Earnings Call Transcript - NBIX Q2 2021

Operator, Operator

Good day, everyone, and welcome to today’s Neurocrine Biosciences Reports Second Quarter 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, should you need any assistance. It is now my pleasure to turn the conference over to your Vice President of Investor Relations, Todd Tushla. Please go ahead.

Todd Tushla, Vice President of Investor Relations

Thanks, Chloe. Good afternoon, and thank you for joining us on our second quarter 2021 earnings call. On today’s 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 will be making forward-looking statements. These statements are subject to certain risks and uncertainties, and our actual results may differ materially. I encourage you to review the risk factors discussed in our latest SEC filings. After our prepared remarks, we will then head into question-and-answer session, where we ask you to please limit yourself to one question, so we can get to as many questions as possible. At this point, I’ll hand the call over to Kevin Gorman.

Kevin Gorman, CEO

Thank you, Todd. Good afternoon, everyone. As you saw in our earnings release just a little bit ago, we had a very good second quarter with INGREZZA prescriptions bouncing back strongly from the Q1 levels. We attribute this to two main factors: a lessening of the pandemic during Q2 and the very good work of our sales, marketing and medical teams in utilizing new tools to educate and engage with health care providers. Now, we are still in an environment where more than 50% of psychiatric visits are telemedicine. But, I think as you can see, we are adapting well to this. Now, we exited Q2 strong and this bodes well for Q3. However, we do face headwinds. You are all aware, I’m not telling you anything you don’t know. The pandemic has worsened in the past several weeks with the spread of the Delta variant. Now, in those pockets of the country that are less vaccinated, we are seeing clinics closing and offices are starting to restrict access to us. Also, while Q3 has seasonality where growth is not as strong as Q2 and Q4, we’ve said that now for four years, but we do anticipate sequential growth, acknowledging that the Delta variant adds more unpredictability versus prior years. But, I want to emphasize, the bottom line is this: In the short term, we have adapted to this new environment and are showing record prescriptions. In the long term, the fundamental opportunity to help more patients remains unchanged. Only 2 out of 10 tardive dyskinesia patients are diagnosed, and only 1 out of 10 are being treated consistent with APA guidelines, that is with the VMAT2 inhibitor. We continue to invest substantial resources in INGREZZA, and the rest of the team will go into this in greater detail on this call. Switching over, I’m very pleased with the progress of our pipeline. At the beginning of the year, we set out to start nine mid- to late-stage clinical trials this year, and we are on track to initiate all nine by year-end. This is no small feat, considering a number of these clinical studies are in Europe, where the region continues to be seriously impacted by COVID, far more than the U.S. Crinecerfont and CAH, our precision medicine approach in various epilepsy indications and movement disorders and our psychiatry programs are all moving forward nicely. So, I’ll turn the call over to my colleagues, starting with Matt.

Matt Abernethy, CFO

Thank you, Kevin. INGREZZA’s second quarter sales of $265 million with underlying demand of $269 million reflects the dedicated efforts across our commercial and medical affairs team. In addition to record TRx levels, we achieved our highest quarterly NRx performance since last March, driven by increased sales force activity. As we head into the second half of the year, we expect some near-term bumpiness, keeping a close eye on both telemedicine and the impact of the Delta variant on society. Telemedicine still accounts for greater than 50% of visits in psychiatry and we see restricted access to clinics in pockets of the country due to the recent rise in COVID cases. We do expect INGREZZA growth will continue into the third quarter and anticipate sequential growth will be near past third quarter trends of around $15 million, driven by strong commercial execution, tempered somewhat by normal seasonal dynamics. Regardless of the near-term variability in telemedicine and the pandemic, our long-term optimism remains, given the growth we’re seeing in this current environment, and we’ll continue to adapt accordingly. Turning to costs. We continue to make investments, advancing our programs in R&D, and our P&L reflects the first full quarter of investment in branded INGREZZA DTC, which we anticipate will more fully contribute to sales as we progress into 2022. Finally, with over $1.2 billion in cash, we continue to have the financial flexibility to execute our strategy. With that, I will now hand the call over to Eiry Roberts, our Chief Medical Officer. Eiry?

