Neurocrine Biosciences - Q4 2023

Transcript

Operator (participant)

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'll 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 (VP of Investor Relations)

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 (CEO)

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 are 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. I mean, 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 (CFO)

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 on to our 2024 financial guidance. 2024 INGREZZA net sales guidance is $2.1 billion-$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-$950 million, or 43% of total revenues at the midpoint, and $830 million-$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, specifically a step-up in Q1.

2024 R&D GAAP operating expense guidance is $645 million-$675 million, or 30% of total revenue at the midpoint, and $570 million-$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 cost 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. 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 (Chief Commercial Officer)

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 HD 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.

For the approximately 20,000 HD 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-$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 for 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 (Chief Medical Officer)

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 the difficult choice of either taking long-term high-dose GCs to reduce excess androgens 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 adult 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 studies in peer-reviewed journals and scientific conferences. In addition, our medical affairs 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 treatments for the past 60+ 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 pre-approval activities within the commercial organization.

Eric Benevich (Chief Commercial Officer)

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 the 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'll 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 (Chief Medical Officer)

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 readouts 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 readouts, 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 one 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 selectivity. In addition, our phase I muscarinic portfolio includes an internally discovered selective M4 antagonist, NBI-'986, targets 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 (CEO)

Thank you, Eiry. So 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. So, we're going to do 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?

Operator (participant)

Yes. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Our first question will come from Paul Matteis with Stifel. Please go ahead.

Paul Matteis (Managing Director and Head of Therapeutics Research)

Hey, good morning. Thanks so much for taking my question. I appreciate it. I wanted to ask about the muscarinic readout 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're, 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 readout 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, with acceptable safety? Thanks so much.

Eiry Roberts (Chief Medical Officer)

Paul, thanks very much. Thanks for the question. So 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. And so 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-sized, large dose-finding study with, it'll have over 200 patients ultimately, and we look forward to reading that out in this second half of this year. Okay.

Paul Matteis (Managing Director and Head of Therapeutics Research)

Thank you, Eiry.

Operator (participant)

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

Tazeen Ahmad (Managing Director in US Equity Research)

Hi, guys. Good morning. Thanks for taking my question. Mine's on the chorea launch this year. Wanted to get some more color of what type of contribution you're expecting from that launch for INGREZZA sales this year, at least directionally. And 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. But, you know, Austedo's 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 (Chief Commercial Officer)

Yeah, good morning. So 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.

And, you know, what our commercial research tell us, what the prescribers tell us is that, you know, the deficiencies with the tetrabenazine products have led to, you know, 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 cost. And so, you know, the profile of INGREZZA in Huntington's chorea has a lot of the same attributes as 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, you know, well-tolerated, and as I mentioned in my prepared remarks, out-of-pocket cost is less than $10 for most patients.

And so, you know, 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 altogether within that category of HDC. The first part of your question was really around the relative contribution. It's small. And the reason that I say that is that 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. But the second reason is that it's a rare disease. It's a much smaller patient population, thankfully, than tardive dyskinesia.

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 (Managing Director in US Equity Research)

Okay. Thanks, Eric.

Operator (participant)

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

Brian Skorney (Biotechnology Senior Research Analyst)

Hey, good morning, everyone. Thank you for taking my question. Matt, I was hoping maybe you can help us think about the initial build-out of infrastructure for CAH launch, and how to think about sort of the SG&A guidance for this year versus what's fully loaded. And then maybe you could 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 sort of seeing endocrinologists on a yearly basis, and that's sort of a point of discussion for a new therapy happening?

Matt Abernethy (CFO)

Yeah. 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. So 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 (Chief Commercial Officer)

Yeah. As I mentioned in my prepared remarks, you know, 2024 is the year of preparing for the launch, but it's also the year of preparing the market for crinecerfont. And to that end, we're, you know, we're gonna start the process of reaching and educating all the key stakeholders in the CAH community, so patients, family members, and endocrinologists. And 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, you know, 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 gonna deploy that team a few quarters in advance of the anticipated PDUFA date.

They'll be getting out there, they'll be doing disease state education, they'll be meeting customers, profiling customers, et cetera, to really set us up for a very strong launch that we expect in 2025.

