marketing related costs, including personnel salary and wages. Other income was up to 6.5 million, due largely to higher investible cash balances, offset by lower interest rates. The net loss for the nine months was 55.7 million or a $1.83 per share. At the last quarter we provided guidance as far as what we had expected for the loss for the third quarter. And we had provided guidance of 25 million dollar loss in this quarter. Revenues were lower than we had expected by approximately two and a half million, which was primarily the result of lower than expected sponsored development revenues associated with the tie show collaboration.

As you may know the sponsored development revenues are a direct offset to development expenses. Operating expenses were lower than expected, primarily due to lower development costs as mentioned of two and a half million associated with the Taisho collaboration. There was $2 million associated with timing differences relating to certain costs of the inter Cline clinical program and $2 million in lower research and development expenses across the board. In addition, G&A was lower by about a million dollars due to lower than expected license fees and consulting fees.

For the fourth quarter we're expecting a net loss of approximately 28 million dollars, revenues of approximately eight million, and other income of two million are expected to be offset by operating expenses of 38 million. The higher expected expenses in the fourth quarter are primarily related to the increased level of development expenses associated with the intercron (ph) program as well as our G and RH and GLP program. With that I'll turn the program back over to Gary.

From a product update standpoint, in our last quarter release we provided a summary of each of the insomnia trials, since we're now running eight clinical trials it gets rather confusing to track both the design and status of each of those so hopefully this release will help clarify that and I'll summarize some of these right now. The first trial listed here is the summary of the transient one night sleep lab study. This study was designed to enroll 500 patients. We over enrolled 593 patients, primary end point for all the immediate release studies are time to sleep on set either latency to persistent sleep or sleep on set measured in the outpatient setting. So the transient study day-to-day has been locked. We expect to report results on that trial in mid November.

We're also pleased to announce that in our second trial listed here, phase three trial, this is a combination inpatient outpatient adult trial. This study was designed to enroll 165 patients. They spend two nights in a sleep lab initially. Two nights in a sleep lab mid treatment period and then two nights at the end, and receive treatment on an outpatient basis in between. This study has been completed enrollment is complete. We expect final enrollment to be closer to 200 patients than to 165. And we expect to report phase three results on this in first quarter. Third trial listed is our 12 month safety trial. This trial completed enrollment some time ago.

We're pleased to announce that the first cohort of patients is now completed 12 months worth of therapy successfully. This study enrolled over 500 patients. The last patient to receive treatment for 12 months will occur in the spring, at which time we then will release the safety results. Fourth study list SD our six-month efficacy trial. It's enrolling on schedule and will be because of the number of patients 600 as well as the six-month duration of treatment, it will one of the last studies to report later next year. And then finally fifth phase three trial listed on the next page of the release is another immediate release, 360 patients, but this is an elderly patient population, outpatient, end point will be latency to sleep on set. That study is enrolling and is expected to report on schedule in mid '03.

Also pleased to report that in the modified release program all of our studies are now up and running and enrolling. In this quarter we have started the last two studies mentioned here, the 600 patient he have efficacy trial has been enrolling now for over a quarter and the 35 day and the elderly study both of these actually are elderly studies are now sites are activated. Patients are being enrolled and these again are expected to report in second and third quarter of next year. So overall all trials are rolling. We are aggressively working with multiple number of CROs to help us enhance recruitment and to enhance retainment, to execute and to complete this program on schedule.

Brief word on some of our other programs with Glaxo Smith Cline in the CRF field, our lead clinical compound is undergoing advanced preclinical testing to enable phase one and phase two trials. And at Nerikin (ph) we've got a back up compound we expect Glaxo to endorse later this year and expect to have that product in phase one at some point in '03. We have completed a second phase two trial with IO four come and glass Tommy ma the results of this trial this 32 patient trial are expected to be released in the next couple of weeks. And from there we will determine our next steps. We're also parallel running a IV trial giving the drug for solid tumors in the per RIF Friday.

