Neurocrine Biosciences Inc (NBIX) 2006 Q4 法說會逐字稿

Good day. All sites are now online in a listen-only mode. Later on there will be an opportunity to ask questions, at which time you will be instructed on how to do so.

I would like to turn you now over to your speaker, Mr. Gary Lyons. Go ahead please.

Thank you, and thank everyone for joining us for our fourth quarter year end '06 earnings call. Joining me in San Diego is Tim Coughlin, our Vice President and Chief Financial Officer, as well as Chris O'Brien, Chief Medical Officer, and Claudia Woodworth, who will read the Safe Harbor statement. And following that, the agenda for the day will be for Tim to review financials, I will provide an update on Indiplon, and then Chris will review several of our programs and research and development.

With that, Claudia?

Good afternoon. 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 managements 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 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. Perfect as always. Now, let's turn this over to Tim to review financials.

Thanks Gary. We reported a net loss this quarter of 14.7 million, or $0.39 per share, as compared to a net loss of 23.9 million, or $0.65 per share in the fourth quarter 2005. The decrease in net loss quarter-to-quarter is a result of 8 million in milestones achieved under the GSK collaboration agreement. For advancing our CRFR1 antagonist program in to Phase IIb 'proof of concept' trials in anxiety disorders and IBS, as well as cost containment strategies implemented during the third quarter 2006. Our year-to-date loss is 107.2 million, compared to 22.2 million in 2005. The major driver for the increase in our net loss year to year was the achievement of 70 million in milestones during 2005.

Revenues for the year ended December 31, 2006 were 39.2 million, compared to 123.9 million in 2005. This decrease was a result of lower revenues recognized in the Pfizer collaboration agreement, which was partially offset by increased revenues under our GSK collaboration. Research and development expenses were 18.6 million for the fourth quarter 2006, compared to 24.8 million in the same period last year. This is primarily due to our workforce reduction during the third quarter of 2006.

Annual research and development expenses were 97.7 million in 2006, compared to 106.6 million last year. Primarily due to lower external development costs, offset by expenses associated with the adoption of FAS 123R. Sales general and administrative costs were 7.1 million for the fourth quarter of 2006, compared to 13.9 million last year, a direct result of our severance program.

Year-to-date sales, general and administrative expenses were 54.9 million in 2006, compared to 42.3 million in 2005. This increase is a result of our sales force costs and FAS 123R. Our balance sheet December 31, 2006 includes total assets of 390 million, and cash and investments of 182 million.

Our guidance for 2007 is that we expect to have loss of approximately 120 to 125 million, or $3.15 to $3.30 per share, based on 38 million shares outstanding. Revenue for 2007 will be nominal, with total operating expenses approximately 125 million. This includes noncash expenditures consisting of FAS 123R and depreciation, which are estimated at approximately 22 million for 2007.

Additionally, we expect to achieve fees from partners in excess of 20 million for select XUS markets. This brings our estimated net cash burn to 80 million for 2007. We expect to end 2007 with approximately 100 million in cash, prior to any monetization of our land and buildings. A sale/lease back of our real estate property would net additional cash in excess of 55 million, bringing our net monetizable assets to approximately 160 million at the end of 2007.

Finally, the recently cancelled indiplon clinical trial will save approximately 13 million during 2007, however, we plan to redeploy these resources into pre-commercialization activities for indiplon, including Phase IIIb and Phase IV studies.

Back to you, Gary.

Thank you, Tim. Let me give you an update on indiplon regulatory filings. Strategy, undoubtedly everyone has seen our release in January, where we indicated we would be making a complete response and filing indiplon capsules by the end of second quarter, so let me give you a little of the history that led up to that decision.

Previous guidance had been that we would complete all of the reanalysis required or requested by the Agency, and as an insurance policy conducted a separate 10 milligram capsule versus placebo trial in the event that reanalysis didn't address all of the issues, then we would have a study, either complete or near complete, to address that.

