Neurocrine Biosciences Inc (NBIX) 2005 Q2 法說會逐字稿

[Operator Instructions]. Welcome to the Neurocrine Biosciences Second Quarter 2005 Results. I would now like to turn the program over to your moderator, Mr. Gary Lyons.

Thank you and thank you for joining us. This is our second quarter earnings call and update on R&D activities. Joining me in San Diego today is Paul Hawran, who is EVP ,Chief Financial Officer, as well as Wendell Wierenga, Executive Vice President of R&D and Bob Little, Senior Vice President, Commercial Operations.

The agenda for the day is for Paul provide an update on our quarterly results and guidance for the year. I will give a brief Indiplon update, Bob Little will then update you on the status of commercial build and sales organization, followed by Wendell Wierenga who provide a brief update on our R&D pipeline. And as always we will then open the call up to questions

So, before we begin, let me ask for Claudia to read our Safe Harbor Statement.

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, management 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 relation's page of 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 the subsequent events or circumstances.

Thank you Claudia. Let me now turn the call over to Paul to review financial results.

Great thanks, Gary. My comments will be short. I will just highlight some of the key areas on the quarterly financials. Revenues for the quarter did rise from 15 million in the same period last year to 33.2 million in 2005. The increase was the result of recognizing a $20 million milestone in connection with the acceptance by the FDA of the Indiplon capsules as well as a $5 million associated with sales force reimbursement. I will stress that the $5 million sales force reimbursement was for a partial quarter, so that number will rise as the year goes on.

Operating expenses have risen from 28.4 million to 39.4. R&D expenses were up about $4 million due primarily to higher external development expenses and programs associated with those developments expenses were Indiplon, GnRH and our Urocortin program. SG&A increased about $4 million as a direct result of the commencement of sales activity.

The net loss was lower to 5.6 million from the same period last year of 11.1 million. As of June 30 we had cash, short-term investments and receivables due into collaborative agreements of approximately $266 million, and that obviously that excludes a $50 million milestone which we earned as -- representing associated with the acceptance of the Indiplon tablet on July 27.

As for the remainder of the year, we are continuing our guidance of a net loss of about 35 million to $40 million, however we are guiding to the lower end of the range of approximately 35 million. Revenues are expected to be approximately $125 million, while operating expenses will be approximately 165 million. With that I will turn it back over to Gary.

Obviously, highlights for the quarter included the filing and acceptance of our NDAs. To remind you, the Indiplon NDA was accepted to review on June 15, which therefore gives us a February 15 '06 PDUFA action date. And the tablet Indiplon NDA was accepted for filing on July 27, therefore giving us a March 27, 2006 PDUFA action date. So, we are pleased the program is now in active review. We are interacting with the FDA to comply with their review process to stay on track.

Another highlight of the quarter is related to the formation and transition to becoming a commercial company and the formation of a psychiatric sales force, I would like to turn this over to Bob Little who runs commercial operations to provide us with a little updated color on our sales organization.

Thanks, Gary. We have made considerable progress this quarter in establishing our commercial organization. The second wave of our sales force were deployed in early July after recruiting in late June and training at Pfizer, and they were deployed into the field immediately afterwards.

Along with the first wave of the sales force, that were deployed early in the quarter, we now have our full complement of 180 sales people in the field along with a full internal infrastructure of around 20, making up our total complement of about 200. The field support systems are all in place and working extremely well. Our reps sales people and mangers passed through the Pfizer training curriculum with very high grades, and so we are happy now that we have a fully-fledged specialty sales organization trained to Pfizer's very high selling standards.

The sales team that we put in place are very experienced. Sales management have on average 10 to 12 years' experience and our sales people are averaging 5 to 7 years. More than 50% have CNS background as well as very much insomnia experience. We have recruited quite heavily from companies with a very strong neuroscience background. Many of our sales people are calling on customers that they already are quite familiar with.