Eiry Roberts, Chief Medical Officer

Thanks, Matt, and good afternoon to everyone on today’s call. I’ll keep my prepared remarks focused this afternoon on INGREZZA, valbenazine, beginning with an update on our valbenazine franchise which serves as a prototypical example of Neurocrine’s commitment to a pipeline within the program. I’m pleased to announce that our Phase 3 registrational study in Huntington’s disease, KINECT-HD, is now fully enrolled, and we remain on track to deliver top-line results by year-end. Many thanks to the team at Neurocrine, our incredible partners at the Huntington Study Group and the University of Rochester, CTCC, to all the KINECT-HD investigative staff, and especially the patients and families for their collaboration and perseverance in completing enrollment, even in the face of all the challenges posed by the pandemic. For INGREZZA, our medical focus this year has remained heavily on education. In the second quarter, we presented data from several studies, focused on educating clinicians on the impact of tardive dyskinesia on patients and care partners on how to recognize and effectively assess TD through telemedicine, and further education on the differentiated pharmacology of VMAT2 inhibitors in TD. In addition, the Journal of Clinical Psychopharmacology awarded our RE-KINECT paper with the Mitchell B. Balter award in pharmacoepidemiology. We’re pleased that the editors recognize the importance of the RE-KINECT study in seeking to document the presence and impact of tardive dyskinesia by using innovative assessment techniques in real-world outpatient practice settings. Although tardive dyskinesia has been extensively studied in controlled clinical trials, there remains a pressing epidemiologic and public health need to understand the extent and burden of tardive dyskinesia experienced by patients, caregivers, and clinicians in routine practice. The RE-KINECT study remains the largest such study conducted to date in this field, and the ongoing analysis of data from this program continues to inform our support of patients suffering with TD. Thank you to the team at Neurocrine and all our external partners who have contributed to the ongoing data generation and education from the RE-KINECT study. In addition, today, we announced we are investigating two new potential indications for valbenazine with the intent to initiate registrational studies for each indication before the end of this year. The first program in psychiatry will study valbenazine as a potential adjunctive therapy for the treatment of schizophrenia. Antipsychotic medications alone are often inadequate to address all the symptoms and functional limitations experienced by individuals with schizophrenia. In addition, about 30% of people living with schizophrenia who take antipsychotic therapy experience relapse in their psychotic symptoms, which creates a significant need for effective adjunctive medications to treat these debilitating symptoms of psychosis. The second program in neurology will study valbenazine as a potential treatment for dyskinesia due to cerebral palsy. Cerebral palsy is the most common cause of motor disability in children, affecting about 3 in 1,000 children in the U.S. Dyskinesia due to cerebral palsy presents in early childhood, but persists into adulthood and affects approximately 15% of those with cerebral palsy. There are currently no approved treatments for dyskinetic cerebral palsy. Many patients end up taking multiple medications off-label with low efficacy rates and unwanted side effects. New therapies are therefore significantly needed in this patient population. So, why these indications and why now? The collective combination of valbenazine’s mechanism of action as a highly selective inhibitor of VMAT2 with a differentiated pharmacological profile, together with the extensive safety database that exists in patients with tardive dyskinesia treated with INGREZZA, coupled with positive anecdotal clinical evidence generated in the field, provide a compelling reason for investment in both of these new indications. We know you may have many questions regarding study design and other details, which we’re unable to address right now. However, we look forward to sharing more information with you once these studies post to clinicaltrials.gov later this year. In closing, I’ll comment briefly on the remainder of our R&D portfolio. I’m proud of the team’s work in steadily expanding the Neurocrine portfolio. The team is currently supporting a portfolio of approximately 50 ongoing clinical trials, including adult and pediatric studies of crinecerfont for the treatment of classical congenital adrenal hyperplasia. I’m also pleased with the steady progress we are making in study initiation and enrollment this year across our newer programs. Importantly, we remain on track to initiate nine mid- to late-stage studies in 2021, which will in turn lead to important data readouts over the course of 2022 and beyond. With that, I’ll turn things back to you, Kevin.

Kevin Gorman, CEO

Thank you, Eiry and Matt. So, at this point, we’re done with our prepared remarks. And operator, I’d like to open it up for questions.

Operator, Operator

We’ll take our first question from Tazeen Ahmad from Bank of America. Please go ahead.

Tazeen Ahmad, Analyst

Okay. Good afternoon. Thanks so much for taking my question, and congratulations on a great quarter. We knew you could do it. We knew it was just a matter of time. So, as it relates to the dynamics, Kevin, can you just clarify, did you actually see more doctors going back to in-person visits in Q2, and are you seeing, based on what you commented on about the impact of Delta, might be decreasing that, or was your ability to draw these results more based on the changes that you’d been talking about related to adopting to pitching more virtually versus in-person? If you can clarify, that would be great. Thanks.

Kevin Gorman, CEO

Yes, thanks, Tazeen. I appreciate the question. I'll pass it over to Eric, but I want to quickly mention that about 50% of psychiatric visits are still conducted through telemedicine, unlike neurologists and movement disorder specialists, who are almost entirely in-person. While psychiatrists still have half of their practices in telemedicine, there were more office openings in Q2, providing greater access to other healthcare professionals when a psychiatrist wasn’t available. Eric, could you provide more details on what has been asked?

Eric Benevich, Chief Commercial Officer

Yes. Hi, Tazeen. I think it’s a little bit of everything, what you described there. Over the course of exiting Q1 and throughout Q2, we did see that more of the practices were seeing more of their patients in person, so a bit of a shift. And of course, more of these practices were opening up and allowing access to our people. So, it’s a combination of all these things. And then, as we mentioned in the prepared remarks, more recently, we have seen with the recent surge in the coronavirus, some pockets in some areas of the country starting to see some new restrictions imposed, including restrictions on patients coming into clinics and restrictions on our ability to see our customers in person. So, we’re monitoring this very carefully. But certainly, improving conditions on the ground are part of the story in terms of our performance in Q2.

Todd Tushla, Vice President of Investor Relations

Chloe, let’s take the next question.

Operator, Operator

We’ll move next to Phil Nadeau with Cowen and Company. Please go ahead.

