Neurocrine Biosciences Inc (NBIX) 2011 Q2 法說會逐字稿

Good day, everyone, and welcome to today's program. (Operator Instructions) It is now my pleasure to turn the conference over to President and CEO Kevin Gorman. Please go ahead.

Good morning everyone, and thank you for joining us on our second quarter earnings call. I'm joined here by Chris O'Brien, our Chief Medical Officer, and Tim Coughlin, our Chief Financial Officer. Before we give you an update, I would like Jane Sorenson to 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 our filing.

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. Go ahead, Kevin.

Thank you, Jane. So, this morning Tim is going to take you through our financials, and Chris will give you an update on all our programs, and then we will be happy to take any and all of your questions. Just before we start out, clearly if you had a chance to read our press release, we've met all of our Q2 numbers, and they are in line with the guidance that we provided at the beginning of the year. Again, Tim will take you through the details of those. We're very happy with the way our programs are progressing.

So far this quarter, Abbott is finalizing the phase 3 protocols, and continues to be on track to initiate the phase 3 program in Q4. In addition, they are progressing nicely on the phase 2 trials for uterine fibroids, and that is still on schedule to start late this Q3. These are large, and ambitious trials and were quite fortunate to have Abbott as a partner. It takes their kind of experience in this disease states and the global reach to pull off these trials. But Chris give you more detail there. Now, in addition to that, it has been a very successful quarter for our VMAT2 program, and you'll be hearing more about what we've been putting in place in order to start our next phase 2 program in just a couple of months, as well as the recent FDA interactions that we've had on the program. Of significant importance is our receipt by the US patent office giving us know that notification allowance on the composition of matter patent covering of the VMAT2 compound 854. That obviously is extremely important to this program. So, let's get started first with Tim taking you through our financials.

Thank you, Kevin, and good morning, everyone. Yesterday after market closed we released our results for the second quarter of 2011. It was again another quarter that was in line with our financial plan. We remain on target for both annual net income of $34 million to $39 million, and a net cash burn for $3 million to $6 million for 2011, consistent with our beginning of the year guidance. Our net income for the second quarter of $2 million or $0.04 per share, compared to net loss of $5.2 million or a loss of $0.09 per share in the second quarter of last year.

Our year-to-date net income is $4.9 million, or income of $0.09 per share. This compares to a net loss of $13.8 million for the first half of 2010, yielding a loss of $0.27 per share. The significant improvement in operating results as a direct result of our collaboration agreements with both Abbott and Boehringer Ingelheim, which was entered into in June of 2010. Revenue in our collaboration agreements was $12.2 million for the second quarter, and $24.7 million year-to-date. Amortization of up front licensing fees was $9.2 million for the quarter, and $18.5 million year-to-date, while reimbursement of internal and external research and development expenses resulted in revenue of $2.9 million and $6.2 million for the second quarter and year-to-date, 2011 respectively.

Research and development expense increased in the previous quarter primarily driven by increased costs related to our VMAT2 program, and an earlier stage research programs, offset partially by Elagolix's expenses being assumed by Abbott. General administrative expenses were slightly lower than budget, due to lower personnel related costs. We expect research and development costs will moderately increase through the rest of the year, as our VMAT2 program continues to forward, including expenses from a second phase 2 study, 3-month toxicology work, and ongoing product development work. We also anticipate general administrative costs reverting back to approximately $3 million per quarter for the rest of the year. Other income for the second quarter is comparable to first quarter. However, other income year-to-date is lower than the previous year, due primarily to a one-time gain recognized in the first quarter of 2010.

Turning to the balance sheet, we ended the quarter with approximately $118 million in cash, investment receivables from collaboration partners, and our net cash burn for the quarter was right at our targeted $7 million, bringing our year to date cash burn to $17 million.

So that concludes our prepared remarks on the financials. We would be glad to entertain any questions on the financials later in the call. And for those looking for additional details, our 10-Q will be filed with the SEC later today. So with that, I'll turn it back to Kevin.

