Neurocrine Biosciences Inc (NBIX) 2008 Q4 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 our Q&A session. (Operator Instructions). Please note this call may be recorded. It is now my pleasure to turn the conference over to Mr. Kevin Gorman. Please go ahead, sir.

Thank you very much, and welcome everyone to our fourth quarter earnings call. I'm joined by Chris O'Brien, our Chief Medical Officer, Tim Coughlin, our Chief Financial Officer, and Claudia Woodworth, in charge of Investor Relations. Today, what I'd like to do is have Tim take you through our financials, Chris will give you an update on all of our R&D programs, but before I start, Claudia, could you please read our Safe Harbor statement?

Sure, 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 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. Tim, can you now take us through Q4 and year-end results?

Sure. Thanks, Kevin and good afternoon, everyone.

We had three financial related goals this year. Our first priority was to end the year with over $100 million in cash and investments while continuing to advance the Elagolix program. The second financial goal is to end the year with no debt, and the final financial goal was to have a loss of $75 million to $80 million with 38.5 million weighted average shares outstanding. We hit on all tree of these ending the year with $101.5 million in cash and investments while at the same time, retiring all of our equipment related debt during 2008. We limited our loss to $76.5 million, after removing the impact of the real estate transactions which I will discuss later. Our final financial related goal, to end the year with the weighted average shares outstanding of 38.5 million outstanding was met, as we ended the year with a weighted average of 38.4 million shares outstanding. We had a loss of $28.9 million during the fourth quarter, or $0.75 per share. This compares to a loss of $128 million or $3.35 per share in the fourth quarter of 2007. Our year-to-date loss was $88.6 million, or $2.30 per share. This compares to a loss of $207.3 million or $5.45 per share last year.

The main difference between the quarters and the year-to-date results is the one-time write-down of the prepaid end of time royalty during 2007, coupled with the cost savings we realized under our severance program enacted in the fourth quarter of 2007. Additionally, we have implemented other cost saving measures throughout the company during 2008 that have mitigated the net loss. Research and Development expenses for the quarter were $11.9 million, compared to $24.3 million for the same period last year. 2008 Research and Development expense was $55.3 million, compared to $82 million last year. The decrease in research and development expense was primarily due to cost savings generated from our severance program. Research and Development expenses decreased from the third quarter to the fourth quarter of this year, primarily due to the winding down of the Elagolix Phase II/III, our PETAL study and significant preclinical efforts around our VMAT 2 program that were incurred during the third quarter to bring VMAT 2 to a clinic-ready state.

General and administrative expenses for the quarter were $3.8 million compared to $10.8 million for the fourth quarter of 2007. Year-to-date G&A expenses were $20.2 million compared to $37.5 million last year. The decrease is due to our severance program and the discontinuation of prelaunch activities for indiplon, both of which occurred in the the fourth quarter of 2007. As mentioned during our third quarter earnings call, we incurred a cease use liability related to the front office building of our property. We fully vacated that building in the fourth quarter of 2008 and recorded an estimate of the costs that may be necessary to lease out the building. Those costs include vacancy carrying costs, multi tenant structural work, tenant improvements and lease termination costs. These costs are accrued at this point, but predominantly will not be paid out until the space is subsequently leased. Essentially reducing our ongoing rent obligation as we pay these costs out. Additionally, our landlord will finance approximately $4 million of these costs through increased rent over a four year period. We also amended our lease to permit this releasing of the front building, at the same time, we also relinquished our right to repurchase the building at a predetermined price in 2011.

This allowed Neurocrine to, for lack of a better phrase, clean up its balance sheet. The accounting rules now allow us to remove the $108.7 million long-term lease obligation liability from our balance sheet. We also removed the related building assets of $69.6 million, whose title was transferred last December, and we now have a deferred gain of $39.1 million on the sale of the property, which will be recognized over the balance of the lease term. We recognized $3.5 million of deferred gain this year in the P&L. The net of these two transactions is cease use liability of $15.7 million, and the gain on the sale of $3.5 million had a $12.2 million impact on our bottom line, with a minor impact to our cash flow.

