Neurocrine Biosciences Inc Q4 FY2020 Earnings Call

Good day, everyone, and welcome to today's Neurocrine Biosciences Reports Fourth Quarter and Year End 2020 Results. At this time, all participants are in a listen-only mode. Later, you'll have the opportunity to ask questions during the question-and-answer session. Please note, this call may be recorded and I will be standing by if you need any assistance. It is now my pleasure to turn the conference over to Vice President of Investor Relations, Todd Tushla. Please go ahead.

Thank you, Chloe. Good afternoon everyone and thank you for joining us on our fourth quarter and full year 2020 earnings call. On the call today is 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. I'd like to remind everyone that 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. Following our prepared remarks, we will then head into Q&A. So, with that, I'll turn it over to Kevin Gorman.

Thanks Todd. Good afternoon. It's good to talk to everyone again. It's only been about three and a half weeks, I think. That's a short period of time. We were able to touch base with many of you. And at that time, we announced our topline earnings. And also, we announced those topline earnings; we told you how encouraged we were that the brand grew during a much worsening pandemic. We also talked about how we view Q1 of 2021, which now we're about a month into. Our message and our view hasn't changed from then. This Q1 was rolling out like all the other first quarters. The first half of Q1 is being dominated by reauthorizations of our existing patients and then prior authorizations of both new patients and those who have changed insurance plans. And again, as always this is a tale of two quarters, where the second half of the quarter is where we expect the normal pace of business to return, but obviously, as stated before, with the impact of COVID still weighing in. Now, Matt and Eric will go into more detail on the 2020 performance and our plans for 2021. But as I look back on 2020, we performed well in all facets of the business, attaining just shy of $1 billion in sales with INGREZZA, launching a new brand ONGENTYS, effectively managing the stop and start of several of our clinical programs and then significantly expanding our pipeline. Now, with regard to that last point, with just a robust pipeline and our continuing commitment to manage responsibly our financial and human resources, we recently made the decision to terminate the Parkinson's program with Voyager. Those resources are being redeployed to fully exploit the near and medium term opportunities our pipeline holds. And the details of our pipeline with be addressed by Eiry. Looking ahead, we are continuing to focus on our mission of becoming the leading neuroscience company in all three disciplines and that means neurology, neuroendocrinology, and neuropsychiatry. Our current commercial medicines, along with our pipeline, gives us a great foundation to achieve this goal. So, with that, I'd like to turn the call over to the rest of the team, starting with Matt.

Thanks Kevin. Good afternoon everyone. I'll make a few brief comments on our Q4 INGREZZA performance, expectations for Q1, and also capital allocation. During the fourth quarter, INGREZZA sales were $240 million and $258 million on an inventory adjusted basis. We were encouraged by the Q4 new patient additions and strong compliance rates, driving inventory adjusted sequential growth, reflecting the great need that remains for patients with tardive dyskinesia. Although encouraged, we acknowledge COVID has an impact on the growth trajectory of the TD market, given around 50% of patient visits to psychiatrists are still being done virtually. Our goal is to be well-positioned to accelerate growth as the impact of COVID on in-person patient visits lessens. As we enter 2021, this will mark our fourth year handling the Q1 payer-related seasonal dynamics specific to a specialty product like INGREZZA, including beginning of the year reauthorizations and also elevated gross to net discounts. Similar to prior years, we expect the gross to net discount to increase from Q4 to Q1 by around 5%. In addition, we expect net revenue per script for all of 2021 to be very similar to 2020, with strong access for patients. We remain excited about the compelling medium and long-term potential of INGREZZA and will continue to adapt in the current environment. Turning to the balance sheet. We reduced our convertible debt exposure by repurchasing about 25% of debt outstanding for approximately $190 million. Given our ability to generate free cash flow, we exited 2020 with over $1 billion in cash, enabling us to continue to invest in long-term growth. Our 2021 operating expense guidance reflects our capital allocation priorities focusing on maximizing the opportunity with INGREZZA as well as advancing our pipeline with the planned initiation of eight mid to late stage programs, positioning us to be a leading neuroscience company. As you saw in the release, we reversed our tax valuation allowance this quarter and will begin recording a full tax expense in our P&L for 2021 and going forward, with federal cash tax payments expected to occur sometime in 2022 based upon the around $500 million of net operating losses that we entered the year with. With that, I hand the call over to Eiry Roberts, our Chief Medical Officer. Eiry?