Thanks, Tim. Very straightforward financials for the quarter, as I'm sure all of you will agree. Chris, why don't you take us through our clinical programs?

Thanks, Kevin, and good morning to the listeners. As both Kevin and Tim have pointed out, things are moving along quite well with both our Elagolix programs and VMAT2 program. We are really very pleased to have the partnership with Abbott as they bring a level of engagement and resources that is second to none to this development program. The multiple parallel streams of activities going on currently with phase 1, phase 2, and phase 3 programs. As Kevin mentioned, the uterine fibroids trial is moving quickly towards beginning screening later in the quarter. And multiple sites are up and running across the US, getting ready for this trial to get underway. You'll see details of the trial as it gets posted on clinicaltrials.gov once we get to those closer to the start time.

The massive initiative is getting the phase 3 program up and running in Q4 of this year, and we've been working intensely with Abbott to identify qualified investigators and sites, getting them up to speed and online, and getting the materials prepared, finalizing some details of the phase 3 protocol and I'm very pleased with the progress that's being made there. As Kevin mentioned, this is really a substantial undertaking. No one has seen this level of commitment to an endometriosis program before. And this is being done very expertly and carefully by the collaboration between Abbott and Neurocrine. So very excited, very pleased. And we know we have the right partner and are in good hands with this program.

In addition to the clinical activities, we are now working on the publication and presentation aspects of this development initiative and in particular are very excited to be attending and participating in the World Congress of Endometriosis. This will be held in September in Montpellier, France and this event occurs only once every 3 years. This is a very well attended, very important meeting, and we are fortunate that we have had multiple abstracts and presentations accepted for the meeting and you'll see presentations on the double-blind placebo-controlled trials, open label extension data as well as some of the health outcomes and quality of life initiatives that are part of this program. This is just the beginning of what I expect will be a multi-year substantial effort on publications and planning. Abbot truly has some terrific resources in that respect.

So, moving from Elagolix to the VMAT2 program, 98854, our internal name -- number for the compound, as Kevin mentioned we've had some -- a lot of activity in the past few months. I think most importantly for us, since we last spoke has been a very successful pre-IND meeting with the division of psychiatry products here at the FDA. I think as most people know, it was our decision that I wanted to establish a foundation -- a basic data package, if you will, before I sat down to meet with the FDA. And so rather than starting with an IND in the US, we started with a CTA in Canada to complete the 2 phase 1 trials, single ascending dose and multiple ascending dose, and moving to a small open label phase 2 trial in patients with moderate to severe Tardive dyskinesia. This was completed in Toronto, very successfully by a very capable and experienced Tardive Dyskinesia investigator. And we got the confirmation that we needed that we were seeing the kinds of effects that were clinically robust in the dose range and exposures that we had predicted, based on PKPD modeling and pre-clinical data.

With that package well in hand, we then submitted a request for a pre-IND meeting. This was held in June, and it was a terrific meeting. We had a very engaged Review division. They are very pleased that someone is pursuing what is seen as a very important and to use the cliche, unmet medical need. Nothing has been seriously developed for Tardive Dyskinesia for a very long time, and this is a problem that did not go away with the advent of a-typical anti-psychotics. And in fact, with the increasing widespread use of anti-psychotics for conditions outside of schizophrenia, the actual prevalence of Tardive Dyskinesia has grown.

Some of you may be aware that historically, some drugs have been granted orphan designation for Tardive Dyskinesia, and early on in our development program a couple of years ago, we expressed interest in possibly achieving orphan designation for this compound. Things have changed, and the epidemiology of Tardive Dyskinesia suggests that in fact this is a more widespread problem than previously appreciated. In fact, we approached the orphan drug division to see about orphan status for our program for Tardive Dyskinesia, and it was their opinion that in fact Tardive Dyskinesia can no longer be considered an orphan designation, that there are very many more than 200,000 patients with Tardive Dyskinesia. If you look at not just the 10% or 15% of the schizophrenia population, with a prevalence of TD, but in fact, you're talking about widespread use, particularly of atypicals in both unlabeled populations such as bipolar disorder, and off label use in dementia in elderly patients, this is a substantial number. And we will not -- I don't think will be able to proceed with the Tardive indication for the targeted population.

