Neurocrine Biosciences Inc (NBIX) 2004 Q1 法說會逐字稿

Good day. All sets are now on the conference line in a listen-only mode. I would like to turn the presentation over to your moderator today, Mr. Gary Lyons.

Thank you and welcome to everyone this morning. The purpose of the call, as you know, is to review our first quarter '04 financial highlights and product update. Participants and agenda will be Paul Hawran, EVP and CFO, who will run through the financials; myself and Wendell Wierenga will run through the status of the R&D programs; and then we will open this up to Q&A. Also joining us from New York is Henry Pan, our Chief Medical Officer. With that, let me turn this over to Paul, who will go through financials first.

Thanks, Gary, and good morning to all. We had a good first quarter. We've reduced our loss from the same period last year. We reported revenues of $16.9 million, or about $25 million less than what we had reported from the previous quarter -- or the first quarter of last year. Most of that reduction was obviously a reduction in sponsored development of 29 million from Pfizer, and that just reflects the lower level of Phase III activity.

R&D expenses also went down, from $48 million $26 million, and that reflects the reduction primarily in the indiplon program. Personnel costs were up about $1.5 million, as was lab supplies and other R&D equipment. G&A expenses were up slightly, $500,000. That mostly reflects personnel expenses relating to business development and marketing primarily.

As far as cash is concerned, we ended the quarter with about $371 million in cash. That is a reduction from $453 million that we reported at the end of last year. As you all know, for the most part the biggest reduction was a $50 million payment to Wyeth, and that was the purchase of their royalty stream of indiplon. And then a loss of $13 million gets us down to about $371 million. As far as the guidance for the rest of the year is concerned, we are still maintaining our guidance of a modest loss throughout '04 and looking forward to breaking into profitability sometime in '05. With that, I will turn it back over to Gary Lyons.

Okay, let's go through the development pipeline. I'll begin with indiplon. The highlights for the quarter, obviously, completion of our Phase III program for indiplon for immediate release. As you see in the press release, there were three trials that were reported during the quarter. Undoubtedly, the most noteworthy of those was our RESTFUL trial, which enrolled 700 patients, 700 adults, treatment over six months, with three-month statistical analysis primary endpoint, which showed robust effects in not only latency to sleep onset but also total sleep time, and those effects were maintained throughout the blinded six-month treatment period.

For the modified release formulation, there were four studies reported -- four positive studies -- and again the most noteworthy of those is obviously our sleep trial long-term 740 adult patient trial, a six-month trial with a three-month statistical analysis endpoint showing very robust effects in sleep maintenance and showing approximately 90-minute improvement in total sleep time versus baseline, and a little over one-hour improvement in loss of (indiscernible). These effects, again, were maintained, sustained throughout the six-month treatment period.

This week, many of our people are at the APA, the American Psychiatric Association meeting. We will be presenting at that meeting six abstracts, the first time, we will be releasing in peer review form some of our Phase III work for indiplon. The program itself -- we also during this meeting will be holding a symposia and having a more sizable presence with our partner, Pfizer, than we have in the past.

As far as guidance on filing et cetera, based on the results of our Phase III trial, the Company is, as expressed in the past, currently assembling the documentation to submit an NDA. And as we have long known, this program involves over 70 trials, over 7,200 patients, and includes almost 300,000 patient nights of treatment, so it is an enormous amount of data. The objective and timing of the filing for both NDAs -- one for IR; one for MR -- will be announced after Neurocrine and Pfizer finalize a strategy for market differentiation. And these we think are critical issues that we need to work through and agree to. They include dose selection, product positioning, and labeling.

So with two NDAs one after another, we will announce any changes to previous plans of filing and/or will announce when we do file for each of these. In the spirit of our partnership with Pfizer, Pfizer has the custom of not being specific on timelines and has asked us to follow suit, and we will work diligently with Pfizer to complete all of our analysis of this data for prompt but complete filings. Our primary objective here is best product, best label, and that's what we're focusing on at present. With that, let me turn this over to Wendell. When we finish product overviews, we'll then come back to Q&A.

Thank you very much, Gary, and good morning to everyone. As you know, the area of GnRH antagonists has been an area of investigation for Neurocrine the last couple of years. We believe it has significant potential, not only in female indications such as endometriosis and uterine fibroids -- actually, in many others -- but also in male indications such as prostate cancer and BPH.