Thank you, Matt, and good afternoon, everyone. I'm happy to provide a brief update on our clinical programs. But before I begin, I must once again thank our Neurocrine teams and partners for their passion and hard work in advancing the many clinical development programs already underway and for all their ongoing diligence and investment to ensure the successful initiation of the eight new mid- to late-stage clinical programs planned for this year. 2020 presented us with a broad set of unprecedented challenges, and I'm proud of the progress we made across research and development, even in the face of the pandemic. Our resilience and commitment to help patients carried the day and positions us well for a foundational year in clinical development at Neurocrine as we advance and deliver on our diverse and well-balanced neuroscience-focused pipeline in the areas of neurology, psychiatry and neuroendocrinology. Our lead pipeline asset, crinecerfont, for the treatment of congenital adrenal hyperplasia continues to progress through clinical development with the single Phase III registrational study in adults currently enrolling patients globally. In addition, the single parallel pediatric registration trial remains on track to initiate in the first half of this year. We are confident based on our interaction with regulatory agencies, key opinion leaders, payers and patient advocates that if successful with the current clinical trials, we can deliver a much needed treatment alternative for patients with CAH, many of whom currently struggle to manage in the face of inadequate and outdated treatment. Looking across our pipeline, an important product attribute shared by many of our clinical candidates is the potential to benefit patients across a number of indications. This concept of a pipeline within a product is commonly displayed in the immuno-oncology setting and is perhaps best exemplified in our pipeline by valbenazine, our internally discovered VMAT2 inhibitor, currently marketed under the brand name INGREZZA in the U.S. for the treatment of tardive dyskinesia. The most advanced additional indication under evaluation within our pipeline for valbenazine is Korea in Huntington's disease. Top line data from the Phase III KINECT-HD registration study is anticipated in Q4 this year. Furthermore, we plan to initiate trials with valbenazine this year in two new areas of interest, with registration phase studies in both the neurological and psychiatric indication. In addition to potentially benefiting three new patient populations, we are also looking forward to expanding the geographic reach for INGREZZA in tardive dyskinesia. Yesterday, our partner, the Mitsubishi Tanabe Pharma Corporation, reported successful top line results from the Asia-based J-KINECT Phase 3 study designed to evaluate the efficacy and safety of valbenazine in TD. Mitsubishi Tanabe Pharma plans to submit an application for marketing authorization of valbenazine with the Japanese Ministry of Health and Welfare this year and has already submitted filings for marketing authorization in South Korea, Thailand, Singapore, Indonesia and Malaysia. Valbenazine serves as a great example of a pipeline within a product, with approval in one indication already and the potential for approval in three additional patient populations. Shifting gears, but on a related note, our two precision medicine epilepsy programs also have the potential to add value for patients across multiple disease states. I'll begin with NBI-827104 or 104 for short. 104, a potent and highly selective T-type calcium channel antagonist, is currently enrolling patients in a Phase II study for epileptic encephalopathy with Continuous Spike and Wave during Sleep. 104 has the potential to expand into a range of other central nervous system disease areas. And we are moving forward with the initiation of a Phase II study in the first of these additional neurological indications this year. Turning now to NBI-921352, or simply 352, our potent and highly selective Nav1.6 sodium channel inhibitor. In response to FDA feedback on our Investigational New Drug application in support of a Phase II clinical trial in SCN8A-DEE patients, we are amending the study to initiate enrollment in adolescent patients with SCN8A-DEE in the third quarter of 2021. It is our expectation that the trial population will be expanded to include younger pediatric patients as soon as the FDA has reviewed and approved additional nonclinical information. We also plan to initiate a Phase II study of 352 for the treatment of adult focal epilepsy this year. As a result, with our two precision medicine candidates, 104 and 352, we'll have trials underway in four distinct neurological disorders this year. Now turning to our lead psychiatry asset, NBI-1065844. The clinical portion of the Phase II INTERACT study evaluating 844 as a potential treatment for the negative symptoms of schizophrenia is complete, and we look forward to sharing initial top line data from this study later in Q1. Our partner, Takeda, did an outstanding job in advancing this molecule and completing the INTERACT study on schedule in the face of the pandemic. With no current FDA-approved treatments available for the negative symptoms of schizophrenia, we hope that the INTERACT data can inform a path forward for the further evaluation of NBI-844 as a potential treatment for patients suffering from the devastating impact of schizophrenia. Looking back, it is remarkable, given all the uncertainty and potential roadblocks that we've doubled our pipeline in just two years. In summary, 2021 marks a foundational year in clinical development for Neurocrine with two significant data readouts and the initiation of eight mid to late-stage clinical programs. With that, I'll hand back to you, Kevin.

