Neurocrine Biosciences Inc (NBIX) 2010 Q2 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, today's call will be recorded. I will be standing by if you should need any assistance, and it's now my pleasure to turn the conference over to Kevin Gorman.

Thank you very much, and thank you, everyone, for joining us this morning. I am joined here with Tim Coughlin, our CFO; Chris O'Brien, our Chief Medical Officer; and Jane Sorenson.

Before we get started, I would like Jane to read our Safe Harbor statement.

Good morning.

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 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.

Kevin?

Thank you, Jane.

So this morning we will start out with Tim taking you through our second-quarter results and our half-yearly results. Then, importantly, he will update our guidance for 2010.

Chris will then briefly take you through where we are with each of our programs and with our partnerships that we have kicked off. Then we will open this up to any questions.

So to start out with, Tim?

Thanks, Kevin, and good morning, everyone.

We released our financial results yesterday after market close, and it was a very good quarter. The big financial events for the quarter were the Abbott and Boehringer Ingelheim deals we signed in mid-June. As a result of these two deals, our financial position has dramatically improved, and we have provided new financial guidance for the balance of 2010 in our earnings release.

During this portion of the call, I plan to cover the quarterly and year-to-date financial results, go over the highlights of the two new collaboration agreements, and then provide detailed guidance for the balance of 2010. As always, we'll entertain any questions during the Q&A portion of the call.

For our financial results, the most important metric is our cash burn from ongoing operations. If one were to exclude the impact of these two recent partnerships, we again met our targeted burn from operations of $11 million for the second quarter.

Our net loss for the second quarter was $5.2 million or $0.09 per share. This compares to a net loss of $15.3 million or $0.39 per share for the second quarter of last year.

Our year-to-date loss is $13.8 million or $0.27 per share compared to a 2009 year-to-date loss of $34.9 million or $0.90 per share. The reduction in our net loss is primarily due to the restructuring program that we implemented in the second quarter of last year to conserve cash, coupled with ongoing cost-control measures across all functions within our Company.

The research and development costs, as well as general and administrative costs, were in line with our expectations for the quarter and the year-to-date and significantly lower than last year. This is primarily due to lower personnel-related costs and across-the-board reductions in non-clinical-related expenses.

We ended the quarter with cash and investments totaling $134 million, a significant increase resulting from our upfront collaboration fees. Additionally, on July 1, $9 million worth of our auction-rate securities were redeemed at par. We now have one auction-rate security left with a par value of approximately $3 million.

As previously mentioned, we signed two significant strategic collaborations in mid-June, one with Abbott for our GnRH program and one with Boehringer Ingelheim for our GPR119 program for diabetes. Both of these collaborations share a similar financial structure consisting of upfront payments, milestones and royalties on future sales.

The Abbott collaboration for GnRH and elagolix provides us with a $75 million upfront payment and allows for milestones of approximately $530 million and up to approximately $24 million in personnel funding through December 2012. Additionally, all external development, bargaining and commercialization costs related to GnRH are paid for by Abbott.

The second collaboration agreement with BI for GPR119 consists of a $10 million upfront, potential milestones of approximately $225 million, and research funding. All external development, marketing and commercialization costs are borne by Boehringer Ingelheim.

For 2010 we initially guided that our operations burn would be up to $45 million, exclusive of any partnering agreements. Our burn from operations for the first half of the year -- again, excluding the financial impact of the partnerships -- was $23 million as planned -- $12 million in the first quarter and $11 million in the second quarter.

Our operations burn for the second half of the year will drop to approximately $7 million per quarter. The decrease in our burn is directly attributable to both agreements. More specifically the previously mentioned external development cost funding and the funding of certain internal costs will mitigate our burn from operations.

We expect revenue for the second half of 2010 to approximate $27 million, consisting of the amortization of the upfront payments, FTE support and reimbursement of external development expenses. Expenses will be within our guidance given at the beginning of the year of $43 million to $46 million in total expenses, and G&A expense should remain relatively stable as it has in the first two quarters.

