Neurocrine Biosciences Inc (NBIX) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2007 Neurocrine Biosciences Incorporated earnings call. My name is Rob, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of this conference. (OPERATOR INSTRUCTIONS) At this time, I would now like to turn the call over to Mr. Gary Lyons.

Thank you. And welcome, thanks for joining us this afternoon for Neurocrine's first quarter earnings update. Joining me in San Diego is Kevin Gorman, who's our EVP and Chief Operating Officer; Tim Coughlin, VP, CFO; as well as Chris O'Brien who is SVP and our Chief Medical Officer. The outline for discussion today will be first to have Tim review financials and Kevin will then provide an update on our Indiplon activities. And Chris O'Brien will handle R&D update and then of course we will turn and open this up for Q&A. So before we begin, let me ask Claudia Woodworth to review our Safe Harbor statements.

Good afternoon. 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 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 begin with Tim to review the financials.

Thanks, Gary. The company reported a net loss for the first quarter of 2007 of $25.7 million, or $0.68 per share, compared to a net loss of $25.9 million, or $0.69 per share for the first quarter of last year. Revenues for the first quarter 2007 were down significantly from the prior year, due primarily to the termination of our collaboration agreement with Pfizer. Research and development expenses were $19.1 million this quarter, compared to $27.7 million for the first quarter of 2006. The decrease in R&D expenses is primarily related to cost savings of approximately $5 million driven from the company-wide restructuring in the third quarter of 2006.

Additionally, external development costs were $2 million less in the first quarter of 2007 when compared to 2006, primarily from discontinued clinical efforts around our former APL and H1 programs. Sales, general and administrative expenses were $8.3 million this quarter, compared to $19.3 million last year. This decrease in SG&A expenses is a direct result of the severance program enacted in 2006. Our balance sheet as of March 31, 2007, includes total assets of $364 million, including cash and investments of approximately $167 million. We reaffirm our 2007 year-end guidance of a loss of approximately $120 million to $125 million, or $3.15 to $3.30 per share based on 38 million shares outstanding. We expect sales, general and administrative expenses to increase as the year progresses, as we ramp up our commercial activities around Indiplon. Research and development expenses will also increase as our GnRH program moves forward in the Phase IIb DEXA scan study and as cost for Indiplon Phase IIIb studies are incurred. We also reaffirm our projected net cash burn of approximately $80 million in 2007, prior to any monetization of our property. We are currently reviewing two options to monetize the equity in our buildings and plan to execute on one of these options in the middle of next year. Back to you, Gary.

Middle of this year.

Okay.

Let me then turn this over to Kevin to review the status of the Indiplon program.

Thank you, Gary. And good afternoon. First, I would like to start off by saying we are on track to submit our complete response to the agency's approvable letter for the capsule NDA by the end of this quarter as we have given guidance. All analyses have been completed and they have been reviewed both internally and externally. The document is just being completed. It is undergoing QA/QC. It'll then be published and submitted electronically to the agency. While these activities have been going on in our regulatory and clinical groups, our marketing group has been working on all aspects of brand development including the messaging, positioning, and segmentation. We are working closely with our agencies of record for consumer and professional services, as well as our PR firm.

In addition, our medical affairs group is working with all national and regional key opinion leaders, developing advocacy awareness and education for both the disease state and Indiplon's place in this market. We will have over 12 presentations submitted to academic congresses this year, with five posters and an oral presentation at APSF coming in June. We will also be presenting at a number of other conferences throughout the year, including the World Federation of Sleep and Sleep Medicine Societies. I would like to leave you with that we're undertaking all activities in preparation for a successful launch of Indiplon. Subsequent to FDA approval, we will have DEA scheduling and then DDMAC approval of all of our marketing materials. Gary?

Thank you. Let me turn it now over to Dr. O'Brien.

