Neurocrine Biosciences Inc (NBIX) 2003 Q1 法說會逐字稿

Now on the conference line, my name is Sarah and I will be your lead coordinator for today's program. If anyone should require assistance at any time please press "*" and "0" and an operator will be standing by to assist you. At this time I would like to turn the call over to your moderator Mr. Gary Lyons. Go ahead please.

Thank you and welcome. Thank you for joining us today purpose -- obviously the call is to provide detail on our First Quarter Earnings Results. Joining me for the call is Paul Hawran, VP and CFO; Henry Pan, Chief Medical Officer; Bruce Campbell, SVP of Development, and the poll for the call will be first of Paul to comment on the results. I then will provide a brief update of the status of our various development programs and then we will be happy to open the call up for Q&A. So let me begin with Paul to review the numbers.

Thank you Gary. Good morning all and we are pleased to report that we had an exceptionally good quarter this year. We are showing that our net cash average is going down as a result of our Pfizer collaboration. We have reported a loss of 13.4m down from 15.7 at the same time last year. We also showed that revenues have grown substantially to $37.7m, of that 37 -- 30.7m represented by sponsored research and development. If you can imagine about $29.3m of that 30.7 relates to the Pfizer collaboration specially the reimbursement of the Indiplon expenses, another 1.4m or 1.8m reflects the GSK collaboration. We also reported license fees of $6.7m and not at the amortization of the $100m license fees that we received from Pfizer at the end of February and I will touch on a little bit of the accounting amortization rules that we are following relating to the license fees and the milestones at the end of my comments of the third quarter results.

Operating expenses were 53m of which 48m represented research and development. Of that $48m approximately $37m was external development expenses and of that 37m approximately 33m was in Indiplon related. In addition, we had G&A of $4.7m, an increase of about $2m over the same period to last year. That increase of $2m is actually a result of approximately $1m of increased expenses associated with business development and marketing and even of that $1m approximately 700,000 of that is actually one-time fees associated with government filings and other expenses associated with the Pfizer collaboration. The remaining $1m increase in G&A is higher curve payroll reflecting hired people in marketing and business development as well as higher cost associated with directors and officers insurance was from operations is 15.3m down from 17.8m. We have a loss of 43 cents per share, on average diluted shares of 30.8m shares. We have also reported that cash and cash equivalents of 308m and $33m of current assets of which 29m reflects a receivable due from Pfizer. Other material events in the balance sheet reflects increase liabilities and that reflects the amortization of the $100m total liabilities it increased approximately $100m over the same period last year and it is due to the amortization of the license fees.

Finally, I would like to give some guidance as far the rest of the year is concerned. We are maintaining our guidance that we provide at the end of last year of $40-45m or approximately $1.28-$1.44 loss for the year that has not changed and we are coming in on that target. Lastly, I would like to speak a little bit there was some discussion by number of the analyst regarding amortization of license fees and milestones and although the -- some of the accounting [rigs] are influx right now. The $100m is being amortized to the period where we believe that we will receive NDA approval, which is the end of '04. Now should that NDA approval they change we would adjust the amortization of the 100m accordingly. In addition any milestones that we will be receiving from here on out will be amortized under the Pfizer collaboration to the end of the NDA approval period which again is end of '04. That may change but right now we believe that we will be amortizing all milestones in that period and our guidance for the year is actually assuming that we will be amortizing any milestones we receive this year. So, with that I will turn the call back over to Gary Lyons.

Thank you. Let me run through the development pipeline before we open this up for questions beginning with Indiplon. As you see in the press release we have outlined the status of all the phase III trials that are enrolling. As you know we have recently announced positive results on March 2nd, 35 day's insomnia study with the immediate release formulations. So, I won't go into further details on those studies. The next study in the queue if you will is the 12-month long-term safety study in-patient's with primary chronic insomnia. These are all immediate release formulation trial. We have fully enrolled 536 patients, 150 of those have completed 12 months of therapy. The last patient to complete therapy is expected to be in early June and we will therefore report safety results on that trial shortly thereafter.

