Earnings Call Transcript - NBIX Q2 2020

Operator, Conference Operator

Good day, everyone, and welcome to today’s Neurocrine Biosciences Reports Second Quarter 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. I’ll be standing by if you should need audio assistance. And it is now my pleasure to turn today’s conference over to Todd Tushla, VP of Investor Relations. Please go ahead.

Todd Tushla, VP of Investor Relations

Thank you, Ryland. Good afternoon, everyone, and thank you for joining our Q2 2020 earnings call. Joining me on the call 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. During today’s call, we’ll 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. With that, I now turn the call over to Kevin.

Kevin Gorman, CEO

Thank you, Todd, and good afternoon, everyone. I’m beginning to sound a little bit like a broken record, but here I like sounding like a broken record is this quarter by any measure has been remarkable. The impressive achievements across the entire organization are a great display of the resilience of our Company, in this first full quarter that we’ve been living with COVID. This resilience is evident in our regulatory approvals, the advancement of our clinical programs, continued success of INGREZZA, and the growth of our pipeline. Now, I’m certain that the tenacity of our employees and that of all of our external partners will allow us to fulfill our mission throughout this pandemic. We are presented with the same challenge as the COVID has presented to the entire biopharmaceutical industry. And yes, the fits and starts, the openings and closings in healthcare and the economy just add to the fatigue everyone is experiencing. However, this is temporary, and we have shown that we are adaptable. But perhaps most importantly, the fundamentals of all aspects of our business are stronger than at any time in the history of Neurocrine. INGREZZA’s importance to patients, their caregivers and healthcare professionals is now objectively demonstrated by the continued high compliance rates of this past quarter. This unique environment where nearly 90% of patients interact with their physicians via telemedicine will moderate back to a more balanced mix of in-person and telemedicine. While we are certainly encouraged with INGREZZA’s impressive growth, until more patients are seen in the doctor’s office, we expect to see an impact on new patient starts, as we discussed in our last quarterly call. Prior to this call, I looked back on the Company. I actually went back about two years from this time. And at that time, we were talking about the unique position we were in. We had two approved medicines and four compounds in clinical development. But today, we find ourselves with four approved medicines and 10 compounds in the clinic. I want to touch on that actually later at the end of our call, there’s more to it than just that. As always, we try to keep our opening remarks here to a minimum, so we can get through as many of your questions as possible. So, now, I’m going to turn the call over to Eiry, Matt, and Eric, and they’ll go into more depth in brief on each of the aspects of the business, starting with Matt.

Matt Abernethy, CFO

Thank you, Kevin, and good afternoon. We’re really proud of what our team has accomplished with another great quarter for INGREZZA, two FDA approvals on ONGENTYS for Parkinson’s disease and ORIAHNN for uterine fibroids, and expanding our psychiatry pipeline with the Takeda collaboration. We’re preparing to make ONGENTYS available to patients in the third quarter. And we formally initiated a registrational Phase 3 trial in CAH. With our commercial growth opportunities for our FDA approved medicines, our expanding R&D pipeline, and our strong financial profile, we are well-positioned to execute on our strategy to become a leading neuroscience-focused biopharmaceutical company. Regarding the financial results for the second quarter, INGREZZA sales were $268 million, which equates to approximately 46,400 TRx. Adjusting for channel inventory, we had approximately $256 million of underlying sales reflecting continued strong demand from existing patients. On the NRx front, although in-person patient visitations were very low across the industry, the impact to NRx is less than initially feared. The step-down we saw in April held steady through the majority of Q2 and continued through July. Turning to the P&L, we had another strong quarter of profitability with Q2 GAAP net income of $80 million and non-GAAP net income of $139 million. We ended the quarter with $1.1 billion in cash on our balance sheet. This sequential increase includes approximately $15 million paid to Idorsia for the in-licensing of NBI-827104 but does not include the $120 million upfront payment associated with the Takeda transaction which closed in the third quarter. Looking forward, with the estimated diagnosis rates for TD at what we think is around 20%, we remain extremely optimistic about the long-term opportunity for INGREZZA. In the near term with COVID-19, we expect many ups and downs across the entire industry. For Neurocrine, getting in-person patient visitation flow back near historical levels is an important aspect needed to both make a meaningful difference for patients with TD and to advance our pipeline. What we saw in July is very similar to what we experienced in Q2 regarding NRx trends and acknowledge the longer pandemic-related disruptions continue, the more the impact will be on INGREZZA in the short-term. These challenges are not unique to Neurocrine or INGREZZA. But as I said at the outset, we are quite proud of what our team has been able to accomplish in these circumstances. I will now hand the call over to Eric Benevich, our Chief Commercial Officer, to add further insight into our ongoing commercial efforts. Eric?

