Neurocrine Biosciences Inc (NBIX) 2005 Q1 法說會逐字稿

Good day. All sites are now on the conference line in a listen-only mode. (OPERATOR INSTRUCTIONS). At this time, I would like to introduce your moderator, Mr. Gary Lyons. Please go ahead.

Hi, good afternoon. This is Gary Lyons, and welcome to the Neurocrine first-quarter '05 earnings and product development update call. Joining me in San Diego is Paul Hawran, who is EVP and Chief Financial Officer; as well as Wendell Wierenga, Executive Vice President of R&D; and Claudia Jones, Manager of Investor Relations.

So for the call this afternoon, we would first begin with financials, and Paul will provide a brief overview. And we trust everyone has seen the press release that we put out related to earnings today. I will then make some comments related to Indiplon status of the program, filing update -- followed by Wendell, who will provide an update on two of our four Phase II programs and talk about something new emerging from research and development.

So before we begin, let me turn this over to Claudia to read our Safe Harbor statement.

Thank you. Before we begin, I would like to remind you of Neurocrine's Safe Harbor caution. 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 the quarterly reports on Form 10-Q. Copies of these filings may be obtained by visiting the Investor Relations page of the Company's website 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.

Very good, thank you, Claudia. And now, let me turn it over to Paul for a financial review.

Real quick and just briefly, I will just go over some of the highlights of the financial statements. For the quarter, we recorded revenues of around $12 million. That is somewhat lower than the first quarter of last year -- about $5 million, and that reflects lower amortization of licensees.

However, in the revenue line, a notable inclusion in our quarterly statement is a sales allowance of $1 million. And that reflects the collaboration with Pfizer, where we are starting to build our commercial sales force. And that is the reimbursement associated with it.

Our total operating expenses are about 31.2 million, relatively unchanged from the year before. And as I mentioned, we have about an $18.8 million loss for the quarter. We ended the quarter from a balance sheet perspective in great position. We have over $270 million in cash. And just real quick, moving over into guidance for the rest of the year, we are maintaining our guidance of approximately a $40 million loss for the entire year. We are expecting to receive about a $20 million milestone payment related to the FDA NDA acceptance of Indiplon in the second quarter and also a $50 million milestone payment relating to the MR or tablet acceptance of the NDA in the third quarter.

So with that, I'll turn that back over to Gary.

Thank you, Paul. Let me provide a brief update on Indiplon. First, the Indiplon IR or capsule NDA, as you know, was filed with FDA on April 14th and is currently in review. Net filing to remind you does contain majority of the regulatory information pertaining to the MR or tablet form of Indiplon. And the supplemental or the remaining information will be filed the MR, or tablet NDA, will be filed on schedule in second quarter. And expect that to happen in the very near future.

From a marketing commercial purposes, you'll hear us now referring to Indiplon as both capsules and tablets. And I want to emphasize that this is in no way a change in strategy. The product profile of both the IR and the MR have exceeded our expectations throughout clinical development. The new nomenclature reflects product positioning to simplify the message and minimize confusion for customers, both patients and physicians. Indiplon from our Phase III program in over 5,000 patients continues to demonstrate decreases in time-to-sleep onset, improvements in sleep maintenance, improvements in sleep quality and is effective for long-term treatment.

So the details, both safety and efficacy from a pure review standpoint, will be available at the upcoming American -- the APA meeting in May as well as the APSS meeting in June. At which time, we will be presenting in great detail for Phase III programs, trials in peer-to-peer format. And I think we will not only support this product profile but allow customers, investors and others to better appreciate the Indiplon product offering.

From a commercial standpoint, Neurocrine is in the initial phases of building our sales and marketing presence. We presently have hired 100 of our 200 psychiatric sales professionals. Our sales managers, regional and district managers are now at Pfizer, going through Zoloft training, will be deployed shortly. The first wave of 80 reps will begin training at Pfizer in May, with the remaining reps to be trained at Pfizer in June. And therefore, the full complement of 200 will be deployed at the end of second quarter.

We will begin co-detailing of Zoloft with our partner Pfizer. And we will be obviously in place with relationships with psychiatrists for the Indiplon launch, expected in first part of next year. So well on our way from a commercial standpoint, and we're pleased with the quality caliber of the representatives that we have attracted -- and look forward to evolving in a fully commercial company in this quarter actually.

So with that, let me ask Wendell to highlight a couple of our Phase II programs, and then we'll open the call up to questions and answers.

As you saw in the press release, the APL programs for diabetes and multiple sclerosis are pretty much on track. So let me just provide a little update on two other programs that are now moving into Phase II -- programs that we've established good Phase I data on and are quite excited about the data that we're seeing thus far.