To remind you FDA requirements for chronic drug approvals are that we complete 100 patients in 12 months. And as you can see we have exceeded that and expect to obviously do better than a 150 that we have already reported and as expected so far, but no surprises as a result of that study. The next study to report or the next study in the queue is the long-term safety and efficacy trial in chronic insomnia. This is 600 patient trial endpoint is initiation of sleep over 3 to 6 month period as measured by the patient's report of sleep onset latency to sleep onset. This trial has actually enrolled over 600 patients.

Enrollment will stay open for a little bit longer than we will wrap that study up if turns out not to be a right [inaudible] study and those enrollment is served as well in previous study. The only remaining study in process is the immediate release in elderly this is 3 doses versus placebo again sleep initiation is the endpoint and this trial is over 50% enrolled. We expect to wrap up enrolment in the next quarter and results to be reported soon thereafter. In the modified release program long term that is 3 to 6 month efficacy trial in chronic primary insomnia using total sleep time, as the endpoint is approximately 3 quarters enrolled. I will focus on that trial to get enrollment at or above 600 patients, so we can close that one out and report data towards the end of the year. The remaining two MR studies are both elderly studies and we are now concentrating all our resources on accelerating enrollment to wrap these trials up since they are two and four weeks studies. So, we do not expect data to -- we don't expect it will take long to take the data on either those two trials and we will report results on that again later in the year.

So, all of that progressing on plan and our plans remind you to file an early '04 for an early '05 approval and we will remain on tract to do that. There have been questions that will be upcoming sleep meetings, so I should remind you that there are two meeting, the APA, American Psychiatric Association meetings, May 17th to 22nd during which we will present two posters on some of the earlier clinical trials. Also the APSS meeting June 3rd to the 8th and we will be presenting 6 trials during that particular meeting. These data will be presented by American Scientist Commissions as well as some of the leading sleep experts Jim Ross, Tom Roth and others.

So, this will be our first in depth preview presentation format. The GnRH program has made excellent progress; we have completed our second phase I file result to be -- to be recorded shortly with both the enrollment and the results from this trial. This is a 7-day trial. Our previous trial which showed efficacy as measured by the drops in luteinizing hormone where postmenopausal woman this is in premenopausal woman with prolonged dosing and trial results from this trial will be available shortly. We also expect to put a second clinical candidate into phase I development in July and we will be on track to have a pre-clinical candidate also ready for pre-clinical development by year-end.

As also released in this press release we announced that we have in license of D2 receptor agonist for erectile dysfunction from Pharmacia. This was a product that had to be divested as result of the merger as the product has completed multiple phase II trials to date. And our focus during the year will be to complete our second proof of concept study in a male population and the exact timing of the study is not yet determined. We are in the process now of technology transfer from pharmacy and obviously excited to have another Phase II compound in development.

On the CRF front, again collaboration with Glaxo is now into its second year of a 5-year collaboration. Our efforts now are focused on backup compounds to advance at least one other into Phase I development later this year and to provide multiple backups for that compound going forward. But we are also happy to announce that we have a license in the Salk Institute. A product called [Eurocodin](ph) II. [Eurocodin] (ph) is a very potent ligand for this year of two receptor, and we have been very impressed with pre-clinical data generated by the Salk collaborators at UC, San Diego that showed the drug could be potent both in cardiovascular as well as potential endocrine and metabolic disorders. This is a compound that is now in pre-clinical development at [inaudible] and their exact timings initiating the Phase 1 clinical trials will be determined during this quarter. On the [inaudible] ligand front in the Type I diabetes program, we are now enrolling in 190-patient proof-of-concept Phase II trial. Enrollment has been expanded to five other European countries so we now have adequate sites up in running and expect to complete enrollment with this program towards the end of this year. This is a 2-year trial - 2-year treatment trial with a 1-year interim look. So we would expect data in 2005 and then determine our development path going forward.