For year-end we expect to have an annual loss ranging from $8 million to $11 million and end the year with $130 million in cash and investments and receivables from collaboration partners.

One other item that is not included as a component of our financial forecast but could help the bottom line and more importantly be accretive to our cash position, is the IRS 48D applications that we filed early last week. On the recently enacted health care bill, a new $1 billion federal program was created to subsidize certain costs paid or incurred in calendar 2009 and 2010 directly related to the conduct of a qualifying therapeutic discovery project.

This subsidy is available to offset 50% of eligible project costs in the form of a cash grant or a nonrefundable investment tax credit up to $5 million for companies with up to 250 employees.

We have filed for cash grants related to several of our programs under this section of the Internal Revenue Code. The final award determination is scheduled to be made at the end of October, at which point we will find out the amount of grant money, if any, we have received. Any balances we receive would be additive to the previously mentioned numbers.

For those looking for more details around our financial results, we plan to file our 10-Q with the SEC later today. And in closing, I would like to stress that while we are now stronger financially, we will not move away from our fiscal discipline that has enabled us to arrive at this position. Controlling our burn and making wise investments will remain a top priority of this management team.

I thank you for your attention, and with that, I will turn it back over to Kevin.

Thank you, Tim. So, as you can see, we are in a fundamentally different position than we were just a month ago. The revised guidance I think speaks to the magnitude of these deals, and they can now start to be fully appreciated.

I would also like to take a moment just to congratulate Tim and his team for their strategy in dealing with the auction-rate securities over the last two years. We are bringing those in at close to par value when you look at it throughout the entire portfolio, and that's just outstanding considering what the markets have been through over two, two and a half years.

At this point I would like to turn it over to Chris to give us an update, and then we can take questions.

Thanks, Kevin.

I will touch on each of the programs for an update.

The GnRH program obviously is the biggest focus of our activities, particularly this past couple of weeks. Once we were able to finalize the agreement with Abbott, the real hard work began where the two teams started their process of integrating our current activities, the transition of our ongoing studies, manufacturing and preclinical work, and getting the very large, very enthusiastic Abbott team up to speed.

As you can well imagine, during the intense diligence process prior to signing the agreement, a small core team of Abbott personnel were involved with learning about elagolix and other GnRH backup molecules. That small core team has been significantly expanded to involve the full infrastructure that comes to bear on this program. So the Abbott team for manufacturing, preclinical, clinical development, regulatory affairs, quality assurance, and, of course, now commercial sales and marketing has now gotten involved.

So we sent a large team from neurocrine up to Chicago last week for our kickoff meeting in which all the functional areas began meeting face-to-face, and we've begun the rather massive task of transferring the [INB], all the regulatory control documents and the archival information over to our colleagues in Chicago.

It was a great kickoff meeting, and we have a really good partner on this, and I couldn't be more pleased with both the strategic and the tactical activities that are currently underway.

So, one of the fun things for us as a small biotech is, in addition to obviously having a partnership and a deal, is now we get access to tremendous resources. We know that elagolix and the follow-on molecules are in good hands, and we have a team at Abbott that brings to bear things that we couldn't do. So, for example, getting involved with the health outcomes, health economic outcomes, these are things that will position the whole women's health field in a way that we weren't able to do because we don't have those resources.

The commitment to uterine fibroids as a development program for a second indication for elagolix is tremendous. We wanted this all along. We didn't have the resources. Now this can start happening.

And obviously there is a very large commitment on Abbott's part to begin all the work that's needed for manufacturing of commercial supply for launch of elagolix for endometriosis. We have begun work on all the planning that goes into place with the Phase III trials for elagolix for endometriosis. As you can imagine, with several thousand patients that constitute the NDA file that we plan to submit for endometriosis, you have hundreds of investigators' sites that need to be qualified or re-qualified. That whole process of gearing up for that Phase III is now being put into place.

So, very exciting and we are really happy with Abbott as our partner.