Eric Benevich, Chief Commercial Officer

Thanks, Matt. I’m happy to provide a commercial update on our Q2 performance and insight into what we have seen so far in Q3. I’ll start off by saying that Q2 of 2020 may have been our best quarter ever, demonstrating, as Kevin said, the resilience of our entire team to continue our mission of ensuring that nobody with tardive dyskinesia suffers longer than they need to. We saw strong INGREZZA sales momentum in Q1 carry through into the second quarter. And the strength of our results in the first half of 2020 reflects the value of INGREZZA to patients and healthcare providers. With great execution from our home office and field teams, combined with the support of our select pharmacy network, the refill and persistency rates for existing patients were at record levels for Q2. Across the biopharmaceutical industry, it is important to note that because of COVID-19, new-to-brand patient starts declined due to an estimated 70% reduction in in-office patient visits. We were not immune to this trend and saw a decline in new patient starts in Q2. But as Matt noted, and as I note, the impact was not proportional to the reduction seen nationally in in-office patient visits. With the advent of stay-at-home orders, our team adapted from in-office education to remote engagements. Although overall customer call volume decreased, we found that remote engagements resulted in generally higher quality, lengthier interactions with healthcare providers. Just as we went to a remote engagement model, the Psychiatry and Neurology providers communities also pivoted to telehealth platforms, helping to stay as connected as possible with their patients. While this is somewhat encouraging nothing can truly replace in-office face-to-face interaction between a healthcare provider and a patient, especially as it relates to diagnosing a movement disorder like tardive dyskinesia. The vast majority of people suffering from TD remain undiagnosed. In-person clinic visits are important to improve TD diagnoses and treatment rates and get back on to our historical patient growth trend. As we enter into Q3, many of our field representatives are now back in the field interacting with customers, with personal protection and following appropriate safety guidelines. Healthcare provider access remains highly variable dependent on region and care setting. And we expect to continue to see a stop-start pattern as the pandemic continues. However, the majority of the time we’re still relying on virtual methods to connect with our customers. It’s worth reiterating that during these challenging times, we are fortunate to have hired such experienced and exceptional field teams, who have strong relationships with healthcare providers, and a true dedication to serving patients. Historically, Q3 has typically been a slower quarter for INGREZZA sales growth due to HCP summer vacation and patient compliance dynamics. And now, we are also addressing the COVID-19 situation. While we expect refill rates to carry over for existing patients into Q3, we do expect the continued impact on new patient starts and may see channel inventory pull back a bit. Now, I’d like to switch gears and talk about ONGENTYS, our newly approved medication for movement disorders, which we believe has a tremendous opportunity to help a lot of patients with Parkinson’s disease suffering from motor fluctuations. I’m very pleased with the label our clinical and regulatory teams were able to secure, and we are now planning to make ONGENTYS available to patients in the United States by the end of this quarter. Our launch efforts with ONGENTYS will focus on education, something that our entire commercial and medical affairs teams excel at as witnessed by the continued success of INGREZZA. ONGENTYS is the first and only FDA-approved once-daily COMT inhibitor for people with Parkinson’s disease to help patients achieve more consistent motor symptom control. It’s one capsule taken once a day, which is convenient for patients and may lessen daily pill burden levels for Parkinson’s patients. It also has a demonstrated safety and tolerability profile that’s attractive. It’s our belief that ONGENTYS can deliver on the broken promise of previously launched COMT medications, which failed to live up to the expectations of the Parkinson’s community due to the need for frequent dosing, perceived weak efficacy and/or rate limiting side effects. We’re excited to bring this new therapy to our movement disorder neurology customers. We believe ONGENTYS will be well-received by the Parkinson’s community and will benefit our efforts with INGREZZA in TD as well. Having two phenomenal products to promote will give us more face time and opportunity in neurology practices and burnish our reputation as a leader in movement disorders. Despite the many challenges brought on by the pandemic in the near term, the long-term opportunity in treating movement disorders with both INGREZZA and ONGENTYS remains extremely compelling. Now, I’ll turn the call over to my colleague, Eiry Roberts, who will provide an update on our progress with the pipeline. Eiry?

