Neurocrine Biosciences Inc (NBIX) 2008 Q3 法說會逐字稿

Good day, everyone, and welcome to today's program. At this time, all participants are in a listen-only mode. Later you will have the opportunity to ask questions during the question-and-answer session. (OPERATOR INSTRUCTIONS). Please note, this call will be recorded. I'll be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Mr. Kevin Gorman. Go ahead, please.

Thank you. Welcome to our third quarter earnings call. Today I'm joined by Tim Coughlin, our CFO, Chris O'Brien, Chief Medical Officer and Claudia Woodworth in charge of Investor Relations. What we would like to do today is Tim will take you through our financials. Chris will give you an update on our R&D programs. And before we start, I'd like to turn it over to Claudia Woodworth now for our Safe Harbor statement.

Thanks, Kevin. Good afternoon. I want to remind you of Neurocrine's Safe Harbor cautions.

Certain statements made in the course of this conference call state the company's or the 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 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. Tim, can you take us through the Q3?

Thanks, Kevin and good day to everyone. During the third quarter of 2008, the company continues to perform on its financial plan, ending the quarter with $118 million in cash and investments, We had a loss during the quarter of $17.7 million or $0.46 per share. Our year-to-date loss is $59.8 million, or $1.56 per share. This compares to a loss of $79.3 million or $2.09 per share during the first nine months of 2007. The main difference between the two periods is the cost savings we realized and our severance program enacted in the fourth quarter of 2007. And other cost saving measures implemented throughout the company.

Research and Development expenses decreased from the second quarter of 2008 to the third quarter of 2008 by approximately $3 million. This decrease is due to completion of the dosing portion of the 603 study during the second quarter of this year as well as startup costs were incurred for the 702 and 703 (algolic) studies during the second quarter.

General administrative expenses were less than the previous quarter primarily due to decrease in non-cash expenses under (Phase 123R). Additionally, we have been focusing our efforts on reducing external vendor costs which has also resulted in a decrease in G&A expense.

Interest expense was consistent from period to period. However, income from investments decreased in the third quarter as a result of overall macroeconomic conditions.

We are performing according to plan. However, during the fourth quarter of 2008 we'll incur a one-time non-cash (CCS) liability related to our consolidation of the company into the back building of our two building campus. This (CCS) estimate anticipates the ultimate cost that we will incur to successfully lease out the entire vacated space of the front building. e have not finalized the estimate of this liability at this time, and are currently marketing the building for lease.

We again reaffirm our guidance of $75 million to $80 million loss for 2008, excluding the previously mentioned (CCS) impact. Additionally, we will end the year with approximately $100 million in cash and investments.

Turning to our balance sheet at September 30th, 2008, we have a fair market value of $118 million in cash and investments at quarter end. We took a very conservative decision on investing funds approximately five months ago by moving the majority of our assets into federally backed instruments. Our current funds are primarily invested in federally-backed money markets where the bank has elected to participate in the 90 day Treasury's temporary guarantee program for money markets or they're invested in US Treasury-backed money markets.

We have approximately $21.3 million in auction rate securities with a stated par value of $22.6 million. These are carried as long-term investments in our balance sheet. Two thirds of these auction rate securities are maintained by UBS. On October 7th, UBS extended an offer of auction rate securities rights to holders of illiquid auction rate securities that were maintained by UBS as of February 13th, 2008. This offer period closes on November 14th, 2008.

The offer from UBS allows companies to redeem their auction rate securities at par value at a pre-specified date. We have elected to participate in this program with UBS as it provides us with a fixed redemption date of June 30th, 2010 for approximately $15 million of auction rate securities at par value.

For our entire investment portfolio, only $7 million of auction rate securities remain without a definitive par value liquidation date. However, all or our auction rate securities remain at AAA rating and continue to pay according to their penalty terms. So from a cash and investments perspective, we are very strong and very liquid with an excess of two years of cash on hand.

The rest of the asset side of our balance sheet includes long-term assets of restricted cash which is related to our security deposit on our leased buildings and other non-current assets which are comprised of deferred compensation investments..

We still have the land and buildings on our balance sheet, even though they were sold last year in a sale leaseback transaction. This is due to the fact that as part of the sale leaseback transaction we negotiated a repurchase option. Until the expiration of this repurchase option, these assets along with the related $109 million long-term liability remain on our balance sheet. Upon expiration of this purchase option, the fixed assets and $109 million liability will be removed from the balance sheet, and be replaced with a non-cash deferred gain liability related to the sale of the property.

