Neurocrine Biosciences, Inc. (NBIX) on Q3 2023 Results - Earnings Call Transcript
Operator: Good day, everyone. And welcome to the Neurocrine Biosciences Reports third quarter results. At this time, all participants are in a listen-only mode. Later you will have the opportunity to ask questions during the question-and-answer 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 Todd Tushla, Vice President of Investor Relations. Please go ahead.
Todd Tushla: Good morning. Happy Halloween and thanks for joining Neurocrine’s third quarter 2023 earnings call. I’m pleased to be joined by Kevin Gorman, our Chief Executive Officer; Matt Abernethy, our Chief Financial Officer; Eiry Roberts, our Chief Medical Officer; Eric Benevich, our Chief Commercial Officer; and Kyle Gano, our Chief Business Development and Strategy Officer. During today’s call, we will be making forward-looking statements. These statements are subject to certain risks and uncertainties and our actual results may differ materially. I encourage you to review the risk factors discussed in our latest SEC filings. After prepared remarks, we’re going to try and get to all of your questions. So, Kevin, take it away.
Kevin Gorman: Thank you, Todd, and good morning, everyone. It’s been a very, very good quarter. I’m not going to go into really any detail. I think everyone else who’s going to be talking on the call will, and as always, we just want to spend as much time with your questions as possible. What I will say is that, it’s rare that you get to announce so much progress from a clinical standpoint with CAH from a regularly -- regulatory standpoint with the Huntington’s approval and then the outstanding work by our commercial and field medical units in bringing INGREZZA to so many patients and to having the success we’re having there. That’s all I really want to start out with today. So much to talk about, so what I’d like to do is I’d like to turn it over to Matt right now. Thank you.
Matt Abernethy: Good morning. Between our positive Phase III results in CAH, record INGREZZA sales and solid cash flow generation, we had an incredible quarter. During the quarter, INGREZZA sales were $486 million, reflecting 29% year-over-year growth. The INGREZZA commercial, marketing and medical teams are doing an excellent job continuing to build and develop the tardive dyskinesia market. With INGREZZA net sales through Q3 at approximately $1.34 billion, we’re increasing our guidance range to $1.82 billion to $1.84 billion. Our financial profile strengthened in Q3, resulting in non-GAAP diluted earnings per share of $1.54 and over $1.5 billion in cash at quarter end. We continue to prioritize our capital towards growing INGREZZA in both expanding and advancing our pipeline. As we mentioned during a recent call, we’ll be hosting an Analyst Day on December 5th. The agenda will be focused on our R&D strategy and include preclinical and clinical pipeline updates. We’ll also feature a panel discussion on congenital adrenal hyperplasia centered on addressing the challenges of current therapies for patients, caregivers and clinicians. We look forward to seeing all of you in New York. With this, I will now hand the call over to Eric Benevich, our Chief Commercial Officer. Eric?
Eric Benevich: Thanks, Matt. Q3 2023 was a great quarter for INGREZZA with both strong continued growth from our TD franchise and the initial rollout of the new HD Chorea indication, which I’ll discuss later. It’s been six years since our initial launch and I continue to be impressed with our team’s ability to help improve diagnosis and treatment rates for patients living with tardive dyskinesia. And our just announced increase to the full year guidance range reflects our confidence in continued strong growth. In the half dozen years since the launch, we’ve grown the diagnosis rate of TD from low single digits to around 35% of the prevalent population. While this is great progress, it also means that about two-thirds of the roughly 600,000 patients who suffer from TD have not yet been diagnosed, much less treated with a VMAT2 inhibitors like INGREZZA. Net-net, we clearly have much work to do to help more TD patients get a diagnosis for their uncontrollable movements and have the option to be treated. In August, we were excited by the FDA approval of the new indication for the treatment of adults with Chorea associated with Huntington’s disease. Now we have an opportunity to help yet another patient community in need. The many thousands of those HD patients who today continue to suffer with untreated Chorea. With approval occurring just a few short months ago, we are in the early stages of introducing INGREZZA to the HD community. But I can say that early feedback has been encouraging. Just as in TD, INGREZZA offers meaningful and differentiated benefits for HD Chorea patients, including high selectivity for VMAT2, rapid and sustained efficacy, good tolerability, simple one capsule, once daily dosing and comprehensive support programs. These are the reasons why INGREZZA is the most prescribed VMAT2 inhibitor and I’m confident that these attributes will translate well to the HD Chorea community. I’d like to close by congratulating our clinical development colleagues on the recent positive Phase III results for crinecerfont in both pediatric and adult congenital adrenal hyperplasia patients. The trial results were outstanding. I believe crinecerfont, if approved, has the potential to be a paradigm changing treatment option. Today, the standard-of-care utilizing supraphysiologic doses of glucocorticoids to suppress excess androgen production creates unwanted side effects and long-term complications. Patients are faced with dealing with the undesirable effects of excess androgen production or the undesirable effects of chronic treatment with high dose GCs. That’s a terrible tradeoff and we believe crinecerfont can establish a new standard-of-care. From a commercial perspective, we’ll be diligently working to demonstrate the high value we expect crinecerfont to bring to the CH community. While it’s premature to speculate on price, early discussions with payers have been productive in recognizing the benefits that lowering excess androgens and/or reducing GC exposure could bring to patients living with this inherited orphan genetic disorder. So, at this time, I’ll hand the call over to my colleague, Dr. Eiry Roberts, our Chief Medical Officer.
