Neurocrine Biosciences Inc (NBIX) 2004 Q3 法說會逐字稿

Good day, all sides are now on the conference line in a listen-only mode. At this time, I would like to turn the program over to your host, Gary Lyons, please go ahead.

Thank you and thanks folks for joining us today for the Neurocrine third quarter earnings call. The attendees participating for Neurocrine today in addition to myself are Paul Hawran, who is EVP, Chief Financial Officer, Wendell Wierenga, EVP of Research and Development and Claudia Jones, Manager of Investor Relations. The outline for the call will be to have Paul begin with financials, Wendell will then give an overview of Indiplon and our other clinical and research development programs to give you a brief summary of that and then we'll open up the call to Q&A. So before we begin let me have Claudia review our Safe Harbor statement and then we will begin with Paul.

Before we get started I would like to remind you of Neurocrine's Safe Harbor cautions. Certain statements made in the course of this conference call that state the Company's or management's intentions, hopes, beliefs, expectations, or predictions of the future are forward-looking statements which are subject to risks and uncertainties. Information concerning factors that could cause actual results to differ materially from those contained in or implied by the forward-looking statements is contained in the company's SEC filings, including but not limited to the Company's annual report on form 10-K, and quarterly reports on form 10-Q. Copies of these filings may be obtained by visiting the Investor Relations page on the Company's Web site at WWW.Neurocrine.com. Any forward-looking statements are made only as of today's date and we undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances.

Thank you, Claudia. Okay now to Paul Hawran for an overview of financials.

Great. Thanks, Gary. Well we are very pleased with the way that the quarter turned out financially. We reported a loss of 1.6 million for the quarter, as compared to 9.8 million in the prior period last year for the same period. Our revenues have gone up from 29 million to 34 million. For the most part, it is a reflection of earning two major milestone from Pfizer in the third quarter, one being for attainment of or completing the long-term Phase three trial in Indiplon, as well as completing the sleep maintenance Phase III trial in Indiplon as well. Our research and development expenses have declined from 37 million to 32 million. As many of you know, we are downscaling the Indiplon program, clinical program, and consequently our R&D costs are following suit. Total operating expenses of 42.8 million have come down to 37.7 million. Coming down to a loss as I mentioned of 1.6 million. At the end of the quarter, we recorded cash of 324 million, and we expect to complete the year at somewhere around $320 million in cash. As far as guidance is concerned, as we outlined in our press release, we are expecting to have approximately a loss of $25 million for the year. That would mean that we would have about a break-even quarter in the fourth quarter and that does reflect the fact that we expect to attain the $20 million -- milestone under the Indiplon IR, and we expect to receive the MR milestone sometime in January of '05. And with that I will turn it back over to Gary.

Okay. Wendell will now run through our R&D program. Wendell?

Thanks very much, Gary. Of course, the third quarter was a fantastic quarter for the Company in filing the NDA for Indiplon IR on October the 18th, as you all are well aware of. This was a major accomplishment for us. Over 3,000 patients in this NDA filing. But of course this is just step one of several steps ahead of us yet for Indiplon, as the program moves forward, we're filing the second NDA for the modified release formulation. Later on this month. And then of course, over the next 10 to 12 months we are going to be negotiating with the agency, obviously on these two applications. So a lot ahead of us, but we're right on target here in terms of pulling the program all together. Obviously, Indiplon is the main value driver for Neurocrine but not the only value driver and I just want to highlight a few other emerging components of our pipeline as we look forward to 2005. First of all, of course, we do have two drugs in phase two, as you are aware. Both of these are described as altered Peptide Ligand's they're injectable drugs one for the treatment of type one diabetes and that phase two clinical program completed enrollment in February of this year, over 200 patients, the study is progressing very well, in fact we had less than the forecasted number of dropouts and from a safety point of view it continues to look encouraging. However, since we're looking at two-year treatment here, we won't have results in the the end of 2006.

In a similar time table, we are progressing the multiple sclerosis APL, that is 5788, in a phase two program. This is a program that has struggled a bit with us in terms of enrollment, so we've recently expanded the number of sites and have expanded the program to eastern Europe, where we expect to see a pretty significant addition to our overall enrollment. We're currently at about 40% in terms of enrollment, and so we're now targeting the end of the first quarter of next year to complete enrollment for the APL for the treatment of multiple sclerosis. Again, this is a clinical trial that involves treatment for a nine-month period so we will have data then towards the end of '05, early '06, in terms of the efficacy, outcome, and of course the safety as well. The GnRH program 418 which is the most advanced compound has now completed phase one single multiple dose, pharmacokinetic and safety studies with a lot of pharmacodynamic information as well. And in addition, we have completed a phase one study looking at multiple dosage forms of it so that we're set to go in terms of phase two in the not too distant future. In the meantime we're also doing an additional study, call it a phase one-B type of study where we're treating premenopausal woman, the same population that we've been treating in phase one, for a six-week time period. We're treating them all the way through their menstrual cycle, and this study has now completed enrollment and we expect to have pharmacokinetic and more importantly pharmacodynamic data back from this in early 2005, so in a few months. This will be very helpful for us in terms of selecting doses for the planned phase two efficacy trial in endometriosis for the early part of 2005, where we will be treating for three months.