Phil Nadeau, Analyst

Yes. Thanks for taking my question. Let me add my congratulations on a productive quarter. This is actually kind of a follow-on to Tazeen’s question. On the last quarterly call, you mentioned that, I believe, overall volumes of psychiatrists were 70% in normal. And then, as you reiterated, this time around, telemedicine was 50% of those visits. Where does it stand today for total volumes for psychiatrists? Have they recovered above 70% in normal? And if so, where are they? And then, kind of part two of the questions is, where do you think ultimately volumes in telemedicine will level off, once COVID’s in the past? It seems reasonable to think that we’ll never get back to 100% of level of in-person visits in the future. But based on the math from last quarter, in-person visits are 35% in normal. It also sounds far too low. So, where do you think ultimately that number could go to, once COVID is behind us?

Kevin Gorman, CEO

Yes, Phil, thanks for the question. It's somewhat speculative. A lot will depend on how reimbursement is structured, and we will get guidance on that from CMS later this year regarding telemedicine compared to in-person visits. You're correct; things won't revert to pre-pandemic levels. My best estimate is that it may settle somewhere between 20% and 50%. Eric, would you like to discuss the current total volume of patients and your thoughts on it?

Eric Benevich, Chief Commercial Officer

Yes. So, total volume of reimbursement, whether it’s through telemedicine visit or a face-to-face, is still below what it was pre-pandemic. Based on the most recent data that we’ve seen, which are still a couple of months old, it appears that still it hasn’t especially in psychiatry bounced back to the pre-pandemic levels. And as we said, over half of the total reimbursed visits are a telemedicine visit. Where it ends up ultimately, once we get past the pandemic and the public health emergency declaration is lifted, it remains to be seen. And certainly, there’s a lot of conversation happening from a public policy perspective about which of the waivers that were enacted last year in response to the pandemic should carry forward. Certainly, we recognize that telemedicine has played an important role, especially very early in the pandemic in allowing patients to have access to the providers. But we also recognize that there are some limits in terms of where it can and should be used. And certainly, for a movement disorder like tardive dyskinesia, there are some challenges that virtual visits represent, especially as it relates to recognizing and diagnosing new patients. So, as Kevin said and as Matt said, we continue to adapt to the environment, and I think that the results that we described here for Q2 are testament to that. But we also recognize that things are going to continue to evolve. Likely, the proportion of total visits in psychiatry that are virtual or telehealth will decrease over time. But no, I don’t think anyone expects that it’s going to go back to what it was pre-pandemic. But for comparison’s sake, in neurology, the proportion of telehealth visits has gone down a fair bit and is close to, not exactly, but close to what it was pre-pandemic. So, there’s a meaningful difference, I think, in terms of the degree to which psychiatry versus neurology has embraced telehealth and continues to expect to utilize telehealth going forward. So, this is an important variable for us, but we recognize it’s not going away. It might be less in the future. But for us to be successful ultimately in growing our INGREZZA franchise and helping as many patients as possible, we need to continue to make TD recognition and diagnosis and initiation of treatment with INGREZZA as straightforward and accurate as possible for our ECT customers.

Operator, Operator

And we’ll move next to Paul Matteis with Stifel. Please go ahead.

Paul Matteis, Analyst

Great. Thanks so much for taking the question. And let me add my congrats as well. I wanted to ask one question about net price. It looks like this second quarter didn’t have the same cadence as prior years’ 2Qs, where you have a big net price improvement after kind of the whole Q1 contracting dynamic. Is there anything to that? Should we expect gross to net to remain elevated throughout the rest of this year? And is there anything behind that? And then, I have one quick follow-up. Thanks.

Kevin Gorman, CEO

Go ahead, Matt.

Matt Abernethy, CFO

Yes. Hey Paul, nice to hear from you. Yes, we did not see the step back up, like you have in previous years from a net price perspective. You did see some step up, however, as we walked out of the donut hole exposure that we typically walk through in Q1. What I’d say is that the elevated gross to net is something that you would likely see stick with us for some period of time, and that really reflects some of the access investments that we’ve made and then also a bit on the patient mix side with the heavier skew towards Medicaid. Where I would guide for the rest of the year is similar to what I’ve said in the past that you should expect our net price to be around $5,400 to $5,500 per TRx.

Paul Matteis, Analyst

Okay, great. And then, I just wanted to ask quickly, if you could comment on business development. A few of the transactions you’ve done have had some setbacks, which obviously is the norm for neuro. But I guess, in the context of that, what’s sort of your appetite for taking on risk going forward? And where do you see kind of the best opportunity or need to backfill your pipeline? Thanks.

Kevin Gorman, CEO

Thanks, Paul. Kyle, go ahead.

Kyle Gano, Chief Business Development and Strategy Officer

Yes. Thanks for the question, Paul. Yes. So, I think what you’ve heard here on the call this afternoon is that our first priority, looking at the pipeline, is to support the needs of INGREZZA, both commercially and then also from a pipeline perspective with the new indications that we’re looking at, so developing in too. Beyond that, it is looking at building up a pipeline that’s going to come from internally-driven research programs to go into the clinic as well as being active business development-wise. And to that end, we continue to be active there, although you haven’t seen any deals recently. We continue to review a lot of different types of programs and technologies that might play in our interest in neurology, neuropsychiatry and neuroendocrinology. And in terms of what we’re looking for, it’s primarily mid- to late-stage assets. I know it’s an area that most companies are looking to fill. But we see opportunities in that space that may help us in the near term as we look to add things and be aware that with the risk in neurology and psychiatry, we always would like to have programs to augment over time. So, here’s where we look at adding to the pipeline as these programs mature and see what those cards look like as they are turned over in the coming years. So, the take-home is that, we again look at driving programs or searching for programs that have this innovative science platform technologies, as we’ve seen in our epilepsy franchise with Xenon and Idorsia to help us look at programs that have the opportunity for multiple disease states for development.