The multiple sclerosis product is about ready to start dosing in the second Phase II trial. We expect [inaudible] in at the end of this quarter, and that is a 150-patient definitive-proof-of-concept trial that we expect to have half way enrolled this year and completed by mid next year with data of one year after that, also 2005. On the IL-4 Fusion Toxin front, as you know we completed our second Phase II trial on glioblastoma and a Phase I trial in kidney cancer with positive results on both fronts. We are pleased that the Phase II trial previously conducted has been accepted for publication and will appear shortly in the Journal of Neuro-Oncology, and this quarter we will begin our out-licensing activities and hope to put this compound in the hands of a oncology-focused company. So with that we would be happy now to field questions.

If you would like to ask a question, please press "*1" on your touch-tone telephone. You may withdraw your question from the queue at any time by pressing the "#" key. Again, to ask a question, please press "*1" on your touch-tone telephone. We'll take just a moment for questions to register. We'll take our first question from Meirav Chovav of UBS Warburg.

Hi, it's Meirav and Katherine. First question is, do you have any updated results from the Phase III regarding the tolerance or we still have to wait for those?

I believe that will be - well Henry.

[inaudible] with tolerance, we did report that in our press release and this drug showed no tolerance during that four weeks of treatment. What we intend to report is rebound data and that should be available to us in middle of May.

So will you be presenting that in the sleep meeting in Chicago?

Probably not. I think as soon as it is available, we'll probably just release that in conjunction with some other news or at one of the upcoming health banking, healthcare conferences.

Okay and then in terms of your next residual effects measurements, can you compare and contrast each of them and if you can just say how important are each of these?

I think that there are three different measurements, the FFT, SCT, and VAS . We actually re-measured different things. The FFT exam and SCT they are complementary; they measure psychomotor function as well as motor function. Whereas VAS measures the degree of alertness. So they do measure different things. I don't think there is one particular one that is more important than the other two. They are all important from the standpoint of measuring next morning residual effects. The important thing with our compound is we have shown consistently at the [inaudible] testing in Phase III. We have not shown any next morning residual effect.

And have you tested it following awakening -- these measurements?

Following a week of dosing?

No awakening. The patient wakes up.

Yes we have done those during daytime. We have done it now during sort of at the nighttime dosing. Most of the FFT, SCT, and VAS measurement are taken the next morning after eight hours of dosing either in a sleep lab or in an outpatient setting. So you see that it's done next morning upon awakening.

Okay and then you have -- do you see 3 trials in which in the elderly both in IR and MR that have an extension phases and when will you have those data?

Yes, extensions studies are required because as per ICH guidelines as per FDA requirements we need expose patients for an extended period of time for chronic use. So many of these studies have extension phases so a lot of the ongoing studies in adults and also in elderly patients enter into extension phase.

Patients are enrolling very rapidly into these extension studies. And actually the turnout we were quite surprised that there is such a high percentage of patients enter into these extension trials. Which really is a very good thing, because I think patients are comfortable with what they've taken during short term and long term and they want to continue treatment. In terms of when those results are going to be available, again I think later this year; it's when we are going to have all these patients enrolled for an extended period of time and we are going to have -- we will report safety information from these studies.

And this is -- one of your competitors have done trials during the day, I am just wondering what's your opinion about doing trials during the day when people are normally not asleep and what could be the impact of that?

Yes I think some trials are done during the day and those are done for specific reasons, but it's like memory impairment which is again, which is required by the FDA also for such studies. Sometimes, it is easier to do memory impairment studies during the day because you have to do these tests on -- pretty much like on hourly or couple of hourly basis. So it's just for convenience, some of these studies are done during the day; other studies are the pharmacokinetic studies, proper interaction studies -- those studies are done more appropriately during the day.

But efficacy, you don't think there is a big reason to do efficacy studies during the day?

Yes we don't believe that there is any reason why you want to do it during the day, because this is a medication for sleep so trying to do the studies during the day wouldn't add additional information.

Okay.

Any other questions?

That's it. [Inaudible]. Thanks very much.

Our next question comes from the side of Michael King at BOA Securities.

Hi thanks good morning. Just wanted to know from the financial guidance, Paul, can you comment about your thoughts on profitability, particularly next year in terms of just the timing on milestone payments, etc?