Eiry Roberts: Thank you and good morning. During our earnings call back in February, I noted that 2023 promised to be an important year for the Neurocrine pipeline. Today, I could not be more pleased to discuss how we are fulfilling that promise. Q3 featured several significant pipeline milestones, which I will address further. Beginning with our on-time FDA approval of INGREZZA for the treatment of Chorea associated with Huntington’s disease. As Eric noted, the vast majority of patients with HD Chorea are currently untreated. Given INGREZZA’s attractive product profile and differentiated attributes, I’m confident that Eric and his team will be able to change that. To further differentiate INGREZZA, we’ve developed the INGREZZA sprinkles formulation, which the FDA accepted as a new drug application last month. This potential new formulation could serve as a preferred alternative administration option for many of the tardive dyskinesia and Huntington’s disease patients who have trouble swallowing or simply prefer not to take a whole capsule. Turning to crinecerfont, I believe everyone is familiar with the outstanding topline statistically significant and clinically meaningful results from our adult and pediatric Phase III CAHtalyst studies. There is much more data to share with you that will become available over time, either in peer reviewed journal articles or scientific conferences. During our KOL call earlier this month, Dr. Rich Auchus adeptly summarized the hope that the burden of congenital adrenal hyperplasia can someday be alleviated by a simple block and replace strategy. With the androgen excess caused by CAH managed by treatment with crinecerfont, thus providing clinicians with significantly more flexibility in treating the cortisol deficiency caused by CAH with lower levels of exogenous steroids. In our upcoming Analyst Day, as Matt mentioned, we are planning a panel discussion focused on the current burden of disease in CAH and how crinecerfont, if approved, could potentially significantly ease that burden for patients, caregivers and clinicians. On the muscarinic front, our lead asset, NBI-568, continues to enroll very well in the Phase II study in schizophrenia. In addition, the clinical trial application for NBI-570, our dual M1 / M4 agonist was accepted and that program is currently dosing in a Phase I study. These two compounds represent just the first of several muscarinic compounds that we will be advancing into the clinic over the coming months. Finally, we remain on track to deliver topline data for both NBI-352 in focal onset seizure and for NBI-846 in anhedonia in major depressive disorder over the coming weeks. It has truly been exciting times at Neurocrine this past year and I look forward to discussing many of our pipeline programs with you at our Analyst Day. I’ll stop here and turn it back to Kevin.
Kevin Gorman: Thank you, Eiry. Nikki, I think we’re ready for your questions now.
Operator: [Operator Instructions] And we’ll take our first question from Phil Nadeau with TD Cowen. Please go ahead. Your line is open.
Phil Nadeau: Good morning and congratulations on a very productive quarter. A question for Eric on INGREZZA. Eric, could you talk in a bit more detail about what was driving the strong sales growth in the quarter? Was it the results of the expanded sales force? Has there been any reduction in telemedicine use? Did the expanded label and Huntington’s help? What were the factors that led to such a strong quarter?
Eric Benevich: Thanks, Phil. I think it’s really just carrying forward the momentum that we’ve been seeing throughout the year. Obviously, we’re experiencing the benefits of the expanded sales team, and frankly, I can say that we’re growing nicely in all three of the business segments that we’re in, neurology, psychiatry and now LTC. Our DTC campaign continues to perform well and there’s still a lot of opportunity for growth just based on the fact that the majority of patients with TD as yet remain undiagnosed and untreated. The last thing I’ll say is that, with regards to the HD Chorea rollout, while we’re excited about the opportunity to make a difference in that patient population, the impact on the current quarter is minimal.
Phil Nadeau: Perfect. Congratulations again on a strong quarter.
Kevin Gorman: Thanks, Phil.
Operator: We’ll move next with Chris Shibutani with Goldman Sachs. Please go ahead. Your line is open.
Chris Shibutani: Great. Thank you very much. I notice that in the updated slides you have the TD diagnosis rate increasing from 30% to 35% of the overall population. How much higher do you think this can go and what is a potential in terms of the pace of growth might look like going forward? Thank you.
Kevin Gorman: Yeah. We haven’t given guidance in terms of where we think the diagnosis rate will ultimately net out. Though, personally, I can say that we’re far from the peak where we are now. Six years in we think about 35% of the TD patients have been diagnosed and that’s really starting from a baseline at the time of launch in the low single digits. So we continue to increase the rate of TD diagnosis and I feel really good about the progress that we’ve made. But still approximately two-thirds of patients remain undiagnosed and our research indicates that only about half the time when a patient is diagnosed with TD, they offer treatment with the VMAT2 inhibitor. And so we have room for improvement both in terms of the diagnosis rate and in terms of the frequency of the use of INGREZZA in that patient population. So still lots of room for improvement despite the progress.
Operator: Our next question comes from Paul Matteis with Stifel. Please go ahead.
