Neurocrine Biosciences Inc (NBIX) 2012 Q3 法說會逐字稿

Good day, everyone, and welcome to Neurocrine Biosciences reports third-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, sir.

Thank you very much and welcome everyone this evening to our quarterly earnings call. I'd like to start out with saying that all of you on the East Coast have been in our thoughts out here and we certainly hope that your losses have been minimal and that you can get life back to normal as soon as possible. It looks like you went through one hell of a devastating event back there. Before we get started with the call itself, I'd like to turn it over to Jane to read our Safe Harbor Statement.

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 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 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. As usual, I'm joined here with Chris O'Brien, our Chief Medical Officer; and Tim Coughlin, our CFO. I think the summary of this previous quarter is progress is continuing. Everything is on track, both clinically, research and financially. Why don't we start out with Tim taking us through the financials.

Sure. Thanks, Kevin, and good afternoon to everyone listening in on this call. Today we released our financial results for the third quarter of 2012 and I believe we've also filed our 10-Q with the SEC. We again met our budget for the quarter from a P&L standpoint as well as ending at our cash balance target. We lost $0.05 per common share this quarter, a modest increase over prior quarters. This is driven by lower amortized front revenue payments as well as higher R&D costs as our VMAT2 program continued to move forward and started it's next round of Phase II studies. Year over year we've lost $0.07 per share for the first nine months of 2012, compared to income of $0.64 per fully diluted common share for the first nine months of 2011.

For the third quarter of 2012, as I previously mentioned we lost $0.05 a share, that compared to income of $0.56 per fully diluted common share during the third quarter of 2011. The main difference in the operating results under the two periods is primarily due do to two milestones which we earned last year under the Abbott collaboration agreement. These two milestones totaled $30 million last year. Revenue for the first nine months of 2012 were $31.2 million compared to $66.3 million for the first nine months of 2011. And again, this decrease is driven by the previously mentioned milestones.

Our research and development expenses increased both year over year and quarter over quarter. This increase is-- in expenses is due to higher levels of activity in our VMAT2 program as well as our early research programs. Additionally, higher non-cash R&D related option costs due to the timing of option grants was responsible for about $1.4 million of the year-to-date expense increase in R&D. We expect our R&D expense to increase slightly in the fourth quarter as activities around VMAT2 continue.

General and administrative expense for the quarter was about 13% lower than the prior year, primarily attributable to separation costs we incurred in the third quarter of 2011. Year-to-date G&A costs are about 3% higher than the previous year and this is again driven by non-cash option-related expense. We would expect the fourth quarter G&A expense to be in line with this past quarter. We began the third quarter with approximately $195 million in cash investments and receivables, and during the third quarter we burned about $10 million. At September 30, we have just over $185 million in cash and investments and receivables, so a strong cash position. That concludes our prepared remarks, I'll turn it back over to Kevin and entertain any questions during the Q&A session.

Thanks, Tim. And we're on track as we gave guidance at the very beginning of the year to end this year with at least $170 million in cash in the bank. Chris, why don't I turn it over to you and give an update, particularly with our VMAT2 program as it's progressing.

Sure, thanks Kevin. I'm looking forward on giving some detail on what's happening within VMAT2. But before that just a comment on the collaboration ongoing with Abbott. Abbott, of course, is driving the Violet Petal Study which is the Phase III endometriosis trial. They tell us that things are on track with the recruitment in this very large Phase III study. Approximately 160 plus sites, of which almost all are up and active recruiting subjects at the present time. The Abbott team is happy with the progress that they are having with this study and we look forward to seeing that move along briskly as they have outlined. The-- it's also kind of fun for me to hear the radio ads and see some of the TV ads for our recruitment for this program throughout the country.

The Phase II uterine fibroids study is ongoing and I don't have any new detail or update there. It's just proceeding as they have outlined and we are waiting for some additional updates from them accordingly. The bulk of our work, as Kevin and Tim have pointed out is focused on VMAT within our clinical and regulatory group. The KINECT study is the ongoing Phase II study with our VMAT2 inhibitor NBI-98854, we use the shorthand 854. And this trial, as you recall, we had our investigator meeting in August. We began screening subjects at the latter half of September and the study is now randomizing subjects with a brisk screening pace. We-- our goal was to have at least 30 of the 40 sites up and running this month and we have met that goal. I think we're something like 34 sites up now. And the sites are actively screening patients for moderate or severe tardive dyskinesia.

