Neurocrine Biosciences Inc (NBIX) 2006 Q3 法說會逐字稿

Good day and welcome to today's teleconference. All lines are currently in a listen-only mode. Please note, this call may be recorded. I will give the instructions to ask questions during the question and answer session towards the end of today's program. At this time I'd like to turn the call over to your moderator for today, Mr. Gary Lyons. Go ahead, sir.

Thank you from Sand Diego. Thank you for joining us for our third quarter earnings call. Joining me here [inaudible] is Kevin Gorman, Chief Operating Officer, Tim Coughlin, who is our CFO, Vice President, as well as Wendell Wierenga, who runs, is our Executive VP of R&D, and Claudia Woodworth who will go through our Safe Harbor Statement, and then I'll start with the agenda.

I want 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 the 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 10K and quarterly reports on form 10Q. Copies of these fillings 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 of today's date. And we undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances.

Okay, Claudia, thank you. And for the agenda itself ,as always, we want to start by reviewing financials. Tim will do that. I then will comment on the information. The press release that relates to the overall [inaudible] program starting with the recent MR meeting, comments on [IR] and then the overall direction for the program, and I think that will probably dominate questions. So for that reason, we'll skip reviewing pipeline, but be happen to answer any specific questions you have related to pipeline products. So let me now turn this over to Tim for financial review.

Thanks, Gary. We reported a net loss for the quarter of 39.1 million or $1.03 loss per share as compared to net income of 26.2 million or $0.71 per share the same period a year ago. The loss for the quarter includes approximately 9.5 million in severance and outplacement costs. Our year to date loss is 92.5 million compared to net income of 1.7 million for the same period last year. The major driver for the increase in our net loss from 2005 to 2006 was 70 million in revenue milestones, recognized in 2005 under the [unit fund] collaborative agreement. Additionally, revenue from [inaudible] development, license fees and the sales force alliance recognized [inaudible] collaboration were lower in the third quarter of 2006 and year to date 2006 compared to the same period from 2005.

Research and development expense in the third quarter of 2006 decreased to 25.2 million from 26.6 million in 2005. This decrease was primarily from lower external development expenses [inaudible], offset by expenses related to the adoption of FAS 123R and severance cost of 2.8 million. SG&A increased to 16.1 million for the third quarter of 2006 compared to 13 million in 2005. This increase resulted from severance cost 6.7 million associated with layoff of our 200 person sales force and certain San Diego G&A staff. Also offset by lower operating expenses for the quarter. Additionally FAS 123R expense added to that G&A costs.

Our balance sheet at September 30th included total assets of 404 million, including cash equivalence and marketable securities of approximately 200 million as compared to 273 million as of December 31, 2005. We expect to end 2006 with approximately 180 million in cash. The cash flow will be somewhat lower than expected GAAP net loss which we aim to be at about 110 to 115 million for the year. The difference between the cash flow and the GAAP result is related to non-cash charges such as FAS 123R and depreciation. That [inaudible] beyond 2006 just insure that we have [inaudible] of cash on hand running forward, that would mean that we bring our annual cash net expenditures down to under 80 million. We will accomplish this by prioritizing programs [inaudible] and deciding on which programs will move forward from a clinical perspective, as well on the pre-clinical side. Back to Gary.

Let me begin with the MR, which I will call the [inaudible] tablet program. As most know. we met with the agency at the end of last week and we're pleased in that we've got very specific feedback. The agency did a nice job in meeting before the meeting, providing us their comments on our submissions which allowed us to focus our discussions on what would be necessary to move MR from non-approval to, to approval status. From our action letter, we weren't clear, now I think that we have some very clear direction. The agencies noted that we do have two positive subjective, that is out-patient studies. 2 week and 4 week, that [inaudible] for requirements for sleep maintenance. Agency also acknowledged that we had a [inaudible] of short term sleep lab objective study which met both of it's endpoints, wake time during sleep as well as loss of clearly demonstrating maintenance.

The unexpected, what was I guess expected, and we had been preparing for the last several months is to do extended safety studies which required and the agency did tell us that they would want to see a more durable maintenance response beyond [forward] nights and for that reason requested a combination sleep lab out-patient study which showed durability and repeat what we saw in the shorter term sleep lab study.

We also anticipated there may be a request for more safety information. The 15 milligram to date has the safety database in the neighborhood of 400 patients and we have well over 2,000 patients at higher MR doses, and we're prepared to extend that so longer duration safety exposures, even though the database to date appears safe, when one actual patient said that agency certainly want to be sure that what we saw in our first [inaudible] holds true throughout, so we were both prepared and expecting that.

