Neurocrine Biosciences Inc

NASDAQ:NBIX

Earnings Call Transcript 2021-Q4

[Operator]

Good day, everyone, and welcome to today's Neurocrine Biosciences Reports Fourth Quarter and Year-End results. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Please note today's 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 Todd Tushla, Vice President of Investor Relations.

[Todd Tushla, Vice President, Investor Relations]

Thank you, operator. Good morning, and thanks for joining us on our fourth quarter and full year 2021 earnings call. Joining me today are Kevin Gorman, our Chief Executive Officer; Matt Abernethy, our Chief Financial Officer; Eiry Roberts, our Chief Medical Officer; Eric Benevich, our Chief Commercial Officer; and Kyle Gano, our Chief Business Development and Strategy Officer.

I'd like to remind everyone that during today's call, we will be making forward-looking statements. These statements are subject to certain risks and uncertainties, and our actual results may differ materially. I encourage you to review the risk factors discussed in our latest SEC filings. After our prepared remarks, we will open the call for your questions.

With that, I'll hand the call over to Kevin Gorman.

[Kevin Gorman, Chief Executive Officer and Director]

Thank you, Todd. Good morning. Today, we want to look back at a challenging 2021 and the lessons we learned and the progress we made. We will also be looking forward to 2022, a year that we believe will set us up for tremendous growth for the next several years.

2021 was bracketed in Q1 and Q4 by rising infections, office closures and significant staffing shortages that constrained our efforts. However, we did make progress identifying many new health care professional customers and how to effectively work with them in a very challenging and changing environment. Eric will go into this in more detail in a moment.

Turning our attention to the future. The items that we released this morning is founded on the lower end by a continuing unpredictable epidemic the ebbs and flows. The upper end is less constrained by COVID, anticipates reopening of clinics with sufficient staff and the impact in the second half of the year and expanded sales force, more focused on specific points of care than previously.

We believe these internal and external events will allow us to bring investors to many more patients who are needlessly suffering of TD and will lead to significant growth both this year and beyond. We have made a good start in addressing this market and we will now reaccelerate growth. Concurrent with our commercial efforts, we have developed a neuroscience portfolio second to that.

We had 12 Phase 2/3 programs addressing diseases and disorders in neurology, neuropsychiatry and neuroendocrinology. We acknowledge the historical challenge of developing medicines in these diseases. And we have designed this pipeline with multiple compounds, each are just being a different mechanism to treat a specific disease such as the way we are approaching schizophrenia and the way we're approaching major depression.

But the flip side of this, we're developing other compounds where each one of these can address multiple diseases. By attacking diseases from these two fronts, we believe we will be successful in addressing otherwise attractable disease in disorders. Over the next 18 months, this pipeline will have a number of significant readouts, and Eiry will go into these in more detail.

At this time, I'd like to turn it over to Matt.

[Matt Abernethy, Chief Financial Officer]

Thanks, Kevin, and good morning. Since we preannounced Q4 INGREZZA sales in early January, I'm going to focus my remarks on our 2022 sales and operating expense guidance.

2022 INGREZZA net sales guidance range is $1.25 billion to $1.35 billion, reflecting our latest thinking considering current trends, environmental factors, and our ongoing business initiatives. This is our first time providing annual sales guidance, and we aim to be as transparent as possible with better assumptions.

Our assumptions following a few primary categories, the first relates to the external environment. Though this impact on our business is clear, as COVID cases go up, psychiatric patient visits decline with a higher mix of visits going virtual. This combination directly impacts TD diagnosis and ultimately treatment rates.

The good news is that COVID cases are starting to decline, and we expect site patient visits to increase throughout 2022, leading to a tailwind for INGREZZA in the second half of the year. But admittedly, it is difficult to predict how the impact of COVID will transpire.

The second bucket relates to the benefits we expect from our commercial initiatives, specifically, our direct-to-consumer advertising campaign and sales force expansion, which is on track to be fully in place next month. We anticipate these initiatives will help accelerate diagnosis and treatment rates.

On the payer front, access to net and revenue per script are expected to remain consistent with 2021. We assume sales seasonality to be very similar to previous years with Q1 having the most disruption due to the typical gross-to-net dynamics and the impact on refill rates due to the reauthorization process.