As you recall, we had the opportunity to learn about the study population, the rating instrument and the investigator application of that AIMS scale during our small crossover Phase IIa study. That has come back to give us benefits in spades. We have taken the learnings from that trial and included a series of, what I have to call, quality control mechanisms to make sure that this Phase IIb study is a high-quality informative trial. And already, early on, I can see that paying off rewards. As you know, we invested significantly in the training and certification of the AIMS raters. We included a study design that had a separate group of external AIMS reviewers that looked at every screening AIMS examination and made a determination if the subject qualified for the study. That was done by an external group of independent experts.

The actual AIMS rating is done by an independent rater at the site. And the treating physician investigator has nothing to do with the AIMS or the qualification of these subjects TD severity. And that separation seems to be working well because frankly, we have been able to exclude patients from this trial that might have been included had we not had those pieces in place. We are including patients in the trial that are highly qualified and very appropriate for the study, they truly have moderate or severe dyskinesia and this ability for the video AIMS exam to be reviewed by the independent experts has -- apparently is making a big difference even in this first couple weeks of screening and enrollment. Very happy with the quality of the subjects that are being enrolled at the sites and very happy that we have this system of controls in place.

So far, we've had no safety signals or any problems to report, although only a small number of subjects are actually randomized to placebo or active drug. I will remind people the goal is to enroll 120 subjects, randomize to active or placebo, for six weeks, followed by active drug for the balance of the 12-week trial. We plan on reporting out the top line results from the placebo-controlled portion of the trial in Q2. That is obviously contingent upon recruitment and enrolment and so far, we're on track with screening and enrollment this month. But early days and obviously we'll keep you updated as we go along with the KINECT study.

Meanwhile we have been putting together the details of what will be called the KINECT II study. The KINECT II study is the next Phase II trial. This one is in patients with bipolar disorder, mood disorder, as well as metoclopramide induced tardive dyskinesia and the potential is also for patients with schizophrenia or schizoaffective disorder that did not qualify for the KINECT study for various inclusion and exclusion reasons, potentially to enroll in the KINECT II study. So the protocol has been completed. We're working getting the remainder of the sites qualified and documents are prepared for the IRB's, and our goal is to begin screening in December for the KINECT II study. This trial will be approximately 30 sites in the US. It's designed to enroll 90 subjects. And we will be exploring doses of our VMAT2 inhibitor between 25 and 75 milligrams, utilizing a titration schedule. You'll get more details of that when it's posted on clinicaltrials.gov or if you have specific questions for me that I can answer I will.

So this combination of Phase II studies allows us to assemble a full complement of a dose and hopefully dose response information from 12.5 milligrams, which we saw was comparable to the placebo, up to 100 milligrams, which we think is at the top end of what might be tolerable to this population of patients with tardive dyskinesia. We know that the 50-milligram dose, to date, has shown signals of a good reduction in the TD intensity. And so now we're looking at 25 milligrams and 75 milligrams to flesh out that full range of doses. This obviously would put us in a very good position to have an end of Phase II discussion with the psychiatry division at the FDA in the second half of 2013. We expect that these two Phase II trials, top line of the KINECT study in Q2, top line from the KINECT II study shortly after that and the studies actually will complete out their open label treatment and safety follow up by summer. We'll obviously be assembling the data in a package of information which we will request an end of Phase II meeting in the second half of 2013.

That's the top line-- top level overview of what's happening with the KINECT study and the planned KINECT II study. And I'll look forward to any questions during the Q&A session to follow.

Thanks, Chris. We're very pleased right now with the conduct of the KINECT study, the KINECT I study. And as Chris has alluded to, really key for us is to have the right patient population in the study. We have a strong belief that we're working with the right drug hitting the right target and that this will be efficacious. And what we have to be certain of and where we are putting all our diligence is having the correct patients in the study, and that's exactly what we have, so far. By second quarter of next year, we'll have both of these studies completed and we'll have a real good database in order to go into our end of Phase II meeting with and this would be then launching us into pivotal programs shortly after that into Phase II.

In addition, in the VMAT2 program, our Juvenile talks work is ongoing right now as we ready this program for discussions with the FDA to go into Tourette's syndrome as the second indication that we would be moving into, and we're looking forward to that. We'll give you more updates on that next year, as we move that along into Tourette's.