In the meantime, we have our transition activities, finishing up the things that neurocrine has been running all along. As you know, the Daisy Petal Study or the so-called "901 study" is winding down. We have approximately 12 women I think left in the open-label portion of that six-month trial, and that last patient, last visit, occurs in September. And then the wind down of that trial will occur through the rest of the fall.

We have ongoing work with the preclinical group here at neurocrine is continuing to supervise the two-year carcinogenicity study in two species, and that's going well. And the manufacturing groups from the two companies are working together to gear up for adequate supply for the Phase III trial and ultimately commercialization.

So, very nice collaborative work. We're very happy with how it's going, and we are in the process of getting Abbott and neurocrine in place for our end of Phase II meeting request that will go in this quarter, and we will be, as always, Phase III ready by the end of year looking forward to starting the Phase III trials early in 2011.

So, moving on from elagolix and the GnRH program, talking about Urocortin 2, as we've discussed before, the infused peptide for acute decompensated heart failure is in the midst of a Phase II study. This trial is being run at a single site, the cardioendocrine group in Christchurch, New Zealand, and this trial is scheduled to enroll 50 patients with acute decompensated heart failure is now more than half enrolled, and, as we've stated before, we look forward to results from our New Zealand colleagues sometime in 2011.

The trial according to the investigators is going well and no safety signals that would jeopardize a completion of the trial.

In addition, we have I think we've called it kind of specialty or kind of niche studies that we have an arrangement with academic collaborators at the University of Edinburgh in Scotland, and these are very highly specialized, small studies looking at attributes of Urocortin 2 that may help us position this to be used optimally for cardiovascular disease. These are very specialized infusion studies, looking at the impact of Urocortin 2 on various aspects of arterial and venous function and cardiac function and dysfunction.

So, these studies are slated to begin sometime this summer. They are in the midst of working with their institutional review boards and various aspects of getting these highly specialized academic trials underway.

Well, we are very happy with our VMAT2 program. As you know, we started a repeated-dose trial in Canada, and that trial is currently underway at our Phase I unit up in Montreal. And that -- we are very happy with how the conduct of that trial is going. The readout of that will be probably some time in the September timeframe, at which point we will make a go/no go decision about moving into patients with Tardive Dyskinesia. So, assuming positive results from the repeated dose Phase I trial in healthy male volunteers in the September timeframe, we will then look forward to initiating Phase II trials in patients with Tardive Dyskinesia by end of the year.

The CRF1 antagonist program, as you know, is being run by GlaxoSmithKline. GSK is in the process now of closing out the major depressive disorder trial here in the United States. The last patient/last visit was as scheduled in June, and as soon as they finish the database lock and unblind that dataset, they will share topline data with neurocrine, and we anticipate sharing the results of that trial with the public once we have that available, and we anticipate having some results toward the end of Q3.

As we've mentioned before and as is available at clinicaltrials.gov, you can see that 679, the molecule that GSK is testing in the major depressive disorder trial, is also being assessed in several other settings. Most importantly is a project being run through Emory University and Mount Sinai Medical Center in conjunction with GSK to assess the impact of CRF1 antagonist in posttraumatic stress disorder. And this is obviously a complex trial, particularly as it relates to enrollment of subjects, and so this ongoing work is expected to read out in a couple of years time.

We are happy very happy. We had a very nice recent meeting with our GSK colleagues and ongoing meetings over the next few months, and obviously we will keep you appraised as soon as we have topline results from the Depression trial.

Tim and Kevin have both mentioned the GPR119 program. This target is a very interesting target from a scientific point of view, and the neurocrine team, now in collaboration with Boehringer Ingelheim, have come up with some very novel approaches to targeting diabetes in this fashion, and, in fact, the neurocrine team has been over in Germany working with BI this week for their kickoff of this collaboration, and we are very excited about this ongoing research effort to help patients with diabetes.

