Neurocrine Biosciences Inc (NBIX) 2010 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 will standing by if you should need any assistance. It is now my pleasure to turn the conference over to President and CEO Kevin Gorman. Please go ahead sir.

Thank you very much and good morning everyone. It's our pleasure to be here this morning to talk with you about our third quarter earnings results and also the progress that the Company's been making to date. I'm joined this morning by Tim Coughlin, our CFO and Chris O'Brien, our Chief Medical Officer, and Jane Sorenson, who will now, before we get started, read our Safe Harbor statement. Jane?

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 neurocrine.com. Any forward-looking statements are made 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 the Company looks remarkably different than the last time we spoke from a financial standpoint and also from a scientific standpoint as we continue to progress our programs forward which Chris will be talking to you about. But first let's get into the financials and Tim will take it from this point.

Okay thank you Kevin and good morning to all. Thank you for joining us. After the market closed yesterday, we released our third quarter earnings. It was another very good quarter for Neurocrine. In short, the full impact of our recent collaboration agreements with Abbott and Boehringer Ingelheim is now evidenced in our financial results and because of these two deals our financial position has dramatically improved. Our net income for third quarter was $3.3 million or $0.06 per share on both the basic and fully diluted earnings per share. This compares to a net loss of $8.2 million or $0.21 per share for the third quarter of last year. Our year-to-date loss is $10.5 million or $0.20 per share compared with 2009 year-to-date loss of $43.1 million or $1.11 per share.

The reduction of our net loss is primarily due to the revenue recognized under the two new collaboration agreements, the personnel restructuring program that we implemented in the second quarter of last year, and cost control measures across all functions within our Company. Revenue recognized on our collaboration agreements totaled $14.4 million for the third quarter of 2010. $9.2 million of this revenue is realized under the amortization of the upfront licensing fees, the remaining $5.2 million of revenue resulted from reimbursement of internal and external research and development costs.

Research and development expenses as well as G&A expenses were in line with our expectations for the quarter and year-to-date. These expenses are significantly lower than last year's run rate primarily due to the lower personnel related costs and across-the-board reductions in non-clinical related expenses. In light of our improved financial position, we continue to focus on our cash burn from ongoing operations. If one were to exclude the impact of our two recent partnerships, we again met our targeted burn of operations for the third quarter that was established at the beginning of this year.

We reaffirm our year-end guidance of ending the year with over $130 million in cash and investments and receivables from collaborating partners. We expect to have an aggregate net loss for the year in the range of $8 million to $9 million. We expect expenses to be within our guidance given the beginning of the year of $43 million to $46 million in total expenses. For those looking for more details around the financial results, we plan to file our 10-Q with the SEC later today. We'll be glad to entertain any financial questions during the Q&A portion of the call but for right now I'll turn it back over to Kevin for the balance of the presentation.

Thanks Tim. As you can see that was a very concise but very nice. A good financial situation to be in. As was written in there and as we've spoken with many of you about we are now aggressively pursuing our programs with our partners and VMAT2 and Urocortin by ourselves. We're going to keep moving those programs forward because we now have the financial wherewithal. Having said that, we are going to keep a very disciplined approach to our spends and to the size of this Company. We don't plan on having any remarkable headcount growth in the foreseeable future.

I'm not going to speak to you right now about the progress that we're making with that. I'm going to leave that to Chris O'Brian, he heads up our joint development committee on the Neurocrine side of the senior executive team on both the Abbott and our side to define the strategy of the collaboration. So, Chris is going to take you through that and also we had a news just last week where we announced that we are going to be taking VMAT2 into a Phase II clinical trial at the end of this year and Chris will speak a little bit more about that. So Chris?

Thank you Kevin and good morning. Thanks for joining us on the call. So let's start with -- before we get into elagolix and VMAT2, just a reminder that there is the ongoing activity with our discovery research team continuing to work on a variety of internal targets with the goal of generating compounds for us to bring into clinic. Some very interesting stuff and as things emerge, we'll keep you apprised.

The elagolix partnership is one that is giving us a lot of satisfaction and stimulation, our collaboration with Abbott is going very nicely. There's a joint project team that involves the functional groups from both Companies. And they are hard at work at the moment with finishing out the design and planning aspects for the Phase II Uterine Fibroids trial which will be carried out -- the collaboration between the two Companies for an initial Phase II study in this disease state.