The first compound that went into the clinic last year for Neurocrine showed good pharmacokinetics and dynamics, although still short of our goal of trying to achieve sustained suppression of estrogen levels with significant pharmacokinetics. So, a (technical difficulty) compound entered the clinic late last year called 4018 (ph) and that is now in multiple dose (indiscernible) escalation studies, proceeding on track and showing good pharmacokinetics -- the kind of half-life that we are looking for as well as good correlative pharmacodynamics -- sustained suppression of estrogen during the dosing phase of the dose escalation, with concomitant reductions in LH and FSH.

This program is, as I said, targeted on multiple indications, and to that end, then, we are also during a Phase I study in males and we will be initiating a longer version of a Phase II study in the third quarter of this year, a 42-day treatment all the way though the cycle -- the current trial is a seven-day treatment at mid-cycle in premenopausal women. And then aiming towards uterine fibroid study later on this year as to first proof of concept.

In addition, we have another compound that is entering Phase I in the third quarter of this year in this same series. As you can see, we are in this to win and we are making a very sustained effort to find the right compound or compounds for the right multiple indication opportunities. We have another back-up candidate waiting in the wings; that is about ready to enter toxicology. So very briefly, that is an update on our GnRH antagonist program.

We also have a program in collaboration with Glaxo in the area of corticotropin-releasing factor. CRF antagonists, of course, have been a research area for Neurocrine for many years, and this program with Glaxo has met our expectations in terms of finding novel compounds that are targeting the key indications of anxiety and depression, among others -- irritable bowel syndrome, for example -- for the novel treatment with this approach. And we are on track relative to preclinical candidate advancement into development with our partner Glaxo. They of course have responsibility for taking the compounds into toxicology and then into the clinic. And we again are taking multiple shots on goal here in this collaborative partnership.

More recently, Urocortin which is an in-licensed candidate, specifically Urocortin II, has been in preclinical valuation at Neurocrine. We have been looking at various models in the preclinical area of myocardial infarction aiming at the treatment of acute congestive heart failure, looking at cardiovascular hemodynamics in our toxicology studies. And the compound is just finishing toxicology now, aiming at a Phase I clinical trial probably around the middle of this year to the third quarter, in both volunteers as well as in early stage CHF patients will be given this by injection, since the indication is for acute CHF. And we will be doing this study with an established investigative group that has experience in this area.

We are also, of course, proceeding with our two programs in the treatment of diabetes and multiple sclerosis using altered peptide ligands. These are programs that have been ongoing at Neurocrine for the last couple of years. We are very pleased that enrollment has been completed in the Type I diabetes program, with the APL -- 6024 as it's called. This is a program that involves over 190 patients enrolled in Europe and in South Africa and we will be looking at the results of this two-year treatment program in 2006 and reporting them out at that time. As I said, the program is fully enrolled and it is proceeding as planned.

Secondly, multiple sclerosis, the other area for APL indications, is a program that too is in Phase II. The program is about 40 percent enrolled at the present time. This is a program in North America involving about 20 to 25 centers, and is exploring, of course, reduction in lesions, using MRI as the measurement of lesion score, and looking at this over a one year treatment cycle.

In the research area, we have several programs that are now maturing into late-stage development and clinical evaluation, including our MCH, generating MCH antagonists for the treatment of obesity, but also other CNS-related indications such as anxiety. We have good single-digit (indiscernible) selective antagonists that are now being scaled up for toxicology.

Similarly, on the MC4 antagonist program, where we're looking at the treatment of cachexia and other indications, again including anxiety and pain. We have late-stage development candidates here with good potency and selectivity that are actually in toxicology at the present time. Of course, there's the opportunity for agonists in that same program where one would be targeting obesity, for example.

Lastly, we have a novel program in the area of insomnia, which is also progressing on track, aiming for clinical evaluation in early 2005. That is a brief update of our research and development efforts.

Thank you, Wendell. With that, we would be happy to entertain questions.

Thank you. (OPERATOR INSTRUCTIONS) Dennis Harp of Deutsche Bank.

Thanks for taking the question. Is the level of expenses in the first quarter, is that reflective of what we should expect for the remainder of the year, or will expenses continue to trend down in the near term as the indiplon program is pretty much wound up now?

I think it's more to your second point, that expenses will continue to come down throughout the year. I would probably say that the full effect of the indiplon spend will probably be over in the third quarter sometime. But I would just continue thinking in terms of trending it downwards.

