Neurocrine Biosciences' CEO Discusses Q3 2012 Results - Earnings Call Transcript

| About: Neurocrine Biosciences, (NBIX)

Neurocrine Biosciences (NASDAQ:NBIX)

Q3 2012 Earnings Conference Call

October 31, 2012, 5:00 pm ET


Kevin Gorman – President, CEO

Jane Sorensen – IR

Tim Coughlin – CFO

Chris O'Brien – Chief Medical Officer


Phil Nadeau – Cowen & Company

(Sarah Slisko) – Morgan Stanley

Thomas Wei – Jefferies

Jon Lecroy – MKM

Yale Jen – Roth Capital

(Joe Kim) – Piper Jaffray


Good day, everyone, and welcome to Neurocrine Biosciences reports third quarter 2012 results. At this time, all participants are in a listen-only mode. Later you will have the opportunity to ask questions during the Q&A session. (Operator Instructions)

Please note this call is being recorded and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Kevin Gorman. Please go ahead, sir.

Kevin Gorman

Thank you very much and welcome, everyone, this evening to our quarterly earnings call. I'd like to start out with saying that all of you on the east coast have been in our thoughts here and we certainly hope that your losses have been minimal and that you can get life back to normal as soon as possible. It looks like you went through one hell of a devastating event back there.

Before we get started with the call itself, I'd like to send it over to Jane to read our Safe Harbor statement.

Jane Sorensen

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 and management's intentions, (risks), 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 filing, 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 investor relations page on the company's website at

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 Gorman

Thank you, Jane. As usual, I'm joined here with Chris O'Brien, our Chief Medical Officer, and Tim Coughlin, our CFO. While I think the summary of this previous quarter was progress was continuing and everything was on track both clinically, research and financially. Why don't we start out with Tim to take us through the financials?

Tim Coughlin

Sure, thanks, Kevin, and good afternoon, everyone listening in on this call. Today we released our financial results for the third quarter of 2012 and I believe we've also filed our 10-Q with the SEC.

We've done met our budget for the third quarter from a P&L standpoint as well as ending at our cash balance target. We lost $0.05 per common share this quarter, a modest increase over product orders. This is driven by lower amortized front revenue payments as well as higher R&D costs as our VMAT2 program continued to move forward and started its next round of Phase II studies.

Year-over-year we've lost $0.07 per share for the first nine months of 2012 compared to income of $0.64 per fully diluted common share of the first nine months of 2011. For the third quarter of 2012, as I previously mentioned, we lost $0.05 per share. That compared to income of $0.56 per fully diluted common share during the third quarter of 2011.

The main difference in the operating results under the two periods is primarily due to two milestones, which we earned last year under the Abbott collaboration agreement. These two milestones totaled $30 million last year.

Revenue for the first nine months of 2012 were $31.2 million compared to $66.3 million for the first nine months of 2011. But again, this decrease was driven by the previously mentioned milestones.

Research and development expense is increased both year-over-year and quarter-over-quarter. This increase in expense is due to high levels of activity in our VMAT2 program as well as our other research programs.

Additionally, higher non-cash R&D related option costs due to the timing of option grants was responsible for that $1.4 million of year-to-date expense increase in R&D. We expect the R&D expense increase slightly in the fourth quarter as activities around VMAT2 continue.

General and administrative expense for the quarter was about 13% lower than the prior year primarily attributable to separation costs we incurred in the third quarter of 2011. Year-to-date, G&A costs are about 3% higher than the previous year and this is, again, driven by non-cash option related expense. We would expect the fourth quarter G&A expense to be in line with this past quarter.

We began the third quarter with approximately $195 million in cash investments and receivables and during the third quarter we burned about $10 million. At September 30th we have just over $185 million in cash, investments and receivables, so a strong cash position.

So that concludes our prepared remarks. I'll turn it back over to Kevin and entertain any questions during the Q&A session.

Kevin Gorman

Thanks, Tim and we're on track as we gave guidance at the very beginning of the year to end this year with (I think) $70 million to $75 million of cash in the bank. Chris, why don't I turn it over to you and give an update particularly with our VMAT2 program as it's progressing?

Chris O'Brien

Sure, thanks, Kevin. As you said, I'll give some detail on what's happening in VMAT2 but before that, just a comment on the collaboration ongoing with Abbott. Abbott of course is guiding the Violet Petal Study, which is the Phase III endometriosis trial.