Now to our operating expense investment. Our 2022 GAAP operating range is $1.1 billion to $1.15 billion, with investments focused on accelerating INGREZZA growth and advancing our many R&D programs. Our SG&A investments primarily reflect a $100 million increased spend in the sales force expansion and DTC.

In addition, our R&D operating expense reflects advancing 12 mid- to late-stage programs in the plan and also are recently completed in-licensing of an M4 agonist from Sosei Heptares.

Our strong balance sheet, durable cash flow and P&L profile allow us the flexibility to execute our capital allocation priorities, investing in growing INGREZZA and advancing our important clinical programs to discover new innovative therapies for people who deserve better.

Now, over to Eric Benevich.

[Eric Benevich, Chief Commercial Officer]

Thank you, Matt. Before I begin, I want to acknowledge our commercial and medical affairs schemes. Throughout last year's challenging external environment, your unwavering dedication and commitment made a meaningful difference to many thousands of patients who otherwise would have continued to needlessly suffer from TD.

INGREZZA's Q4 performance marked our third straight quarter of sequential growth during the pandemic era. Total prescriptions grew 8% sequentially and grew 32% versus the prior year. While it was good to see that kind of growth, as Kevin said, we strive to improve while managing through several issues both in and out of our control.

First, in Q4, changes to our distribution network were implemented. And as anticipated, we saw a modest shift in strips going from some of our specialty pharmacies to CVS and Walgreens retail outlets.

Recall, we expanded the distribution network in order to provide even greater ease of access to INGREZZA for patients and their health care providers. The transferring of prescriptions back and forth across our pharmacy network likely led to delayed prescription builds for some of those patients.

Second, while difficult to ascribe how much of an impact, first, the Delta variant and then the Omicron variant had on TRx and Intrax volume, we know the rising cases significantly impacted our customers and interfered with patient care.

Staff shortages and turnover and offices, clinics and pharmacies likely contributed to an uptick in cycle time from prescription referral to prescription sales. Our persistence and compliance remains strong, consistent with prior quarters, helping us to maintain momentum going into the New Year.

All in all, despite a worsening external environment brought on by the surging Omicron variant, particularly in the second half of Q4, we estimate TD diagnosis rates have now grown to around 25% of the TD population. This is over 56,000 total prescriptions in Q4, a record level. INGREZZA continues to be the number one most prescribed treatment for tardive dyskinesia.

Shifting to this year. We provided the 2022 guidance range for INGREZZA and are now over a month into the year. So what have we seen? The external environment is slowly improving, but no one is out of the woods yet. We've been encouraged with early signals and are cautiously optimistic that access to our key customers will trend positively as the external environment continues to improve.

Internally, the onboarding effort of our sales force expansion is well underway. The newly expanded 350-plus strong sales force, with dedicated teams across psychiatry, neurology and long-term care will be fully deployed at the end of this quarter. In addition, we plan to run our ongoing TD Spotlight-branded direct-to-consumer campaign throughout 2022.

With improving market fundamentals and strong conviction in the commercial investments we are making for INGREZZA, the stage is set for accelerated growth in 2022 and for years to come.

ONGENTYS while we continue to receive positive feedback from patients and neurologists, you should not expect a great acceleration in 2022 sales as ONGENTYS remains a non-formulary medication on most Medicare Part D plans.

And I should reiterate, ONGENTYS opens doors to neurology practices and gives our team more time with prescribers to highlight ONGENTYS and INGREZZA. Furthermore, we strongly believe that having a dedicated neurology team will benefit both products, especially with movement disorder specialists.

So with that, I'll turn the call over now to my colleague, Dr. Eiry Roberts, for an update on our pipeline.

[Dr. Eiry Roberts, Chief Medical Officer]

Thank you, Eric, and good morning to everyone on the call. Over the last 12 months, we have made tremendous progress across all of research and development. We have advanced a novel and diverse pipeline of 12 mid- to late-stage clinical programs, each of which has the potential to be a first-in-class or best-in-class medicines.