So the important thing, obviously, is that we had this meeting with the psychiatry products division and had a very engaged set of reviewers that gave us a very clear and consistent guidance and this fits very well with the expected IND opening clinical trial that we will be beginning in actually just a few weeks' time. So after the pre-IND meeting with have submitted our IND to the FDA in July. Earlier this month. And the way this works now, we told them here's the clinical trial that we're going to do. And unless we hear back from them within 30 days, that there is some other data that they need or issues that they need addressed, we will continue as planned. What that means is we've identified the investigators and the clinical sites for the trial that we will do. The so called 11-01 trial. You can find out detail about this. It is posted on clinicaltrials.gov. And we will be carrying out the kickoff activities in August and begin the trial in September. This is a crossover trial. 2 weeks of active treatment or 2 weeks of placebo, and we will be using as the primary endpoint the standard assessment tool, the abnormal involuntary movement scale or AIMS, as recommended by the FDA and as used historically for the assessment of Tardive Dyskinesia.

The trial itself is a very crisp, clear way of assessing what we think is at the low end of the effective of dose range, and at a dose above what we predict to be the effective range, 12.5 milligrams and 50 milligrams. It's kind of separation or non-overlap of dosing was deliberately chosen, and this is the longest duration trial that I can currently do, given the pre-clinical toxicology data that has been generated by our pre-clinical group here at Neurocrine.

As Kevin mentioned, we have already gotten well into the 3 month toxicology studies when this data is available, at the end of year, as long as there are no surprises or problems, this will enable us to go into the 3 month or longer duration phase 2 trials that are currently -- have been planned for first quarter of 2012.

So the 32 person crossover 11-01 trial set for study related activities undergoing kickoff activities in August and studies start in September. With data readout in Q1 presuming activities go as planned, and based on that crossover trial data, and the availability of 3 month toxicology data, we will then plan on initiating initial clinical trials in 2012. We'll have a lot more detail for you about the scope of the program in 2012, the range of studies that we plan to do, and other related activities as we get closer to that time period.

So, very happy with the VMAT2 progress. Moving along very nicely, very positive and productive interactions with the FDA, and lots of activity ramping up as Tim said, spending more money this year and looking forward to a very productive winter and spring with this progress, and some data readout early in Q1.

The next program I want to provide some update is the Urocortin 2 update. As we said before, this is an activity where we have reached out to several academic collaborators, who have been busy with some work that is supportive of the Neurocrine goals, although these activities are actually won by our academic colleagues. So the cardio-endocrine research group in Christchurch is completing the enrollment for the acute de-compensated heart failure trial known as the UNICORN study, that's the acronym, their target as we've previously stated, has been to randomize a group of 50 patients with acute de-compensated heart failure, and then also a subset of that 50, will undergo right heart catheterization to look at the impact of Urocortin 2 infusions versus placebo on top of standard of care in these very ill patients treated in the hospital.

Now, if you follow the world events, you know that our colleagues in Christchurch have been not only doing their normal work and the UNICORN trial, but they have been struggling with tremors and earthquakes, et cetera. So in the last conversation with them, they were just shy of the 50 subject recruitment goals, and they anticipated finishing up recruitment sometime in the August, September timeframe. As soon as that data is available we obviously will share that, those results. Again, this is a program that they are running as a single set of trials. It's not a Neurocrine run initiative. We support them with study drug and regulatory documents, et cetera, but we are very much looking forward to seeing what they have come up with in this important trial for Urocortin 2.

The specialized kind of mechanism of action phase 1 and early phase 2 studies are being funded in Scotland by the British Heart Foundation continue to be underway. And we were in contact with them this week. Those are moving forward nicely. We are supplying them with some more study drug and as soon as data becomes available from that group, well, again, it's early mechanistic type translational work, not critical for us finding a partner for Urocortin 2, but nonetheless interesting and important in building up a compelling story for this drug. And then we will share that data when it becomes available.