During 2008, rent expense was characterized as interest expense in accordance with Generally Accepted Accounting Principles. Hence the reason we had $7 million in interest expense in our P&L, with minimal long-term debt. With this amendment to our lease, future rent expense will be partitioned between Research and Development and general and administrative expenses. Our cash and investments are still conservatively invested with mainly government backed or government supported instruments. FDI-insured CDs, treasuries, GSEs, and money markets backed by the Treasury's temporary guarantee program for money markets. We have approximately $21.1 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. As I have mentioned before, and as disclosed in our 10-K filing, which will be filed tomorrow, we have elected to participate in UBS liquidity program for a portion of our auction rate securities. That provides us with a fixed redemption date of June 30th, 2010 for approximately $15 million of our auction rate securities at par value. We have no need to access those funds prior to that date.

For our entire investment portfolio, only $6.5 million of auction rate securities remain without a definitive par value liquidation date. However, all of our auction rate securities remain at a 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 two years of cash on hand and no debt. Guidance for 2009 is that we will manage the Company to a burn of 50 to $55 million from ongoing operations, exclusive of any partnering funds. Included in that burn is a completion of the Phase II program for Elagolix, and the end of Phase II meeting with the FDA at the end of the year. With that, I'll turn it back over to Kevin.

Thank you very much, Tim. That's encouraging. We're in a good financial position, two years of cash on hand, and we have very tight controls over our burn rate as Tim was saying. Also, very transparent financials at this point in time. So what I'd like to do now is turn it over to Chris O'Brien, who is going to run through all of our development programs. Chris.

Thanks, Kevin and good day to the listeners. I'll go through each of the programs, Elagolix, CRF, Urocortin, indiplon, VMAT 2, and update our status on each of them.

So for Elagolix. Three Phase II studies that are in various stages, the 603 study, or PETAL study, the 702 study or the lilac PETAL study and the 703 study, the tulip PETAL study. Just so everybody has the numbers straight. As you know for the 603 study, we reported a positive top line results for both primary and secondary end points after the six months of treatment in September of last year. And then this was followed by six months of no treatment, again, at the request of the FDA. We get follow-up Dexis scans and additional safety data. The last subject recently underwent her week 48 Dexis scan. That was in December. And the data collection from all the sites is recently wrapped up, and the data scrub or the QA process is currently under way as we speak.

We currently anticipate release of the full results from the PETAL study with all of its intimate details starting in probably in April. We've submitted abstracts to three important scientific meetings this year for the 603 data. The first coming up will be the Endo '09 meeting, this is the Endocrine Society meeting. That will be held in, I believe June, and the European Society of Human Reproduction and Endocrinology, or ESHRE, that meeting is also in June. And then finally, the American Society of Reproductive Medicine, meeting held in the fall, we'll cap that off with the safety and efficacy data. So three abstracts coming from that. But we'll release some additional detail once I have all the information, probably in April.

Meanwhile, the focus of my team has been primarily on getting the 702 top line data out, and this trial as you know is moving along quite well. The last subject was randomized in December, so we had 155 women randomized. And we will report the top line results from this trial toward the end of March. So next month. The data will reflect the three month placebo controlled phase of this six month trial, and that's the top line data. The primary end point in this trial is a Numeric Rating Scale for endometriosis pain and for those of you who are interested, there is some recent detail on this in a paper in the NIH and the ASRM, published in the Journal of Fertility and Sterility, outlining these endpoints.

We're also testing a version of the so called modified B&B scale at the request of the FDA, along with several other secondary efficacy measures, and the full report on this six month trial when it's done will be sometime in mid-2009. So top line results, end of March. And then six month results later in the year. Study is going very nicely. Very positive feedback from investigators and subjects with ongoing requests for compassionate use of Elagolix.