Thank you, Gary. And good afternoon. Neurocrine's clinical development group has been quite active in support of our pipeline. In particular, we're very encouraged by the clinical data that is emerging from our GnRH antagonist program. Our most advanced nonpeptide GnRH antagonist has performed well in the early Phase II studies in patients with endometriosis. The drug appears to be safe and well tolerated and women report improvement in dysmenorrhea and in nonmenstrual pelvic pain.

Symptom reduction appears to begin with days to weeks of starting treatment and it is achieved without symptoms of excessively lowered estradiol. The assessment of bone loss in our three-month studies was done using a bio marker for bone resorption, and the results suggest that there is little risk for bone loss with use of our compound. We have now begun assessment for change in bone mineral density using the gold standard tool, a DEXA scan, which requires a six-month study. Enrollment in this six-month trial continues to be on track, and we expect the last subject to enroll in September of this year. It is interesting to note that running this trial, our call center has been inundated with a fairly high volume of calls, suggesting that indeed, endometriosis is a significant unmet medical need. Surprisingly, a number of these inquiries come from women who have not yet undergone laparoscopic surgery for diagnosis, indicating that perhaps there may be more women seeking a safe oral treatment than traditionally portrayed.

Ultimately, we will have to take the data from our Phase II program to the end of Phase II review meeting with the FDA in order to secure agreement as to the design and timelines of our Phase III pivotal trials necessary for registration, and we seek to have this end of Phase II meeting toward the end of 2008. The collaboration currently between GSK and Neurocrine on our CRF antagonist program continues to go well. As you may recall, two compounds are currently in clinical trials. Both are being assessed for potential utility in the treatment of disorders in which a CRF antagonist provides a unique mechanism of action. The most advanced of these compounds is currently in a large randomized placebo controlled trial. One of these for social anxiety disorder and the second trial of this compound for irritable bowel syndrome. In support of these Phase II trials, the second compound is scheduled to move from the Phase I multi-dose study currently under way into a Phase II trial later this year, again with parallel development programs for irritable bowel syndrome and social anxiety disorder. We anticipate data to become available sometime late 2007 into early 2008, as GSK completes the studies. Back to you, Gary.

Okay. With that, that concludes our prepared remarks and we would be happy to entertain questions.

(OPERATOR INSTRUCTIONS) And your first question is from the line of Thomas Wei of Piper Jaffray.

Hello. And thanks very much. I had wanted to ask, you kind of stopped for the past couple of quarters, this quarter and the last quarter, in the press release and in your prepared comments talking at all about the maintenance program for Indiplon. I guess I'm just curious, should we be interpreting that as any change in the program here? I thought that you were supposed to start a trial in the second quarter, looking at that maintenance indication. Can you give us an update on that?

Let me have Kevin take that one.

Hi, Thomas. Yes, we are going to be starting up a trial a little later on this year and that trial is going to be addressing, looking at both the capsules and the tablets in a maintenance situation to see which one would be the most appropriate to carry forward as per our discussions with the FDA. So we are still pursuing the traditional sleep maintenance.

I think as it relates to the emphasis over the last couple of quarters, I mean right now, it is pretty clear we have an approvable status with capsules. We are moving to get that in the full focus as the approval and launch and success of that. And then that more classic maintenance strategy, as you know, we consider to be a follow-on program but we want to assure approval and success of our first launch.

And that trial for the maintenance indication, is that still on track for the second quarter?

I think it will be a little later than that in comparing the two formulations.

And is there a reason why that is being delayed?

As Gary had said, putting all of our efforts right now, really focused exquisitely on the capsule approval and launch.

The other answer is we need to make them.

All right. Thanks very much.

Your next question is from the line of Annabel Samimy of UBS.

Hi, thanks for taking my call. You mentioned in your prepared and marketing materials, can you give an idea how you're going to differentiate your product and what kind of messages you are going to be putting forth in terms of the marketing? And also, second question, in the past you talked about partnering opportunities for the GnRH antagonist -- can you give some color on that?

