Neurocrine Biosciences, Inc. Q4 2008 Earnings Call Transcript

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 |  About: Neurocrine Biosciences, Inc. (NBIX)
by: SA Transcripts

Neurocrine Biosciences, Inc. (NASDAQ:NBIX)

Q4 2008 Earnings Call

February 3, 2009, 05:00 PM ET

Executives

Kevin Gorman - President and CEO

Claudia Woodward - IR

Tim Coughlin - VP and CFO

Chris O'Brien - CMO

Analysts

Bryan Adams - Oppenheimer

Thomas Wie - Piper Jaffray

Craig Gordon - Cowen

Jason Napodano - Zacks

Operator

Good day, everyone, and welcome to today's program. 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 may be recorded. It is now my pleasure to turn the conference over to Mr. Kevin Gorman. Please go ahead, sir.

Kevin Gorman

Thank you very much, and welcome everyone to our fourth quarter earnings call. I’m joined by Chris O'Brien our Chief Medical Officer, Tim Coughlin, our Chief Financial Officer and Claudia Woodward, in charge of Investor Relations. Today what I would like to do is have Tim take you through our financials. Chris, will give you an update on all of our R&D programs.

But before I start Claudia could you please read our Safe Harbor statement.

Claudia Woodward

Sure thanks Kevin. Good afternoon 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 the 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 web site 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.

Kevin Gorman

Thank you, Claudia. Tim, can you take us through the Q4 and year-end results.

Tim Coughlin

Sure, thanks, Kevin, and Good afternoon everyone. We have three finance related goals, first priority was to end the year with over $100 million in cash and investments while continuing to advance the elagolix program. The second financial goal was to end the year with no debt and final financial goal was to have a loss of 75 million to 80 million with 38.5 million weighted average shares outstanding.

We hit on all of three of these ending the year with a $101.5 million in cash and investments. While at the same retiring all of our equipment related debt during 2008.

We limited our loss to $76.5 million after removing the impacts of real estate transactions which I will discuss later.

Our final finance related goal to end the year with the weighted average shares outstanding 38.5 million was met as we ended the year with weighted average of 38.4 million shares outstanding.

We had a loss of $28.9 million during the fourth quarter were $0.75 per share. This compares to a loss of $128 million or $3.35 per share in the fourth quarter of 2007.

Our year-to-date loss was $88.6 million or $2.30 per share this compares to a loss of $207.3 million or $5.45 per share last year.

The main difference between the quarters and the year-to-date results is a one time write down of the prepaid and final royalty during 2007. Coupled with the cost savings we realized under our severance program enacted in the fourth quarter of 2007.

Additionally, we have implemented other cost savings measures throughout the company during 2008 that mitigated the net loss.

Research and development expenses for the quarter were $11.9 million compared to $24.3 million for the same period last year. 2008 research and development expense was $55.3 million compared to $82 million last year. The decrease in research and development expense is primarily due to cost savings generated from our severance program.

Research and development expenses decreased from third quarter to the fourth quarter this year primarily due to the winding down the elagolix Phase II 603 study or PETAL Study and significant pre-clinical efforts around our VMAT2 program that were incurred during the third quarter to bring VMAT2 to clinic ready stage.

General and administrative expenses for the quarter were $3.8 million compared to $10.8 million for the fourth quarter of 2007. Year-to-date G&A expenses were $20.2 million compared to $37.5 million last year. The decrease is due to our severance program and discontinuation of pre-launch activities with indiplon both of which occurred in the fourth quarter of 2007.

As mentioned during our third quarter earnings call, we incurred a six years liability related to the front office building of our property. We fully vacated that building in the fourth quarter 2008 and recorded an estimate of the cost that may be necessary to lease out the building.

Those costs include vacancy carrying cost, multi-tenant structural work, tenant improvements and lease termination cost. These cost are accrued at this point, but predominantly will not be paid out until this space is subsequently leased. Essential reducing our ongoing rent obligations as we pay these costs out.

In addition landlord will finance approximately $4 million of these cost to increase rent over four year period. We also amended our lease to permit this releasing of the front building at the same time we also relinquished our right to repurchase the building and a pre-determined price in 2011. This allowed no recurring to for likely better phrase clean up its balance sheet. The accounting rules now allow us to remove the $108.7 million long-term lease obligation liability from our balance sheet.