Gary, the novel approach to insomnia, the program that will potentially enter the clinic in 2005, is that partnered with Pfizer or will that be an independent program of Neurocrine's?

It's an independent program, early exploratory program. Target I can't disclose, but if all goes well and, again, moving this into Phase I's, and then if successful Phase II's. And if we see compelling efficacy and safety, then obviously this is something we would be anxious to discuss with Pfizer as part of broadening the indiplon collaboration. To date, we have not discussed this with any parties.

Great, thanks.

Michael King of Banc of America.

Thanks for taking my question. Could you talk about -- give us a little more detail about the timelines on filing and the discussion that you're having with Pfizer at the moment? And I would also ask you if you could perhaps give us some insights and thoughts into the data that you'll see at the APA this meeting and what we should be looking for.

Okay, let me -- also joining us here is Kevin Gorman. Perhaps he could comment on the abstracts and let me comment on the former. Neurocrine's responsibility in the filing is obviously to put together the documentation. These are two electronic NDA submissions. That work has gone on rapidly. In parallel over the last couple of months and continuing through this month with Pfizer, we've had a number of strategy sessions. There's, as I mentioned earlier, enormous amount of data. Pfizer has significant expertise in areas such as pharmacodynamics, population kinetics, others that allow us to look at this data many different ways. Our objective and Pfizer's stated objective from the beginning is best product, best label. So their dose selection is obviously a key. Product differentiation has always been something that has been a challenge, in ensuring that the GP properly understands the IRM role (ph) for IR versus MR.

So all of these things are ongoing. As we said earlier, Pfizer's position has always been we will tell you when we file when we file; so we have agreed in the spirit of this collaboration to honor that. I think if there is an earlier point at which time we can communicate the strategy, we will; otherwise, we will let you know when we file. But moving expeditiously and are very comfortable with the process. It just takes some time to get through. But we are all interested in the success and obviously long-term success in making this a blockbuster and believe it to be best product and want the best label.

As far as the posters go, as Gary had said, there are seven posters that we have. Two of them have to do with the safety aspects of this drug, it's being a very safe drug. There's three posters on the immediate release formulation, both in transient insomnia and chronic insomnia, (indiscernible) elderly and adults. And then a middle-of-the-night dosing that is unique to Neurocrine. And then finally, there's two other posters, both with the MR formulation and in inducing and maintaining sleep, in both elderly and adults.

Thank you.

Mark Augustine of Credit Suisse First Boston.

I have a question for Paul. Recognizing that you're staying with your slight loss for the year guidance, Paul, it still looks hard, given the trend comment you made earlier on expenses, to imagine that the revenues and operating expenses will land in the previously described ranges. Will both revenues and OPEX fall somewhat below the 16, 170 for revs and 170, 180 for OPEX that you had mentioned in the Q4 conference call?

Actually, I think that what we are still anticipating are the revenue stream from milestones and license fees that are going to becoming through on Pfizer. And I think that as far as the expenses are concerned, they would continue to head downwards. But we are still looking at a modest loss, and it is still consistent with the fourth-quarter announcement.

Ian Somaiya of Thomas Weisel Partners.

I just had a couple of questions. First, a follow-up to Mike's questions. How would the timeline for FDA review defer, given that you're going to have two NDAs versus one, which was the previous expectation?

I think the way we have always looked at this is to submit a package that is not only acceptable but can meet PDUFA requirements, although the guidance we have always given is expecting a 12-month review. So I think that is unchanged; the time of filing time to approval is within our original forecast.

Okay. And can you tell us which filing we should expect first, the IR or the MR?

One or the other.

Okay, just one last question then. Paul, if you could just review the scheduled milestones which we should expect this year, quantity as well as timing?

Ian we have not really been specific on that point. There have been a lot of different forecasts out on the Street, and unfortunately, with confidentiality with Pfizer, we will probably try and keep it that way. The general discussions that we've had with the Street is that the collaboration calls for $400 million in milestones, including a $100 million up-front license fee. And the remaining 200 million, or pre-U.S. launch milestones, and then another $100 million related to rest of the world launches. And people have taken various permutations of that.

Okay, thank you.

Matthew Geller of CIBC World Markets.

Can you talk a little bit about some of the discussions -- not necessarily your discussions with Pfizer, but the general thought process in terms of how the data will be used to support labels that distinguish IR and MR from each other and also from the competing compounds? What direction are the talks going in terms of the strategy for the separation of those two products from each other and from competition?