And the Phase III planning for endometriosis, both of these initiatives planned for starting in the first half of 2011. The ability to start Phase III obviously depends on reaching consensus with the division of reproductive and neurologic products at the FDA and as we've mentioned in the press release for the quarterly earnings, the end of Phase II meeting request was filed in September by Neurocrine. And the FDA, Abbott and Neurocrine all work together to find dates that would work with the various schedules and the upcoming holidays and so now we -- the FDA has offered a day in January to have the end of Phase II meeting. So that will be the basis of our discussions for the Phase III trial designs and the balance of the elagolix development program. Now that program is now safely in the hands of Abbott. Transfer of the IND was carried out earlier this month and now they are the holders of the IND at the FDA.

So that is -- things have really proceeded in a quite orderly fashion since the signing of the agreement with Abbott this past summer. And we have an excellent collaboration relationship with the partnership. The rest of the supportive activities for elagolix are going as planned with the carcinogenicity study, the manufacturing activities and the ancillary studies that will be carried out so that the NDA has the full complement of data necessary for filing. So, for example, some of the residual drug-drug interaction studies and other type -- Phase I type activities are slated to be completed over the next two years.

The interesting pieces of data that will be coming out shortly as you know we finished the Daisy PETAL or 901 study. This was the six-month trial with the placebo-controlled results announced earlier this spring. And the women in the trial finished the full six months of treatment and the additional six weeks of safety follow-up post-treatment and the database has been locked. And we are finishing the QC of the data and will be announcing the results of that shortly and we look forward to sharing that with everyone. The -- so that's the elagolix program, nice progress for the team, very hard work by all team members and very satisfying to see this moving forward.

The VMAT2 program is something that we are very excited about and Kevin mentioned that the press release from a few weeks ago, we had completed the multi-dose, repeated dose Phase I trial in healthy male volunteers. And we were very satisfied to see the consistent safety profile, the drug was very well tolerated at the doses we are interested in. And most importantly for us, we saw the key PK profile that we were interested, namely, the limited variability, the good exposure, and the nice long half-life with once a day to support once a day dosing. And their concentration time profile that we think is critical to take into patient population with the hyperkinetic movement disorders. And so to confirm that, we have assembled and filed a clinical trial application with Health Canada for our initial Phase IIA exploratory study in patients with Tardive Dyskinesia. And Health Canada, obviously, is reviewing that file as we speak, and assuming a favorable review and permission to proceed we will begin the Phase II study at the end of this year.

We have a small trial designed as mentioned, it's an exploratory Phase II case study designed to help us understand the dose response that we would see in this population. Patients with moderate to severe involuntary movement due to exposure to antipsychotic medication. As many of you know, Tardive Dyskinesia refers to a syndrome like Tardive syndrome, or tardy meaning late effects of exposure to dopamine antagonist, whether that's as an antipsychotic medication or even some of the anti-medic medication such as metoclopramide. We are initially going after the TD population patients with schizophrenia or schizoaffective disorder that have been treated with either typical or atypical antipsychotics.

These patients, after typically a few months to a few years of exposure, develop increasingly disabling involuntary movements often of the mouth, the tongue, the jaw, the face musculature, but also can involve severe hyperkinetic movements of the trunk of the limbs. And unfortunately, for many of these patients even if they stop the medication that had started the problem, for many of these individuals, the movements may not remit over time even after stopping the offending agent. For some of these patients, particularly those with schizophrenia that remains active, they cannot actually get off their antipsychotic medication and to date, there is no approved medication for the treatment of Tardive Dyskinesia. It affects anywhere from 200,000 to 500,000 thousand patients in the US alone. And so this is an important unmet medical need if you will allow me to use that phrase.

So we are very excited about this we will be looking at three doses of our study drug 98854 in this patient population in a dose titration fashion. And once we get an indication of about the low end of the effective dose range on these doses over a 12-day treatment period, we will then plan on filing the high end [d] with the FDA in the US early next -- the first half of next year. And then be able to go into an additional Phase II development activities at that time. So the clear go/no go decision should be available in the spring after the Phase II exploratory study is available data reads out and we will proceed accordingly.

So that's the VMAT2 program. The other activities as you know we have the Urocortin 2 in clinical development activities outside of the US at the moment. The so-called unicorn trial being conducted by cardiologists in Christchurch, New Zealand, is moving along nicely. The trial is targeted to enroll 50 patients with acute decompensated heart failure and currently approximately 34 subjects have been randomized and the sub-population, there is a sub-study within that where ten subjects will undergo right heart catheterization. And those ten subjects have actually been enrolled and studied. The Data and Safety Monitoring Group is happy with how things are going. And we expect to have data mid-year next year for the full complement of subjects.