The focus of the sales force, as Gary said, are high prescribing psychiatrists, we're all calling on sleep centers. Since 80% of the high prescribers of anti-depressives are also high writers of insomnia medications, we have the opportunity to codetail Zoloft and at the same time gain familiarity with the customer base that we will be working with when we launch Indiplon. The access so far has been excellent. Our reach and frequency is very, very good. So far we have logged 22,000 calls to our targeted base, representing about 80$ of our total call universe and we're achieving around seven calls a day. We should be seeing the first sales performance on Zoloft in the next month or so.

So the total Neurocrine sales and marketing team, the commercial team, is now fully in place and readying for the Indiplon launch next year. And to complement that, we've been recruiting a medical sales liaison team, these will be MD, PhD level, experienced in CNS and their whole pre-launch will be to prepare the Indiplon launch by supporting medical (ph) education and scientific communications, particularly in the area of the field of insomnia.

I think we've demonstrated that we have been able to recruit and train a premier specialty sales organization in under six months, that we can leverage this now in the future to attract new products as we engage in licensing negotiations with third parties. The commercial infrastructure we now have in place, of course, can add on new commercial teams, in other future areas, additional sales forces very quickly and efficiently as we expand the business. And thank you.

Thank you Bob. I will be turning this over to Wendell Wierenga who provide an update on our research and development pipeline.

Gary, thank you very much. As you know, we have at present five drugs under development in various stages of clinical evaluation. Four of them in various forms of Phase II clinical studies and one in Phase I. The program that we are investing most significantly in is our GnRH program and 56418 is our flagship compound there. That is currently in a Phase 2 study for the treatment of endometriosis.. This is a 12 weeks study. We are enrolling patients with the usual signs and symptoms of endometriosis using endpoints that are required and accepted by the FDA for registering a drug in this disease category.

This particular study began enrollment in early April. It is on track for completing the treatment phase of the study at the end of the year. It's a placebo controlled, two doses 75 and 150 given once a day, so there's three total cohorts than in this particular trial. In addition to this study, we're evaluating as well various hormone levels including ethinyl estradiol, which as you know is a key indicator indicating a suppression of the gonadal pituitary axis with a GnRh antagonist.

We want to make sure we cover the waterfront as much as possible in terms of getting the right doses and right frequency of dosing when we get into the longer-term six months and 12-month studies in Phase III, so we are initiating a second clinical trial in endometriosis shortly where we will look at a couple of other doses and run this basically in parallel with the current study that we have ongoing, so that by this time next year we will have all the dosing information we need to initiate the longer term trials. So far the drug is continuing to behave well on the safety side. The enrollment, as I said, is on schedule here for this current endometriosis study. We have planned as well to explore other aspects of the drug. We will give you more detail on that in due course for other particular disease indications.

Lastly, we have a backup compound to 56418 that we will be putting in Phase I clinical studies here in a couple of months. As you know, our strategy has been to have a backup for the GnRH, we think it's a very important category, both in terms of medical need as well as in commercial opportunity. So the backup compound, which has various attributes we believe might translate into advantages in the clinic is moving into Phase I in a couple of months.

The two programs that have been ongoing in the treatment of Type1 diabetes and Multiple Sclerosis, the APLs, those clinical studies are still on track. The Type 1 diabetes program now has over 70 patients that have been ongoing, therefore the dosing duration of the study, very low discontinuation rate and basically the same percentage as true of the second study in MS. Of course, there the dosing is for a shorter period of time, but the discontinuation rate has been remarkably low and we're looking for data in the first half of next year. These are studies that are enrolling 150 to 200 patients, and should give us the indication we need for efficacy before moving into pivotal trials.

Urocortin 2 to is an agent that we've targeted for acute decompensated heart failure. We started the Phase I studies with this injectible peptide late last year in normal volunteers. The study has gone quite well. We have presented some of the top line information in terms of improvement in cardiac output, reduction in diastolic blood pressure, improvement in ejection fraction. We're now moving forward into mild to moderate CHF patients to get data in this patient population before progressing to the more acute patient population. We should be wrapping up that data acquisition in patients within the next several months and have a meeting planned with the FDA as a pre IND meeting to initiating a full Phase II program for the agent in third quarter of this year..