Paul Matteis: Great. Thanks so much. I just wanted to clarify the Phil’s question. Was -- were there any kind of one-off benefits this quarter either from inventory or net price tracking better than expected? And then on the focal program, as we get close to data year, I just want to ask an open question, like, how excited are you about this asset and how do you think about the criteria not just for what’s a win in the study, like is it P-value driven or is it more qualitative? And then what’s the criteria for not just moving this forward but taking it forward right into a Phase III? Thanks so much.
Kevin Gorman: Hey, Paul. Nice to hear from you. The quarter was very, very clean. Nice underlying growth. Nothing significant to note on inventory. So really reflects both the LTC, psych, neuro team really doing an excellent job continuing to drive diagnosis and getting patients treated with INGREZZA. So, overall, very good quarter. Sets us up nicely for the rest of the year and heading into 2024. Eiry?
Eiry Roberts: Hi, Paul. First thing to say is that we remain on track to be able to release the data from the focal onset seizure study for 352 in this quarter and we’re very excited about the asset in terms of the potential benefit that it can bring for patients with focal onset seizures. It’s, obviously, as you know, a Nav1.6 selective agent. This study, however, is a proof-of-concept study. So it is a dose finding initial study in focal onset seizures patients who have had inadequate response to up to three other treatments. We obviously will be looking at the reduction in seizure frequency that we can see in the context of this program and this molecule. And I think it is necessary in the face of the competitive space for us to be setting the bar high. We haven’t talked specifically about targets there, given that this is a proof-of-concept study, but we’d want to see a robust efficacy signal. And based on what we understand about this mechanism and the selectivity, obviously, that -- how that relates in terms of tolerability is going to be important in our decision-making as well.
Paul Matteis: Great. Thanks. Congrats on the quarter.
Operator: Our next question comes from Tazeen Ahmad with Bank of America. Please go ahead. Your line is open.
Tazeen Ahmad: Hi. A couple questions for me. Eiry, just so I clarify, so you will be showing data on seizure freedom for the focal onset seizure update. I just want to make sure that that’s going to be part of the topline. And then, secondly, as you think about the opportunity in Huntington’s, I know that this year’s guide does not include very much contribution, but in the grand scheme of things, how big of an opportunity for INGREZZA do you expect it to be in Chorea? Thanks.
Eiry Roberts: Thanks, Tazeen. With respect to the proof-of-concept study, the primary input of the study is actually tolerability and safety, but we will be reporting out issues related to seizure frequency as well. So both in terms of reduction in overall seizure frequency, percentage of patients getting to a 50% reduction and also any information we have around seizure freedom.
Tazeen Ahmad: Okay. And how many patients’ worth of data would that be?
Eiry Roberts: It’s 100 patients, but there are four dose levels, three active and one placebo group in the study.
Tazeen Ahmad: Okay. Thanks. And then on the Huntington’s?
Eric Benevich: Yeah. I’ll tackle that question. So on a relative basis, the Huntington’s opportunity obviously is smaller than TD. We estimate the addressable population of people living with Huntington’s disease and Chorea at around 20,000 to 25,000. Currently, only about 20% get treated with a VMAT2 inhibitor. And so while there is a significant opportunity to make a difference in that patient population and to increase the treatment rate especially, on a relative basis, it’s still a smaller commercial opportunity than TD, and TD is going to continue to be our growth driver going into the future.
Operator: Our next question comes from Brian Abrahams with BRC Capital Markets. Please go ahead.
Brian Abrahams: Thanks. It’s Brian Abrahams from RBC here. So just maybe continuing on Huntington’s, can you maybe talk a little bit about the initial dynamics that you’re seeing and maybe expand on those in terms of, de novo patients versus switchers and segments where you’re seeing or expecting to see the most uptake there? And then, secondarily, on the use of capital, it sounds like your primary focus remains on INGREZZA commercial growth and investment and focusing on the internal pipeline. But maybe you can just give us an update on your latest thinking on any sort of external collaborations or other strategic opportunities outside of Neurocrine in the past. You’ve been -- you’ve kind of talked about the optionality that your balance sheet might give you there. Curious for your latest views? Thanks.
Kevin Gorman: Hi, Brian. So when it comes to use of capital, I don’t think there’s been any dramatic changes in our strategy and it’s worked out quite well for us. We’re going to first and foremost is to invest in INGREZZA and continue to bring this patient -- this drug to as many patients as possible, and that’s why you see this continued very good growth. Second, what we’re doing, as you can see and as we’ll be discussing at some length in our R&D Day is the investment in ourselves from a research standpoint. And that’s going to be our transition of a company into multiple therapeutic modalities in the areas that we concentrate on, which is neuroscience, neuropsychiatry, neuroendocrinology and at some point in the very near future, neuroimmunology. And then, finally, focusing on the pipeline that we currently have here, we have a number of readouts this quarter and into next year. We’re going to continue to invest in those products. And probably -- not probably, what we will be investing in is going to be the submission for crinecerfont next year, getting ready for what we believe is going to be an AdCom for the drug, since it’s the first therapy for these patients in 60 plus years. And then, ultimately, knock on wood, the launch. So there’s our priorities. There’s our use of capital.