Operator (participant)

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

Phil Nadeau (Managing Director and Biotechnology Senior Research Analyst)

Good morning. Congratulations on a successful year. A couple of 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? And 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 the relatively modest growth versus the 10% that's assumed at the high end. Thanks.

Matt Abernethy (CFO)

Yeah, and thanks for the question, Phil. Always good to hear from you. You know, 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. So, you know, 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. Just as a reference point to remind you, we did land around $5,600 net revenue per script in 2023.

Phil Nadeau (Managing Director and Biotechnology Senior Research Analyst)

Very helpful. Thank you.

Operator (participant)

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

Brian Abrahams (Managing Director and Co-head of Biotechnology Research)

Hey, guys. Thanks for taking my, 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 in to laying the groundwork for payers 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.

Eiry Roberts (Chief Medical Officer)

Okay, thanks. So let me take the second part first. I mean, in terms of the educational efforts, I think it's really important, given the fact that crinecerfont will be the first potential medication to come forward into this space in the last sort of 60, 70 years, that while we have obviously a group of experts who are incredibly familiar with the current options that they have available for helping this patient population, the opportunity to fundamentally change the paradigm of treating this disease, I think, is one that's going to require us to engage heavily in educating clinicians, educating the patient population and families and everyone else around those patients.

And so we will be, we are investing heavily in that already and both on the medical side and the commercial side, obviously in a compliant way ahead of our hopeful approval. With respect to the question around the ad com, I mean, the reason we talk about an ad com is just because of what I said earlier really, there hasn't been a medication in this space for so many years. And in addition to that, obviously, it may be an opportunity for the FDA to engage with experts in the field outside of those that have worked on the program. We don't have any particular reason to believe that an ad com would be necessary based on our data.

We're incredibly impressed with the data that we were able to generate from our phase III program and believe that our NDA will be very clear and articulate both the benefit and tolerability of crinecerfont. So we don't have particular topics we're thinking about. It's just in order to be prepared, we're obviously making sure that that's in place in the event that the FDA decides to go down that route.

Brian Abrahams (Managing Director and Co-head of Biotechnology Research)

Thanks, Eiry.

Operator (participant)

Thank you. Our next question comes from Chris Shibutani with Goldman Sachs. Please go ahead.

Speaker 26

Hey, team, this is Steven on for Chris. Thanks for taking our question. I think Eric mentioned in the prepared remarks that you expect growth from all three channels of your commercial organization with regards to INGREZZA this year. So I'm just curious if you can speak about, development and progress points made in the long-term care channel and how meaningful we should expect revenues from that channel to be in 2024. Thank you.

Eric Benevich (Chief Commercial Officer)

Yeah, so all three segments of our business are growing nicely, as I mentioned. Psych continues to drive the majority of the opportunity because that's where the majority of the patients are being cared for with TD. Neurology and LTC are also doing quite well. And at this point, the contribution from each is pretty similar in terms of our overall business. So, you know, LTC is the newest segment. As I've mentioned before, it's probably the least developed segment because we, you know, we really haven't been in there as long, educating the stakeholders, driving, screening, diagnosis, and treatment. And it continues to, you know, to really be growing nicely.

And so in such a short period of time for it to be contributing to that level, I think it's a testament to the investment that we made, and we're quite happy with the results.

Speaker 26

Great. Thank you.

Operator (participant)

Thank you. Our next question comes from Josh Schimmer with Cantor. Please go ahead.

Josh Schimmer (Managing Director)

Thanks for taking my questions. Just a couple of quick ones. First, are you seeing any shifts in market share as a result of the once per day Austedo launch? And then I noticed you've added Efmody, if I'm pronouncing that correct, to the pipeline. I think in the past, you've indicated that might be a product more designed for market building and establishing a sales force as opposed to generating meaningful revenue. Are you starting to shift that perspective at all? Thank you.

Eric Benevich (Chief Commercial Officer)

Yeah, I'll take your first question. So the answer is no, we haven't seen any change in market share. You know, it appears to us that deutetrabenazine XR is cannibalizing deutetrabenazine in terms of their overall business. So it's more of a shift within that deutetrabenazine franchise than any kind of share gain. The other thing that I'll say is that we didn't see a change of market share in 2023, and we don't expect to see any kind of change in market share, at least any kind of negative change in market share in 2024.

