Neurocrine Biosciences, Inc.
Q2 2013 Earnings Call Transcript

Published: 26 Jul 2013

[Operator:]

Good day, everyone, and welcome to Neurocrine Biosciences Report Second Quarter 2013 Financial 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, today's call is being recorded and I will be standing by should you need any assistance. It is now my pleasure to turn the program over to Kevin Gorman. Please go ahead.

[Kevin C. Gorman:]

Thank you very much and welcome everyone to our call this afternoon. As usual, we are going to have Tim Coughlin, our Chief Financial Officer run you through our quarterly results, and then that will be followed by Chris O’Brien, our Chief Medical Officer, to take you through an update of our efforts. But first before we start out, Jane, could you read our Safe Harbor statement?

[Jane Sorensen:]

Yes. 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?

[Kevin C. Gorman:]

Thank you, Jane. Tim?

[Tim Coughlin:]

Thanks, Kevin. Good morning or good afternoon everyone and thank you for joining us today. After market closed, we released our second quarter 2013 financial results, and these results were as expected consistent with the prior quarter. The main driver of the difference between the 2012 and 2013 results is reduction in revenue that was earned by the collaboration agreements. This is due to successful completion of the collaboration agreements. Our collaboration has agreements both under the AbbVie and Boehringer Ingelheim license agreements as planned during 2012. Our loss for the past quarter was $0.18 per share compared to $0.01 per share loss during the second quarter of last year. Our 2013 year-to-date loss is $0.36 per share compared to $0.02 per share for the first half of 2012. We expect our net loss for the year to approximate $50 million to $55 million. We remain on target for an annualized operational cash flow of around $50 million to $55 million, consistent with the guidance provided at the beginning of the year, and we ended this past quarter with approximately $167 million in cash, investments or receivables and (indiscernible) with over $130 million in cash and investments. Revenue for the quarter was consistent with the first quarter, approximately $700,000, and revenue for the year is expected to be $2.9 million. Research and development expense increased quarter-over-quarter and year-over-year. This is primarily driven by our VMAT2 program as we continue to move our clinical candidate, NBI-98854 forward in Phase IIb development. We expect R&D expense to continue to increase in the third quarter of 2013. Our general and administrative expenses are relatively flat, both from the first quarter of 2013 to the second quarter and when comparing the first half of last year to the first half of this year. We expect this flat-line G&A expense trend to continue for the balance of the year. Our 10-Q will be filed with the SEC tomorrow and now I'll turn it back over to Kevin and Chris for the balance of the call.

[Kevin C. Gorman:]

Thanks Tim. So as you see there are no surprises here and it's in line with our guidance that we gave at the beginning of the year. We continue to be in that strong cash position. So with that, I turn it over to Chris.

[Dr. Christopher O'Brien:]

