Neurocrine Biosciences Inc (NBIX) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to today's teleconference. At this time, all participants are in a listen only mode. Later, there will be an opportunity to ask questions during our Q and A session and I will now like to turn the program over to Mr. Kevin Gorman. Please go ahead.

Good afternoon, and thank you for joining us for our earnings call today. Joining me today is Tim Coughlin, our Senior Vice President & CFO, Chris O'Brien our Chief Medical Officer and Claudia Woodworth, our Investor Relations Manager. Tim will make you through our financials for the quarter and the end of year. Chris will give an R&D update on the company and then we will move over to field your questions for the remainder of the time we have for this afternoon. I would like to start out right now and have Claudia read our Safe Harbor Statement.

Thank you. Good afternoon. I want to remind you of Neurocrine Safe Harbor caution. Certain statements made in the course of this conference call to see if the companies or the management intentions, hopes, belief, 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 companies SEC filing 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 relationship 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 obligations to update this forward-looking statements to reflect subsequent events or circumstances.

Thank you, Claudia. Tim?

Thanks, Kevin. During the fourth quarter of 2007, we had four event that primarily drive our financial results for the quarter and the year. The first was the severance program enacted in mid December in response to the correspondence from the FDA regarding the Indiplon capsules. That action resulted in a one time $7 million charge to earnings. The second event was a write-off of the prepaid royalty related to Indiplon is represented a non-cash charge earnings of $94 million. The third event was the execution of the license agreement for the Japanese rights to Indiplon with (inaudible) . This agreement mended Neurocrine $20 million in up front cash as well as $115 million in potential future milestones of royalties on sale of Indiplon in Japan. The final event was a close of the sale our real estate which we sold for $109 million and retired debt of approximately $48 million. Netting us $61 million in cash from the sale/leaseback transaction. For the fourth quarter reported a net loss of $128 million with $3.35 per share as compared to a net loss of $14.7 million or $0.39 per share in the fourth quarter of 2006. The main difference between the two periods being the severance accrual and the write-off for the prepaid royalty. Our 2007 loss was $207.3 million compared to $107.2 million in 2006.

The major driver for the increase in our net loss year-to-year was a prepaid royalty write-off. Research and development expenses were $24.3 million in the fourth quarter of 2007 compared to $18.6 million in the same period last year. This is primarily due to our severance plan in the fourth quarter of 2007. Annual research and development expenses were $82 million in 2007 compared to $97.7 million last year. This decrease was primarily due to our cost savings from our 2006 severance program coupled with lower external development costs. Sales general administrative expense was $10.8 million for the fourth quarter of 2007 compared to $7.1 million last year. This increase is a direct result of our severance program. And year-to-date sales general administrative expenses were $37.5 million in 2007 compared to $54.9 million in 2006. This decrease as a result of 2006 severance program offset by precommercialization activities for Indiplon. Our balance sheet as of December 31, 2000 increase cash and investments for approximately $180 million. This is essential while the company began 2007 from a cash perspective.

Cash balances were replenished during the fourth quarter through a combination of the DSP indiplon License Agreement and the sale/leaseback transaction. Concerning financial guidance for 2008, the following guidance is provided exclusive of any new partnering agreements. We expect to have a loss of approximately $75 to $80 million or $1.95 to $2.08 per share based upon an average of $38.5 million shares outstanding. This loss includes non-cash expenditures of approximately $17 million and non-cash revenues of approximately $3 million. Our cash burn from ongoing operations were approximate $65 to $70 million. With that, I will it turn it back

Thanks, Tim. I would like to take this opportunity to talk with you about the changes that we have made since the FDA decision approximately six weeks ago. We moved swiftly and decisively to reshape this company for success and depended in indiplon. We downsized the organization and removed all the functions that were dedicated to indiplon. We have no occasions currently on the treatment with indiplon and suspended all precommercialization activities. We are meeting with the FDA this quarter to begin a discussion to see if there is a rational realistic path to approval. Now if there is such a path forward for indiplon, we will not take it alone. There are no or minimal expenditures in our budget for indiplon going forward. We have deployed all our efforts towards our high value program and projects and research, preclinical and clinical development. We have changed the leadership of the company adding Chris O'Brien here our Chief Medical Officer, Haig Bozigian, our head of preclinical development and Dimitri Grigoriadis, head of research to our senior management team and this is in addition to my new position as President and CEO. Adversity offers us opportunity and we have eliminated three layers of management through our reorganization.