Matt Abernethy (CFO)

Yeah, the only thing that I'd add, Eric, is that, you know, the market itself has just been incredibly rich. There's so many patients that need help with their tardive dyskinesia and a great unmet need. So when you look at what we were able to achieve this year, record year-over-year growth, over $400 million. And I would just say from a class perspective, this continues to be a great opportunity and, you know, looking forward to helping more patients who need help with their tardive dyskinesia. Eiry, do you want to comment on the Efmody?

Eiry Roberts (Chief Medical Officer)

Yes, certainly. So Efmody is a steroid treatment that is currently approved in Europe for the treatment of CAH in adults. And, as such, I think, it potentially has some complementarity to crinecerfont. In the U.S, we do not have an approval for Efmody currently. We are reading out two trials of Efmody in the first half of this year, and based on the data from those two phase II trials, obviously, we'll update you as to what our next plans are.

Operator (participant)

Thank you. Our next question comes from Anupam Rama with JPMorgan. Please go ahead.

Anupam Rama (Managing Director and Senior Equity Analyst of Biotechnology)

Hey, guys. Thanks so much for taking the question. Just maybe a quick pipeline question. So the AMPA potentiator in MDD, that's one of the next catalysts here expected in the first half of 2024. Maybe you could describe the study, the key endpoints, and what you're looking for in this program to give you confidence to move to the next phase.

Eiry Roberts (Chief Medical Officer)

Thanks, Anupam. So yes, you're right. In the first half of this year, we will read out the data from NBI-'845, which is our AMPA potentiator for as a potential treatment for major depressive disorder. This is a dose-finding study. It compares two different dose levels of the AMPA potentiator to placebo using a pretty standard primary endpoint of the MADRS score at week four. And the goal here with this mechanism of action, obviously, since it's potentially ketamine-like, yet you know, through a downstream mechanism associated with NMDA, is that we actually would see a more rapid onset of antidepressant activity than is seen usually with SSRIs and other treatments.

So we are looking at MADRS as the primary endpoint, but we have multiple other secondary endpoints within this dose-finding study, which allows us to look at function and quality of life, as well as the other psychiatric endpoints. So in essence, we'll be looking at the totality of the information coming out of this dose-finding study to make a decision as to whether to proceed.

Anupam Rama (Managing Director and Senior Equity Analyst of Biotechnology)

Thanks so much for taking our question.

Operator (participant)

Thank you. Our next question comes from Carter Gould with Barclays. Please go ahead.

Carter Gould (Senior Analyst of US Biopharma Equity Research)

Good morning. Thanks for taking the question. Maybe another one for Eiry. You know, it was brought up a little bit at the Analyst Day, but frankly, kind of got overshadowed by so many of the other updates, and that is sort of the next generation, VMAT2 inhibitors. Can you just talk about, and obviously, the ATS study is ongoing, and you've talked a little bit about how that will, you know, the impact of that. Can you just maybe lay out kind of your expectations and sort of the progress you expect on sort of this broader effort on VMAT2 follow-ons over the course of the next 12 months-18 months?

Eiry Roberts (Chief Medical Officer)

Yeah. So, we are just entering the clinic with NBI-'890, which is the VMAT2 follow-on. And obviously, given the depth of knowledge that we have of this VMAT2 mechanism, this is a really important mechanism and platform for us. And, you know, valbenazine is an amazing medication in terms of its profile that Eric alluded to earlier. And so we have had to keep the bar really high in terms of the ability to differentiate with next-generation molecules coming into the clinic. And so, we haven't talked too much about the profile of this VMAT2 inhibitor yet. We will obviously do that as we generate phase I data.

But we would seek to differentiate with this molecule, both in terms of potential indications that we will go into, but also in some of the characteristics of the molecule itself that might lend itself for other areas, such as long-acting intramuscular injection or other approaches that are important in the neuropsychiatric arena.

Operator (participant)

Thank you. We'll take our next question from Akash Tewari with Jefferies. Please go ahead.

