Neurocrine Biosciences, Inc. (NASDAQ:NBIX) Q4 2023 Earnings Call Transcript

Neurocrine Biosciences, Inc. (NASDAQ:NBIX) Q4 2023 Earnings Call Transcript February 7, 2024

Neurocrine Biosciences, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and welcome to Neurocrine Biosciences’ year-end and fourth quarter results call. 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. You may register to ask a question at any time by pressing star, one on your telephone keypad. You may remove yourself by pressing star, two. Please note today’s call will be recorded and I will be standing by if you should 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: Thank you, and a good Wednesday morning to everyone. Welcome to Neurocrine Biosciences’ fourth quarter and full year 2023 earnings call. Joining us today are Kevin Gorman, Chief Executive Officer; Matt Abernethy, Chief Financial Officer; Eiry Roberts, Chief Medical Officer; Eric Benevich, Chief Commercial Officer; and Kyle Gano, Chief Business Development and Strategy Officer. During the 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. Today’s prepared remarks will be a bit longer in duration versus prior earnings calls as we do have a lot of ground to cover. I can assure you that we will do our best to address all of your questions when we get into Q&A. Now I’ll turn the call over to Kevin.

Kevin Gorman: Thank you Todd, and good morning everyone. We had a great 2023. I said the same thing about 2022, and it was great. I said there were very few years you get like 2022, and we then had one of those years in 2023. Both of those years were not without their ups and downs, but on the whole, the business performed exceptionally well. Looking at 2023, again incredible continued growth for Ingrezza in its sixth year on the market, expansion of Ingrezza intellectual property out to 2038, approval of Ingrezza in another indication in Huntington’s disease. We also had crinecerfont Phase III data that beat even our high expectations for that, and a clinical pipeline that grew more in that one year than we’ve ever experienced at Neurocrine in the past, and then a preclinical pipeline that is growing quite a bit.

Now, we expect an equally successful 2024, and I’m not going to go into the details of that because my colleagues in the room are going to talk about that. But right now, let’s take a snapshot of 2023 from a financial perspective from Matt, and he will also give you how we’re viewing 2024. Matt?

Matt Abernethy: Thanks Kevin. Good morning. 2023, what an incredible year. Record Ingrezza sales growth, positive crinecerfont results, and an advancing R&D pipeline all position us for continued progress for years to come. Prior to jumping into our 2024 financial guidance, I want to provide a few comments associated with our 2023 financial performance. First, Ingrezza sales performance – during the fourth quarter, Ingrezza sales were $500 million, reflecting continued sequential growth driven by new patients, slightly offset by gross-to-net dynamics. 2023 Ingrezza sales finished near $1.84 billion, reflecting over $400 million in year-over-year growth. Next, one of our goals for 2023 was to demonstrate SG&A financial leverage.

As you can see, we delivered approximately 400 basis points and 300 basis points of SG&A leverage on a GAAP and non-GAAP basis, respectively. We expect continued progress in 2024, which I’ll discuss shortly. Finally, we generated over $600 million of cash flow in 2023, reflecting strong non-GAAP net income partially offset by $175 million in business development investments. Turning to 2024, this will be another pivotal year for Neurocrine with growing Ingrezza sales, preparing for the commercial launch of crinecerfont, and the many activities associated with advancing our R&D portfolio which were highlighted at the recent analyst day. We believe investing in these areas will continue to drive long term shareholder returns. Now onto our 2024 financial guidance.

2024 Ingrezza net sales guidance is $2.1 billion to $2.2 billion, reflecting strong underlying demand and an improving gross-to-net resulting in over $300 million of sales growth, or 17% at the midpoint. As always, we expect seasonal dynamics to play out similar to what we’ve seen in previous years. 2024 SG&A GAAP operating expense guidance is $930 million to $950 million, or 43% of total revenues at the midpoint, and $830 million to $850 million or 39% of total revenue at the midpoint on a non-GAAP basis. These costs reflect continued investment in Ingrezza and also an incremental $50 million to prepare for the potential crinecerfont launch, as Eric will discuss shortly. Even with the investment in crinecerfont, we expect to demonstrate 400 basis points and 150 basis points in SG&A GAAP and non-GAAP leverage at the midpoint of the range.