In addition, in 2005, we're looking at additional phase two options including the treatment of benign prosthetic hypertrophy in males and also uterine fibroids in females and these options are -- will be more appropriately detailed in the not too distant future as we settle on doses and our overall strategy for phase two for 418. I'm pleased to say that we have a second GnRH antagonist in the clinic as of this week. We have dosed the first volunteers in a phase one study with a compound called 250. This is a backup to 418. And this will be a single dose, single rising dose study in males looking at pharmacokinetics and hormone levels including testosterone, this is our backup or contingency for 418. We have a second compound that we put into the clinic just in the past month and that is Urocortin 2. This is a novel approach to the treatment of acute congestive heart failure. It is a 38 amino acid peptide injectable that we in license from the Sulk institute and the Clayton foundation. And this phase one clinical study involves the administration of this agent initially to human volunteers, which has already begun. We'll be looking at not only pharmacokinetics but a number of hemo dynamic parameters so we will get data in terms of its bio activity very quickly here in normal volunteers. And then we will progress it to a phase one-B or phase two-A type of study in mild CHF patients shortly after we complete our phase one study and this will be in early 2005. In preparation for a more in depth phase two clinical study in the latter part of 2005, in acute CHF patients, patients that are at stage three or class three or class four, looking at of course many additional parameters in that kind of clinical design.

So Urocortin 2 is now in the clinic and as I said, the second longest quarter for Neurocrine. We expect to be able to announce very shortly a third compound going into the clinic this last quarter of the month and that is our CRF antagonist, this is a collaborative program that we have been involved with, with GlaxoSmithKline for the last several years, and it has yielded a couple of interesting CRF antagonists, one of which is ready to go in terms of phase one clinical studies, and as I said, we will give you further information in the not too distant future on that. It is going to be evaluated in a number of the usual paradigms for CRF antagonist anxiety, depression, IBS, and perhaps in other areas as well. That is under the management of GSK at this point in time. As they are responsible for all of the downstream development activities for our CRF antagonist. So that's it for a quick update in terms of what's in the clinic, and entering the clinic at this point in time. We have a couple of additional programs that we've mentioned in our press release relating to candidates for 2005, such as the NC-4 antagonist and now we'll treatment -- now we'll approach the treatment of our insomnia again in 2005. Gary back to you.

Okay. Thank you. Now we'll be happy to entertain questions.

Very good. At this time, if you would like to ask a question, please press the star and one on your touch-tone phone. You may withdraw that question at any time by pressing the pound key. Again, to register your line for a question, please press the star and one on your touch-tone phone. We will go first to the line of Ian Somaiya with Thomas Weisel Partners. Go ahead please.

Thanks for taking my question. Paul, can you just repeat what the milestones are related to the NDA filing for Indiplon? IR and MR?

The IR milestone in the fourth quarter will be 20 million. We have not disclosed the MR.

And that's going to be recognized in a one quarter lag?

We believe that that will be recognized in the fourth quarter.

Okay. Fourth quarter.

The IR. And the MR will be recognized in the first quarter of '05.

Okay. And the other thing, the other question I had, just for you, Gary, can you just help us prioritize the pipeline? As we move into '05?

Well, let me give nye perspective and Wendell can add to it. I think everything in the pipeline is precious. I think the more advanced programs are obviously the APLs considered perhaps to be of higher risk yet significant payoff should the phase two data be positive and we'll know that next year. As I have often said we are very bullish on the GnRH be that it's a program validated mechanism, arguably we already have proof of concept and that we have endocrine levels as surrogate markers of efficacy and have multiple compounds of clinical development. As a CRF Company we obviously are very bullish on CRF, it's been a long haul, but we believe the new compounds are very different from those that ran into safety issues earlier in our prior collaborations and Urocortin, obviously is -- it's something new on the block and as Wendell said given the acute nature of the treatment of congestive heart failure is a compound that we will know by mid year whether we efficacy or not. So they're all precious but we invest proportionately in the latest H compounds.