Eric Benevich: And I can comment on the question around patient types in Huntington’s Chorea. So this is an opportunity that is primarily going to be driven through our neurology sales force. And they’re calling on the Centers of Excellence for Huntington’s Disease, movement specialists, as well as general neurologists that treat these patients. If you think about the dynamics that I described earlier, with only about 20% of the eligible patient population currently being treated with the VMAT2 inhibitor, about half the time they’re not getting treated with anything and about a third of the time, roughly, are getting treated with antipsychotics primarily for psych symptoms and secondarily to help potentially improve the movements. So the feedback we’re getting so far is very positive. And as I mentioned earlier, it’s very early days yet. But if you think about the types of patients that would be getting started on INGREZZA here at the outset of our launch, obviously, de novo patients that are newly diagnosed with Chorea. Certainly patients that have, for various reasons in the past, declined treatment. And as I said, that’s really the majority of the addressable patient pool. And then there are some patients that have tried and for whatever reason, have responded well to tetrabenazine or deutetrabenazine. Either they didn’t tolerate them or they weren’t able to achieve an effective maintenance dose. So these are all patient types that would be considered candidates for treatment with INGREZZA. The one group that we’re not pushing for really is patients that are currently doing well on treatment. So I think that there’s a lot of growth opportunity within this new indication and we’re excited to make a difference here in the coming months and years.
Brian Abrahams: Thanks. It’s really helpful. Congrats again on the quarter.
Operator: Our next question comes from Akash Tewari with Jefferies. Please go ahead.
Unidentified Analyst: Hi. This is Stevie [ph] on for Akash. Now that you have both data sets for crinecerfont, which population, pediatrics or adults, will be the larger sales opportunity and what should we be modeling for duration of response? Thank you.
Eiry Roberts: Let me start. So in terms of the programs reading out, we believe that the unmet need is significant in both pediatric and adult patients with crinecerfont. As Kevin alluded to, there has been no new medication -- in terms of medication types that are non-steroid related for this patient population for the last 60 years, 70 years. And so we do believe based on the strength and quality of the data that was generated in this program, that there is an opportunity for crinecerfont if approved to fundamentally change the treatment paradigm for these patients. And so I think that we will be focused on reaching every patient that we can, both in the adult and the pediatric setting, and our educational processes and support of both the clinicians, patients and caregivers will actually fall in both of those areas.
Kevin Gorman: So given the safety profile that we saw, as well as the efficacy, this is something that we would expect to be chronic treatment that a patient would get on. We would expect them to see the intravenous control and the benefit and should be safe to have as chronic treatment, but data will show that out.
Eiry Roberts: And just to support that, we obviously have ongoing open label data that is generating additional safety information, several years’ worth of data now in many patients and I think the goal would be to allow the flexibility of using this medication in a chronic way if approved.
Unidentified Analyst: Thank you.
Operator: Question comes from Josh Schimmer with Cantor. Please go ahead.
Josh Schimmer: Thanks so much for taking the question and congrats on a very strong quarter. On the INGREZZA, I think in the past, even earlier this year, you indicated that the long-term care facility effort was still just getting off the ground. I think on this quarter, you indicated that there was good momentum in that segment. Can you talk a little bit about the dynamics there and what’s transpired over the course of the last year and whether that is starting to become a more meaningful contributor to revenue?
Kevin Gorman: Yeah. I do think it’s a meaningful contributor revenue and is certainly growing well, as I mentioned earlier. Certainly I think that going into this year, remember that we just launched our LTC sales force in the spring of 2022 and so we’re about a year and a half into this effort. And really the first few quarters were driving towards getting our targeting down, laying the foundation for TD in that space and you have to remember that this is essentially new in long-term care. And so our team has done a really nice job, I think, of educating the care teams in the long-term care facilities, understanding the dynamics with LTC pharmacies and have done a nice job of really driving diagnosis and now treatment within INGREZZA in the long-term care segment. So as I mentioned before, it’s growing nicely and its really part of the reason that we’ve had such a nice Q3.
Josh Schimmer: Thank you.
Operator: Question comes from Carter Gould with Barclays. Please go ahead.
Leon Wang: Hi. This is Leon on for Carter. Congrats on a great quarter. Our question just is relating to CAH. We’re wondering, will it be an appropriate medical meeting to share the data, essentially, do we -- should we expect this maybe around middle of the year, perhaps at end of or could we see this publication published ahead of time? Thank you.
Eiry Roberts: A couple of comments on that. First of all, when we shared the data a month or so ago now, we shared probably approximately 5% or less than 10% of the information that we were generating. And so right now we’re working on pulling together all of the remaining information from the trial and all the data that were generated. And then our goal will be to pull that together for publication and presentation as rapidly as possible, in parallel, obviously, with preparing for the NDA submission, which we will do next year. And so I think the key message -- the key meetings in the endo space include endo that you alluded to together with additional pediatric meetings in both the U.S. and in Europe. Most of those fall in from around April time next year and those are most likely to be the meetings that we would be targeting for presentation with a full publication running in parallel with that.
Leon Wang: Thanks. Appreciate it.
Operator: Our next question comes from Anupam Rama with JPMorgan. Please go ahead.