First of all with GnRH, our compound that's furthest along in development, we reported not too long ago results from about 40 -- 60 premenopausal women that were treated for 6 weeks, looking at their estradiol levels as a function of dose. And we were very pleased to see that we were having a nice dose response relationship in terms of estradiol levels and were able to control at the highest dose all the patients in that particular study to appropriate levels of estradiol -- which should be translatable into efficacy and endometriosis as an example for a disease indication and yet minimize side effects, such as bone loss.

So we are now utilizing that information and have initiated a Phase II trial in patients with endometriosis. These are women that have chronic pelvic pain and that have laparoscopic-proven endometriosis legions. And we will be treating approximately 75 patients over the next 4 to 6 months for a 3-month time period. This will be a placebo-controlled trial against two doses, once a day dosing. I want to emphasize that because the data looked quite good in terms of our previous 6-week trial. And we should have a readout on this study then by year-end. This will be a key proof of concept study in a disease population. And as I said, we believe that the relief of pelvic pain as a primary end point in this study should be extrapolatable from the hormone level control that we saw in the previous trial.

Urocortin 2 is another drug that we entered into the clinic last year. And this particular drug was studied in a series of volunteers looking at both safety from pharmacokinetics and hemodynamic endpoints. The target indication here is acute decompensated heart failure. And we are very pleased to see very nice responses in several hemodynamic measures relative to dose. And we are now taking that information and moving into a Phase IIa clinical study, as we speak, with patients that have mild to moderate CHF. The kinds of outputs that we're looking at are reduction in blood pressure, principally diastolic blood pressure, as well as increases in cardiac output. And the volunteer population we saw a nice doubling of cardiac output without a significant increase in heart rate and also a nice reduction in diastolic blood pressure.

So we're now, as I say, translating this information into a study in a patient population. And then the plan really is to move into a more advanced patient population the latter part of this year, looking at the drug in a larger cohort of patients.

Lastly, we mentioned back in December that we had introduced a CRF antagonist into the clinic in conjunction with -- in collaboration with our partner, GSK. And that program is proceeding nicely in Phase I. But this year, we had targeted to enter two new drugs for new indications into the clinic from our research endeavors.

And I'm pleased to say that the MC4 antagonist program is maturing nicely. We have an advanced compound here that is just finishing toxicology now and targeted for Phase I clinical studies in the third quarter. The targeted indication is cachexia in an area of significant unmet medical need. And we will be looking then of course at this compound in a volunteer patient population first of all in Phase I and then moving to Phase II in cancer-related cachexia in 2006.

So that's a quick update, Gary, as to R&D programs at the present time.

Okay, thank you Wendell. At this point, we will be happy to open the call up to questions.

(OPERATOR INSTRUCTIONS). Jim Birchenough, Lehman Brothers.

Just a couple of questions. One, just following up, Gary, on the branding strategy for what are now -- which is capsules and tablets. How are you going to differentiate with the prescriber and the patient on immediate release versus MR properties of the drug? And how do you balance having a simple message from a branding perspective but letting the prescriber know that these have different pharmacokinetic profiles?

It's a good question, and one I cannot get into a lot of depth on because obviously the branding/positioning strategy that is being evolved with Pfizer is proprietary. I do think the four Phase III clinical trials we will be presenting at the next two sleep meetings and psych meetings will be enlightening as far as the overall clinical response Indiplon via capsules or tablets. I think what we will see from the data are not only safe onset but sleep maintenance. The MR tablet form is obviously more robust in its sleep maintenance properties. But overall, we think that the brand is simple. And to use Indiplon as the brand and to be able to achieve onset maintenance and long-term use is a much clearer message to understand in a stronger brand as a result.

And then just in terms of looking ahead, you mentioned that you would be filing the tablet or MR in the very near term. Is that to mean weeks or are we talking more the latter part of the second quarter?

Yes.

Yes to both. Could you be more specific than that?

No, I can't.

Just one final question and I will jump back in the queue -- obviously, a lot of visibility on initial Lunesta trends, and Lunesta has a product. What are you guys going to do with Pfizer just to maintain or increase the visibility of Indiplon as Lunesta plays out on the market?

Well, I think we've been impressed and pleased with what we have seen thus far from the Indiplon line -- of the Lunesta launch and honestly believe that supports what we have been saying all along. And this is a very large, underserved market. And through the Lunesta efforts, I think both direct to consumers as well as physician education are starting to realize this. But we believe that realizing the potential of this market is not going to happen in 6 months to 12 months or 2 years. It is a long-term proposition. So we believe Indiplon will have a superior product profile. We believe a larger share of customer voice and think that will translate into larger market share and more rapid way of growing this market. So I think we've been pleased with the success. I'd rather have this launch go well than not.