So, a lot of work going on in that space. What we don't normally talk about, of course, is the ongoing research and discovery activities. We have at any given time five or six research discovery programs going on internally. Those activities continue, and our goal is to be able to bring forward one or more of these programs into the clinic next year to continue our development activities.

So at that point I will turn it back to Kevin, and I look forward to your questions during the Q&A.

Kevin?

So, that gives you a pretty good update, and we were just on the phone with you about a month ago. So why don't we open it up to questions right now?

(Operator Instructions) Phil Nadeau, Cowen & Company.

Good morning. Let me be the first to congratulate you on a very productive quarter.

The first question is on something that you mentioned in the press release, and that was that you were getting the info necessary to file an end of Phase II meeting request with the FDA.

I know you said that it is going to be in this quarter, but could you give us a little bit more details on what type of information you need to put together to make that filing?

Thanks, Phil. So it is not -- the process is what's going on right now. The information is available. What we're doing is converting what kind of neurocrine standard operating procedures are for these kind of regulatory files, into the Abbott SOPs, if you will. So we are mating up the small universe of neurocrine to the big universe of Abbott and putting it into their process.

So that has happened. We had, as I mentioned, a very nice kickoff meeting last week. All the teams are aligned, and it is just a matter of getting the very large freighter up to speed and pointing it in the right direction.

So the goal is to submit the end of Phase II meeting request this quarter, and that is Abbott's purview.

Okay. And on the extension data from the Daisy Petal Study, can you remind us what is going to be new in that dataset? Is it just longer-term safety, or is there something else?

Basically there are two things that we expect to get out of this, Phil. One is the safety data from six months of treatment with this group of patients, and to add to our knowledge of how this molecule works and tolerability and safety in women with endometriosis.

But also important -- you know, we have -- this is the first time that we had used the modified wording of the co-primary endpoints, and we reported obviously on the placebo-controlled portion of this trial. Now we want to see how these modified descriptors performed in persistence of benefit out through six months because that will be a critical part of obviously the long-term development program.

So I don't expect any surprises. In fact, we hear from the investigators and the subjects that have been enrolled in the 901 study that they are really quite saddened to have to finish their six months of treatment. We got a request from one of the sites for a case of tissues because the subjects were tearful that they had to end their enrollment.

They love the drug, and they want to continue in some kind of open-label extension or compassionate-use kind of program, something long-term. So it really is that persistence of effect, and I don't expect any surprises.

Okay. Great. That's very helpful.

And then Tim, one last question for you, you gave some revenue guidance for the back half of the year, and I guess I'm kind of wondering two things.

One is, $27 million over six months, is that kind of what we should project into the future for the amortizations and reimbursements, or is there anything special about this six-month period?

Then I was going to say, if you could give us some idea of what is reimbursements versus amortization and milestones, that would be helpful, too.

So the amortization is typically over the period that we -- the accounting rules called for the period that we actively participate in the collaborations. So we are required to do something.

So I think, if you look across that $27 million and break it down, you are essentially looking in the neighborhood of $16 million to $17 million amortization. The rest is reimbursement of external development expenses or FTE reimbursements.

Okay. And did you use as the period of the collaboration, the patent life of elagolix or --?

No, no, it is just the portion of time that we are required to participate in the development. So typically under these agreements there is either a predefined research period, or there is a period of time where we work in joint with Abbott, and then, at that point, the time is fully past Abbott, and they run it from there.

Okay. Got it. Thank you.

(Operator Instructions) Thomas Wei, Jefferies & Company.

Thanks. I wanted to ask on the 901 study, you had mentioned on one of the prior calls that sometime in late June you would actually have some data from your [Iflect] consultants on the correlation between the daily and the monthly endpoints to validate some of these changes that you made to this scale. Do you have that information in-house, and how does that look?

Hi, Thomas, thank you. Yes, we have an outside consulting group that has helped us do a whole series of analyses on the modified wording co-primary endpoints, and, in fact, we are very pleased -- as is Abbott -- with the results from that. That is an integral part of the end of Phase II meeting package that will go into the FDA. We don't obviously share that at the present time in a public way, but it is something that I think is going to be very important for the field of endometriosis research going forward and is something that we look forward to publishing in peer-reviewed journals.