Speaker 27

Good morning. Thanks for taking our question. This is Ivy on for Akash. So on your phase II schizophrenia trial for your M4 agonist, NBI-'568, I guess that will be reading out this year. It sounds like you are prioritizing safety over efficacy. How much efficacy are you willing to maybe give up here in comparison to other competitors, like KarXT, in order to move forward into a phase III study? Thanks.

Eiry Roberts (Chief Medical Officer)

Thank you. So, the NBI-'568 molecule is a highly selective M4 agonist. And as such, I think, we know now, from both KarXT and the Cerevel molecule, that the M4 mechanism is implicated in the psychosis of schizophrenia, and blocking, and agonizing M4 can result in benefit in terms of the, the improvement of, the PANSS scores and psychosis symptoms. Clearly, there is a, a different and differentiation between the molecules in terms of the way in which they agonize, M4. And so, that may play out in terms of differentiated efficacy, but it also may have play out in terms of differentiated tolerability. And so I, I, I wouldn't say that we are only interested in tolerability, we're interested in both.

This is a dose-finding study, and as part of that, we will be able to look at the efficacy in terms of the impact on psychosis scores and the tolerability in terms of, overall, tolerability to this molecule. So, I think both are important, and it'll be an integration of those data from the phase II readout that'll be important in determining our path forward.

Speaker 27

Thanks.

Operator (participant)

Thank you. Our next question comes from Jay Olson with Oppenheimer. Please go ahead.

Jay Olson (Research Analyst)

Oh, hey, congrats on all the progress, and thanks for taking the question. Just going back to crinecerfont. Can you talk about how long patients need to be treated with crinecerfont before they start to experience some of the benefits on the complications of CAH, like cardiovascular or bone density? And do you think you'll have some of that data when you file? And then separately, do you have any plans to study crinecerfont in other diseases besides CAH? Thank you.

Eiry Roberts (Chief Medical Officer)

Oh, that's a lot of questions there. Taking them one at a time. In terms of the effectiveness of crinecerfont and its direct benefit in terms of the androgen control, just to make a comment there, we see that very rapidly, and we've shown that on two occasions. First, in our phase 2 proof of concept study, where within 14 days of dosing, the degree of reduction in androgen control, well, of androgens, was pretty much maximal because that was also how it played out in the four-week study in our phase III data. So in terms of controlling androgens, crinecerfont does that very rapidly. Obviously, that then allows clinicians to reduce the steroid dosing.

And by both controlling androgens with crinecerfont and being able to reduce steroid dosing, that's how we get the benefit associated with the clinical longer-term outcomes. We do have measures of clinical outcome, in terms of metabolic measures, bone-related measures, growth, and other important elements within our NDA submission. Obviously, those are based on data out to one year, essentially. And beyond that, the other impressive thing about the program to date has been the rollover rate into the open label, which is essentially greater than 95% for both the adult and pediatric trials. And so we are collecting longer-term open-label data on an ongoing basis, and we'll continue to do that until we reach the market.

Also, we have a registry effort going on called CAHtalog, which will allow us to put in context our clinical outcome data in terms of what is seen in the general population of CAH.

Jay Olson (Research Analyst)

Great. Thank you. Would, and any plans for other diseases?

Eiry Roberts (Chief Medical Officer)

Actually, I think, obviously we're thinking about that on an ongoing basis. I think Jude also alluded to at our R&D Day that we have a whole effort around next-generation molecules in CAH and other indications in that space as well, and so we'll certainly be talking more about that in due course.

Jay Olson (Research Analyst)

Great. Thank you very much.

Operator (participant)

Thank you. Our next question comes from Marc Goodman with Leerink. Please go ahead.

Speaker 28

Hey, this is Rudy on the line from Marc. Thanks for taking my question. So can you talk about your IP following the recent patent litigation settlement? And just curious, what are your current thoughts on the impact of IRA on your pricing towards the end of this decade? Thank you.

Kevin Gorman (CEO)

So we're very pleased with the way that the litigation ended up. We have protection that goes out into 2038 at this point in time. So I think that that really spoke to the impressive patent efforts that we put behind all of our molecules here at Neurocrine. When it comes to the IRA, as you know, the first 10 drugs are under negotiation right now. In September of this year, we're going to see the first time what those negotiations yielded. So I think we all look forward to seeing that before we can comment any further on what we think the IRA impacts are going to be.