The 703 trial is the tulip PETAL study being conducted in central Eastern Europe, six countries in central Eastern Europe, 180 subjects to be randomized. After some initial difficulty getting this study going, because of some importation challenges we had with several of the countries, screening and randomization is now proceeding well. Obviously, the timing of when the top line results become available is contingent upon the date of the last subject being randomized. So obviously I'll provide a greater clarity when we complete randomization, but currently the anticipated read-out time is late Q3, somewhere in that phase, depending how the trial enrollment goes. This trial includes all of the primary and secondary end points that we've already discussed in the 702 trial, plus some additional information regarding a fourth treatment arm that is with leuprolide injections.

The primary purpose of leuprolide in this trial so we can get some leuprolide placebo comparison data that will allow us to understand that effect size and the variability among patients, so we can then determine the kind of sample size necessary for adequate power in a pivotal trial, if we need to do a non-inferiority pivotal trial, which is a reasonable expectation, particularly for Europe. So this will be a nice readout from that trial. We'll gather some of that information and use that in our discussion with the regulatory authorities.

So that brings up the end of Phase II meeting. We anticipate submitting the premeeting package with data from 12 Phase I studies. Five Phase II studies, which includes more than 800 subjects who have been on Elagolix for up to six months many of them. As part of our request to the FDA, for an end of Phase II meeting, and it looks like we'll be able to do that as scheduled this year, sometime in Q4, and then we'll obviously be awaiting scheduling the meeting at the FDA's -- it's their decision when that meeting occurs, but we'll submit the meeting request in our data package in Q4, hope to meet with them in 2009, but that's really at their schedule. So that's the update on the Elagolix program. Things are moving actually quite nicely and we look forward to talking with most people at the end of March when we have the results from the 702 study.

Moving on, the CRF, R1 antagonist program, remember this is three molecules in partnership with GSK. They're running the development program. After our research collaboration. The first molecule that was tested, 008, GSK has released the data from their irritable bowel syndrome trial to us, and there were no statistically significant differences between 008 and placebo. So they've moved on and now the lead molecule, 679, is now in the midst of enrolling subjects in their Phase II major depressive disorder trial. This trial began recruiting in Q3 of 2008. And GSK anticipates enrolling approximately 150 subjects with a readout of data from this depression trial in 2010 or next year. They also of course have a backup molecule to that which has completed some Phase I work, and that's molecule 529.

So moving on, Urocortin 2. You recall, we were carrying out some tox studies with Urocortin 2. We wanted to look at long-term infusion that is 14 days of continuous infusion in a couple of species to confirm what we had seen in our non-GLP studies that I've described to you earlier. So we've completed those studies. And they confirmed what we had seen. We've been able to address any of the outstanding tox issues and this GLP tox data then puts us in a position where Urocortin 2 can be infused for longer durations in humans in additional clinical trials. So very satisfying outcome in that. That just wrapped up in late December, early January. We have not initiated additional clinical trials at this point, obviously pending availability of additional resources or as an alternate outlicense.

Indiplon. Remember indiplon. Regarding the status of indiplon, you may recall we had our end of review meeting with the division at the FDA last summer. Since that time, we've exchanged several versions of the meeting minutes and we are still waiting for the final official version from the FDA. We continue to contact the division on a regular basis. At the moment, I have no -- they have not provided clear indication about when we should expect to receive them. Obviously, this is an important issue for us as future efforts with depend on the direction given in the finalized minutes, so we're not allocating any resources to Indiplon at the present time.

