Neurocrine Biosciences, Inc. (NBIX) Q3 2015 Earnings Report, Transcript and Summary

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 question during the question-and-answer session. [Operator Instructions] Please note today’s call is being recorded. And it’s now my pleasure to turn the conference over to Kevin Gorman. Please go ahead, sir.

Thank you everyone and welcome to our third quarter conference call – 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 caution. 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 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 a extremely good quarter for us, as far as moving programs forward. If you recall, just a couple of months ago AbbVie had reported out positive Phase IIb data in the uterine fibroid program. And they had already been in discussions with the FDA and are moving that program in to Phase III. And then in addition, just very recently, we reported out that successful Kinect 3 study in Tardive Dyskinesia, one 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. It’s now on going. And also, we’re looking forward in just the next few weeks in December reporting out the results of our Phase Ib study in adolescence and children with Tourette. So a great quarter for us, 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 has already walked you through some of the highlights for the quarter. The main one that has an impact on the financial statement is the positive Phase III data for the Kinect 3 study, this had an impact by an increase in our non-cash share based compensation expense for the quarter. Couple of years ago the Board granted performance based restricted stock units to management divesting of these performance RSUs were tied to events to create significant shareholder value. In this case, that’s somewhat contingent upon positive Phase III data. Upon [indiscernible] the Kinect 3 study, this performance RSUs vested resulting in a significant one-time increase in our third quarter share based compensation expense of appropriate $8.3 million. 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 targeted at end of the quarter with over $480 million in cash investments and receivables, we anticipated continued increase in operating expenses through the balance of this year as I will discuss later, we plan to accelerate certain activities in the 2015. However, we’ve continued to say that we expect to end 2015 with over $450 in cash and investments. Our loss for the quarter was $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 the standalone quarter, as well as the 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 expenses 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 is the 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 its ongoing Phase III development. We have also increased our R&D headcount over 2014 levels adding key regulatory CMC and clinical personal to manage our pipeline in prep for our NDA filing next year. Personal related costs increased by $6.6 million quarter-over-quarter and $10.9 year-to-date, most of this increase in personal related cost $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 personal. Primarily driven by the previously mentioned vesting the performance based RSUs. General, administrative expenses also increased quarter-over-quarter and for the first nine months of 2015 compared to 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 personal. Personal 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 personal. Again driven by the vesting of these performance based RSUs. Across those 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 quantity of equity awards we’ve given out has actually decreased over the prior year. Over the recent increase in our stock price which resulted in much higher Black-Scholes valuations for these awards and that’s a higher non-cash expense for lower number of awards. We expect our share-based compensation expense, for the entire year of 2015 to approximate $28.5 million. Through the first three quarters of 2015 we’ve expensed $22.2 million related to share-based compensation expense. Based on a 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 expense of $106 to $111 million. We’re 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 gross burn in $85 million range and in 2015, with over $450 million in cash investments and receivables. I conclude my prepared remarks here. Those looking for additional financial details are 10-Q is already on file. And with that, I’ll 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 has said multiple times sort of due to the share-based expense, non-cash and then also I think that it’s a 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 in 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 updated. Chris O’Brien: Good afternoon. Thanks, Kevin and Tim, and thanks to the listeners who are participating. As pointed out most by 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 had worked quite some time to make sure that the Kinect 3 study was confirmatory in showing the reduction in Tardive Dyskinesia and this is 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 [indiscernible] of information here that we’re 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 then 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 that data from these trials. There is a lot of analysis still to do, but most importantly I think people are appreciate that in fact that 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, in fact we just had an additional meeting of the Drug Safety Monitoring Board or DSMB, who review our safety data as independent reviewers, and their feedback to us earlier this week was, I know evident safety signals have concerned carry on with the studies as designed and plan. 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, where our plan is to get into details of the study result in the upcoming abstracts 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. Takes a lot of time to get a protocol developed, sites identified and [indiscernible] and IRB reviews et cetera. So we are very pleased to be able to announce at 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 is 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, the learning of the best investigators to work with and the best message for getting the performance out of the primary endpoint that we need for going into subsequent trials. The Yale Global has been the gold standard for the Tic, we know a quite a bit about this scale and we are instituting the series of measures to try to make sure that actual conduct and control factors with the scale are the state of the art. The pediatric study is just about done, which is the open-label Phase Ib 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 Ib 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 get some top line results in December, I think as Tim and Kevin have pointed out. So very nice we’re able to accelerate the adult study, if the pediatric study on track, abstract, manuscripts and publications in the works, [indiscernible] safety ongoing and our focus on medical fares activities as we prepare for 2016. We’re 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 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, we reported positive results from that trial, which on has allowed them to have the discussions with the division of reproductive and urinology products at the FDA and get ready to kick off the Phase III study in uterine fibroid. That’s not to forget the second Phase III trial in endometriosis, [indiscernible] study. And based on comments from AbbVie the management, the anticipation is in first quarter of 2016 results from the self [indiscernible] study will be available. Again, that’s the second Phase III endometriosis trial. So lots of activity as Kevin just mentioned it really sets us up for a very nice start for 2016. And it really has all hands on deck here at Neurocrine as we keep this 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.

