Neurocrine Biosciences Inc (NBIX) 2003 Q4 法說會逐字稿

My name is Tony, your conference coordinator. (OPERATOR INSTRUCTIONS) At this time I would like to turn the program over to our host, Mr. Gary Lyons. Go ahead, sir.

Good morning. Thank everyone for joining us for our fourth quarter year end 2003 earnings call. The agenda for today will be that Paul Hawran will review financial results for the quarter and year ending 2003. And then I will provide a brief update of activities in research and development.

So joining me today is Paul Hawran, as I said, EVP, Chief Financial Officer; Wendell Wierenga, EVP of Research and Development; Henry Pan, Chief Medical Officer; and Barbara Finn (ph), VP of Regulatory. And as mentioned we will open this up for calls after our commentary. So let's begin with Paul.

We were really pleased with the results for the fourth quarter. We have exceeded our expectations and our guidance that we provided the third quarter. Where we thought that we would essentially break even in the fourth quarter, we are reporting a profit of about $3 million.

What I would like to do in the next few minutes is just go through and give you some highlights of the quarter, the year, and then perhaps go into -- provide some guidance for 2004, as well as reiterate our guidance for 2005.

So in essence for the quarter we reported $27 million of revenues, which consist primarily of reimbursement of Indiplon development expenses of about $13 million. In addition to that, we have recognized about $12 million associated with license fees that we received from Pfizer at the early part of this year.

R&D expenses of 39 million consist primarily of about $21 million relating to the development program for Indiplon. And that compares against about $28 million for the same period last year. G&A expenses were up about $2 million and primarily associated with higher personnel expenses.

As we noted in the press release, during the fourth quarter we did recognize a gain of $18 million relating to the sale of our existing facility. And the proceeds from this facility, or the sale of this facility, will be used to fund the cost of the new building, which we are putting up, and should be ready for occupying sometime in June, July this year.

Moving onto the year, revenues of 139 million consisted primarily of Indiplon related development reimbursement of development expenses of about $90 million, and recognition of Pfizer license fees of around 38 million. R&D expenses of 68 -- were up about 68 million from last year to about 177 million. And as you know, Indiplon development expenses were the biggest part of that, representing about 113 million in cost as compared to 65 million in 2002. G&A expenses were up 7.8 million from the previous year. And that was largely due to higher personnel expenses of about $5 million.

Moving on to the balance sheet, we are ending the year with about $445 million in cash and cash equivalents. And that does not include about $14 million in receivables due from Pfizer. So in essence, we have about 460 million in liquid cash or liquid assets.

The increase -- I would also like to just focus in for a second on a number of increases that occurred on the balance sheet. One was the increase in property, plant and equipment, and as well as other noncurrent assets. That increase primarily results from the cost associated with our build out, as do the increase in long-term debt, which is again related to the build out of our new campus. So we believe that for the year ended 2003 we controlled our expenses well. And it gives us a good foundation and basis for moving into 2004.

In 2004, as I mentioned -- as we mentioned in the press release, we are expecting a slight loss. We believe that it will consist primarily of around revenues of around 160 to $170 million in 2004. And that will be offset by operating expenses of about 170 to $180 million. The operating expenses will be offset slightly by interest income as well, providing a netting out to a slight loss for 2004.

Now as we cautioned in the past, these numbers do not reflect any additional cost that may be incurred from our efforts right now to end license new product development opportunities. Should those occur, we will come out with new guidance at that time and provide a new guidance for 2004.

Lastly, as far as the 2005 year is concerned, we are reiterating our guidance, which we have provided in the past, that we expect to be crossing over into profitability in 2005, and we are holding to that forecast. So with that I will turn it back over to Gary.

Let me comment on progress in clinical development research and development beginning with Indiplon. As you can see in our press release, we have outlined the status of our six remaining registration trials, five of which are efficacy based trials for both the immediate release modified release. As previously stated all trials are fully enrolled. We're in the process of locking databases, and expect report results on all of these trials in February, March of this year.

During the quarter there was also significant activity in the press. Investors may have noticed a front cover Business Week section related to the problem with sleep and insomnia, new treatments, the same week the New York Times and Nature did several similar articles. And I think we will continue to see more and more attention focused on insomnia, new therapies such as Indiplon, and the significance of this problem overall.

We have 15 abstracts that have been submitted to the American Psychiatric Association Meeting, as well as the sleep meetings in the spring, and expect a significant presence, not just in presentation of peer review journals, but also in the form of symposia and other precommercial activities.

