Neurocrine Biosciences Inc (NBIX) 2005 Q4 法說會逐字稿

Good day. All sites are now on the conference line. At this time, I would like to turn it over to our moderator Mr. Gary Lyons. Go ahead, sir.

Thank you everyone for joining us for our fourth quarter and year end '05 earnings call, as well as an update on our R&D pipeline. I think most everyone has seen the press release, and know it was an outstanding year. Both financially as well as product development, from product development point of view.

We will, first let me introduce participants here. First, Paul Hawran will be joining us who is EVP, CFO, Wendell Wierenga, Executive VP of Research & Development, and then Claudia Woodworth, who is our Investor Relations Manager. The schedule for the day is for Paul to review financials, Wendell to review R&D pipeline, and then as always for us to field questions that anything that may be on your mind you would like us to cover.

With that let me turn it over to Claudia for reading of the Safe Harbor statement.

Then we will move on with the program. Before we begin, 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 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 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.

Thank you, Claudia. Let me turn it over to Paul for review of the financials for the quarter and the year.

Great, thank you Gary. As Gary mentioned, we had a great financial year. We ended up '05 with $124 million in revenue, as compared to 85 million in '04. Most of that increase was a reflection of about $70 million in milestones that we have received from Pfizer, as well as a $22 million partial year reimbursement for the sales force allowance.

As far as operating expenses are concerned, they did rise slightly from 137 to 148, 148 million, but if I break down the Research & Development number and exclude any Indiplon-related research that number is actually around 88 million in '04, as compared to 97 million in '05. The increase of about $8 million is a reflection of higher spends in some of our other programs, as well as some personnel expenses. For the year, we are recording a net loss of $22.2 million, or about $0.60 a share, and also we'll end the year with $273 million in cash.

Moving on to financial guidance for 2006, we are expecting to have an approximately breakeven year, before we announce any forecasts for sales, and that is after we take an $18 million expense for FAS-123. Accordingly we would have been profitable before any net revenues from sales of Indiplon. However the FAS-123 has kicked in for us this year. That is about $18 million.

With that, I will turn it back over to Gary for the rest of the program.

Thank you, Paul. Let me now turn this over to Wendell, who will review R&D pipeline beginning with Indiplon.

Thank you very much, Gary. As you know, the two electronic CTDs that were filed for the capsule and tablet forms of Indiplon have now a three-month extension added to them as of February 15th, extending that review date out to May 15th, after recent discussions with the Neurology Division of the FDA, part of our dialog with the FDA has included concurrence on a combined label for both applications. Also, inclusion of language relative to the driving study, and their commitment to review this then by the new PDUFA date, as they review the driving data that has recently been submitted.

In addition, as many of you know the one of the gaiting items to launching Indiplon is drug scheduling, and we've been working with the Agency, as well as other branches of the government, and ultimately the DEA to track this in a parallel fashion in terms of review. We can tell you that the FDA's recommendation has now moved onto DHHS, anticipated to be at the DEA sometime next month is our expectation, and of course documentation ultimately of that will be the obligatory publication of their recommendation in the Federal register. So given these changes, nonetheless we had been anticipating a full commercialization later this year, and we are not changing that forecast as we have articulated that in the past, relative to this extension of the PDUFA date to 15 May.

Our GnRH program has been an extremely active program for us this past year. We have kept you abreast of the studies in endometriosis. We have completed the dosing stage of a three-month study of our GnRH antagonist in patients with endometriosis, and we will be disclosing data on that in about 76 patients in April. We're very pleased so far with the side effect profile we're seeing in this blinded study.

In addition, we're doing a very similar study again placebo control-blinded, exploring the full exposure response relationship in patients again with endometriosis for three months, and we're looking at data coming out the latter part of this year, third quarter is our expectation. Of course what we're targeting here is agonist-like efficacy with a much improved side effect profile, with an oral daily GnRH antagonist.

We also initiated studies in males, a two week study of pharmacokinetic tolerance measuring testosterone levels, and that has begun in anticipation, then moving later on this year into probably a three-month longer term Phase II type study and BPH, Benign Prostatic Hyperplasia, the second indication for our GnRH antagonist.

Urocortin 2 is now starting a study here in the U.S. under an IND filed late last year, which is basically an extension of the Phase II-a study we had been doing in New Zealand last year in mild to moderate CHF patients, where we were exploring a 1-hour infusion with several doses, we're now exploring a longer infusion time in a very similar patient population, as a prelude to then targeting the acute decompensated heart failure patients later on this year in a Phase II study.