As you develop your models, we do have a seasonal nature to our spending specific with step-up in Q1. 2024 R&D GAAP operating expense guidance is $645 million to $675 million or 30% of total revenue at the midpoint, and $570 million to $600 million or 27% of total revenue at the midpoint on a non-GAAP basis. These costs reflect investment in our ongoing 17 clinical programs, including our crinecerfont studies, muscarinic programs, and the early stage pipeline highlighted at analyst day. Note this guidance range does not include any partnership milestone payments until they are deemed probable. A few other financial metrics to note. We expect costs of revenue to be 2% of sales. Stock-based compensation is expected to be $175 million with $100 million in SG&A and $75 million in R&D, and we expect our non-GAAP effective tax rate to be around 23%.

As I reflect about the journey we’ve been on over the past five years, it is quite remarkable. With Ingrezza now trending above $2 billion in sales, the next leg of growth to our story with crinecerfont, an advancing pipeline and a strong financial profile, we are well positioned for the future and feel quite fortunate. With that, I now hand the call over to Eric Benevich, our Chief Commercial Officer. Eric?

Eric Benevich: Thanks Matt. 2023 marked another stellar year for Ingrezza and included several important milestones for the franchise. This includes the continued increase in diagnosis and treatment rates for patients with tardive dyskinesia, the addition of a new indication for chorea associated with Huntington’s disease, and the ANDA litigation settlement that provides exclusivity for 14 more years out to 2038. 2023 was our sixth year in the market since launch. While full-year sales growth of nearly 30% is impressive, that growth speaks volumes about the continued unmet need in both TD and HC chorea. Looking ahead, we still have a tremendous opportunity to help many more patients. While we continue to make steady progress, two-thirds of the approximately 600,000 TD patients in the U.S. remain as yet undiagnosed, and for the approximately 20,000 HC patients with moderate to severe chorea, 80% are still not being treated with a VMAT2 inhibitor, the only FDA approved class of medicines for this indication.

This year, our commercial and medical teams will continue to educate and motivate healthcare providers to screen, diagnose and treat TD and HD chorea patients. In addition, we’ll continue our efforts to reach patients and caregivers to help them recognize their involuntary movements as possibly TD or HD chorea and encourage them to talk with their healthcare provider about diagnosis and, if appropriate, treatment with Ingrezza. Although we have made great progress these past six years, the majority of the opportunity remains ahead of us. The 2024 Ingrezza sales guidance range of $2.1 billion to $2.2 billion is driven primarily by the pace of new patient starts in TD and, to a smaller degree, in HD where Ingrezza is still in its early launch phase after the approval and launch towards the end of last year.

Specific to TD, we anticipate robust growth across all three business segments of psychiatry, neurology, and long term care. Access to Ingrezza remains strong as exemplified by the fact that, regardless of formulary status, greater than 80% of written scripts of Ingrezza get filled and the average out-of-pocket cost is less than $10. Overall, I’m looking forward to another solid year of growth for the franchise as we continue to build these markets. At this time, we’re going to mix things up a little bit versus our normal cadence for prepared remarks. My colleague, Dr. Eiry Roberts, our Chief Medical Officer and I are going to provide a crinecerfont update. We thought it important to highlight the integrated efforts between our respective organizations to prepare for an anticipated 2025 launch.

Eiry, why don’t you start?

Eiry Roberts: Thanks Eric and good morning everyone. Let me start by reminding everyone of the incredible challenge congenital adrenal hyperplasia patients face today. For these patients, their only real option, lifelong treatment with high dose glucocorticoids, is both entrenched and flawed. In this paradigm, GCs are tasked with both replacing the missing cortisol and suppressing the excess androgens. Patients therefore face a difficult choice of either taking long term high dose GCs to reduce excess androgen and thus face the long term complications of GC exposure, such as hyperglycemia, dyslipidemia, cardiovascular disease, osteoporosis, psychiatric disturbances, or immunosuppression; or they can try to minimize their GC exposure and live with the consequences of excess androgen production, such as advanced bone age, precocious puberty, short adult stature, irregular menstruation or infertility.