Eiry Roberts, Chief Medical Officer

Thank you, Eric, and good afternoon to everyone on the call. I’m happy to provide an update on our clinical programs. Before I begin though, I want to thank the many people at Neurocrine and our excellent partner organizations who continue to work with passion on all research and development efforts across the portfolio at this time. It’s amazing to reflect that since the beginning of 2019, in just over one and a half years, we have doubled the size of our R&D pipeline, which now includes potential first-in-class or best-in-class clinical candidates designed to address patient needs across a diverse range of serious and underserved conditions within neurology, neuroendocrinology, and psychiatry. We know that COVID-19 has significantly impacted clinical trial execution across our industry, and as the impact of the virus continues to evolve, Neurocrine has invested extensively in approaches to progress our clinical trials in a safe and responsible manner for trial participants and healthcare professionals. These approaches include the remote qualification status of investigative sites, remote monitoring of safety and of the data, home health care visits, and the adaptation of endpoints in clinical trials to enable telemedicine assessments where appropriate. These changes have led to the successful re-initiation of screening in all previously-posed clinical trials over the past few weeks. I’m pleased to announce that in July, we achieved the exciting milestone of the first patient screening in the single global registrational study of crinecerfont for adults with classical form of congenital adrenal hyperplasia, or CAH. The results from our Phase 2 study presented in June at ENDO online informed a productive dialogue with regulatory authorities in the U.S. and Europe, resulting in the approval of the final designs for this global single registrational study, now called the CATALYST study. The CATALYST study is a Phase 3 randomized double-blind placebo-controlled study to evaluate the safety and efficacy of crinecerfont in adult subjects with classical congenital adrenal hyperplasia, followed by an open-label treatment period. Approximately 165 subjects from North America and Europe will be enrolled in the study and will participate in a 6-month randomized double-blind placebo-controlled period followed by one year of treatment with crinecerfont. The primary outcome measure for the study is the percent change from baseline in glucocorticoid daily dose at week 24. Secondary measures include change from baseline in androstenedione at week 4, the proportion of subjects able to achieve physiologic levels of daily glucocorticoid dosing at week 24, together with a variety of clinical outcomes related to metabolic health, including body weight and fat mass. We’re excited to begin this important study with the hope that crinecerfont will provide a valuable and differentiated treatment option for patients in the control of their underlying congenital adrenal hyperplasia, with a much-needed added benefit of enabling patients to significantly reduce the amount of glucocorticoid they need to take every day over the course of their lifetime. In parallel with the initiation of this pivotal adult study, we recently successfully reinstated screening in the Phase 2 proof-of-concept study in pediatric CAH and continue to progress our discussions with regulators in Europe and the U.S. in support of the initiation of a single global registration study in pediatric subjects. Beyond crinecerfont, the Phase 3 registration study of valbenazine to treat chorea in patients with Huntington’s disease is now also re-enrolling patients. Regarding our expanding mid-stage pipeline, we continue to make good progress in support of the initiation of Phase 2 studies for the treatment of two distinct rare pediatric epilepsies by year-end for NBI-352 and NBI-104, the novel precision medicine assets in-licensed from Xenon and Idorsia, respectively. In addition, our partner AbbVie continues to develop elagolix for the treatment of polycystic ovary syndrome. Finally, our newest Phase 2 program NBI-644, formerly known as TAK-831, continues to enroll patients in the global proof-of-concept study, designed to assess tolerability and efficacy in the control of negative symptoms of schizophrenia. Results from this study are expected in the second half of next year. You will notice today on our pipeline chart that we’ve removed the VMAT2 follow-on molecule previously in Phase 1 development. The time spent with this molecule was very instructive and taught us a lot more about the VMAT2 mechanism. With this knowledge, we remain excited about the potential value that we believe VMAT2 inhibition can bring to patients across a broad range of neurological and psychiatric conditions. We remain firmly committed to bringing forward additional clinical candidates for this target and will keep you posted on our progress. In thinking about the remainder of the year, it continues to be difficult to predict what impact the pandemic will have on our R&D programs. But despite these current challenges, let me reiterate that our plan for 2020 remains unchanged. By year-end 2020, we intend to have three registrational programs ongoing and with the addition of NBI-644 to have five mid-stage programs in the clinics. It’s an incredibly exciting time for research and development at Neurocrine as we continue to build a world-class neuroscience pipeline. I’ll close once again, by thanking all my colleagues for their truly inspirational efforts and dedication to Neurocrine’s mission to relieve patient suffering and enhance patients’ lives. With that, back to you, Kevin?

Kevin Gorman, CEO

Thank you, Eiry. Before I open it up to questions, I’d first like to highlight Neurocrine’s corporate sustainability efforts. As Eiry said, our mission is to relieve suffering and enhance lives. And fundamental to this is our responsibility to our patients, customers, partners, shareholders in society at large. And in that light, we recently issued our first corporate sustainability report that can be found on Neurocrine’s website, which highlights the connection between our mission and the environmental, social, and governance programs we believe to be most impactful to our Company and society. The disclosure of this report just marks the first step in communicating our ESG strategy. As the strategy evolves, we look forward to engaging with you on the sustainability issues that matter most to ensure we continue to deliver on our mission and to help patients and drive long-term shareholder value. So, with that said, I’d like to open it up for questions, please.

Operator, Conference Operator

We will take our first question from Paul Matteis. Please go ahead. Your line is open.

Paul Matteis, Analyst

I’m going to try to ask a couple of questions now. And hopefully my phone still works. I’m trying to get a better understanding of how many patients you guys added this quarter. And there’s a lot of moving parts, I guess, maybe just for one, can you quantify a little bit more of the increases in compliance and refill rates and how that should inform our sequential patient add estimate? And then second, what’s going on with inventory? And where are you relative to steady state and how much of a drawdown do you foresee happening over, say, the next three to six months? Thanks.

Kevin Gorman, CEO

Yes. Sure, Paul. For the second quarter, several factors contributed to the sales increase. First, gross net rebounded from the previous quarter. Additionally, as we saw last year, there was an increase in the number of patients remaining on the medication and higher refill rates. This achievement is largely due to the efforts of our team and the specialty pharmacy network in keeping patients on their medications. It highlights the value patients receive from taking INGREZZA. Regarding new patients, we won't provide specific numbers. As we mentioned after Q1, we did experience a decline in new prescriptions in April due to COVID, but it wasn't close to the 70% drop seen in in-person visits. The rate of new prescriptions remained stable throughout the quarter. We did not reach a point where new prescriptions were lower than discontinuations, which is common for a large brand like INGREZZA. However, as Kevin and I noted in our prepared remarks, for INGREZZA to achieve its long-term potential, we need in-person patient visits to return to historical levels, a situation that many companies are facing and is not unique to Neurocrine. Lastly, concerning channel inventory, it's challenging to predict. We experienced three consecutive quarters of build-up, and we disclosed that number to help normalize our sales to reflect a more accurate underlying sales performance for the Company. For this quarter, while reported sales were 268, the appropriate baseline was 256 last quarter, compared to around 227 before that. I do anticipate there will be a reduction in inventory, but I prefer not to delve into the specifics of why stocking happens, as sometimes it's related to distribution channel adjustments. Overall, I foresee our inventory levels stabilizing at about two weeks on hand, and I expect a drawdown in inventory at some point.