Thank you very much, Eiry. So why don't we open up for questions now?

And we'll take our first question from Biren Amin with Jefferies. Please go ahead.

Hi guys. Thanks for taking my question. Maybe just to start on INGREZZA, clearly, last year, scripts grew about 30% year-over-year. What should we anticipate the growth rate to be for this year?

Well, Biren, we don't give guidance. However, I think is – what we said is that we're not tightly linked to COVID. Certainly, COVID has an impact on our business, as we've said before, but it's not a one-to-one impact. And what we look forward to and being able to get back to that kind of growth rate and probably even beyond is an opening up of all the clinics that we go to. And I think a big step forward there has been the rollout of vaccines and as those become much more available. Eric, do you have anything to add?

The only other thing I would add, and I think Kevin touched on this a little bit, is that over the course of the year and over the course of this launch, we've seen variability in terms of growth from quarter-to-quarter. We're still in the thick of things in terms of Q1 and dealing with the seasonal payer issues. But certainly, we expect, as we go through the course of the year that we're going to see similar patterns in terms of growth rates from quarter-to-quarter.

Okay. And then, maybe if I could have one follow-up. Given the negative schizophrenia data this quarter, what read-throughs, if any, should we make on this data set for 844 from the recent Concert failure with their deuterated D-serine in their negative symptom study?

Hi, I can address that. We observed the data from the deuterated D-serine Concert study, and I have a few comments about it. There were several interesting features that may have influenced the outcome. Firstly, the dosing in that study was significantly high for deuterated D-serine, and we lack clarity on the central bioavailability, even with that higher dose. It's crucial to understand how much actually reached the target to test the hypothesis. Additionally, the study was conducted entirely in the US and showed a high placebo response, which is quite common in US centers in this context. We remain confident and committed to the NMDA hypofunction hypothesis in schizophrenia. There are multiple supportive factors, such as NMDA antagonists causing psychotic symptoms, and small studies with sodium benzoate and D-serine indicating positive effects on negative symptoms. We are also confident in 844 as a molecule; we are testing the hypothesis effectively given its nature, quality, and the translational work demonstrating target occupancy and pharmacodynamic effects. We're focused on understanding and obtaining data from the INTERACT study, which is globally relevant and important in this area.

And we'll take our next question from Paul Matteis with Stifel. Please go ahead.

Great, thanks so much. I was wondering if you could give us a little bit more color on what you're seeing on NRx to start this year and maybe kind of getting back to December. And where you are right now relative to where you were in terms of pre-pandemic levels last year? And then I just have one follow-up. Thanks.