We also removed the related building assets of $69.6 million. This title was transferred last December. We now have a differed gain of $39.1 million on the sale of the property which will be recognized over the balance of the lease term.

We recognized $3.5 million as a deferred gain this year in the P&L. The net of these two transactions, the [cease use] liability of $15.7 million and the gain on the sale $3.5 million had a $12.2 million on our impact on the bottom line. With a minor impact to our cash flow.

During 2008 rent expenses characterized its interest expense in accordance with generally accepted accounted principles. Hence the reason we had $7 million in interest expense in our P&L with a minimal long-term debt.

With this amendment for lease, future rent expense will be partitioned between research and development and general and administrative expenses.

Our cash and investments are still conservatively invested with mainly government backed or government supported instruments. FDI insured CDs, treasuries, GFCs and money markets backed by the treasuries temporary guarantee program for money markets.

We have approximately $21.1 million in auction rate securities with a stated par value of $22.6 million. These are carried as long-term investments in our balance sheet. As I mentioned before and as disclosed in our 10-K filing which should be filed tomorrow. We have elected to participate in UBS liquidity program for a portion of our auction rate securities that provide for the fixed redemption date of June 30, 2010 for approximately $15 million of our auction rate securities at par value. We have no need to access those funds prior to that date.

For our entire investment portfolio, only $6.5 million of auction rate securities remained without a definitive par value liquidation date. However, all of our auction rate securities remained at AAA rating and continue to pay according to their penalty terms.

So from a cash and investments perspective, we are very strong and very liquid with two years of cash on hand and no debt.

Guidance for 2009 is that we will manage the company to burn $50 million to $55 million from ongoing operations exclusive ready partnering fund. Including that burn is the completion of the Phase II program elagolix and the end of Phase II meeting with the FDA at the end of the year.

With that, I'll turn it back over to Kevin.

Kevin Gorman

Thank you very much, Tim. That's encouraging. We are in a good financial position two year of cash on hand and we have very tight control over our burn rate as Tim was saying, also a very transparent financials at this point in time. So, what I would like to do now turn it over to Chris O'Brien, who is going to run through all of our development programs. Chris?

Chris O'Brien

Thanks, Kevin and good day to listeners. I will go through each of the programs. Elagolix, CRF, Urocortin, Indiplon, VMAT2 and update our status on each of them.

So for elagolix the three Phase II studies that are in various stages are the 603 study or PETAL Study, the 702 study or the Lilac PETAL Study and the 703 study, the Tulip PETAL Study.

I am sure everybody has the numbers straight, as you know for the 603 study we reported a positive top line results for both primary and secondary end points after the six months of treatment in September of last year.

And then this was followed by six months of no treatment again at the request of the FDA we get follow up DEXA scan and additional safety data. The last subject recently underwent on week 48 DEXA scan that was in December. And the data collection from all the sites has recently wrapped up. And the data scrub or the QA process is currently underway as we speak.

We currently anticipate release of the full results from the PETAL Study with all of its integrated details starting in probably in April. We've submitted abstracts to three important scientific meetings this year for the 603 data. The first coming up will be the, endo '09 meeting, this is the American Pain Society meeting that will be held in I believe June. And the European Society of Human Reproduction and Endocrinology or ESHRE that meeting is also in June. And then finally the American Society of Reproductive Medicine meeting held in the fall we will cap that off with the safety and efficacy data.

So three abstracts coming from that, but will really some additional detail once I have all the information probably in April.

You know the focus of my team has been primarily on getting the 702 top line data out and this trial as you know is moving along quite well. The last subject was randomized in December, this is so we had a 155 women randomized. And we will report the top line results from this trial toward the end of March so next month.

The data will reflect the three month placebo-controlled phase of this six month trial and that's the top line data. The primary endpoint in this trial is a numeric rating scale for endometriosis pain and for those of you who are interested there are some recent detail on this in a position paper from the NIH and the ASRM published in the journal Fertility and Sterility outlining these end points.