Now, make no mistake, we retained all of the functions necessary to discover and develop important new therapeutics. R&D has been completely restructured from a departmental organization to a team structure to consolidate our research working either in neuroscience, metabolism, endocrinology and new our technologies team to make them more accountable with streamline decision making abilities. What we are doing is building on our strengths and research to identify and take a leadership position with targets that are innovative and development expertise to intelligently and efficiently take compounds from the bench into advance clinical trials. In addition, we were consolidating the entire company into one building. This will both increase communication and collaboration but it will also cut our overhead expenses. We are fortunate we are in a very good cash position. As Tim has just talked about, we are starting the year with $180 million virtually no debt and it allows us to not only push forward our internal programs but to aggressively pursue external opportunities. It's key for our future success that we continue to be an active acquirer of technologies and compounds. We have a robust pipeline but will continue to add meaningful drugs to it. Now with that, I would like to turn it over to Chris O'Brien to give you an update on our pipeline particularly our three Phase II programs. Chris?

Thanks, Kevin. I'm happy to talk about the activities that are going on despite the tumultuous changes that Kevin just outlined. Our clinical group is intensely focused right now, of course, on our lead program and development that is the GnRH antagonist which I'm happy to say now has name. It's called (inaudible) which is the U.S. name that was recently issued. So (inaudible) as you know became a program from the origins in our discovery group. And as we have mentioned in previous calls and press releases, this program is in mid Phase II. Our first two Phase II trials were small exploratory trials that we have spoken of before. These were important because we were trying to understand whether we had a proof of concept. Namely could we get a dose related partial reduction in estradiol and make some sense of the impact on what were the clinically important end points namely pain control.

So, we worked with the traditional end points in the field of endometriosis. The so called BMB scale or what we have referred to as the CPSSS scale, a composite pelvic signs and symptoms scale. We saw with those initial small exploratory dose ranging studies that at three months we had a nice dose-related reduction in pain, dose-related reduction in estradiol, but we avoided profound suppression of estradiol as one might see with Leuprolide and that the adverse events and safety parameters that were monitored were quite reasonable for this small studies. Most importantly, we used a biomarker for bone resorption as a biomarker for a potential bone loss and that biomarker suggests that we would not see much bone loss. Of course, if any, so we had to then go on and do the appropriate long-term studies with DXA-Scan.

As you may be aware, we initiated that six-month trial with women with endometriosis and compared two doses of (inaudible), and we also used an active control to make sure we had assay sensitivity. In this case, we used Depo Provera also known as DMPA. The trial finished enrollment in December and we are now waiting for this cohort of women to finish treatment of six months duration. At that point, mid-summer, we will have to close that portion of the trial. The women will continue to be monitored without treatment with additional dexascans but we decided in such a way that we will get a top line readout of the dexa data probably in Q3 of 2008. So, we have this information.

We had the early Phase II exploratory data. We had a good sense of dose response over the range of doses we have looked at. And we took it to the next step in 2007, namely we completed a formulation study which allowed us to bring forward a tabulate that had improved manufacturing characteristics. We had a very important discussion with the reproductive division of the FDA and received guidance from them on the kind of clinical end point they would like us to use going forward. So they have told us and others that we should replace the BMB scale and use what they would call a modified BMB scale. So, we have incorporated their suggestions into subsequent trials. And this has allowed us to then proceed to the next step. So, we took our PK/PD data thaw we developed from our early Phase I and Phase II studies. And we selected the (inaudible) dose for two additional Phase II trials.