Yeah. Hi, Paul. The way I would describe it is that we're in the thick of things from a Q1 perspective. We had a great Q1 last year. But as Kevin said, it was a tale of two half quarters. First half of the quarter was a lot of activity in terms of focusing on continuing patients and really minimizing the impact of reauthorization requirements and prior authorization requirements for patients changing plans and so on. And then in the second half of the quarter, things really picked up in terms of new patient starts and so on. It's the same kind of pattern that's happening this year. It's very early. We're just a few weeks into the quarter. So it'd be premature for me to comment on what the trends look like. But obviously, we expect to have the same kind of dynamic this year as we've seen in past years, with the added element of COVID-19.

And the only aspect, Paul, that I'd add is that, as we've described, we are at record NRx levels entering into the pandemic. And then we saw a pretty steep fall when patients stopped flowing into the psychiatrists' office. And then we saw a bit of recovery exiting Q3 and then through Q4. But I would say that there is still a notable gap fall between where we were pre-pandemic and where we are now. And as Kevin said in the last question, we're doing a lot to try to minimize the impact of COVID. But likely, the biggest indicator of return to growth will be patients returning back into offices, which likely looks like it will start occurring second half of the year in a more prominent way.

And we'll take our next question from Tazeen Ahmad with Bank of America. Please go ahead.

Thank you very much. Good afternoon and thanks for taking my questions. Maybe a follow-up for Eiry as it relates to 844. Can you give us a little bit more detail on why it's important in these types of schizophrenia studies to have global sites as opposed to sites just limited in the US? And then I have a follow-up on INGREZZA. Thank you.

Yes, thank you for the question. There's a significant amount of public data in recent years indicating that the placebo response has been quite challenging at some sites in the US. Having geographic diversity early in the program and being able to maintain that into Phase 3 is crucial for this type of development program. There are various hypothesized reasons for this, including the quality of the patient pool and potential differences in the relationship between investigators and patients in certain US sites compared to other parts of the world. However, we do not fully understand this issue. We believe that having geographic diversity from the beginning is very important in these programs.

We'll take our next question from Josh Schimmer with Evercore. Please go ahead.

Thanks for taking the question. So you've previously indicated around 20% of tardive dyskinesia patients are diagnosed, half of those are treated. What impact do you expect the new APA guidelines to have in terms of increasing the treatment rate of diagnosed patients? When do you expect that to occur? And then for the 80% of undiagnosed tardive dyskinesia patients, where do you see the greatest opportunity to identify them? Thanks.

Yes. So first of all, I'll say that it's a welcome development to have the APA put out their updated guidelines last fall. Certainly, there are some important components there such as the recommendation of VMAT2 inhibitors as first-line treatment, but also putting into context the lack of evidence to support antipsychotic adjustment as a treatment strategy for TD and the fact that Cogentin, for example, and anticholinergic agents can actually do more harm than good in these patients and that it's been a widespread treatment approach in the past. In terms of when do we expect those new guidelines to start benefiting patients with TD, well, we're already attempting to do that. We've incorporated the new guidelines into educational programming. We've rolled them out to our field sales team. Our field medical team has access to those guidelines. And certainly, they've been incorporated into discussions that we're having with thought leaders as well as with community providers. So that's an important dynamic. And we're going to continue to make sure that in the psychiatry community, everyone that we talk to and work with is aware of the new recommendations from the APA. Then with regard to the second half of your question in terms of the majority of patients that still remain undiagnosed with TD and what can be done to address that situation. Obviously, we've invested a lot in education, especially on the health care provider side. We're coming up on four years now since the launch of INGREZZA, and we feel like we've made an awful lot of progress. However, there are still a large amount of information that we can share in terms of helping providers, especially in psychiatry, to be more confident and capable in terms of their ability to recognize and diagnose TD. We're also continuing to invest in patients and care partners directly, for example, in our educational efforts with the talk about TD DTC campaign, but also indirectly working through patient advocacy groups and other venues. So we're going to continue to educate all the stakeholders, whether it's the providers, whether it's the patients, working with advocacy organizations, professional medical associations and so on. And we'll continue to make progress there. But I feel really good about the progress that we've made so far, but we recognize that there's still a lot of people suffering from TD that could benefit from treatment.

And we'll take our next question from Laura Christianson with Cowen. Please go ahead.