2021 was, in many ways, a foundational year for Neurocrine R&D with the stage now set for a year of unprecedented investment and execution to advance this pipeline, with the goal of submitting the supplemental new drug application for valbenazine Huntington's disease, initiating a Phase 2 study in schizophrenia for NBI-568, the selective M4 orthosteric agonist recently acquired through our partnership with Heptares, and delivering a significant number of registrational and Phase 2 data readouts over the next 24 months.

I'll spend the balance of my prepared remarks on brief status update across these pipeline programs, beginning with valbenazine. In the second half of 2022, we plan to submit the sNDA to the FDA for the treatment of chorea associated with Huntington's disease. We were extremely pleased with the safety and efficacy results achieved in the KINECT-HD study. These data, together with six-month follow-up data from the KINECT-HD2 study, form the basis of our sNDA submission.

Continuing with valbenazine, we recently initiated registration studies for the adjunctive treatment of schizophrenia and for dyskinetic cerebral palsy. We anticipate top line data from these recently initiated studies in 2023.

Moving to NBI-104, the selective T-type calcium channel antagonists in licensed from Idorsia. We expect top line data from two Phase 2 studies for NBI-104 this year. Somewhere around midyear, we anticipate delivering proof-of-concept data in essential tremor. Following that, in the second half of the year, we anticipate completing our ongoing trial in epilepsy with continuous spike in wave during sleep. Based on a review of these data generated for NBI-104, we will determine potential next steps for each of these indications.

Turning now to NBI-352, the selective Nav1.6 sodium channel inhibitor in licensed from Xenon, we have two Phase 2 studies ongoing. The first in SCN8A a rare pediatric epileptic encephalopathy and the second in focal-onset seizures in Adults from which we anticipate delivering top line data in 2023.

Shifting gears now to the psychiatry portfolio of assets in license from Takeda Pharmaceuticals. We have initiated Phase 2 studies with all three lead programs, including Luvadaxistat in cognitive impairment associated with schizophrenia, NBI-845 for inadequate response in major depressive disorder and NBI-846 in Anhedonia in major depressive disorder.

Top-line data for 845 and 846 are anticipated in 2023, staying within psychiatry and the lead muscarinic agonist in our collaboration in Sosei Heptares, NBI-568. This molecule is a highly selective orthosteric agonist event for with the potential to be a best in class molecule against this target. We tried to initiate a Phase 2 study of 568 in North America for the treatment of schizophrenia this year.

And finally, with respect to our neuroendocrinology portfolio, we remain on track to read our top-line data for the registrational study of Crinecerfont in both the adult and pediatric patient populations in 2023.

To close, we have built a strong R&D pipeline that has the potential to dramatically change lives for patients. Our focus now is on the effective delivery of this pipeline while also continuing to add innovative candidates via internal drug discovery and strategic business development, where we believe those efforts can serve the needs of our patients.

I want to thank everyone at Neurocrine, our external partners, clinicians and patients who support us in our ultimate mission to bring medicines to patients who need better treatment options.

I'll now hand the call back to Kevin. Thank you, Kevin.

[Kevin Gorman, Chief Executive Officer and Director]

Thank you, Eiry. That concludes our prepared remarks, and we are ready to open it up for questions.

[Operator]

[Operator Instructions] We'll move first to Phil Nadeau with Cowen. Please go ahead.

[Phil Nadeau, Cowen]

A question on essential tremor. Can you give us some sense of what would be proof of concept for you and what would warrant further development?

[Dr. Eiry Roberts, Chief Medical Officer]

Thanks very much, Bill. Yes, certainly, as you know, we have a proof-of-concept study ongoing, which is a 28 patient crossover study. We have several endpoints in that study. The primary endpoint actually looks at tremor amplitude and is measured by accelerometer. But we also have the TETRA's measures in that patient population of moderate to severely impacted tremor patients.

I think we'll be looking at the data in totality. Obviously, we'll be interested in seeing a statistically significant difference in the crossover design. But beyond that, we'll be looking at the data in totality, including also a CGI assessment as well. And then with those data in hand sometime around the middle of this year, we'll be considering our next steps that were successful in that regard.

