Neurocrine Biosciences Inc (NBIX) 2011 Q3 法說會逐字稿

Good day and welcome to the Neurocrine Biosciences Reports Third Quarter 2011 Results Conference Call. All lines are currently in a listen-only mode. Later you will have the opportunity to ask questions during the question-and-answer session. Please note today's call is being recorded.

It is now my pleasure to turn the program over to the President and CEO, Kevin Gorman. Please go ahead.

Thank you very much. Good afternoon, everyone, and welcome to our third quarter earnings call. I'm joined today by Tim Coughlin, our CFO -- he will give you an update on financials -- and Chris O'Brien, our Chief Medical Officer, and Chris will update you on the progress for our clinical programs.

Before we start I would like to turn it over to Jane Sorenson to read our Safe Harbor statement.

Good afternoon. I want to remind you of Neurocrine's Safe Harbor caution. Certain statements made in the course of this conference call that state the Company's are management's intentions, [hopefully], the expectations or predictions of the future are forward-looking statements which are subject to risks and uncertainties. Information concerning factors that could cause the 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 files may be obtained by visiting the Investor Relations page on the Company's website at 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 very much, Jane. Before I turn it over to Tim, our quarter was very good from a financial aspect. We had $30 million in milestones that we received from Abbott and I believe that as Tim will go over our guidance for the year remains unchanged. Tim, why don't you take it?

Sure. Thanks, Kevin, and good afternoon. After today's market close we released our results for the third quarter of 2011. We had another good quarter and continue to meet our financial plans for the first nine months of 2011. We also remain on target for both annual net income of $37 million to $39 million and a net cash burn of $3 million to $6 million for 2011. We went into the year with approximately $130 million in cash investments and receivables. This is consistent with the guidance we provided at the beginning of the year.

Our net income for the third quarter was $31.4 million or $0.56 of income per fully diluted share compared to net income of $3.3 million or $0.06 of income per fully diluted share in the third quarter of last year. Our year-to-date net income is $36.2 million or income of $0.64 per fully diluted share. This compares to a net loss of $10.5 million for the first three quarters of 2010 yielding a loss of $0.20 per share.

The significant improvement in operating results is a direct result of our collaboration agreements with both Abbott and Boehringer Ingelheim, which were entered into in June of 2010. Revenue recognized in our collaboration agreements was $41.6 million for the third quarter and $66.3 million year-to-date.

The bulk of this revenue is recognized for two milestones achieved during the third quarter under the Abbott agreement. A $10 million milestone was earned that related to starting elagolix phase 2 studies in uterine fibroids and a $20 million milestone that was related to the outcome of an FDA meeting relating to elagolix for endometriosis.

Amortization of upfront licensing fees was $9.2 million for the quarter and $27.7 million year-to-date while reimbursement of internal and external research and development expenses resulted in revenue of $2.4 million and $8.6 million for the third quarter and year-to-date 2011, respectively.

Increased external development cost related to our VMAT2 program and other research and development cost related to earlier stage programs was offset by lower external development expenses related to elagolix, as these activities continued to transition to Abbott. This resulted in a net decrease in research and development cost second quarter to third quarter of approximately $700,000. This lower R&D expense was coupled with lower sponsored development revenue of approximately $700,000, essentially netting to zero in our net income line.

Recurring general and administrative expenses were slightly lower than budget, due to lower personnel-related costs, but higher than the previous quarter due to a severance in transition payment, which occurred in the third quarter.

Other income for the third quarter was comparable to the previous quarter and prior year. However, other income year-to-date is lower than previous year, due primarily to one-time gain recognized in the first quarter of 2010.

Turning to the balance sheet, we entered the quarter with approximately $140 million in cash investments and receivables and our cash expense for the quarter is right at our target of $8 million. This was offset by the $30 million of milestones recognized under the Abbott collaboration agreement.

So that concludes our prepared remarks on the financials. We'll be glad to entertain any questions on the financials later in the call and for those looking for additional details, our third-quarter 10-Q was filed about an hour ago with the SEC.

