Neurocrine Biosciences Inc (NBIX) 2012 Q2 法說會逐字稿

Good day everyone and welcome to Neurocrine Biosciences reports second-quarter 2012 results. At this time, all participants are in a listen-only mode. Later you will have the opportunity to ask questions during the Q&A session. (Operator Instructions) Please note this call is being recorded and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Kevin Gorman. Please go ahead.

Thank you very much and welcome everyone this afternoon to our mid-year earnings call. Before I get started, I would like Jane Sorenson to read our Safe Harbor statement please.

Good Afternoon. I want to remind you of Neurocrine's Safe Harbor cautions. Certain statements made in the course of this conference call that state the Company's or 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 10K 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 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. I'm joined here this afternoon with Tim Coughlin, our CFO; and Chris O'Brien, our Chief Medical Officer. Tim will go through the financials, Chris is going to give you a brief update on our programs and then we'd be happy to take all of your questions for the remainder of the call. I'll just start off by saying that this has been a very good first half of the year for us, a good quarter. Hitting all our numbers as you will see from Tim. All of our programs continue to move briskly along and we are on schedule with everything. I am really looking forward to the second half of this year. So with that said, Tim, why don't you take us through the financials for the quarter?

Thank you Kevin and good afternoon everyone listening on the call. Today, we released our financial results for the second quarter of 2012 and we also have our 10-Q on file with the SEC. We met our budget for the quarter losing $0.01 per common share this quarter. It's the same as the first quarter of 2012. Year-over-year, we have lost $0.02 per common share for the first half of 2012 compared to net income of $0.09 per share in the first six months of 2011. The main difference in the financial results year-over-year is due to lower income realized under the Abbott collaboration agreement. That coupled with higher R&D costs driven by increased costs in the VMAT2 program and other early research programs. We also had higher non-cash [option rate] expense which increased by about $1.7 million from 2011 to 2012. This is driven due to the timing of option grants. We remain on target for an annualized cash burn this year of $40 million to $45 million.

Revenues for the first half of the year were $21.8 million compared to $24.7 million for the first half of 2011. The decrease in revenue is attributable to the continued transfer of our efforts around Elagolix to Abbott. We expect revenue to decrease for the balance of the year due to the continued transfer of this work to Abbott and the completion of the amortization of the upfront from Boehringer Ingelheim which occurred in June of this year. Research and development expenses increased year-over-year and quarter-over-quarter. Year-to-date R&D expense increased $2.7 million in 2012 to $18.2 million and this is a result of increased activity in our VMAT2 program as well as efforts around our early stage research programs.

Additionally, the aforementioned or the previously mentioned option costs due to (inaudible) option grants was responsible for about $1 million increase in R&D expenses. We expect R&D expense to continue to increase for the second half of 2012 as the Phase IIB program for VMAT2 commences. G&A expense for the quarter was moderately higher than the prior year, primarily due to higher option related expense. We expect G&A expense to continue at the current run rate for the balance of the year. Overall for the quarter, expenses were in line with our expectations in our budget and the management team and employees of Neurocrine have continued to maintain discipline over the Company's expenditures.

We started this quarter with approximately $203 million in cash, investments and receivables and we ended with about $195 million of cash, investments and receivables. Our cash burn for the first six months of the year was $20 million and as we previously stated, we expect the full-year 2012 burn from operations to be between $40 million and $45 million. So that concludes my prepared remarks on the financials and I will turn it back over to Kevin and Chris for the next portion of the call.

Thanks Tim. Chris?

Thanks Kevin. Happy to give an update on the programs and activities with our clinical and development groups. Obviously, Elagolix is moving along under the guidance of Abbott. The big events in the last few months have been the initiation of the Phase III trial in endometriosis. Listeners know, this is a large Phase III Study, 875 subjects, women with moderate-to-severe endometriosis pain, enrolled at approximately 160 sites in Canada, US and Puerto Rico. This trial began screening approximately six or seven weeks ago and has already randomized subjects into the trial as we speak. So we are very pleased with the progress there and looking forward to that Phase III Study moving along.