Paul Matteis, Analyst

Thank you. That’s helpful. And can I just ask one quick follow-up, Matt? Last year, you saw a pretty big snapback on average script per patient in Q2 relative to Q1. And in Q1 this year, you said the seasonality issues weren’t as significant. Is there anything you can say about any sort of reversion benefit you saw on average script per patient in this quarter, I guess sort of understanding the broader context here as to trying to figure out what the underlying patient number is? Thanks a lot.

Kevin Gorman, CEO

Yes. Last year, we experienced a significant increase in average scripts per patient from Q1 to Q2, as individuals went through the authorization or reauthorization process in Q1. This year, the team performed exceptionally well, achieving a better year-over-year result in net revenue per script per patient. Therefore, you're correct that there wasn't as marked of an increase from Q1 to Q2 this year in that metric.

Todd Tushla, VP of Investor Relations

Ryland, we’ll take a next question.

Operator, Conference Operator

Our next question comes from Phil Nadeau. Please go ahead. Your line is open.

Phil Nadeau, Analyst

Good afternoon. Thanks for taking my questions. And let me add my congratulations on a great performance in tough circumstances. Matt, maybe first one for you. Looking at the disruptions that you’re calling out into Q3, just qualitatively, I’m trying to understand is the first four or five weeks of Q3 looking better than what you experienced in Q2, or is it more of the same? Can you just qualitatively give us some help as we project into Q3 and we try to come up with a revenue number as to what you’re seeing in the field?

Matt Abernethy, CFO

Yes. Good question and good to hear from you. What we saw in July from an NRx perspective is very similar to what we would have seen in April, May, and June. So, we had seen a step down going into COVID, and then it’s pretty much stabilized. And I think we were all hopeful as a society when things started looking a bit better from the economy opening up. But then, once it’s shut back down again, I would say that we’re at a very similar level of NRx, which is absolutely a testament to our field sales team, the medical professionals that are helping us here that people with tardive dyskinesia, new people are still getting access to INGREZZA and existing patients are remaining very, very compliant. So, I think the cautious statements that you hear forward-looking, the team is doing a great job and we expect them to continue to do a great job. But for us to have an NRx level that’s significantly above discontinuation that naturally occurs on any medication, we need to see in-person patient visits get back up to higher levels. Eric or Kevin, any other insights?

Kevin Gorman, CEO

Yes, Phil, I just want to add one thing. As I mentioned in my opening statement, with the rapid shifts we are experiencing, I hope for the sake of society that we don’t continue to face such volatility. As this happens, I’m sure you feel it, and everyone does; there is a certain fatigue that sets in, affecting both patients and caregivers. This really highlights the incredible job our field sales team is doing, as they persist and deliver results each quarter. However, this is where you can sense some caution in our tone following two strong quarters, because the uncertainty of what lies ahead with these openings and closures is concerning. We need to remain aware of this, as Eric and his team adapt remarkably well to these changes, but we frequently encounter unexpected challenges.

Phil Nadeau, Analyst

Right. That helps a lot. If I could just follow up with two pipeline questions. The first on ONGENTYS, do you have a sense of when BIAL will be ready to resupply the market or when they’ll be ready to tell you when they’ll be ready to resupply the market? And then, second on the CAH Phase 3 study, according to clinicaltrials.gov, the primary completion is February 2023. Should we expect results, therefore, from the primary endpoint in the first half of 2023? Is that reasonable or is there something I’m missing in the clinicaltrials.gov?

Kevin Gorman, CEO

So, Phil, I’m going to take the first part there. BIAL did a great job of getting the whole supply chain in order. And because they’ve done such a good job, we are confident that we will be launching this drug and supply chain is not an issue at this point.

Eiry Roberts, Chief Medical Officer

With respect to the CAH question, I mean, I’m really proud of how the team has worked with our external partners in enabling this to get up and started. I mean, obviously, like all of our research efforts, there is impact around the world from the COVID-19 pandemic. As soon as we kind of get a few months into the trial and understand enrollment relative to our current expectations, we’ll be able to give you a much better update. But with respect to the enrollment estimates that we took into the trial, those dates that are in clinicaltrials.gov are consistent.

Operator, Conference Operator

We will take the next question from Brian Abrahams. Please go ahead. Your line is open.

Brian Abrahams, Analyst

Hey, guys. My congrats on the quarter as well. Thanks for taking my questions. On INGREZZA, I’m curious if you can talk a little bit about how telemedicine and your detailing approach maybe has evolved over the course of the pandemic. We’re seeing shifts in regional utilization. And are there ways that you can improve comfort diagnosing movement disorders via telemedicine to maybe help drive some new patient growth if the pandemic continues to linger?