The first is so-called 702 study and if you go online at clinical trials.gov or listen to advertisements and local radio stations, you may refer to as the Lilac Petal Study. This is a study that began screening subjects in December. And it's currently set to enroll approximately 150 women with moderately severe endometriosis and they will be treated with either placebo 150 milligrams or 250 milligrams of (inaudible) and a randomized double-blind controlled fashion for three months. And which point, the women on placebo will get rerandomized to one of the two doses of (inaudible). So this trial is an important trial because I have pushed the dose up to a range that I hope will tell me that I fully explored the dose response continuum. We haven't seen any so-called dose limiting toxicities at the doses we have used today. And for me to go into the FDA for an end of Phase II discussion, I need some of that data in hand. So this trial will give us information with top line data for the first three month double-blind portion of the trial in late 2008 early 2009. And then, those women will continue for an additional three months which will give us a six months of DXA data. That study will then continue with women into post treatment follow-up safety evaluations in 2009. At the same time, we are just about to begin another trial, the so-called 703 study. This trial is taking place in central eastern Europe and a number of countries and should enroll approximately 180 women with moderately severe endometriosis. This trial similar to the Lilac Petal Study involves placebo 150 milligrams once a day, 250 milligrams once a day of (inaudible) but this time we have an active [comparator arm] of Leuprolide depot injectable.

And this trial, likewise, we will have a double-blind randomized control portion for the first three months and then all women randomized to one of the two active doses of (inaudible) in the subsequent three months. This trial will begin screening in March of this year. And we should have top line data from the first three-month double-blind portion in early 2009. So I think you perhaps can see the pattern here namely that we have the 603 study with the initial DXA data reading out in Q3 2008 and then late 2008 or early 2009, the 702 study with the higher doses and new end points and new formulation and then in early 2009, the central eastern European trial with the new formulation, the new dose, higher dose, the new end points and an active comparator to Leuprolide something thank we need some experience in Phase II before we contemplate our pivotal trial designs with our FDA negotiations. So this collection of Phase II and of course, Phase I data will be what we take in hand to what we anticipate to be an early end of Phase II discussion with the FDA in early 2009.

Now, at this point is where we would want to have the opportunity to expand not only into the pivotal trials program, but obviously some of the additional studies that are necessary for a drug like (inaudible), some additional say drug-drug interaction trials and the usual QTC trials et cetera. And to this end, we have been seeking potential partners to collaborate in co-development program. So before I talk about the rest of our pipeline, maybe I will turn this back to Kevin for a moment and he can give an update on our discussions with potential partners.

Yes. As you can see, this is a broad Phase II program that Chris is running here. And this is an important strategic asset for the company. A strength of the company has always been our business development group which I headed up for a number of years. We have completed high quality deals with virtually all of the major pharmaceutical companies in the world. And a basic tenant that we have always held to and always will hold is doing the right deal with the right company. Now, we were currently negotiating with multiple partners. We are well passed the economic terms and now, we were in that aspect of negotiation and those late stages where you need to ensure that the strategy and vision of the program is accurately captured throughout the written agreement.

Now within large pharma, this takes coordination among multiple internal stake holders for a collaboration that centered around the Phase II program that's large that addresses multiple therapeutic areas. We were motivated to (inaudible) a deal and perspective partners are motivated. We will get the right deal done with the right partner and it will be done in a timely manner. Chris, you want to keep going?

Sure. So in addition to GnRH, there are couple other kind of high profile programs that are in Phase II in our pipeline. The CRF program I think people are well familiar with. This offer goes back to the early discovery programs here at Neurocrine that resulted in this case a very fruitful collaboration between Neurocrine and GSK. From that collaboration, multiple compounds were identified, several brought into clinical development.