Yes thanks Mike. We are still considering our first profitable year to be in '05, the year of launch and year of sale of Indiplon . '04, although we have not provided any guidance out into the street, we still expect to incur a loss next year. It could be in a range of the current year losses slightly less, but that is all subject to what as you know we are aggressively looking for additional compound to bring into the clinic. And also up scaling or increasing some of the clinical trials that we have right now.

Correct me if I am wrong but amortizing milestones would obviously be a way of shifting revenue out to avoid profitability before product sales?

Sure.

But it sounds like you are going to continue to spend both in R&D as well as pre-marketing expenses.

Right. Pre-marketing have actually been modest expenses here. We are adding to our internal marketing market research sales infrastructure, but major expenses related to sales would not come until we are filing the NDA, at which time [inaudible] will be picking up those expenses. We will invest and expand research and obviously by taking on several new Phase II and Phase I compounds, we will expect some modest increases and another development expenses.

Right. Okay thanks a lot.

Our next question comes from the side of Dennis Harp of Deutsche Bank. Go ahead please.

Hi, first question is on the safety trial. I think that press release mentioned over 500 patients enrolled, but 150 had completed so far. How many have remained in the trial?

Well of the -- I think we expected about 50% drop-out rate and that's pretty much where we will end up, in these are 12-month studies and patients leave studies for different reasons. They travel, they move, they lose interest after a year, so we are pretty much right on top of what we expected this to be. One of our earlier dropouts was the infamous center in Miami, fairly financial was one of our early dropouts for reasons we cannot relate to.

At the upcoming APSS meeting, you mentioned there will be several abstracts presented there, what could we look for that might be new at that meeting that you haven't sort of given to us already by press release?

Let me make a general comment then refer it -- turn this over to Bruce who will kind of give a little color to some of the other presentations. But obviously we have been queried for some time that when we will present the data in the peer review format. So there are 3 phase II trials here that will be presented there, one by Jim Walsh, which is the modified release elderly study, one by Tom Roth. So you will see a lot more of the details, obviously a third party review of the data, and will be held up for scrutiny in a peer review format, which I think is important. In addition, there is my comment on some of the PK studies to be presented.

There are 3 studies, which haven't been given in a lot of detail. One is looking at a 14-day study that we did with the IR formulation where we were looking at the tolerance to both the PK and the PD measurement. This is important because in the past, the old benzodiazepine is a suggestion of tolerance. On the work that which would be presented that API that shows that there is no connecting more PD, no active efficacy tolerance over that 14-day period. And so that is obviously important. And also within that study, we were able to designate an active blood level, around which we were able to develop the modified release formulation.

Another a very important post-op presentation will be the interaction with alcohol. As many people know there has always been the concern with the use of sedative hypnotics in conjunction with alcohol because of leading drug additive affects on pull next day or even during the night function. And what we were able to show was that there is minimal or no additive affect with the combination of alcohol and Indiplon. And we feel this is obviously very important.

And lastly, we are presenting some data on the modified release. Where we looked at the kinetics during the night and we also looked at the function and next time residual effects. And within that, we are able to show in volunteers that the modified release that head exactly as we anticipated that it not only increases in total sleep time but also reduce latencies and sleep onset with no next day residual effects. So the combination of those three posters together with the three others which you have already heard about give a pretty good overall impression of where we are with the development of D2 formulation.

Then one final question on the D2 receptor agonist program. Can you tell us where you are in terms of moving that forward in clinical trials, what data are available to date, and then perhaps a little bit on the financial terms of the acquisition, what do you pay back to Pfizer if you successfully commercialize this product?

Let me -- I handled a lot of question, I will turn this over to Henry. The terms in agreement since this product needed to be rapidly divested as part of the merger with Pfizer. The terms were very attractive meaning that we got the compound, supply all data along with money necessary -- all of the funds necessary to complete the next proven concept trial. So we paid nothing for it -- we actually got money for it to do the next trial. The royalties are cost going forward a very modest, and we have the option to buy out any future royalties which will make this a lot more attractive to us either as the development candidate or as an out licensing candidate. So previous data, Henry?