Kevin Gorman, CEO

I just want to emphasize that Kyle and his team prioritize having a robust intellectual property position, which allows us to invest in whatever we bring in, much like our internal programs, over the years.

Operator, Operator

And we’ll move next to Brian Abrahams with RBC Capital Markets. Please go ahead.

Brian Abrahams, Analyst

I was interested to hear about the new indications you’re pursuing for valbenazine. So, I was wondering if you could maybe speak a little bit more about the mechanistic rationale there and any of the data that guided your decision? Is there any, I guess, formalized data collection or investigator study, small investigator studies in those settings, I’d be curious to hear about. And any additional IP protection with those additional indications may confirm for INGREZZA. Thanks.

Kevin Gorman, CEO

Eiry?

Eiry Roberts, Chief Medical Officer

Yes. Thanks, Brian. Well, the mechanism really, as we speak to VMAT2 inhibition, I think we’ve always been interested in that mechanism in the context of both, obviously, dyskinetic cerebral palsy as a movement disorder, somewhat akin to tardive dyskinesia and other movement disorders. And then, in the context of the ATS program adjunct to treatment of schizophrenia, the mechanism lends itself well to that in terms of being potentially obviously in effect to currently used antidopaminergic therapies. And in addition to that, I would say that we’re also obviously encouraged by the extensive safety database that we have for the use of valbenazine, INGREZZA in tardive dyskinesia. Beyond that, we haven’t talked directly about the data that we have in hand or particular studies. And we are actually moving into registration-based studies. And the reason for that is that we know that smaller studies in schizophrenia can lead to signals that are difficult to interpret. And so, we clearly want to test this hypothesis fully, and that’s the reason for going into this registrational program at this point in time.

Kevin Gorman, CEO

And Brian, I will say that we have, at this point, about 19 Orange Book patents listed. So, I think, from an intellectual property position, we’re appropriately covered.

Operator, Operator

And we’ll take our next question from Brian Skorney with Baird. Please go ahead.

Brian Skorney, Analyst

Good afternoon, everyone, and congratulations on a strong quarter. I’d like to follow up on Brian's question. I understand you prefer not to share details about what you’re evaluating until the clinical trials are published. However, considering the commercial experience with INGREZZA, I suspect that many INGREZZA patients do not have schizophrenia. Since there's a possibility that a significant portion of them might be using it as an adjunctive therapy, can you share any insights from your commercial experience regarding feedback from providers and patients? Specifically, are there any additional benefits noted beyond the dyskinesia effects that could inform the design of a study? Could you also discuss whether there are any perceived benefits related to negative symptoms? Although an antidyskinetic drug might struggle to address some positive symptoms, perhaps there’s an observed improvement in socialization for patients without movement disorders. Any comments on how commercial insights relate to the schizophrenia indication would be appreciated.

Kevin Gorman, CEO

Yes. It is one where you get anecdotal feedback, but anecdotal feedback is just that. It’s anecdotal feedback. I really think what drives our decision to go into these indications is more from the mechanistic aspect of this. And as Eiry said that we have embarked on Phase 3 study here because we want to get a clear cut on ambiguous answer into these as we explore both of these indications. We’ve learned our lesson in Tourette, if you will, that anecdotal information or small clinical studies that have been done at single sites or things like that can really mislead you. So, do good, well thought out clinical study to give you that unambiguous answer as you explore new indications to go into. And as Eiry said, the mechanistic underpinnings of going into these two is very good. And so, that truly is what draws us in there. Eiry, do you want to add any more to that?

Eiry Roberts, Chief Medical Officer

So, I think, you said it very well, Kevin. And maybe the only thing I’d add is that, obviously, one of the other reasons for doing smaller Phase 2 studies is in the face of needing to generate safety or tolerability information. Brian, to your point, I mean, I think there is a lot of tolerability and safety data that we already have in schizophrenic individuals. And so, that gives us a level of confidence in being able to go into those well-designed, well-powered Phase 3 programs.

Operator, Operator

And we’ll take our next question from Jay Olson with Oppenheimer. Please go ahead.

Jay Olson, Analyst

Hi. Yes. Thanks for taking the questions. And maybe to continue on the theme of the new indications, could you maybe just comment on any potential spontaneous non-promoted use you might be seeing in those new indications? And, since you are going to be initiating registrational trials, could you maybe talk about the time line that you would expect to potentially submit regulatory filings for those new indications? Thank you.

Kevin Gorman, CEO

It's too early to determine what the timelines will be. As always, we will get into the studies and start enrollment. Once we see good enrollment, we can provide a clearer answer regarding the timelines for these. Additionally, we only promote INGREZZA for tardive dyskinesia and do not support its use for anything else in our company. I want to emphasize that anecdotal data is just that—anecdotal—and we do not place much significance on it. However, we believe the VMAT2 mechanism may be involved in these disease states, which is why we are exploring the use of INGREZZA for them.