At the same time, the Phase II uterine fibroid Study is being conducted by Abbott, and as you know, that program is designed to assess the impact of Elagolix on the weight of heavy menstrual blood loss. That program is going well and we look forward to having that play out over the next few months as Abbott has outlined in their document on clinicaltrials.gov. On our side of the equation, we've been focused intensely on the VMAT2 program. As you know, and as Kevin mentioned, we had evidence of proof of concept from our 1101 Study.

We are able to learn from that particular trial and put into place components that we believe are necessary for the Phase IIB Study, the 1201 Study. In fact, this trial is moving swiftly to getting started. In fact, we have our investigator leading the kick-off these activities coming up in the next few days. We will be giving you updates as far as screening and recruitment over the next few months if this trial goes on. It is our intent that this trial, comparing Elagolix to placebo will give us the kinds of results we need next year to steer us toward our end of Phase II planning for this program. I think at that point, I'll turn it back to Kevin and wait and see what kind of questions people might have.

Yes. That is the top line on us moving forward. Again, we're real pleased with Abbott's efforts. And we are not seeing any effects from their transformation from Abbott into [ABV] at this time in the program. They seem to be smoothly moving the program along in the Phase II and in the Phase III programs with quite a bit of resources that they're putting into it. So at this point, why don't we just open it up for questions?

(Operator Instructions)

Thomas Wei, Jefferies.

Thank you. I had wanted to ask a little bit about the uterine fibroid study. I know that there had been some talk earlier on about potentially doing an interim analysis of the lower or the initial doses that were being tested. It sounds like that's probably not on the table and we're going to have to wait until 2013 to see the full data from that study?

Thomas, we don't really know what Abbott's plans are in order to share that data. We have not seen any of it. But what I mean by sharing it publicly,

I would imagine that what they may do for competitive reasons is hold off on that data for some period of time to share that publicly. But what we and what the rest of the investors would see is a start of the Phase II-B program should they get the proof of concept that they're looking for from that study.

Okay. And then on the Phase III trials in Endometriosis, can you talk through a little bit the rationale for 2 doses being tested? And any details on the disclosure with those doses are?

Sure Thomas. Thanks.

I think from Abbott's point of view, the goal was to have absolutely as one of the active doses be the dose that had been shown efficacious and phase -- was tolerated in Phase II, so the 150 mg daily dose that we had studied extensively. The addition of a second dose was -- I think, to fully explore the range of effects that might help prescribers at the time of putting the label together in the NDA. Abbott has not disclosed that dose publicly yet.

But suffice it to say, it is in the range of what we have looked at in the clinical programs and what Abbott has looked at in their clinical programs. And that's really two shots our goal.

And then just lastly on the VMAT program, just an update on the next set of data. And then also just a reminder of how many centers are being targeted for that study?

The Phase II-B Study that I was referring to is approximately 35 centers and about 120 subjects is the goal. So our anticipation is early next year, we will be able to speak to the top line results from the trial.

Ian Somaiya, Piper Jaffray.

Thanks. I just wanted to follow-up on the -- Chris, your comment that the uterine fibroid study is going well. If you could just elaborate on that a little bit? And then just remind us what the safety profile of the drug was? Again going back to the Elagolix Phase II Endometriosis trial, how the safety profile is related to bone mineral density at 150 mg and higher doses.

Sure, Thomas. Sorry -- Ian.

We sound alike. (laughter) But we are not.

The bone mineral density profile in the Endometriosis program was 150 mg once daily. It was about a 1% change in BMD from baseline. It is a fairly noisy assessment tool, DEXA scan. So there is very little change that occurs during this exposure to 150 mg.

And in fact, even with 250 mg once daily -- the study that Abbott is conducting right now, as you know, is a three-month treatment study. In the three-month study, that time interval is probably too short to say much about impact on DEXA. So you really need to look at the six-month trial to understand that. And that normally would be part of the Phase II-B initiative.

Okay. So that is not a concern that investors should be mindful of, just an impact on BMD coming out of the uterine fibroid study?

Well obviously, that is that -- those data contributes to what Abbott will use when they decide what to take into Phase III. They do the Phase II program to identify the doses and dose regimens that will justify a good safety and efficacy profile. So clearly, they will use that Phase II data to make the decision and that will be driven in large measure by impact on bone and other safety parameters.