The one issue that did come up, which we thought about, but I guess weren't totally expecting related to definition of an elderly dose for the MR. Prior to this, I think the agency, together with Pfizer, we were looking at this as a combination package insert IR MR and lower doses of MR could be achieved through the capsule formulation. Yet they do want us to define an [inaudible] effective dose for that population. We do have several formulations that have been tested in Phase II is what we plan to explore in small pilots [inaudible] studies to select one that we go into shorter term efficacy studies. So we have what we need there. Pretty much everything else was dealt with. There don't appear to be other issues that arose, but we [qualify] the work, but there's more work here planned, at least longer duration studies than we originally anticipated.

On the IR or the capsule formulation [inaudible], we both received final minutes from our previous meeting from the agency and had some dialog during this meeting related to the capsule form. We are pleased to say that all issues, issues related to pre-clinical manufacturing others are fully addressed. We remain in discussion with them on some statistical analysis issues that they asked us to look at. We have subsequent meetings planned with them, more statistical summits to discuss that in detail in our efforts, [inaudible] of course, to convince them that nothing changes as a result of these [inaudible]. However, we would not want to go into a filing and make these review issues, when we make a filing for IR we want that capsule submission to be solid and as close to 100% probability of approval if possible.

The agency indicated food tech study may not be necessary. However, we have already done that so that will be included in the package. And after two to three days of strategy discussion here decided it would be best to focus on IR for the treatment of insomnia that is in form capsules, and to switch out the MR longer term, safety efficacy trial we had planned to put into that the 10 milligram IR. Which would be both combination objective, sleep lab, and out-patient subjective study that we think is a very high probability success program, because this compound is not missed on those end points in the past. And by having a positive study, although it moves out a year, it puts to rest any and all discussions related to reanalysis or anything else that we think would make it a very straight forward package for the agency.

We, therefore predicted a mid summer submission, approval six months later, viewed the indiplon capsule as a highly differentiated product given the package insert that we formulated here, and based on market research we've been doing the last six months. The agency acknowledged that the IR formulation appears to deliver or at least is evidence of maintenance with the capsule formulation, so our maintenance strategy going forward will be both a capsule and tablet maintenance strategy. The first focus is on getting indiplon capsules across the goal line, getting that done and then following that up a year later with a maintenance product offering which could be both IR and MR.

And with that, unless there's anything to add from Wendell or Kevin, then we'll be happy to open it up for questions

[OPERATOR INSTRUCTIONS] We'll take our first question from Jim Birchenough with Lehman Brothers.

Hi, guys. Just wanted to clarify a few points. Gary, just wondering, is what you're suggesting here that with the extended safety study of the IR capsule you'll be pursuing a maintenance label right off the bat or will that come later? Are you initially going to peruse sleep initiation and then maintenance to follow?

Yes, initiation with maintenance to follow.

And in terms of supporting a sleep maintenance claim with both an IR capsule and an MR tablet, would you have to do long-term studies as have been suggested for the 15 milligram tablet and just wondering how you get to a one-year lag, when you would initiate those sleep maintenance studies with a combination of capsule and tablet.

One [inaudible] step would be to first select the elderly MR dose. And as I said, we have formulations to test and to define that. The pivotal studies for maintenance for IR or MR would the same studies we just talked about which would be 35 day sleep lab followed by a month or two in the subjective setting.

And just, finally in terms of launching the capsule on its own for sleep initiation initially, is that something you'd foresee doing yourself or do you think you have interest from a partner for that limited indication?

We don't see it limited, and I can't go into our full differentiation strategy, but the product now will move better onset but has other features that we think it makes it pretty highly differentiated. Having said that, that is something that I don't think we want to do initially-- we want to do on our own, we'd rather do with a partner. I think that provides a significant commercial opportunity to attract a partner knowing that we have the maintenance product behind it.

Great. Thanks for taking the questions.

Thank you we'll now go to the side of Sapna Srivastava with Morgan Stanley. Go ahead, please.

Yes, hi. sorry, I missed the beginning part of the call. [inaudible] are you planning to follow the MR formulation for allotment or not?

Yes.

And are you trying to do Phase III study to determine the dose for the elderly and then go forward with that?

Yes.

Thank you. Thank you. We'll take our next question from Geoffrey Porges with Sanford Bernstein.

I'm just curious a little bit about the timing for the mid summer filing for the IR or the capsule now. Could you explain a little better why you're doing the additional three-month study and exactly what the timeline between now and then is? Because from your comments and from the release, one would suggest that it appears that mostly what's needed is additional clarifications of data already submitted. Why have you elected to do the additional study and what exactly is going on over the next nine months after you make that filing?