Operator, Operator

And we’ll take our next question from Neena Bitritto-Garg with Citi. Please go ahead.

Neena Bitritto-Garg, Analyst

Hey, guys. Thanks for taking my question. Congrats on the earnings. So, just following again kind of on this line of questioning around the new indications, I guess, kind of to Brian’s earlier question around schizophrenia, just given that a lot of patients who are on INGREZZA today may already have schizophrenia. Can you just help us kind of walk us through how we should think about kind of the differentiated kind of commercial potential as an adjunctive therapy in schizophrenia versus the current tardive dyskinesia indication? Thanks.

Kevin Gorman, CEO

We are beginning to explore a study on the adjunctive treatment of schizophrenia. It's widely recognized that patients with schizophrenia often go through various antipsychotics, highlighting the need for more options and different mechanisms. Most antipsychotics work postsynaptically to inhibit dopamine signaling, while INGREZZA operates presynaptically to reduce the available dopamine in the synapse. This is our goal. To determine how this could lead to a differentiated product, we will need data to inform that. There are distinct safety and tolerability profiles among antipsychotics, including INGREZZA. I'm not sure if Eric and Eiry want to add anything further.

Eiry Roberts, Chief Medical Officer

Well, I would just make a couple of comments, Kevin. I think the first thing is that there is obviously currently no approved adjunctive treatment for schizophrenia. And so, the unmet need there is very significant. Also, to your point, a significant proportion of patients suffering from schizophrenia and living with schizophrenia do not get a full response in terms of their psychosis symptoms to currently available treatments. And so, with that in mind and given the mechanistic rationale that Kevin described and articulated, that’s why I think we were very keen to be able to test this hypothesis in going to a registrational study.

Operator, Operator

And we’ll take our next question from Anupam Rama with JP Morgan. Please go ahead.

Anupam Rama, Analyst

Thank you for the question, and congratulations on the quarter. Matt, during the second quarter call, there were many variables discussed, and you provided some guidance on the expected range for INGREZZA's performance. We have several factors to consider, including some fluctuations in scripts and the effects of third-quarter seasonality and the Delta variant. Could you share any additional guidance on your expectations for the third quarter and how you're approaching the numbers? Thank you.

Matt Abernethy, CFO

Yes. No, happy to shed some color. And we tried to be pretty specific in our prepared remarks today as to what we would expect. We did see nice momentum exiting Q2, and that’s actually continued through most of July, thus far. So, we’re very encouraged by what we’ve seen thus far, but we also acknowledge the Delta variant has stepped up over the last several weeks, and that’s starting to limit access in certain regions around the country. So, when we look at our numbers, based upon what we have in Q and then look back over history, how has INGREZZA performed in 2018, 2019 sequentially, where that puts us is around a $15 million sequential increase is what we’re anticipating somewhere around there for Q3. And so, with all the moving parts, Anupam, like you said, that’s why we’ve chosen to give a bit more specific guide to the coming quarter, just like we did in Q1 regarding Q2, and in Q2 regarding Q3. But for me, personally, I was quite encouraged to see the step-up in growth in Q2. Just the promotional responsiveness of our sales force going out, engaging with customers and seeing the response on the NRx side, I think it really helps paint the picture and confirm that there’s a significant opportunity ahead of us for developing the TD market and helping many more patients.

Operator, Operator

And we’ll take our next question from David Amsellem with Piper Sandler. Please go ahead.

David Amsellem, Analyst

Hey. Thanks. So, I just wanted to switch gears and ask about your thoughts on the exclusivity runway for INGREZZA. You recently initiated litigation against, I believe, it’s four ANDA filers, and wanted to get your thought process on initiating litigation in Delaware and also in one case in New Jersey, if there’s anything to read into there? And then, secondly, can you talk about any patent term restoration or extensions that we should be aware of that’s coming down the pike? And just in general, how you’re thinking about overall exclusivity runway? Thank you.

Kevin Gorman, CEO

Yes. Thanks for that. We have a very strong patent position. We feel very confident in it. These days, having generic manufacturers file ANDA is just a normal course of business and then our defending those is also a normal course of business. As I said a little bit earlier, we have 19 patents in the Orange Book. And so, we have a very long runway of exclusivity that we’re confident in with INGREZZA. And some of these patents can even extend that runway well into the future. We are not going to comment in any more detail, because it is ongoing litigation, but it is just the normal course of business in pharmaceuticals these days.

Operator, Operator

We’ll move next to Chris Shibutani with Goldman Sachs. Please go ahead.

Chris Shibutani, Analyst

Great. Thank you for the questions. During the last quarter, you announced your plans to invest in your direct-to-consumer, DTC campaigns. Can you talk about what your metrics are for determining what kind of effectiveness that’s having? And if we were to think about kind of the arc of how long you’re going to sustain that level of investment, how should we think about it, particularly as we look at 2022?

Kevin Gorman, CEO

Eric, why don’t you take that?