And finally, I'm pleased with the progress that Abbott has been making with Phase III endometriosis trial that, as Chris said, they've got nearly every site up and running and their enrollment seems to be going quite well. Their screening, they tell us it's getting very high numbers. We hope that continues so that they will stay on track to what they stated is to have data readout in Q1 of 2014, and clearly we'd be launching 2014 is all about the Phase III data in endometriosis. 2012 is all about our VMAT-- or 2013 is all about our VMAT2 program with quite a bit of data coming out and going into Phase III. With that, let's open it up to questions.

(Operator Instructions) Phil Nadeau with Cowen & Company.

Good afternoon, thanks for taking my question. Just a couple on upcoming events. First, on the uterine fibroids data from Abbott, I think in the last conference call you said that Abbott's data disclosure strategy for that data was somewhat unclear. Have you gained any clarity on how they might release that data? Is it likely to be in a press release or just in a medical meeting?

No, I do not have any more clarity on that, Phil. I don't think we're going to get any more clarity on that until Abbott has separated. And so it'll probably be sometime after the first of the year when we can have any substantive discussions with them or they can have any decision making on that.

Okay, that make sense. And then second is on the VMAT program. Chris, could you go into a little bit more detail as to what the differences are between the first and second Phase IIb trial? Clearly, it sounds like the patients are different and the doses are slightly different. But are there any other key differences and endpoints or conduct of the study?

Thanks, Phil, you've pointed out the two main differences. Mainly, that we wanted to look at the two different populations, or three different populations that we're interested in studying, the schizophrenic patients with TD, the bipolar patients or mood disorder patients with TD, and then the smaller subset of patients, those with Reglan or metoclopramide induced TD. And we did this in two parts for several reasons. We believe that pathophysiology of TD is the same, regardless of the underlying disease. They're all dopamine antagonist induced movement disorders.

What we're interested though is having the appropriate safety scales that differ among the groups. For example, in a bipolar population, we would use an appropriate scale like the MADRS, and in the schizophrenic population we'll use a scale like the PANSS, and the Calgary Depression scale for schizophrenia. We wanted to simplify and look at that safety scales differently.

Secondly, the dosing that we're pursuing, we wanted to try to get at two different aspects of this dosing. One is the actual does, as I've pointed out, we've looked at a range of doses from 12.5 to 100 milligrams. But we're also looking at two different ways of administering the dose. In the KINECT study the dosing is a fixed dose. You're randomized to 50 milligrams, for example, and you stay on 50 milligrams. Whereas in the KINECT II study, the goal is to look at the potential safety, tolerability and efficacy of titration. Subjects would start at 25 milligrams and then at two-week intervals go up potentially to 50 or 75 milligrams.

We're looking at a different-- a dosing administration and we wanted to separate out, there's some issues about if you have a study designed, you can't mix titration with fixed dosing, obviously. And there are differences in how one interprets a titration program. Is it forced titration, is it dose optimization and different rules like that. So we wanted to keep those two things separate.

Okay, that's very helpful. Thanks for taking my questions.

Sara Slifka with Morgan Stanley.

Hi, I just had a couple quick ones. First a follow up on the last question, is there any kind of safety reason in this broader patient population in KINECT II that caused you to do the titrated dosing, specifically, in the broader patient population? Is there anything you're concerned about that would warrant the titration? And then, secondly, did you have any updated thoughts or comments around the path forward for elagolix in Europe?

Let me answer the second one first. No, nothing -- no new information from Abbott on their commercialization and development plans. Now to your first question. The difference -- the KINECT II study was designed to look at this other population, the Reglan and the bipolar patients and to look at titration. It's not because of a safety signal or concern with respect to the VMAT2 dosing.

In fact, as you know in the studies that we had done to date, the 12.5 and the 50-milligram doses were quite well tolerated. And in the KINECT study, we've-- we're testing a 100-milligram dose, which by our PK/PD calculations is at the upper end of what I think is going to be tolerable. And again, that's what Phase II is about is to really get a good understanding of that full range of dose response. It's increasingly clear that when sponsors go to the FDA to seek agreement on the Phase III program, the dose selection for Phase III is a critical element for the FDA and making a compelling case based on strong data across a full range of doses from minimally effective dose to maximum tolerated dose is really a requirement now. We're just trying to get at that and understand that completely before we get to end of Phase II.

