Neurocrine Biosciences Inc (NBIX) 2015 Q3 法說會逐字稿

Good day and welcome to the Neurocrine Biosciences Reports Third Quarter 2015 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. (Operator Instructions) Please note, today's call is being recorded.

It is now my pleasure to turn the conference over to Kevin Gorman. Please go ahead, sir.

Thank you, everyone, and welcome to our third quarter earnings call. Before I get started, Tim, you want to read our Safe Harbor statement please?

Sure. 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 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 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.

Thanks, Tim. This has been an extremely good quarter for us as far as moving programs forward. If you recall, just a couple of months ago, AbbVie had reported our positive Phase IIb data in the uterine fibroid program, and they had already been in discussions with the FDA, and are moving that program into Phase III. And then in addition, just very recently, we reported out the successful Kinect 3 study in tardive dyskinesia. We couldn't be happier with those results.

In addition, what we've just recently reported also is that the start of our Phase II program with adult Tourette is now ongoing. And also while we're looking forward in just the next few weeks in December reporting out the results of our Phase 1b study in adolescents and children with Tourettes. So, a great quarter for us, a very exciting quarter and it sets us up for a very good year ahead of us.

So with that, I'm going to turn it over to Tim and he can walk through the financials from the last quarter and year-to-date.

Thanks, Kevin. Good afternoon, everyone. We appreciate you joining us for this third quarter 2015 earnings call. Kevin's already walked you through some of the highlights for the quarter. The main one that had an impact on the financial statements is a positive Phase III data for the Kinect 3 study. This had an impact by increasing our non-cash share-based compensation expense for the quarter.

A couple of years ago, the Board granted performance-based restricted stock units to management. Divesting of these, performance RSUs were tied to events that create significant shareholder value. In this case, divestment is contingent upon positive Phase III data. (inaudible) the Kinect 3 study these performance RSUs vested resulting in a significant one-time increase in our third quarter share-based compensation expense of approximately $8.3 billion. This is a major driver in both the year-to-date and quarter-to-date comparability of our expenses.

We again exceeded our expected quarter end cash target and ended the quarter with over $480 million in cash, investments and receivables. We anticipate a continued increase in operating expenses through the balance of this year as I will discuss later. We plan to accelerate certain activities in 2015. However, as continuingly stated, we expect to end 2015 with over $450 million in cash and investments.

Our loss for the quarter is $34.4 million or $0.40 per share. This compares to a loss of $15.9 million or $0.21 per share in the third quarter of 2014. Our net loss for the first nine months of 2015 and 2014 was $59.6 million and $41.1 million, respectively. When comparing expenses from 2014 to 2015 for both stand-alone quarter as well as year-to-date, we show an increase in expenses by approximately $19 million and $39 million, respectively. This was primarily due to higher research and development expenses, coupled with a significant increase in share-based compensation expense.

R&D expense in the third quarter increased by $12.2 million over the comparable period in 2014, and are up almost $29 million year-to-date compared to last year. $5 million of this third quarter increase and $16.3 million of this year-to-date increase was related to external development expenses primarily for work related to our VMAT2 program, and ongoing Phase III development.

We have also increased our R&D headcount over 2014 levels adding key regulatory CMC and clinical personnel to manage our pipeline and prep for NDA filing next year. Personnel-related costs increased by $6.6 million quarter-over-quarter and $10.9 million year-to-date. Most of this increase in personnel-related costs $5 million and $6.5 million, respectively for the quarter and year-to-date is due to higher share-based compensation expense for R&D personnel, primarily driven by the previously mentioned divesting of the performance-based RSUs.

General and administrative expenses also increased quarter-over-quarter and for the first nine months of 2015, compared to the same period in 2014. The main drivers of this increase in cash related G&A expense are the recent upswing in pre-commercialization activities and the hiring of some key marketing and sales personnel.

Personnel-related costs increased by $6.9 million quarter-over-quarter and $9.6 million year-to-date. A significant portion of this increase $6.2 million for the quarter and $7.7 million year-to-date is due to higher share-based compensation expense for G&A personnel, again driven by the vesting of this performance-based RSUs. Across both R&D and G&A, we had an increase of share-based compensation expense, driven by higher Black-Scholes valuations.