Okay. I know the Phase II, the doses that are being evaluated in the Phase II uterine fibroid study are not disclosed, but can you just give us a sense of what the range of doses are in the trial? And how they might potentially impact the outcome in terms of efficacy and safety?

So as you state, Abbott hasn't disclosed probably what those doses are. I think suffice it to say, it is a broad range of doses looking at in a true Phase II sense of wanting to explore the dose response continuum. And then depending on dose and dose regimen, you get to pick what you want moving forward. I can only say it is a broad range that they're looking at.

Are they within -- are the doses ones that you have studied in the past maybe through Phase I or Phase II development?

All of the doses that are being studied in Phase II have been looked at in Phase I. Having said that, to be honest, a range of doses looked at in Phase I have been very broad.

Okay. Just one last question on the VMAT2 program. Does the formulation that you speak to the tablet formulation, can you just discuss or elaborate what changes were made? And is this the commercial formulation?

So in the 1101 Study, all we had was powder in a bottle. So patients came in and got the drug with some Diet 7UP everyday.

The next study is a capsule formulation and it is a fairly simple capsule. It has -- because the drug is a long half-life, and its actual design is such that the concentration time profile is what we want right out of the box, there is no special formulation work that had to be done to get the solid dose formulation in some kind of different format. That's done with the actual drug design of the molecule design itself. So this is just simple capsule formulation.

While it certainly could serve as a commercial formulation, I guess I reserve the right to say that we plan to look at options as we go down the line, whether a tablet might have some advantages. At the moment, I don't see one, but I certainly reserve the right to pursue that.

And then also, Ian, we have completed the relative VMAT Study with that capsule and so it behaves quite nicely. We've done that in humans already.

Phil Nadeau, Cowen and Company.

A couple more on the VMAT program. If I understand you correctly, the Phase II-B will have six weeks of blinded treatment against placebo and then six weeks of open-label treatment following. Is that correct?

Yes, it is Phil.

And what is the rationale for doing about it that way? Why not get 12 weeks of blinded efficacy data?

That's a good question. I tell you, what our concerns have been here, that patients with moderate or severe TD, they get very frustrated with their dis-kinetic movements. And if they're in the trial and they're not getting better, they want to drop out.

So we made a very balanced decision, I would say here, of wanting to get some good dose response efficacy data over some minimum time period to be informative. But we also needed to get some long-term safety data, particularly because we want to make sure we have picked up on any of the AEs that we are trying to avoid with our dose selection before we get into Phase III. So this was the compromise that was reached.

Okay. And what do you think for the pivotal -- what do you think the duration will need to be? Could you do it for six week endpoint or do you think you need to go longer?

No, I think in most neuropsychiatry venues, for chronic drug use, 12 weeks is the duration preferred by the FDA.

Okay. And then second set of questions is on the Phase II-A trial site that seemed to be a little funky. Have you learned anything new about what happened at that trial site? And more specifically, has anything from the conduct in that trial site informed the design of the II-B and the monitoring you are going to do?

Yes, so in fact, the second half of your question is the key learning. There are a lot of things that we have taken into account and built into this Phase II-B trial. Specifically because of what we learned in the Phase II-A Study. So let me give you an example of some of the things.

First thing, and probably one of the most important, is that only subjects that have moderate or severe TD, as determined by an external grader will be allowed in the trial. And the importance of that is oftentimes in these trials, particularly if you have investigators that know their own patients, they have been their treating physicians for awhile, they tend to remember more than score their observations. And you tend to get some inflation of baseline scores and perhaps subjects get enrolled that actually shouldn't have even been in the trial because they did not really meet the moderate or severe threshold. And so by having a videotaped -- structured neurological examination generating a videotape that is securely held on a secure server allows our professional external AIMS raters to determine whether the subjects actually should be in the trial.

Now having said that, we use that for eligibility, but we actually want to stay very close to the idea of having the AIMS assessment done on site. So the actual scoring of the AIMS, not the inclusion/exclusion, but the actual scoring of the AIMS is done by an independent rater at the site. We know that, that dynamic range of the AIMS is better when scored live.