The last program to talk about is our VMAT 2 inhibitor. As I think many people know, we have at any given time, around 12 discovery research programs going on at MBI and a couple of compounds in preclinical development. One of these compounds has completed the preclinical first in human enabling studies, and now is ready to enter clinic. This compound specifically targets the vesicular monoamine transporter 2 or VMAT 2, a protein that is concentrated in the brain in humans that is essential for neuronal transmission. Our compound that we are bringing forward is highly selective and effective in regulating dopamine release, and at the same time, having really minimal impact on any of the other monoamines that VMAT 2 is involved with. So we reduce the likelihood of off-target effects and we believe we can get a very controlled clinical effect that would be useful for conditions, hyperkinetic movement disorder conditions such as Tardive dyskinesia. Additionally, modulation of the dopamine pathways is obviously important for other CNS diseases, such as schizophrenia and we're excited to move in this direction. We as mentioned, we're ready to go into Phase I as soon as additional resources for clinical development become available.

So I've tried to give you a quick tour through the R&D activity at the moment. I hope that gives you a good picture of where we stand. We're pleased with the progress in Elagolix and I'll turn you back to Kevin.

Thank you, Chris. I'd like to take this time to really congratulate in 2008 our entire R&D group for what they've accomplished. As I told you at the beginning of the year, we have structured the Company to be able to move a new compound into the clinic every year. And as you see that we're able to meet that goal here with VMAT 2. In addition, the hurdles that they overcame and the timing they did it within Urocortin 2 to put that compound very well on track is admirable. And then last but not least, when you look at the size of our Phase II-B program with Elagolix, and how quickly that is moving forward without hiccup at this point, and you always knock on wood with Phase II programs, that that is going extremely well right now. And we are on track as Chris had said for our -- for a year-end end of Phase II meeting should the agency be able to grant that to us. We will certainly get our end of Phase II briefing document in on schedule.

So finishing up on a couple of items, certainly I've talked with many about partnering, but as I've always said, with partnering, that we are in discussions. We are in negotiations with several large pharma at this point in time. Those negotiations are moving forward and going well. That's where I believe we're going to leave it at those statements. And finally, what I'd like to say is something that some of you have asked about, is our shareholder lawsuit was dismissed by the U.S. District Court, a derivative suit was also dismissed by the Superior Court and so all of the time lines for appeals have lapsed, so that chapter is completely behind us at this point. So, with that, I'd like to open it up for questions.

(Operator Instructions). Our first question today comes from Ian Somaiya from Thomas Weisel Partners. Your line is open.

Ian?

Ian Somaiya, your line is open.

Maybe we can move on to the next one and Ian, come back to Ian.

We will move to Brian Adams from Oppenheimer, your line is open.

Hey, it's Brian Abrahams. Thanks for taking my question. Looking ahead in the Elagolix development program, what's your sense based on your dialogue with thought leaders and with regulatory agencies as to what ultimately the end points are going to be that the FDA will require in a Phase III program?

Chris, I'll give that to you. Thanks, Brian. Clearly, we are seeking as an indication for Elagolix the management of pain associated with endometriosis. So the primary end point will be a pain end point. There have been and in the future may well be other indications even within endometriosis, disease modification, fertility, other things, that you could go after. But we are going after pain, that's the clearest regulatory path to go down. This recent position paper that I mentioned was consensus conference among academicians, clinicians, pharma, regulatory authorities, and they clearly outlined what they see as the path forward for drugs targeting pain reduction in endometriosis. And so their guidance is very much appreciated, and obviously when we sit down at the end of Phase II meeting, we'll talk with the regulatory authorities in the US and in Europe and make sure that we have a consensus for the design and the primary end points of the pivotal trials. But it will be a pain endpoint that we're going after.

Is it your sense that it might look closer to the Numeric Rating Scale that's the primary end point in Numeric Rating Scale that's the primary end point in Lilac Petal, or something more along the lines of the modified B&B?