Sure, I will start with the first one, in that it is premature for us to talk about our differentiation strategy in advance of having a complete label and also the launch. But suffice it that we do believe that we have a very differentiated product from anything that is out there currently. We have a product that is going to offer reliable efficacy and flexibility for in insomniac patients in order to control their disease and also for the treating physicians. In answer to your second question on GnRH, yes, we are in active discussions with a number of parties on our GnRH program and so those activities continue, both on a regional and worldwide basis.

As was said with GnRH, our preference would be to hold the program through Phase IIs, at which time we think we would have maximized the value of this. However, if we can achieve deal and deal terms earlier than that that are equivalent, then we would seriously consider doing a partnership earlier and we are, as Kevin said, in advanced discussions as we speak.

And are you looking for someone who is more specifically focused on women's health?

Absolutely.

All right. Thanks.

Your next question is from the line of Chris [Radmanabandrin], sorry, of Wyeth.

I have --

You must be an investor, right?

No, I am not an investor.

That's okay. We will take your question, anyway.

I am working in the women's health area, in endometriosis, but with reference to the compound of I18. In terms of the results, can I ask the questions in this venue or --

No, I think it would probably more appropriate if you would call us back, as you might guess we have probably had discussions with other people at Wyeth and perhaps Chris O'Brien can answer those questions specifically.

Then I will hold the question. Thank you.

And your next question is from the line of Jim Birchenough of Lehman Brothers.

Hi, guys. A question on the endometriosis program. Certainly, to have a profile of reducing pain and maintaining bone status is ideal, but do you have any concerns that you may be getting ahead of yourself and taking some regulatory risks where you could be more certain with improvements in pain score with higher doses, where you may actually eliminate menses and have some effect on bone? I'm just wondering why you might not push the dose and go for more certain outcome in line with Lupron before trying to do too many things at once with a lower dose.

Thanks, Jim. That is a reasonable question. With the kinds of results that we're seeing are actually, even at the range of doses we've explored to date, comparable to what you see in some of the Lupron trials. We do believe we have a little more room that we could go with this dose if we had to, but obviously, the plan for this development program is to find the dose that provides efficient and meaningful pain relief without risk of bone loss. And that is really the goal of the Phase II program, is to finish the range of Phase II studies that will allow us to pick the right program for Phase III. And we will be there towards the end of '08.

I guess I asked the question because pain scores can obviously be quite subjective, whereas elimination of menses is more objective and I guess what gives you comfort that you're truly impacting the axis if menses is maintained?

The lack of ovulation is a pretty good indicator.

I think, correct me if I'm wrong, but I think in both phase IIa trials, the impact we had on CPSS which is a composite pain score was equivalent to any documented Lupron effect.

Fairly close. Trial to trial comparisons are challenging but specifically about the impact on vaginal bleeding and menses is profound with these drugs so I'm not concerned to that end.

And I joined the call late but was there any update on potential co-promotion arrangements for Indiplon, assuming approval later in the year?

Not sure if we mentioned it, but the answer is obviously we have discussions, there are many interested parties, we've tried to limit those to nonconfidential and premature discussions, until which time, as the refiling goes in, because we would view that as a pivotal confidential document that the department would be interested in and that will be coming up shortly.

Great. Thanks for taking the questions.

Your next question is from the line of Ian Somaiya of Thomas Weisel Partners.

Sorry, again, I also joined the call kind of late. One question on Indiplon, and then a follow-up. You mentioned the reanalysis of the Phase III data has been completed. I was wondering if you could just share with us in a broad stroke some of the findings. Were they generally consistent with what you had previously submitted? Any surprises?

No, I think we've already said that all reanalysis confirmed the primary end point and P values that have since been previously been published. And the only other activity that we did was simply a redisplay of adverse events, just putting those in different categories to be more consistent with the way the FDA would like to see these data and that has not changed from our original submission.