We are also testing a version of the so called modified B&B scale at the request of the FDA along with several other secondary efficacy measures and the full report on this six months trial when it's done will be sometime in mid 2009.

So top line results end of March and then six months results later in the year. Study is going very nicely, very positive feedback from investigators and subjects with ongoing request for compassion the use of elagolix.

The 703 trial is the Tulip PETAL Study being conducted in Central Eastern Europe, six countries in Central Eastern Europe. 180 subjects to be randomized. After some initial difficulty getting this study going because of some importation challenges we had with several of the countries screening and randomization is now proceeding well.

Obviously, the timing of one the top line results become available, is contingent upon the date of the last subject being randomized also obviously I will provide a greater clarity when we complete randomization.

Currently the anticipated read out time is late Q3 some where in that phase depending on how that trial enrolment goes. But this trial includes all of the primary and secondary end points that we have already discussed in the 702 trial plus an additional information regarding a fourth control arm, sorry a fourth treatment arm that is with leuprolide injections. The primary purpose of leuprolide in this trial is so we can get some leuprolide placebo comparison data that will allow us to understand that effect size and the variability among patients. So we can than determine the kind of sample size necessary to adequate power in a pivotal trial if we need to do a non-inferiority pivotal trial which is a reasonable expectation particularly for Europe.

So this will a nice read out from that trial, we gathered some of that information and use that in our discussion with the regulatory authorities.

So that brings up the end of Phase II meeting. We anticipate submitting of the pre-meeting package with data from 12 Phase I studies, five Phase II studies and which includes more than 800 subjects who have been on elagolix for up to six months and many of them.

As part of our request to the FDA, before the end of Phase II meeting and looks like we will be able to do that as scheduled this year sometime in Q4 and then we'll obviously be awaiting scheduling the meeting at the FDA's that's their decision when they are meeting occurs. But we will submit their meeting request in our data package in Q4. Hope to meet with them in 2009 but that's really at their schedule.

So that's the update on the elagolix program. Things are moving and actually quite nicely and look forward to talking with those people at the end of March when we have the results from the 702 study.

Moving on, CRF R1 Antagonist programs, remember this is a three molecule in partnership with GSK. They are running the development program after our research collaboration.

The first molecule that was tested 008. GSK has released the data from their irritable bowel syndrome trial to us and there were no statistically significant differences between 008 and placebo.

So, they have moved on and now the lead molecule 679 is now in the midst of enrolling subjects in their Phase II major depressive disorder trial. This trial began recruiting in Q3 of 2008 and GSK anticipates enrolling approximately 150 subjects where the read out of data from this depression trial in 2010 or next year. They also of course have the backup molecule to that which has completed some sort of Phase I work and that's molecule 529.

So moving on, Urocortin 2. You will recall we were carrying out some studies with urocortin 2. We wanted to look at long-term infusion that is 14 days of continuous infusion in a couple of species to confirm what we have seen in our non-GLP studies that I have described to you earlier.

So we have completed those studies and they confirmed what we had seen. We have been able to address any of the outstanding tox issues. And this GLP tox data then puts us in a position were urocortin 2 can be infused for longer durations in humans in additional clinical trials. So very satisfying outcome to that just wrapped up in late December early January.

We have not initiated additional clinical trials at this point obviously pending availability of additional resources or as an alternate alibi.

Indiplon remember indiplon regarding the status of indiplon you may recall we had our end of review meeting with the division at the FDA last summer.

Since that time we have exchanged several versions of the meeting minutes. And we are still waiting for the final official version from the FDA.

We continue to contact the division on a regular basis. At the moment I have no, they have not provided clear indication about when we should expect to receive them. Obviously this is an important issue for us as future efforts with indiplon depend on the direction given in the finalized minutes. So we are not allocating any resources to indiplon at the present time.

The last program to talk about is our VMAT2 inhibitor. I think many people know we have at any given time around 12 discovery research programs going on at NBI and couple of compounds in preclinical development, one of these compounds have completed the preclinical first in human enabling studies. And now is ready to enter clinic.

This compound specifically targets the Vesicular Monoamine Transporter 2 or VMAT2 a protein that's concentrated in the brain in humans that is essential for neuron transmission.