Lastly, CRF antagonist that we have in development with GlaxoSmithKline is still progressing now into multiple dose Phase I. The backup program for that is fully engaged as well and we are fully anticipating that a backup compound to the current agent that is in Phase I studies will be entering Phase 1 clinical study by the end of this year, giving us at least two very strong drug candidates here to take forward into Phase II in 2006 with GSK sponsoring these studies. That's an update.

Okay, thank you Wendell.With that we will be happy to entertain questions.

[Operator Instructions] We're going to take the first question from Jim Birchenough of Lehman Brothers.

Hi guys. Couple of questions. Just on the acceptance of the NDA filings for Indiplon capsules and tablets. Could you comment on any discussions you might have on consolidating the filings and whether it is reasonable to assume that one could see those consolidated on the earlier time point?

Yes, we have had no discussions. Both are separate NDAs, both are in active review. So, there have been no such discussions.

And then just in terms of expense items, just looking at the R&D expense, ramped up a bit from the first quarter, still looking for what would be a normal rate for R&D expense, if you can give us any further guidance Paul?

Yes Jim, on the R&D, for the rest of the - do you mean for the rest of the year?

For the rest of the year, yes.

As I mentioned as far as our total expenses are concerned, we're are expecting about $165 million, and that would include about 35 to $40 million of SG&A, mostly S at this point in time so, you're looking around 120 or so.

Okay great. Thanks for taking the questions.

Sure, thank you.

We will move next to Steven Harr of Morgan Stanley. Go ahead.

Hi, good afternoon: A couple of questions. The first one, if you guys could just give us an update on your thought process around commercial partnerships for the drugs in the pipeline? When will you have the necessary proof of concept for potentially looking for partners?

The second is, if you can give us a little bit of an overview of what you learned from the Lunesta launch and the types of drug to consumer marketing limitations that are put into place that will have an impact on your how own launch

The first related to collaborations. It is our position now, having adequate resources, both people, development infrastructure, manufacturing, cash, we can move products in our pipeline through Phase II proof of concept. So for the two APLs, that would be perhaps second quarter event, at which point we would know whether we have a safe and effective drug worthy of Phase III development. And if that's the case, at that point we would be in a position to entertain collaborative joint venture or other opportunities to go forward.

With both Urocortin and GnRH, it's similar. GnRH, I think, would be probably towards the end of next year. Our plan would be to develop that compound to the same point as we were with Indiplin prior to partnering with Pfizer to add maximum value. So that would be a solid Phase I, Phase Two program, strong IP, manufacturing under control, et cetera. It is our plan ultimately with GnRH to fully exploit that product. We believe we need a partner who is very strong in women's health. We will look to that partner to help complete development and commercialize and use our commercial infrastructure to focus on a subgroup of the customer audience that we could manage and be and active player in. Very similar with Urocortin, timeline also end of next year we'd expect it to have a go - no go proof of concept decision.

The second related to Lunesta, what did we learn. Let me turn that over to Bob.

I think first of all I have to say Lunesta, Sepracpr did had a very good launch initially. They came out of the gates very fast and very well. I think now we have to see how they can start to drive market growth. I think they have attracted some new patients into the market. They have also, obviously, had a little switch business earlier which one would expect. But I think we have to wait and see over the next several months how their new patient growth and their market growth can be sustained. So far, I think they have done very well and hopefully they can start growing market for all of us.

Your second question on DTC, obviously some of the alternatives that were being proposed were very unacceptable to industry. I think pharma, and by the way, we at Neurocrin of course working with our partner Pfizer will be very much compliant with the industry agreements in terms of how DTC will be managed in the future. Obviously it will be a level playing field for all of us and it remains to be seen the actual impact on consumer uptake. Clearly it is important that we continue to better a communicate to consumers, especially in the insomnia market, the importance of insomnia and to better communicate the severity of the disease. From that standpoint we're pleased that those doors are still open to us.

Thank you.

We will go next to the site of Matt Geller of CIBC.

Two questions. First of all extending on Steve's question, what have you learned from the Lunesta launc in terms of what's working, what isn't working, what physicians and patients are looking for?

Second of all, can you comment on the approval of Rozerem and what role you think that will play and what competion if any, it might afford to Indiplon?