We also have the University of Edinburgh in Scotland conducting a series of small Phase I and Phase II trials that are focused on trying to further flush out the attributes of Urocortin 2 from a mechanistic point of view. Looking at ways to better characterize and or even further characterize the potential applications of Urocortin 2 in the appropriate cardiovascular population. So, for example, some very specialized forearm infusion studies, looking at biomarkers of vascular function and dysfunction following Urocortin 2 infusions are currently being conducted. Dosing is underway in those trials and we should have data from our colleagues in Scotland somewhat time next year as well.

So Urocortin 2 moving along well and the Boehringer Ingelheim partnership with our diabetes and development program is also moving along nicely. Again, that's the discovery phase research targeting GPR119 and that collaboration is a pre-clinical discovery collaboration at the moment.

So I think that we have touched on elagolix, VMAT2, Urocortin 2, GPR119. I should mention also that the 679 development program for the CRF-1 antagonist continues. As you may recall -- continue to add scientific support to some trials of post traumatic stress disorder and related phenomena that our clinical research of Phase II initiatives receiving some support from GSK and Neurocrine and the NIH, and research institutes such as Emory University. But those are very long-term collaborations over a period of years. But they continue to be ongoing. So I think Kevin, I've touched on all the areas and I'll turn it back to you.

Thank you. So in the coming few months what we are going to have -- actually just in the very near future as Chris said we are going to have the data, the six-month data from the 901 study. That's important data for two reasons. One, it will give us at least an additional 100 patients for safety out of six months. That should bring our database of women treated over 1,000, I believe --

Subjects treated over 1,000.

And as far as women that have been treated for six months it takes them to --

The total number of patients with endometriosis treated for at least three to six months is up in the over 650, I think it's over 700 now.

So we're meeting with the agency in January. We are taking to them a very robust Phase II and Phase I program in studying this drug. The second aspect that's important that we want to see from the Daisy study is the durability of the response as measured by the endpoints that we have tested in here and development with the FDA and patients. And so that obviously is a very important question that needs to be answered at the six-month time point.

So from what you've heard here from Chris and Tim, I think it's very important to point out that with elagolix timelines continuing on track, and that drug continuing to perform in the future. With the current pipeline that we have now and investing heavily in it and moving it aggressively forward, we have the finances already in place to be able to take this current pipeline all the way through ourselves without raising any money on current timelines to the point where elagolix actually hits the market.

So it's a very comfortable place, actually I should say not comfortable, but it's a much better place to be then we have for the last several years. But again, make no mistake we are going to continue to enhance our pipeline in both internally and externally all the way through and we will be looking for other partnership opportunities as some of these drugs mature. And then as Chris said early next year, we are going to have the results from this clinical study with VMAT2 and that'll be very important to us also. So with that, why don't we open it up for questions now?

Certainly. (Operator Instructions) And we'll take our first question from Ian Somaiya with Piper Jaffray. Your line is open

Thank you I just had a couple of questions. Just first on the Phase III trials, have you had any preliminary discussions with the FDA regarding the endpoints? Should it anticipate any changes to the daily questionnaire as you move into the Phase III program?

Thanks. Yes, we have had obviously discussions with the agency and ultimately the final agreement occurs at the end of Phase II meeting. I think there will be no surprises. We will continue to seek a division that wants us to do co-primary endpoints with Dysmenorrhea and non-menstrual pelvic pain using the daily rating scale. And based on the success of Daisy Petal, don't think there will be anything any radical changes to that program.

Okay. And as you I guess beyond the regulatory trials that are already planned, can we talk about trials that will help develop the market? What are some of the obvious challenges of treating second-line Endometriosis? Is the challenge that you can address the pre-clinical trials? Or what other efforts are going to be required?

Those are terrific questions. Obviously the amount of information that I can share is a little limited because as is Abbott's program. And obviously flushing out the data package of Elagolix for Endometriosis includes efforts to meet a broader set of market needs beyond simply regulatory requirements for an NDA. But clearly understanding long-term treatment initiatives that is treatment beyond six months, understanding some populations that might have unique needs, looking at how to address functional outcomes, and impact on quality of life, productivity in the workplace, pharmaco-economic arguments the data package that is needed.

Those are all efforts that under discussion and planning. But the bottom line is as we've said all along with Elagolix, the goal is to get this drug to market as quickly as possible. The initial label is for six months of treatment and nothing has changed from that initiative.