That's a good question. If one looks to other therapeutic areas and other divisions at the FDA, you'll see that the Numeric Rating Scale in fact has become the more or less the gold standard, whether you're talking about cancer pain or neuropathic pain or other kinds of pain end points. The modified B&B at the moment isn't a single discrete entity. We have the old B&B scale, which itself had been modified a number of times. That was a once a month retrospective paper assessment of five different components. Now, with our discussions with the FDA, and we gather other companies as well, the agency has asked us to test out a different version of that, where we pull out several of the components, we change the wording, we look at it on a daily basis and so we're happy to do that. We have included that in both 702 and 703. Whether this scale has utility in future clinical trials and particularly in the pivotal trial, we won't know until we have some data in hand and the FDA recognizes that, so we'll have to work that out with them.

Thanks, that's very helpful.

Our next question comes from Thomas Wei from Piper Jaffray. Please go ahead.

Thanks for taking the question. I had a couple of follow-ups here, just one on the partnership. Is the plan still to hold off on Phase III initiation until a partnership is signed? And do you think that partners are looking to see what the outcome of the end of Phase II meeting is before they would sign a deal?

Thanks, Thomas, for the questions. First, I'll take them in order. First, I would -- while I don't give time lines, I fully anticipate that we would have a partner on board prior to initiating Phase III studies. Secondly is that while -- no, there is no waiting by the partners that we're dealing with for the 702 data. However, it may work out that we go at that -- through that time, when the 702 data becomes close, or we have the 702 data, in which case then obviously a milestone will turn as part of the upfront. I would also just like to add that partners would very much like to be a part of the end of Phase II meeting. They would want to have input in there and we would want and welcome their input in dealing with the regulatory agency and in that end of Phase II meeting. So there is not this -- just to round out my answer to you about, would we start Phase III without a partnership on board.

And in terms of the types of partners that you're looking at, should we be thinking about companies that have a specialty in women's health or broader pain players or are you specifically targeting a certain skill set with the parties that you're entertaining?

Thomas, I'll characterize it as I had before. There's multiple parties that we're in negotiations with and they run the gamut from those that certainly have women's health franchise expertise, those that have -- and/or men's health and all of them being very much involved in pain. Most multi-national, some regional.

And then just one last question on the Numeric Rating Scale. In the 702 study, what do you think we should look for as a positive outcome on that end point?

Typically, what one sees in these kind of outpatient studies with moderate severity pain, women come in with or subjects come in with average scores, lets' say in the four range and typical therapeutics affect -- if you saw a 50% reduction in the NRS, with active drug and a 30% reduction or 20% reduction with placebo, the study is adequately powered to have statistical significance with that kind of result.

Thanks. That's very helpful.

Thank you.

Next, we'll go to Craig Gordon from Cowen. Your line is open.

Thank you for taking my question. In terms of your other two candidates, Urocortin 2 and the VMAT 2, are you planning on advancing Urocortin 2 into Phase II by yourself or is that something you would rather partner first, and similarly for VMAT 2, is that something you would prefer to partner before going to Phase I or potentially if other partnerships were formed, you would use some of that money to advance it yourself.

Yes, thanks, Craig for giving us the opportunity to talk about that, specifically VMAT 2. We plan on taking that forward into Phase I ourself and I would say further than Phase I with VMAT 2. This is a target that we have a lot of in-house expertise on that we've developed over time. And also a very tractable patient populations that one can work with. It's kind of an ideal target and patient population for a Company our size. Secondly, with Urocortin 2, as you may know, we got into that area not because of the therapeutic area, being cardiovascular. We got into it because of the target itself. Urocortin 2 is the endogenous peptide ligand for the CRF2 receptor, and at this point, where I think to take that much further through Phase II development now, we've done a couple of Phase II studies in it. It would be best if that was done with a sophisticated partner in cardiovascular.

These are large trials that one has to conduct and as you know, the whole playing field with congestive heart failure has radically changed in the last two years. We talked about end points. Here the challenge is that drugs for acute decompensated heart failure have to not only impact the acute symptoms, but have an impact on morbidity and mortality out to six months, and these are very large trials that have to be done by a big pharma type cardiovascular Company and we are not that.