Thank you. [Operator Instructions] We’ll take our first question from Paul Matteis with Leerink. Please go ahead.

Great. Thanks very much. I have a couple. First, for Chris, I’m wondering you what specific analysis interests you the most that we might see in the full Kinect 3 data at a medical meeting. Chris O’Brien: Hey Paul, so there are 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 are very happy that in our studies we allow – the subjects to be on our investigational drug. In combination with their contaminant psychiatric Medications there antipsychotics, their anti-depressions, et cetera. And so they are 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 are off, is there a difference, do we they underlying schizophrenia or underlying biopolar disorder. And so you can imagine that we have set to work ongoing to begin to that question. They also want to know, simple things like, are there are certain kinds of patients that are more appropriate, for example patients who have tardive dyskinesia affecting the mouth and the tongue region rather than the trunk of the legs. And we’ll dig into that as well. Of course the FDA, is just doing those kind of things, as well. So those analysis, some additional safety analysis, for example, can 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 a 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 of easing placebo with active and a profile that if it continues to carry out this way, in a 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 gave a little more granularity on their Phase I study, and they talked about moving right into Phase III in Tourette syndrome, given the signal [indiscernible], I guess the safety and also the clinical rationale. So can you talk a little bit about how you see the Tourette’s program for you evolving going forward and does Teva strategy go into 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?

No, 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 openings with our molecules to go after tardive dyskinesia in adults first. Do the safety preclinical, juvenile tox work necessary to give us comfort, that we can treat the 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 at that timeline. The only difference, I think, that we’ve had is we were so encouraged by our DSMB, and Kinect 3, and with results that we were seeing that we decided to move to the start of the adult TD trial forward a little bit. I really can’t differentiate. Our plan is, we have – we’re going fast, we’re planning on our NDA for TD next year, we have – we like the idea of being in the 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 what you were saying regarding optimizing the end point in Phase II and the adjudication methodology, I’d imagine there’s some things you’re probably putting forward that you also did in the successful Phase III program, same thing I guess. Chris O’Brien: Yes, thanks, Paul. So the only thing – where we don’t have the adjudication process, I’m not sure that terminally 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, the patient in front of them regarding tic severity with less, patient and caregiver in the case of children report. That’s a very standardize scale. And what we found is that among neurologists, psychiatrist and pediatric specialist, who take care of patients with Tourette’s. 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 into make sure that this work.

Okay, thanks.

Thank you, we’ll take our next question from Charles Duncan with Piper Jaffray. Please go ahead.

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, well, 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? Chris O’Brien: Hi, Charles. Thanks for the question. Really the rate limiting step is just getting the safety studies complete. And so that’s what will be filing the NDA off of. There are no other studies out there either in humans. There is the three-year park study that also plays into the timing, but mainly it is the clinical safety study.

Just to be clear, Kevin it’s correct, there are no safety studies that are rate-limiting.

Yes.

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 filing.

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 or are you going to preserve that for the end of it?

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

Okay, that’s helpful. And then one last quick one regarding accelerating activities, if you want to talk? It’s pretty incremental impact on spend but any in particular you want to point to for this quarter versus what was previously done, early 2016?