Okay, just one last question and I'll get back into queue. Just on the thought on the financial side can you remind us of the cost of Phase II program for Elagolix and what's your base R&D spend is? Just trying to get an idea of how we should model spending moving into 2011?

Okay so, Ian, I wouldn't use the base Phase II program for Elagolix just because of the changes we had in the endpoints so the way I'll answer your question is if you look at the revenue section we have two lines. The first is sponsored research and development . That is related to reimbursement we received from Abbott or other collaborators related to expenses we have incurred. It also includes our FT reimbursement. So the people that spent time that were able to charge out to collaborators. The second line, license fees and milestones I think we've hit a static point on that now and we have a full quarter of both the Abbott and BI agreements in there as well as the DSP agreement.

So I don't see that line migrating much going into the future until we start bleeding through those upfronts. That's essentially the deferred revenue coming through into non-cash line. The G&A line in Q1 and Q2 we were in the low $3 million . We pushed up a little bit this quarter but I expect this to be in the low $3 million going forward. And then R&D is really going to be dependent on how much Abbott gives us to work on but are static numbers I think we've talked to before, our base burn this year was $43 million to $46 million in expenses. And I think that if you since we've essentially unloaded the cost of the Elagolix program, that's going to be replaced essentially with VMAT2 to a lesser extent for 2011. So that's the way I would look at things

We will take our next question from Larry Smith with DLS Research. Your line is open

Yes Kevin. I really agree with you what a difference a year makes.

Thanks Larry

I had two quick questions. One was, Chris with the modified (inaudible)of public pain endpoint do you think -- what are the advantages of asking the FDA for an SPA just to make sure that they really are on board with that endpoint? And what are the disadvantages?

That's a good question. My feeling about FDA is it depends on really two things. One who is the division you are working with, which division and how do view SPAs? And the second is how much uncertainty is there about whatever the issue's at leads you to want an SPA? In this case, we have a very good working relationship with this division. We have excellent communication with them and they been very clear about what they want. And the only issue was back when we went to the modification to the wording was could we remove the floor effect that we have seen with the initial scale that the FDA asked us to use.

And we have done that, they seem happy and we want to lock that down at the end of Phase II. I can't speak fully for Abbott but the assumption is an SPA in this day and age only gives you a certain measure of comfort. They are not guarantee and they add a measure of -- an element of time or delay of getting an SPA processed or approved. So if you could achieve that at the end of your Phase II meeting and all parties are satisfied that there is consensus, there are no outstanding contentious issues, then an SPA really doesn't add much value, particularly as I say it's not chiseled in stone with an SPA. So while we were initially perhaps interested in an SPA to accelerate the process of getting to start a Phase III, at this point I'm not sure if it really adds much value. But again that will be up to Abbott and it will depend on how the end of Phase II discussions go .

And the only thing that I would add to that Larry also, is that if you were developing new endpoints somewhat in a vacuum you would probably want an SPA. But this has been something where to a great extent we followed the direction of the agency in what they wanted from us in these endpoints. So, in that sense I think it has been a very collaborative process with this division.

Okay great and if I could ask one other question in looking at Bydureon and Lorcaserin and Qnexa, all very different products from Elagolix but the common thread is that the FDA is really putting more boxes on their list to check. So many of us are -- certainly I was surprised at the aggressiveness that the FDA took in regards to the issues with each of those drugs. Are there any issues like that would Elagolix that you feel you will have to fully define in the Phase III trial? Or are there any hidden health or no hidden issues like teratogenicity or carcinogenicity in your animal models?

I don't know what I don't know. Today we have been very forthcoming about all of the issues. As you know, early in the development program the question was could you get pain reduction without bone loss? And we knew that was a hot button for the FDA so we invested very early on in the big Petal study looking at Dexa scans. We put a lot of money and time in getting that answer. We also knew that theoretically, a small molecule non-peptide GnRH antagonist might cause problems like the GnRH peptide agonist in that you could get Ovarian Hyperstimulation Syndrome.

And very early on we showed that, that didn't occur. And so now we are at the stage with a fairly well characterized the Phase II molecule with around 1,000 subjects exposed. We think we have a pretty good handle on the profile of the drug particularly with regards to safety. We've completed virtually all of the pre-clinical work that will go into the NDA and the hot buttons that are applied to all programs such as carcinogenicity and the QTC assessments at the moment our non-issues for Elagolix. We don't have a QTC binding effect of this drug and we have not seen any ECG signal.