And how do you differentiate the follow-up GnRH antagonist? How different is that from your lead molecule?

This is Wendell. The follow-up GnRH antagonist has a different pharmacokinetic profile in animals and that's really the reason for evaluating it in humans. To see if in fact our predictions are correlative or not. As I said, if it turns out to be comparable to 418, we will probably just hold it for the time being. If it in fact shows some pharmacokinetic advantages over 418, then we will have a decision to make in terms of progressing two compounds in parallel versus substituting.

Other things we thought of have been perhaps might we want to target one compound in male indications and one for female and therefore by having multiple clinical candidates we have the opportunity to do that either ourselves or with partners.

Thanks.

Our next question comes from the line of Jim Birchenough with Lehman Brothers. Go ahead, please.

Hi, guys.

Hi, Jim.

A couple of quick questions. Just on the R&D spend, it seemed to ramp back up from the second quarter level and I'm just trying to get a sense of what the appropriate run rate should be when we're looking into '05.

Sure, Paul?

Yes, as far as '05 is concerned, Jim, we actually will have not provided any guidance on that number yet. However, I've asked our guided folks, if you will, to think that our R&D rate will pretty much stay the same throughout the '05 period, thinking that in terms that we won't be substituting other development programs for Indiplon as we move forward but much of that depends on our revenue flow as well.

So in terms of whether the 23 million in the second quarter or the 32 million in the third quarter should be the appropriate run rate to consider, too early to give any guidance on that?

I would. I would not want to give guidance for '05 at this point in time.

Okay. And then just on Indiplon, Cepricore suggested recently that they will have phase four studies in depression, rheumatoid arthritis, pre-menopause, a few other areas by year end. Just wondering if you can comment on what your strategy is going to be for data flow in some of these co-morbid conditions if you're going to be looking to match data they may be coming out with or should we expect that data to come after you launch Indiplon.

To qualify this I would say to defer to Pfizer since they're responsible for not just the financing but conducting the phase four program and we have an extensive program that is being finalized which is expected to initiate post-filing for data flow commensurate with the commercialization and beyond.

And then just quickly, just for the six-month dosing, sorry, the two three-month studies, restful and sleep studies, when should we expect publication of that data?

Perhaps next year. As part of the upcoming sleep and psyche meetings and planning for publication now, again commensurate to support launch.

Okay. Great, well thanks for taking the questions.

Sure.

Our next question comes from the line of Phil Nadeau with SG Cowen. Go ahead, please.

Good afternoon. Thanks for taking my questions. First, Paul, one to you. In the past you've said that 2005 would be approximately a break-even year. Now, it looks like there is some milestones that we had expected in '04 being pushed into '05. Does that change your thinking on the level of profitability for Neurocrine next year?

The comments that we've always made on 2005 was that we were, upon commercialization, were looking to break into profitability, and obviously, that milestone does adjust some of that thinking but our thinking still continues to be that on commercialization we would like to move into permanent profitability.

Okay. So that would really point us to maybe '06, beginning permanent profitability?

In product sales.

Again, as far as product sales, we're looking that we will have approval in the fourth quarter and launching sometime there, but the main product sales will be occurring in '06.

Okay. And Gary, one question, on the Indiplon filing, since the MR filing is referencing the IR filing for many parts, would it be possible for MR to be approved before IR, or should there be a hiccup on IR? Would that also potentially delay the MR approval?

I think the way we've looked at it, and what the agency has guided us towards are two approvals, two submission, two dates, two products, so the filing in October, the IR triggers ten-month date in November, would be a separate ten-month date for MR. That's how we're looking at it.

Okay. So even though one references the other, they're completely independent filings.

Correct.

And one last question on the upcoming trials, and endometriosis, could you just tell us what end points for those trials would be, and what would be the pertinent measures to look at?

Sure. This is Wendell. The end points for endometriosis would be the same as what the FDA would require for pivotal trials and that is pelvic pain as the primary end point. Obviously, we will be looking at other parameters as well in terms of secondary end points but that will be the main end point for the endometriosis study in phase two.

Great. Thank you.

We will move next to the line of Mike King with Banc of America. Go ahead, please.

Yes, thanks for taking my question. I was wondering if you could discuss your pre-commercial activities for the launch of -- not launch but your participation in the Zoloft marketing, in the early part of next year?

The plans are following acceptance of MR and having clarity on registration, commercialization strategies, for us to bring on the sales organization to complement our marketing organization. We have in place the heads of sales, VP commercialization, many of the other tools have selected vendors, et cetera, who will support us from a sample standpoint, recruiting sales force standpoint, fleet, et cetera. So we're ready to go. Just dependent upon when we reach that time frame, and Pfizer begins to subsidize the creation of management, and operations of that sales force. So by second quarter.