Thanks Kevin. Happy to give an update on the clinical activities, there's quite a bit going on and we are very pleased with the progress of our programs. Before I get into the details of the Phase IIb studies with our VMAT2 inhibitor, just a reminder that the program is also notable for our activities as we plan for our ultimate entry into second indication in Tourette’s syndrome, and so the preclinical work to establish an appropriate juvenile toxicology profile, safety profile, is ongoing. This will enable us, we hope, to have onsite into Tourette’s syndrome with a new IND for that indication in 2014. So that preclinical work is ongoing and moving as planned. In addition, we have ultimately our goal of an NDA for tardive dyskinesia, and as you are well aware, that NDA includes a number of obligatory Phase I trials that the FDA requires, and so we are in the process of starting some additional Phase I work. There is a drug interaction study that we'll be starting shortly and a study in subjects with varying degrees of liver disease, that is hepatic impairment, and to see how hepatic impairment affects or doesn't affect metabolism in PK profile of our compound NBI-98854. I'd like to get this data to help us enable our Phase III studies which we hope to start in 2014 mid-year and having a good data set from the DBI and that compare then will allow us to hopefully open up the inclusion/exclusion criteria and help us power our recruitment efforts for those Phase III trials. So having said that, you will be able to see the postings on ClinicalTrials.gov of these Phase I studies shortly if you want to get some more detail there, they are very standard studies. So, the real exciting stuff of course is our VMAT2 Phase IIb trial, the Kinect Study, and the Kinect 2 Study. As you recall, recently we reported the randomization of the last subject into the Kinect Study with this trial. We've been very pleased with the conduct of the study and very pleased with all of the pieces that we've put in place to make sure that we had the appropriate kinds of patients with moderate or severe tardive dyskinesia, that the independent raters who are well trained and certified, that our oversight of the patients and their rating process, the AIMS exam via video tapings, examination and our external review, independent review team, all of those things have been working well. As you also may recall, for the Kinect Study, early on we had anticipated that we would screen about twice as many subjects as we needed ultimately for randomization, given the potential multiple reasons for screen failure. We have very strict standards for this Phase II trial and in fact the screen fail rate has been just about 50%, as anticipated. So we screened a little over 240 subjects and closed randomization right around the 4th of July weekend, I can't remember the exact date, but that trial means that approximately 10 weeks from that last subject, we will have top line data from the placebo-controlled portion of the Kinect Study, that is the first 6 weeks of the 12-week trial, and so we anticipate releasing that data in early September if things go as planned with the patients completing the trial. Now, we've built in a number of assumptions into the Kinect Study because this is the longest trial that we've done with our VMAT2 inhibitor and really the first robust Phase II type study in tardive dyskinesia in many years. We've built in a dropout rate or early discontinuation rate of about 20% into our assumptions regarding sample size and power calculations. So far, the dropout rate or early discontinuation rate is about 15%, so that's good, it means we've maintained more than adequate power for the study design. The reasons for discontinuation of those subjects to-date are not due to any kind of safety signal from our drug. We continue to be pleased by monitoring our laboratory results, the chemistry, hematology, urinalysis et cetera, we're pleased with the ECG data. Obviously we are blinded but so far no signals of unusual problems. Of the subjects that have discontinued, there is no clear signal that there is any drug-induced safety problems relating to this, some of the subjects have ongoing issues with their schizophrenia for example, we also have subjects who discontinued because they moved out of town, from where the study site was located, but where they were non-compliant with the protocol because of – with the drug use or other things like that. So, so far, that is going well. Obviously the important thing will be, when we have the top line results, we'll be comparing the AIMS score at week six changed from baseline in the active group to the AIMS score changed from baseline in the placebo group, and we're very pleased that the baseline characteristics of the subjects mainly have plenty of room to work with, with the AIMS, these are definitely patients that are appropriate for the study, they have moderate or severe TD and in fact looking at the blinded baseline AIMS scores of the subjects that have randomized. We're seeing that is exactly where we would hope to be. My last look at this, it was about 14.8 I think, in the 15 range. So that is very encouraging. So, now it is a matter of completing the last subjects through their treatment in August and then getting the top line results out to you in September. Meanwhile, the Kinect 2 Study is going well. We have approximately half of the subjects in this trial. This is generated from the first 16 or 18 sites that have randomized subjects. We have now moved some of our highly successful sites from the Kinect Study, now that that randomization is complete, we've moved them over into the Kinect 2 Study and they are now up and running and have started screening subjects. So, this is on track and we're very pleased with the conduct of the Kinect 2 Study. We've had fewer discontinuations in this study. Obviously the numbers are smaller but the early discontinuation rate at this point is only about 5%. So we'll see how that goes over the next month or two, and as we get more data to talk of. So, very pleased with the conduct of the Kinect Study and the Kinect 2 Study, very pleased to get some additional Phase I studies underway so we can have a very substantial data set to bring to our end of Phase II meeting. We're still planning on submitting a medium request to the FDA for an end of Phase II meeting, we'll do that in Q4 as planned, and we are very pleased for the preclinical activities that are underway, helping us get in position hopefully to open a new IND and with this drug for Tourette’s syndrome in 2014. So, lot of activity, people are very busy, we're very pleased with the status and progress and look forward to our next discussion of the top line results. As you know, we also have the elagolix program as part of our GnRH partnership that we had with AbbVie, and AbbVie keeps us updated as to how they are doing. Obviously we are not driving this program anymore, our collaboration ended as Tim had mentioned end of last year from a research collaboration but they are driving the Phase III efforts in endometriosis and Phase II efforts in uterine fibroids. The endometriosis Phase III study is on track with their anticipation of completing randomization this fall and top line data from the Phase III trial in Q1 of 2014. I'm also pleased to note that about a week ago, our Daisy PETAL Study, which was the so-called 901 study, very successful Phase IIb study with endometriosis patients, was published electronically ahead of print publication in the Journal of Endometriosis and Pelvic Pain. That manuscript is available there for subscribers to that journal or for purchase, and the abstract is available obviously at no charge. So that's a great piece of data to get out, and as you recall, the co-primary endpoints of dyspareunia and non-menstrual pelvic pain that were solidified in that trial are the ones that the FDA was very pleased with and that were taken forward into the Phase II trial. AbbVie also tells us their uterine fibroids program is on track. As you know, they are in the midst of the Phase IIb activities and we look forward to additional updates from AbbVie as those studies move along. So I think at that point, I'll stop this review of the VMAT2 and the ongoing programs and turn it back over to Kevin for our Q&A.