Okay, great. Thank you.

Thomas Wei with Jefferies.

Thanks. I just wanted to get a little bit more feedback on your commentary about the appropriate exclusion of patients during the screening phase for the VMAT2 Phase II trial who otherwise might have gotten into the study. Is that a signal at all that there is still some issues or discrepancies between the central readers and the on-site scores, either on AIMS or this PGIC criteria?

Hi, Thomas, thanks for the question. I think what it reflects is that in the general community of psychiatrists and referring physicians that send potential subjects into these study sites, that they're not terribly sophisticated about diagnosing movement disorders and the phenomenology of involuntary movements in the population of schizophrenic patients on anti psychotic drugs is pretty complicated.

And so there'll be patients that are referred in by an outside doc for screening. And you know what, when you look at the video, you see they have a movement disorder and it's moderately severe. But in some of these cases, it's a form of Parkinsonism or drug-induced Parkinsonism with a complicated tremor that is-- it's easy to see how a non movement disorder doc might not understand that that doesn't qualify for the kind of TD that we are enrolling in this trial.

And maybe just to ask the question a slightly different way, how has the concordance looked on these screening AIMS and PGICs?

Well, I don't know about PGIC is Patient Global Impression of Change, so obviously we don't have any of that information. If the question is about--

Isn't there a physician scale that's being used to actually enroll for eligibility?

Yes, so that's not a PGIC, but that is a-- it is the external reviewer saying yes or no, moderate or severe TD. And that is actually working pretty well. The subjects that are enrolled have moderate or severe TD as judged by both the external reviewer and the independent rater. Now, those two guys, they don't see each other's-- they don't see the score. But I get to see them and so far, those are hanging together pretty well.

That's very helpful. And then maybe just lastly, I know you had previously talked about the data being available maybe a little bit earlier than 2Q. Anything to read into that?

I think -- no, I think I've said that we're still on track for late April for top line data. And I think the only other statement I've made is that if enrollment goes better than what we'd hope for than maybe we can speed that up, but I would need some time and we'd still need at least until end of year to be able to talk more definitively about timelines.

Okay, great. Thank you.

Jon Lecroy with MKM Partners.

Hi, thanks for taking my call. Can you go a little bit more into the Juvenile Tox, what statements you made before on that? And then what the process is there to initiate a trial in Tourette's and maybe some timing on that? And then my second question just can you give an update on urocortin 2? Is there anything you're moving forward with there?

I'll do the latter one first. Hi, Jon. The-- we're still talking to the potential licensors of urocortin. No progress to report to date, but we're still engaged in the process of seeing if we can find a home for this.

Now with respect to Juvenile Tox, as you know, or may be aware, that there are different kinds of Juvenile Tox studies that can be done. And this is a process typically that involves looking at long-term consequences in the selected species with exposure and long-term follow up, that the timing of the Juvenile Tox program usually involves an initial non- GLP dose ranging study in the species of interest. And then that takes a few months, and then when that's done, then you can actually begin the dosing in the GLP Tox study.

This day and age, there's not a standard or boiler plate of Juvenile Tox study, so usually you need to sit down with the FDA and their toxicologists and seek their input about the kinds of study design that would be appropriate for your mechanism of action and your intended indication. And so that process has -- the process of the dose preliminary dose ranging work is well underway. We're moving forward. We'll get the FDA's input, and as Kevin said, the goal is to update the investor community next year when those-- when we're done with that and we have a clearer sense of what studies we would do next to go after a Tourette's indication.

Obviously, Tourette's is a disorder that is primarily in kids 6 to 12 years of age is the biggest -- highest prevalence, although it obviously goes into adulthood. The-- now, I'm going to speculate, I don't have any detail or haven't had a conversation with the FDA, but I would not be surprised if our first study is just in older adolescents and showing reasonable PK, Predictable PK, safety intolerability in a short-term study in adolescence. We would then go into a larger study in the younger Tourette population. This is me speculating in a forward-looking manner. Obviously, we need to get through the Juvenile Tox process first and then meet with the FDA about the approach into humans.

In a perfect world, what kind of timing would you expect to get that drug into Tourette's in humans?

Into kids? Sometime in the second half of next year.

Okay, great. Thank you.

(Operator Instructions) Yale Jen with Roth Capital.