[Operator]

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

[Paul Matteis, Stifel]

On your INGREZZA guidance, I was wondering if you could kind of frame for us at the low midpoint and high end how demand growth in those different scenarios compares to what you were seeing before the COVID pandemic?

[Kevin Gorman, Chief Executive Officer and Director]

Thanks Paul. As you look back before the pandemic, we had a nice growth trajectory of, call it, a couple $100 million a years. So when you think about a 20% midpoint growth, it pretty much puts you back on track with how you have been performing prior to the pandemic.

I think the two biggest items that I'd point to as it relates to the guidance range, one, the environment, as the environment cooperates, patients going back into the office and access to customers is greater. You would expect us to fall higher on the range. If the pandemic continues to have significant pressure, that would, of course, put you closer to the bottom end of the range and impacting overall demand.

The second piece is then on the business initiative side, we're well underway on our sales force expansion that we expect to complete by the end of this quarter, which will benefit us in the second half of the year. And we're optimistic with what we've been seeing recently. And with the case counts going down and what we're seeing internally. So, we're looking forward to a nice year, another nice growth year for INGREZZA.

[Operator]

And we'll move next to Tazeen Ahmad from Bank of America. Please go ahead.

[Tazeen Ahmad, Bank of America]

Just a point of clarification. Is your guidance with or without impact from inventory stocking for INGREZZA? And then how much of your upper end of guidance is based on the potential for psychiatrists to continue to be reimbursed for their televisits at the same level as in person, let's say, for the rest of the year? And if there is a place for upside, would it be that particular variable? Or is there something else?

[Kevin Gorman, Chief Executive Officer and Director]

I'll take the second part of your question first. And that is that within our full range of guidance, we anticipate that there will be no changes to telehealth throughout the entire year. Matt, do you want to take that?

[Matt Abernethy, Chief Financial Officer]

Yes. And that's on the reimbursement front, we, of course, would expect as the clinics open up from the COVID shutdown, but there would be a higher mix of patient is as a person. But from a reimbursement perspective, our current census is policy is likely not going to be changed this year.

On the inventory front, my strong desire is to get rid of talking about inventory fluctuations quarter-to-quarter. And usually, within a year, it nets out. So, I would say that our guide really reflects underlying demand for INGREZZA sales. And we'll, of course, be continuing to update our guide at the end of each quarter, which will take into account any learnings or thinking around inventory.

[Kevin Gorman, Chief Executive Officer and Director]

And the only other thing I would add to that is that reiterate what Matt said over a year's period of time, any inventory fluctuations net out. And as we've seen now over multiple quarters, the amount of inventory that's carried on in rest is actually very small compared to the sales.

[Operator]

And we'll take our next question from Brian Abrahams with RBC Capital Markets. Please go ahead.

[Brian Abrahams, RBC Capital Markets]

Congrats on all the progress in an otherwise challenging year. Question on commercial investment, it sounds like investments are going to start to pull through from the expanded sales force as the year progresses. I guess I'm curious in medium term as we exit the year, what's the right way to think about the returns that you're hoping to get there? How do the incremental dollars put towards these additional segments are going to pursue like long-term care translate to revenue compared to the current areas you're in? I'm also curious how much intrinsic growth is left in your current target areas as well beyond just the reopening benefits?

[Kevin Gorman, Chief Executive Officer and Director]

So I think the way to think about it is that with the expansion and the reorganization of our field sales team, essentially, we're going deeper into existing segments. For example, the build-out of a dedicated neurology team allows us to reach more neurologists and to see them more frequently than we've been able to do thus far in the commercial ramp.

With the build-out of an LTC team, essentially, it's going into a care segment that we were always interested in from the get-go, but didn't really have the wherewithal to really put a dedicated focus against. And one way to think about LTC is essentially a psychiatry space. There are providers that practice in both psychiatry clinics as well as going into residential care facilities. And essentially, this is a logical next step for us.

So, this is obviously an expansion of our field sales team that's allowing us to tackle and reach more providers. But at the same time, it's allowing us to go deeper within the existing base of providers. And I think it's really a function of where we are in the commercial ramp for INGREZZA about five years now. And there's certainly more prescribers than what we had in the early phase of the launch. Again, there's certainly more high-value potential prescribers that we've identified.