[Kevin C. Gorman:]

Thanks, Chris. So, right now we are available to take your questions please.

[Operator:]

(Operator Instructions) We'll go first to Marko Kozul with Leerink Swann. Please go ahead.

[Marko Kozul:]

Looking forward to your progress here in the second half of the year and then to 2014 with the data readouts. A quick question for you VMAT2, can you talk about the kind of market research you're conducting in terms of scope and utility and when we might see some of your findings, is this limited only to tardive dyskinesia or also Tourette’s and beyond?

[Kevin C. Gorman:]

Marko, thanks for the question. Yes, we're doing quite a bit of work, we're in the midst of it right now and the work is several-fold, one of which is also to better understand the size and the makeup and really the patient characteristics of the TD market, and so we are getting all of that together. We've come at it as you know in the past from an academia logical standpoint and come up with numbers, so about 0.5 million patients here in the United States. We are doing the work right now where we're actually using ICD-9 codes and looking for the actual diagnosis of these patients, and so we'll be sharing that with you probably towards the end of the year, is when we'll have all that compiled. As we've also talked about, we've done some initial work with payers in order to understand their sensitivities and where they are so that when we have the Phase II data, we're ready then to do the quantitative payer research. Now in addition, side-by-side with doing the work on TD, we are doing on Tourette’s syndrome also, and so we'll have that in the same timeframe, and we're not only doing this work here in the United States but we are also expanding it into ex-U.S. regions too so we understand that both in Asia and over in Europe. So, Chris, do you have anything to add?

[Dr. Christopher O'Brien:]

No, I think the qualitative work that we're doing in tardive dyskinesia has been extremely rewarding because it helps spill over in some of the work that I'm planning to include in our Phase III trials, mainly what are the kinds of things that will help economics point of view, quality of life, secondary and tertiary area end points. As you know, we've been defining and will be validating an additional scale, and so this turns out to be interwoven with the market sizing and payer requirements.

[Tim Coughlin:]

Marko, this is Tim, one last thing just to add a little color around the database Kevin referenced. This database has access to about 115 million covered lives in the United States for both the commercial and medicated standpoint. The other thing, it has about 18 billion healthcare records in it. So we go in there, look at the UB-92, the 1500s, and pull the actual ICD-9 codes, the diagnosis codes, to generate this quantitative database that we will triangulate back multiple ways to basically assure ourselves we have the right numbers.

[Marko Kozul:]

Alright, terrific, looking forward to that presentation then in the fourth quarter. The other question I had has to do with the preclinical work on Tourette’s. You've mentioned juvenile toxicology work I guess. Can you explain a little bit further the similarities of the differences between the preclinical work being done for Tourette's versus that's already been done for tardive dyskinesia?