Our compound that we are bringing forward is highly selective and effective in regulating dopamine release and at the same time having really minimal impact on any of the other monoamine that VMAT2 is out with. So we reduced the likelihood of target effects and we believe we can get a very controlled clinical affect that will be useful for condition hyperkinetic movement disorder condition such as Tardive Dyskinesia. Additionally, modulation of dopamine pathways is obviously important for others CNS diseases such as schizophrenia and we are excited to move in this direction.

As mentioned we are ready to go into Phase I as soon as additional resources for clinical development become available. So, I will try to give you quick tour through R&D activity at the movement. I hope that you should picture where we stand. We are pleased with the progress in elagolix and I will turn you back to Kevin.

Kevin Gorman

Thank you, Chris. I would like to take this time to really congratulate in 2008 our entire R&D group for what they have accomplished. As I told you at the beginning of the year we have structured the company to be able to move a new compound into the clinic every year and if you see that we are able to meet that goal here with VMAT2.

In addition, the hurdles that they overcome and the timing that they did it within urocortin 2 to put that compound very well on track is admirable. And then last but not least when you look at the size of our Phase IIb program with elagolix and how quickly that is moving forward with our kick up at this point and you always knock on with Phase II programs. That is going extremely well. Right now and we are on track as Chris said for a year end, end of Phase II meeting should be agency be able to grant that to us.

We will certainly get our into Phase II briefing document again on schedule.

So finishing up on a couple of items certainly I've talked with many about partnering that as I have always said with partnering that we are in discussions. We are negotiations with several large pharma. At this point in time those negations are moving forward and going well. That's where I believe we are going to leave it, at those statements.

And finally what I would like to say is something that some of you have asked about is our shareholder lawsuit was dismissed by the US district court derivative suit was also dismissed by the superior court and so all of the, all of the time lines for appeals have left. So that chapter is completely behind us at this point.

So with that I would like to open it up for questions.

Question-and-Answer-Session

Operator

(Operator Instructions). And our first question is today is from Ian Somaiya from Thomas Wiesel Partners. Your line is open.

Kevin Gorman

Ian?

Operator

Ian Somaiya, your line is open.

Kevin Gorman

Okay then we can move on to the next on and then come back to Ian.

Operator

We will move to Bryan Adams from Oppenheimer. Your line is open.

Bryan Adams - Oppenheimer

Hi, its Bryan Adams thanks for taking my question. Looking ahead in the elagolix development program what's your sense based on your dialog with squad leaders and with regulatory agencies and to what ultimately the end points are going to be that the FDA will require in Phase III program?

Kevin Gorman

Chris I will give that to you.

Chris O'Brien

Thanks, Bryan. Clearly we are seeking in as an indication for elagolix, the management of pain associated with endometriosis. So the primary end point will be a pain end point. There have been and in the future may well be other indications either within endometriosis disease modification, fertility or other things that you could go after.

But we are going after pain as the clearest regulatory path to go down. This recent physician paper that I mentioned was consensus conference among academicians, clinicians, pharma, our regulatory authorities and they clearly outlined what they see as the path forward for drugs targeting pain reduction and endometriosis.

So their guidance is very much appreciated and obviously when we sit down at the end of Phase II meeting we will talk with the regulatory authorities in the US and in Europe and make sure that we have a consensus for the design and primary end points of the pivotal trials. But it will be a pain end point that we are going after.

Bryan Adams - Oppenheimer

Okay. In your sense that it might look something that might look closer to the numeric rating scale that's the primary end point in Lilac PETAL or something more along the lines of the modified B&B?

Chris O'Brien

That's a good question. If one looks to other therapeutic areas and other divisions at the FDA you will see that the numeric rating scale in fact has become the more as the gold standard whether you are talking about cancer pain or neuropathic pain or other kinds of pain end points.

The modified B&B at the moment isn’t a single discrete entity we have the old B&B scale which itself had been modified a number of times. Also once a month retrospective paper assessment of five different components.

Now with our discussions with the FDA and we gather other companies as well. The agency has to test out a different version of that. Or we pull out several of the components we changed the wording we look at that on a daily basis. And so we are happy to do that. We have included that in both 702 and 703 whether this scale has utility in future clinical trials and particularly in the pivotal trial.