They tell us that things are on track with the recruitment in this very large Phase III study. Approximately 160 plus sights, of which almost all are up and active recruiting subjects at the present time.

The Abbott team is happy with the progress that they are having with the study and we look forward to seeing that move along basically as (inaudible). It's also fun for me to hear the radio ads and to see some of the TV ads for our recruitment for this program throughout the country.

The Phase II uterine fibroids study is ongoing and I don't have any new detail or update there. It's just proceeding as they have outlined and we are waiting for some additional updates from them accordingly.

The bulk of our work, as Kevin and Tim have pointed out, is focused on VMAT (in our) clinical and regulatory group. The KINECT Study is the ongoing Phase II study with our VMAT2 inhibitor and the NBI-98854 – used for shorthand, 854.

And this trial, as you recall, we had our investigator meeting at August. We've begun screening subjects in the latter half of September and the study is now randomizing subjects with a brisk screening pace.

The idea was to have at least 30 of the 40 sites up and running this month and we have met that goal. I think we're something like 34 sites up now and the sites are actively screening patients for moderate or severe tardive dyskinesia.

So if you recall, we had the opportunity to learn about the study population, the rating instrument and the investigator application of that in scale during our small crossover Phase IIa study.

That has come back to give us benefit in space. We have taken the learnings from that trial and recruited a series of what I have to call quality control mechanisms to make sure that this Phase IIb study is a high quality informative trial. And already early on I can see that paying off rewards.

As you know, we invested significantly in the training and certification of the AIMS raters. We included a steady design that had a separate group of external AIMS reviewers that looked at every screening and examination and made a determination is the subject qualified for the study.

That was done by external group of independent experts. The actual AIMS rating was done by an independent rater at the site and the treating physician investigator has nothing to do with the AIMS or the qualification of the subjects to the severity.

And that separation seems to be working well because, frankly, we have been able to exclude patients from this trial that might have been included had we not had those pieces in place.

We are including patients in the trial that are highly qualified and very appropriate for the study. They truly had moderate or severe dyskinesia and this ability for the video (inaudible) to be reviewed by the independent experts has – that is making a big difference even in these first couple of weeks of screening and rounding, so very happy with the quality of the subjects that are being recruited – enrolled at the sites and very happy that we have this system with controls in place.

So far we've had – those safety signals, only problems to report on a small number of subjects actually are randomized placebo active drive.

I will remind people the goal is to enroll 120 subjects randomized to active or placebo for six weeks followed by active drug for the balance of the 12-week trial. We plan on reporting out the top line results from the placebo controlled portion of the trial in Q2.

That is obviously contingent upon recruitment and enrollment and so far we're on track with screening and enrollment this month but these are early days and obviously we'll keep you updated as we go along with the KINECT Study.

Meanwhile, we have been putting together the details of what will be called the KINECT 2 study. The KINECT 2 study is the next Phase II trial. This one is in patients with bipolar disorder, mood disorder as well as (inaudible) induced tardive dyskinesia and the potential is also for patients with schizophrenia or schizoaffective disorder that does not qualify for the KINECT study for the inclusion and exclusion regions potentially to enroll in the KINECT 2 study.

So the protocol has been completed. We're working getting that, the remainder of the sites qualified and documents are prepared for the (IRB)s and our goal is to begin screening in December for the KINECT 2 study.

This trial will be approximately 30 sites in the US. We will – it's designed to enroll 90 subjects and we will be exploring a basis of VMAT2 inhibitor between 25 and 75 milligrams utilizing a titration schedule.

You'll get more details of that when it's posted on or if you have specific questions for me that I can answer, I will. So this – the combination of Phase II studies allows us to assemble a full complement of dose and (puts and dose) response information from 12.5 milligrams, which we said is comparable to placebo, up to 100 milligrams, which we think is at the top end of what might be (powerful) to this population of patients with tardive dyskinesia.

We know that the 50 milligram dose to date has shown figures of reduction in TD intensity and so now we're looking at 25 and 75 to flush out that full range of doses. This obviously will put us in a very good position to have and enter Phase II discussion with the psychiatry physician with the FDA in the second half of 2013.