The other thing I would note is this allows us to put a little bit more focus on what's been an emerging high priority segment of prescribers, which is advanced practice providers, meaning nurse practitioners and physician assistants that go across all of those sites of care. So the way to think about it is we're going deeper into the existing segments, and we're tapping into a new opportunity in long-term care. And we're providing more insights as we move through the year and get into 2023.

[Operator]

We'll move next to Anupam Rama with JPMorgan. Please go ahead.

[Anupam Rama, JPMorgan]

I was wondering if we could dig in a little bit into 1Q dynamics specifically. I think at the conference, you talked about 5,300 per script, which is in line with 4Q. But is there any other color you would want to provide on 1Q specifically? I think previously, you've given a little bit more color and guidance on 1Q, just kind of worried about numbers going all over the place.

[Matt Abernethy, Chief Financial Officer]

Yes. Thanks, Anupam. And as you said, Q1 always has some dynamics. The gross to net discount, you have patients going through a reauthorization process that ultimately the layer for fill and results in a lower refill rate per patient than the first quarter. So yes, it is always a bit noisy from a seasonality perspective. Typically, you see Q4 to Q1 a bit of a pullback in Q1 because of the net revenue per script going down and then also the slight impact on the refill rate per patient. And then you see a nice recovery in Q2 and throughout the year.

Since we're providing an annual guide, we're going to get out of some of the specificity that we've historically provided within a quarter. But of course, as we exit Q1, we'll be taking into account our performance in Q1, what we're seeing, and we'll modify our guide accordingly. But as we've historically said, Q1 is Q1. And the goal in Q1 is to ensure that patients stay on medication. And that ultimately sets us up for a strong rest of the year.

[Kevin Gorman, Chief Executive Officer and Director]

Yes. I'll chime in here and just add that, obviously, with the surge in the Omicron variant in late Q4 and early Q1, it presented additional challenges for us to deal with. Certainly, that affected our customers with a lot of clinics having staff shortages, providers falling ill, and so on. It affected a good chunk of our sales team as well with a number of our team members needing to quarantine. The good news is that things appear to be getting better. We're cautiously optimistic that we're seeing an improving external environment. And certainly, that benefits our business.

[Matt Abernethy, Chief Financial Officer]

And the only thing I would add to that, Anupam, is that the commercial team put a lot of prepositioned efforts in place starting actually in Q4 in order to help with what we said was looking like it was going to be a very challenging Q1. I think those efforts are going to come to fruition. Like Eric said, I think the best way to put it is we're cautiously optimistic and improving environment can only help.

[Operator]

And we'll move next to Carter Gould with Barclays. Please go ahead.

[Carter Gould, Barclays]

Great. Maybe one for Eiry. Just as we e think about coming back to 104, think about read-through from the essential tremor study to the epilepsy data later in the year, are there, I guess, are there specific data that will come out of the ET study that might have some positive read-through or derisk the ET study? And then you guys have always talked about more broadly the potential for additional indications. Are there specific signals that ET study that might be insightful as you think about future indications?

[Dr. Eiry Roberts, Chief Medical Officer]

Yes. Thanks very much. So we know that the calcium channel, the T-type calcium channels that are impacted by wonderful represented within that tremor network. And that tremor network also look to links very directly to epilepsy from a mechanistic perspective. So actually, in terms of information that we're able to generate from the ET study, I think it is helpful in understanding the pharmacodynamic effect of medication and some of the dose-related issues in using 104.

In addition, obviously, we will get initial tolerability information in a patient population from the ET study that is in some way relevant to our CSWS study, but obviously, it's a very different population. And if you think about CSWS, it's a rare pediatric epileptic encephalopathy. The patients in that study will be age two upwards. And so it is different from the ET population, which is significantly older adult population.

So I think, in general, we'll be looking at the totality of both the efficacy data from the ET profile and the initial safety and tolerability. And we won't have to wait very long to understand the actual signal in the CSWS space anyway. We will be reading out the data from that 24 patients Phase 2 study in CSWS in the latter part of the year as well.