Results from that trial are expected by year-end. In the APO arena, our APO diabetes program with the show is progressing well in our first of phase two trials. We were fortunate to believe able to reacquire rights outside of Japan and will now focus resources on advancing that program. This is a two-year study involving 170 patients and hope to start a second trial by year-end. Likewise, in multiple sclerosis, we're working to finalize a protocol and to secure additional funding from grant sources to initiate a second phase two trial and that's on schedule for also the end of this year.

In the GNRH program, we're pleased to announce we've selected a second back-up compound it's met a very rigorous standard of criteria. Our lead compound is beginning a second phase one trial, multiple dose trial and we're beginning a preclinical studies for the back-up to head have that compound in place for phase ones early next year. In R&D things have progressed very nicely. We had a goal this year to pick one program from research where we had a lead compound that could go on an IND track and at this point we believe we actually will have two programs. And our focus will be to partner perhaps one of those and to keep one to bolster our pipeline. So with that, I will open things up for questions. for Henry, Paul or myself.

At this time, if you would like to ask a question press the one on your touch-tone telephone. You may withdraw that question at any time by pressing the pound key. Again to register your site for a question, press the 1 on your touch-tone telephone. We'll take our first question from the site of Ian Samai (ph) with Morgan Stanley. Please go ahead.

This is actually Jake calling in for Ian. I just had a quick question this morning. Regarding the ongoing discussions for the intermon (ph) Marketing partnership. I wonder if the recent GREM that Ambien (ph) signed with Lilly (ph), any impact on discussions or negotiations for your product?

I think the deal with Ambien (ph) and Lilly (ph) has some nice characteristics to it that we would hope to secure with our arrangement which is to held a partner not to only market intermon (ph), but to participate earlier in commercialization with partner product. I think that was appeared to me to be a very rich deal and a very nice strategic deal and I think represents again somewhat of a model that we expect to follow here. Guidance on our partnership is by early next year. That's the guidance and we I think are right on track to deliver it within that time line.

Great. Thanks very much.

Certainly

Our next question comes from the line of Jeff Bargas (ph) With Aurora Capital.

Congratulations. Looks like you've got a great program, Intermon (ph) going and a lot of depth in the pipeline. My question is assuming everything goes according to schedule, when do you anticipate filing the NDA. Is it you who intends to file the NDA on inter plan or do you think it will be you in conjunction with a partner or alone.

Our plans have been to file an NDA, electronic NDA which would contain both the forms release, modified release at the end of '03. We remain on schedule to do that. In a partnership, it has been our intent to retain control of the development process through NDA filing. Having said that, I can't say that the partner won't have influence on that and won't assist in that in some way or another. But that remains the time line and that remains the strategy.

Thank you, Gary

Our next question comes from the line of Dennis Harp (ph) with Deutsche Banc. Please go ahead.

Dennis Harp (ph): Good morning. And congratulations on keeping all the programs moving forward. First question is on the six-month efficacy study, and if you could provide a little bit more color on how many patients have been enrolled into that and what is the retention rate like in that study to date?

Okay. The enrollment, the immediate release enrollment, that study started first. That's I would guess over 50 percent enrolled. At this point I don't know the retention numbers. I believe we powered the study to have approximately 40 percent or so drop out. But this is a study again that no one has done. So we're not able to take somebody else's design and duplicate it. So the study is I powered adequately with 600 patients. I think as we've told you before we've also set it up in such a way we capture data or efficacy data at month one month three and month six end. So there's multiple chances. And we believe a three month efficacy read out is sufficient to validate a long-term study. But of course six months would be better.

In summary, I think those studies are powered adequately. We're also working with a CRO called Midechi (ph). They're helping us in two ways. They're helping incent patients and other advertisements to participate in the studies and at the same time they've implemented a retention program whereby patients actually stand to benefit by earning points that they could trade in for gifts and other things. And that helps incent patients to stay in the study and that appears to be working.

Dennis Harp (ph): Great. Second question is on the two compounds that you would move toward IND. You mentioned one you would partner and one you would keep for yourself. Can you tell us a little bit more about what these candidates are?