Speaker 28

Got it. Thank you.

Operator (participant)

Thank you. Our next question comes from Myles Minter with William Blair. Please go ahead.

Myles Minter (Healthcare Research Analyst)

Hey, congrats on the progress. Thanks for the question. Just a quick one on the phase I NBI-'570 trial, the dual M1/M4 agonist in healthy volunteers. I think that trial initiated in September. Just wondering how dosing is going for that and when we'll hear about safety for that program. And secondly, would you ever think about running head-to-head studies against NBI-'568 or NBI-'569 in a C&S indication? Thanks.

Eiry Roberts (Chief Medical Officer)

Thanks, Myles. On the NBI-'570, that's progressing very well. We are going through the phase I program, and at some point, obviously, we'll come forward and talk about that more as we enter phase II. That's usually what we tend to do in that space, but things are progressing as expected. And, you know, there's always a lot of discussion about whether to try to put more than one investigational product into a clinical trial in order to profile them directly with one another. As you can imagine, that is something we've talked about in the context of the fact that we have such a broad portfolio of muscarinic. It's very challenging to do that, though, given the fact that we want to try to accelerate each molecule as much as possible individually.

And so, at least in my experience, over many years in this business, they don't seem to line up perfectly for you to be able to do that. So in the absence of being able to do that, what we are doing is essentially running very, very similar phase I programs for each of these assets so that we can look at the same measures, look at the same outcomes, and understand how to compare those individual molecules indirectly.

Myles Minter (Healthcare Research Analyst)

Fair enough. Thanks Eiry.

Operator (participant)

Thank you. Our next question comes from Neena Bitritto-Garg with Deutsche Bank. Please go ahead.

Neena Bitritto-Garg (Biopharma Equity Research Lead Analyst)

Hey, guys. Thanks for taking my question. I just wanted to circle back to the M4 readout later this year, and Paul's question originally about dosing. Is there anything else that you can kind of share on the dose levels that you're testing and dosing frequency, and maybe how they may compare to some of the doses that we've seen for emraclidine and KarXT from an activity perspective? Thanks so much.

Eiry Roberts (Chief Medical Officer)

We haven't shared the doses from our phase II dose planning study up to this point. Obviously, it's not that long before we get our data, so we'll get to see that later this year. What I can say is that we're confident on the dose range that we're testing based on an integration of our preclinical data, both efficacy and tolerability from the toxicology program and also from our phase I studies, where obviously we explored a lot of different pharmacology to understand how to pick the right doses for phase II.

Neena Bitritto-Garg (Biopharma Equity Research Lead Analyst)

Got it. Thank you.

Operator (participant)

Thank you. Our next question comes from Jeffrey Hung with Morgan Stanley. Please go ahead.

Michael Riad (Biotechnology Equity Research Associate)

Hi, this is Michael Riad on for Jeff Hung. Thank you for taking our questions. Could you talk a little bit more about Efmody? What are you hoping to see in the phase II data, and how would you see this becoming part of the treatment paradigm? Is there anything to suggest maybe different uptake, depending on whether a patient is in early adolescence versus adulthood? Thank you.

Eiry Roberts (Chief Medical Officer)

Yeah, we really haven't talked much about the Efmody strategy, particularly here in the U.S. As I said, it is an approved product in Europe for CAH. These are just very straightforward phase II readout studies. Once we have the data, I'm sure we'll talk a little bit more about that and whatever our next steps might be.

Michael Riad (Biotechnology Equity Research Associate)

Thank you.

Operator (participant)

Thank you. Our next question comes from Danielle Brill with Raymond James. Please go ahead.

Danielle Brill (Biotechnology Research Analyst)

Good morning, guys. Thank you so much for the questions. I guess I'd like an update on the cerebral palsy, dyskinesia, and schizophrenia studies of valbenazine. Should we expect data from those studies this year? And then what sort of impact to sales might we expect from the sprinkle powder formulation of INGREZZA once it's approved? Thanks so much.

Eiry Roberts (Chief Medical Officer)

I can give an update on the ATS and DCP programs. Both are enrolling, and we anticipate data during next year.