In GnRH, we had made excellent progress with our second clinical candidate known as 4018. This compound is in both a single and multiple dose trial. The first three cohorts in our single dosing arm have completed, and we're now enrolling in the multiple or one-week dosing. We're very impressed with results we are seeing with this compound. We're seeing significant pharmacokinetics, pharmcodynamics effects, significant luteinizing hormone and estrogen suppression, which appears to be a durable and sustainable effect. This trial will complete by the end of this quarter, early second quarter. And we remain on track to initiate Phase II development in the second half of this year.

On the CRF front, we, with Glaxo have two candidates we consider clinical candidates for completing preclinical development, and have recently identified, we believe, as a backup compound. And feel comfortable that with Glaxo, we should be in Phase I development with one or both of these later this year.

Urocortin, licensed recently from the Clayton Foundation is a CRF related molecule. It binds tightly to the CRF-R2 receptor. We are completing preclinical development of this compound. And again, if all goes well, expect to initiate first in man studies in acute congestive heart failure in the second quarter of this year.

On the altered peptide ligand front, again significant progress. We're very near completing enrollment in our two-year, 200 patient Type I diabetes clinical program. We have only a handful of patients left, and expect to meet or beat our enrollment targets of this quarter. We now have patients who have completed a full two years worth of therapy. We also are very impressed with the low dropout rate of under 5 percent in this study. And again, expect it will be over a year, perhaps a year and a half, before we have any idea of preliminary efficacy with the compound. But this study has gone for a while, and we're impressed that the enrollment has accelerated, and the drug appears to be so well tolerated.

Likewise in the MS front, enrollment is now increasing in the Multiple Sclerosis Phase II trial. Our goal is to finish enrollment in the third or early fourth quarter of this year. This is a nine-month treatment period, one dose versus placebo highly powered to give a signal as to efficacy, and therefore with the continued development -- the Phase III development of this compound.

We are from research, again, expecting at least one IND candidate this year. There are three potential candidates. Our goal is to deliver a new clinical compound each year, and we remain on track to do that.

And in closing, Paul mentioned the business development activities remain very active. With our significant cash reserves and development capabilities, we are very anxious to end license at least one later stage clinical development candidate, either through collaboration or acquisition. And remain searching for commercial opportunities with our existing Pfizer relationship. We expect to be a commercial company in the third quarter of this year, beginning the copromote of Zoloft. And we would very much like to attract another psychiatric product that we can put into that sales force, which will build to 200 by year end.

So with that, we would be happy to answer questions.

(OPERATOR INSTRUCTIONS) Phil Nadeau with SG Cowen.

I really only have one question, and that is in regards to a potential chronic use label for Indiplon. Can you talk a little bit about what your understanding is about what the FDA is going to require to get the 7 to 10 day restriction removed from the label, and whether you feel you're going to meet that goal?

Yes. I've answered this question many times, so why don't I let Barbara Finn, VP of Regulatory, who interacts on our behalf directly with the FDA, give you her perspective on things.

In regard to what FDA would anticipate needing to be able to relax the labeling for allowing use of these types of products for longer than it appears to be in current labeling, we anticipated at this point that FDA would be looking for multiple studies that are of at least one month duration. And that is just from more recent interactions with the agency. And certainly the longer the better. So I hope that answers your question.

Do you think a panel would be necessary in order to get a chronic use label?

I am sorry. Can you repeat that? (multiple speakers) Oh, an advisory panel?

Yes.

It is very possible that there might be a panel that would be convened. I will point out that there is at least, I think, one benzodiazepine product that does note that there is to three months use with this product allowed. So it is really going to be up to the division and whether or not they feel they need to get acceptance from the community on relaxing these requirements.

Ian Somaiya (ph) from Thomas Weisel Partners.

I have two questions. The first is related to the scheduled milestones that you expect in 2004. Can you just walk us through the timing as well as the amount of the milestones that you expect from Pfizer?

I don't know that we have been specific on amounts. There have been estimates that are out there, but the most significant milestones are, of course, the filing of the NDA, which is on schedule for midyear. There are certain other milestones relating to completion of certain Phase III clinical trials that we expect to report in the next couple of months. So the full revenue impact of those are in our guidance and numbers for '04.

So the assumption is that they are all recognized at the time of the event?

Correct.

And the follow-up question I had relates to, and I know this question you have answered before, but I would love to get insight on what exactly at this point needs to be down from the time of completion or date of dissemination from the Phase III studies to the actual filing?

Since Barbara Finn is responsible for that, she is probably the best to answer.