Okay. Great. Thank you.

We will move next to the line of Matt Osborne with Unterberg Towbin. Go ahead, please.

Good afternoon. Thanks for taking the call. Paul just a quick question on guidance and I guess we're just moving towards the loss of 25 million for the remainder of year, prior guidance also included some revenue guidance of 135 to 145, I guess we should just guide towards the lower end of the 25 million?

That would be sensible, Matt, yeah.

Okay. Thank you.

Our next question comes from the line of Matthew Geller with CIBC World Markets. Go ahead, please.

Hi. Gary, can you talk a little bit about directional changes in the Company now that Indiplon filing is just about completed? What direction do you think you're taking the Company, mergers -- any kind of acquisition activity, partnerships, et cetera, that you're looking for, changes in terms of direction and focus of the Company?

Let me try to -- I can probably go on for a while on that so let me try to summarize. One of the biggest things we're doing is obviously reprioritizing resources here from the Indiplon program and diversifying those clinical development registration, et cetera, assets, and to other programs, by taking over control of clinical development, management of our own data. We don't see the need to grow research the same rate it's grown, it will continue to grow, but development has to catch up to be able to bring all of these compounds, the research is producing, into development. But we think growth will be modest overall in R&D. The big change in the Company will obviously become becoming commercial. And adding 200 people in a short period of time, assimilating those folks, and that will round, I guess the corner for us to be a fully integrated research, development, and commercialization Company, which better equips us then to be able to in license, acquire companies or products that focus on the psychiatry or the neurology space to begin to better utilize that asset and to expand the sales force, as necessary. So M&A remains a priority, in licensing remains a priority, we're less interested in out licensing products since we don't need the money but would certainly consider -- bundling products we might out license to big Pharma or others in exchange for late stage or marketed psychiatric assets.

Great. Thanks.

Sure.

Our next question comes from the line of Tim Ackerman with SAI. Go ahead, please.

Thanks for taking the question. Will you be filing with any other strengths other than the 5, 10, and 20 for the IR and the 15, 20, and 30 milligrams for the MR?

No. Those, those are all the doses that support the package.

Very good.

And that is the latest stage package. I'm sure there are obviously other doses from earlier studies, safety, or exploratory trial, but the late stage trial, those are the doses.

Very good.

We will move next to the line of Rachel McMinn from Piper Jaffray. Go ahead, please.

Just a couple of questions. In terms of the potential launch of the MR and IR formulations, if the IR is approved on its piduva (ph) date and the MR is approved on its piduva date, do you imagine that Pfizer would hold off on marketing one at a time and then just launch them together?

Again, I can't speak for Pfizer but our collective wisdom to date has been that this will be one product, one filing regardless of the piduva dates.

And then in terms of your in licensing, anything on the business development front, can you just talk about where you are, or should we be expecting something in the first half of the year in an announcement there?

I would like to think so, but I certainly can't tell to you expect so. We're actively hunting and looking and looking at multiple things but timing is totally speculative at this point.

Okay. And then just to clarify, Paul, this is just a housekeeping question, but it looks like you didn't put out the license fee. Is that around 8.6 million for the third quarter?

That's correct. Actually, real close. It's -- I believe it's 7.2 million.

Oh. So it's 7.2 million --

Sorry, I beg your pardon, it is 8.5.

8.5?

Right.

And that's the way we should expect it to be amortized, that's primarily that $100 million --

That's correct.

So we should expect that to be amortized going forward in the same way?

Yes, that's correct.

Okay. Thanks very much.

Our next question comes from the line of Matt Duffy with Black Diamond Research. Go ahead, please.

Hi, guys. Thanks for taking my call. Just trying to put a little finer point on some of the publication and data presentation,. The NIH has got their manifestations of management of chronic insomnia meeting coming up I believe on the 13th through the 15th of June. Will at least the long-term data be available for them to consider during their deliberations on the use of hypnotic?

Correct me if I'm wrong, Wendell, but I don't believe there is any data provided by companies, obviously there is published data but I think as I understand it the agenda is pretty -- is pretty discrete on what it will focus on and simply updating the guidelines on the treatment of insomnia. And that would happen, I think with or without published data.

I guess my question is will they be able to consider -- you guys are obviously generating some nice longer term data with Indiplon, IRM, MR, and one of the questions I believe that they'll be asking is whether or not the nonBenzo hypnotics are safety use for longer than the 7-10 days that Ambien is currently restricted to and just wondering if your data would be in the public domain for them to consider.