I would expect by first quarter we'll be able to talk a lot more about these. But we've said the programs we're interested in are primarily GPCR receptor targets. We've been very active in MC 4. This is mine accordan (ph) for (ph) Modulation, both as an antagonist for co-connection as an agonist (ph) for obesity. It's gone forward nicely. A second program we're excited about is another GPCR target MCH which initially has been shown to play a roll in feeding disorders or obesity but more recently by several groups has been shown as an interesting target in depression. We've made some very nice progress there. Other programs focus on the chemo-kind (ph) family, CCR seven and others that have a variety of others that have a variety of CNS potential applications. So more on those in first quarter.

Dennis Harp (ph): Great. Thanks

We'll go next to Katherine Kim with UBS Warburg.

Katherine Kim (ph): Thank you and congratulation on your progress. I have several questions. The first is on your CRF program. When do you expect to start phase two trials.

That's obviously in the hands of Glaxo. The lead clinical compound now is as I said undergoing long-term high dose preclinical studies to have sufficient safety data that would allow for longer term and higher dose trials. It's unclear whether the next trial would be a phase 1 longer term high dose trial or phase two. So I think probably the earliest guidance would be late next year. For the second clinical candidate, I wouldn't expect that would be phase two ready until the following year.

Katherine Kim (ph): And are there associated milestones with start up of phase two.

Milestones associated with selecting the lead compound with filing an IND with identifying the compound as a development candidate phase two, phase three et cetera, and milestones obviously increase as the program goes further downstream.

Katherine Kim (ph): Okay. Then in terms of Interplan (ph). You mentioned in your studies there's some of them have inpatient and outpatient as well. Can you describe what the outpatient portion is?

Certainly. I'll let Henry do that. Standard generic way rather than a specific study..

Hi, Kathryn. This is Henry. The study that Gary talked about is what we call the 35 day study in which patients actually come in after they qualify for the study into the sleep lab for the first two nights. After they're done with the sleep lab measurements, they're discharged on drugs, either placebo or actual drug for about two weeks. Then they return to the sleep clinic for another two days with assessment. After that they're discharged for another two weeks as outpatient.

They continue to take drugs and after two weeks of outpatient treatment they return to the sleep clinic for another two days of PSGS assessment. That's the basic design for the 35 day study. Obviously as you're aware of with our program we do have pure inpatient studies and pure outpatient studies. Most of the longer term studies are outpatient studies. Most are two week studies are outpatient studies. Our transient studies are inpatient studies. So I think that's pretty much the scope of the program for both the immediate release as well as for the modified release formulations. Does that help, Kathryn?

Katherine Kim (ph): Yes, it does. In terms of you have about three studies that go into an extension safety proportion. And how long are those trials going to be extended portions going to be?

Most of those extensions are for minimum of six months. Some of those extensions can go beyond six months. And the reason why we are spending these shorter term studies is sort of a requirement by the FDA and other registration al agencies in terms of exposures. There's a need to expose certain number of patients for a period of six months and a need for to include a certain number of patients exposed for one year. The ICH guidelines requires 300 patients total exposed for a period of six months and 100 patients exposed for a period of one year. So I think all these extension studies are meant to gather enough patients for filing.

Katherine Kim (ph): Okay. So you will need to have this data submitted to the FDA.

We can -- I'm sorry, go ahead.

Katherine Kim (ph): I'm talking about, can you submit it after you file.

Yes what they're looking for is data exposure for the patient exposures from an initial filing standpoint we don't need those exact numbers. We can certainly file with less numbers. Then there's what's called a 120 day update. During that 120 day update we can supplement it with additional safety information.

Katherine Kim (ph): Great. My last question is on presentations or publications of your phase 2 interplan when do you expect that and at what meeting?

Right now our plans are to capitalize on the sleep meeting, which is I believe June, and that is perhaps the more prestigious of the meetings. Last year we simply presented several of our phase one studies. That will be the forum at which we would present at least two and probably more of the phase two studies. So the publication plan all along has been to not publish or not present phase 2s until we were well in our completed phase three, not to present phase three until we tried the NDA. So you begin to see a lot more peer review data beginning in June.