So we expect that these two Phase II trials, top line of the KINECT study in Q2, top line from the KINECT II study shortly after that, and the studies actually will complete out their open label treatment safety follow up by summer.

We'll obviously be assembling the data in a package with information which then we will request to move on to Phase II in the second half of 2013. So that's the top line, top (inaudible) view of what's happening with the KINECT Study and the current KINECT II study and I look forward to any questions during the Q&A section of the call.

Kevin Gorman

Thanks, Chris. So we're very pleased right now with the conduct of the KINECT study, KINECT I study. And as Chris has alluded to, really key for us is to have the right patient population in this study.

We have a strong belief that we're working with the right drug hitting the right target and that this will be efficacious and what we have to be certain of and where we are putting our (inaudible) is having the correct patients in the study and that's exactly what we have so far.

So by second quarter of next year, we'll have both of these studies completed and we'll have a real good database in order to go into Phase II meeting with – and this would be then launching us in the pivotal program shortly after that into Phase II.

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

And finally, I'm pleased with the progress that Abbott has been making with Phase III endometriosis trial that, as Chris said, they've got nearly every site up and running and their enrollment seems to be going quite well.

Their screening, they tell us, is getting very high numbers, so we hope that continues so that they will stay on track to what they stated as to have data readout in Q1 2014. Clearly we'll be launching. That'll be an important event for us in 2013. So 2014 is all about the Phase III in endometriosis. 2012 is all about our VMAT2 – or 2013 is all about our VMAT2 program with quite a bit of data coming out and going into Phase III.

So with that, let's open it up to questions.

Question-and-Answer Session


(Operator Instructions) Your first question comes from the line of Phil Nadeau – Cowen & Company.

Phil Nadeau – Cowen & Company

Just a couple on upcoming events – first, on the uterine fibroid stated for the Abbott, I think in the last conference call you said that Abbott stated disclosures (largely) for that data was somewhat unclear. Have you gained any clarity on how they might release that data? Is it (inaudible) press release or just in a medical meeting?

Kevin Gorman

Yes, no, I do not have any more clarity on that, so I don't think we're going to get any more clarity on that until Abbott is separate. And so it will probably be some time after the first of the year when we can have any substantive discussions where finally they can have any decision making on that.

Phil Nadeau – Cowen & Company

And then second is on the VMAT program. Chris, could you go into a little more detail as to what the differences are between the first and second Phase IIb trial? Clearly, it sounds like the patients are different and the doses are slightly different but are there any other key differentiators and end points or conduct in the study?

Chris O'Brien

You figured out the two main differences mainly that we wanted to look at. The two different populations, three different populations that we're interested in studying, the schizophrenic patients with TD, the bipolar patients or mood disorder patients with TD and then the smaller subset of patients, those with (inaudible) induced TD.

And we did this in two parts for several reasons. We believe the pathopysiology of TD is the same regardless of the underlying disease. They're all built on the antagonist-induced movement disorders.

What we – we're interested though is having the appropriate safety scales that differ among the groups. So, for example, in the bipolar population we would use an appropriate scale length that matters and in a schizophrenic population we would use a scale like the pans and the (calgory) and the (partial) scale for schizophrenia.

So we wanted to simplify and look at the safety scales differently. Secondly, the dosing that we're pursuing, we wanted to try to get at two different aspects of this dosing. One is the actual dose. Whereas, I've pointed out, we've looked at a range of doses from 12.5 to 100 milligrams but we're also looking at two different ways of administering the dose.

In the KINECT study, the dosing is a fixed dose. You're randomized to 50 milligrams, for example, and you stay on 50 milligrams. Whereas in the KINECT 2 study, the goal is to look at the potential safety tolerability and efficacy of titration, so subjects would start at 25 milligrams and then at two weak intervals go out potentially to 50 or 75 milligrams.

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


Your next question comes from the line of (Sarah Slisko) – Morgan Stanley.

(Sarah Slisko) – Morgan Stanley

I just had a couple quick ones. First, follow-up on the last question, is there any safety reason in this (bottle) patient population in KINECT that caused you to do the titrated dosing specifically in the broader patient population? Is there anything you're concerned about that would warrant the titration?

The secondly, do you have any updated thoughts or comments around the (path forward) for (inaudible) in Europe?