Kevin Gorman, CEO

Yes, absolutely. As I mentioned in my prepared remarks, we’ve had to adapt to this new environment. And as our neurology and psychiatry customers have moved to a remote engagement model with their patients via telehealth platforms, we too moved to a remote engagement model with those prescribers. And what that looked like early on was essentially taking a lot of the existing educational content and adapting it to remote engagement platforms like Zoom, GoToMeeting, even FaceTime. And as we went forward through Q2, we became a lot more proficient in terms of understanding how to reach people that were no longer necessarily in the clinic and how to engage them either in discussions about TD or INGREZZA or really supporting existing patients, as Matt talked about for refills. Going forward, I certainly believe that there’s an opportunity to develop new tools and resources to assist in diagnosing TD remotely. And of course, as we’ve done in the past, we’re going to have to blaze a new trail here. This isn’t something that’s been done on a widespread basis. We’ve been learning a lot from thought leaders and from prescribers in the community about how they’re assessing movements remotely and their patients. And we’re capturing those best practices and integrating them into educational content that we’ve been more recently rolling out to our customers. So, I think that telehealth is here to stay in many ways. Certainly, it’s somewhat offset the steep decline in patient interactions between the HCPs and patients. But ultimately, even after we get past this health crisis and return to a more normal posture, ultimately, telehealth is going to be at a higher level than what it was previously. And just as we’ve continued to adapt with this learning lunch, we’re going to adapt to this new environment and make sure that regardless of whether a provider is seeing a patient in-person or remotely, we’ve gotten relevant, credible educational content that will help them make that diagnosis and, of course, when appropriate, choose INGREZZA.

Brian Abrahams, Analyst

Got it. That’s really helpful. And then, the pricing for ONGENTYS was recently announced. I was wondering if you could give us a little bit more color on your engagement with payers thus far as you prepare for the launch later this quarter, expectations for access. Would you expect any step edits through other classes, like MOB inhibitors or other COMT inhibitors? Thanks.

Kevin Gorman, CEO

Sure. Yes. So, we announced price, I want to say, like, two or three weeks ago. And our WACC price is $590 per month, which is below the threshold for specialty tier on Medicare plans. So, we made that choice with patient access in mind. And as we said previously, patient access is critically important for us as a company. Price isn’t the only element of our access plan. Obviously, we have our field reimbursement team in place. We have built out our patient support program. And there are other elements that will be available at the time of launch. But ultimately, we want to make sure that patients that need access to ONGENTYS can get it. With the announcement of price, we’ve actually started to engage with payers ahead of our commercial launch. And the goal there is to introduce them to the products and to the labeling and to understand how they’re currently managing adjunctive treatments in the Parkinson’s category, and to start to make sure they understand that step edits through other COMT inhibitors or other classes of adjunctive treatments may not be beneficial for patients. And so, initially, as we get out the gate at the end of Q3 and into Q4, ONGENTYS is going to be a non-formulary drug. And it’s going to have to be approved on a formulary exceptions process, and we’re very good at this. Obviously, we had to go through this with INGREZZA. As we get into 2021, certainly, we’ll start to see formulary decisions made, and those will be publicly available for you as well. But initially, out of the gate, it’s going to be a formulary exceptions process. And we’re currently engaging with payers to make sure they understand the value that we’re bringing with ONGENTYS.

Operator, Conference Operator

We will take our next question from David Amsellem. Please go ahead. Your line is open.

David Amsellem, Analyst

Thanks. So, couple of crinecerfont questions. So, if it’s not lost on anyone that there are other CRF type 1 receptor antagonists that are in development. So, with that in mind, I’m specifically alluding to tildacerfont, the Spruce product. What’s your take commercially on the market’s ability to accommodate more than one anti-CRF 1 product? So, that’s number one. And then, secondly, I appreciate all the color on the global Phase 3 study. I guess, my question here is, what’s your take on which endpoints you think are the most commercially relevant? I mean, is it indeed steroid burden? Is it something along the lines of more direct clinical endpoints, like body mass or bone density? Help us to understand how you’re thinking by that in terms of commercially relevant endpoints? Thanks.

Eric Benevich, Chief Commercial Officer

Thanks for the question, David. So, a few questions in there, actually. So, let me just start with the first question. First, thing that’s absolutely clear is there is very significant global unmet medical need in congenital adrenal hyperplasia. Patients’ really only treatment option right now is steroids, glucocorticoids often at very high superphysiologic doses, which in of themselves lead to a lot of issues over the course of a lifetime in terms of side effects. With respect to our crinecerfont program. I mean, we’re absolutely delighted that we’re now entering what will hopefully be the last stage of clinical development in the registration study that we just initiated. And so, I think we find ourselves in a little bit of a different situation from potentially the competition. With respect to the design of the study itself on our overall program, we really designed this study based on a lot of our learnings previously from our valbenazine programs, from elagolix involvement. And it’s really very holistic in terms of the problem looking at the endpoints within that trial. Obviously, we know that managing the steroid hormone levels in patients with CAH is important, and that is any time how they manage their disease day-to-day. But, when we look at the clinical relevance of that, it really becomes much more important for us to think about endpoints like the ability to reduce the glucocorticoid dosing. So, we designed our program with the six-month endpoint focused on steroid reduction in order to gain a very important set of efficacy and tolerability and safety data that we believe will then serve many stakeholders, including the patients, the caregivers, the healthcare professionals, regulators, and ultimately payers around the world. And so, I think, in doing so, as we come to the completion of this study, we believe we will have a very robust set of data, combining this and the previous clinical data that exists with crinecerfont in order to support the registration of this medicine, and ultimately, it’s the ability for patients to access the medicine.