So with that I will turn it back over to Kevin.

Thank you, Tim. No surprises there from a financial standpoint.

Before I turn it over to Chris, I would just like to say that he and his team and our preclinical team have VMAT2 well on track; started the phase 2 trial earlier this quarter that will read out early next year and Chris will give more detail there.

The elagolix program, Abbott is in full control of the program and in this last quarter, they moved into a large phase 2 study in uterine fibroids. And as Tim said, we received a $10 million milestone payment for that. Abbott has also been making progress on their discussions with the agency in finalizing the phase 3 program trial designs and for that we received a $20 million milestone.

So, Chris can add some more color to that.

Thank you, Kevin. So that's exactly correct. We are most excited about the progress that is being made with the VMAT program here at Neurocrine. The team has been intensely involved in the successful initiation of the phase 2 randomized double-blind placebo-controlled crossover trial, which is currently enrolling patients. This is the 1101 trial. Details are available on clinicaltrials.gov for those who are interested. 11 sites in the US are currently activated and recruiting and enrolling patients.

These are patients with moderate to severe tardive dyskinesia, due to antipsychotic medication with an underlying diagnosis of schizophrenia or schizoaffective disorder. So, so far, we are pleased with that study, and as Kevin mentioned, our goal is to have clinical data to discuss in Q1.

While that is going on, we are also investing in some other activities. We are in the midst of a phase 1 study looking at a solid dosing formulation of our VMAT2 inhibitor drug and this will be the basis for taking a solid dose formulation into a larger long-term phase 2 trials which we plan on initiating in 2012 after the readout of the 1101 crossover trial.

While this is going on, our preclinical colleagues are completing all this necessary preclinical work that will allow us to do these long-term trials. And so we are looking forward to getting a readout from our three-month toxicology preclinical data sometime this winter as well, which will then position us nicely to start the next studies.

So while that activity is going on with both the phase 1 and the phase 2 studies of VMAT2 inhibitor, we are collaborating with Abbott. As Kevin mentioned they are running the programs in uterine fibroids in -- and endometriosis, and we are helping support their activities. For example the team at Neurocrine has been very busy in identification and qualification of sites to run the phase 3 endometriosis trial and assisting with the monitoring and support of the uterine fibroid phase 2 study.

So the Abbott team is very focused on these activities. That collaboration is going nicely and as more detail emerges, regarding, for example, the uterine fibroids trials, we will be happy to share that information with you as we have that information available.

I think what I will do rather than speak more is turn it back over to Kevin and then if there are specific questions, I'll be happy to take those during the Q&A.

Thank you very much, Chris. So why don't we go now and we will be happy to take your questions.

(Operator Instructions). Ian Somaiya with Piper Jaffray.

Thanks, a couple of questions. On the elagolix program, maybe it would just help for you to give us an idea what the timelines are going to be for elagolix and in Europe? And what if any changes there are in terms of any partners' commercial strategy for the program? And then I just had a quick follow-up on the VMAT2 program.

As far as timelines for Europe, as we discussed before is that we did not go over to Europe to seek scientific advice or to have any discussions with the EMEA prior to partnering this program with Abbott. And that has been left completely to them, and where they are right now is that they are seeking scientific advice in formulating the European strategy for both uterine fibroids and endometriosis. Then you had another question for elagolix or was it then over to VMAT?

We can go to VMAT. I think you will cover a lot of those in the subsequent questions. But on VMAT2 I guess you talked about or at least mentioned in the press release that, with the increased cash on the balance sheet, you wanted to accelerate the program or further invest in it. Do you feel at this point there are any resource constraints related to the VMAT2 program? Would an extra $30 million, $40 million help further drive the timelines and the realization of the opportunity for that drug?

Well, I would say that VMAT2 is the highest priority program we have in the Company right now seeing as how elagolix is completely handled by Abbott. $30 million or $40 million would always help anything that we could do.