We won't know until we have some data in hand. And the FDA recognizes that so we have to work that out with them.

Bryan Adams - Oppenheimer

Thanks it's very helpful.

Operator

And our next question comes from Thomas Wie from Piper Jaffray. Please go ahead.

Thomas Wie - Piper Jaffray

Hi thanks for taking the question. I had a couple of them follow up here just one on the partner set. Is the plan still settled off on Phase III initiation until the partners have designed. And do you think that partners are looking to see what the outcome of that end of Phase II meeting is before they would sign a deal?

Chris O'Brien

Thanks so much for the questions. First I will take them in order, first I would well I don’t give timelines I fully anticipate that we would have a partner on board prior to initiating Phase III studies. Secondly is that while there is no, there is no waiting by the partners that we are dealing with for the 702 data however it may work out that we go as that through that time when the 702 data become closed, or we have the 702 data in which case then obviously a milestone will turn is part of the upfront.

I would also just like to add that partners would very much like to be a part of the endo Phase II meeting. They would want to have input in there, and we would want and welcome their input in dealing with the regulatory agency and in that endo Phase II meetings. Just to round out my answer to you about would we start Phase III without a partnership on board.

Thomas Wie - Piper Jaffray

And in terms of the types of partners that you are looking at, should be thinking about companies that have a specialty in women's health or broader plain team players, or are you specifically targeting a certain skill set with the partiers that you are entertaining?

Kevin Gorman

Thomas, I will characterize it as I had before. There is multiple parties that were in negotiations with and they run the gambit from those that certainly have women's health franchise expertise, those that have and/or men's health and all of them being very much involved in pain, most multinational, some regional.

Thomas Wie - Piper Jaffray

And then just one last question on Numeric Rating Scale. In the 702 study, what do you think we should look for as a positive outcome on that endpoint in 702 trial?

Kevin Gorman

Yes, so typically what one sees in these kind of outpatient's studies with moderate severity pain within coming with or subjects coming with average scores, or let's say in the four range.

And typical therapeutics affect and if you saw a 50% reduction in the NRS with active drug in a about 30% reduction, or 20% reduction with placebo, the study is adequately powered to have statistical significance with that kind of result.

Thomas Wie - Piper Jaffray

Thanks, it was very helpful.

Chris O’Brien

Thank you.

Operator

And next we will go Craig Gordon from Cowen. Your line is open.

Craig Gordon - Cowen

Well, thank you for taking my question. In terms of rather two candidates, Urocortin 2 and VMAT2, are you taking on advancing your Urocortin 2 into Phase II by yourself or is that when you rather partner first, and certainly for VMAT it was that something that you would prefer to partner before going in Phase I, or potentially if other partnerships were formed, do you view some got might should yourself?

Kevin Gorman

Yeah. Thanks, Craig for giving us the opportunity to talk about and specifically VMAT2. We plan on taking that forward into Phase I ourselves. And I would say further than Phase I with VMAT2. This is a target that we have a lot of in-house expertise on that we have developed overtime, and also a very attractable patient populations that one can work with. It's kind of an ideal target and patient population for a company our size.

Secondly, with Urocortin 2, as you may know, we got into that area not because of the therapeutic area being cardiovascular. We got into it because of the target itself. Urocortin 2 is the agonist peptide ligand for the CRF2 receptor.

And at this point where I think to take that much further through Phase II development now we have done a couple of Phase II studies in it. It would be best if that was done with a sophisticated partner in cardiovascular.

Chris O’Brien

These are large trials that one has to conduct. And as you know the whole plain field with congested heart failure has radically change in the last two years. We talked about endpoints. Here the challenge is that drugs for acutely decompensated heart failure have to not only impact the acute symptoms, but have an impact on morbidity and mortality up to six months. And these are very large trials that have to be done by big form or type cardiovascular company and we are not that.

Kevin Gorman

And having said that though, I mean, Chris has been recently at some meeting with FDA that certain countries were invited to us being amongst them. And this is an extremely interesting molecule with a novel mechanism of action, and there potentially could be some very interesting subpopulations that could be studied with this drug.