So I've talked about the 3 prominent program, Elagolix, VMAT2, and Urocortin 2, we are very happy with the progress the teams are working very hard. And we're on track for uterine fibroids, endometriosis, Tardive dyskinesia, and heart failure. And with that, I'll turn it back to Kevin. I look forward to your questions as they come up.

Thank you, Chris. In addition to everything that Chris outlined there, our research team continues to work on a number of programs. They've been progressing all of these quite nicely. We'll talk about them as they start nearing pre-clinical and the clinic. They've nearly completed work on the VMAT2 backup compound, and this is in keeping with our philosophy of enhancing and de-risking all of our critical programs with a strong research effort utilizing our proprietary platform. Now with this as background of this call, I'm very happy now to entertain questions.

Thank you. (Operator Instructions) And we'll take our first question from Thomas Wei with Jefferies & Company. Your line is open.

Thanks. Just on the endometriosis program, do you have any update on whether or not Abbott has stepped down with the European regulators on endometriosis and whether or not they're going to accept the US package or require you to run a 12 month active control trial? Any update there?

Hello, Thomas. Thank you. No, Abbott has not shared the details of that. They are in discussions with the European regulatory experts and in the process of doing that. But no details have been shared primarily because the massive focus has been on getting the US pivotal trials up and running.

And on uterine fibroids, can you give us a general sense of when data might be expected from that study, and would you be looking at a primary end point like uterine bleeding or some other surrogate marker for activity?

While the details haven't been fully announced, it's very clear if you look at recent development initiatives for uterine fibroids, for example, the expertise Abbott had been working at cap on, it's a personal with uterine fibroids, the primary endpoint for these modern uterine fibroid development efforts has been uterine bleeding, as you point out. And so that would be consistent with this phase 2 trial that Abbott is about to start. This is a big trial. Again, you'll see details once they are finally posted. And 3 months in duration, so with recruitment starting trial in the fall, recruitment, 3 months treatment and follow-up, I think one could estimate that you'd see data later in 2012.

And just a couple on the VMAT2 program. Just wanted to understand with this type of mechanism and with this AIMS scale, at 2 weeks of dosing would you have expected to have seen maximum activity with the VMAT2 inhibitor, or is it a partial look at early efficacy? And then is there any sort of anticipated pre-clinical talk that you would expect at very high doses of the VMAT2 inhibitor?

Good questions. So with this mechanism, VMAT2 inhibition typically produces a fairly prominent affect within days of starting treatment. I do think there is a pharmacodynamic effect, which is an increasing cumulative benefit that occurs over time, above and beyond that which is associated with in recent steady-state exposure of the drug. The nature of that kind of how long is that plateau take to level out, is one that we will be exploring. But you see the overwhelming majority of the clinical response within that first 2 weeks. How much more improvement might you get with an additional month of treatment, it might be in the 10% range, it might be in the 15%, 20% range. I don't know, Thomas, and that's why we will do that. The maximum duration that I can do based on the currently available pre-clinical data is two weeks, so that's why we're doing it.

In the 10-01 trial that was conducted in Canada, we saw very robust effects by day 8 and 9. And it was a slight additional improvement by day 12, but you are on the flattening part of the curve, not the accelerating part of the curve. Now, as far as the pre-clinical work, obviously, these are still early days. We haven't gotten the 3 month data back. And I'd ask you to kind of hold that question until we have some data to talk about. Obviously, one could speculate any time you have a drug at super therapeutic exposures, that you would see in pre-clinical toxicology studies, you expect to see exaggerated pharmacology, and these are monoamine depleters. So those typically are the dose limiting kinds of things in the trials rather than kind of off target toxicology. But we'll have to gather some more data than we can have a more informed discussion about that.

And we'll take our next question from Phil Nadeau with Cowen & Company. Your line is open.