So since that then led to guidance of a launch in approximately summer of '08. Since that time, what has happened is that we had further dialogue with the Agency, and from those discussions now had much better clarity on exactly what the Agency is looking for in those reanalysis. We have completed those analyses, and are pleased with the results.

But to be cautious, we then held a series of consultant meetings, first with biostatisticians and FDA consultants, who had not been previously been involved and associated with our programs. We also at a later date held similar meetings with medical consultants, primarily sleep experts, to review the same data and the results from those meetings was a unanimous recommendation by them that we file a refile our indiplon capsule NDA as soon as possible.

So we will be providing a complete response by end of second quarter. We expect a six-month clock, since this is a Class 2, or Type 2 review. And as Tim mentioned, we then felt given this assurance, that to conduct an additional trial as an insurance trial was just not prudent. Too expensive I think, given at least our comfort at this time with the data and probabilities of the success and review. So that is where we are with indiplon, we are also aggressively pursuing a maintenance strategy involving both IR and MR, we will conduct some Phase II trials to determine the path forward in second quarter, and will give more clarity on that during our next earnings conference call.

With that, let me turn this over to Chris O'Brien then to provide a brief update on the pipeline. Then we will open the phone for questions.

Thanks, Gary. I would like to talk a little bit about the key programs that are in our development pipeline. As you may be aware, we have the small molecule nonPeptide oral GnRH antagonist that is currently in Phase II program for the treatment of pain associated with endometriosis.

We were very pleased a few weeks ago to be able to release information about the second 'proof of concept' trial. This is part of our early Phase II program, exploratory program looking at those response relationships with this drug in women with endometriosis. What we found in these two trials was that we had a nice dose related reduction in estradiol. Again, this is the key component of this program. We don't want a complete suppression of estradiol, just a controlled reduction. This is then associated with a reduction of symptom severity, and most gratifying was the biomarker for bone turnover and to peptide was not pushed out of the normal range.

This is very encouraging in that there's no increased risk of bone loss or reduction in bone mineral density. The two Phase IIa programs allowed us to initiate the six-month Phase II program, which screening began at the end of Q4, and we are now actively enrolling women in this six-month trial with a study drug. This trial is primarily designed to tell us about the potential effects of our treatment on bone mineral density, as measured by the gold standard for this, which is the DEXA scan.

The GnRH program is obviously of great interest to us, but we are also very excited about the CRF antagonist program. As you know this is really the foundation of Neurocrine early days and understanding this receptor, and so the excitement was that the CRF antagonist, two of the compounds that we have collaborated with GSK have moved into trials with patients. The first compound is now in Phase II for anxiety, generalized anxiety disorder, and social anxiety disorder.

And the second Phase II trial is for irritable bowel syndrome, or IBS. Just behind that is the Phase I multi-dose trial with the other lead compound, and that was initiated by GSK as well. We expect these two 'proof of concept' Phase II studies to provide us data, and GSK data later toward the end of 2007, early 2008.

Beyond GnRH and the CRF antagonist programs, as you know, we have several other programs to comment on, is the selective norepinephrine reuptake inhibitor program. This drug is being developed for potential treatment in neuropathic pain. This entered Phase I trial several days ago. Then we're also waiting for some additional preclinical data to support our urocortin 2 program, in conjunction with heart failure.

I think I will pause there and turn it back to Gary.

Okay, with that, we would be happy to entertain questions.

Thank you. [OPERATOR INSTRUCTIONS] We will pause one moment for questions to queue. Our first question comes from Jim Birchenough with Lehman Brothers. Go ahead, please.

Hi, guys. Two questions. First, Gary, on the reanalysis that you conducted per FDA guidance, can you say when you did that analysis, if the results were all still statistically significant as with your own analysis, and whether the adverse event profile was consistent as well with what you came up with, with your prior analysis?