I'll handle those. What have we learned? We have learned that we see Ambien holding its own and growing, the whole market growing, Lunesta off to a good start increasing the guidance so it appears that all is going well. More specifically, what is actually working, about all I could tell you is that with Pfizer we're conducting research and doing surveys to better understand what is working and what is not but don't have that information. That would be something that we will be looking at the upcoming months, but we're pleased with the launch thus far and can see the market expanding as expected.

I guess that is a good segue into the Takeda product, which we think is this will be more of the same. How much of a competitive threat it will be is to be determined. But certainly it will be another competitor increasing awareness of insomnia and sleep medications. To the extent they're successful, we believe it will benefit us all.

Do you think Rozerem will hit an entirely different group of patients than would be using Indiplon based on the data and the kind of label that they've gotten?

Perhaps. Here's Bob.

Yes, as you probably all know, it is and onset claim on the label, it's not a sleep maintenance product. Obviously, on schedule puts it into a whole different realm. They may attract some additional patients or new patients that are specific to that particular unique profile. But it remains to be seen how broadly they are going to be able to expand out beyond what is a fairly narrow indication compared to other drugs on the market today and certainly what we're obviously planning to have on our label in the future.

Thanks a lot.

We'll take our next question from Cory Davis from JP Morgan.

Who is responsible for Phase IV studies on Indiplon? Is that you or Pfizer, a joint decision? I can't recall if you already said what's already ongoing or what might be planned in the way of studies and scenarios where insomnia may be co-morbid with a different condition.

Yes, Pfizer is responsible for Phase IV development. Obviously we have input into that and assist in that regard, but our job is more or less completed with the commercial package and registration studies. We haven't given specific guidance since Pfizer is controlling this as to what the focus of the Phase IV program is but I think if you look at publications and follow what's been presented at sleep meetings and what other competitors are doing, I think it's pretty apparent. I guess the NIH consensus group, more recently, has done a nice job of pointing out co-morbid conditions associated with insomnia and the importance of treating insomnia. We think this is a very important long-term growth strategy.

Do you know when that NIH consensus statement goes into its final form? Is that something that anybody can use in promotion of their products?

I think it is in final form. It was published, I don't know.

It was actually put in final form and presented at APSS about a month ago. In terms of using it in promotion, I think what it does give us is considerable guidance in terms of how we communicate the impact of insomnia, the severity of insomnia, some of the co-morbid now moving to this new definition of co-morbid insomnia. As we design Phase IV programs, as we have conversations with our professional audience and payers, for example, I think it helps us with that communication message.

Thank you.

Next is in the site of Annabel Samimy of UBS.

Hi, thanks for taking my call. What is the likelihood of being able to seek one label for the two formulations and the four different doses? Is this something that you're realistically speaking, and how often has it been done in the past?

I addressed that earlier in that right now we have two NDAs, two labels, two products, and we have not yet had discussion nor am I saying that we would, but there had not been discussions with the agency at this point about package insert and labeling. So, if and when that comes up it'ss something that we will deal with. Right now it is addressing all the issues related with the content of the package and seeking approval.

Okay how about theoretically, what would the major benefit be of getting only one label versus two different labels?

I think having a single label allows for a much more simplified positioning and communication message with our customers. There are a number of products in the market that have different formulations in the same label, I think Siprexa (ph) comes to mind, Wellbutrin certainly have a couple of formulations in the same label as well. There are a number of products out there with different formulations in the same label and package inserts.

As I began to remind you, we filed two separate NDAs, two separate package inserts, two separate labels, two products. That's where we are at present.

Okay how about switching gears for a second, can you give us an idea of what percent of the sales force had already been incorporated in the sales force allowance that you received in the 2Q payment?

About half.

About 2/3 actually.

It was just the timing of hires and when people were trained. And when they were deployed so now fully deployed it will be the full allowance would be expected on a quarterly basis.

Okay, and also on the GnRH antagonists, can you state again what the doses were for the Phase II trial?

Sure. The doses, there is a placebo controlled, of course and 75 milligram and 150 milligram once a day. We will be measuring CPSS scores every month but the actual three-month data will drive the evaluation of the success of the study.