Eric Benevich (Chief Commercial Officer)

Yeah, and just a quick comment on the sprinkle formulation. Obviously, you know, it's not an approved formulation, but we're looking forward to, upon approval, rolling it out. We estimate that 5%-10% of patients with either Huntington's chorea or tardive dyskinesia experience difficulty in swallowing, so this may be a better alternative for them. And so we're looking forward to introducing that product upon approval.

Operator (participant)

Thank you. Our next question comes from Laura Chico with Wedbush Securities. Please go ahead.

Laura Chico (Managing Director)

Hey, good morning, guys. Thanks for taking the question. So obviously, a lot of discussion today on your internal pipeline activities, but wondering if you can discuss your appetite for external BD at this point, and what flexibility does the balance sheet now provide in terms of potential deal size? Thank you.

Kyle Gano (Chief Business Development Officer and Chief Strategy Officer)

Hey, this is Kyle. Thanks for the question this morning. I think, what you've seen here from Neurocrine over the past year was, good progress on bringing programs from our internal drug discovery efforts into the clinic. We put five programs in last year. Our team, we work with great urgency here in business development. We don't feel like we have the need to do something, large at this particular, time. I think, what we, would expect here over the near term, midterm is to continue to help our research team accelerate some of their efforts and bring, their assets that they're currently working on in the pipeline to help us, transform that pipeline that we've been discussing, at our R&D Day into this next year.

So in terms of what we're looking at beyond helping our research colleagues, we're probably not going to spend a lot of time looking at things that are pre-proof of concept. It's earlier-stage opportunities to bring in technologies for our research team, and then obviously, anything that's a de-risked, later-stage, clinical-stage asset through commercial are things that would be of interest to us. They're few and far between, as you know, and they are quite expensive as well. We look at those, but I think our mind right now is doing what we can to help build the pipeline organically. When you think about how we expect to drive shareholder value, you can see where our money's going to continue to drive growth in INGREZZA, getting ready to launch crinecerfont.

I think that's going to be a meaningful contributor to both help patients and then also to Neurocrine's top line. A lot of investment in our internal research programs. Between all the phase I starts that we have this year, as well as what Jude highlighted at the R&D Day, we feel very confident about what we have going forward. We, of course, have financial flexibility with $1.7 billion in cash and then also, you know, growing EBITDA profile. We do have the financial flexibility, but right now, we're really prioritizing executing what we have, and we have a lot to look forward to.

Laura Chico (Managing Director)

Thanks, guys.

Operator (participant)

Thank you. Our next question comes from Sumant Kulkarni with Canaccord Genuity. Please go ahead.

Sumant Kulkarni (Biotechnology Senior Analyst)

Morning. Thanks for taking my question. On your efforts in major depressive disorder, do you think there is any merit in approaching that indication with an episodic versus chronic treatment? And do you expect either NBI-'770 or NBI-'845 to have an episodic component or more durable efficacy aspect to their eventual dosing?

Eiry Roberts (Chief Medical Officer)

I think the goal with our current efforts in both NBI-'985 and also NBI-'770 is to be able to try to replicate some of the findings that have been seen with ketamine. And but to do it in a way that is, you know, expands on the efficacy that obviously has been seen in that area. And so episodic dosing is a part of the consideration there. We haven't talked very much about our dosing regimens for our current programs. We have said for NBI-'770, this is an oral approach to NR2B NAM. That is the first, to our knowledge, oral approach to this target.

Obviously, as we endeavor to generate the data from those phase II studies, we'll be able to talk more about the plans moving forward.

Sumant Kulkarni (Biotechnology Senior Analyst)

Thank you.

Operator (participant)

Thank you. Our next question comes from Evan Seigerman with BMO Capital Markets. Please go ahead.

Speaker 25

Hi, guys. Malcolm on for Evan. Thanks for taking our question. Coming back to the muscarinics, you're using an M4 agonism in the phase II for schizophrenia, but antagonism for the phase I to treat movement disorders. Maybe can you walk us through the mechanism of action differences and what gives you confidence for those indications and expectations for how antagonism can be differentiated for movement disorders? Thank you.