And, in fact, there are three compounds now in the clinic from this collaboration and I will talk about those. We have just received data from GSK regarding the social anxiety trial which was recently completed. And they have shared the data with us regarding the compound that I will recall 008. And the 008 compound was one that was in development for both irritable bowel syndrome as well as social anxiety disorder. The irritable bowel syndrome program is ongoing. The trial has completed enrollment, but the patients are still enrolled in the treatment phase of the trial and GSK tells us we should have readout from that trial the second half of 2008.

The 008 compound completed the treatment phase in the social anxiety disorder. And the data that we were just provided showed that this R1 antagonist had known statistically significant difference observed between placebo and active drug on the key social anxiety efficacy end points at week 12. This study has more than 200 adult subjects and was a fairly classical design that GSK is quite familiar with. Safety (inaudible), PK, these are results were consistent with what had been seen in the Phase I stages and no serious AEs were noted. The second compound that GSK has had from this series is the so-called 679 compound. This drug we know from recent preclinical and clinical data demonstrates some differences in pharmacology with the 008 compound. The one I just told you about. 679 had completed a series of Phase I studies and GSK now is advancing 679 into a large Phase II study for major depression.

GSK tells us that depression trial should begin in mid 2008 and we are very keen to see this program move along particularly given that the differences in pharmacology between the 008 and the 679 compound. We have also been told that the third compound so-called 529 is now in clinic and it has just entered a single ascending dose of Phase I study in healthy volunteers. So, I think you can appreciate that GSK and Neurocrine collaboration has been fruitful and GSK certainly is committed to this platform with this novel mechanism of CRF antagonism at the R1 receptor. They have chosen three compounds to take forward and multiple indications and brought these three compounds forward because theyre are different chemotypes, different pharmacology and potential for different efficacy in utility. So we are pleased to see how that has moved along.

In addition to the CRF program and the GnRH program, we have the Urocortin 2 program and as you may be familiar from my comments at a previous call, you will recall that late in 2007, I outlined we had some preclinical formulation issues around with the Urocortin 2 and that this limited us from doing the necessary toxicology studies that will then allow my clinical group to go ahead and do longer term infusion trials in patients with heart failure. So we have made some good progress in identification of what turned out to be some physical-chemical problems when you try to deliver high doses of a high concentration of Urocortin 2 to animals in the preclinical setting. It appears that we found some alternate formulation approaches that should address this problem and this will allow us then to proceed with the formal toxicology studies in 2008.

If successful, we should see the results of these toxicology studies read out in Q3 late 2008 which would allow my clinical team to go ahead and resume the long-term infusion trials in patients with heard failure in late 2008. So, some difficulties that we encountered last year appears that we found a path forward and we can do the preclinical studies that will then allow us to resume the clinical work in patients with heart failure.

I think, at that point, maybe I will pause and interest of time turn it back to Kevin and get on with some questions.

Yes. Thank you very much, Chris. Very good overview of our three Phase II programs moving forward here and now I would like to open up the line to questions.

We will take our first question from the side of Annabel Samimy from UBS. Please go ahead.

Hi. Thanks for taking my call. I just want a quick question on the CRF program. You mentioned that the 008 has different pharmacology from the 679. Could you give us a little bit more color on the pharmacology and help us understand how it might be different for the next program.

Sure, sure. So as you may be aware, Annabel, the group here, the discovery group here has worked quite a bit using some animal models, particularly the ADX model that have allowed us to explore the differences in several families of compounds at the receptor. And we have identified a few characteristics that seem to be profoundly important for drugs with similar binding affinities yet very different impact. And this is how compounds were selected by the collaboration to take into clinic, mainly take ones that were different in their pharmacology.

And we know from GSK that in some of the early clinical work that has been done namely translational medicine studies using fMRI in small numbers of subjects that these compounds act quite differently in terms of the impact they have. So similar exposure, different impact on fMRI suggests that one might be more, for example, in depression than in other. So that's how that decision was made. And Annabel, this understanding of the different types of chemotypes and interactions with GPCR receptors has allowed us to carve out a unique position I believe within the CRF field and also within our GnRH program. And it's the same current observations that we are making with this pharmacology difference that have allowed us for our follow on GnRH program to choose a molecules that have a profound endocrine suppression effect. For example, that would potentially be useful in oncology and all other indications.