I mean there are the obvious points, which is each individual study needs to be analyzed and evaluated internally. And in addition to that, there has to be an integration effort. By that I mean, the data from all of the studies that have been conducted need to be integrated and then reanalyzed to look at the safety in various subpopulations that become larger as you integrate. So then there is a second sort of higher power, or higher level of analysis that goes on.

And then went all those analyses are gone and we have a chance to evaluate it then obviously the various pieces of documentations have to be completed from the individual study reports to the rest of the CTT overview and summary section.

Also, as part of the process, although we control the NDA content filing, Pfizer obviously plays and important role in overseeing this process, and clearly would want to be involved throughout.

And just to follow-up to that. How long do you expect this process to take?

It will all be done by midyear, Ian.

Dennis Harp from Deutsche Bank.

Gary, since you have so many of these studies with results in the first quarter, do you anticipate releasing them all at once, in one package all six studies? Or will we have them sequentially as you get the information?

Sequentially as we get the information.

Great. With respect to the launch of the sales force, how quickly do you expect to bring those people on board? And when does Pfizer start paying for those people? And at what level per head should we plan on for our financial models?

Well, working backwards I think the estimates on total funding were in the order of 30, $35 million or so. Exact amounts have not been disclosed. We are now in the deep end of the process of planning and implementing creation of sales force. We will undoubtedly use a contract sales organization to help for part of this, that is recruiting and getting a sales force up to speed quickly. We will hire all of our own sales management. That process has begun. Bob Little is now on board as VP Commercialization. We recently hired our VP of Sales Operations. We are in process of hiring a head of Sales. And those groups will then recruit the regional District Managers below them.

So they will be identified ready to come on the payroll at midyear, at which time Pfizer begins to fund this. And all of the sales training related to Zoloft will take place at Pfizer. And that is somewhat of a rate limiting step, but by midyear to year-end, that six month period, we would expect to have close to all 200 people up in the field trained and operational.

Matt Geller with CIBC World Markets.

In terms of your plans for acquisition -- in terms of your general plans for the Company, how should we think of Neurocrine going forward? Should we think it as a neural company? And you have some products in the pipeline that are non-neural, so what kind of acquisition would you be looking for? And how do you see the focus of the Company going forward, above and beyond Indiplon?

Well, the ideal focus is, of course, psychiatry. So with a 200 person specialty psychiatry sales force, with both Zoloft and then with Indiplon. I think those are two very key products. And that is a franchise that we would like to build upon. So the wish list is first to find other niche or important psychiatric products that we could either acquire, sell or copromoted with that sales force.

But rather than simply limit ourselves to psychiatry, we also have broadened the search to include other products in the field of neurology that are later stage, from which we get expand our psychiatry sales force into the neurology field. So ideally psychiatry and neurology.

You do point out in research there are several things that don't hit that particular sweet spot, GnRH for example. However, we think this is a very high probability of success type product, a large unserved market. And success of this product, I think, then would allow us to attract a partnership along the lines of a Pfizer to perhaps, at that point, begin to expand penetration into other markets.

And sort of following up on that -- not totally following up, but in terms of medical meetings this year, in terms of Indiplon, understanding where it stands in the space. Which ones will you have the biggest presence at, or Pfizer will have the biggest presence that would be worth attending?

Henry will comment on that.

As Garry mentioned earlier, we submitted our 15 abstracts to two meetings. The first meeting is coming up in May of this year in New York. And it is the American Psychiatry Association Meeting. We have nine abstracts submitted to that meeting.

The second meeting is coming up in June, June 5th through the 10th. It is in Philadelphia. And that is a major sleep meeting. And we submitted seven abstracts to that meeting. The third meeting that we submitted abstracts to is the NCDEU meeting, which is a new clinical drug clinical drug evaluation unit meeting. That is going to take place in June this year in Phoenix.

Last year at these meetings we had sort of an introductory marketing presence with Pfizer, who obviously exhibits strongly at both meetings. And we also had our own exhibit. At this meeting we expect an even larger presence. We also are planning and will conduct a symposia related to sleep with sleep experts, and expect that to be a major event this year.

Where's that going to be? That's going to be at the sleep conference, Gary?

It is going to be in Philadelphia this year.

No, the seminar on sleep drugs? Is that going to be at the Philly conference on sleep?

Yes.

Yes. I think it is part of the conference.

Elsie Wang with Smith Barney.