Similar to the past two quarters, the quality of equity awards we had given out has actually decreased over the prior year. However, the recent increase in our stock price has resulted in much higher Black-Scholes valuations for these awards and that's a higher non-cash expense for a lower number of awards. We expect our share-based compensation expense for the entirety of 2015 to approximate $28.5 million. Through the first three quarters of 2015, we spent $22.2 million related to share-based compensation expense.

Based on the very positive results of Kinect 3, we've also decided to accelerate certain activities from 2016 into 2015. This coupled with the increase in share-based compensation expense will increase our forecasted GAAP expenditures for 2015. In the beginning of the year, we estimated total GAAP expenses of $106 million to $111 million. We are increasing our projected range of GAAP expenses to $110 million to $115 million. Our gross cash burn for the year remains unchanged. We continue to see a gross burn in $85 million range, ending 2015 with over $450 million in cash, investments and receivables.

I'll conclude my prepared remarks here. For those looking for additional financial details, our 10-Q is already on file. And with that, I will turn it back over to Kevin.

Thank you, Tim. As you can see, things are in line, those that are out of line as Tim had said multiple times due to the share-based expense non-cash. And then also, I think that it's very positive for us and very prudent for us to increase our burn slightly because of the positive Phase III data and accelerate some of the plans that we had for the rest of this year and getting ready for filing and commercialization in order to obviously plan for success in both of those.

With that, how about I turn it over to Chris, and he'll take you through some of our pipeline update.

Good afternoon. Thanks Kevin and Tim, and thanks for the listeners for participating. As pointed out, both for Tim and Kevin, this has been a very positive quarter. We were very, very pleased with the results of the Kinect 3 trial. As you know, we have worked quite some time to make sure that the Kinect 3 study was confirmatory and showing the reduction in tardive dyskinesia and indeed this has done so.

What happens because of the positive results is really not an end but it's a beginning, it means that everybody on the team here, both the clinical group, the regulatory group, the medical affairs group have now moved into the next year, if you will, because of all the activities that are now teed up.

And what that means for example, we are in the midst of going through the Kinect 3 data, there is such a treasure trove of information here that we are working on a variety of analysis and getting set to submit a series of abstracts and manuscripts that should play out over 2016. There are several different meetings coming up in 2016, which we hope to have a presence at and it is in these venues that we plan to get into some of the detail from the Kinect 3 study.

So, for example, the American Academy of Neurology, the American Psychiatric Association, the Movement Disorder Society, all of these are meetings coming up in 2016 where we hope to present data from this trial. There is a lot of analysis still to do, but most importantly, I think people appreciate that in fact the Kinect 3 open-label extension study is still ongoing.

And the Kinect 4, one year long-term open-label safety study is still recruiting. These are going well, on track. We've just had an additional meeting of the Drug Safety Monitoring Board, the DSMB who review our safety data as independent reviewers and their feedback to us earlier this week was, no evident safety signals of concern, carry on with the studies as designed and planned. So, we are very pleased to have that kind of support by these independent experts.

The plan as it goes is to complete the Kinect 3 open-label safety study in early 2016 and to complete the recruitment of the Kinect 4 study as we come up to the end of this year. And both of these obviously will generate a very large amount of long-term safety data in patients with tardive dyskinesia. I'm not going to go over the details of the Kinect 3 results, that was obviously in the recent press release just from a few days back and they say our plan is to get into details of this study results in the upcoming abstract posters and manuscripts.

The exciting event, of course, was our announcement of the adult Tourette syndrome trial. Obviously, this has been in the planning stage for quite some time. It takes a long time to get a protocol developed, sites identified and included and IRB reviews et cetera. So we are very pleased to be able to announce the start of that study.

We had a very successful investigator meeting with a kick-off event just a few days back. And this trial will begin recruiting and enrolling patients very shortly. The adult trial is very similar in the sense that it's a Phase II study, double-blind, placebo-controlled, two doses of drug and the primary endpoint is the FDA mandated use of the Yale Global Tic Severity Scale.

We have taken some considerable pains to make sure that we get the most out of this Phase II trial both in understanding the kinds of patients that are recruited, got the best investigators to work with and the best methods for getting the performance out of the primary endpoints that we need for going into subsequent trial.

The Yale Global has been the gold standard for Tics, we know quite a bit about this scale and we are instituting a series of measures to try to make sure that actual conduct and control factors for the scale are state-of-the-art.

The pediatric study is just about done. This is the open-label Phase 1b T4 study and we're very pleased with how this is going. Similar fashion, we have an independent safety medical monitoring process in place with this trial. So far, very good safety profile and we're getting very good PK data out of this study.