Anupam Rama: Hey, guys. Thanks so much for taking the question and congrats on the quarter. So while you guys didn’t pre-announce 4Q INGREZZA sales or provide forward year guidance last year at the JPMorgan Health Care Conference. You have taken this strategy in the past. So just wondering what we should be expecting this year in terms of the conference? Thanks so much.
Kevin Gorman: Yeah. Hi, Anupam. Nice to hear from you. You should expect similar to last year that we’re not going to be providing a Q4 update from INGREZZA sales perspective at the JPMorgan Conference in January and we’ll be providing that information during our February earnings call where we’ll provide a full financial picture, including INGREZZA sales guidance, Q4 performance and what we expect for 2024. But we are looking forward to seeing you and spending time with you and covering a lot of ongoing associated with our pipeline.
Anupam Rama: Thanks so much.
Operator: Question comes from Jay Olson with Oppenheimer. Please go ahead.
Jay Olson: Oh! Hey. Congrats on another impressive quarter. Can you talk about lifecycle management plans for INGREZZA, especially since you settled with Teva and Sanofi for 2040 and you currently have two new indications in clinical development? Are there additional new indications you might pursue for INGREZZA considering the extended runway, which could go well beyond consensus estimates? Thank you.
Eiry Roberts: Thanks, Jay. We continue to look at opportunities for INGREZZA in serving different patient groups on an ongoing basis, both from the insights that we gain from our medical team in the field and also, obviously, in the clinical development setting. However, at the moment, given the breadth of everything else that we have going on in our proof -- in our pipeline, we are focused on two key indications, as you mentioned, which is adjunctive treatment of schizophrenia and dyskinetic cerebral palsy. And we’ve focused on those two given that they had the highest likelihood of being successful taking dyskinetic cerebral palsy first, I think, in the context of the really strong data that we generated both in tardive dyskinesia and now in the Chorea of Huntington’s with dyskinetic cerebral palsy being the most common childhood movement disorder in the United States. We believed it was appropriate for us to be pursuing an indication in that setting and we have a Phase III program currently ongoing, both in the U.S. and outside the U.S. And then for adjunctive treatment of schizophrenia, it was a combination of three things that drove us to that indication. The first was obviously the very key safety and tolerability profile that we had for INGREZZA in patients with schizophrenia already from our tardive dyskinesia experience. Secondly, with some preclinical data that we had showing potential adjunctive therapy might be beneficial from an additive or synergistic perspective on efficacy. And then thirdly, obviously, what we were hearing from the field. So we are focused on those programs right now and getting to data as rapidly as possible on each of those. But we do continue to look at other opportunities, obviously, on an ongoing basis.
Kevin Gorman: And what I would add to that is that, as we said, we’ve got a long runway with this medication. We feel confident in our patent position out to at least mid-2030s, and as you’ve seen that with our end of negotiations with two of the four parties, we’ve settled into the late 2030s with them. So the only other thing I would add is that, while INGREZZA has, as I said, a very long runway still left to it, our research group is highly focused on maintaining our leadership in movement disorders and in tardive dyskinesia.
Jay Olson: Super helpful. Thanks for taking the question.
Operator: And our next question comes from Brian Skorney with Baird. Please go ahead.
Unidentified Analyst: Hey, guys. This is Charlie [ph] on for Brian. Thanks for taking our question and congrats on the quarter. So I wanted to ask about the anhedonia asset, which I believe you are still on track to give us data on in the fourth quarter. What exactly should we be looking at in terms of a clinical bar here and what data have you generated so far that gives you confidence in this asset that it’s differentiated from previous assets that have struggled to get a strong efficacy signal? Thank you.
Eiry Roberts: Yeah. Thanks, Charlie. So the, yes, we are on track to read out the data from this anhedonia Phase II study in this quarter. This is actually an orphan GPCR and GPR139 molecule. So although we understand a great deal about the biology of where this target is located in the habenula and that gives us confidence around the potential use in anhedonia, obviously, there’s been very little research that’s been successful in the field of anhedonia. And it’s a very difficult symptom set within the range of symptoms experienced by patients with major depressive disorder. And so in that context, this proof-of-concept initial study in Phase II in 88 patients is focused not only on looking at the potential impact of 846 on the anhedonia scales themselves, the DARS [ph] scales, but also on the depression scales. And so we will be interested when we read out the data to understand whether 846 has an antidepressant effect alone or whether that effect is predominantly on the scales of anhedonia. In terms of setting a bar, this is a proof-of-concept signal seeking study, we will be looking at the totality of the data both from an efficacy and safety perspective and we look forward to sharing the information when we have it available.
Unidentified Analyst: Wonderful. Thank you so much.
Operator: Our next question comes from Marc Goodman with Leerink Partners. Please go ahead.
Marc Goodman: Good morning, Matt. Can you talk about SG&A leverage into 2024, I mean, given that crinecerfont is really going to be a 2025 event, I was just curious how much leverage we should be expecting there and are you still kind of guiding us to the R&D at 30% level? Thanks.