[Dr. Christopher O'Brien:]

Sure. So the key difference there, Marko, is the word juvenile. So to go into tardive dyskinesia, it's a fairly standard preclinical toxicology package. The unique requirement to go into a pediatric population means that you have to have some understanding about the safety profile in developing animals. And so unlike an adult toxicology package where you treat adult animals and then look at impact on organ toxicity and whatnot, in the developmental juvenile toxicology model, you dose very young animals, the equivalent of whatever that would be in a young human. So for example, if you're going to start potentially treating tourette's syndrome patients as young as six years of age, or even younger, two years of age, you have to start dosing rodents when they are only a couple of weeks old, and that's quite a challenge. Those are difficult studies to do, there are only a couple of labs or vendors that have that kind of expertise. It has to be done in close collaboration with the FDA as far as study design and methodology, doses, exposure, duration, follow-up, assessments, et cetera. So, it is a lot of work, it's very specialized work, it's very different than the standard toxic package and we've been doing that exactly as the FDA likes. I must say, we have wonderful interactions with the psychiatry division and the various functional groups at the FDA today.

[Marko Kozul:]

That's terrific, very helpful, thanks a lot.

[Operator:]

Thank you. We'll go next to Jason Napodano with Zacks. Please go ahead.

[Jason Napodano:]

Just curious as to the reason why maybe the discontinuation rates in Kinect 2 are lower than Kinect 1, is there anything going on there with the patient population or the design that would make patients – the discontinuation rate be as low as 5% or you think it's just anecdotal at this point?

[Dr. Christopher O'Brien:]

I think that the numbers are so small and it's still early, it's going to go up. My guess is it will be family similar, but one difference though between the two studies that reflects I think the underlying diagnosis. So far, about half the patients in the Kinect 2 Study have underlying diagnosis of the bipolar disorder or mood disorder depression, and those subjects may have a different bias for why they wanted to be in the trial, they have different motivations. And remember also that Kinect 2 Study is a six-week study, the Kinect Study is a 12-week study. So, the longer studies have longer opportunity to drop out. I don't know, there are a lot of those things that will take the sword out.

[Jason Napodano:]

That's okay, that's helpful. And then just a final question, going into potential end of Phase II or requesting an end to Phase II meeting by the end of the year, what's your goal in terms of for Phase III, you think that's something that you would request an SPA for?

[Dr. Christopher O'Brien:]

The answer is, probably or maybe. It kind of depends on how the end of Phase II meeting goes. I am not adverse at all to requesting an SPA, I like that idea, particularly in this case where there is really no history of drugs getting registered for tardive dyskinesia, you're going to be the first one out, you want to lock everything down, but we'll see how the end of Phase II meeting goes and whether we think that's beneficial or not.

[Kevin C. Gorman:]

And maybe also Jason, prior to the end of Phase II meeting, that we'll have more guidance on that too because, as Chris would attest to, we do have regular communication with the division, we'll see what the Phase II data looks like, how the package is coming together, and I'm sure we'll get some informal input from them on how they are thinking along those lines. They've been very nice and proactively communicating with us at times.

[Jason Napodano:]

Thanks guys.

[Operator:]

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

[Kevin C. Gorman:]

Thank you. So this has been very straightforward, as all of you realized, for this quarter's call. We all anxiously await the Kinect and the Kinect 2 data that is coming out. As Chris has said, we're real happy with the design and the conduct of these trials, and so we are right there with you in anticipating this data. As you can tell from Chris' statements with the Phase I trial that we have ongoing or about to start, we're fully exploiting this asset and also we didn't go into all the CMC work that is being going on. We've already manufactured all the drug – the active pharmaceutical ingredient that we'll need for the foreseeable future for this compound. So we are well invested in this. And then to effort what Chris has said, that AbbVie is on track with the guidance that they've given for the elagolix program, both for their Phase III in endometriosis and Phase II program in uterine fibroids and we are very pleased with their team's performance. So, we are continuing to move along with all the work that we have done here, and right now, we're looking for to talking to you in just a few short weeks. So, thank you very much for your participation in the call today.

[Operator:]

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