It is actually a good question that I don't have the specific answer to because that's at the heart of our discussions now with Pfizer -- nothing new; I think things we've always known. But the IR has always been positioned for sleep initiation, middle-of-the-night dosing and long-term treatment. And that is, I think, a very clear message. The MR, on the other hand, positioned for sleep initiation, sleep maintenance, and long-term treatment.

So the part of this that tests very well with physicians, with patients are the one size doesn't fit all approach with Ambien, and that is having a product that can be tailored to the patient's needs. I think the challenge becomes how do we simplify that message and clarify each product in each indication, knowing that the primary prescriber over time is a G.P. who want a simple message.

So with this, we are conducting and have finished some extensive market research to confirm the benefits and try to get clarity on how we simplify that. And that will then translate itself into not only the dose selection but the labeling and the package insert. So that is work in process, and now is the time to do it. Now is not the time to do it post-launch if you have created confusion. So if you have any great ideas, please let us know.

We will. Thanks, Gary.

Matt Duffy of Black Diamond Research.

Thanks for taking my call. I wondered if you could talk about a couple of things that you mentioned in the press release. In terms of your selection of dose, I wonder if there are some subtleties in the data that the press release haven't indicated that might give us some idea -- and perhaps it will presented at APA or APSS -- on further dose selection beyond the dose ranges that were used in the Phase III trials. Secondly, what your thought process is and assumptions are in terms of the launch -- whether IR and MR might be separate launches or if you would prefer to launch both dosage forms together. Thanks.

I think dose selection -- we have tested doses in the clinic from 5 milligrams IR to 40 milligrams MR, and in some other studies even higher than that. So I think we've spanned all doses and part of the analysis now is to determine the optimum dose for each so as not to create confusion between the two. So that's part of the process now and part of Pfizer's capability in doing the population kinetics and others are to really tease out do different populations respond differently? What's the best dose that meets the needs of the most patients?

And as we've told people in the past, there are multiple pieces to this. This is not a simple biotech Phase III product, one dose, one indication. It happens to be one of the advantages and features of the product that makes all of this a little bit more complicated than it might be otherwise. So we want to make sure that we make the right decision here. I think it will expand all of the potential possible doses. Second question was --?

Launch of IR and MR together or separately?

I think our plan has always been this is a brand and to launch together, although again, in discussions with Pfizer to determine whether they would want to do something different. But our stated best scenario would be collectively as one brand.

Great, thanks.

Bob Parente of Leerink Swann.

A lot of my questions have been answered. How about one further push to APSS. What can we expect there?

The sleeping meeting that follows? Henry would know.

We have, I think, it's five or six abstracts that we will present in Philadelphia at the APSS meeting. Some of the abstracts are some of the same presentations that we are currently making in the APA meeting, but there will be two or three new abstracts, which includes the transient study that we have not presented yet, which also includes a Phase III study, which is currently not on the list of presentations at APSS. So there will be like three new abstracts and two abstracts that currently are also being presented at APA.

Thank you.

Phil Nadeau of SG Cowen.

Thanks for taking my question. It looks like your stock is down about 1.5 points this morning, because I think the Street is characterizing your comments on the timing of indiplon's filing as a delay. Do you think that that is an accurate characterization or do you think that the Street is misinterpreting what you're saying?

You would probably know better than I. I think every time we have a conference call and announce any news, the stock goes down, whether it's positive, so --. I don't know. I think our long-term focus here is obviously on making this a multiple of our price today in the next three to five years, and not get too concerned about day-to-day and week-to-week variations.

Okay, so there is no -- we shouldn't take away from your comments any significant change in the filing timelines versus your previous guidance?

I wouldn't.

Second is a quick question for Paul. I apologize if you mentioned this and I missed it, but your share count was down this quarter versus the previous quarter. Why was that and is this a good share count to use going forward?

Actually, what we're doing is using weighted average shares on that, so it would just be an anomaly for that purpose and nothing else.

Okay. And lastly, of all the seven presentations you mentioned at the APA, which of those are the Phase III data and which are Phase II data?

Henry, do you know offhand?

I can talk to that. Let me just go down the list, so we can all be on the same page. Tomorrow, there is a presentation by Melinda Garber (ph), and that is a Phase II study, which was the middle-of-the-night dosing study. And then on Wednesday, there are four presentations. There are two presentations by Jim Walsh. One of the some is from our Phase II study, with a modified release formulation in chronic sleep maintenance insomnia. And the second presentation by Jim Walsh is the immediate release formulation study, which was the 35-day inpatient/outpatient study, also in patients with chronic insomnia. This is a study in adult patient population.