Eiry Roberts (Chief Medical Officer)

The approaches here are very different. M4 agonism, we're focused on looking at that in the context of treating neuropsychiatric disorders, particularly schizophrenia, as a starting indication. It's very clear, I think now from data generated in this field, that the M4 system plays a role in the psychosis within schizophrenia. For the M4 antagonists, we're actually targeting movement disorders. In terms of the M4 systems that are associated with the normal movement within the brain, in diseases such as Parkinson's tremor, dystonia, that is disrupted and antagonizing this system, we believe has the potential to add value and to be able to treat those disorders. It is very different in terms of the approach that we're taking there.

Speaker 25

Thank you.

Operator (participant)

Thank you. We'll take our next question from David Hoang with Citigroup. Please go ahead.

David Hoang (Director and Senior Analyst of Biotechnology)

Hi. Thanks so much for taking the question. Maybe just to circle back on INGREZZA for a moment. Could you talk a little bit about, you know, the higher end of the guidance range in 2024? What would be the factors that would play into that? And maybe, you know, along those lines, in terms of accessing the remaining 2/3 of undiagnosed TD patients, do you perceive any, you know, any barriers to reaching that group?

Eric Benevich (Chief Commercial Officer)

Yeah, as we mentioned earlier, in terms of the 2024 guidance range, it's really driven by the success that, you know, that we'll have early in the year in driving new patient starts and, you know, continuing to retain existing patients.

As we get to later part of the year or middle of the year, as Matt said, you know, we'll reassess and tighten up, you know, what our expected guidance is. In terms of, you know, being able to continue to develop the market, continue to drive recognition, diagnosis, and treatment, you know, the fundamentals remain the same. You know, when we started with the launch of INGREZZA over six years ago, only a very small fraction of the TD patients had actually been diagnosed, and none had been treated effectively. So we've made great progress, and now we, you know, we believe that about a third of all TD patients have been diagnosed, and yet only about half the time were they actually offered treatment with a VMAT2 inhibitor.

So there's still a lot of room in terms of organic growth and a lot of opportunity to make a big difference in patients' lives. You know, the fundamentals of what we do both in terms of educating healthcare providers across psychiatry, neurology, and long-term care, as well as continuing to invest in long-term, or excuse me, in DTC to reach and educate those that are suffering from TD and encouraging them to have that conversation with their doctor. These are the things that we're doing. We're very focused on education, as Matt said, and we're continuing to drive leverage within our existing TD and HD franchises.

Operator (participant)

Thank you. We'll take our next question from Mohit Bansal with Wells Fargo. Please go ahead.

Mohit Bansal (Managing Director and Co-head of Therapeutics Research)

Thank you very much for the question. So, maybe one question on the expense side. So, I mean, you, it seems like there is some level of margin improvement here in the SG&A side, but you are committing to spending or investing in R&D. As you go forward, I mean, it is still, like, close to 40% SG&A as a percentage of sales. As you move forward, how should we think about the leverage, given that for CAH, you still may have to invest money in terms of that launch preparation? Thank you.

Matt Abernethy (CFO)

Yeah, I think the SG&A leverage, when you take a step back and think about where we were in 2022, we were at 51%. I think this year, in 2024, if you exclude crinecerfont, we'd be down to 41%. So I think, you know, 1,000 basis points of leverage over two years is quite substantive and proud of what the team has been able to accomplish with the investments that we've made. In terms of leverage going forward, the investment behind crinecerfont is not going to be anything near the investment that we have behind INGREZZA. I'd expect it to be very, you know, accretive early in the launch and, you know, we'll of course give updated guidance next year in terms of expense and revenue expectations.

But, you know, I think the addition of crinecerfont is only helpful to our SG&A leverage ambitions over the years ahead.

Mohit Bansal (Managing Director and Co-head of Therapeutics Research)

Excellent. Thank you.

Operator (participant)

Thank you. Our next question comes from Uy Ear with Mizuho. Please go ahead.

Uy Ear (VP and Senior Equity Analyst)

Hi, guys. Thanks for taking my question. Matt, I think you said the 4Q INGREZZA number, the growth was offset by gross-to-net. I was wondering if you can sort of help us understand the dynamics of gross-to-net in the quarter, and as well as the factors that will improve gross-to-net in 2024. Thanks.