Operator, Conference Operator

We will take our next question from Paul Choi. Please go ahead. Your line is open.

Paul Choi, Analyst

Thank you. Good afternoon, everyone and congratulations on the quarter and all the progress. I think, during the earlier prepared remarks, you talked about maybe a 20% diagnosis right now for TD. I was wondering if you could maybe just sort of comment on are you seeing a step up just in physician recognition or do you think this is being driven by any particular factor, such as your advertising, if you can maybe just elaborate on that? And just as you think about the diagnosis right here or over the short to intermediate term, is this sort of rate of increase we should think about in terms of our modeling? And then, I had a follow-up.

Matt Abernethy, CFO

Well, I think, hey Paul. This is Matt, and then Eric will provide more insight into what he is observing from the customer perspective and where we are generating new demand. For modeling purposes, I just want to point out that the growth from Q1 to Q2 was mainly driven by the change in gross to net, patient compliance, and persistency, along with some growth from net new patients minus discontinuations. Looking ahead from Q2 to Q3, we have noted that our NRx levels have remained steady, which is positive, especially compared to the decline in in-person patient visits. However, to maintain growth similar to our past performance, we need in-person patient visits to return to closer to normal levels, which is uncertain. But Eric can discuss what he is seeing on the customer front, our insights on the 20% diagnosis rate, and our future direction regarding that.

Eric Benevich, Chief Commercial Officer

Yes, Paul. So, I think it’s important to note that that estimate of about 20% of patients in the prevalent population that have now been diagnosed with TD, that’s after about four years of effort and educational push on the part of the Company. When we started developing this market, there was we estimate a low single-digit percentage of patients that had actually been diagnosed with tardive dyskinesia. And so, over time, we’ve seen that percentage of patients increase. And as we get to the middle of this year, our estimate is around 20% have now been given a diagnosis. As Matt said, diagnosis is largely a function of education and also HCP interaction with patients with the dramatic decrease in patients flowing through clinics and hospitals that decreases the likelihood of TD being diagnosed. And I’ve spoken about the pivot that we’ve made to help providers be more comfortable and confident in making that diagnosis remotely. Obviously, that diagnosis is happening remotely. As Matt said, the decrease in new patient starts that we’ve seen with INGREZZA has not been proportional or commensurate with the decrease in patient foot traffic to these clinics. So, the takeaway here is that this is a short-term disruption in our belief in terms of what that diagnosis rate will be and what the impact is on new patient starts. The vast majority of people with TD remain undiagnosed, and it’s our commitment to continue our educational efforts, whether it be in-person or remote engagement to help providers make that diagnosis and get those patients started. So, I hope that provides a little bit more context for you.

Paul Choi, Analyst

Yes. That’s great. Thank you for that color. And one quick one for Eiry, with regard to the Phase 3 in Huntington’s, which you mentioned, has resumed enrollment there. As you think about the clinical outcomes, given that you will technically be potentially second to market here versus the competition, have you thought about any other incremental data points that you’d be gathering from a trial that might help with potentially with formulary positioning with regard to Huntington? Thank you.

Eiry Roberts, Chief Medical Officer

Thanks, Paul. So, the trial is designed as a registrational trial. The primary endpoint is actually the chorea score as part of the UPDRS score. And that is the obviously an important endpoint in terms of determining the impact of valbenazine on the important chorea outcome. We have other quality of life measures included in that study, which we believe are important as we seek to support the Huntington’s chorea patient most appropriately moving forward. In addition, I would say that in terms of the context of differentiation for valbenazine in this study, we’re very encouraged by the profile that we’ve seen up to this point of INGREZZA. The difference is in the label with respect to the absence of a black box warning relative to our competition and obviously having a once-a-day therapy with a straightforward dose escalation and titration. We believe all of those are differentiating. And in fact, we’ve designed the study to give us the best opportunity to address any differences as they occur.

Operator, Conference Operator

Our next question comes from Marc Goodman. Please go ahead. Your line is open.

Marc Goodman, Analyst

First question is about inventories. You mentioned that you believe inventories will return to two-week levels. Can you tell us where you think they currently are? The second question is regarding SG&A, which appears to be lower than expected this quarter. Can you explain why that is? Will you be hiring additional sales representatives for the launch of your new Parkinson’s product? Lastly, regarding tardive dyskinesia in comparison to other therapies, it's impressive that you are succeeding in such a challenging environment. Can you share if there is anything unique about tardive dyskinesia that you’ve identified, or is it mainly due to patient persistence? Since you're indicating a decline in new patients, I’m curious if you could provide more insight on this matter. Thank you.