The primary purpose of the Phase 1b study, of course, is safety tolerability in PK, particularly as we go down to children as young as six years of age. So the last subjects will be finishing up this trial shortly, and our goal is to be able to give some topline results in December, I think as Tim and Kevin have pointed out. So very nice, we're able to accelerate the adult study, the pediatric study on track, abstracts, manuscripts and publications in the works, long-term safety ongoing, and a focus on medical affairs activities as we prepare for 2016. So very excited about that.

And of course, that's all, our in-house activity keeping everybody very busy. Our colleagues at AbbVie are really moving nicely forward with the uterine fibroids, a program in fact they recently presented some of the original proof of concept data that they had from Phase IIa at a recent meeting and the American Society of Reproductive Medicine and those that presentation showed that how powerful an effect elagolix has on reduction in uterine bleeding.

That was the data that led them to carry out the Phase IIb study. And as Kevin noted, AbbVie reported positive results from that trial, which has allowed them to have their discussions with the division of reproductive and urologic products at the FDA and get ready to kick-off the Phase III study in uterine fibroids.

That's not to forget the second Phase III trial in endometriosis, the Solstice Study. And based on comments from AbbVie management, the anticipation is in first quarter of 2016, results from the Solstice Study will be available. Again, that's the second Phase III endometriosis trial.

So lots of activity. As Kevin has mentioned, it really sets us up for very nice stack to 2016. And it really is all hands on deck here at Neurocrine as get these programs moving forward. So maybe I'll pause there and turn it back to Kevin for the Q&A.

Thank you very much. So, right now, we'd be more than happy to take your questions.

(Operator Instructions) Paul Matteis, Leerink.

I have a couple. First, for Chris. I'm wondering what specific analysis interest you the most that we might see in the full Kinect 3 data at a medical meeting?

There's so many I don't even know where to start. But some of the obvious ones come to mind. So for example, the psychiatrist that we interact with, they're very happy that in our studies, we allow our subjects to be on our investigational drug in combination with their concomitant psychiatric medications, they're anti-psychiatrics, they're antidepressants et cetera. And so, they're on a complex mix of drugs and the questions I get asked are is there any difference in efficacy in patients who are still on an antipsychotic or those who are off, is there a difference, do they have underlying schizophrenia or underlying bipolar disorder.

And so, you can imagine that we have extensive work ongoing to dig into that question. They also want to know simple things like, are there certain kinds of patients that are more appropriate, for example, patients who have tardive dyskinesia affecting the mouth, the tongue region, rather than the trunk or the legs and we'll dig into that as well. Of course, the FDA is interested in those kinds of things as well.

So those analysis, some additional safety analysis. For example, can you use our drug safely in a patient with a history of major depressive disorder and what impact, if any, is there on depression or suicidal ideation. And so that analysis is ongoing. So far, we're very, very happy with the safety profile that we've seen not only in Kinect 3, but as we've previously reported in Kinect 2.

Low AE rates, very comparable rates and AE in placebo and active in a profile that if it continues to carry out this way in the long-term safety study, would put us in a very nice position for the commercial marketplace.

Yes. Okay, great. And also earlier today, I think Teva talked about, they give a little more granularity on their Phase I study. And they talked about moving right into Phase III in Tourette syndrome, given the signal they saw, I guess the safety and also the clinical rationale. So can you talk a little bit about how you see the Tourette program for you evolving going forward? And this Teva strategy going to your thinking in terms of how fast you move versus how you work to refine the endpoints in Phase II and maximize the probability of success?

So I hadn't heard their comments this morning. So I can't speak to what was said, but it has not really figured into our strategy. We've been planning for since the beginning of our IND opening with our module to go after tardive dyskinesia in adults first, do the safety preclinical, juvenile tox work necessary to give us comfort that we can treat young children with our molecule in a chronic fashion.

And that's what we've done, that's kind of marched on its own timeline. We've stuck to that timeline. The only difference I think that we've had is, we were so encouraged by our DSMB in Kinect 3 and with the result that we were seeing that we decided to move the start of the adult TV trial forward a little bit. I don't -- I really can't differentiate it. Our plan is, we've a -- we're going fast. We're planning on our NDA for TD next year. We have -- we like the idea of being in a marketplace where we have a once-a-day drug that doesn't need titrating with a good safety and tolerability profile. And that's the beat we're dancing to.