Hi, thanks for taking my question. Congrats on another great quarter. So I'm just curious on the ONGENTYS launch. What you're seeing so far from physician prescribing? And then also, we've heard from KOLs that patients with Parkinson's like to avoid adjunctive treatment. And I'm just curious if you have any sense of what might help any inroads there that you're seeing thus far?

Sure. I'll address that and then Eiry may want to add her thoughts. Regarding the early response to ONGENTYS, the feedback has been very positive. We've been in launch mode for about a quarter, still conducting introductory product presentations. We've been actively sampling and educating the neurology community not only about the product but also about the reimbursement process, as this is a non-formulary product across the board. The response has been encouraging, with physicians starting patients on initial trials and receiving strong reviews from patients about the benefits of ONGENTYS. The clinical experience aligns well with the clinical data. As for your second question about patients hesitating to pursue adjunctive treatments, most patients on levodopa therapy for Parkinson's are already utilizing one or more adjunctive treatments; about two-thirds of the approximately 900,000 levodopa users are on adjunctive therapy. Our strategy has been to position ONGENTYS as the primary adjunctive treatment, specifically designed to enhance levodopa therapy. There are enzymes in the body that break down levodopa before it reaches the brain, and COMT is one of them. We've been emphasizing the significant role of the COMT enzyme and the clinical profile of ONGENTYS to neurologists. Ideally, healthcare providers would consider adding ONGENTYS before increasing levodopa dosage or introducing an adjunctive treatment from a different class that doesn’t enhance levodopa levels directly. Although it's still early in the launch, the feedback has been positive, and we are working to establish ONGENTYS as the primary early option for optimizing levodopa therapy. Do you have anything to add?

I would like to emphasize what Eric mentioned about patients and clinicians regarding levodopa being viewed as the gold standard treatment for Parkinson's disease, with strong commitment and loyalty to it. Levodopa is always paired with carbidopa, which is essential for optimizing its treatment and exposure. We believe that ONGENTYS can enhance levodopa therapy. Patients may have concerns about some adjunctive agents due to side effects and drug interactions. The single once-a-day dosage of ONGENTYS and its efficient use with levodopa, potentially reducing the required doses, seems promising to clinicians. We are optimistic that this will provide significant benefits for patients.

We'll take our next question from Brian Skorney with Baird. Please go ahead.

Good afternoon, everyone. Thank you for taking my question. Todd, I really enjoy the smooth jazz hold music at the start of the call, but you did promise me some GNR/Metallica. So I look forward to hearing that one day. My question is about 352 and the plans for SCN8A-DEE disorders. I know it might be a bit early, but could you explain this patient population and how you envision the trial design? Will it follow a 28-day format focused mainly on reducing seizure frequency as an endpoint? Also, what are the baseline characteristics regarding seizure frequency in these patients? This would help us understand what success might look like.

We haven't discussed the trial design in detail yet. Typically, we plan to do so when the trial is posted on clinicaltrials.gov later this year. However, I can say that this condition is a rare pediatric epilepsy with a highly variable expression in terms of seizure type and frequency. It can be very devastating for patients from a young age. It was crucial for us to ensure that every patient enrolled in this program contributes to our goal of making this treatment available and registering the medication. Therefore, the trial will be designed to provide us with the best chance of achieving registration-quality results. We are focusing on starting with the older adolescent population before ultimately moving into pediatrics, where we expect to derive significant value.

And we'll take our next question from Anupam Rama with JPMorgan. Please go ahead.

Hey, guys. This is Tessa on, for Anupam. Thanks for taking my question. On the schizophrenia program, maybe one for Eiry, are you able to quantify what placebo-adjusted decline, on a point basis or a percent basis, in the negative subscale of the PANSS, is viewed as clinically meaningful? So embedded in the question is, how we should be thinking about placebo performance? And then, is there any color you can provide on, what the anticipated baseline range might be, given the inclusion-exclusion criteria? Thanks so much.