And how do you maintain the visibility of Indiplon over that time period between now and your own approval?

Well, now with the filings done or nearly done, we will be increasing our efforts both at the conducting symposium, medical education, development of key opinion leaders, the support of other medical education programs. So I think you will see Indiplon getting much more visible over the next 12 months, as we move towards launch.

Ian Somaiya, Thomas Weisel Partners.

Hey, move to next call until he comes back.

Matthew Geller, CIBC.

Could you talk a little bit about the Phase II study for NBI-56418 for endometriosis? What are you looking for in that study? And what do you think the key issues are for an endometriosis drug in order to make it commercially viable?

Matt, I think one of the key issues of course for viability here in this certainly underserved patient population is convenience of administration with minimal to no side effects in the short-term. And then frankly the longer-term application of an agent, such as this so that you minimize or preclude bone loss, which is of course the issue with longer-term.

On the front end here, we're looking at a patient population, where we are going to reduce first and foremost pelvic pain. The CPSS valley (ph) of scoring system is what we are using in the clinical study as our primary endpoint, which is also the regulatory-driven endpoint at the end of the day for a Phase III and registration program. The value that we see here translates not only into less side effects but also into appropriate control of pain. And we anticipate seeing that, as I said, based on the estradiol level reductions that we have seen.

We have also been able to titrate nicely the premenopausal patient population that we have looked at within a range that is very appropriate for pain reduction -- at the same time, doesn't achieve castrate levels or bennedal (ph) suppression basically in that patient population.

Sapna Srivastava, Morgan Stanley.

Just a follow-up on your, I guess, the capsules and the tablets. How are you going to file them? Are you filing them for different indications of your planning in IR earlier -- that IR would be for sleep onset and middle of the night dosing, and MR would be for sleep maintenance? And just if you could explain what made you change into tablets and capsules and nomenclature now versus the first time you tried to file it?

Well, obviously I can't go into a lot of detail in the product positioning/branding strategy with Pfizer -- is proprietary. But I guess what I can say, since the clinical data is available and will be presented in great detail at the upcoming meetings -- is in Indiplon capsules are highly effective in sleep initiation; sleep maintenance has been shown to be effective long-term. Obviously, that's a profile that is similar to Indiplon tablets. So I guess one could conclude that we see similar indications for both, which support a product positioning statement, as we have laid it out.

I think, as we told folks all along, we believe that having an IR and a MR provide a great deal of flexibility. We now believe capsules and tablets provide the same benefits to physicians and enables them to be able to customize the product based on the patient's problem, be it onset maintenance. And we think this overall positioning statement is one that is more easily understood in the market and plays very nicely.

I'm sorry. I still don't get it. But in terms of -- now you feel that IR has maintenance properties as well?

Again I heard you but (multiple speakers) --

Is this more of a dosing strategy now versus having to differentiate the product for both IR and MR?

Yes, as I said, it is Indiplon capsules and tablets. I urge you to participate in the American, the APA and the APSS meeting -- at which time, all of the relevant Phase III clinical data supporting indications for Indiplon capsules will be presented. And it is very compelling data, which shows Indiplon is effective in all types of sleep disorders.

And so what made you change this from the first time you tried to file the NDAs to the second time you have gone about it?

I'm not sure anything has changed. I think as the product profile becomes known and market research is done to test positioning, things evolve, as I expect, they will continue to the evolve. But none of this has anything to do with filing and re-filing.

And so you are still going to launch both the products at the same time?

That is the plan.

Mark Augustine, CSFB.

I think Wendell was talking a little bit about the GnRH program and endometriosis. The Phase II study -- I think I heard you say 75 patients planned enrollment and confirm that? And tell me what you can about the dose levels that you're using. I will follow-up.

Yes, Mark. It is approximately 75 patients -- equal randomization, placebo and two dose cohorts. We will be looking at doses that are two x separated from each other. I'd just soon not elaborate anymore than that right now. But well within the dosage range that we have explored in our Phase I studies, which as you know, have gone up to 400 mg on a daily dose. The endpoint, as I said, are the NPSS (ph), and we will be looking at obviously hormone levels and pharmacokinetics, as you might expect in this population -- and ascertaining whether there is any side effects that are seen that are different at 3 months of treatments versus the 6 weeks or half that amount of time that we have looked so far.