But a proper thorough QT study obviously will get done during the in parallel with the Phase III studies to simply check that box and round out the data set. As you know, we are well into the middle of the two-year carcinogenicity study. I think we're at month 14 or 15 at this point and this study has gone well but obviously it has to be completed and the histology readout done. But to date no items of concern other than the need to complete the study. So I don't have any secret surprises in my back pocket that I'm concerned about. But this is drug development. This is Phase II, lots of surprises can happen when you scale up from 1,000 subjects to 3,000 subjects and complete the TARC study so we will see how that goes

And also Larry, you do bring up the agency is putting higher hurdles in front of every drug that they see regardless of drug class. And the way that we handle that and especially with our history, it's just very important to have as much transparency with the agency as humanly possible both ways and have good communication. We think we have that -- with this division But clearly there are cross-divisional activities that take place in the FDA. And those start coming to the floor starting in the end of Phase II meeting. So we will be starting to make some of those players within the FDA and hopefully we can keep a good communication with them going also.

Sounds like you thought about this. Thank you

Just a little bit

We'll take our next question from Stephen Willey with Stifel Nicolaus. Your line is open

Hi good morning. Thanks for taking the question. Just real quickly on VMAT2. Just wondering maybe what some of the historical efficacy endpoints have looked like here? Presumably there's some scoring or subjective assessment and I'm wondering how validated these assessments are and maybe talk about the length of the run-in that you are going to have prior to moving patients onto drug?

Sure. Steve thanks. There are established scales that have been around for sometime. The main one that most people are familiar with is something called the Abnormal Involuntary Movements Scale or AIMS. The AIMS scale is a rating scale for the intensity of the hyperkinetic movements by body region. So mouth, face, trunk, limbs and the scoring is done by a trained observer done during a structured neurologic examination. And there are many, many publications on the AIMS out there. It's been out there for a while. It used across hyperkinetic syndromes.

So it's not limited to just Tardive Dyskinesia. It has been used in other involuntary movements. But primarily that's where you will see this application. You used the word validated. There is validated in the old --in the traditional sense of has it been used a lot of times and accepted by regulatory authorities as an appropriate endpoint? And to that extent, you have to say yes. And then there's validated in a more modern terminology which is, has it been constructed as an instrument from the ground up using modern psychometric scale development techniques? No. The AIMS has been around a long time. It has been used and widely used and is well-established in the literature and used by regulatory authorities and considered a validated instrument.

But clearly that's part of my program at VMAT2 as we bring the development program forward. That's part of the discussions that we will have with the FDA at the IND stage and clearly to Kevin's point when earlier, having transparency and good communication with the appropriate division at the FDA and with the authorities at the EMA is really critical. There our initiatives to develop other scales for hyperkinetic movements and we are well aware of those.

You may recall I"m a Movement Disorder Neurologist by training and have actually helped develop Parkinson's rating instruments, the Huntington's rating instruments in my former life. And so we will obviously be plugged into this. And we will impose some measures of robust scale activities even with the AIMS. So for example, we videotape the structured neurologic exam and then we use the videotapes and have them rated by a blinded central reviewer separately from the investigator. All those things will be done to make sure there are no surprises.

Helpful, thank you

We'll take our next question from Jason Napodano of Zacks Investment Research. Your line is open

Hi guys, thanks for taking the question. Just a quick question on milestones. What's the next realizable milestone on Elagolix with Abbott? Is there -- I'm talking payments. Is there anything for completing the end of Phase II or initiation of Phase III?

We can't really discuss those. They will become evident -- very evident as we hit them. Suffice it to say that while we haven't yet given guidance on next year formally we don't believe -- we believe that our ending cash balance will be same as this year and ending cash balance next year and that's based on milestone achievements.

Okay fair enough. Thank you

You're welcome

And we have no further questions at this time.

Well I want to thank everyone this morning for participating and also thanking everyone that's been on the call for their support of the Company over the last several years. We are feeling that we are starting to turn the corner here. We haven't turned it. We are starting to turn the corner here and we will be working diligently towards that. Just end here I'm going to be -- we're going to be presenting at the Oppenheimer Conference next Tuesday. I believe our talk is at 11 AM and at that forum, we will be webcasting the Q&A session of that, more of a fireside chat. So I look forward to having meeting more of you there and having the opportunity to continue this dialogue. Thank you very much.

This ends today's teleconference. You may now disconnect and enjoy the rest of your day.