Matt Abernethy: Yeah. Hi, Marc. Nice to hear from you. From an SG&A perspective, you can see this year that we drove around 300 basis points of leverage and testament to the investments we’re making and how the sales team continues to drive INGREZZA sales growth. We’ll clearly be investing behind CAH next year to prepare for a potential launch of the medication, and as you mentioned, most likely revenue starting in 2025. So that will put a little bit of pressure on our SG&A leverage, but I would say that, you should anticipate some healthy SG&A leverage next year and we’ll provide more specifics when we get to our February earnings call. On the R&D front, yes, as we’ve said before, around 30% spending on R&D is what we’re thinking from a capital allocation perspective. But that is really dependent upon having quality assets and those that we think can make a difference for patients and then ultimately for our shareholders and we’ll be providing more insight on some of those investments that we’re making during our R&D Day in early December.
Operator: Our next question comes from Jeffrey Hung with Morgan Stanley. Please go ahead.
Michael Riad: Hi. This is Michael Riad on for Jeff Hung. Thank you for taking our question. Could you walk us through the NBI-570 M1 / M4 dual agonist in the recent Phase I? I guess I just want to touch on what makes it selective for CNS or maybe what are the differentiated strengths versus a pure M4 like 5, 6, 8? Thanks so much.
Eiry Roberts: Yeah. Thanks, Michael. So, obviously, we just initiated our Phase I clinical program on 570 and we’re very excited to be able to take the second of our portfolio of muscarinic agonists into the clinic. So we don’t have clinical data as yet, obviously, on this asset. But it did was successful in navigating toxicology, preclinical and all of the biology necessary to enter the clinic. I mean, I think we feel very strongly that the M muscarinic agonist approach in treating both neuropsychiatric and potentially neurological conditions, including those impacted by cognition, would actually provide a very broad set of opportunities for patients moving forward. And in that regard, although obviously, our M4 selective 5, 6, 8 agent is targeted very directly to treating psychosis and schizophrenia and that M4 mechanism is now validated in the clinic with both Karuna and Cerevel’s assets. There is still a lot of room beyond M4 agonism alone to add potential value for patients. And so in this first foray, we are taking M1 and M4 selectivity with a view to being able to broaden the range of indications that could be considered for this drug into those impacting cognition as well as the psychosis related indications that we’ve already studied.
Michael Riad: Thank you so much. That’s really helpful.
Operator: Our next question comes from Myles Minter with William Blair. Please go ahead.
Myles Minter: Hey. Thanks for taking the question and congrats on the quarter. I think you’ve previously mentioned that the long-term care facility INGREZZA opportunity is an additional 10% to 15% of the market, seems like you are penetrating better than you previously expected into that market. So has that additional TAM expectation changed at all from that 10% to 15% number? Thanks.
Matt Abernethy: Yeah. Our estimate is that approximately 10% to 15% of people living with TD are currently living in long-term care facilities. And as I mentioned, we just launched into that segment last year. So on a relative basis, it’s less developed, let’s say, than the psychiatry or the neurology segments where we’ve been for six plus years. But we are growing nicely. I wouldn’t say that it’s exceeding expectations. We always had high expectations for the opportunity in LTC and the team is doing a great job on delivering on those expectations.
Operator: Our next question comes from Yatin Suneja with Guggenheim Partners. Please go ahead.
Yatin Suneja: Hey, guys. Thank you for the question. Just a clarification on the FOS study. I think in the past, you have sort of articulated that you would like to see about the seizure reduction of about 15% in placebo to 30% in the active. So basically implying doubling off of the effect. But today you sort of shy away from putting those numbers, but did say that the bar is high or the efficacy shouldn’t be robust. I’m just curious, like, what is -- like, what do you mean by robust? Is it close to 50% or is 30%? Any color that you can provide would be helpful? Thanks.
Eiry Roberts: Yeah. A placebo rate of 15% with an active treatment of 30% is about what’s been seen with some of the therapies that would be at the top end of the range with recent trial readouts and so I think that’s a reasonable bar. This is a proof-of-concept study, though. And so, it’s our first Phase II study and we will be looking beyond just that seizure reduction frequency into other elements of the data to understand just how robust the information is. Also, very importantly, in the context of this selective mechanism is the tolerability and safety profile, and because at the end of the day, we’re aiming for an improvement in benefit risk for these individuals.
Operator: Our next question comes from Laura Chico with Wedbush Securities. Please go ahead.
Laura Chico: Hey. Good morning. Thanks very much for taking the question. Just one on INGREZZA. Has the duration on treatment continued to grow at this point? And then related to that, what are your assumptions on continued growth of antipsychotic usage going forward? Thanks very much.
Eric Benevich: Laura, I didn’t catch the first part of your question about treatment. Can you repeat that?
Laura Chico: Sure. Is the duration of treatment on INGREZZA continuing to expand at this point?
Eric Benevich: Yeah. We’ve been very fortunate with INGREZZA, really, since the early days of the launch that we’ve had very good persistency and compliance. And the rates of persistency and compliance have been quite steady from the early days of the launch through -- really through 2023. And so we’re not seeing any big changes there, but they were already quite high to begin with. So I think that that’s one of the drivers for the continued growth of INGREZZA.
Todd Tushla: Okay. Nikki, we’ll go on to the next question, please.