Eric Benevich, Chief Commercial Officer

Yes, happy to. Thanks, Chris, for the question. It’s still early, but you may remember we launched our direct-to-consumer campaign, called TD Spotlight, in mid-May, which was about halfway through the quarter. So far, we are pleased with the initial indicators. We analyze factors such as website traffic, particularly right after the ads air, the number of page views, the time visitors spend on the site, downloading content, and registering for information. All these indicators are meeting or even exceeding our expectations. We have high hopes for this campaign based on its testing results. We feel confident about the direction we're heading and plan to keep investing in DTC. We've previously mentioned that most patients with TD have not been diagnosed—eight out of ten individuals with TD haven’t received a diagnosis or an explanation for their abnormal movements. We believe this ad campaign will help educate people about TD and highlight the better treatment option with INGREZZA. As we move through this year and into 2022, we expect to see more clear benefits from the ad campaign as patients see the ads more frequently and are encouraged to discuss TD with their healthcare providers, particularly regarding INGREZZA. Hence, we will keep investing in DTC, as we believe it will benefit patients and enhance our INGREZZA franchise.

Matt Abernethy, CFO

And this is Matt. I’ll just chime in on the question as to the investment as we look into 2022, given where the development of the market is that as Eric alluded to, 8 out of 10 not being diagnosed at this point. You would expect if we see success through the first half of next year, it would be something that we would likely be continuing for the foreseeable future. But we’ll keep you apprised. And we’re looking forward to seeing the ultimate results showing up in our sales performance later this year and more fully into 2022.

Operator, Operator

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

Charles Duncan, Analyst

Thank you, Kevin and team, on a successful quarter. I have a two-part question regarding the candidate luvadaxistat and its potential CIAS study slated for the second half of the year. Could you elaborate on the mechanistic rationale, particularly concerning M4 positive allosteric modulation? For part two, I'd like to ask about valbenazine, specifically regarding Huntington's chorea. Considering the challenges faced in Huntington this year, what are your thoughts on patient heterogeneity? Could a successful outcome in that study lead to an sNDA filing next year? Thank you.

Kevin Gorman, CEO

So, I’ll let Eiry, and then Kyle, if you have any further comments on the questions by Charles.

Eiry Roberts, Chief Medical Officer

Yes, absolutely. Thank you for the question. Firstly, regarding the question about luvadaxistat, the scientific basis supporting its potential as a DAAO inhibitor for addressing cognitive impairment in schizophrenia is quite compelling. This is supported by both preclinical data and the biological mechanisms underlying schizophrenia, including the neurodevelopmental challenges associated with the condition. Additionally, in our Phase 2 INTERACT study, although it wasn't the primary endpoint, we observed a notable signal in both cognitive and functional assessments related to cognition in schizophrenia. With this rationale, we are eager to test this hypothesis in a robustly designed and adequately powered Phase 2 study, which is currently in the final stages of preparation and design, and we aim to begin that study by the end of this year. That's what I would say about luvadaxistat. There are also other potential mechanisms, like muscarinic mechanisms, that might be beneficial for treating the negative symptoms or cognitive aspects of schizophrenia. I wanted to emphasize the strong rationale we believe supports the role of luvadaxistat in addressing these symptoms. Regarding Huntington's disease, during our trial, we made several adjustments to address the challenges posed by the COVID pandemic. We were confident in those changes to facilitate a more telemedicine-focused approach for assessments in that program. We have compiled a comprehensive dataset from the HD KINECT program and are pleased to have completed enrollment for that study, and we are on track to deliver results by the year's end. Kyle, do you have anything to add?

Kyle Gano, Chief Business Development and Strategy Officer

I think, you covered the majority on luvadaxistat. I would just add that there is some interesting work going on in the field now on compound molecules that potentiate an NDA pathway and their relevance and the negative symptoms. And it’s nice to have a compound like ours here that’s well behaved and that we understand things like target engagement and occupancy. So, we’re really just drilling into the mechanism of the disease state as a next step for the Phase 2 trial that we’re envisioning.

Operator, Operator

And we’ll move next to Vamil Divan with Mizuho. Please go ahead.

Vamil Divan, Analyst

So, maybe just following up on some of the questions earlier on the new indications for valbenazine and also the question on business development. So, it feels like there may be a little bit of a shift, you did a number of external deals in the past year or two, and now maybe investing a little more in valbenazine line extensions, highlighting that as a pipeline in the product beyond just TD and HD. So, I’m wondering if that is a natural intentional shift. And if so, why these two indications now as opposed to previously or maybe later in the future, or maybe does it signal in any way sort of less attractive external opportunities based on what you’ve been looking at from a BD perspective. So, any further insight there would be helpful. Thanks.

Kevin Gorman, CEO

Yes, I appreciate the question, but there has not been any change at all. Our capital usage remains consistent, as it has for quite some time. We have always stated that the next best dollar can be spent on INGREZZA and the VMAT2 mechanism, which is what you are seeing from us. We also invest in our internal resources and research, as well as exploring external opportunities. The goal is to develop a world-class pipeline, and I believe we are achieving that by utilizing both internal and external resources. Kyle, would you like to add anything to that?