Aside from basic payables and accrued expenses, the liability side of our balance sheet includes $15 million in deferred revenues, a non-cash liability that is being amortized into revenue. Our liabilities also include the previously mentioned $109 million leaseback financing obligation and other non-cash liability.

We currently have only $276,000 of debt and by year end our balance sheet will have no long-term debt remaining. The remaining liability item is a $3.6 million line item denoted as long-term other liabilities and this represents a deferred compensation plan liability and it's a direct offset to the previously mentioned deferred compensation balances included in other non-current assets.

In summary, we have a very strong, liquid balance sheet with $118 million in cash, and essentially no debt. With that I'll turn it back over to you, Kevin.

Thank you very much, Tim. It's encouraging to see as you will note that we've been hitting all the numbers that we gave guidance on at the beginning of the year and also I believe Tim has done an outstanding job in putting our money in some of the safest securities that can be found in the turbulent markets that we're in. What I'd like to do now is turn the rest of the conference over to Chris O'Brien as he can take you through our R&D programs.

Thanks very much, Kevin and good day for the callers. Let's start with the Elagolix program, that generates small molecule antagonist. As many of you know, we released very positive and encouraging results from the Elagolix 603 study also known at the PETAL study. We held a conference call a few weeks ago and went through the top line results from the six month treatment period and in that study very happy that we hit the primary end points, the secondary end points, showing both statistical and clinical significance on these measures.

In addition, the study confirmed that this really is an unmet need, The number of callers that we had with interest in this trial and enthusiasm of the patients, subjects and investigators, has really been palpable. We confirmed that pain reduction can be accomplished without significant risk of bone loss. And as you know, this trial involved also a six month no-treatment phase after the treatment period and we still have women involved in this part of the trial.

The last (Dexis) scan from week 48 for the last subject will be later this year and then we'll be able to close down the study, finish the cleanup of the data and lock the database to get final results later in 2009. So 603 Study very successful and helped us with encouragement that our once-a-day dosing program was the correct way to move forward.

Now, as you know, we had a second study called the Lilac PETAL Study also known at the 702 Study and this study has also been going along quite nicely. As I mentioned on the call in September, we fully randomized 155 subjects in the double-blind placebo-controlled portion of the trial and we anticipate reporting top line results for the first three months section of the study, that is the double-blind placebo-controlled section toward the end of Q1 2009. The study of course continues beyond that first three months, as it's a six month trial in women who had been on placebo during the randomized placebo-controlled section would then be re-randomized to one of two doses of Elagolix thereby giving us an opportunity to look at some additional (Dexis) scan data after six months of treatment including the higher dose 250-milligram dosing program.

The top line results from this trial I've mentioned and then the remainder of the study results would be mid-year next year from the six month portion.

You also know that we have a 703 study, this is the trial that was set up in central Eastern Europe and it's a very similar trial design in that we have placebo compared to Elagolix at 150 milligrams and Elagolix 250 milligrams as the main comparators in the trial. We added a fourth dosing arm that is Leupron because we need to gather some data on a Leupron versus placebo so that we can justify a statistical margin for any future non-inferiority trials that we might have to do to secure European registrations.

As you know, there's expectation for active comparator trials and to do an non-inferiority trial you have to have justification for the margin used. So this trial we have five countries in central Eastern Europe, 22 investigator sites and a group of subjects waiting to begin the trial. We're dependent on release of clinical supply material. We expect to hear about the ability to release that material later this week. But we'll keep you updated on that.

That means that we should remain on track for top line data in 2009. The goal, again, is to have that data in addition to the 702 and 603 and the other studies in hand at the time of our End of Phase II meeting that will seek with the FDA in late 2009.

It's also worth mentioning that in these two trials, the 702 study and the 703 study, we're using a tablet of elagolix that's a new formulation. Last year, we developed an Elagolix tablet that had improved manufacturing characteristics. Specifically, we sought a tablet that had the optimal hardness required for the manufacturing process and the right size for commercial considerations. Once we developed that formulation, we put it into a formal pharmacokinetic trial last year. The study was completed and we confirmed that the (PK) profile of the new tablet was equivalent to what we had seen in the earlier studies. That study was successful so we have included that tablet in the 702 and the 703 trial. Again, this was for commercial kind of manufacturing characteristics rather than trying to alter a (PK) profile.