Operator: Our next question comes from Sumant Kulkarni with Canaccord. Please go ahead.
Sumant Kulkarni: Good morning. Thanks for taking my question. So assuming all goes well on an eventual approval for crinecerfont and CAH, how do you expect that market to play out perhaps a couple of years after you’ve launched in the U.S. and is there anything that precludes the use of a CRF1 receptor antagonist in combination with an ACTH antagonist, for example?
Eiry Roberts: Yeah. I can’t really comment on the market and maybe Eric might want to make a comment there. With respect to the second part of your question, though, I mean, that combination has not been studied together. Obviously, that would need to happen before we make any comment on clinical implication of combined therapy. Mechanism of action would be somewhat similar in terms of the direct reduction of androgen for both an ACTH inhibitor and a CRF1 antagonist. And I think what we’ve seen so far in our data is that treatment with crinecerfont can result in a very substantial and clinically relevant reduction in androgens alone and so I think in the context of need for combination, we do not have evidence of that up to this point.
Sumant Kulkarni: Thank you.
Eric Benevich: Yeah. It’s, obviously, very early with regards to commercial plans. But what I will say is that we’re very excited about the opportunity to potentially make a meaningful difference within the CAH community. We estimate that there’s between 20,000 and 30,000 people living in the U.S. currently with CAH, classic CAH, similar number in Europe. The standard-of-care today is suboptimal. It’s high dose, supraphysiologic glucocorticoids to suppress the excess androgens. And so these patients are faced with a difficult conundrum, either having excess androgens or living with high GC exposure and the consequences of that. And so, I believe that crinecerfont offers a real shift in the treatment paradigm, which would directly reduce the androgen excess in patients and enable the reduction of supraphysiologic GC doses. So, obviously, we’ve got a lot of work to do to build the market, but that’s what we’re good at and we’ve demonstrated that with INGREZZA and TD.
Operator: Next question comes from David Amsellem with Piper Sandler. Please go ahead.
David Amsellem: Thanks. Just a couple of quick pipeline questions. So on NBI-770 and MDD, those in license from Takeda, when are you going to be in position to disclose the mechanism of that asset? And then, secondly, any thoughts on the M1, the selective M1, and what your general thoughts are on the potential utility of selectively targeting M1 in psychiatric disorders? Thank you.
Eiry Roberts: All right. I’ll take the second part first. M1 agonist, I think we’re excited about the prospect of being able to bring forward an M1 preferring agonist in due course. I think there’s been quite a lot of research in the past in this field. It’s not clear that all the molecules have been of the quality they’ve been able to go forward appropriately in clinical development. So I don’t really think the paradigm has been tested fully. And the range of indications could be quite broad, ranging from cognition in both neurological disorders to some degree of potential in the psychiatric space. With respect to 770, in terms of that program, we actually have just completed the Phase I and are entering Phase II, hopefully in the near future, in the United States, in major depressive disorder. We have not as yet disclosed the direct mechanism of action there, and obviously, once we get to being in the clinic in Phase II here, we’ll consider whether or not to do that at that point in time.
Todd Tushla: Nikki, let’s go on to the next question, please.
Operator: And we’ll move next with Mohit Bansal with Wells Fargo. Please go ahead.
Unidentified Analyst: Hi. This is Serena [ph] on for Mohit Bansal. Thanks for taking our question. I wanted to ask about the reimbursement prospects for crinecerfont and if you can help us understand what factors payers might take into account beyond shortening of chronic steroid use. For example, if there’s any therapies like puberty blockers in the pediatric population that crinecerfont could help mitigate use of and how this would differ between the adults and pediatric population? Thank you.
Eiry Roberts: Yeah. I mean, I think, it is obviously very early to be talking about reimbursement in a very specific way. What is very clear from the discussions that we’ve had up to this point with KOLs, payers and regulators around the world is that the impact of long-term steroid use is detrimental in this patient population, particularly at supraphysiologic doses. And so the reduction in steroids that we have already been able to demonstrate in the context of our Phase III program, we believe is very impactful and meaningful for in the context of all the key stakeholders that will be supporting crinecerfont’s use. Beyond that, obviously, we have ongoing clinical data that we’re generating that will focus on some of the other functionally related endpoints and clinical endpoints in this space that are relevant, including metabolic bone and in pediatrics growth and development. And so as those emerge, I think, they will be helpful and useful in the context of these discussions, but it is really very early days.
Unidentified Analyst: Thank you.
Operator: Our next question comes from Ash Verma with UBS. Please go ahead.
Ash Verma: Hi. Thanks for taking my question. Just on margin, I mean, looking beyond the next few years, just in the long run, like where do you see operating margin shaking out and have you considered providing a formal long-term outlook on this?
Matt Abernethy: This is clearly something that we discuss quite frequently with our Board in terms of what our priorities are in terms of financial profile over the long run. We’ve not provided a guide at this point, but clearly you can see we’re on a path of generating improved operating income. You can see the SG&A leverage, but I’d say, from an R&D perspective, we’re committed to continue to invest at a very similar rate from a percentage perspective as we are today in R&D to continue to build our pipeline and develop medicines to help patients here in the future. So we’re not going to provide a specific guide, but know we are intending to drive operating leverage through SG&A margin improvement.