Dennis I just -- very briefly. We are obviously working very closely with the ex-pharmacy employees and down with Pfizer employees. We worked with them for the last couple of weeks to perhaps a month. There is a protocol written already for this particular proven concept study. I met with a group of 15 OPD leaders and investigators just 2 days ago in Chicago at the American Neurological Association meeting.

They were extremely positive with the study. They have a lot of suggestions as to how the study, how this proven concept study can be conducted. So we are at this stage, where we want to finalize the protocol as quickly as possible and identify investigators to move this fast forward. In terms of past studies, there has been four studies done in the past. Most of these studies are safety-related studies to test the dosing to agonist safety. There are some efficacy studies done too.

At this stage, I don't think we are at the stage to disclose, I think, some of the information because we are still trying to understand, review this product. It looks very, I would say, very promising from a - pre-clinical standpoint and from the studies that are been done in the clinics. It looks like an extremely promising compound product.

Ok.

I think, also what we were interested in -- the fact that it is a different mechanism in existing therapies which may offer different alternative or synergistic activities and obviously products in this class with clinical trials are pretty straightforward. The end-points are pretty obvious.

Our next question comes from the side of Jim Birchenough of Lehman Brothers. Go ahead please.

Hey guys, just a question on the long-term dosing studies, just with regards to your time lines for completing the program. Is that based on an assumption of a 3-month follow up or a 6-month? Because in the press release it says 3 or 6 months, I'm just trying to get a sense of what you're thinking in terms of the necessary follow up for the long-term studies.

I think this was disclosed earlier in our discussions with FDA, clearly a 3-month efficacy end-point is required to get the kind of label that we want, and not a no-restricted short-term label. Six months would be better, so I think to answer your question, it really would be a function of when and when it completes, to decide whether we are looking at efficacy at 3 or go to 6. But right now, as you can tell from the release, we feel it prudent to continue to enroll to exceed our 600 patients to make sure the data is robust. So the decision to make shortly based on enrollment.

And then, if you were choose to go with a 3-month follow-up time for filing, would you still go out to six months just from a post-marketing standpoint, given that a store has a 6-month study that might find its way into their label.

Obviously we will, in many of our studies we have data out to 12 months. So obviously following patients and looking at 6 months would be important, but prospectively we will have to define the end-point before we look at the data. And again I'm not sure that other competitors have done these types of studies. I think, until we see the data we won't know whether that in fact was an efficacy trial or a safety trial, but we will probably learn that shortly. These trials were clearly prospectively defined efficacy trials, both, and they both agreed and reviewed with FDA as such.

And just a final question. Just on the 12-month safety study and the 150 patients who have completed, is there anything that you can learn from those patients that you could share with us in terms of withdrawal effects or are we seeing very low rates of withdrawal effects when they stop the drug. Any commentary there?

Henry?

I don't think we have that information, but the piece of information we can share with you is, while these patients were on treatment, we tracked their actual usage of our drug on a monthly/on a weekly basis. I think, the good news is, overtime these patients have not decreased their usage of Indiplon, which suggests that, or increase the use of rather Indiplon, either way, which suggests that there is no tolerance, which suggests that these patients are tolerating the drug well. They take on the average of 20 tablets or 20 capsules, in this case a month, which is, I think, pretty much we will be expecting when we going into this trial. So there are a lot of good information based on very simple look at data.

That's great. Thanks very much.

Thank you.

Our next question comes from the side of Elise Wang of Smith Barney. Go ahead please

Thank you. I was wondering if you can tell us about the IP around that D2 receptor agonist. What is covered and for how long?

Actually, I don't have the answer to that question. The deal was done pretty quickly. The terms are obviously very favorable. It's the patent protecting composition -- no matter of compound, but the actual duration of the patent I'll have to look into and get back to you.

Okay. And just coming back to the commentary about the amortization was a milestone. If you could just describe to us what is the rationale for taking the period to be, at the time, up through the approval versus, say for instance, the patent life of the product just to get a better sense of this. I was getting the impression that it wasn't actually firmly decided which way it was appropriate. They just wanted to understand what the accounting basis was for treating it, more in the sense of a shorter timeframe.