Okay. And just quickly I wanted to clarify the 702 study is a six-month study that you are reporting your first reporting the three-month and you will have DXA Scans for six months?

Exactly, thank you for picking that up. So, the way these trials are designed, both the 702 and 703, their total treatment duration of six months with additional post treatment safety follow-up in DXA Scan. But you need six months to adequately interpret DXA data.

However, we do want to readout of some other kinds of data that will help us at our end of PhaseII meeting with the FDA and we can get that at three months. So for example, with efficacy data and hormone data, we can get readout within a couple of weeks. But we are using the 12-week time point to give us top line information that will help inform trial design, will know whether the FDA guidance with these new clinical end points has borne fruit and whether I found what I would consider to be dose-limiting toxicology at the highest doses, the 250 milligrams. So we will know that at three months and we can get that as a top line readout.

Okay. And then just really quickly, are you expecting any milestones from Glaxo this year at all?

No. Those aren't in our projections right now. The milestones we have already received from Glaxo so far from the compounds that have been put in the program. It would probably be late in 2009 that we would expect our next set of milestones from GSK on the CRF program.

Okay, great. Thank you.

We will take our next question from the side of Jon Lecroy from Natixis. Please go ahead.

Is 008 essentially shelved for anxiety?

Well, I think for anxiety, yes. For other indications, no.

Okay. And then, just looking at your guidance, your guidance implies a fairly significant reduction in your operating spend in R&D and M&A. Can you talk a little bit about how that should kind of flow in our models. Are there charges you are taking in the first quarter?

So Jon, let me run it through real quick. I would expect G&A to drop to about 5 million per quarter. But there be an additional. We have had another hit of about $2 million in Q1. So you guys see that number in Q1 to be a little bit higher. And then R&D should drop to a neighborhood of about $15 million or so per quarter.

And will there be a charge in the first quarter on that?

Not on the R&D side, no.

Okay, great. Thanks.

Sure.

We will take our next question from the site of (inaudible). Please go ahead.

Yes. Hi. This is (inaudible) calling for (inaudible). Can you hear me well?

Yes, we can.

Okay. Thank you. Some of the questions were answered. But I just wanted to ask about the $94 million royalty write-off in this quarter. Could you throw some light on what that is and if we can expect something like that in the following quarters?

This won't repeat itself and that $94 million actually arose out of us buying the royalty stream out from Wyeth on indiplon back in 2004. And we hang that number out on the balance sheet as an asset and because of the uncertainty surrounding indiplon at this point under the guidance for asset impairment promulgated under GAAP generally accept (inaudible) we are required to write that off at this time.

Okay. And another quick question, just to understand your guidance a little bit more clearly, how do you calculate your cash bond?

Based on going operations. I can walk you. Do you want to call me offline? I can walk you through the details but since I just walk though it with Jon as far as the spend. And if you look at what I walk through in my discussion points earlier, you should be able to piece it all together. If you have problems give me call and I will be glad to help you fill in the blanks.

Thank you.

Sure.

We will take our next question from the site of [Richard Cabid from Evertech financial]. Please go ahead.

Thank you. On the GnRH partnership which you are currently negotiating, do you envision this could have been with one company or do you see it with multiple partners either broken up by territory or by indications?

No. Our preference actually is to work with one partner worldwide on all of the indications. This is a program where what we are doing right now is exploring only one indication within womens health which is endometriosis. It has applicability into a number of other womens health indications particularly uterine fibroids. It also can be applied onto the men's health side with benign prosthetic hypertrophy and as Chris has talked about with our second generation compound that I should refer to him actually is our third generation compounds that are coming through research, those would potentially show utility in the oncology setting both for prostate cancer and potentially breast cancer. Just to be clear, the negotiations that we are having for the whole program not just for endometriosis.

No. It could be rather complex deal.