I think we’re going to see Charles through the rest of this year you’re going to see R&D go up, moderately, but you’re going to see the G&A line start going up. And it’s really going to be marketing commercial stuff we’re going to be concentrating on. So that’s where I think you see the shift now. It’s the only thing I’m cautioned and you got to back out that one-time expense in Q3 related to the proforma charge used. 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.

Thank you. We’ll take our next question from Geof Meacham with Barclays. Please go ahead.

Hi, guys. This is Carter on for Geof. Congrats on all the progress. My question is for Chris. In the past when we’d spoken about passing out a signal from T4 study, you talked about potentially seeing a four point to five point change against, 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 passing out signal or clinical meaningfulness. Thank you. Chris O’Brien: Thanks. Just to clarify that first comment. I think if I remember what I said correctly one of the calls, I think, when we talked about four-point or four-point change, that was in reference to the literature which talked about, look at 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 and the change that [indiscernible] trial is quite variable. But in general people see anything from, if you have an effective therapy, and the trial design adults or children, you see it anywhere from 10% to 50% reduction in the Yale Global Tic Severity score with an effective therapy, compared to placebo changes with low as 5% to high as 20% or more. And so hopefully that 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 scale comes in at baseline in the 25% range and you see let’s say 10%, 15% reduction in placebo and 30% to 40% reduction in active. You probably seeing a real effect, you can power that in a Phase II study and you can use that to help determine ultimately there was selection for Phase III and commercialization.

Thank you.

Thank you. We’ll take our next question from Anupam Rama with J.P. Morgan. Please go ahead.

Hey guys, this is Eric in for Anupam. Thanks for taking the question. I’m just wondering what your latest thoughts are on pricing with 854 I know previously you’ve talked about an annual price range of 20,000 to 60,000, but how is that evolves with the Kinect 3 data enhance. Thanks.

I think it, obviously pricing is nothing that we’re going to go in terms of great detail and we’ll keep the range the same nebulous range as you just described there. 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 mid stuff. And so that will continue on up until launch.

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.

Okay, great, thanks.

Thanks.

Thank you. We’ll take our next question from Cristina Ghenoiu with Cowen. Please go ahead.

Hi, thank you for taking my questions and congratulations. One question on 854, I was wondering if you can get to your plan for outside of the U.S. 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-U.S. rights outside of – outside of Asia. Because right now we really are 100% fully utilized all of our personal in getting these to the Kinect 3 and the Kinect 4 trials finished and then filing the NDA. It will be at later day that will start attaining discussions over in Europe.

Thank you. And on to Tourette study, I was wondering if you’re 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?

Well, that’s an interesting question Cristina, – I think, yes, you can. I mean, if you see, tic reductions in children with the Tourette you would expect to see tic reductions in adult with Tourette. Although there is this discussion that occurs amongst the clinicians that based on the very interesting observation that most children with Tourette the tic Severity lessons and lessons, as they become adults. And so maybe there is something different about those patients who are persistent at tic disorder into adult, that maybe there is 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, I mean, the drugs that have been used historically to treat tics like dopamine antagonist can be used both in adults and in children. And that 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, 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 view, I figure it 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 why we use Phase II data.

Thank you very much. And finally one quick one, do you still intent to bring another program to the clinic this year.

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

Okay, thank you.

Thank you. And we’ll take our last question from Brian Skorney with Robert W. Baird. Please go ahead.

Hi, this is Nina in for Brian. Thanks for taking the question. My question is actually if I miss it in the last one. On the Congenital Adrenal Hyperplasia program, we know that therewith going to be some discussion around, which Asian want to move, [indiscernible] want to move together, give us some color on that.

Yes, no, I appreciate the question. As you recall, when we have this juvenile finding in a preclinical model. That’s what cost of the pause on that program and that lead compound, which our short hand is 860 with that. We wanted to go and try to understand now in a preclinical study. That the – 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 all related. As a matter of fact, I’m pretty close to saying it is not mechanism related. I’m – we’re still doing more work to clear up weather it is species or compound specific leaning very heavily at this point that its compound specific. And that’s why we are moving two of our backup compounds rapidly through the preclinical study. So that next year, we can get another compound into the clinic in CAH again.

Okay. Thank you.

Okay. Any more questions?

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