Todd Tushla: Nikki, let’s take a couple more questions.
Operator: We’ll move next with Ami Fadia with Needham. Please go ahead.
Ami Fadia: Hi. Good morning. Congratulations on the strong quarter. I wanted to follow up on the 352 asset. Can you elaborate on what other aspects of the study beyond obviously the seizure rate reduction and safety data that would be important to watch when you announce the data? And could you lay out some sort of scenarios or what is the likely next development stage? Should you see strong safety and efficacy somewhere around kind of that bar that you laid out of, say, 15% placebo, but then the drug does about 30%. Would that allow you to go directly into pivotal trials? Thanks.
Eiry Roberts: Yeah. I mean, we’re focused right now on really just getting to the data and reading out the data. I think what I mentioned is that we will have safety and tolerability information. We will also have the information focused on understanding the impact of 352 at the doses in this study on seizure, both seizure frequency, seizure freedom and responders in terms of ability to reach a 50% reduction in seizures. That’s really the totality of the data from this study and it’ll depend on how the strength of the information that we read out as to what our next steps are.
Todd Tushla: Nikki, let’s take two more questions.
Operator: We have Uy Ear with Mizuho. Please go ahead.
Uy Ear: Hey, guys. Thanks for taking my questions and congrats on the good quarter. So my question is, could you sort of speak a little bit about the timing of the R&D Day and whether this has related in any way to any change of your level of confidence in the upcoming data readout for any of the studies, particularly the two that we’ll read out at the end of this year? Thanks.
Todd Tushla: Hey, Uy. This is Todd. Yeah. The Analyst Day is going to be on December 5th, and it’s really a two-pronged agenda as outlined in our earlier comments. The first part is on R&D strategy and vision, and our Chief Scientific Officer, Dr. Jude Onyia, is going to lead that discussion on that day. And then the second part will be focused on CAH and really helping the analyst community understand the burden of disease and the treatment challenges today and how crinecerfont, if approved, could potentially help out with those patients and the people who care for them.
Uy Ear: Thanks.
Matt Abernethy: So that’s a really clear expectation. We’re not expecting to unveil data from either of the studies that we’ve discussed. That’s not going to be part of the R&D Day in terms of an unveiling or a long-term financial guidance. It’s clearly this is something that’s been we haven’t done in over 10 years, I believe, and I think we’ve got a great pipeline, and we have a great team and look forward to meeting with all of you here in a few weeks.
Todd Tushla: Thanks, Uy.
Uy Ear: Thanks.
Todd Tushla: Nikki, let’s take one last question.
Operator: We’ll take our last question from Evan Seigerman with BMO Capital Markets. Please go ahead.
Conor MacKay: Hi there. This is Conor MacKay on for Evan. Thanks for taking our question and congrats on a great quarter. I just had one follow-up on the TD market opportunity. You guys mentioned that 65% of patients who are undiagnosed do expect that to shrink going forward. I’m just curious about that patient profile and what you expect for the percentage of those newly diagnosed patients, how many of them will be then treated. Is the expectation that it’ll still be around roughly half or do you expect that to grow? Thank you.
Matt Abernethy: I’ll start with the second part of your question first. I do think that the percent of patients that are diagnosed that are offered treatment with the VMAT2 inhibitor has grown over time. If you think about it, at the time that we launched INGREZZA, VMAT2 inhibitors were not available and the standard-of-care back then was either watchful waiting to see if the symptoms worsened over time or what I call the three R’s, remove, replace or reduce the antipsychotic. In some cases, patients were treated with benztropine, which is inappropriate. So if you sort of compare and contrast, the rate of offering VMAT2 treatment in the early days of the launch to where we are today, obviously, we’ve made progress. However, still half the time, patients are not offered a VMAT2 inhibitor and so I expect that that will continue to improve over time, especially as we continue to leverage the updated APA guidelines. And so between a driving diagnosis and treatment with VMAT2 inhibitors, we’re going to continue to make a difference for the hundreds of thousands of people living with TD today that are currently undiagnosed and untreated.
Conor MacKay: Thank you.
Kevin Gorman: So I’d like to make just a brief closing statement. This quarter, as we all started out saying, what a tremendous quarter. You don’t get many quarters like this, but one has to put it in perspective that, the regulatory approval, the Phase III success and two Phase III clinical trials, and the continued success with INGREZZA are years in the making. These aren’t just things that we did this quarter. And when you think back on the challenges that have hit our entire industry over the last several years, it makes a tremendous quarter even all that more remarkable. So I’m very proud of the teams that have been involved in all of these successes. And I’m looking forward to having our R&D Day or Analyst Day, we use them interchangeably, because I think it’s going to be a very good time for us to get a little more in depth with you and to be able to give you a bit of an idea on the vision that we have for the future. And with the current state that we have, I think, we are extremely well positioned to deliver well into the 2030s with our company as being a leader in neuroscience. With that, thank you very much and look forward to talking to you all later.
Operator: And this does conclude today’s program. Thank you for your participation. You may disconnect at any time. Good-bye.
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