Yes. Okay, fair enough. Maybe if I can get one more in. Chris, can you just expand upon why you're saying regarding optimizing the endpoint in Phase II and the adjudication methodology? I'd imagine there's some things you're probably putting forth that you also did in the successful Phase III program?

So the only thing -- we don't have an adjudication process -- I'm not sure that term really applies. What we're doing here, the Yale is obviously a scale that's conducted by the investigator looking back in time and integrating what they see in the patient in front of them regarding Tic severity with [last day] patient and caregiver in the case of children report and is a very standardized scale. What we found is that, among neurologists, psychiatrists and pediatric subspecialists who take care of patients with Tourettes, it's very worthwhile to invest in making sure that everybody does the scale in the same way. So those are the efforts that we're putting in to make sure that this works.

Charles Duncan, Piper Jaffray.

Hi guys, thanks for taking the question and congrats on the recent clinical data driven progress in the quarter. I had a question regarding the NDA filing, and specifically the timeline. I just wanted to make sure that what is the rate limiting step? And is there any additional clinical work, besides the completion of the safety studies that is required to enable that filing?

Really the rate limiting step is just getting the safety studies complete. And so that's what will be filing the NDA off. There are no other studies out there either in humans. There is the [two-year park] study that also plays into the timing, but mainly it is the clinical safety study.

Just to be clear, Kevin is correct, there are no safety studies that are rate limiting, but we do have other safety studies going on, other DDI studies and things that are occurring in the background, Phase I type studies. Again, they're not the rate limiting piece for us to get the NDA filed.

Okay. That makes sense. And then with regard to the OLE, the open-label study, can you give us even qualitative information on the proportion of patients still in that study? Are you going to preserve that for the end of it?

Yes. I'm going to preserve that for the end that I can say generally our original projections of patients with schizophrenia bipolar disorder and tardive dyskinesia are actually stayed in the trial kind of longer than the historical norms are for these kinds of subjects. So we're overall pleased with the retention in the trial and that has not turned out to be a problem.

Okay, that's helpful. And then one last quick one regarding accelerating activities, do you want to talk -- it's pretty incremental impact, I understand, but any in particularly you want to point to for this quarter versus what was [previously done] early 2016?

Yes, I think we're going to see, Charles, through the rest of this year, you are going to see R&D go up moderately. We are going to see the G&A line start going up. And it's really going to be marketing and commercial stuff we're going to be concentrating on. So, that's where I think you see the shift now. The only note of caution, you got to back out that one-time expense in Q3 related to the performance RSUs. But other than that, it should be more G&A focused.

Okay, great. Thanks for the added color and congrats on the recent progress.

Thanks, Charles.

Geoff Meacham, Barclays.

Hi guys. This is Carter on for Jeff. Congrats on all the progress. My question is for Chris. In the past, when we'd spoken about parsing out a signal from the T4 study, you've talked about potentially seeing a 4 point to 5 point change against the baseline of 25 to 30 on the Tic scale. When we think about moving into adults, does the hurdle in anyway change either in terms of parsing out a signal or clinical meaningfulness?

Just to clarify that first comment, I think if I remember what I said correctly on one of the calls, I think when we talked about 4 point or 5 point change, that was in reference to the literature which talked about what is the threshold for a minimal clinically important difference on the global. So, that is what a patient see that is not just subtle background noise that they think is potentially meaningful clinically.

The literature on the change that throws in a Tourette trial is quite variable, but in general, people see anything from, if you have an effective therapy, again, on the trial design, adult or children, you seen anywhere from 10% to 50% reduction in the Yale Global Tic Severity score with an effective therapy compared to placebo changes of as low as 5% to as high as 20% or more and so, hopefully (technical difficulty) put that in context, what we --

So, going to the second part of your question, in the Yale adult trial, the expectation is that if a global tic scale comes in at baseline in the 25 range and you see a, let's say 10%, 15% reduction in placebo and 30% to 40% reduction in active, you're probably seeing a real effect. You can power that in a Phase II study and you can use that to help determine ultimately dose selection for Phase III and commercialization.

Thank you. Anupam Rama, JP Morgan.

This is Eric in for Anupam. Just wondering what your latest thoughts are on pricing with 854. I know previously you've talked about annual price range of [$20,000 to $60,000] but how is it evolves with the Kinect 3 data in hand?