That is Elise Wang, thank you. In regards to a follow-up on the abstract that you submitted at these various meetings, could you just describe specifically what some of the data will be? I take it that since the Phase III studies are only recently getting completed, or were completed at the end of last year, that we're more likely to see Phase II data? Is that the case? And also if you could just give us some details of what some of the data is in the abstracts that might be presented?

General comments, and then I will turn it over to Henry. Correct. All of the new Phase IIIs that will report this quarter will not be submitted. We are past that deadline. They will either be held for further submission, peer review journals and publications. But this year's presentation in abstract form will be both Phase I, II and Phase IIIs. Henry, do you want to expand on that?

Yes. Not much more. I think obviously some of the middle of the night dosing studies will be presented. Quite a few of them are Phase I studies. And some of the earlier completed Phase III studies will be included in these abstracts. I don't want to going to into any deep details, because I think that is going to preempt the information that is going to published in the abstracts.

Just coming back to the issue about seeking a label for chronic dosing. What is your impression based on the conversations with the FDA as to how much flexibility there may be for the opportunity to have that loosened up? Is there a possibly that nonetheless there might still be limitations in terms of how long a patient may be able to use these medications, although longer than perhaps than what the current insomnia drugs are?

Let me give you my response, and Barbara can correct me as I go astray. There has been some confusion here. We're not seeking a label that said Indiplon is approved for long-term rest of your life treatment, but rather a loosening up, a liberalization of the 7 to 10 day, or 7 to 14 day restriction.

I think -- my understanding is most of these medication class labeling would say, if after a month you should check with your physician, obviously, to make sure there are no other underlying conditions associated with your insomnia. But I think the simple removal of short-term restriction of 1 to 2 weeks, any liberalization from that and elimination of short-term, I think, will be a significant differentiator in the market.

And to do that our dialogue with FDA, I think has been very clear. This is not a concern related to safety. It is a concern related to efficacy. So show us in several controlled placebo-controlled three-month clinical trials that you obtain your endpoint. And if done, then we believe removal of short-term is possible, but of course still have to negotiate a final label with FDA.

And this is Barbara, and Garry is absolutely correct.

It's always good to know.

Just lastly, what is Pfizer's responsibilities in the filing itself? How have you kind of split up this submission?

They are actively involved in the whole process. We have a task force that oversees this, timelines, activities. So although we take the lead, we do so with their advice, their input. They obviously audit everything along the way. Having a partner with this kind of experience and resource, obviously, gives us an opportunity to access key talent at Pfizer that can live with us through the second quarter end filing to make sure that this is done. So it is not a simple small biotech company bearing the burden of this, but doing so with a very experienced and large partner.

Catherine Kin (ph) from UBS.

I have a financial question. The guidance you gave for revenues, how much it is related to Pfizer? And then in terms of the expense guidance of 170 to 181, what is the split between R&D and G&A?

Catherine, as far as the revenues are concerned, we have not provided any further guidance about the breakdown between Pfizer and non-Pfizer related revenue. But as you can imagine, and if you take a cue from the 2003 results, most of the revenue will be derived from Pfizer, both in terms of reimbursement of Indiplon expenses, as well as milestones and revenue recognition of license fees.

And again, on the operating expenses, we have not broken out the difference between R&D and G&A. But frankly, I would suggest that right now just take a run rate on G&A and run that upwards, and adjusting it for the ramp up, if you will, of the sales force beginning in the second half of this year.

Gary, could you just give us an update on manufacturing for Indiplon?

I'm wondering if I'm the best person to do that. Again, I will give it a shot and Barbara, perhaps, or Wendell can fill in. The manufacturing, we have controlled this process. Both bulk and finished product are being done at two different sides internationally and the U.S. Those two manufacturing sites have done qualification lots that are on stability that meet the FDA requirements.

Over the past six months, we have been in the process of transferring manufacturing processes to various Pfizer sites, which eventually will serve either as the backup or the primary manufacturer. So it is covered -- I guess it is triple redundancy here. Wendell, anything to add?

No, it is certainly in the process of getting validation locks in place. And the transfer has gone well with Pfizer for their handling of this in the second half of this year. So we're all set for inspections with Pfizer as well in both the primaries as well as the backup sites.

We've had our CMC meeting with -- FDA have, I think, clear understanding guidelines as to what needs to be done then see no rate limiting issues.

Dennis Harp with Deutsche Bank.

Can you describe, Gary, the NDA in terms of its state of completeness at this point in time? And then whether you're planning for an electronic filing? And also whether you're going to format this NDA so that there is very little work that Pfizer would need to do in order to submit in Europe?