That presumably, the fact that you are still going forward with filing for an end of Phase II meeting, we should take that as a good sign that there has been nice correlation seen between the daily and the monthly scales?

Well, yes, absolutely, and it is all about validation of the coprimary endpoints.

Right. And then, I did want to ask a little bit about the whole strategy in terms of label and how your thoughts maybe have changed now with the Abbott collaboration, if at all, on chronic versus short-term dosing on the final label.

How should we think about that? And the Phase III trials that you had originally proposed where definitely designed around chronic use of the drug. Should we expect a chronic dosing label, and if not, why might that be?

Yes, all good questions, Thomas. But, as you can imagine, now being in a collaboration and talking about label, is something that our partner would probably not want us to be getting into. But suffice it to say, that we will look and Abbott anticipates a very strong label to be associated with this drug, and one that is going to help penetrate the entire endometriosis market.

And the Phase III program that has been compiled, is a very strong program that I think is going to meet the needs of not only the agency, but also the patients.

Okay. Thank you.

Brian Abrahams, Oppenheimer.

This is [Ryan] in for Brian today. Thanks for taking my questions.

I guess could you share your thoughts this morning about pursuing the fibroids indication for elagolix?

And then, my second question is, for the GRP partnership where the milestone team is that you could potentially receive from Boehringer, are those mainly weighted towards development, or are they more towards regulatory and commercial achievement?

Yes, Ryan, I will take the second question first. And the milestone payments -- recall, this is a very early research collaboration, so there is definitely a substantial amount of milestones that are ones that we can affect by being involved in the research collaboration over two years.

Then also, there are milestones that extend beyond that if compounds continue through the entire development process onto commercialization and with royalties at the tail end.

Now Chris can answer your first question.

So, the uterine fibroids question is an important one, and one of the key reasons why we are so happy with our collaboration with Abbott is because they understand the uterine fibroid market, they understand the uterine fibroid regulatory path and clinical development. So it is a priority of the collaboration that the uterine fibroid Phase II trials get started as soon as possible. So the teams are actually, as we speak, already beginning the work necessary to get things up and running.

We see this as a huge opportunity and a very natural fit with elagolix.

Great. Thanks so much.

Thank you. At this time there are no further questions in queue. I would like to turn back to our speaker, Kevin Gorman, for any closing remarks.

Thank you very much.

I appreciate everyone's attention this morning. You know, the two collaborations that we have done really do speak to what this Company has been now designed to be able to do and what we can perform on.

The collaboration with BI illustrates that we have a unique and a very successful discovery engine, and with our sound financial footing that we are on, we are going to be pushing this hard and continue to work on the multiple targets and bringing more in that the group can work on. So we are pressing forward with these. And as these come to fruition, we will be speaking more about them in the future.

In addition, we have clearly shown that our clinical regulatory groups can take a program all the way through a substantial Phase II in a very large way, and if necessary, with the resources, we can go further with that. And that has been appreciated by Abbott in the way that collaboration is structured where there's a significant number of personnel within Neurocrine that are being funded now for several years in order to bring this into an NDA filing.

So that's what we're going to be using, that core group of people now, to move forward our in-house programs very aggressively. But, at the same time, I want to reiterate what Tim has said. We are going to stay as vigilant as ever on our cost containment.

We understand what the amount of money that we have in the bank can do for us, and we are going to be utilizing that to create shareholder value, as we have done all along.

Right now, our focus is exquisitely on bringing our partners up to speed and utilizing their significant resources, particularly Abbott's, in moving elagolix forward in both endometriosis and uterine fibroids. Then, as I said, moving aggressively in our other programs, our in-house programs, particularly VMAT2, in moving that forward.

So that's how I would like to end, and I would like to thank you all for your attention, and I look forward to talking with you in the coming weeks and months.

Take care.

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