I think that the way that the accounting rates are coming out Elise, is that the milestones, as well as the license fee goes to the end of the collaboration. And one can argue that it's the patent life, the others can also take on the fact that when is it at what point we actually turn over the drug over the Pfizer. And that's where we are right now and frankly we're responsible for the development of the drug through the NDA approval and at which time we would then turn it over to Pfizer and the accounts have agreed that that's appropriate accounting. Hopefully, that answers your questions, Elise.

Obviously, it makes a big difference as to the sums that you can recognize. Are there examples of other companies that have recognized it in such a timeframe -- the shorter timeframe in terms of -- up to approval versus say the patent life?

No, I can't really -- I don't know of any companies that have done that. This is all recent and a lot of this is really coming out of the SEC out of there 101 [inaudible] and so we're kind of developing it as we go along.

Okay, thank you very much.

Okay.

Our next question comes from the side of Caroline Copithorne with Morgan Stanley. Go ahead please.

Thank you and most of my questions have been answered. But, I was just -- with the R&D cost, I know, a lot of it is offset by the reimbursement from Pfizer, but the big ramp up from 4T levels, which you guys have mentioned was somewhat inflated by some additional programs to speed enrollment. Just curious what additional things you're doing in the first quarter and whether we should expect these expense rates to continue and look for, you know, faster enrollment, additional data, analyses, what's really factoring in that?

Caroline, as far as the Indiplon program expenses are concerned, some of the increased expenses that we incurred in the first quarter we mentioned in the past i.e., some advertising, some additional increase in enrollment. Garry had mentioned that we're actually over enrolling in one or two of the trials. So, we're seeing some of that. But as far as the rest of the year is concerned, the guidance that I would provide as far as Indiplon expenses are, essentially assume the same level of expenses in the second quarter. And then obviously as we wrap up the trial, so expenses would go down in the third and fourth quarter. So -- and also as you mentioned all of these expenses are covered by Pfizer. So we'll pass through.

And then secondly I was just curious now that we've seen a little bit more data on the store --if that's had any change on your perspective or what your current view is -- what your competitive the advantages going to be and how the profile would [inaudible]?

Well, I'm not sure of actually same data, we referred suggestions of data and perhaps of the upcoming sleep meetings -- we will see more data, but to answer your question, no nothing has changed in our development plan as a result of this.

And so, what do you see the -- is your key comparative advantages from -- at least those adjustments that they've made so far, what the data might look like?

Well, it stays the same. Our product profile obviously is to have this product to prove for all types of sleep disturbances, sleep initiation, and sleep maintenance, long-term use as well as middle of the night dosing. So we feel the potency of the drug has been adequately demonstrated and we'll continue to be in clinical trials. We'll see this product is having absolutely -- having no evidence of next day residual effects, which is a key differentiator. Having two dosage forms so that we can pay over the product, to the patient's need and immediate release for rapid sleep initiation in the middle of the night dosing, modified release for sleep maintenance, and both able to be used on a long term basis. We just think it provides more of the total sleep solution. It has been thus far a very clean compound.

Thank you.

One comment on the previous question, I forgot from who, related to the pharmacy compound, whose is licensee -- the patent life extends through 2019 for this compound.

Our next question comes from the side of Mark Augustine of CSFB. Go ahead please.

Hey thank you Gary, I wanted to ask about international Indiplon development regulatory update?

Well that as you know is in the hands of Pfizer. I have no information on the status in Europe, that is going through their process now, and they're actively working with Japanese regulatory authorities to decide on the development path, which is bridging studies, using our data, or more comprehensive programs. At this point, I don't have information on that.

Alright, thank you.

We have no further questions from the phones at this time.

Okay, we thank you everyone for joining us and again if there are any follow-up questions, feel free to give me or Paul Hawran a call. Thank you. Bye.

That concludes today's teleconference. Thank you for attending. You may disconnect at anytime.