And there are no new adverse events or rate of adverse events that were found in the analysis?

No. Actually, probably fewer if you read the way that they're recategorized, but no, no change.

And just the GSK-sponsored Phase II studies, can you just give us a timeline on the two trials that are ongoing?

Chris?

These are studies that are being run by GSK, and what we're expecting is the data to begin to emerge late in 2007 and early 2008.

Okay.

We have been advised that GSK has a Research Day, Analyst Day coming up but I don't know exactly when it is but we believe they will be talking more about the program at that point.

And on the GnRH program, you mentioned ovulation or lack of was a good prognostic factor for not seeing menses in the ongoing Phase II studies. How many ovulation cycles did the patients experience in the previous Phase II studies? Was it one or two?

In the two Phase II studies that were recently completed, the dose exploration studies, the women on the more effective dose had over three months one cycle.

One cycle.

And that cycle was short and just light bleeding.

Okay. Thank you.

Your next question is from the line of Eileen [Solaris] of Leerink Swann.

Thank very much. Just wanted to ask a quick question on Indiplon. Just regarding the capsules, are you still pursuing or interested in pursuing the middle of the night indication? And if so, is it both doses, the five and the 10-milligrams that would be I guess available for this type of use?

Yes, on both of your questions, yes, both doses, on middle of night, five milligrams in elderly, and 10-milligrams in adults.

And then I guess just related to your comments about comparing the capsules to the tablets, and maintenance, is there -- I guess I'm a little confused as to how,if you're going to be administering this middle of the night, and yet also instructing that someone can take it all night, any -- I guess any indication from the FDA of how they're viewing that kind of a strategy?

Yes, what we're doing with that is, is that we're looking at different doses of the IR, but as you know, the modified release of the tablets is the one that we have the vast majority of data on traditional sleep maintenance.

Okay. Great. Thanks.

(OPERATOR INSTRUCTIONS) And your next one is from the line of Jason Napodano of Zacks Investments.

Thank you for taking the question. Just wondering, just two quick ones, first, can you give us the stock-based compensation for the first quarter? And then the second one, just on Urocortin 2, I see in the press release you're looking to initiate a Phase II 24-hour infusion trial. Just how far are you guys looking to take that compound before you're looking for partners?

I think it depends on resources. I think we have two trials designed that we would be willing to initiate, but we will stay within the financial guidance that we had talked about and the cash burn that we had talked about, so to the extent we will have that flexibility, we will go forward. To the extent we're limited, we would look to partner it early.

And as far as stock-based compensation, we're filing our Q tomorrow, Jason, but off the top of my head I think it is about $2.5 million for the first quarter.

Okay. Thank you.

Sure.

I think we have time for one more and I think there is one more in the queue.

Yes. Your final question comes from the line of Stephen Shankman of Natexis.

Hi, thanks for taking my question. Just curious about license fees, and milestones for 2007, and how we should think about that contribution to revenue for the year. Is it going to be more of a first quarter run rate, I guess zero, or something else? Thanks very much.

What was that, revenues from milestones?

License fees milestones.

I think overall -- well there are certain -- last year there was about $8 million in GSK milestones based on progress that could represent additional revenue, which is different than what you saw in the first quarter. Additionally, our numbers call for a business development contribution from a deal on the order of $20 million.

So the revenue related to that will depend on the context of that deal, and that wouldn't be until third or fourth quarter and it could be amortized over a period of time.

Starting in the third or fourth quarter?

Right.

It would be realized as cash?

Yes, we would realize it as cash, but the revenue could trickle in over time.

Okay. Thanks very much.

Okay. I think that was our last question. So again, thanks for joining us. And if there are individual follow-up questions, feel free to give me, Kevin Gorman, or Tim a call. Thank you.

Ladies and gentlemen, this concludes the presentation. Thank you for your participation in today's conference. You may now disconnect. Have a great day.