Yes, it was. So I guess Chris could provide more details, but all of the reanalysis supported the original statistical significance of the study in the case of adverse events, we have simply asked to redisplay those in a different way, and it had no effect.

And then just as you contemplate prelaunch activities, how are you thinking about a launch, in terms of going it alone or bringing in a partner? And how does that play into the planning that you are going through right now?

To date, we haven't entertained partnering discussions, although there have been many parties interested. I think once the filing is complete and we can put that behind us, we will open up those discussions.

In the meantime, we have a small marketing and medical education group. Chris runs the medical education group. Undoubtedly, we will expand that, we will be presenting at the upcoming Sleep and Psych meetings. We will be expanding our Phase IIIb and Phase IV programs, and prior to launch we will have a solid plan for commercialization, which we expect to be involved in, but obviously we will need muscle from a partner.

And just finally on the MR, it sounded like you were suggesting there might be Phase II trials ongoing, or were you suggesting you would be starting Phase II trials in the first half to clarify the profile of a maintenance strategy?

Yes. They would start in second quarter. The objective would be first to define an elderly dose for MR15 milligram would be the adult dose, and it also would be to compare robustness of sleep maintenance with IR versus MR, various doses versus placebo.

Thanks, Gary.

That would then lead into the remaining Phase III program.

Great, thanks.

Okay. See you, Jim.

Thank you. Our next question comes from Ian Somalya, Thomas Weisel Partners. Go ahead please. Your line is open. Please check your mute switch.

Can you hear me?

There you go.

Just to follow up on the tablet, when can we see that back at the hands of the FDA? When is the typical timeline for that? Since Phase II is not going to start until second quarter. You said the Phase IIIs won't proceed until next year.

The Phase IIs would be a simple crossover study design, not particularly long in duration to pick right doses. The guidance from the Agency related to MR, would be that we would need longer term exposure at 15, so a three-month study, one-month PSG, plus two months outpatient. And then more patient exposures out to 12 months, so rolling those patients into longer term exposures. So that would be the right limiting studies, and we could pull the trigger on those as soon as we define an elderly dose.

Okay.

The requirements for elderly Phase IIIs are much less than that, and wouldn't be rate limiting.

And I know you said you haven't had formal discussions with partners, but is there any thought, in terms of launching these two products or two formulations independently, or is the thought to launch them at the same time?

No. It's clearly now launch the IR, launch capsules now, and believe that we have a different jaded label and product, a product that not only as Ron said, but middle of the night dosing, and a product that can generate maintenance when taken, you know, after bedtime, or as needed, and could be used for long period of times.

Right. And just a final question on the GnRH antagonist, there was a paper recently published in the proceedings of the National Academy of Sciences on the use of GnRH antagonist in breast cancer. I don't know if that is an area that's been explored with the compounds you have, or whether the compounds would work in that setting?

Chris?

Certainly, it makes sense from a pharmacologic basis, particularly for carcinoma that is estradiol sensitive or responsive. This is a dose-related reduction of estradiol. We have not explored that as an indication. Currently our focus is on endometriosis.

Other indications, of course, could be in male prostate cancer, where we have some new very potent compounds that may be directed to the male side, fertility and other potential indications, fibroids, but we felt the clearest area, cleanest end points, fastest track and route to market would be through endometriosis.

Okay. Thank you.

Thank you. Our next question comes from Phil Nadeau, Cowen & Company.

Thank you for taking my questions. On the GnRH program, when might we see data from the Phase IIb trial?

Chris?

The six-month trial is enrolling women now, and we should have top line data on the DEXA scan information next winter.

Okay. And how about any efficacy data?

At the same time.

Okay.

The study is primarily a bone study.

But you can talk about the secondary end points.

Sure. It's the standard end points for this indication, namely a reduction in signs and symptoms using the B&B scale, or the Composite Pelvic Signs and Symptoms Scale, and also a Visual Analog Scale for pain, and quality of life measures.