Matt Abernethy, CFO

Yes, hi Mark. I’ll address the first two questions and then pass it on regarding tardive dyskinesia. Regarding our inventory, this marks the first time we've exceeded three weeks on hand. As I mentioned earlier, this seems to be partly due to one of our partners stocking a new warehouse, and I anticipate they will bring their inventory levels back to normal. Traditionally, we aim to keep our inventory under two weeks, but we're currently over that threshold. Observing ordering patterns so far this quarter in July compared to the underlying TRx demand, it appears there has been a slight decrease. However, I believe the best way to gauge our sales performance is through an inventory-adjusted approach, which we will continue to report quarterly to reflect true underlying demand. On the SG&A front, there are two main factors contributing to the sequential decline from Q1. Firstly, we typically experience seasonal spending concentrated in Q1 that is then balanced out in Q2. Secondly, some spending related to COVID-19 has been slowed down, particularly field-based activities that we would usually support at a higher level. We're not currently focused on maximizing profit in the short term; the situation with SG&A and the slowdown in R&D spending simply unfolded this way. It's important to note, as we consider future R&D investments, that we had several trials pause, but many are now starting up again. With the Takeda collaboration, the Idorsia product, Xenon, and other programs mentioned by Eiry, we're very excited about the breadth of clinical programs we’re getting underway. From a spending perspective, this will result in a significant increase in expenses in 2021, but I believe it positions us well for the future. Now, I will turn over the next part of the question regarding what drives a physician's ability to diagnose TD in the current environment to Eric or Kevin.

Eric Benevich, Chief Commercial Officer

It’s a great question. What is it about TD and INGREZZA that has contributed to our success despite current challenges? There are several external and internal factors. One key aspect of TD that often goes unnoticed is the significant disease burden it imposes. Individuals living with TD face daily challenges that impact their lives functionally and emotionally, and affect their social interactions. Additionally, INGREZZA provides significant benefits, as evidenced by clinical trials showing substantial improvements in as little as two weeks. Many healthcare providers who have administered the treatment have observed its benefits in a few patients, which encourages them to diagnose and treat more patients. Another important external factor is the commitment of healthcare professionals, including psychiatrists and allied health providers, towards caring for these patients who are often overlooked and stigmatized. Internally, we have recruited high-quality individuals dedicated to ensuring these patients can access INGREZZA. Having a strong select pharmacy network has also been advantageous, as it allows patients to get their refills despite the pandemic disruptions. Together, these factors have contributed to our success, reflected in strong refill and persistency rates in Q2. Although the ongoing pandemic, particularly its uneven patterns across states and counties, complicates patient treatment initiation, we remain dedicated to supporting our providers through in-person and remote interactions with patients. We are confident that we will continue to achieve success both in the near future and in the long term.

Operator, Conference Operator

We will take our next question from Biren Amin. Please go ahead. Your line is open.

Biren Amin, Analyst

Hi, guys. Thanks for taking my questions. Maybe I could just start on INGREZZA. I know you’ve discouraged us from using IMS script data. But in the second quarter there was a 10% sequential decline in TRx data from IMS compared to what you reported today, just 12% sequential growth. What do you think is a reason why IMS is failing to capture the script kind of at the sites where they collect data?

Matt Abernethy, CFO

Yes. Biren, definitely understand your question. And our conversations around IMS data have been not to use it as a proxy for our sales results. I think it captures different aspects of our specialty pharmacies or closed-door pharmacies data, and it sometimes can’t be as representative as other periods. So, hard to determine why it was different than what our results were. But like we’ve said, inventory adjusted, we had a sequential increase of about 8%, I think, TRx, which was very strong in this environment.

Biren Amin, Analyst

Got it. And then, on ONGENTYS, I know you’ve had some payer discussion, they’re engaging with payers. Should we be expecting a step edit through entacapone?

Matt Abernethy, CFO

So, Biren, our base expectation is that we wouldn’t, based on the value we see in ONGENTYS compared to entacapone. However, payer conversations are still in the early stages, and we hope to gain more insight over the next three or four months. We have a very strong payer account team that is currently engaging with payers.

Eric Benevich, Chief Commercial Officer

Initially, this will be a non-formulary product, and we will need to navigate the formulary exceptions process. Most of the patients are on Medicare Part D, which allows up to six months for plans to review new products. Our message to the payers is that it is not medically appropriate to require patients to go through entacapone first. We are involving our payer account team and medical science liaison in these discussions. We will monitor how coverage policies develop over the next year. Our stance is that it is neither medically appropriate nor necessary to manage this category and product in that way. Additionally, our pricing decision is not one that would compel payers to expedite their decision-making.

Operator, Conference Operator

We will take our next question from the line of Charles Duncan. Please go ahead, your line is open.

Charles Duncan, Analyst

Thanks for taking my questions, Kevin and team. Congrats on a great quarter and progress, particularly in terms of pipeline building progress. It is notable in the last couple years how this has expanded. Most of my commercial questions have been asked. So, I did want to just ask a couple of pipeline questions. When you consider the timing to data with the valbenazine program versus the crinecerfont program in CAH, what would you anticipate to read out first? And can you help us understand kind of the pacing of patient enrollment in those two programs?