Good question. I'll turn it over to Kevin Gorman.

What it is is, we've been in discussions with the agency on the reanalysis that we're doing within the IR program and what we've decided is that in this conservative environment that we exist in regulatory of that. We wanted to remove all doubt and have a [confirmatory] study out there for the IR. So what we're looking at is a three month study with the capsule. First, the first month being an in-patient study so we're getting objective and subjective data. And that would lead to a mid summer resubmission.

But mid-summer '08 resubmission?

Yes.

We have that study and all of the sites queued up ready to go as originally to be an MR 15 study and is now converted to an IR study so we can start that pretty rapidly as one dose versus placebo study. Therefore two arm probably will enroll fairly quickly.

So to clarify then, you would be submitting, resubmitting the IR mid-'08, and then a year after that, you'd be submitting the maintenance claim for the IR, or for the capsule, and then presumably a year after that, so I'm now in mid-'010, you'd be submitting the tablet?

No, the '09 would be capsule or tablet or both. So the maintenance strategy is a year behind IR approval.

How would you get to that? On the one hand you have the capsule and you already have some sleep maintenance data for the capsule. But for the tablet you have to go back and come up with a completely different dose for the elderly and take that through Phase II and Phase III.

Yes, we've actually studied in the elderly population a number of formulations, as Gary already pointed out, in the modified release domain including 10 milligram, 15, 20 and higher. So we have a lot of data a lot of experience in the elderly already with subjective data and some objective data as well. What we're trying to do right now is, looking at all of that in aggregate, relative to the maintenance signals that we're also seeing for the capsule formulation is defining what would be the best strategy going forward to secure a maintenance claim ultimately for indiplon, and while we haven't fully defined that yet, in terms of the exact step, just taking a look at the various time lines, we believe we can pull that all together in the timeframe that Gary was articulating. That is submission in the '09 timeframe for a maintenance claim, irrespective of whether it's IR or MR given all the data we have.

So if that maintenance claim was then with the capsule, would that signal that you'd abandon the tablet altogether?

Not necessarily, we're looking at it from several different vantage points. Obviously, the first one is the maintenance claim and all the information we have in studying maintenance in both the elderly and the adult populations with various doses in dosage form for the MR. But also, thinking about it as a potential for our line extension in the more typical life cycle management of a product.

Our times run through 2023 and we certainly won't abandon the MR view at a very important asset, very important product to maintenance.

Thank you.

Thank you, we'll next go to Mr. Thomas Wei with Piper Jaffray.

Thanks. I'm also going to apologize for a little confusion here, but, for the tablet formulation, how long of a study does the FDA want you to run for safety purposes?

Wendell?

The usual requirements would pertain here, as they do to any drug for chronic administration, and that is you'd have to meet ICH guidelines for this. That is 300 patients for six months of exposure and 100 for a year.

Okay--

Of course we already have that at the higher doses in the MR formulation. What we don't have is, we don't have that at the 15 at this point in time.

Okay, but I guess you never filed with those data, other companies didn't file with that data either. What exactly is it that the FDA is concerned about on this safety side? Can you address that?

Well, I think specifically the packages that we put together, of course, were overlapping in terms of the safety information, as well as a number of other components. The aspects of the CMC and so on of the applications and we, as Gary articulated, put together a label that had both forms built into it, a combined label, which was the latest view that we had gotten from the agency. Mind you, we've been dealing with several different divisions over the history of this product, and so, we've been trying to move the ball in the right direction as we get sometimes some different signals. But, nonetheless, we put together a combined label for this to utilize all the information that was generated, whether it was the IR formulation or the MR formulation, and believed when we submitted it would meet all the traditional regulatory guidelines for doses at 5, 10, 15 and 20 as we had submitted them originally.

However, it's clear now that feedback from the agency that they're viewing these as more independent product opportunities at this point in time, which means that we then have to treat the 15 milligrams much as a separate product opportunity.

The way I view it, Thomas, is that we have a very clean safety profile with 15, [inaudible] 400 patients and received slightly higher incidents of things like dizziness or headaches or [inaudible] at the high doses, I think the agency simply wants to know if you put the 15 to test for a longer period of time the more patients, is there that big a separation or will you see more [inaudible] in special interest. So far we don't. We've been what's expected, but.

And just on the timeline here, you said summer of 2008 for the capsule resubmission. I guess I'm, I'm still a little bit confused about if it's a three month study that you're going to be running, why is it going to take two years to refile for the capsule?