We haven't provided extensive comments on the baseline characteristics we expect. We'll wait for the data to discuss what we observe. Regarding placebo-adjusted changes and clinical significance, this trial is well-powered to determine if a clinically significant difference exists. We can also look at other successful programs in this area for insights into the nature of that change. It's important to note that while the primary endpoint is the negative symptom score, there are many other endpoints in this study that focus on negative symptoms, the total PANSS score, and various functional and cognitive measures. Since this is a Phase II dose-finding study, we will consider all the data, not just the primary endpoint, to guide our next steps in development.

We'll take our next question from Paul Choi with Goldman Sachs. Please go ahead.

Thank you and good afternoon. And thank you for taking my questions. Another one for Eiry, please, on 844 in the schizophrenia trial. As we think about the dosing ranges that you are using in this trial, how do you think about the sort of magnitude and therapeutic window here, given the wide range of doses you're doing? And just how do you think about a potential dose response here? And then as a follow-up – thanks for the OpEx guidance, but I want to ask either Kevin or Matt. As you think about the rate of reinvestment in the business here, is this sort of the – as you think about the longer term the rate of reinvestment in the business you'd want to continue at, or how do you think about thinking about generating leverage and reallocating an increasing portion of your cash flow to business development?

On the first question around dose response, and I think I've mentioned this before, but in the context of this molecule 844, one of the things that was really appealing to us was the really great translational medicine network that Takeda had done. And as part of that, they had taken a really good look at exposure response in terms of target engagement and downstream pharmacodynamic activity. And so we know that the dose range that we're testing in the INTERACT study is one which encompasses a broad range of different levels of DAAO inhibition. And that's really important, we believe, in order for us to be able to determine from a – as we look at the overall benefit/risk profile from the INTERACT study, which dose or doses to progress forward with if we're successful.

Matt, do you want to talk about allocation of capital?

Yes, sure. So from a rate of reinvestment perspective, Paul, I would say we're more focused on what do we have in hand and how are we going to invest behind that to maximize the opportunity. We've long said, we're not going to just spend money to avoid probability. But where we have conviction, we're going to reinvest back into the business, INGREZZA first and then our pipeline. So what I would say, Paul, is this is just a reflection of where we're at today. But Kyle has $1 billion of cash to work with as well as our balance sheet and equity value. And as we see the right kinds of opportunities, we'll continue to be aggressive. We want to build a leading neuroscience company. And I think it's going to take internal development, and then it's also going to continue to reach in on the external side. So I wouldn't say our OpEx guidance this year is a reflection. But we do know, over the long run, reinvestment of 25% to 35% of revenue back into R&D seems to be the right level of reinvestment for companies to have sort of sustainable staying power within biotech. And that's more of a mature base. So hopefully, that answers your question.

Move next to Jeff Hung with Morgan Stanley. Please go ahead.

Thanks for taking the question. For the time being, you've decided to maintain the partnership with Voyager on the Friedreich's ataxia gene replacement program. Are there differences from 1817 that gives you confidence in Friedreich's ataxia? And more broadly, does that mean that you're still open to gene therapy as a modality for neuroscience for future programs? Thanks.

Yes. Thanks for the question. We're – as we said from the beginning, we're very open to gene therapy, and we said that this is just – our collaboration with Voyager is the first that we'll be doing in gene therapies. There were four programs when we started this collaboration with Voyager. There is the Parkinson's program with VY-AADC. There is a preclinical Friedreich's ataxia program. And then there are two genes that we brought into the collaboration to work with Voyager. And so just with all of the programs in our wholly owned pipeline within those with our collaborators, each program stands independently in that collaboration with Voyager. And so we look at each one of them independently. And based on their merits, the data that's being derived that we will take forward, invest or not in each of those. So it's – there's nothing different within the Voyager collaboration than there is within the rest of our pipeline.

Move next to Marc Goodman with SVB Leerink. Please go ahead. And it looks like Marc withdrew his question. We move next to Vamil Divan with Mizuho Securities. Please go ahead.