These are the difficult trade-offs patients living with CAH must make every day. With the impressive efficacy and tolerability data from the adults and pediatric registrational studies for crinecerfont, we hope to provide a potentially new paradigm for these patients. To this end, combined efforts between Neurocrine’s medical and commercial organizations are well underway as we prepare to bring crinecerfont to CAH patients in the U.S. and in key European markets. Later this year, we look forward to sharing additional safety and efficacy data from the registrational study in peer-reviewed journals and scientific conferences. In addition, our medical affairs to field teams are highly engaged with thought leaders in the field to develop the extensive educational programs necessary to support launch, while our health outcomes team works to generate and publish critical data necessary to characterize the burden of disease in CAH and support the value proposition of crinecerfont as an effective treatment for patients living with congenital adrenal hyperplasia.

Our key focus now within clinical development and regulatory is on the completion of the new drug application for crinecerfont in adults and pediatrics with the FDA. I’m pleased to report that the NDA submission will occur in the second quarter of this year. Recall the agency granted breakthrough therapy designation for crinecerfont at the end of last year. This designation serves as an acknowledgment of the serious and life-threatening nature of CAH, highlights the significant unmet need that exists in the treatment of the disease with no approved treatment for the past 60-plus years, and identifies crinecerfont as a potentially valuable treatment for patients with CAH. While we are hopeful that the granting of breakthrough designation for crinecerfont will lead to priority review, that decision ultimately rests with the FDA, so we are moving forward in a way that proactively prepares us for all eventualities, including the possibility of an advisory committee.

Eric will now cover the preapproval activities within the commercial organization.

Eric Benevich: Thanks Eiry. This is an exciting time for our commercial team as we prepare for the launch of crinecerfont. If approved, crinecerfont would be not just the first-ever CRF antagonist but also be the first medication specifically approved for the treatment of CAH. With crinecerfont, we’re presented with the opportunity to build a new market, just like the opportunity we had seven years ago when we set out to launch Ingrezza as the first medication approved for TD. Building a market for crinecerfont in CAH is a privilege; however, much work remains ahead of us. One of our primary areas of focus in 2024 will be education of all stakeholders in the CAH community. This educational effort will focus on disease state awareness, challenges with currently available treatment strategies, and the recognition of the need for better treatment options.

Given the challenges of managing CAH that Eiry highlighted and the extremely impressive efficacy and tolerability data generated from our Phase III studies, we’re excited for the potential of crinecerfont to dramatically change the status quo. We bring forward the possibility of bringing androgens under control while simultaneously reducing GC dose to more replacement levels. In the commercial organization, we’re ramping up educational efforts directed towards patients, parents, family members and endocrinologists to help the CAH community better understand the nature of their disease, to more fully understand the current unsatisfactory treatment trade-offs between suffering from excess androgen production or the complications of chronic treatment with high dose glucocorticoids.

In a compliant way, we plan to set the table for a new and simpler approach to treating CAH that doesn’t require the current challenging trade-offs. It will take some time to broadly reach and educate the CAH patient community, but the good news is that we have already started that process. As we prepare for an expected launch in the U.S. in 2025, our teams are excited to build another market and bring a potential new medicine to CAH patients who sorely need a better option to manage their disease. Now I’ll hand it back to Eiry.

Eiry Roberts: Thank you Eric. As we begin the year, Neurocrine’s pipeline is as broad and diversified as it has ever been in our 32-year history. Importantly, 2024 marks a catalyst-rich year. Our Phase II pipeline features several data read-outs this year, all of which remain on track for delivery. This includes NBI-845, the AMPA potentiator for major depressive disorder, with data in the first half; luvadaxistat, the DAAO inhibitor for the cognitive impairment associated with schizophrenia in the second half; and NBI-568, an orthosteric M4 agonist for treatment of psychosis in schizophrenia, also reading out in the second half. In addition to these data read-outs, we are currently initiating a Phase II efficacy study for NBI-770, the oral NMDA NR2B negative allosteric modulator as a potential treatment for major depressive disorder.