Kevin Gorman

So let me answer the second one first. No, nothing – no new information from Abbott on their commercialization and development plans. Now, to your first question, the difference – the KINECT 2 study was designed to look at this other population, the regular and the bipolar patients and to look at titration.

It's not because of a safety signal or concern with respect to (inaudible) dosing. In fact, as you know, the studies that we have done to date, the 12.5 and the 50 milligram doses were quite well tolerated and in the KINECT study, we're testing 100 milligram dose, which (PKTD) calculations is at the upper end of what I think is going to be tolerable.

And again, that's what Phase II is about is to really get a good understanding of that full range of dose response. It's increasingly clear that when sponsors go to the FDA to seek agreement on the Phase III program, the dose selection for Phase III is critical element for the FDA and making a compelling case based on strong data across a full range of doses from minimally effective dose to maximum tolerated doses is really a requirement.

So we're just trying to get at that and understand that completely before we get to the end of Phase II.


Your next question comes from the line of Thomas Wei – Jefferies.

Thomas Wei – Jefferies

Just wanted to get a little bit more debacle on your commentary about the appropriate exclusion of patients during the screening phase for the VMAT2 Phase II trial who otherwise might have gotten into the study.

Is that a signal at all that there's still some issues or discrepancies between the central readers and the onsite scores either on AIMS or this PGIC criteria?

Kevin Gorman

I think what it reflects is that in the general community of psychiatrists and referring physicians that send potential subjects into the study sites that they're not terribly sophisticated about diagnosing (moving) disorders and the phenomenology of involuntary movements in the population of schizophrenic patients on antipsychotic drugs is pretty complicated.

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

Thomas Wei - Jefferies

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

Kevin Gorman

I don't know about PGIC. PGIC is patient global impression of change, so obviously we don't have any of that information.

Thomas Wei - Jefferies

Is there a (inaudible) scale that's being used to actually enroll for eligibility?

Chris O'Brien

Yes, so that's not a PGIC. That is a – it is the external reviewer saying yes or no moderate or severe TD. And that is actually working pretty well. The subjects that are enrolled have moderate or severe TD as judged by both the external reviewer and the independent rater.

Now those two guys, they don't see each others – they don't see the score but I get to see them and so far those are hanging together pretty well.

Thomas Wei - Jefferies

And maybe just lastly – I know you had previously talked about the data being available maybe a little earlier than Q2. Anything to read into that?

Kevin Gorman

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


Your next question comes from the line of Jon Lecroy – MKM.

Jon Lecroy – MKM

Can you go a little bit more into the juvenile talks, what statements you made before on that and then what the process is there to initiate a trial on Tourette's and maybe some timing on that?

And then my second question, just can you give an update on your (inaudible) II? Is there anything you're moving forward with there?

Kevin Gorman

We're still talking to potential licensors of (inaudible). No progress to report to date but we're still engaged in the process of seeing if we can find a home for this. Now, with respect to juvenile talks, as you know, there may be a way that for different kinds of juvenile talk studies that can be done and this a process typically that involves looking at long-term consequences in the selected species with exposure and long-term follow up that we (inaudible) juvenile attack (tox) program usually involves an initial non-GLP dose ranging study in the species of interest.

And then that takes a few months and when that's done then we can actually begin the dosing and the GLP tox study. This day and age there's not a standard boiler plate juvenile tox study, so usually you need to sit down with the FDA and their toxicologist and seek their input about the kinds of study design that would be appropriate for your mechanism of action and your intended indication.

And so that process has – the process of the dose – preliminary dose ranging work is well underway. We're moving forward. We've got the FDA's input and, as Kevin said, the goal is to update the investor community next year.

When those – when we're done with that and we have a clearer sense of what studies we would do next to go after Tourette's indication.

Obviously Tourette's is a disorder that is primarily in the kids six to 12 years of age is the biggest – highest precedence. Obviously there's into adulthood. (I'm not going to) speculate. I don't have any detail or haven't had a conversation with the FDA but I would not be surprised if our first study is just in (over) adolescence and show reasonable PK, predictable PK safety and tolerability, a short-term study.

In that essence we would then go into a larger study in the younger Tourette population. We would be speculating that if (inaudible). Obviously we need to get through the juvenile tox process first and then the FDA about the approach into humans.