Kyle Gano, Chief Business Development and Strategy Officer

Yes. There was a good question about our BD interest previously. And just wanted to clarify and touch on some of the points that Kevin mentioned. Firstly, as it relates to valbenazine in terms of our interest in disease states, we’ve always had a longer vision of where the program could go over time. It was a functioning more or less of sequencing and see how we could get things to roll out, first with disease states that had good data to support those initially and then move into these disease states that may require additional work, and that’s what’s led us to DCP and the ATS programs. And in terms of business development and our interest there, I think everything complements exactly what we’re trying to do across the areas of neurology, psychiatry and endocrinology. And if you look at our efforts the past couple of years is building out neurology to support the interest there of movement disorders in INGREZZA. That’s what led us to epilepsy and some of the programs there in precision medicine. And then, pivoting to our interest in psychiatry, you see our collaboration with Takeda and be able to augment our portfolio there. So, I think you’ll see much of the same moving forward, looking at programs that bring in innovative science, technology, and work that’s been done by other companies that we can leverage with our team here and our capabilities and resources.

Operator, Operator

And we’ll move next to Josh Schimmer with Evercore. Please go ahead.

Josh Schimmer, Analyst

As you think about moving into the adjunct treatment approach for schizophrenia for INGREZZA, how are you thinking about reconciling the likely price point for an antipsychotic compared to the current application of tardive dyskinesia? Would that be under a separate brand or a separate kind of formulation? How are you thinking about managing that? Thank you.

Kevin Gorman, CEO

Yes, Josh. What I can say is that we are currently exploring these two new indications for valbenazine. It's still early to discuss aspects like differentiation, the eventual clinical benefits, and what pricing may look like in these indications. So, let’s hold off on that question until we’re further along in our exploration. We have a large and diverse pipeline that includes neuroscience, neuroendocrinology, and neuropsychiatry. Our focus is on indications driven by scientific advancements and unmet medical needs. We are taking multiple approaches within the schizophrenia population because we believe it is significantly underserved. Our goal is to serve patients, and as we assess the value of the medicine we bring to them, we will make further decisions based on that.

Operator, Operator

And we’ll take our next question from Myles Minter with William Blair. Please go ahead.

Myles Minter, Analyst

Hey, guys. Congrats on the quarter. I don’t think anyone has asked about ONGENTYS yet, so, maybe I will. You mentioned that there was sort of a pickup in interest during the quarter. Wondering if you can get a little bit more granular on the metrics that make you think that. And also, with the whole investing in telemedicine, what specific aspects are you looking to bolster there? And is that more INGREZZA specific, or is that more bringing in the whole commercial expertise here? Any color there would be great. Thanks.

Kevin Gorman, CEO

Eric, why don’t you handle this?

Eric Benevich, Chief Commercial Officer

Yes, I’d be happy to. Regarding ONGENTYS, we were pleased to see improvement in the second quarter compared to the first. It's important to note that the launch is still in its early stages. This is the first once-a-day COMT inhibitor available in the U.S., and we are actively reaching out to our neurology healthcare provider customers to introduce them to this new treatment and refresh their understanding of COMT inhibition. The feedback from neurologists who have started using it with their patients has been very positive. Many have reported that it exceeded their expectations in terms of its potency and the strong treatment effects they are observing, which is encouraging. We continue to implement our strategy of introducing ONGENTYS to both movement disorder neurologists and general neurologists who treat Parkinson's disease. We are also urging providers to consider prescribing it earlier in the treatment process. Traditionally, COMT inhibitors have been seen as a third-line option for patients receiving adjunctive treatments. We encourage providers to think about using ONGENTYS sooner, especially as a substitute for dopamine agonists or when discussing potential dose increases for levodopa with patients. We are making good progress in this area and feel optimistic about our advancements. Concerning telehealth, our investments are mainly focused on the tardive dyskinesia (TD) opportunity for INGREZZA. In general, we’ve noticed lower telehealth adoption in neurology since neurologists often need to perform physical exams to diagnose conditions like Parkinson's. Most tardive dyskinesia patients are treated by psychiatrists or advanced practitioners in psychiatry. Our telehealth initiatives aim to simplify the recognition and diagnosis of TD virtually and to assist providers in understanding how to facilitate the diagnostic process, whether that means diagnosing entirely remotely or encouraging patients to come in for follow-ups. Overall, the return to growth we saw in Q2 can be attributed not only to improved conditions related to the pandemic but also to our enhanced ability to help our customers recognize, diagnose, and treat TD effectively.

Operator, Operator

And we’ll take our last question from Danielle Brill with Raymond James. Please go ahead.

Danielle Brill, Analyst

Just a quick one from me. In your guidance for 3Q, the sequential growth of $15 million, is that on an inventory adjusted basis? Thanks.

Kevin Gorman, CEO

Matt?

Matt Abernethy, CFO

Yes. That’s on an underlying basis on an inventory adjusted basis. I think, where that would put you is somewhere in the 280ish range. And I think as we commented on earlier, that’s drawn based upon history and what we’ve seen going from Q2 to Q3 and then also some of the other variables that we are keeping a close eye on associated with Delta variant.

Operator, Operator

We’ll move next to Laura Chico with Wedbush Securities. Please go ahead.

Laura Chico, Analyst

I have one more question regarding guidance. It appears that you are providing an excellent framework for the quarterly outlook. I wanted to ask, and I apologize if I missed this earlier, how you plan to provide longer-term guidance. What considerations are you taking into account? The pandemic is certainly a wild card, but it seems like you have a solid understanding of the situation. I'm just curious about the potential for longer-term guidance to be shared. Thank you.