Thank you for taking my question. I’d like to discuss the dynamics for the first quarter a bit more. At this time last year, you made similar comments warning us about the dynamics, yet you ended up delivering a quarter that was slightly better than the fourth quarter of 2019. I’m trying to understand if you anticipate that kind of performance again this year, possibly flat or slightly up from the fourth quarter when we exclude any inventory fluctuations. I realize you don't provide guidance, but I would like to gauge your general expectations or what would be considered a satisfactory outcome, so we can frame our understanding accurately.

I'm not entirely sure I understand your question, but I'll give it a try. Since the launch of INGREZZA in 2018, we've needed to help existing patients get reauthorized for treatment, especially since it's a specialty product. Each year, we've improved our ability to assist our customers with this process. This is common with specialty medicines. As the patient base has grown, more patients may temporarily drop off treatment due to insurance issues. In Q1, we face challenges related to these payer issues, but we typically see growth returning as we move into Q2. Historically, there has been strong growth in new patient starts from Q1 to Q2, which we also observed in 2020. I expect 2021 will follow a similar pattern with a challenging Q1 and a relatively stronger Q2. Q3 has been tougher in previous years, while Q4 has shown stronger growth. Although this trend is likely to continue, the pandemic has introduced new short-term challenges. However, we remain optimistic about INGREZZA's potential to assist many more patients in the long run.

So to build a bit on what Eric just commented on. If you recall, last year, as you pointed out, our overall sales were, call it, flattish from Q4 to Q1 when adjusting for inventory. So the same dynamics are still at play, as you mentioned, this year. The only other piece would be the fact that COVID does have an impact on NRx as we've spoken about earlier in this call. But importantly, as Eric said, we're working to get patients through the reauthorization process, and importantly, ensuring that patients don't discontinue through the first quarter, because that really sets us up nicely for a strong Q2 and beyond.

Yatin Suneja with Guggenheim partners. Please go ahead.

This is Yatin. Thank you for taking my question. Just a question on INGREZZA in the long run, once we are through COVID. So if we look back 2018, 2019, I think in terms of quarter-over-quarter script growth, I think you were growing somewhere around 3,500 to 4,500. Obviously, COVID had a big impact in 2020, so the quarter-over-quarter growth decline. Maybe talk about conceptually like how is 2018, 2019, a good proxy for longer term from a growth perspective?

Hard to say. I mean, obviously, our goal in the near term is to get back onto a stronger growth trajectory. And what we've described as drivers for that, obviously, there needs to be higher foot traffic into especially psychiatry practices. We've seen that neurology is relatively less impacted by COVID than psychiatry. We've made a concerted effort to push more into neurology, especially with the launch of ONGENTYS to benefit INGREZZA. And I think that those are going to be important drivers to help us return to a stronger growth trajectory with our INGREZZA franchise. I mean, the way that I'm thinking about this is that, we're still relatively early in the overall commercialization ramp for this product. This is a nascent market, still relatively undeveloped. In fact, in my career in this industry, I've never worked in a therapeutic area that was less developed. And so we've got, obviously, a very strong focus on recognition and diagnosis. And diagnosis is a driver of new patient starts for INGREZZA. So we're going to continue to do everything we can to navigate the pandemic, both in terms of our ability to get in front of providers in psychiatry, neurology in-person and also to leverage new approaches to helping our customers recognize and diagnose TD during telehealth interactions. And as I mentioned earlier, we're going to continue to invest in direct-to-consumer efforts. And all of those things together will position us well once the pandemic starts to wane and we see a return to normalcy in the health system. So what the quarter-over-quarter growth looks like as we go forward remains to be seen, but we're very confident in our ability to get on to a more robust growth trajectory as we move forward.

Question from Joseph Stringer with Needham & Company. Please go ahead.

Hi. Thanks for taking our questions. A couple of quick ones. Can you comment on the percentage of diagnosed TD patients that you think INGREZZA has penetrated in the market? And regarding the percentage of virtual patients, you mentioned it's around 50% now. Can you explain how that figure has changed since the start of the pandemic and what you expect it to be by the end of this year? Thanks.