[Operator]

We'll move next to Neena Bitritto-Garg of Citi. Please go ahead.

[Neena Bitritto-Garg, Citi]

Just going back to INGREZZA guidance. I'm just wondering if you can give us a sense of how you're thinking about the proportion of in-person patient visits versus telehealth at the low midpoint and high end of the range? And whether the CMS decision that you've talked about previously on having patients seeing psychiatrists having their first visit in person and then every year after that, whether that will be a 2022 or more likely 2023 event.

[Eric Benevich, Chief Commercial Officer]

Yes. The way that we're thinking about telehealth is that certainly, it impacts different portions of our business differently. Ultimately, it's utilized quite a bit, has been utilized quite a bit and continues to be utilized at a high rate within psychiatry. The latest data that we've seen is that it's still about half of all patient visits are virtual in psychiatry, whereas in neurology, it's less than 10%.

Frankly, it's returned to pretty close to what it was pre-COVID. And telehealth is utilized to a much, much lesser degree in LTC, for example. And so our expectation is that even after the public health emergency is lifted, that there's going to be significant utilization of telehealth in psychiatry, and we've baked that into our planning and our assumptions.

The second part of your question was really around some of the guardrails that are being proposed, such as having a first visit requirement be in person and at least once a year, in-person visits for subsequent telehealth visits to be reimbursed.

We're certainly supportive of making sure that patients have the opportunity to see their providers in person. We recognize the value that telehealth provides in certain circumstances, but want to make sure that there are guardrails in place going forward. So we'll see how things shake out. But for the duration of 2022, our expectation is status quo.

[Operator]

We'll move next to Brian Skorney with Baird. Please go ahead.

[Unidentified Analyst]

This is [Lou Kermann] on for Brian. Could you just discuss a bit your expectations for how an approval in chorea in Huntington disease could impact INGREZZA's growth rate? And do you expect the sequencing of uptake in that indication to be more front loaded or for a gradual pace?

[Eric Benevich, Chief Commercial Officer]

Yes. So first of all, want to emphasize that we need to finish the open-label study and get the sNDA submitted. But assuming that we're successful and we get a label expansion in 2023, we're very excited about the opportunity to bring INGREZZA to a new patient population, those patients with Huntington's that are experiencing chorea.

The way to think about it is that it's all incremental to our business. We're not giving any -- essentially any of those Huntington patients now. The health plans, because this is a specialty product and it's a prior authorization process, they're proving INGREZZA for TD, but essentially not for other uses. So we're looking forward to the opportunity to expand the label.

And the second part of your question was really around would this be front-loaded or would this be a more gradual ramp. We can provide a little bit more color when we get further down the road and we have a sense of what the labeling is going to look like. Ultimately, I will say that we view the patient opportunity within Huntington's chorea as a group of patients that have unmet medical need.

Only about 20% of the patients with Huntington's chorea are currently treated with a VMAT2 inhibitor. So certainly, there's an opportunity for a differentiated product like INGREZZA to come in and to potentially benefit many thousands more patients with Huntington chorea. So stay tuned for more as we make progress in pursuing that label expansion.

[Kevin Gorman, Chief Executive Officer and Director]

And the only thing I would add to that is that, obviously, having a dedicated neurology sales force now with being INGREZZA will help with that update, and they can ask the time of approval can start focusing their efforts on treating these TD patients base. Thank you.

[Operator]

And we'll move next to Myles Minter with William Blair. Please go ahead.

[Myles Minter, William Blair]

Just back on the channel inventory for INGREZZA. What's the new sort of steady state that you'd be expecting moving forward with your growth projections? I think I've heard sort of around the $10 million number, the showing around previously, but that seems to have been creeping over time. So just wondering what the new set point is there for our inventory?

[Matt Abernethy, Chief Financial Officer]

Myles, could you clarify you're asking about what typical inventory stocking levels would be for...

[Myles Minter, William Blair]

Yes. And also your projections moving forward with your anticipated growth rates, is that going to change over time?

[Kevin Gorman, Chief Executive Officer and Director]

Yes. No, I think from a -- we look at it from a days on hand perspective, which would take into account any of our volume growth you typically in our channels, see two to three weeks of inventory on hand.