And lastly, we're also going to extend out an additional 3 months, simply from a safety point of view in this population to get longer-term information, return of cycle of menciation (ph) in this patient population -- and give that sort of information as well.

Wendell, was the -- I may be mistaken, just correct me if I am -- was the study originally talked about as being a tiny bit bigger than that 75? And if so, why go to 75?

I'm not sure we have talked about a size before. But we are looking at this simply from the point of view of numbers for a statistical evaluation of it. And to see the difference between placebo and a particular dose level, we think that this size will allow us to do that appropriately. So that's basically what is driving it is the statistical endpoints versus the kinds of changes we're seeing in a dose response or concentration response relationship.

Just add in some cases -- adding extra ARMs to studies increases the end here. I think we have a pretty clear understanding of doses and believe that with two doses, we can bracket the therapeutic safety range effectively versus placebo.

Thomas Wei, Piper Jaffray.

I had a question on financials and then a follow-up. The reimbursement from Pfizer for the sales force, it seems a little bit light relative to 80 people. Are you not being reimbursed for the total cost of the sales force right now? Or was it just a timing question during the quarter?

It is actually just that, Thomas -- a timing question. As we're hiring up the marketing force, as you can imagine, they go into training some time in the May time period. And that's where the bulk of the hiring is going to occur. The million dollars is really a lot of the start-up costs that are associated with it.

Okay, that is helpful. And if you were to in-license other compounds to fill the bag for the sales folks, could you remind us if that impact -- how much reimbursement you get from Pfizer for the sales force? Or is it just based on fulfilling a certain level of detail for Indiplon, and you are basically reimbursed for all of the costs?

There are contractual requirements that we have to have a certain number of details made from our sales force either with Zoloft and/or Indiplon. So meeting those -- then, there might be some other opportunities.

Yes. Other options, it obviously depends upon the product, be it a psychiatry product or if it were some other specialty product, another option would be for us to add onto that sales force additional reps to cover different audiences. So I think we have a fair amount of capacity and flexibility.

But just so that I am perfectly clear -- if you were to add another drug to the bag, and 50 percent of your sales forces this time was spent on promoting that other drug -- it's not as though you would get 50% reimbursement from Pfizer for the costs, is it?

It could be. I doubt we would take 50% of the time away from the psychiatric sales force. But if we were to, then that would decrease the compensation from Pfizer. I think more than likely, we would add other reps, use the internal infrastructure to support another product launch.

Okay. And then I had a question about whether or not there are studies underway or -- how you're going to try to target the trazodone in first generation antidepressant usage as a chronic insomnia agent? We've certainly seen from the early marketshare trends for Lunesta that it is not really coming from that category. What are you doing to try to address that?

Well, Pfizer is responsible for the Phase IV program, and there are a number of studies planned and starting or have started. And we do recognize that area as one that is right for clinical exploitation. And that is to really show that these new class of drugs are better, safer sedative-hypnotics compared to what physicians may be using. But I can't go into details of study designs related to that.

Eun Yang, Wells Fargo.

Just a question on sales allowance from Pfizer -- do you get reimbursed for your marketing efforts from Pfizer on a 1-quarter lag?

A 1-quarter lag? Yes, we get compensated based on a 1-year, full-time equivalent basis, so there's a set amount of reimbursement for sales representative, a sales professional times 200. And I believe it is in arrears, correct?

That's correct, right.

So, Paul Hawran mentioned that you guys are maintaining your previous guidance of about $40 million in loss this year. So I'm assuming that you are maintaining your revenue and operating expense guidance for this year?

Yes, that correct.

Now, on the revenue side -- previously you state about 145 to $150 million for this year and including potential $70 million from Pfizer from the acceptance of Endease (ph). And could you too actually give us some more detail on how much you expect for sales allowance from Pfizer this year?

We haven't actually given that detail out. So I prefer to just keep that to ourselves at this point.

But wherever it is, we would expect the expenses to be offset by revenues.

Okay. And on the operating expense side, R&D has actually -- came down about $60 million sequentially. Should we expect that that is going to be the run rate for the remainder of the year?

I'm not quite clear about the model that you are referring to. But if you would like, you can always give me a call afterwards. I would be happy to walk through any guidance. But the guidance that we are giving right now is consistent at about a $40 million and is consistent with what we have maintained previously.

So you have not given out any breakdown between SG&A and R&D?

That's correct.

Tom McGahren, Merrill Lynch.

Just following quickly with a financial question as to how you are going to account for that $70 million of milestones over the next couple of quarters, thanks.

It will be as it is incurred, Tom.

As incurred?

Right.