Okay. I will address your second question first regarding telehealth before and during the pandemic, and where it might be headed. Pre-pandemic, telehealth was not widely used, although it was more common in psychiatry than in other areas. When we launched INGREZZA, we examined the role of telehealth in psychiatry, and at that time, less than 6% of all patient visits were conducted via telehealth. However, early in the pandemic, as shelter-in-place orders were implemented and clinics closed, telehealth usage surged to over 90% across various specialties, including psychiatry and neurology. Neurology has recovered to a level of total patient visits similar to pre-pandemic figures, with telehealth visits now accounting for less than 10% in that field. In contrast, psychiatry is operating at only about 70% of pre-pandemic patient visit volumes, with around half of those visits billed as telehealth, and even higher rates in certain community mental health practices. Looking ahead, the Biden administration has announced the continuation of the public health emergency designation through the end of this year. This means that the temporary waivers from CMS that increased telehealth access will remain in place for the time being. We anticipate sustained high levels of telehealth in psychiatry, and as the year progresses, we will reassess the extent to which psychiatrists resume in-person visits with their patients. This is why we have heavily invested in telehealth. Now, regarding the rate of diagnosis for TD, we see significant potential since many patients remain undiagnosed. Additionally, around half of those diagnosed with TD are not currently offered a VMAT2 inhibitor. The recently updated APA guidelines should help shift this trend by encouraging more providers to recognize VMAT2 inhibitors, particularly INGREZZA, as a first-line treatment option.

And we'll take our next question from Charles Duncan with Cantor Fitzgerald. Please go ahead.

Okay, thanks. Hi, Kevin and team. Thanks for taking the question. I had a question on valbenazine and its future. It's a 2-part question. One is how to differentiate valbenazine from INGREZZA, given some of the work that you're doing in Korea and then also the neuro and psych indications you're contemplating, especially given some of the kind of debate that we had a few years ago when Auspex was public and AUSTEDO was coming to the market? And the second part is regarding Mitsubishi Tanabe collaboration, congrats on the data, recently. I'm wondering if you could remind us of the milestones and royalty rate? And any color on the patient population in Asia relative to the States? Thanks.

Matt or Kyle, you want to talk about the MTPC financials first?

Matt is not jumping on the line here. We do get a milestone for submission in the Japanese territory or in Japan, and upon approval, those probably are the most meaningful ones and those are about $30 million in total between now and approval. And then in terms of the royalties, it's tiered on net sales in the mid-teens to mid-20s in terms of percentage. And we would guide on the royalty front to somewhere in the mid-teens.

Eiry, you want to take the first part of Charles question?

Yeah, certainly, Charle. So with respect to Huntington's Korea and valbenazine program and potential differentiation from other VMAT2 inhibitors already approved in that space, if I understand your question correctly. I mean, obviously, we're very confident in the profile that we've seen and its differentiation in tardive dyskinesia. And a lot of that revolves around the simple once-a-day treatment paradigm, the lack of need for complex titration and a very favorable benefit risk profile in tardive dyskinesia. And so the KINECT-HD trial is designed to replicate that as much as possible in this new population. And so we hope to be able to deliver on a very favorable benefit/risk profile in that population, continuing with the once-a-day treatment paradigm, obviously dependent on the data package, we're able to generate. We don't have a black box currently for suicidality in the TD environment. And we're hopeful that, that would continue, and that would potentially be an additional differentiator.

And we'll take our next question from Marc Goodman with SVB Leerink. Please go ahead. And it looks like Marc withdrew his question.

Thank you very much. In conclusion, I would like to make two points. First, as you have observed and will continue to see from us, we are adapting commercially to the changing environment. I am confident that our business will emerge from this pandemic even stronger than it was before. Secondly, I look forward to the further development of our pipeline. As Eiry mentioned, several of our compounds represent pipelines in their own right, which is a significant strength for us. We will have some important data readouts this year. With that said, I want to thank everyone for participating today, and take care.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.