Our CRF antagonist program is also making good progress with our partner, GSK, and we're pleased to say that the lead compound is now in multiple-dose Phase I studies, again in anticipation as previously forecasted, Phase II studies in diseases like depression, GAD, and so on later on this year, they are studying a Phase II-a study shortly in irritable bowel syndrome, and we also expect very shortly that they will begin a Phase I study and a back-up candidate, so they have the capabilities of evaluating both of these compounds in a near parallel fashion, as they progress forward in clinical trials.

In March we should be reporting results of our APL, that is being studied in Multiple Sclerosis patients, a relatively large long-term Phase II study, and similarly with our APL in Type 1 diabetes reporting out Phase II data in early third quarter of this year. Those studies as you know, are fully enrolled, in fact the Multiple Sclerosis study is now completed, in terms of the dosing of all the patients. The discontinuation rate has been very low, we've been very pleased by that, and the data is being unblinded next month. We should have a look at it then in March.

Lastly, we entered a new drug into the clinic in the first quarter of this year. We're expecting it will start actually next month in Phase I. A new approach to the treatment of insomnia, as you know this is a multi-factorial disorder, and we have been pretty excited about H1 antagonists as a complimentary approach to GABA-holosteric modulators like Indiplon, and we are starting a Phase I single dose and multiple dose program this year, which will provide data on safety pharmacokinetics and pharmacodynamics, as well as information in the multiple dose study, which we will do at night on the impact on sleep.

So that's a quick overview, Gary of our R&D pipeline, and Indiplon at the front end.

Thank you Wendell, and with that we would be happy to field questions.

[OPERATOR INSTRUCTIONS] First question is from the site of Jim Birchenough with Lehman Brothers.

Want to get a better sense of potential launch timing assuming all goes well that is parallel the DEA review, labeling review, and full approval on May 15th. If that were to happen, how quickly do you think you could launch Indiplon?

As soon as possible following that date, again, product supply other things and not rate limiting. Since this is a joint effort with Pfizer, it is as soon as practical that we can be up and ready and jointly launched, but would not expect a significant delay.

Just wondering I know you have submitted a number of doses for review by the Agency. But in your draft labeling, could you say how many doses you are seeking to gain approval for in the draft labeling?

I think to be consistent with what we said in the past, is that there would be up to four, no more than four, no fewer than three, and no overlapping doses, and as I think most know the doses we have studied have been 5, 10, 15 and 20, 5 and 10 IR, 15 and 20 MR. So I think that's about all we can say on this now.

Just one final question and I will jump back in the queue. The expense guidance for '06, does that assume any Phase III trial initiation for the GnRH program, and is that something we should consider as potential increased expense?

No, it doesn't actually, Jim. It only includes doing a number of Phase II studies with GnRH, and also moving along Urocortin as well.

Just to add to that, our plan has been to retain the GnRH program and Urocortin program through solid Phase II B status as we did Indiplon before seeking partnerships, and down the road we would expect the partnerships would offset or entirely defer Phase III costs. But we have a fully burdened Phase II development cost to both programs.

Great. Thanks for taking the questions.

Next to the site of David Woodburn with Prudential. Go ahead, please.

Thanks for taking the questions. Two of them, what kind of Indiplon data if any, might we see prior to the May 15th PDUFA date, and then even though the APA meeting is probably after that, will we expect to see some Indiplon data there, and then the second question is, will FDA's new label format, potentially make the driving study information more or less noticeable than the existing label formats? That's it. Thanks.

First question, we're geared up for multiple publications, presentations, so both Sleep Meeting and the APA meeting will be our I guess coming out party, and primary venue for all of the Phase, all of the supportive Phase III data, so between now and then, I wouldn't expect that we would be taking away any of that thunder and prematurely discussing that. I should remind you every Phase III registration trial we've completed, have been disclosed in various formats, but in a peer review fashion, the balance will be done then, followed hopefully by appropriate manuscripts to support the launch.

As far as labeling, I think as we have told some, it was inferred by FDA that this was a unique and important study, that is the driving study that may in fact have labeling implications, and we have proposed some. We would not expect the labeling to remove class labeling, warning patients about driving until they know how they respond to the medicine, but we think since the study was pretty definitive in demonstrating lack of next day sedation, the lack of driving impairment, that that should appear somewhere in the label, whereas it does not in other competitive products. But where and how and to what extent, is obviously to be negotiated with the Agency, which we would expect to happen prior to the May 15th date.