And the second Phase II endometriosis trial will employ two doses that are bracketed between that 75 and 150.

On the backup compound is there something specifically that you're seeking for, like a characteristic that you're seeking for in the backup compound that you're not seen in the current compound that is being developed? And why, I think this is your fourth backup compound now.

Third backup compound. One of the issues that we have always wanted to get full collaboration on in humans was the pharmacokinetics of the drug and whether one needed to have an exposure that spanned the 24 four time period and achieved certain thresholds levels of gonadal suppression. So the backup compound that is now going in the clinic, has a longer half life than 56418, that is currently in Phase II. That is really evaluating that concept in more detail. However, I should add the we're finding that t pharmacokinetics is not a full explanation for overall efficacy, and that is perhaps not surprising, but it is an important component. So this compound, besides having a comparable safety if not even a better safety profile pre-clinically to 418, has a longer half-life in animals and so that's what we'll be evaluating in Phase I.

But I think as Wendell mentioned earlier, our general operating practice has been to have a backup, even just in the event that something would happen to your lead, then you weren't starting a program over. You would have had a compound, that is behind it and perhaps through Phase Is, a parked and ready to go forward. So they may in fact be an insurance policy, we've done that with CRF, we've done it with GnRH. It will be our practice to do that with all programs.

There's a follow-up question from Jim Birchenough.

On the data points going forward, could you summarize when we should see data for Urocortin 2, when we should expect date for the GnRH Phase 2. What further data might we see either in publications or presented in other forums for Indiplon between now and the February PDUFA date?

In terms of Urocortin 2, we will be disclosing the data in mild to moderate CRF patients later on this year, either third quarter or fourth quarter depending on when we get all the neurohormonal information as well, not just the human dynamic data.. Then of course we will be moving into more advanced patients in the fourth quarter of this year. And that clinical study will undoubtedly take the first half of next year. So look for information coming out of the second half of 2006 in the more advanced CHF or acute decompensated heart failure patients for Urocortin 2.

For 56418, our current schedule is that we will have top line data in the first quarter of next year in this ongoing three months endometriosis trial. The second study that we just said we will be starting in the third quarter of this year will be about six months behind that simply because the duration is still the same period, it's a 12 week study. We will be looking at similar endpoints, just different doses. That then will elaborate date out in the fourth quarter of 2006.

In terms of Indiplon studies, we will be communicating more data again at that usual APA. APSS venues in the first half of next year from some additional studies that have been ongoing. Obviously they will be a Phase IV elaboration of data when that's ready to go, but that is up to and under the responsibility and guidance of Pfizer. We're also involved in looking at the clinical studies that we've completed and looking at additional endpoints, information out of that, mining that database, which is a huge database and be elaborating on some of the output from that in the first half of next year.

And of course, APL is first and second quarter.

Okay, great. Thanks for taking the follow-up.

We'll go next to the phone of John LaCoyne (ph) at Texas (ph).

Yes, thanks for taking my call. We recently saw Pfizer make a $2 billion acquisition, and so my question is is there a lock up from the Indiplon agreement that would prevent Pfizer from acquiring Neurocrine within a certain time period and what would that time period be and what would it take for Pfizer to get around that agreement if they want to acquire Neurocrine?

There is no lock up. There was during pre-collaborative discussions but there is no lock up now so there is nothing to preclude them from acquiring Neurocrine if they so desire.

All right, thanks.

We go next to the site ofElise Wang of Smith Barney.

Thanks for taking my question. Would you remind us what is the milestone payment related to the approval of the two NDAs from Pfizer?

Around 100 million.

Each or --?

It is a combined number Elise. It breaks out between both IR and MR, but it's about $100 million.

Okay, and is the plan clearly to wait until you get approval for both before the launch officially occurs?

Probably. I think the IR going first allows us to seek a DA license and get that out of the way and. And we will be able to commercialize at the same time.

At this stage have you had some initial feedback from the FDA as to some of their key issues or questions related to the filings at this point, that you can share with us?