In the early stage pipeline, we have made remarkable progress over the recent months with five new programs entering Phase I development. Four of these programs target the muscarinic system, and together with NBI-568 we believe this represents the broadest and deepest muscarinic pipeline of any company in our industry. These Phase I molecules provide the opportunity to explore the potential value of differentiated selective agonism at M1 and M4 receptors while always excluding agonism at M2 and M3. We have the tools to differentiate these molecules in early clinical development and thus determine which neurological and psychiatric disorders might best benefit from this differentiated cell activity. In addition, our Phase I muscarinic portfolio includes an internally discovered selective M4 antagonist, NBI-986, targeted for the treatment of movement disorders.

The final new entry in our Phase I portfolio is NBI-890, a next-generation VMAT2 inhibitor targeting a broad range of potential neurological and neuropsychiatric diseases. I’m extremely proud and enthusiastic about the prospects of today’s clinical pipeline and look forward to continuing to partner closely with Jude and his outstanding research and preclinical development team to bring the next generation of innovative small and large molecules from research into the clinic over the coming years. I’ll end here and hand it back to Kevin. Kevin?

Kevin Gorman: Thank you Eiry. We’ve gone a little longer this morning with our opening remarks, mainly due to the fact that there was a lot that we ended last year on, and there is a lot going on here this year. We’re going to our best to get through as many of your questions as possible before the top of the hour, so Operator, could we open it up for the first question?

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Q&A Session

Operator: Yes. [Operator instructions] Our first question will come from Paul Matteis with Stifel. Please go ahead.

Paul Matteis: Hey, good morning. Thanks so much for taking my question, I appreciate it. I wanted to ask about the muscarinic read-out coming up in the second half of this year. The study design includes a number of different dose arms, so I was just curious if you could expand upon how you selected those dose arms and how confident you are that you’re in the right range, and then because the study has a number of dose arms and isn’t all that big, are you looking at success in this read-out as hitting a P-value or are we more looking at a dose or two with PANSS changes that look similar to emraclidine and KarXT with acceptable safety? Thanks so much.

Eiry Roberts: Paul, thanks very much. Thanks for the question. This is a dose finding study, as you alluded to, for NBI-568, and it is an adaptive design that explores several different dose levels. In terms of the sizing and powering of the study, we are more looking for an effect size that is similar to what has been seen before, and also potentially a somewhat differentiated tolerability profile. It’s not a trial that is powered for individual P-values for different arms there, but it is a reasonable size large dose finding study with–it will have over 200 patients ultimately, and we look forward to reading that out in the second half of this year.

Paul Matteis: Okay, thank you Eiry.

Operator: Thank you. Our next question will come from Tazeen Ahmad with Bank of America. Please go ahead.

Tazeen Ahmad: Hi guys, good morning. Thanks for taking my question. Mine is on the chorea launch this year. Wanted to get some more color of what type of contribution you’re expecting from that launch, or Ingrezza sales this year, at least directionally. Then I also wanted to follow up on a comment Eric made in the prepared remarks, that I think you said 80% of chorea patients don’t receive any therapy today. You know, Xenazine has been on the market for several years. I was just curious as to why you think they haven’t been able to get bigger share in the years that they’ve been in the market. Thanks.

Eric Benevich: Yes, good morning. I’ll take the second question first. You know, what we’ve seen prior to the launch and then now that we’re in the market is that the majority of patients with Huntington’s chorea either don’t get treated at all for their uncontrolled movements, or they get treated with an antipsychotic and may get some partial benefit. Only about 20% of patients with HD chorea get treated with a VMAT2 inhibitor. What our research tells us, what the prescribers tell us is that the deficiencies with the tetrabenazine products have led to a fairly high rate of patients not getting treated, either because of perceptions of complicated dosing and titration, concerns about side effects, or in some cases out-of-pocket costs.

The profile of Ingrezza in Huntington’s chorea has a lot of the same attributes at the profile in TD and is the reason that it’s the number one most prescribed VMAT2 inhibitor. In terms of simple dosing, no complex titration, well tolerated, and as I mentioned in my prepared remarks, out-of-pocket cost is less than $10 for most patients. We intend to grow not only by growing within the VMAT2 treated class but by expanding the class over time, and to do that, we need to encourage more patients and more providers to be treated all together within that category of HCC. The first part of your question was really around the relative contribution. It’s small, and the reason that I say that is twofold. One, we’re still just getting off the ground.