Barbara?

In terms of the status of where we are in completion of the application, obviously the clinical has yet to be done, but we have pretty much completed all of the nonclinical sections that are better known as the safety section, and a lot of the manufacturing information that is better known as the quality section.

And in regard to the format of it, we will be formatting it in common technical document format. And that would allow Pfizer, should they want to, take this registration package to Europe or Japan, to be able to use the three supporting modules, or actually four supporting modules, 2, 3, 4, and 5 as is and just add the additional regional information required by the other two regions.

Matt Duffy from Black Diamond Research.

Just two quick questions. If memory serves, the long-term efficacy and safety study is three months of efficacy and an additional three months of safety. Will you need that information to file or can you put that in as a safety supplement?

We need the three-month efficacy information to file, which will have any patient exposure information. Beyond that, if it is complete in time, will be part of the application as well. But the rate limiting point is the three-month efficacy data on both studies which we will have in time for the filing.

Some of the abstracts to be presented at APA or APSS, are those going to include any PK, or do we need to wait until we see a PI after approval to see the PK and the MR?

I'm not sure if we will. I think we have shown PK data previously, both in abstract form as well as presentation form showing the actual data, mean data, for the PK of the modified release. So I would have to get back to you to whether there are other specific abstracts. I believe the MR Phase III study will be one of the abstracts presented this year, which is not PK, but rather efficacy.

Deborah Netschert from Lazard.

Pending positive Phase III data, I was just wondering what other types of patient populations are you guys going to look to target in your Phase III B or Phase IV post marketing program?

What I can tell you is that Pfizer is responsible for the Phase III Phase IV program. And that program is in the planning stages, so I can't say that it is final, nor do I know the specifics of that.

I can tell you that previous to Pfizer our thinking has been to look at the impact of sleep, or the impact of these drugs, in a variety of what we call comorbid conditions. Things that Sepracor has talked about are obviously things that we're also interested in, such as depression, anxiety, pain, menopause, rheumatoid arthritis, a host of those. But until such time as Pfizer finalizes its plans, I can't comment further on that.

Thomas Wei from Piper Jaffray.

I had a couple of financial ones. The guidance for revenues, does that assume any contribution from the Zoloft copromotion for the year?

No, Thomas. We have not included anything from Zoloft. And we've always considered that to be upside.

The sales force, how exactly does that work in terms of Pfizer's support of the sales force? Do they pay for the full cost as long as you meet your detail goals? Or is the reimbursement prorated depending on how many non-Pfizer drugs are in the bag?

No, it relates to -- in this case, Zoloft only. If there were other products from Pfizer put in the bag, then that would be a separate arrangement. And they reimburse us, as we said earlier, the fully burdened cost, an agreed-upon upfront number that increases slightly from year-to-year. And with that funding, we believe it is adequate to pay recruit and operate a sales force of up to 200.

And there are certain performance requirements in here, that is certain numbers of details per year which gives us the option at some point of deciding whether we want to dedicate the entire sales force to these products or want to divert it and take a pro rata funding, and use the sales force to sell other things. So it gives us flexibility. As Paul said, it is fully burdened cost sufficient to cover our costs and some upside if we're successful with copromoted products.

And then pre-NDA meeting, you are scheduled to have that some time probably in the October, November time frame. Did you have that, and was there any thought coming out of that -- changes to the program or thoughts on labeling, labeling requirements that are different than what we previously expected?

No, we have had the meeting, a very successful meeting, consistent with our prior meetings. Focus was, of course, on the content format, etc., of the NDA Labeling, etc. Barbara has commented on that. So for the guidance she has given and what we're doing is reflective of what was discussed and agreed to at our pre-NDA meeting.

(OPERATOR INSTRUCTIONS) Gerald Larson, private investor.

One quick question for you, Gary. You mentioned earlier you had three potential IND candidates that could come out this year into clinic. In the past I know you have mentioned MCH and MC4. Could I ask what the third potential candidate might be?

Sure, Wendall?

We have haven't commented on that yet, but it is in the area of sleep insomnia treatment. So when we get further along on that, we will elaborate as to what that actually looks like. But the other two are, as you indicated, MCH as well as MC4.

At this time we have no further questions. I would like to turn the program back over to Mr. Lyons.

Alright. In closing thank you everyone for joining us. And as always, if there are individual follow up questions, feel free to give me or Paul Hawran a call. And we look forward to talking you with Phase III data shortly.

Thank you. And this does conclude today's program. You may disconnect and at any time.