So the Elagolix program is moving well. We have a lot of momentum. We're very happy with the way the trials are enrolling. And encouraged by the comments and feedback that we're getting from subjects, investigators and even the subjects that primary care doctors are telling us they like what they see. All good things in a Phase II environment.

So behind the Elagolix program, of course we have two other Phase II programs. The Urocortin program is the CRF2 peptide agonist for heart failure and other cardiovascular disorders. As I've mentioned on these calls before, we had set up to complete some GLP toxicology studies to confirm what we had seen internally at Neurocon with our non-GLP studies. I'm happy to say that those GLP tox studies have been successfully completed and now we are just in the process of starting to get the histopathology from those studies. We expect the last of that to come in December and then we'll have that tox package complete.

At that point, we can begin to explore potential partnering options which as I mentioned before our goal with Urocortin 2 is to find a partner that will be able to do the full cardiovascular development effort that a drug like Urocortin 2 requires. This is not something that we are in-house currently set up to exploit fully so we'll begin to engage potential partners after the tox data's all in. Behind Urocortin 2, is the CRF1 Receptor Antagonist. This is the GSK partnership that has been going on now for a number of years. And as you I think are aware, GSK initiated a Phase II trial in major depressive disorder with a target enrollment of 150 subjects, treated with either the molecule that we shorthand as 679 or placebo for six weeks. This is a US trial that began in August and is expected to report out in about 24 months.

The backup compound for 679 is 529. And this trial is in the midst of Phase I studies as a backup for 679.

In addition, the 008 compound as you know, GSK has said that they will release data from the irritable bowel syndrome trial at some point the second half of the year and we are awaiting those results from GSK.

So Elagolix, Urocortin 2, CRF antagonist, the Phase II programs. Some other information to share with you. We've mentioned in the past that we have a very productive discovery and preclinical group that continues with more than a dozen targets that we hope to bring to the point where we can introduce INDs every year going forward and we've been very happy with the progress made on one of the initiatives, that is a target after something called VMAT2, vesicular monoamine transporter 2. This is a pre-snyaptic neuronal target that inhibition of this would be useful in a variety of central nervous system disorders. And we have a compound that is just now completing its preclinical studies and we have sufficient data to prepare the regulatory filings that will allow a first trial in humans to begin early in 2009.

This molecule has several potential indications within CNS space including hyperkinetic movement disorders, so we're very excited about this and looking forward to starting that up in 2009.

In addition to VMAT2, as you know, we continue to try to get some closure on Indiplon. As I mentioned before, we had our end of review meeting with the Neurology Division of the FDA last July. We've been in the process of exchanging draft minutes with the FDA, corrections to the minutes, and comments that have been going back and forth. Currently, the last round of this has been sent back to the FDA and is currently under their hands, under their review, and we await to see their comments. We actually can't provide any specific comments as to Neurocrine's next steps with indiplon until we have those final minutes.

With that, perhaps I can turn it back to Kevin and he can make some other comments.

Thank you very much, Chris. So as you can see, we're very pleased, the Elagolix program is moving briskly forward. We're meeting our time lines. The 603 data as we've discussed before was a very successful trial. We're moving forward with this program. It is a very high value program for the company as we continue in discussions with multiple parties on that.

As you can see, as Chris pointed out, there are a number of preclinical programs that we have working on at Neurocrine and the first that you're going to be hearing more about in our coming calls and visits is going to be on that VMAT2 program as that moves into the clinic.

With respect to Indiplon, I'd just like to close with one thing, that it would be Chris, as he said, we do not have final minutes from the FDA, we await those final minutes. However, even upon receipt of those final minutes my guidance remains the same as that I do not believe there's going to be a fundamental shift in the requirements that the Agency has put in front of us at this point in time.

So with that, what I'd like to do is open it up for your questions at this time.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from Sapna Srivastava with Morgan Stanley. Go ahead, please.

This is actually [Sarah Slifka] calling for Sapna. You said you'll have $100 million in cash by year end and it seems like you're going to have three programs with your new pipeline candidate coming into the clinic in early '09 and I was just wondering if you can discuss how you plan on prioritizing those programs and whether you think you'll need to approach the public market next year.