Katherine Kim (ph): Great. Thank you very much.

We'll go next in line to Matthew Geler (ph) with CIBC World Markets.

This is Allen Grein (ph) here. Congratulations. Most of my questions have been answered, but could you give us a little more color where you are in your partnership talks, if you've narrowed it down to just a few companies now and if you can what you're looking for in the partnership deal. As well, I was just wondering your IND what you're looking for strategically in partnering that IND product as well.

Let me handle the first one first. Our research is to have a new candidate IND every 18 months. And our plans would be to retain rights to one that meet certain criteria similar to the GNRH (ph) program where we feel the probability of success is higher, the end points are clearer, the development program is manageable from our standpoint. And then to partner those other programs that are longer term higher risk, as a source of revenue just risk diversification. That's the strategy we've embarked throughout our existence and will continue to do so.

On the partnership, again, guidance has been to do the right deal at the right time and we believe right time is sometime early next year. We remain I think on track in discussions with multiple parties. The deal that we're looking for which I've talked about many times is in some ways similar to the am bee yen and Lilly (ph) deal that is the best partner who can make this the kind of product that we believe it can be, the ability to participate in the significant way in profit sharing, revenues from that strategically to attempt to get access to an existing product that we could co-promote ideally to psychiatrists so we can put in place a commercial organization. And a partner that we can work with and retain control over the NDA process. And then of course the rest is money, reasonable signing fee, milestones, et cetera. So I'm pleased with progress we've made and feel comfortable with the time line we've put forth.

Allen Grein (ph): Great. Thanks a lot

Again, if you would like to register your line for a question, press the 1 on your touch-tone telephone. We'll go next to the line of Mark Augustine (ph) with CFSB.

Mark Augustine (ph): I wanted to ask you about the phase three transient insomnia study, whether it's you or Henry, as you think about it, that it's different from the two previous different studies of transient and insomnia if you could present the patient numbers.

I think that's one of the advantages of developing this compound is we have done at least two phase two trials in transient insomnia, utilizing two different I guess methodologies, two different structures. And in both of those studies we've obviously explored many doses from the phase two experience we've selected doses we believe are optimal for efficacy (ph) and safety and at the same time chosen a design we think favors a more successful outcome and that study design is putting patients in a sleep lab which in itself induces insomnia, but then putting them to sleep earlier which further complicates or further adds to the insomnia and we think that optimizes success, but to make sure we've overpowered this as I said to 500 patients and wound up with almost 600. So I think we have a fair amount of confidence in this study.

Mark Augustine (ph): Can you remind us the dose levels.

10 and 20 milligrams versus placebo.

Mark Augustine (ph): One follow-up for Paul. The guidance for Q4, does it not imply pretty step up in R&D and then can you give us any flavor for 2003 guidance?

I'm sorry, Mark, I didn't catch that first part of your question.

Mark Augustine (ph): I wanted to know if you were implying a pretty sharp step up in your guidance in R&D spending in Q4 versus Q3.

Actually, we are providing that guidance. For the most part not only for the interplan program but also our other programs as well, moving into our clinical development or are in clinical such as (inaudible) Diabetes and APMLS program. As far as guidance for '03 is concerned, currently we're still staying with our previous guidance of 50 million dollar loss next year. However, we are in the middle of developing an operating plan for 2003. We expect to provide guidance in the fourth quarter conference call. But right now it's safe to say to stay with that 50 million loss for next year. And as Gary reminded me. That number does not include any assumption regarding a partnership for Intermon (ph).

Mark Augustine (ph): Thanks very much, guys

Again, for any additional questions, please press the one on your touch-tone telephone. It appears we have no further questions. At this time I'll go ahead and turn the call back over to management.

Thank you for joining us. Any follow-up questions, please feel free to call Paul or myself directly and we look forward to doing this again at the end of next quarter. Thank you

This does conclude today's teleconference. You may now disconnect your lines and thank you for participating.

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