Eiry Roberts, Chief Medical Officer

Yes, thank you. We were very pleased that we could safely and responsibly reopen enrollment for the HD trial, especially given the significant unmet need in Huntington’s disease, as very few people are currently treated with VMAT2 inhibitor. We're observing positive signs of screening and enrollment in that study. We hope that, if the COVID-19 situation remains stable, we will be able to proceed effectively. Regarding crinecerfont, we are just starting the Phase 3 registration trial, which is a global study. As I mentioned in response to your previous question, our initial estimates of enrollment from clinicaltrials.gov will evolve as we monitor progress in the coming months once the trial is underway. So, predicting the overall timing at this point is quite challenging.

Charles Duncan, Analyst

It’s helpful, Eiry. I appreciate that. And then, perhaps either for you or for Eric or whoever wants to take it, when you think about valbenazine in Huntington’s chorea, you mentioned differentiation of valbenazine or INGREZZA in tardive dyskinesia, which is obvious to me relative to the competition. But help me understand valbenazine in Huntington’s versus say, tardive dyskinesia, what are the strategies that you’re contemplating to really differentiate the two products, or could you see parity pricing? Help me understand, is there a dosing thing? How will this be a different drug? Because they need to be?

Eric Benevich, Chief Commercial Officer

Yes. So, Chaz, I’ll take that question. I think it starts with our perspective that there’s still significant unmet medical need in Huntington’s chorea. The majority of patients that exhibit moderate to severe chorea movements still are as yet untreated with VMAT2 inhibitor. And there are varying reasons for that relating to, for example, safety concerns or tolerability issues, challenges with dose titrations, things like that that may give us an advantage in that particular market. But the reality is that majority of people that could benefit from treatment with an approved option are not currently being treated. So, we certainly feel like there’s room for another treatment option, one that we’ll have to see what the data look like. But based on the target product profile, we think there will be multiple points of differentiation that perhaps are similar to the way that we differentiated in the TD market. So, we’re excited about the opportunity to complete the study and to see what the profile that emerges looks like here. But based on what we know about INGREZZA in TD, we’re confident that there’s a meaningful opportunity for us in the Huntington’s chorea market.

Operator, Conference Operator

We will take our next question from Jay Olson. Please go ahead. Your line is open.

Jay Olson, Analyst

Hey. Congrats on the quarter and thank you for taking the questions. I’m curious about the impact of discontinuing your second gen VMAT inhibitor. And I was wondering if that decision might lead you to increase your focus on additional indications for valbenazine and/or any other life cycle management strategies? And I had one quick follow-on, if I could.

Eiry Roberts, Chief Medical Officer

Hi, Jay. Thanks for the question. So, as I mentioned, I think we learned a great deal from the experience of the VMAT2 follow-on molecule that we had in Phase 1 development. And we’re looking to apply all of that learning as we bring forward next-generation research candidates into the clinic, because we do think that there is a significant opportunity for VMAT2 inhibition across a broad range of different neurological and psychiatric disorders, even beyond that what valbenazine would be able to bring to patients. So, we’re very focused on that. And then, also obviously in parallel we continue to be very-focused on understanding potential new indications for valbenazine. And as we move forward and get any of those into the clinic, we’ll be sure to update you.

Kyle Gano, Chief Business Development and Strategy Officer

That’s a great question. This is Kyle. Yes, I think that we’re going to continue to focus on our commercial success with INGREZZA and then taking that to ONGENTYS here shortly. And we’re focused on funding those as well as the pipeline. But, in terms of our interest in business development, we’re quite pleased with the way things have transpired over the past 12 to 18 months. If you look at the portfolio, it’s been diversified by stage and by modality and by disease state. So, a lot of the things that are attractive to us in neuroscience have played out nicely for us. We need to execute on the clinical studies to get those off and running, but we continue to also look at building the pipeline over time. If it makes sense to bring additional assets, we will find ways to make it happen.

Operator, Conference Operator

And I will turn it back over to Kevin Gorman.

Kevin Gorman, CEO

Thank you very much. We feel very fortunate to be in our current position and the way this year is progressing for us. We have an excellent medicine in INGREZZA, which is highly appreciated and needed by this patient population. This will continue to support our company for years to come. We are also excited to introduce another significant medicine, ONGENTYS, to patients. I appreciate all the questions you’ve asked today, particularly regarding our pipeline. We currently have 10 pipeline programs, but it's not just the quantity that matters. Our pipeline includes three pivotal programs, five in mid-stage development by year-end, and two in early-stage. It's a well-balanced pipeline. Our medicines provide hope for substantial symptomatic treatments and disease modification, and we’re involved in precision medicine. We are not limited to a single approach; we are developing both small molecules and gene therapies. Our therapeutic areas include neurology, neuroendocrinology, and neuropsychiatry. We established an ambitious goal years ago to become the world's leading neuroscience company, and what you see now is just the beginning. Thank you for your questions and your participation today. Take care.

Operator, Conference Operator

This concludes today’s program. Thank you for your participation. And you may disconnect at any time.