A nine month, probably a nine month study for enrollment, three months to last patient last visits, building in six months for data analysis, completion and filing. That maybe conservative, but now's the time to be conservative.

All right, thank you very much

Thank you. We'll go to Bill Tanner with Leerink Swann, go ahead, please.

Thanks. Couple of questions. First on, Gary you mentioned at the outset that the FDA is said that food effect studies are not necessary. What's the status of potentially getting a middle of the night dosing claim?

I don't think the two are related. We weren't clear on what the rational was, but doing an additional food effect study, since we already done one, and I think they've tend to change their mind, it's a moot point because we've already done it. Middle of the night claim, I think we have a very solid study the FDA thinks highly of, that's toward middle of the night dosing supports, what do you call it, return to persistent sleep with lack of next day sedation. That isn't necessarily linked to food or any other.

So the FDA would not be concerned if there's a food interaction, if somebody were to take it in the middle of the night and then eat some food that, perhaps the PK would be changed?

We've done the PK analysis in [inaudible] four hours, I think we're past that.

Okay, and then I guess on the IR, I'm a little bit lost on understanding how you get a maintenance claim, given the short half life? And, then it sounds like it's more of the 10 milligram dose. Are you going get, you have a 5 and 10 milligram. The 10 milligram has a maintenance claim and the 5 only has an induction claim. It seems kind of confusing?

To be clear, what we're going to be refiling on is going to be the 5 and 10 milligram dose for the onset claims. With the maintenance, we're going to be exploring, as was noted in our most recent meeting with the FDA, that we have not only maintenance with the MR formulation, we have maintenance signals on maintenance with the IR. And so we're going explore right now doses in both where we see that maintenance. And we're going to then choose which one would give us the fastest pathway for a second submission, which would be one exploring maintenance. Whether that would be with IR or whether that would be with MR or both.

So then it's conceivable, would it be like just a brand of like a 15 milligram IR?

It potentially could be.

Okay.

More doses with the IRs, we've explored doses anywhere from 5 milligrams to 90 milligrams with the IR. We've put into that entire database into the agency.

Okay, and then just one last quick one. So the additional three month safety IR, I mean, it sounds like, are the data just not salvageable? I know you talked about it in this day and age and what not, with a regulatory environment, but I mean, it just seems like it's doing something that isn't quite necessary if the data are actually good.

No, I think we have the solid studies, respective primary influence which have been reanalyze several different ways, we have ongoing discussions related to those statistical analysis. I think our physicians, with our consultants is the data is solid don't change no matter how you look at those. But that's something that we don't have final buy off yet from the agency. And, one could say, well that's a review matter. I don't think people here feel comfortable without getting this cleared up in advance, to send in an application not knowing the outcome. So, this study, not only would generate further data to differentiate the product, it would also put to rest any reanalysis whatsoever and move the probability of success from wherever we may say it is now to a much higher level.

Okay, great thanks.

Yep.

Thank you, we'll now take a follow-up from Jim Birchenough with Lehman brothers.

Last question, Jim.

Thanks, Gary. I just want to clarify, to the extent that for the MR tablet, the FDA wants both a sleep maintenance dose for elderly and adults. Wouldn't they want, if you were going with a capsule strategy, a sleep maintenance dose, both elderly and adults as well, so wouldn't you need to have, demonstrate that in both age groups? Just want to clarify that.

That's correct. You're absolutely correct that they would need objective and subjective data for both the elderly and the adults. And if you recall when we were going in with a combined label, we were getting the elderly maintenance with the IR formulation an we were getting the adult maintenance with the MR formulation. As Gary said, what came out of this meeting's now that is significant is two-fold. One is that clearly although we went in with the combined label for these applications, the agency looked at them independently. So, now we're filing them, refiling them independently so they stand on their own merit and that they recognize the maintenance signal in the IR, the capsule.

So presumable if you went with a 15 milligram IR for adults for sleep maintenance, then you'd be looking at a 10 milligram dose, perhaps, for sleep maintenance in elderly. Do we have data there yet?

We have data on 10 milligram in IR and that's correct. What, I wouldn't want to speculate just yet on what would be that dose, but we would take in then we feel--

That's reasonable.

Just so I understand on MR and what kind of flexibility you might have there, my recollection was that 10 milligrams, in a dose ranging study, you didn't hit all the endpoints at that dose. If you look at lower doses for the MR, do you have to go to 12.5?