And as you mentioned, and have grown from, call it, two weeks to about three weeks, and we're somewhere in between there right now. So our goal is we don't influence channel stocking we really are somewhat hands off with our distributors product for a variety of reasons. But I think a two- to three-week days on hand is what you should expect.

And it's become as Kevin said earlier, a less meaningful number quarter-to-quarter. Of course, if there's some major fluctuations, we'll be transparent as always. But as you think about annual guide, it should net out for the most part throughout the year from a days on end perspective.

[Operator]

And we'll move next to Joshua Schimmer with Evercore. Please go ahead.

[Joshua Schimmer, Evercore]

Are you planning additional business activities this year? And what is your appetite for larger deals? And then, Matt, you just indicated your hands off with distributors with respect to inventory for a variety of reasons. Can you share what some of those reasons are?

[Matt Abernethy, Chief Financial Officer]

Yes. One of the reasons is just for purposes of causing them to volatility in our sales projection -- or sorry, our sales performance. I think there are some practices that really incentivize stocking, whether giving incremental discounts or whatnot. They have a target number, and we just don't want to be in a place where we're overly influencing our sales results. We try to talk more towards underlying demand, which is why we've always provided TRx. I would just say that the one of the primary reason and discourage speculative buying.

[Kevin Gorman, Chief Executive Officer and Director]

And as far as business development, I'll turn that over to Kyle Gano, our Chief of Business Development.

[Kyle Gano, Chief Business Development and Strategy Officer]

On the BD side of things, just to recap kind of our priorities here at obviously, we are investing heavily in INGREZZA and valbenazine and broadly would be at two franchise and second to that, the pipeline and business development. So, we are still looking and active out there looking to bring things into the pipeline if they make sense.

I think from our mid- to long-term objectives, we continuously assess all types of opportunities ranging from traditional licensing deals and co-operations on things that are more strategic. So if we can find things that make sense and work for us to look at bringing those in, and I think that you've seen that been over the past few years in the pipeline currently with the assets we have in the late-stage development.

[Kevin Gorman, Chief Executive Officer and Director]

We did not constrain ourselves.

[Operator]

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

[David Amsellem, Piper Sandler]

So regarding the long-term care opportunity, you talked about this being a new opportunity, and I may have missed this. Can you just talk about what portion of the TD market is long-term care based? And how you should think about -- how we should think about underlying, not just volume potential here, but even sales potential to the extent that you can quantify that?

[Eric Benevich, Chief Commercial Officer]

Yes. We haven't given any guidance specifically around what the sales expectations are for long-term care. But the way to think about it is that the -- or the way that we think about long-term care is it really represents a few different types of residential care facilities that treat residents or patients with the antipsychotics and dopamine blocking drugs that cause TD. And so that would include geriatric nursing homes that might include facilities that treat patients with intellectual or developmental disorders, that would include residential care facilities or assisted living facilities for those with behavioral health conditions.

And so ultimately, if you look at that roll up, that represents several million people across the U.S. that are in those facilities. And at any given time, you could expect somewhere between 15% and 30% of those individuals to be on antipsychotics and obviously, a subset of them having TD. So where it shakes out in terms of the size of the addressable patient population with TD in LTC versus the overall TD prevalent population remains to be seen.

But we certainly feel like and believe based on the early experience that we have in that space that it's a significant incremental opportunity and it's a segment that we are interested in going into early in the launch. But like I said earlier, they wouldn't have the resources and the capacity to focus on it.

So I think you'll be getting a lot more color and perspective as we make progress. But I will say that we're just getting our team hired and trained will be deployed as we exit Q1. And really, for the next couple of quarters, we'll be doing a lot to really better characterize that opportunity and set ourselves up for success as we exit 2022 and get into 2023.

[Operator]

Our next question is from Jay Olson with Oppenheimer. Please go ahead.

[Jay Olson, Oppenheimer]

Congrats on all the progress. Since the total addressable TD market in the U.S. is now 600,000 patients, could you comment on how fast that population is growing? And with the 25% of patients diagnosed, can you talk about your goal for the ultimate level of TD diagnosis as you continue your education and awareness initiatives?