But rather than having this done by the treating physician investigator, we're having an independent rater do the actual AIMS score. That rater has no other interaction with the subjects in the trial; they're not talking to them about their side effects or their medical problems or psychiatric state. They're just doing the AIMS so they truly are an independent rater. While that is going on, we are also videotaping and monitoring the conduct of the AIMS exam to make sure that they continue to be done well.

Furthermore, at the investigator meeting, all of the raters involved in this project have to go through an extensive training and then certification process with actually a live subject showing dis-kinetic movements and scoring and an independent adjudication process for certification. So it is a very robust process that has been built into place.

So Phil, just to be clear there is that inclusion into the trial is going to be done in real-time through videotape by an independent rater. Each of the 35 sites will have 2 physicians at each site. One that takes care of the patient and as the caregiver, The second one's only interaction with the patient is to do the live on-site AIMS scoring. Those two things plus the enhanced training of those investigators -- those three things should take care of anything that we saw within our Phase II-A Study.

That is very helpful. Thank you.

(Operator Instructions)

Neil Chen, Roth Capital.

Just on the Elagolix, I'd just like to see is -- the second Phase II will be remaining on schedule for Abbott to be started on next year? (multiple speakers) The Phase III Study, I'm sorry, in endometriosis

Yes.

And for the VMAT2, it would be -- is the bipolar study still scheduled for the fourth quarter of this year to start?

Yes that is what we are shooting for. We are in the process of refining that protocol as we speak. But the goal would be to get the screening sometime toward the end of Q4.

Okay, great. And lastly, with the change of things in Abbott toward the end of the year, do you see their work as could that be impacted on in terms of the two studies? Or do you feel they are very up for it?

I think they are very up for it. I can tell you the team that is Elagolix is solid, enthusiastic. In fact, I was just meeting with them yesterday.

They are not moving buildings; they're not changing their team. They're adding team members. And this is a very important program for AVI. So I don't think you will see any disruption.

Robyn Karnauskas, Deutsche Bank.

Hello guys. [Solithia] in for Robyn. Just a couple quick questions.

So on the VMAT file, it looks to me like there's a slight shift in the timelines a little bit to make the read-out in early 2013. Just wanted to get your comments on that and determine what the rate limiting steps were? Just wanted to reconfirm on uterine fibroids if the read-out is expected sometime around November, December. Just going to early stage programs, just wanted to get your views on some programs that you see most promising moving beyond the current programs that have on the market right now?

Okay, so taking those in order, on the VMAT; yes, you're correct. We've updated our guidance some after that Phase II-A trial when we saw that we needed to build more rigor into the program in order to make sure that none of the problems that we're seeing in the Phase II-A could be seen in the Phase II-B. So that added about two months to the timeline there. And we are right on track with that new timeline now going forward.

As far as the Phase II Study, the uterine fibroids, Abbott last quarter updated on clinicaltrials.gov that they saw completion of that trial happening in the springtime of next year. So that is their update on that study. And as I said, whether we see a read-out or not from that study, I really can't say. The bottom line is going to be seeing the start of a Phase II-B program in uterine fibroids out of Abbott. And then we can all know that it was a successful proof of concept or not.

And then third, when it comes to the rest of our pipeline, we don't really usually talk a whole lot about our research pipeline and what is in pre-clinical just because things drop out and new things come in. We always have approximately eight programs ongoing at any one time. We obviously specialized in neurology on all of these programs. And we are moving a couple of them through pre-clinical out of research now.

I am hopeful that before year-end, we will start talking about one or more of those programs as they move closer to the clinic. But there is usually at least eight that we have actively ongoing in here.

Thank you. We have no further questions. I'll turn it back to Mr. Gorman for any closing remarks.

Thanks a lot. So in closing, I'll just say I'm very pleased with the quarter that we just closed down on. There is a lot of activity going on here at Neurocrine and at Abbott. And that activity that is going on really does set us up for an exciting second half of this year.

So we're looking forward to meeting with you all in the conferences in the fall and throughout the winter. So thank you very much for participating today. And we will be in touch.

This concludes today's program. We do appreciate your participation. You may disconnect at any time. Have a great day.