Obviously, pricing is nothing that we're going to go into any great detail and we'll keep the range the same, nebulous ranges as you just described there, but what having the Kinect 3 data in hand does allow us to do is that it allows us to do more quantitative research with the payers, and that's what we're in the midst of and so that'll continue all-in-all up until March.

And the other thing, Eric, is that we're embarking on a pretty extensive [HUR] work internally to help support those price points we're looking at with the payers.

Thank you. Cristina Ghenoiu, Cowen.

Thank you for taking my questions and congratulations. One question on 854, I was wondering if you can speak to your plans for outside of the US commercialization?

So, as you know, we did a deal for Asian rights earlier this year and so that those territories are gone. What we deliberately decided to do is to hold any discussions for the ex-US rights outside of Asia because right now, we really are 100% fully utilized all of our personnel in getting these two, Kinect 3 and the Kinect 4 trials finished and then filing in NDA. It'll be at a later date that we'll start entertaining discussions over in Europe.

Thank you. And on Tourette study, I was wondering if you are to see any efficacy signals in the children and adolescents, how can you use those signals to make any inferences about the behavior in adult?

So, that's an interesting question, Cristina. I think, yes, you can. If you see Tic reductions in children with Tourette, you would expect to see Tic reductions in adults with Tourette, although there is this discussion that occurs amongst clinicians that based on the very interesting observation that most children with Tourette, the Tic severity lessens and lessens as they become adults.

And so maybe there is something different about those patients who have persistent Tic disorder into adult that maybe there's something different about the underlying pathophysiology in those patients, that's really a speculation because it is relatively uncommon to have persistent bothersome Tourette symptoms into adulthood but clearly, the drugs that have been used historically to treat Tics like dopamine antagonist can be used both in adults and in children and they reduce Tics albeit at a cost in terms of side effect risk and safety profile. So we would be encouraged, but obviously, we want to do the study.

More importantly, for us, from a registration point of view, I want to make sure I have the right doses for adults and the right doses for children, I think they're very different and I want to make sure that from a regulatory point of you, I figured out all the nuances of how to use the Yale Global correctly in a registration trial, and in that sense, maybe children and adults require slight differences, I don't know, but that's what we'll use Phase II to tell us.

Thank you very much. And finally, one quick one. Do you still intend to bring another program to the clinic this year?

Yes, we do plan on doing that and I would hope that we're going to be able to talk about that in the not too distant future because there is not much of this year left.

Brian Skorney, Robert W. Baird.

This is [Nina] in for Brian. My question was actually [if I missed any of] the last one. On the congenital adrenal hyperplasia program, we know that there was going to be some discussion around which agent is going to move forward (technical difficulty). Give us some color on that.

I appreciate the question. As you recall, when we had this juvenile finding in a pre-clinical model, that's what caused us to pause on that program and that lead compound which our short-hand is 860 with that, we wanted to go in and try to understand now in a pre-clinical setting that is this finding mechanism-based, is it species-specific or is it just compound-specific. And we've been doing a lot of work on that. And at this point in time, I'm getting more and more sure it is not mechanism-related.

As a matter of fact, I'm pretty close to saying, it is not mechanism-related. And we're still doing more work to clear out whether it is species or compound-specific, leaning very heavily at this point that it's compound-specific and that's why we are moving two of our backup compounds rapidly through the pre-clinical setting so that next year we can get another compound into the clinic in CAH again.

Okay, anymore questions?

There are no more questions at this time. Kevin, I would like to turn the program back over to you for closing remarks.

Well, thank you very much everyone. Neurocrine is a very different company now than it was just a short time ago. With the results of this quarter now, with two different compounds and with our partner AbbView, we are now in three Phase III programs; endometriosis, uterine fibroids and tardive dyskinesia, and having just moved into a Phase II program in Tourette syndrome. And this is, what you're going to be seeing over the next few months here is that, Neurocrine makes that transition from a mid-stage development company into a late stage and a commercial company and we're very excited about this progress and what the future holds for us.

And so, we look forward to talking to you about that at many of the upcoming conferences, we're going to be at Credit Suisse, Leerink, Jefferies in London, the Piper conference and then we're also happy to have the Barclays tour coming by our offices. So there's going to be many occasions where I look forward to getting together with you, keeping you apprised of the progress that we're making. Thank you very much for your attention today.

This concludes today's program. You may now disconnect your lines and have a wonderful day.