Dysmenorrhea?

That's built in to the October composites.

And my second question is on dosing. There is a line in the press release that suggests you could potentially go to higher doses in future studies, although on this Phase IIb, it looks like 150 milligrams per day is the highest total exposure you are going to go to. Do you have additional dose ranging studies planned, or could you possibly leave that for Phase III?

We do have additional dose ranging studies planned for 2007. We were pleased and somewhat surprised to see that we had some room for additional exposure, and the lack of bone effect as measured by the bowel marker, was gratifying even though we were able to push estradiol levels down substantially. There is actually a little bit more room so we'll do those in short order in 2007, so that when we meet with the FDA for our end of Phase II meeting in 2008, we will have that data well in hand, to negotiate the pivotal trial plan.

Okay. And just two last questions. The first is on equivocal data itself. What is the most important end point we should be focusing on? Is it reduction of pain scores or lack of menses? How would you characterize the data on that end point, as far as recent trials? Does it seem clinically meaningful? Do you think you need to push the dose? Where do you think you are?

I think you have asked three interesting questions. We do know that the FDA and the reproductive division is very keen on seeing change on these validated end points on dysmenorrhea and nonmenstrual pelvic pain. And in some fashion with this scale or a modification of these scales, you have to meet that requirement.

There are many other pain measures that have been used and reported, but none of those would be, I think, satisfactory for the primary outcome measure in a pivotal trial. The dysmenorrhea is a component of the composite score, and so that is a key indicator of efficacy.

Okay. How would you characterize the data that you have seen so far?

We have seen typically a 1-point reduction in dysmenorrhea is clinically meaningful, so we have seen a 1.9 point reduction, so that's quite good. Typically on the composite score, you need about a 4-point reduction to be a responder, so we have been up to 5.9 in our data sets. So that's good, but this is a function of the kinds of patients that come into the trial, how severe they are when they enter the trial. Milder patients have less room to improve than more severe patients.

If you look back on the data that's been published with Lupron, the GnRH agonist, or [DNPA], those therapies have comparable effect sizes. Typically, a 5 to 6-point reduction in pain scores, but again it's very dependent on the population of women that are enrolled in the trial.

Finally, the Agency is absolutely clear, the FDA that we must address this issue of bone mineral density, since this is what is associated with the black box warning on Lupron and DNPA.

Okay, great. One last question. Gary in the past, you said that you would perhaps partner this after Phase II. What's your latest thinking there?

Well, we would be open to regional partnerships, so Europe or Japan we would be willing to partner earlier and are in discussions, and would expect this year to be entertaining discussions with larger partners.

I guess it comes down to the economics of the deal if one could extract value from the deal at this point equivalent to where you would be at the end of Phase IIs, we would do a deal earlier.

Great. Thank you. That's helpful.

All of the budget numbers that Tim gave you were fully allocated for these programs. So we can handle it.

Perfect, thank you.

Thank you. Our next question comes from Aaron Reames, A.G. Edwards & Sons.

Thank you. I was wondering if you could give us a little bit of clarity on the timing for data from the CRF Phase II trials?

Chris?

The Phase II studies are a substantial multi-arm, double blind, placebo controlled trials that just began randomization toward the end of '07, '06 sorry, so we expect to have data toward the end of '07, early '08. That's obviously a GSK call.

Okay. And on urocortin 2? Could you go through basically when we should expect data again with that program?

I think as you are aware, we had preliminary data that we discussed in 2006 from our Phase II program in patients with heart failure, and that was positive. That data involved infusions for up to four hours of treatment in these patients.

In order to go on to longer duration infusions what we had hoped from 24 to 72 hours. We had planned on initiating the studies in late '06. We have had to wait on that while we finish the preclinical data that's necessary to support longer duration infusion studies. You can't expose patients to more until you have the accurate preclinical information.