Having said that, Chris has been recently at some meetings with the FDA that certain companies were invited to, us being amongst them, and this is an extremely interesting molecule. It's a novel mechanism of action, and there potentially could be some very interesting subpopulations that could be studied with this drug. And so there's quite a bit that we're working through on it now. The important thing for us immediately was get through all the preclinical parts of this program, which are now done, and get through it successfully as was done so that the compound can go into some longer term infusion studies.

And so if I may just follow up on the VMAT 2, do you think that that is a 2009 event or it's unclear at this time, moving that into Phase I.

I would say that would be a 2009 event. As I said, we're being very judicious with our cash and the timing of those spends.

Thank you very much for taking my question.

Thank you.

Next we'll go to Jason Napodano from Zacks. Your line is open.

Thanks for taking the question. As you're sitting across the table from the FDA later in the year, do you think that you'll request an SPA for Phase III trials for Elagolix?

That's a good question, Jason. Although so the short answer is yes, I think that's very worth considering. As you know, special protocol assessments are often useful in giving a sense of security that you're headed in the right direction, although recently we've seen that that sense of security has been knocked out by changes in position by regulatory authorities. So it's not a bad idea to get an SPA for an endometriosis pivotal program and obviously that's one of the things that we'll take up with whomever our partner is.

Okay. Do you think -- well, you mentioned non inferiority, potential non inferiority test in Europe for Phase II. Would that be versus leuprolide?

So that actually hasn't been determined. You're limited to comparing to drugs that are approved for that indication, and so of the general classes, we have DMPA or Depo Provera, Leupron or its various formulations, and [Detazol], and there are a couple other hormone therapies in Europe that are not available here in the US. So any of those potentially would be fair game. If you look for the one that has the biggest hammer in terms of effect size, it's Leupron and we believe we would actually compare quite favorably to any of the currently approved therapies including surgery. But it's hard to do a surgical non inferiority trial. So I don't have any strong feelings about which one we would go with, I just want to make sure that it's feasible, that the regulatory authorities agree that it's the right one and that we know what the statistical margin is, and we have justification for that margin going into the trial. So that there are no surprises there. Most people assume it would be a Leupron comparative trial but that actually has to be sorted out at the time we meet with the regulatory authorities.

One last question. Can you talk a little bit about the differences between the 679 molecule and the 008 molecule, sorry, I changed subjects a little bit.

That's okay.

And what maybe gives you confidence that the new candidate will have some efficacy in MDD, given that we didn't really see what we were looking for with 008 in IBS or SAD?

That's very insightful. In fact, I would even make a stronger statement, if you want to say what we had hoped to see. In fact, quite a few companies have put CRF1 Receptor Antagonist into the clinic and uniformly those results have been disappointing across several different indications over the last two years. It turns out that based on what we know and our collaboration with GSK, is that we could actually predict that those molecules would fail, based on some proprietary methods that GSK and Neurocrine have in-house to assess the pharmacology of these drugs at the receptors. And so we've been able to say, in fact one of the few molecules that has had some positive effect as you may recall, was one of our early molecules that we had in collaboration, a different partnership, and that was 775.

And that molecule in these kind of in-house models that we have, technology that's available, we showed that in fact that should have worked and the small clinical you study that it was in, it did, although it had separate tox issues which led to its discontinuation. So at this point, we've played with 008. We've played with 679. We've played with 529, and we've played with the competitor molecules from other companies that have been in development, and we believe we can predict which ones will have the desired pharmacologic effect. Obviously, in our discussions with GSK, they concurred, because when they placed their bet on major depressive disorder trial, they chose 679 to do that.

Okay. Thank you. Very helpful.

Okay. Well, I thank you very much for your questions. And I thank you very much for your attention. We will, as always, be in touch and be communicating with you all, even the broader investment community, as we generate new data and new findings here and I look forward to meeting with you all in the near future. Take care.

This concludes today's teleconference. You may disconnect at any time. Thank you, and have a great day.