Thanks.

Our next question is from the site of Tariq Kassum, CIBC.

Just wanted to turn to the X-US market, and ask about the dynamics there, the extent of penetration of second generation products like Ambien and Zopiclone there. If the market mirrors in any way the U.S. market, and how much penetration is there of the low hanging fruit, like the Benzodiazepine patients, or the Tricyclic patients?

I should preface my remarks by saying, obviously Pfizer is responsible for worldwide commercialization and development, and we don't play an active role in that, other than by providing the electronic submissions, which are in a format suitable for filing throughout the world. I think as an independent entity looking at the market, we think Japan is a very interesting opportunity, where Ambien itself has done a fairly nice job. I think numbers of products, or the incidence of prescribing such drugs in Europe is pretty extensive. However, pricing pressures have made that to be a less attractive market, and then of course there is we think reasonable business in the world outside of those three markets.

Okay.

Next question is from the site of Thomas Wei with Piper Jaffray. Your line is open.

I had a follow up question just on the doses, and in particular on the MR front, when you look at the totality of the data that you now have on 15 and 20 milligrams, what does that tell you about the differences between those two doses?

Wendell.

The difference between the 15 and the 20-milligram translates into a difference in efficacy, and to some degree also in side effects as one would expect with the exposure increasing, both in terms of C-Max, as well as mean resonance time. Basically both drugs hit statistical significance in all the end points, the primary and most of the secondary end points as well, in studies that we have done in maintenance impaired patient population, and these have been large trials, exploring both elderly as well as adult. So the differences are different in terms of numbers, of course, and remains to be seen I think eventually as to how that translates into patient usage over time, of course.

And when you think about three versus four doses on the label, what are the pros and cons of the two situations?

For competitive reasons, we've been relatively silent on this in part it was driven by getting clarity from the Agency, and would we be talking about two labels or one label, so now with one label I think we're in a position we can more completely solidify our thinking in dose selection, but for competitive reasons wouldn't disclose that prematurely.

Then lastly, the middle of the night study, how should we expect to see that reflected in the label?

I am not sure we can predict, although we would expect to see language that I think may be similar to some, at least one of the product, where it may be indicated if one has more than four hours of sleep remaining, then this is a viable option. At least for IR, but at this point I don't know that we can be clear on that, until we have finished our negotiations on labeling with the Agency.

All right. Thanks.

Next question comes from the site of Ian Somaiya with Thomas Weisel.

A couple questions. First, when is the earliest you could expect to see Indiplon in the Federal register?

February.

February. Can you update us at all on the status of the European Japanese filings? Has the application been submitted?

Again, since this is in Pfizer's hands I am not at liberty to disclose that and I think it is in their hands to disclose when either they file or receive approval or whatever their company philosophy is on it. All I can tell you is we are supportive and providing the regulatory documents as suitable for filing around the world.

To the best of your knowledge, the only thing Pfizer needs is the electronic application that you've handed to them?

We have been privy to any regulatory discussions they have had to know whether there would be more. However, it is such a complete package, I guess I would be surprised, but we haven't been part of regulatory discussions outside of the U.S.

Okay. Just one last question. Just on the upcoming data presentations, I guess beyond the Phase III registrational studies, what additional marketing studies or Phase III-b, Phase IV, I don't know how you want to qualify them, could we expect to see data at the Sleep Conference? Can you just share with us the type of studies which we could look forward to at these conferences?

I think they'll primarily be Phase III registration studies, Phase III or Phase III-b, what we wouldn't be in a position to even begin to discuss if the data were available, would be Phase IV, so I think we want to focus on the studies that support sleep onset, sleep maintenance with IR and MR, that are pertinent to the selected doses and supportive of the strategy, and these are the same abstracts that we would expect to be published, and had have been submitted for publications, so the sales force have peer review journals to support and promote the product. So it will be undoubtedly our most complete and set of presentations and disclosures to date.

Thank you very much.

Next to the site of Elise Wang with Citigroup. Go ahead, please.

Thank you. I am just coming back to your guidance for the year. Can you also indicate to us, what variables in fact might change your outlook on the expense spending, are there possibilities that that may go up in any way?

Elise, right now as far as the individual breakdown is concerned on operating expenses, we expect research to stay relatively flat to this year, with the exception that it would increase to reflect FAS-123 costs. We also don't expect to have SG&A rise, except to the extent of FAS-123. Those are the current numbers that we're looking at.