Thanks for taking my question. First on the phase 2 program for Elagolix. As Canada has moved towards initiating that program, have they made any substantial changes versus the design that you have discussed in the past and anything notable -- has anything notable been altered?

No, in fact, we have good agreement on the co-primary endpoints, and very positive recent interaction with the division of reproductive products. I'm happy to say that the nice relationship that Neurocrine has enjoyed with that division has now been picked up with Abbott in the division. So that's very, very good. The trials, as we've previously given guidance, 2 6-month pivotal trials with placebo control, and still women with moderate to severe endometriosis, still post treatment open label extension, still post treatment Dexo follow-up to secure that no significant reduction in bone mineral density is present. So those aspects have changed. There are some nuances and things that have been fine tuned to meet Abbott's needs. But nothing that substantially changes the program.

Okay. And how does Abbott plan to deal with the issue of use of oral contraceptives in this market? It seems that Elagolix could penetrate that part of the market, it would obviously massively expands the potential. Do they plan any marketing studies or high-tech comparisons versus oral contraceptives, maybe not in a phase 2 program, but maybe in a phase 3 or phase 4 program?

If I can just grab the first whack at that, Chris, and then you can go after me. Abbott's phase 3 [here] phase 4 program has not been fully developed, so we can't really speak to that. As far as the oral contraceptive market, the oral contraceptive Aviane worked quite well in the very early mild stage of the disease, which is about a third of the population. The two-thirds is what we're aiming for with the product, the moderate to severe population. So as far as doing a head-to-head efficacy study, that is one that we'll have to wait and see if that would ever be done. As far as utilizing the 2 together, because we call that Elagolix is not a contraceptive method, then that will be explored about using each of these drugs together, but not as an additive for efficacy, more just for preventing pregnancy. Chris Carter you want to add anything to that?

2 things I would point out. You probably won't see a head-to-head study because oral contraceptives are not indicated for the treatment of endometriosis. And so I don't think you'll find anybody trying to open an IND for a new indication for oral contraceptives. And the second thing to point out is that the combination of Elagolix and an oral contraceptive is not being looked at in patients with endometriosis. What studies will be done our simple drug-drug interaction studies looking at PK and safety, etc. So just to make sure that there is some information about what the effects of Elagolix are on oral contraceptive metabolism and exposure, and vice versa.

Okay. That's very helpful. And one last question. On Urocortin 2, I know you mentioned that you're collaboration in New Zealand would put out the data whenever they have it. Do you have a sense of whether that's likely to be a Q4 event or something that happens early in 2012?

I'm hoping it's this year for sure. But obviously, we don't control that. I would even hope that, we get a hint of some things in the kind of September - October time frame. But I'm not controlling the data scrubbing, and the database lock and those kinds of things. So as soon as we hear something, obviously, will share it.

Great. Thanks for taking my questions.

(Operator Instructions) We'll take our next question from Ian Somaiya with Piper Jaffray. Your line is open.

Thanks. I hope you guys can hear me. Chris, I missed some of your initial comments and I apologize if you already covered this, I wanted to get a sense of the breadth of the applicability of the VMAT2 program, and maybe if you could review for us where VMAT2 is implicated, where proof of (inaudible) has been established, and what needs to happen for you to pursue some of those opportunities.

Thank you. Those are good questions. No, I didn't specifically go over that. So the vesicular model transporter 2 in humans is primarily located in the brain and more specifically, in the region of the basal ganglia called the striatum. It's critical for control of movement and has been implicated in the full range of hyperkinetic movement disorders. So whether that's a dyskinesia in the Tardive setting, that is after an exposure to most often a neuroleptic, or is it a dyskinetic syndrome such as Chorea associated with an neurodegenerative disease whether that is Huntington's disease or Wilson's disease or one of the many other hyperkinetic syndromes or whether it's another hyperkinetic syndrome that has a dopaminergic foundation, such as a tic disorder and Tourette's syndrome.