But seriously, when you look at what we are doing with VMAT2 right now, I think we are putting everything behind it that we can. Clearly, we have a couple of real similar events that are coming up and one is having the three-month toxicology completed and the second, and that will be by the end of this year. And then early next year, as we said, is having this first placebo-controlled trial done.

Now positive outcomes on both of those, I think you'll see the --everything that we've been putting together today in order to really launch into a robust program with our VMAT2 inhibitor. Chris, you want to --?

Yes, I would add the other thing that we are actually able to do and it is in the plan and timelines as I mentioned earlier is a second indication. And so, I would really like to get some information that we are in a good place with the three-month talks and with the tardive dyskinesia program. And then we start thinking about what are the options of additional work.

But right now, there are no constraints on our ability to move our program forward. It is fully resourced and moving ahead quickly.

Thomas Wei with Jefferies.

Thanks. Actually I had a general question on the whole uterine fibroids program. If you could just go over what correlation is there between the size of the fibroid or estrodiol levels in blood loss in those patients? Just a little bit of background there might be helpful.

Okay, thank you, Thomas. It's an interesting question. The key aspects from a clinical regulatory viewpoint for uterine fibroids is the primary endpoint in a clinical trial and the FDA has been reasonably clear on this. The primary endpoint for a trial is blood loss. And blood loss can be related to the uterine fibroid size, but not very closely. It is mostly related to the uterine fibroid location.

So those fibroids that are closer to the endometrial lining in the myeometrium, for example, tend to be more likely to bleed. So uterine size per se has not really been an aspect of getting the drug approved for uterine fibroids in the United States. So correlation is not terribly good.

And so how does that play into the risk of elagolix showing a positive benefit on a blood loss end point?

I'm not sure I understood the question completely.

If it more has to do with the location as opposed to the actual size of the fibroid, is what elagolix is doing here shrinking fibroids and so it would be unclear if you would actually have an impact on blood loss in the end?

Elagolix does reduce blood loss. We've seen that in healthy volunteers with normal menses. We have seen that in endometriosis patients with heavy menstrual flow and we have seen it in endometriosis patients with heavy menstrual flow and who happen to have some small or moderate size fibroids at the same time by ultrasound.

Now the loss of blood in uterine fibroid patients -- to get into a uterine fibroid trial, you have to have heavy blood loss. So it is independent of location or size of your fibroid. So that won't be a gatekeeper. Somebody comes in and has heavy blood loss and they have a uterine fibroid, they would potentially qualify for this study. And we know that a [generis] antagonist with reduction of estradiol and progesterone is associated with a marked diminution of blood loss.

And so, the only question is you want to nail down some of the details about the patient characteristics and the dose -- dose response range so you can then plan on subsequent studies.

Okay. And with the end phase 2 meeting behind you now with the FDA on the endometriosis program, what can you share with us about some of the key points of agreements or maybe how the program for phase 3 trials differs from maybe what you had originally expected prior to the agreement being signed with Abbott?

So, as you know the program is an Abbott program at this point not a Neurocrine program. And a lot of the details of the phase 3 study design is in Abbott's hands and I think their timing on disclosing those details will be when it is posted on clinicaltrials.gov. So I don't want to -- I'm not really in a position where I can speak for Abbott.

In a general sense, what we have said all along about having six-month trials and placebo-controlled comparison of elagolix to placebo, with co-primary endpoints, limited to moderate to severe symptoms, long-term follow-up post-treatment, looking at [BMD as safety], all of those things have been nailed down and agreed to. And so, there are no substantive changes at any of those levels.

So in that sense, there are things out in the same and consistent with our discussions with the division at the FDA over a period of actually a couple years.

Thank you.

Thank you.

(Operator Instructions). Phil Nadeau with Cowen and Company.

Good afternoon. Thanks for taking our questions. First on 98854, I think -- or I know we have already seen Canadian phase 2a data and after 12 days I think a 41% change in the AIMS score. Could you just talk a little bit about how the trial that you are doing in the US differs in design from that study? And therefore should we expect -- can we expect a 41% change from baseline or are there any subtleties to the design that would bias that number one way or the other?