We didn't study. I'm not really sure if this was done on the elderly or not, but we certainly hit all of the subjective endpoints. The sleep maintenance loss.

Okay, great, thanks.

Thank you. We'll now go to Tim Ackerman with SAI, go ahead, please.

You had successfully completed 15 milligram MR study involving 100 patients. I believe it was a crossover.

Right.

That was presented at the APA this year. What has the FDA said about that study? Will that be able to contribute to your package at all?

Yes it will. They did review that prior to this meeting, acknowledged that we hit the primary endpoint, we hit both. It's called [white] time during sleep, as well as loss of, as far out as 8 hours. Good, steady, solid results. So I think it's convincing data for maintenance, but they want in addition is longer term treatment, rather than 4 nights 35 night sleep lab.

I see and for the lower dose in the elderly, what exactly is the FDA expecting? Do you have to do a dose study first and then move onto an additional study?

Yes, probably a short one-night sleep lab, comparative study crossover and then move that into a shorter term Phase III study, for elderly we wouldn't have to do the longer, our understanding we would not have to do longer term studies.

Very good. Thank you Gary.

Thank you we'll now take a follow-up from Geoffrey Porges with Sanford Bernstein. Go ahead please.

I just want to make sure that I'm completely clear on this. So more or less what we're saying is we should forget about indiplon until 2009 ,and then be modeling, at least through 2010, just the sleep onset claim and the PharmaCo kinetics of the current IR formulation in comparison with the other products in the market and the changed competitive landscape?

Well, I agree with some of that. but I think the product offering, it's not just an onset drug. There are other highly differentiatable features here that we think address needs that aren't met today. So that's a big part of it. Summer of '08, you're correct minimal sales in '08 will ramp up in 09, MR or maintenance drug '09, ramping up in '010 and patent life through 2023.

I'm just confused, Gary. You said minimal sales in '08, but I thought you were going to file in the summer of '08?

Resubmission in '08 is correct, yes.

So, why would there be any reason to expect any revenue in 08?

That's why I said minimal. Six month review.

Okay, so I see, all right, so you're anticipating that you'll still get a six month review?

It's a resubmission. Those are the rules.

Okay. All right, thanks.

Thank you, we'll now take a follow-up with Thomas Wei from Piper Jaffray.

Thanks, you had given us cost estimates before of what you thought the rest of the indiplon development through approval might entail. I, correct me if I'm not remembering this right, but I thought it was 10 to $30 million. Given the changes that you've outlined now, do you have the revised estimate for how much it's going to cost to bring the drug to the market?

Yes, the range, 10 to 30 I think clearly satisfies all the IR and the early MR stuff. We haven't costed out the rest of this. Could go higher than that. We're also contemplating bringing out a partner if we got into a later stage for MR spends.

So you don't think that the $30 million would encompass, say the elderly Phase III studies or the longer term safety study that you have to do?

Some of that, but again we're investing in the new IR study, and to get to 30, it would cover some of the other MR work, clearly elderly dose, finding impacts one other study. We haven't costed these out yet. It certainly doesn't change, the numbers will actually be lower next year and maybe a little higher the following year.

Okay, thank you.

Thank you, we'll now go to Edmond [Dubbler] with [Penacia].

[inaudible] Gary, real quick question, following Thomas' question on the numbers. You're about $200 million right now, can you make a sense of how much money you're going to spend over the next, time and how long will that money carry you until?

Next year we're looking at, we're looking at next year of about 180 million cash.

Left at the end of the year?

Yes. This year. And then 80 million is our burn next year, and there are various ways to manage cash position, so much we've already completed. For example, we right-sized our workforce. That saved us about $50 million of our burn. [inaudible] raising cash through the markets so [inaudible] the equity in our buildings that we own and occupy. We don't have any immediate plans to raise any cash. But we'll do so at the appropriate time to maintain the [inaudible] and [equitity] in the Company.

So before you file, you'll have, I'm just guessing, by the time you file, you'll have roughly, call it $60 million unless you do something else in between?

Yes, it's the other element, of course partnering, outside the U.S. or GNRH or other things, we're in discussions in, probably more likely ways of reducing burn and raising cash.

Thank you very much.

Thank you it appears at this time that we have no further questions.

Okay, well thanks everyone for joining us. As always, if you have specific questions feel free to call myself, Kevin Gorman, and we'll have Wendell Wierenga [inaudible] as well. And we'll be attending a number of the upcoming [LK] conferences and be readily available to answer all your questions. So thanks again [inaudible]. Talk to you next quarter, bye.

This concludes today's teleconference. You may now disconnect. Thank you for your participation.