So that work is going on now in our preclinical group. We hope to have that preclinical information wrapped up by mid year '07, and then we would resume our planning for the additional Phase II studies.

Is there final data that's going to be coming from that Phase II infusion study, or did we get everything that we're going to see for now?

I think you have gotten in pieces. One of our plans this year will be to have an R&D Day, and you folks, other investors in and to show you the data in a lot more depth, and perhaps with investigators involved in the trial as more of a package.

Okay. Then are you considering, I guess, partnering discussions would be on hold until you have the 24 to 72 hour infusion data. Is that correct?

Not necessarily. Our priorities are obviously to invest first in Indiplon, then GnRH, and obviously support some of the earlier programs to the extent the resources allow us, we would move quicker on this, or partner it sooner.

Then last question I had, can you describe a little bit what we should expect to see on the Phase III, Phase IV programs for the indiplon capsules?

I really can't because that plan is now being put together, given the recent decision to refile is now on the table, so as soon as we have better clarity, we will communicate what they are.

Thank you.

Thank you. Our next question comes from Biren Amin with Stanford Financial Group. Go ahead, please.

Thanks for taking my question. Regarding your urocortin 2 program, what sort of tox data will you be generating from animal models?

The main thing that we are trying to sort out is the fact that rats and humans have very different rates of clearance of the drug, and that we need to generate really high levels of exposure in the rats, which turns out to bepretty challenging to do since they clear it so quickly. So we have to sort out some formulation work and other things, so that we can have long-term exposure data.

Great, thanks.

Thank you. [OPERATOR INSTRUCTIONS] Our next question comes from [Bryan Meehan] with CIBC World Markets. Go ahead, please.

Thank you. Just a follow-up on the Phase IIIb/IV question. Do any of these studies hinge on completing the IR versus MR studies?

No.

Okay. Then just to clarify with the IR versus MR trials, how many studies are you really looking at conducting there? Do you plan to do a separate comparison in elderly patients, or will they all be part of the same study?

This is for MR maintenance, or maintenance?

Right.

I think we have all of the subjective data that we need for MR adults with 15 milligrams. We have shorter term PSG studies, so we would need longer duration, that is up to three-months, combination PSG, outpatient study.

Then for elderly, we would need one PSG study?

Correct.

--of probably three-week duration.

Correct.

So I guess that mean two studies.

And I guess with the GnRH program, could you just remind us what the efficacy hurdles would be versus the active comparator? What would you expect to see from DNPA via DEXA scan?

We currently know the data from DNPA is approximately a little over 1% loss of bone mineral density at six months, and so we certainly expect to be as good or better than that. This would be a non-inferiority type of trial against an active competitor.

Great. Thanks very much.

Thank you. Our next question comes from Eun Yang, Jefferies & Co.

Thanks very much. There is a product selective progesterone receptor modulator tested for endometriosis. They have some interesting data on pain against the Lupron effect on estrogen levels. I would like to get your comments on the product, and if you can actually provide us with what might be potential advantages of your GnRH antagonist versus the progesterone receptor modulator? Thanks.

I can't speak specifically to their data since it's only been in a press release. In general, progesterone modulator approaches are a completely different mechanism of action, and very different approach to this disease state. We believe that estradiol modulation is a much preferred mechanism, and not associated with some of the challenges that are currently facing these selective progesterone receptor modulators, so I think they are very different approaches to a problem, and we think that controlled estradiol reduction is a preferable approach.

So what are the challenges that are for the selective progesterone modulator?

What are they?

What are the challenges you just mentioned?

I think there are many, but I would suggest perhaps that you ask the developers. The general issue is this is unopposed to estrogen when you use this technique. It's like long-term mini pill use. It's a pseudo pregnancy state if you will. So what happens with unopposed estrogen is you get endometrial thickening. That is associated with potential risk for carcinoma, irregular frequent vaginal bleeding, and a host of other challenges.

Thanks very much.