I think to if I could add to that, I think, I don't know that there is anything on the table or in development that we haven't fully burdened and expensed. But if we to, for example, in-license a late stage compound, and that's something that is not contemplated in the plan, and would cause us to reguide.

Okay. That's a good segue into my next question. Can you speak to exactly where you stand on some of those efforts? I know that you have been very active in looking for some new compounds to in-license in order to leverage the sales force that you have.

We are in the press release, we did mention promotion of Kevin Gorman to Chief Business Officer. That is a sign that we're very serious about Mergers and Acquisitions, and during multiple discussions with a variety of parties to either co-promote or acquisition of later-stage assets. Until such a deal is concluded, it would be premature to guess.

It is high on our list of priorities. It is one of our most important corporate goals this year, outside of obviously a launch of Indiplon.

Right. And if you can clarify for us, what have proven to be some of the hurdles for you, in being able to obtained the rights to a particular compound. I know it is a competitive arena out there. What have been some of the challenges for you?

The most important issue that we have faced have been assets that turn out to be flawed in some respect, that either is unclear intellectual property, or non-patented or soon to expire patents, which wouldn't get us to where we want to go, or pre-clinical, clinical, other issues that we just don't feel are worth the risk and the investment.

Only in one case did we not agree to pay or to outbid the other competitor. Price to date hasn't been the issue. It has been finding the right asset that's the right fit, and to remind you the best fit is obviously something a product that is to be sold to psychiatrists, since we cover 25,000 to 30,000 of those high volume prescribers now and/or sleep-related therapeutics that may complement what we're doing.

Okay. All right. Thank you very much.

Next question comes from the site of Mark Augustine with Credit Suisse. Go ahead, please.

One quick thing about sales force allowance for Paul. Is that $8 million something we should be running through each quarter for next year, or '06 rather and beyond?

Yes, I would say it would be in the 30 to $35 million range, so 8 certainly would be right in that range.

All right. Thanks, Paul.

Our next question is from Phil Nadeau with SG Cowen.

Thank you for taking my questions. I actually just have two. The first is on the DTC plans of Pfizer. I think in the past you indicated Pfizer has said they won't run a DTC ads for Indiplon for the first 6 months its on the market, given that it looks like DDC campaigns are integral parts of Lunestra and Ambien CR's launch, I'm wondering if Pfizer is still holding to that, and second a quick question for Paul.

Paul, could you give us some idea of the milestone that we should expect upon Indiplon's approval? Thanks.

Milestone?

Phil, it will be approximately $109 million at the time of approval. That's broken out in a couple of different categories. One obviously for each application, but if you calculate in about 109 million, you will be right there.

Okay. On direct-to-consumer, we clearly know, acknowledge that reaching consumers through advertising is the key to long-term growth. Pfizer's policy which probably is unlikely to change, since they will be playing the leading role and setting the right example, and how proper DTC ought to be done, is actually not to go with branded primarily TV advertising for six months from approval, which is a little different from launch, but an important part of the mix early on will be other types of advertising, which could either be non-branded, and/or Internet-based physician office-based, which is branded, so DTC will be an active component of the marketing mix from the beginning, but our version of the ads you see on TV will probably not be visible until towards the end of the year.

Okay. Great. Thank you.

Next we'll go to the site of Tim Ackerman with SAI. Good, please.

Thanks for taking my questions. Will one dose of Indiplon be promoted more heavily than another? Another question I had was I saw recently that you're referring to the capsules and tablets as the IR and MR. Wondering if there was any reason for that, and I was also wondering whether all the different strengths will be sampled eventually?

A lot of questions there. I am probably overusing IR and MR, because that's what I remember. But no deviation from capsules and tablets. The idea so to have a full product offering, so no we can't say that we promote one dose of one version over another. And sampling, would undoubtedly be, to sample the most popular doses if there were four, probably not all four. I can't say we'll settle on that. Samples are an important part of the mix, to allow patients the opportunity to evaluate the drug on their own before filling a prescription, and to give physicians a chance to see how their patients respond.

Good. Thank you.

[OPERATOR INSTRUCTIONS]

Okay. I think then has been our custom, if there are questions that haven't been answered, or if you would like to talk to us directly, feel free to call Paul or myself directly. Thanks again for joining us, and we look forward to reporting to you the end of first quarter. Good afternoon to you all.