And so there is quite a bit we are working through on it now. The important thing for us immediately was get through all the preclinical parts of this program, which are now done and get through it successfully as was done so that the compound can go into some longer-term infusion studies amend.

Craig Gordon - Cowen

And so if I may just talk on the VMAT2, do you think that that is 2009 event, or it's unclear this time moving that into Phase I?

Kevin Gorman

I would say that that would be a 2009 event. But as we have said, we are being very judicious with our cash and the timing of those expense.

Craig Gordon - Cowen

Right, now I understood. Thank you very much for taking my question.

Kevin Gorman

You welcome. Thank you.

Operator

And we will go to Jason Napodano from Zacks. Your line is open.

Jason Napodano - Zacks

Hi, guys. Thanks for taking the question. As you are sitting across the table from the FDA later in the year, do you think that your request in FDA for Phase III for elagolix?

Chris O’Brien

Yes, that’s a good question Jason. Yeah, so the short answer is, yes. I think that's a very worth considering. As you know special protocol assessments are often useful and given that sense of security that you are headed in the right direction.

Although recently, we have seen that sense of security has been sometime knocked out by changes in position by regulatory authorities, so it's not a bad idea to get an FDA for an endometriosis pivotal program, and obviously that's one of the things that we will take up with whomever our partner is.

Jason Napodano - Zacks

Well, you mentioned the potential non-inferiority test in Europe for Phase II would that be worse Lupron?

Kevin Gorman

So that actually hasn't been determined. You are limited to comparing to drugs that are approved for that indication, and so out of the general classes we have, the DMPA, or Depo-Provera, Lupron or its various formulations. And Danazol, and there are couple other hormone therapies in Europe that are not available here in the US, so any of those potentially would be fair game.

If you look for the one that has the biggest hammer in terms of effect size, its Lupron. And we believe that we would actually compare quite favorably to any of the currently approved therapies including surgery, so it is hard to do that for the surgical non-inferiority trials.

So I don't have any strong feelings about which one we go with I just want to make sure that it's feasible that the regulatory authorities agreed that this is the right one. And that we know what the statistical margin is and we have justification for that margin going into the trial so that there are no surprises there. Most people assume it would be a Lupron comparative trial, but that actually has to be sorted out at the time we meet with the regulatory authorities.

Jason Napodano - Zacks

Okay, one last question. Can you talk a little bit about the differences between the 679 molecule and the 008 molecule. I am sorry changed subject a little bit. And what maybe gives you confidence that the new candidate will have some efficacy in NDD, given that we didn't really see what we were looking forward 008 in IBS or SAD?

Kevin Gorman

That's very insightful. And in fact I would even like a stronger statement if you want to say what we had hope to see. In fact quite a few companies have put CRF1 receptor antagonist into the clinic and uniformly, those results have been disappointing across several different indications over the last two years.

It turns out that based on what we know and our collaboration with GSK is that we could actually predict that those molecules would fail based on some proprietary methods that GSK and Neurocrine have in-house to assess the pharmacology of these drugs at their receptors.

And so we have been able to say, in fact one of the few molecules that has had some positive effect as you may recall is one of our early molecules that we had in collaboration different partnership and that was 775.and that molecule.

And that molecule in these kind of in-house models that we have is technology that's available. We shall that in fact that should have worked and this small clinical study that was ended. Although it had separate toxic issues which lead to it discontinuation.

So at this point, we have played with our 008, we have played with 679, we have played with 529 and we have played with the competitor molecules from other companies that have been in development, and we believe we can predict, which once will have the desired pharmacologic effect. Obviously in our discussions with GSK, they concurred because when they placed their bet on major depressive disorder trial, they chose 679 to do that.

Jason Napodano - Zacks

Okay. Thank you. That's very helpful.

Kevin Gorman

Okay. Well, I thank you very much for your questions. And I thank you very much for your attention. We will as always be in touch and be communicating with you all even the broader investment community as we generate new data and new findings here. And I look forward to meeting with you all in the near future. Take care.

Operator

This concludes teleconference. You may disconnect at anytime. Thank you and have a great day.

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