I'm not sure. The sleep meeting, psyche meetings will be before that, so there's some chance, although offhand, I don't know. The experts that will be testifying presenting are all of the same people who either served as our consultants, were involved in the trial and are very familiar with the results.

Okay. Great. And just a second question here, looking at basically you've got, obviously, an excellent sense of what the data is going to look like for Indiplon IR, and MR and what the marketplace looks like with Trezume still holding -- nearly a majority of insomnia prescriptions. Given the data that you see and the state of the market what do you think it's going to take to sort of unseat Trezume as the number one sleep agent going forward.

I guess I didn't know it was number one but maybe a number of pills described. It certainly -- that share Ambien is about a third of all prescription, two thirds are anti-depressants, tricyclics or other such drug, angiolytics, and our market research tells us many things which is the reason for prescribing these drugs, their perceived long-term safety, which we think can clearly be addressed, we also think that these products are much more than is Indiplon-like product, much more effective in inducing and maintaining sleep. So I think it's a matter of medical education, educating physicians and others on the data and that will be a part of the overall strategy.

Thanks, Gary.

Our next question comes from the line of Elise Wang with Smith Barney. Go ahead, please.

Hi. Just to clarify the new guidance again, is that purely being driven by the shift in the milestone payment upon the submission? That's really the driver?

Which new guidance? I think the $25 million loss for the year?

Yeah.

Yeah, actually, we were -- the guidance is 25 million, we're expecting to receive the IR milestone in the fourth quarter and the MR milestone in the first quarter.

Right.

Does that answering your question, Elise?

Yes. My question is, is your change in guidance for the bottom line, purely being driven by the shift in timing of those milestone payments?

Partly. Some of it is also phasing in some of the development programs. Also some other milestones that we picked up, some Pfizer. So it is a number of things.

Okay. And then Paul, I don't know if you can as a result, just to give a better handle on this since you previously had given us some ranges for the revenues and operating expenses. You can fine tune that?

Actually, what I'm expecting is to have revenues somewhere in around 110, $120 million area and then the expenses would be just the like amount to about 140 or so. That would get us done to about a $25 million loss. In the fourth quarter, we are expecting to break even for the -- for that quarter.

Okay. And then Gary, perhaps you can -- I know that there certainly was an effort on your part to think about at least accelerating the hiring of a sales force and having Pfizer of course coordinate with you on that effort to help facilitate the in licensing activities on your part. Where does that really stand at this stage?

Well, we remain in discussions. I think this in part, obviously, it is Pfizer's decision. There is a contractual obligation to fund this at an acceptance of MR or shortly thereafter. The discussions earlier on I think really rely on Pfizer's need for deployment of sales forces. So we remain, I guess, that's where we are. If we were fortunate to find this -- a smaller asset ourselves that we could in license, then we'd pull the trigger on those quickly and use the revenues from that product to support this, but the thing that I wanted to avoid is having a large sales force in place that we're bearing the cost of and not having clear guidance on when we would actually be selling Indiplon. So I think first and second quarter for sales force build, still meets our objective of having an organization in place, with familiarity with psychiatrists prior to an Indiplon launch and sufficiently prior.

Okay. That's helpful. And I think that's it. Thank you.

Thanks, Elise.

Next we will return to the line of Tim Ackerman from SAI. Go ahead, please.

Hi, thanks for taking another question. I was on the UP, the USPTA Web site looking at Indiplon and I saw some names listed one being Sompleat, another being Nocktave, another being, Nurizon and another being Zurizon. I was wondering if you maybe settled in on any of these brand names yet?

Wow. That's pretty cool. Where did you find that? I didn't know that was out there.

That's on the USPTA Web site.

That must mean some of those names are trademarked, correct.

Correct.

Which one do you like?

I kind of like the Nocktave actually.

I think we have trademarked a number, perhaps as many as a dozen. And, you know, once -- that is actually one of the earlier steps, and then from there, this pretty extensive market research that's done in making sure the name translates appropriately, that it's not misinterpreted by physicians and another drug is prescribed in its place that could be dangerous, so I think we're close to having in mind the final commercial brand worldwide, but haven't announced what that is and we're somewhat cautious, at least I should say it's Pfizer's decision, but the Neurocrine perspective is you got to be cautious and that picking a name too soon and running the risk that FDA may not like that name at the end of the day and therefore you've wasted perhaps a lost time and money developing a brand name that you can't use.

I understand. Thank you very much.

We have no further questions at this time.

Okay. Thanks everyone and again any other follow-up questions, feel free to call Paul and myself directly and look forward to reporting results at year end. Thanks and goodbye.