Thank you. Our next question comes from Sapna Srivastava, Morgan Stanley. Go ahead, please.

I just have one question. If you could give us some more clarity on your most recent dialogue with the Agency. What exactly did they talk to you about with the IR filing? What reanalysis did they request?

We can't of course go into specifics with the Agency, but we have had multiple interactions with them, and different people within the Agency, that simply gave us more direction, and what they are actually most concerned with and looking for in the reanalysis.

It was different from the first time?

Just more clarity.

Thank you.

Thank you. [OPERATOR INSTRUCTIONS] Our next question comes from Annabel Samimy with UBS.

Hi, this is [Irina] calling on behalf of Annabel. I had a question about the CRF antagonist. I noticed that you said the trials are expecting data by the end of 2007, early 2008. I was just wondering if you could comment of you are expecting to get any sort of milestones from GSK before then, or if at that time if you have any more funds coming in this year?

I don't believe so. I think the milestones that were, the milestones are compound specific so if, for example, the backup compound moves into the next stage of development that triggers another series of milestones, in that I believe, when the lead compound for example were to move into Phase IIIs, then that would trigger higher milestones, and milestones are for three different products, a variety of indications, and I think total milestones in the neighborhood of 150 million, 200 million, assuming all went well.

We have been told that GSK will be discussing CRF with one of their upcoming research review meetings. They obviously have more information than we do, and hopefully will share that.

Thank you.

No more questions. Thank you. [OPERATOR INSTRUCTIONS] Our next question comes from [Eileen Leary, inaudible].

Thanks very much. Just wanted to ask a quick question, Gary. I believe you mentioned a longer term study was what the FDA was looking for the MR 3 months, and you made a comment about possibly extending it, or looking for patients to be rolled over to a 12-month study?

Right. One of the, we have 600, or I forget how many patients we have with the long-term treatment, but the requirement from the Agency was that we do a one-month PSG study, which we had done with 20 or 30 milligrams, but not with 15, and then add two months of outpatient to that, and then allow those patients to continue for 12 months, which would just give us more safety exposure at lower doses.

We have to-date some 3,000 or so patients exposed for up to 18 months at doses higher than the recommended dose. But they would like more safety exposures at lower doses.

Is there anything in particular they are concerned about for that 12 months?

No. I think adverse events that you see are typical for these, based on this mechanism of action and other competitive products. One might say the safety profile was very good, but if you want to expand the number of patients, will you see something new and different so just an ICH guideline.

Great. Thank you.

Thank you. Our next question comes from [Gura Washwald], Piper Jaffray. Go ahead, please.

Thank you for taking the question, two questions actually. One is can you break out for us 4Q options expense?

Q4 option expense off the top of my head I think is about 3 million.

Okay.

I can tell you the year-to-date number is 14.6.

Thank you.

So I just don't have that quarter number in front of me.

That's all right. Thank you. I guess my second question since nobody else is asking about the selective norepinephrine inhibitor, how does that differ from Strattera, or I guess the other one on the market is Edronax, and why neuropathic pain?

Edronax is Reboxetine that is on the market in Europe only. The metabolite of that (S,S)-(+)-reboxetine is in development, currently in Phase II for neuropathic pain. The Strattera has some metabolism and safety issues attached to it. That is on the market for ADHD. So we have a molecule that is highly selective, with no off-target effects of concern, that does not have the same metabolic risks that Strattera has, in terms of [2d fit] metabolism. We think there is some good opportunity there in a variety of indications, but neuropathic pain continues to have an unmedical need, and we have some expertise in doing this kind of trial in house, we see this as a good opportunity to go forward.

Thank you.

Thank you. At this time, there are no further questions. I would like to turn this call back to Gary Lyons for closing remarks.

Thank you for joining us. Our offer stands, that is if you have any specific questions you would like answered, feel free to call myself or Tim directly. We look forward to talking to you during our next earnings call. Thank you, and good day.