Thanks for taking the questions. Let me just follow up on the previous -- earlier questions regarding the VMAT2 first study. Would this quality control set up built in, can you quantify a little bit in terms of the improvement. In other words, do you see more drop outs based on the video taping and the judgment, those type of things, potentially compared to the previous study? Previous (inaudible) study, yes.

Thanks, Yale, the answer is yes. We have a screen fail rate, that's the term we use so they get referred in from outside for screening. They go through the screening process and they can either qualify or fail. If they fail, they can fail because they don't have moderate or severe TD or they have some other laboratory or unstable medical condition.

In general, when you're working within a specific indication, there are some kind of common screen fail rates. In some diseases, screen fail rates are much higher than others. Our-- we had built in a model for this trial, we expect the screen fail rate of about 50%. So far we're a little bit under that, but I think it's just early days. Check back with me in a month or two and I'll have I think a more realistic assessment based on a larger volume.

But so far, we're pretty close to what we expected. If we had not these controls in place, in fact, if I go back and look at the 1101 study, the screen fail rate would have been different. I mean, we would have failed some of the subjects that had gotten enrolled in that trial. And so obviously, this process is working.

You mean for the previous study, the fail rate is lower and that's why you-- the study has included a patient which otherwise should not be included?

Exactly.

Okay, great. And another follow-up question is that in terms of the second study, the KINECT II study, is there a fixed rate breakdown between a different type of patients among the (inaudible) maybe patients you want included?

What we've built into the study's design, Yale, is that of the 90 subjects, no single group could have more than 40.

Okay and than we're thinking about two or three groups?

There are three populations. They're the mood disorder, which includes bipolar disorder. They're the metoclopramide or Reglan induced TD. And the last group is schizophrenia schizoaffective.

And-- okay, thanks. And the last question I have is again follow up an earlier question that would Abbott-- if Abbott makes any decisions, potentially, on uterine fibroids, should we anticipate a rough timeline would be let's say mid-next year, a little bit geared to the second half? Or is it-- it is too early to speculate at the moment?

Right now, Yale, I think it's too early to speculate. What we've said in our press release and what Abbott has said to us, is that they'll have the current ongoing trial, the Phase IIa, in the first half it'll be complete. And then we have to see what and we don't know this yet, what is their timing if they seek proof of concept, which we anticipate they would, what would be their timing to start the Phase IIb study. And we don't have clarity on that at this point in time. We have, I'd say, it's not clarity, we don't have any visibility on what that is at this point in time.

Okay, great and thanks a lot.

[Joe Kim] of Piper Jaffray.

Thank you for taking my questions. My first question is about the -- if you could remind us whether the Phase III study in endometriosis has a responder analysis? And I guess, more broadly, how it's endpoints differ from the Phase II?

Okay. So the answer is yes, it is designed with a responder analysis. And with respect to the previous Phase II trial, the positive trial, the 901 study, the endpoints are virtually identical.

Okay, great. I also wanted to ask whether or not Abbott has indicated or made any move to, I guess, prioritize your relationship with elagolix following the-- what happened to the Reata drug and it's failure. Do you get a sense that Abbott is focusing more on elagolix development?

I would say that the way that I would answer that is that we noticed, actually, several months ago quite a big up ramp of activity around elagolix both in uterine fibroids and in endometriosis. As far as anything that's happened in the, just the last few weeks when they've had the setback that they did with their other program, it would be hard to see any more activity than the tremendous amount of activity they seem to be putting into the elagolix program at this point.

Great, that's helpful. Just a final question on your VMAT2 study, did you say what doses you were going to use for your capsule formulation for 854?

Yes, so the capsule formulation in both the KINECT study, which is ongoing, and the KINECT II study, which is planned for starting later this year, they use capsules. And the KINECT study is 50 milligrams, 100 milligrams, or placebo. The KINECT II study is at 25 milligrams titrating up to a maximum of 75 milligrams.

Great, thank you.

Thank you. It appears we have no further questions at this time. I'd like to turn it back to Kevin Gorman for any closing remarks.

Thank you very much. We appreciate your time especially in these trying times for you. And we do look forward to getting together with many of you personally when we're back in New York in about two weeks at the Lazard Conference. Once again, thank you very much for your time and your questions. Take care.

This does conclude today's teleconference. We do appreciate your participation. You may disconnect at any time and have a great day.