It's a large deal.

Do you like this that this involve the partner potentially taking a equity taking an equity stake in the country.

At this share price we are not interested in selling any equity.

So strictly a cash payments and milestones.

That's correct.

On the indiplon, would you go into the FDA? Will you be going in alone or you will be taking a potential partner with you to discuss where indiplon is going from here.

No. We are not going to be taking any of the potential partners in with us. We are going to be going into the agency ourselves with our advisers. We will be very straightforward and very aggressively arguing for indiplon in that meeting.

However, as you are all well aware it is significant hurdles have been thrown up in front of this drug. This will probably not be a situation where following that meeting that we have great clarity as last times. What has taken place is that there are additional conversations that we have with the agency if they are open to continuing discussions with us after this meeting and also we need to wait for their internal meetings to take place following the meeting and minutes to arise from the agency.

Thank you very much.

You're welcome.

Once again, if you like to ask a question, please press the star and one on your touch-tone phone.

Yes. I believe we have time for about one more call.

All right. We will take our last question from the site of Michael Winkler who is a private investor. Please go ahead.

Good afternoon, Kevin. How are you doing?

Good afternoon. Doing well, Michael.

Kevin, I would like to make a comment. I'm talking on behalf of shareholders. We are getting really frustrated about promises from the company. Can you be more specific on the time of partnership for GnRH? I mean, we have been hear being it. It is going to be in December and then it was January. Now it's February. And now, we still don't have a partnership. I know it takes a lot to get that partnership going on. But can you be more specific? Can you give us more guidance on that.

Yes. Michael, I can appreciate your and other shareholders frustration. And the deal that we would have been able to enter into at the end of December was not the correct deal for this company nor for this program and we chose not to enter into that deal.

As I said, we did the right deal with the right company. I cannot and I won't give more clarity on an exact timing because I think the frustration that you are feeling there, this could just potentially exacerbate that. It would seem to give the impression that I control the pen in my partner's hands which I don't. We are aggressively pursuing this. Our partners that potential partners that we are talking to are aggressively pursuing us. We complete deals on a timely manner. We will complete this deal in a timely manner. I have very great confidence. But a deal isn't done until it is done.

We are dedicated to give clear guidance and have straightforward communication with our shareholders and all our business partners and that's what I want to give you. I want to give you clear guidance and right now, when you are in negotiations, you can't give a date certain.

I see. Do you have any date set with the FDA in regards to indiplon?

And again, with indiplon we have this quarter a date set for an end of phase to discuss and to review discussion. And the only reason why I don't give an exact date for that is again leading to its false expectation there is that we do not expect based on our previous interactions with the agency and other companies, you do not come out of that meeting with the ability to give any guidance generally.

If we are, we will give it at that point in time. But you have to wait for your discussions to complete with the agency and most importantly, there is nothing binding on the agency or even close to binding on the agency until they release the written minutes. That is by guidance of the FDA should occur in 30 days post the meeting. However, we have had the situations [were at stake] up to 60 days to get those written minutes.

So, as soon as we have concrete information in order to give shareholders guidance, we are going to do that immediately. I assure you.

Okay. Just one more comment. Please don't keep shareholders in the dark. I mean, we are not really happy at this point. I mean, we are really frustrated and upset, you know, about what has been going on with this company. So please, we want to see some change here. You know, we have had enough disappointment from [Gary Lines]. We would like to see something different here.

I think that you have seen that there have been a number of changes which I outlined at the beginning of this call. Thank you very much.

Thank you.

Okay, I would like to end this call with acknowledging our employees. While we have let go many talented people, we have retained the highest quality group of personnel the company has ever employed. If there is one thing our employees have clearly demonstrated is their ability to weather adversity and have shown an immense adoptability to change. With multiple Phase II programs, a good cash position and a motivated scientific and business team were well positioned for future success. I would like to thank you for your time and questions today. Bye-bye.

This does conclude today's teleconference. You may disconnect at any time, and have a great day.