Jon Lecroy – MKM

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

Kevin Gorman

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


(Operator Instructions) Your next question comes from the line of Yale Jen – Roth Capital.

Yale Jen – Roth Capital

Let me just follow up on the earlier question regarding the VMAT2 first study. With this (inaudible) control (inaudible), can you quantify a little bit in terms of the improvement? In other words, do you see more drop out based on the video taken and the judgment (inaudible) potentially compared to the previous study, previous (inaudible) study?

Kevin Gorman

The answer is yes. We had a screen sale rate. That's the term we use. So they get referred in from us outside for screening. As they go through the screening process they can either qualify or fail. If they fail, they can fail because they don't have moderate or severe TD or they have somewhat laboratory unstable condition.

In general, when you are working within a specific indication, there are some common screen sale rates, so in some diseases screen sale rates are much higher than others. We have built in a model for this trial. We expect a screen sale rate of about 50%.

So far we're a little bit under that but I think it's just early days. Check back with me in a month or two and I'll have I think a more realistic assessment based on a larger volume.

But so far we're pretty close to what we expected. If we had not these controls in place, in fact, if I go back and look at the 1101 study, the screen sale rate would have been different (inaudible).

We would have failed some of the subjects that had gotten enrolled in that trial. And so obviously this process is working.

Yale Jen – Roth Capital

Do you mean for the previous study the sale rate is lower and that's why – and that study has (inaudible) otherwise should not be incurred?

Kevin Gorman


Yale Jen – Roth Capital

And then another follow-up question is that the – in terms of the second study, the KINECT study, is there a fixed breakdown between different type of patients (inaudible) patients (inaudible)?

Kevin Gorman

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

Yale Jen – Roth Capital

(inaudible) two or three groups?

Kevin Gorman

There are three populations. There are the mood disorder, which includes bipolar disorder. There's the (inaudible) or (raglan) induced TD. And the last group is schizophrenia (inaudible).

Yale Jen – Roth Capital

The last question I have is, again, follow-up on the question that with Abbott – has Abbott made any decisions especially on uterine fibroid. Would you really anticipate a rough timeline would be within mid next year (inaudible) or is it just too early to speculate at the moment?

Kevin Gorman

Right now, I think it's too early to speculate. What we've said in our press release and what Abbott has said to us is that they'll have the current (inaudible) trial, the Phase II in first half it'll be complete.

And then we have to see – and we don't know this yet – whether their timing, if they see proofs of concept, which we'll anticipate they would, what would be their timing to start the Phase IIb study. We don't have clarity on that at this point in time. We had, I'd say (inaudible). We don't have any visibility or more guidance at this point in time.


Your next question comes from the line of (Joe Kim) – Piper Jaffray.

(Joe Kim) – Piper Jaffray

My first question about the – if you can remind us whether the Phase III study in endometriosis has a responder analysis and I guess more broadly how it's been (inaudible) just from Phase II?

Kevin Gorman

So the answer is yes. It is designed (inaudible) analysis and with respect to the previous Phase II trial, the positive trials and (inaudible) study. The pinpoints are virtually identical.

(Joe Kim) – Piper Jaffray

I also wanted to ask whether or not Abbott has indicated or made any move to I guess prioritize your relationship with (inaudible) following what happened to the (inaudible) and its failure. Do you get a sense that Abbott is focusing more on (inaudible)'s development?

Kevin Gorman

Yes, I would say the way that I would answer that is we noticed actually seven months ago quite a big up ramp of activity around (inaudible) expense in uterine fibroids and in endometriosis.

As far as anything that's happened in the – just the last few weeks when they've had the (inaudible) that they did with the other program, it would be hard to see any lower activity than the tremendous amount of activity they seem to be putting into the (inaudible)'s program at this point.

(Joe Kim) – Piper Jaffray

Just a final question on your VMAT2 study. Did you say what (verses) you were going to use for your capital simulation for 854?

Kevin Gorman

So the (capital) simulation in both the KINECT study, which is ongoing and the KINECT 2 study, which is planned for starting later this year, we use capsules and the KINECT study is 50 milligrams, 100 milligrams or a placebo. The KINECT 2 study is at 25 milligrams titrated up to a maximum of 75 milligrams.


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

Kevin Gorman

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

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