All of these things are conditions, hyperkinetic conditions, where VMAT2 potentially is an applicable therapeutic target. Now proof of mechanism, has been established in this regard because of the long-standing use of tetra benezine, a medication that was initially developed by Hoffman-La Roche in the late 1950s and early 1960s for the treatment of schizophrenia. Again, a hyper dopaminergic condition, if you will. It was effective, but it was eclipsed by the typical anti-psychotics of the 1960's. Tetra benezine was approved for the treatment of hyperkinetic movement disorders in the early 1970s in the UK, and then over the next 20 years, a variety of Anglophile and subsequently other countries around the world had also approved tetra benezine for the treatment of hyperkinetic movement disorders.

And by that, they were lumping in Tardive dyskinesia, Chorea, tic disorders, a range of conditions that had these involuntary movements. As you know, when tetra benzene was approved as Xenazine of the United States a couple of years ago, it was approved specifically for the Chorea associated with Huntington's disease and that's where the orphan designation was given. And that's the only indication for Xenazine in the US and there's a very well controlled REMS program and specialty form of distribution for Xenazine that is a limbic -- no, it was a bio vail limbic. So that drug is just for Huntington's Chorea.

So we know the -- that the mechanism works. And that was not the challenge. The challenge was to have a very selective molecule with no off target effects, a PK profile that fostered just dopamine modulation without impacting other monoamine's so as to avoid some of the unwanted potential side effects, for example, depression with serotonin depletion. And to do so with once a day dosing and a very clean safety profile and no QTC prolongation, no off target effects, et cetera. So that's what were doing with our compound. The mechanism we have, we know the mechanism works. There's a whole range of hyperkinetic conditions that potentially could be explored as indications. We're going after Tardive dyskinesia, as this is an important medical need unmet. No drugs are approved for this.

There are no drugs being developed for Tardive Dyskinesia, and as I mentioned earlier, this is no longer considered an orphan indication given the much greater prevalence of TD in the US than people had previously appreciated. Now Tim points out that I may have misused a word when I was speaking earlier in the call. I talked about proceeding with the Tardive indication. We are not proceeding with trying to get orphan status based on what the orphan division has told us. This is a much greater number of patients out there than orphan status. So we are not going after orphan, as has been discussed in previous years. So that's the market. I hope that addresses your question.

It did. The only follow-up I have is, logically, when can you pursue those other indications? Is it a bandwidth issue? Is it a financial constraint that you're under? Just curious, given the -- obviously the large market segment that this product area could address and the multiples drugs that you have on hand.

What we wanted to do, this is a very logical sequence, and we are marching down that path. As I said, we submitted the IND this month in the US. We will have the crossover trial in Tardive dyskinesia this fall. And we will plan on once we have a solid dose formulation, we will plan on immediately going into a kick disorder trial in adults early in Q-- sorry, early in 2012. And if we see proof of efficacy and safety tolerability in adult Tourette's patients with moderate to severe tics, we will then do a PK bridging study for adolescents and children, because the bulk of people who suffer from disabling tics are in fact, adolescents. And I will go into that population if the adults study looks good, the PK bridging study gives us guidance on dosing, and of course, I'm still waiting until I get the 3-month toxicology. Because I'm going to want to do a longer-term trial in the target population, it proper phase 2 dose response studies in children with moderate to severe Tourette's. And hopefully I can get that rolling later in 2012. So absolutely. We've mapped out a whole series of alternatives. This is the plan that I mentioned in my earlier comments that we will be revealing or unveiling as we get closer to those dates.

Thank you very much.

At this time I would like to turn the call back over to Kevin Gorman for any closing remarks.

Thank you very much. I anticipate that when we speak next at our third quarter call, that we're going to have a phase 2 trial ongoing in Tardive dyskinesia and with 854, and Abbott will have begun the phase 2 trial in uterine fibroids. So we always would be happening in the third quarter. I thank you all very much for participating today, for the excellent questions and we look forward to speaking in the future. And hopefully, some of you can keep track and get over to France for the presentations we will be making at the World Congress of Endometriosis in September. Thank you all and take care.

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