Is that a Phase III study?

That one is a Phase III study. And there are two other presentations also on the same day by Marty Scharf. One is a Phase II study with immediate release formulation in the elderly patients. And the second study is a Phase III study with the modified release formulation in sleep maintenance insomnia patients, and that study was done in the adult patient population.

Then lastly, on May 6th, there are also three presentations, one by Tom Broff (ph). One is a Phase III study in transient insomnia with immediate release formulation. There are two other presentations, one by Marty Cohen (ph) and one by Steve Hall, and those two are studies that we conducted in patients with chronic obstructive pulmonary disease and also in sleep apnea. So those are Phase II studies.

Great, thank you.

Elise Wang of Smith Barney.

Thanks. Just to follow up, what is the advantage behind having two different filings, one for the IR and one for the MR? Also, if you can just speak to the particular division that might actually be reviewing this at the FDA? I understand there were some changes in regards to these insomnia drugs.

Right. We have, through Phase IIs, worked with the division neuropharm. Then organizationally, these products would transition to the critical care anesthesia division, which is now responsible for all of these drugs. And in our pre-NDA meeting, both divisions were in attendance and then transitioned, and now we interface directly with the critical care anesthesia group. And the reason for two is that is what they said that they wanted, so that's what we will do.

Jim Birchenough of Lehman Brothers.

It sounds like one of the key with your discussions with Pfizer is ensuring a differentiated and a best-in-class label. I'm wondering how you do that without seeing the store label first and is that a rate-limiting step?

No, it isn't, although I think it would be desirable to see any and all competitive labels. I think, obviously, we can from published data, make assumptions or do comparisons. But that is less than accurate. So no, it is not an attempt to wait to see in a store label because I do not know when we will see one. I think it's more of an attempt to try to maximize the data that we have with the two formulations to ensure it is best in class, which is what Pfizer is known for doing and what we would like to see happen with this compound.

Just a quick question for Paul. I'm wondering if you could say, in terms of turning profitable, how soon after indiplon launch should we expect that?

That is a tough call, Jim, but I would suspect that it would be shortly thereafter, maybe the following quarter or the quarter thereafter. A stated goal of the Company management has been that once we turn profitable based on product sales, we will be growing earnings per share and kind of continue from there. So that is our goal, our long-term goal.

Great, thanks for taking the questions.

Danny Frank of Cerberus.

Just want to follow up with that question about the FDA asking for two separate filings. What specific issues were raised by them that would necessitate the need for two filings?

My recollection of it is simply they viewed it as two products, and therefore asked for two NDAs. There are a lot of commonality between the two, so a big part of the majority is common to both, but separate modules will cover the others. So it's simply what the FDA asked for is what you should do, rather than try to argue the other position. So I think for us, it means extra work, obviously, but agreeing with FDA and doing it the way that they want to do always seems to be the wise thing to do.

Does that extra work entail more trials?

No, it just requires more work of separating out the data and writing two NDAs instead of one.

Thank you.

Jeff Reich of Merlin.

With respect to indiplon, are their traditional trials starting or planned near-term prior to the filing to address dose selection?

I guess the guidance has always been we always have Phase III or additional trials in process, have done that as a custom, and Pfizer is pretty prudent at doing that. We don't anticipate needing any new trials for filing; so trials, if there are any, that are ongoing now will continue as they go on.

For IR and MR?

Correct.

Thank you.

At this time, we have no further questions. I will turn it back over to management for any closing remarks.

Okay, thank you. And just to summarize, I think we've had a robust quarter. We are at an important inflection point in the Company's history and need to work diligently with our partner, Pfizer, to ensure the best label for indiplon. And I just would like to reemphasize here that, again, in the spirit of our agreement with Pfizer, we have agreed that our guidance will be we will file when we file with the best label.

And can't get any more specific on that, but pretty comfortable that this will happen as quickly as we can, and soon, I believe, we will have our dose selection or labeling discussions, other things clarified with Pfizer, and hopefully, could be more specific at that time. So we can't forecast actual timelines at this point, but as we have clarity to add on this or other programs, we will bring that forward in a prompt way. With that, thank you, and again any follow-up questions, feel free to call Paul, myself, Claudia, and we will report again next quarter. Thank you.

This concludes today's conference. You may disconnect your lines at this time.