Thank you very much. We do not have any plans of approaching the public markets.

Secondly is that we, with our programs, the GnRH program fully baked into our projections going forward, as we've said, as Tim said, we have over two years of cash in hand is the fact that we would be completing out that Phase II program with Elagolix. Secondly, with the VMAT2 program, that is one whereas you've seen, we've been husbanding cash, we're careful on our cost constraints and so we will pursue that in the clinic as funds become available, external funds become available into the company but we are not talking about approaching the public markets.

Also fair to point out that the Urocortin program is one that we're not funding additional clinical initiatives as we seek potential partners for that and the GSK CRF program is a fully funded program through GSK.

Yes.

Great. Thank you.

Thank you. Our next question comes from Brian Abrahams with Oppenheimer and Company. Go ahead, please.

This is actually Ryan for Brian. Just a quick question. So given the fact you guys have the blood level exposure with the PK between the two tablets, would we see any data that would correlate the blood level exposure with the VMD changes?

You will when the 603 study is done. As I've mentioned before, we have extensive PK/PD modeling that will come out of this 603 trial but because we chose to show the top line data from the six month treatment period before the study was complete, I'm not unblinded at an individual subject level yet. But when that's done we will have the kind of PK modeling that will allow us to look at the relationship between Elagolix exposure, (estrodial) level and bone mineral density change.

Thank you.

Thank you. Our next question comes from Matt Duffy with BDR Research. Go ahead, please.

Hi and thanks for taking my question. Given as you guys are thinking about potential partners in the future, do you have parameters that you're thinking about for what you would think would be the optimal type of partner for Elagolix?

Sure. There's several that one can choose. There would be those partners that are multi-national, that would take the program in all three major markets in the world. There are those that are European specific and then others that are Japan specific. We're pursuing all three of those right now.

You also have partners that are exquisitely focused on women's health, others that are focused on men's health, those that are focused in both. Right now I can tell you that my preference would be to have a partner that would be there for the North American and European markets and would fully exploit into the women's health indications. Obviously, primarily endometriosis, uterine fibroids and then also would go into the men's health because the compound is positioned to go into BPH at this point in time. So that would be my optimal.

But having said that, we do have situations where there are companies interested in geographic regions and also those that are interested in specific diseases.

Okay. Great. Thanks very much.

Thank you. Our next question comes from Jason Napodano with Zacks. Go ahead, please.

Thanks for taking the question. I'm wondering if you could comment a little bit about getting back to the partnership discussions, if things have picked up a little bit here after the PETAL data came out in September or if you think partners are still waiting for the Lilac PETAL and the 703 study to end before they really show great interest. And then the second question is, and I'm sorry if I missed it in your prepared remarks, but will you guys be presenting the PETAL data at any medical conferences in the future?

Let me answer the second question first, Jason. Yes, we will. It's not in the near future. As you know, the lead time required for abstracts at the important meetings like the Endocrinology meeting, for example, is typically something like nine months and although I'm happy to talk about the top line data that we had, what I'm really interested in having is the rest of the story. You know, the individual patient level data, the PK/PD modeling and the things that are of greater scientific importance. So I would say yes in 2009 but nothing in the next few months.

Jason, along the lines of your first question is is that our business development since the 603 data has come out and also just prior to that, our business development group is completely engaged in partnering discussions. So the 702 data will come out early next year but there does not appear to be any waiting going on for that data.

Okay. Thank you.

Thank you at this time there are no further questions in queue. I'd like to turn the conference back to Kevin Gorman for any closing remarks.

Thank you. I would like to thank everyone for participating today. I think as you can see that we've done as we had set out at the beginning of the year to do.

We're right on track. We're keeping a close rein on cash while keeping a very vigorous development program going with Elagolix. The data that's being generated to date is outstanding. The program's moving along nicely, as are all three of our programs and now adding yet a next one to the queue in early next year. In addition, we have done as good a job as I think can ever be expected in protecting our cash investments in these markets so I'm very pleased with that.

So I look forward to meeting with many of you in the coming weeks and months. Thank you very much.

This concludes today's conference call. You may disconnect your lines at any time. We thank you for joining us and enjoy the rest of your day.