Matt Abernethy (CFO)

Yeah, you know, when you think about our Q4 results, it's our first quarter ever of $500 million in sales, and we're quite encouraged by what we saw. There's always quarterly gyrations in terms of whether it's timing of orders, timing of patients getting refills, et cetera. So there's choppiness to certain quarters. Q3 was a blowout quarter. Q4 was another great quarter, and I think it we feel very good with how we're positioned headed into 2024. The gross-to-net dynamic that I commented on is very consistent with what we've had in previous years. There's an accounting requirement where you have to take an incremental discount on your channel inventory, and so that's something that put pressure on our numbers a bit in Q4.

The only other item that I'd call out as it relates to net revenue per script, we didn't take our price increase until very late in the quarter. In previous years, there was some level of contribution in our Q4 numbers associated with the price increase. The improvement in next year's or in this year's net revenue per script comes down to price increases and then the contract decisions that we make. You know, they're trade-offs, and I think that overall, that's what led to an improved net revenue per script from going from $5,600 in 2023 to something over $5,800 in 2024.

Uy Ear (VP and Senior Equity Analyst)

Thanks.

Operator (participant)

Thank you. Our next question comes from David Amsellem with Piper Sandler. Please go ahead.

Speaker 29

Hi, this is Skylar on for David. First, any thoughts on the potential pricing of crinecerfont and the discussions you've been having with payers? And do you expect the reimbursement landscape will be different between adults and pediatrics? And then second, could you provide any updates on the development plan for the M1 preferring agonist? And just talk mechanistically to the value proposition of just targeting M1 versus M4. Thanks.

Eric Benevich (Chief Commercial Officer)

Yeah. So obviously, you know, we're very enthusiastic about the clinical profile that emerged with crinecerfont. With regards to pricing, it's a little bit premature to comment on that, other than to say that this is a rare disease. And, you know, we would expect it to have rare disease pricing. We've had initial conversations with payers, and I've been quite pleased and maybe a little bit surprised, pleasantly, that they seem to be acutely aware of the issues associated with chronic high-dose steroid treatment. And so, you know, we've got a lot of work to do still in terms of understanding the value that's emerging from the clinical data. And certainly, we believe that the pricing will be in line with the value that we bring to market.

Todd Tushla (VP of Investor Relations)

Let's take one final question, please.

Operator (participant)

Our last question comes from Ami Fadia with Needham. Please go ahead. Ami, your line is open. Please go ahead with your question.

Todd Tushla (VP of Investor Relations)

Sounds like I'll follow up with Ami later. Kevin?

Kevin Gorman (CEO)

Thank you all this morning for your questions. Really appreciate this time to interact, and we'll be talking a lot more at upcoming meetings. The only closing comments that I have is I hope that it's come through our enthusiasm as we start 2024 here. We do expect to have another great year. The two things that I really want to point out the most as I close here, number one is, probably starting three years ago, you saw our investment ramp up in INGREZZA both with salesforce expansions and with DTC efforts. You have now seen in the last two years what the difference that can make. We have a multibillion-dollar product on our hands here. So those investments have got a phenomenal ROI on them. They will continue.

Our focus with those investments is on the patient. It's on building out this very early marketplace that is still, I know I've said it for six years, I'm going to say it into a seventh year, this is just the tip of the iceberg for this. There are so many more patients that need this drug in order to be able to live fulfilling lives. With crinecerfont, it's very much the same way. As Matt said, the amount of investment that we need within that marketplace is much smaller because the patient population is much smaller. But nevertheless, I'm very confident that what you will see is the investments that we're making this year, next year, are going to be incredible for the lives of those patients and also as a significant leg of growth for Neurocrine going forward.

And then finally, the investments that we're making in our internal R&D efforts are definitely going to pay off. When we get to see a lot more, unfortunately, than you get to see. But I can tell you that in the coming years, you're going to see those efforts in small molecules, which has always been our strong point, but in all of the large molecules, whether you're talking about peptides, proteins, antibodies, and gene therapies, those will start rolling into the clinic. So we're very excited here, and we have a lot of work ahead of us. We look forward to talking to you more in the future. Thank you very much.

Operator (participant)

This does conclude the Neurocrine Biosciences year-end and fourth quarter results call. You may disconnect your line at this time, and have a wonderful day.