Kevin Gorman, CEO

Yes. So, I’ll take that first, and Matt can jump in here, is that giving guidance is something that we constantly talk about. The reason why we’ve been more forthcoming recently is not to try to give specifics, like here, we feel real good about this number, real good about that number. What we’re trying to do is these are pretty unprecedented times, it is very difficult, several quarters now in trying to give you without getting more detailed is to the things that we’re facing and the challenges that we’re facing. And as you can see, we’re not always getting it right, even when we’re trying to be more specific with you. And it’s because of these, and I’ll use that word, these are unprecedented times that we’re dealing with, and particularly in our universe with psychiatry, and the openings and closings of clinics and the very large use of telemedicine here, it is challenging to try to be able to nail things really well. In the future, I do see us at some point that we would go to a more annual guidance. But, right now, what we’re just trying to do is we’re trying to give you as much information as we feel comfortable and with the degree of confidence that we have. Matt, what would you perhaps add to that?

Matt Abernethy, CFO

No, you covered it, Kevin. It’s something that we continue to talk about. You should expect at some point we would be providing an annual guide, and we would move away from the quarterly detail that we’re providing now during these unprecedented times. But, it is on our radar and something that will continue to think through.

Kevin Gorman, CEO

And the last thing I would say is, is that even without the coronavirus, recall, we launched into a market that is extremely unusual in the fact that there’s never been a medication for tardive dyskinesia, and virtually, none of the patients were diagnosed with it. And much about tardive dyskinesia was never being taught in medical schools or even residency programs. So, recall, right from the very beginning, it is a challenging area that we got into. That’s why I’m so proud of our commercial and medical teams with what they’ve been able to do now to get up to about a 20% diagnosis rate.

Todd Tushla, Vice President of Investor Relations

Chloe, let’s take one last question.

Operator, Operator

Absolutely. We’ll take our last question from Yatin Suneja with Guggenheim. Please go ahead.

Eddie Hickman, Analyst

Yes. Hi everyone. This is Eddie standing in for Yatin. Thank you for including me in this call, and congratulations on the quarter. I have a quick follow-up regarding the ONGENTYS program. I appreciate the insights on the factors contributing to the slow launch. However, do you have an idea of when we can expect a pickup in momentum and what the peak projections might be for that market? Additionally, how long do you think it will take to reach that point? Thank you.

Kevin Gorman, CEO

Eric?

Eric Benevich, Chief Commercial Officer

Yes, we haven't provided specific guidance regarding the peak potential for ONGENTYS. However, there are about 1 million patients in the U.S. with Parkinson's disease, with approximately two-thirds currently receiving levodopa and adjunctive treatments, which represents our addressable patient pool. When we launched ONGENTYS, we identified several near-term challenges. First, the COMT class holds less than 10% market share of those adjunctive treatments. Additionally, ONGENTYS was developed entirely outside of the U.S., leading to a lack of clinical experience among key opinion leaders in Parkinson's disease. The most significant challenge was that we launched ONGENTYS at the end of Q3 last year and the beginning of Q4 during the peak of the pandemic, which hindered our ability to engage with movement disorder neurologists and introduce this new medicine. We recognize these challenges, but we are confident in the clinical profile of ONGENTYS. It is an excellent medicine with a strong label. The feedback from providers who have tried it with select patients has been positive. We will continue to pursue this important medicine. I should also note that ONGENTYS signifies our ongoing commitment to movement disorders. For movement disorder neurologists, we can now discuss both ONGENTYS for Parkinson's disease and INGREZZA for tardive dyskinesia. Additionally, ONGENTYS provides us more opportunities to engage with these specialists, which will also benefit INGREZZA in the TD indication. We will keep executing our plan and expect to see positive momentum in new patient starts and brand growth. I look forward to sharing our progress in the next call.

Kevin Gorman, CEO

Thank you. I appreciate all the questions we've received today. What I'm most proud of, and what I want you to take away from this call, is that Neurocrine is adapting to our current environment and will continue to do so for the foreseeable future. We won't be returning to business as usual anytime soon, if ever. Therefore, we will keep investing in this adaptation, and I believe we have been doing that effectively. Psychiatry may maintain a 50% reliance on telemedicine going forward, which is acceptable, as we find telemedicine to be a valuable resource for healthcare providers and patients. However, nothing can replace in-person care. We expect a gradual shift back to face-to-face interaction, but it will not return to previous levels, and that's acceptable. We recognize that tardive dyskinesia is being increasingly acknowledged by the medical community and patients, highlighting the need for treatment. We are just beginning our efforts to address the needs of TD patients, and we will continue to invest in this area, leading to significant growth in bringing INGREZZA to those experiencing tardive dyskinesia and potentially other conditions. We remain committed to our mission of being a leading neuroscience company, actively growing and advancing our pipeline every year. Neuroscience encompasses neurology, neuropsychiatry, neuroendocrinology, and in the future, neuroimmunology for us. You will see us continuously introducing new compounds into the clinic, both from our internal research and through collaborations with excellent partners. I’m optimistic that before the year ends, we’ll have the chance to meet many of you in person. I hope as long as we all stay safe and continue to get vaccinated, we can return to visiting each other face-to-face. With that, I will conclude this call. Thank you for your attention, and take care.

Operator, Operator

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