Just the normal correspondence, there's a certain schedule by which they move and if conform with that schedule setting up inspections and site visits and quarries the data, so it is all right on schedule.

And in regards to the fact that you now have an infrastructure of a sales force. I know that at points is time strategically you thought about in licensing compounds to leverage that infrastructure. Where do you stand on that now? Clearly there's an opportunity for that. Is this something you are actively doing? Is there some opportunities out there that presents itself?

It is something we're actual pursuing. We have been looking at in licensing opportunities for a year or so now, but now having a sales organization in place and one that and hopefully it show a performance record with Zoloft betters our opportunity. We have become more desirable perhaps as a partner with asset in place, whereas before we were talking about having such an asset. We would like to find away to leverage that or add on to that sales force to--

Any particular specific types of compounds that you've been looking at?

Ideally, anything that a psychiatrist can prescribe, so in the psych space. If necessary, we would look at expanding beyond psych to other specialty product opportunities that can be handled with sales force sizes of under 100.

Any opportunity to work on products that even Pfizer has aside from Zoloft?

That is a logical place to go.

Our next question is from Eric Ende with Merrill Lynch.

Thanks two questions. With respect to the GnRH antagonist, o you mentioned that the efficacy data will be based on typical FDA endpoints for endometriosis? Where exactly are those typical endpoints?

Those endpoints, it's really all about pain. It is a 15-point scale that looks at five different dimensions of pelvic pain, pelvic induration, tenderness, dysmenorrhea and so on. That has been real and that's what has been used in the past. It's validated. And so we're looking at that 15-point scale, the patient self assesses at various time points. We are using an electronic diary actually for the assessment. So, we can get very rapid and real time data. We make sure there's good compliance and we will be looking at comparison at the baseline. And one would anticipate that an agent that gave at least an improvement of three points in this 15-point main scale would be clinically significant.

And then the second question is financial. With respect to taxes, how should we think about taxes going forward given the big milestone payments and use of NOLs?

We do not think we will be in a tax paying position until probably about '07 or' 08.At that point in time, obviously the statutory rate would probably be close to about 35 but we'd like to bring that down to 30. We've got about 180 million in NOLs right now, so it will take a couple years to work that off.

We have a question from Danny Frank, Servera (ph).

two questions, One is you have this GnRH is a hormone suppressant compound. When are you going to begin dose, I mean bone density studies?

We will be doing those in the six-months studies because the change in bone mineral density is a gradual or slow process and really seeing a difference in three months would be surprising. We are using some bone \ markers in this three-month study we're doing right now.

Is six months long enough or are you going to have to go out a year.?

Eventually, we will have to go our a year for the safety side of it. But in terms of seeing a change in BMD, you'd be able to see that - you should be able to see that if there is a change within six months..

Danny Frank When does that begin, you said you haven't started that yet?

No. Those six months studies would not be started until next year. We want to make sure we're getting appropriate efficacy here in three months studies in the current paradigm.

Secondly, in your MR filing for Indiplon, what was the longest duration efficacy trial for the elderly that you had in the submission?

The longest trials were one-year safety trials. The longest eff...

I didn't say safety, I said efficacy.

Efficacy is 3 to six months.

3 and 6 or 3 to 6.

3 to 6.

And how many patients were enrolled?

In the 214 study there were 750.

How many were exposed for the full six months?

60%.

And what was the...

Actually, I do not have anybody from clinical here, so I don't know but more than adequate safety and efficacy exposure throughout the entire program.

What were the endpoints specifically for efficacy?

They include time to sleep onset, sleep maintenance, sleep quality, wake up to sleep multiple endpoints

And how would they comparing against Lunesta?

We have not done head-to-head trials, so we would have to speculate, which I can't do.

You have your data, their data has been published, their data has been presented, what would be the delta?

I would refer you to our publications at the recent psychiatric and sleep meetings. We presented 4 such studies that I think you could use and draw your own conclusions based on the published Lunesta data.

And you didn't carry them out, keep the crossover going over a year?

No.

Okay. Thank you.

That was your last question.

Thank you, and always if there are questions that come up , feel free to call Paul or myself directly. I look forward to reporting third quarter results. Thank you. Bye.