Thanks. Good question. So you are exactly correct. The small open label Canadian study in six patients was to give me some reassurance about the kinds of doses I've might want to take into a properly powered placebo-controlled trial. So it served its purpose very well. I was pleased that we saw a 40% reduction in dyskinesia, literally within days of starting the study medication.

But I am the first to point out that it is an open label trial. So we had no placebo-controlled in that, in a fixed study and the doses were compared -- looked at in isolation. So all six subjects started at 12.5 mg, and then after four days went to 25 and then after four days went to 50 mg.

So whether there was anything better regarding one dose over another or -- we really won't know until we look at it in a more careful proper placebo-controlled design. So that is the big difference. This current study, the 1101 study conducted in the United States, is a crossover trial, randomized double-blind placebo controlled crossover trial. So study subjects come in and go for two weeks on active drug or then two weeks placebo or vice versa. And for the active drug they are either getting 12.5 mg or 50 mg of the study medication.

So we will have a very nice way of looking at what we think is a dose that is well into the therapeutic range, 50 mg, and a dose that's right on the edge of what I think is beneficial. Now, given the long half-life of this drug, the patients reach steady state after that first week or so and we should be able to isolate quite nicely the treatment effects because it is a within subject comparison.

So there should be a very clear study that gives us a very clear signal about efficacy on the AIMS and would allow me to get to plan my larger long-term three-month trial.

And Phil, the other aspect of this study that is really informative to us, different from the Canadian study, is this is multicenter. So now we are going to have just shy of a dozens sites versus a single site and so that's -- we are going to learn something, I'm sure, from that.

Phil Nadeau That makes a lot of sense. And then second just wanted to be kind of clear what happened during the quarter to trigger the recognition of the $20 million milestone for the [prefaced inter] meeting with the FDA.

So if memory serves me correctly, you actually had the end of phase 2 meeting in March. So was this a separate meeting that led to new and different discussions in the phase 3 design or is it something more subtle than that?

No, Phil, it's -- here is what the -- the way the agreement was originally written was the fact that the $20 million milestone payment was triggered either by an agreeable [SpA] between Abbott and the agency or the start of a phase 3 clinical study. And as we said before, the reason why it was written that way is that left to our own devices we always would have gone through an SpA route. Abbott has chosen not to go through an SpA route.

So we made an amendment when they at least made that decision not to go through the SpA route that the milestone would be payable upon again starting the phase 3 or in a type C meeting that we had with the agency. I believe that was approximately six weeks ago?

Chris O'Brien. September 23.

Yes, September 23, so five weeks ago. That both companies would exit that meeting where we felt that the major substantive areas that would need to be nailed down that we had prescribed prior to the meeting were nailed down and then the milestone payment would be made and that is exactly what happened in that meeting.

Okay. Sorry, go ahead.

That was it.

And one final question, it is now basically early November and it does still sound like the phase 3 is going to start by the end of the year. So has Abbott begun to circulate the protocols to IRBs? Is that what we're waiting for now? Or are there any remaining questions on what the actual protocols will be and design of the trial will look like?

They are still working on it and it is not just the single trial that they are dealing with with the agency there. They are trying at this point in time to work out all of the entire phase 3 program with the agency. And so, we are still and the team is still working towards that fourth-quarter start to the first trial, but the proof is going to be in the pudding and see that trial start.

Thanks for taking my questions. It was very helpful.

It appears that we have no further questions at this time. I would like to turn the call back over to Mr. Gorman for closing remarks.

Well thank you very much. It was a brief call today. I think it was a very successful quarter for us moving forward with our programs. We don't talk about research a lot, as you know, but that doesn't mean that research hasn't been doing an outstanding job thus far this year. And I'm looking forward to talking to more about that in the coming months with their progress on a number of fronts.

So with that, I look forward to meeting with all of you or taking your questions as the year progresses. Thank you very much and goodbye.