Elise Wang, Smith Barney.

Can you specify for us again -- I know there are a number of presentations that are going to be made at a variety of medical settings during the course of this year. But in particular, can you specify the studies in particular that will be presented in detail at the key meetings just so we know what to anticipate?

Yes. The strategic presentations to be made at APA and APS are as follows -- the 114 in the Indiplon capsules 3 to 6-month treatment, the long-term treatment trial; 215 IR capsules, which is a 2 week, elderly 5 and 10 mg chronic insomnia study; let's see, the 209 IR capsules study, which is the middle of the night 1 month dosing study, 10 to 20 mg; and then the 306 tablet 15 mg 2 week, that was an elderly 2-week outpatient chronic insomnia study. So those are the key studies. There are a variety of other studies earlier Phase 1, Phase II that are presented at various other meetings. But these are the noteworthy ones.

(OPERATOR INSTRUCTIONS). Andrew Hack (ph), Banc of America Securities.

I was wondering if you could go a little bit deeper on your Urocortin 2 program. Specifically, I'm wondering about what you can describe about the compounds' properties, the design of this series of Phase I studies, and what data we might expect to see from them since Phase I study in Hartfield are -- can be quite illustrative. And when we might expect to see that data?

Sure, I would be happy to. The compound itself is relatively unique and working at a new target -- a target that has been under research here at Neurocrine as well as with collaborators at the Salk Institute for well over a decade. And that is the R2 receptor of CRF. And this peptide is an agonist, a 38 amino acid peptide, that we make totally synthetically. It is extremely potent. And so the kinds of doses that we're study it is in the microgram range -- 25 to 100 microgram at the present time for a 1-hour infusion in volunteers. And as I said, now, we're moving into mild to moderate CHF patients.

The kinds of data that we are generating, both in the normal volunteers as well as in the CHF patients, are the typical human dynamic endpoints of measuring both diastolic and systolic blood pressure, change in heart rate. We are looking at cardiac output. And we will also be evaluating a number of hormone levels -- neurohormonal levels like ACTH, cortisol, renin, BNP -- backed, in fact, I think there's about 15 of them that we are measuring here in all of these volunteers and patients.

And that information together with the pharmacokinetic information of the time in which the drug is actually in circulation at a level of achieving some level of efficacy is key in terms of them designing the next Phase II trial, which will be in a more advanced Class III, Class IV patients -- patients that will be in intensive care units and be given the usual supportive care right now with nitrates or inotropes or diuretics. And we will be adding that then to the background treatment regimen, much like Natural Core (ph) did for example 5 or 6 years ago when it was going through its Phase I and Phase II programs.

However, a key endpoint there as we get into the second Phase II trial will be pulmonary/capillary wedged pressure because these patients will of course be catheterized. And that will be a very key endpoint for determining the real impact on pre-load in this patient population and secondly measuring dyspnea as a key endpoint as well.

So that is kind of the progression of studies that we're doing. Along the way, we are gaining a lot of pharmacokinetics data and pharmacokinetic data. And then moving into the more standardized endpoints in the second Phase II study later on this year, that will probably be in a patient population upwards of 40 or 50 patients.

Preliminary data from all of these trials will be press released to become available. And the more detailed information will be presented at the appropriate scientific meetings later in the year.

Just a quick follow-up then -- so if I understand you correctly, the goal commercially then is to address the acute decompensated heart failure market in the intensive care setting?

Correct.

Not to drive towards a use in the chronic population or in the outpatient setting?

Not in the outpatient setting.

Aaron Reames, Stanford Group Company.

Most of my questions have been answered. But I just had one question for Paul. I was wondering if you could give us any insight on the amortization of the upfront payment going forward. Is it going to be in a similar level?

Yes, it will be similar to the first-quarter amortization.

John LeCroy, Natrexis.

Can you review the expected milestones for European and Japanese filing acceptance approval in the launch for the caplets and tablets? And also at what stage in the development and filing process are you in Europe and Japan right now?

Yes, I think the overall communication in this from the past has been that the collective milestones, exclusive of the license fee in the U.S., totaled approximately $200 million milestones outside of the U.S. -- total an additional 100 million, and that includes both Japan and Europe. And a -- tied to its later stage approval events.

As far as timing in Europe, we are all only responsible for the U.S. So the commercialization/development strategy outside is managed by Pfizer at this point. So I cannot give more clarity on it.

At this point, there are no further questions. So I will turn the call back over to our presenters.

Okay, thank you very much. And once again, if there are any follow-up questions, feel free to call Paul or myself directly. And I look forward to reporting next quarter results. Thank you.