We’re only about a quarter into the launch now and we’re introducing our data to the Huntington’s treating community in neurology. The second reason is that it’s a rare disease – it’s a much smaller patient population, thankfully, than tardive dyskinesia, and so for every patient with Huntington’s chorea, there’s about 40 patients with TD out there, and ultimately TD is and will continue to be the main growth driver for our Ingrezza franchise.

Tazeen Ahmad: Okay, thanks Eric.

Operator: Thank you. Our next question will come from Brian Skorney with Baird. Please go ahead.

Brian Skorney: Hey, good morning everyone. Thank you for taking my question. Matt, I was hoping maybe you could help us think about the initial build-out of infrastructure of a CAH launch and how to think about the SG&A guidance for this year versus what’s fully loaded. Then maybe you can just kind of give us some high level thoughts on what a cadence of launch would look like – do you see this as a market with high levels of patient awareness and building demand, or is this more of a cadence of patients seeing endocrinologists on a yearly basis and that’s a point of discussion for a new therapy happening?

Matt Abernethy: Yes, so from a financial perspective, we are going to invest around $50 million this year just to prepare for that launch in 2025, so from an SG&A perspective, if you look at it holistically for the company, showing very nice leverage this year and even including that $50 million investment. Eric can get into the details of the build, but we do expect to have the sales force generally in place by the middle of this year to start educational initiatives, and then that will set us up for a launch in 2025. Eric, do you want to comment on the cadence of launch?

Eric Benevich: Yes, as I mentioned in my prepared remarks, 2024 is the year of preparing for the launch, but it’s also the year of preparing the market for crinecerfont. To that end, we’re going to start the process of reaching and educating all the key stakeholders in the CAH community, so patients, family members, and endocrinologists. Part of it is educating them on the nature of the disease, the challenges that Eiry highlighted in her prepared remarks of living with CAH on a day-to-day basis, and the limitations of current treatment with high dose glucocorticoids. As Matt mentioned, we are in the process of scaling up and hiring a sales force, and we’re going to deploy that team a few quarters in advance of the anticipated PDUFA date, and they’ll be getting out there, they’ll be doing disease state education, they’ll be meeting customers, profiling customers, etc. to really set us up for a very strong launch that we expect in 2025.

Operator: Thank you. Our next question will come from Phil Nadeau with TD Cowen. Please go ahead.

Phil Nadeau: Good morning. Congratulations on a successful year. A couple questions for Matt from us, based on the 2024 guidance for Ingrezza. First, Matt, you mentioned that the gross-to-net would improve in 2024. Can you give us some idea of what the net price you’re expecting for Ingrezza is? Then second on the revenue guidance, the bottom end of the 2024 revenue guide implies only about 5% growth versus the Q4 run rate for Ingrezza, so we’re curious to know a bit more about the patient dynamics that could lead to that relatively modest growth versus the 10% that’s assumed at the high end. Thanks.

Matt Abernethy: Yes, thanks for the question, Phil. Always good to hear from you. As we think about 2024 and overall guidance, it really comes down, as it does every year, to what happens in the first quarter with patient retention, and then also new patient generation. The guide that we provided today really takes into account what we see today, but we of course are always going to work to try to drive as much new patient growth as possible throughout the year, and we’ll of course reassess our guidance when we get to the middle of the year, consistent with past years. From a net price perspective, factoring all the nuts and bolts of price increases and contracting trade-offs, we would expect that net revenue per script will be somewhere over $5,800 net revenue per script, and just as a reference point to remind you, we did land around $5,600 net revenue per script in 2023.

Phil Nadeau: Very helpful, thank you.

Operator: Thank you. Our next question comes from Brian Abrams with RBC Capital Markets. Please go ahead.

Brian Abrams : Hey guys, thanks for taking my question. You mentioned the potential to prepare for an ad-com for crinecerfont. I was wondering if you could maybe speak about what topics you might expect to be discussed there, and I guess how a potential ad-com could tie into laying the groundwork for payors and any discussions you may be having, as well as furthering the educational efforts that you’re going to be initiating this year around the market. Thanks.