[Eric Benevich, Chief Commercial Officer]

Yes. So our estimate is around 600,000 people in the U.S. with tardive dyskinesia, and that's based on met analysis of the literature as well as looking at claims data, et cetera. And we periodically reassess this. This is a growing population, and it's really a function of the rapid growth of the use of antipsychotics, especially in non-psychotic conditions.

And so if you think about it, antipsychotics are widely used to treat their adjunctive treatments in schizophrenia, they used in bipolar. They're used to treat anxiety. There's a number of off-label uses of antipsychotics. And so we have seen that over time as the use of antipsychotic spans, unfortunately, so does the population with TD. We'll continue to reassess the size of the population. And importantly, the progress that we're making in diagnosing, helping those patients get diagnosed.

At the beginning of our launch back in 2017, we estimated more single-digit percent of those individuals have yet to be given a diagnosis. Today, we estimate about a quarter of them have been diagnosed. Importantly, only about half of patients that get a diagnosis today are even offered a VMAT2 inhibitor. So there's a long way to go in terms of making progress with bridging the gap between the diagnosed population and the prevalent population as well as making sure that everyone that gets the diagnosis is offered effective treatment.

The last thing I'll say here is you asked about what's the goal. Well, the goal would be 100%. But realistically, we know that not everyone that gets a disease is going to get diagnosed. But we certainly can get a lot higher in the coming years in terms of making sure that TD is routinely screened and diagnosed regardless of care setting. And we're leveraging the APA guidelines to really reinforce that, that is the expectation and that is the standard of care for especially these patients with psychiatric conditions being treated with antipsychotic medicines.

[Operator]

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

[Vamil Divan, Mizuho Securities]

Great. Maybe one just quick follow-up on the last question. I think you said it's a growing population. I don't know if maybe you could quantify that a little bit for us just kind of how you see the overall TD market growth. But my question is like you on opicapone. And I know there are a lot of synergies for that product and having a rep selling that along with INGREZZA. But I'm just curious if you can give us a little better sense when you think you may be able to get better commercial access and when you think you might someone sort of be delivering more sales. I mean I'm looking at consensus numbers. It does look like people are assuming a couple of hundred million in sales for that product alone out of several years from now. I'm just trying to get a sense if you think that's realistic. Or should we think of that as a smaller opportunity as more of the synergies, again, what we just see the value.

[Eric Benevich, Chief Commercial Officer]

Yes. Let me address your the question of -- the clarifying question about the growing population in TD, and then I'll tackle your question about OGENTYS. So the reason I said that it's a growing population is that the use of antipsychotics continues to expand. There's been 60 million -- yes, 70 million, excuse me, 70 million prescriptions of antipsychotics over the past year. And so that continues to expand as the uses for antipsychotics expanded especially in this pandemic environment where more and more people are being treated for mental health disorders.

So even though second-generation antipsychotics tend to have a lower incidence of TD, the greatly expanded use of antipsychotics is what's leading to a growing TD patient population over time. So that, once again, is something that we continue to monitor, and we update our estimates. And you might recall that five years ago, our estimate was around 500,000 people with TD. And today, we estimate it's closer to 600,000.

[Matt Abernethy, Chief Financial Officer]

So if you correlate TD prevalence with how quickly the antipsychotic use is going. You have the antipsychotic market is growing 3% to 5%. So you know it's growing faster than the normal general population, but it's hard to give you an exact number on what the exact percentage of patients have TD, but it is a growing segment.

[Eric Benevich, Chief Commercial Officer]

The other part of your question was related on ONGENTYS and coverage. I made a point in my prepared remarks that we shouldn't expect a great acceleration with the sales of ONGENTYS in 2022, primarily because for the majority of Medicare Part D plans, it remains a non-formulary product.

And I will clarify that, that is a dynamic that's seen really across all branded anti-Parkinson's medicines, especially within the Medicare plans, they tend to treat branded medicines as non-formulary products. So we'll continue to help our customers to get access through the formulary exceptions process.

The other thing I'll say is that we do believe that having a dedicated neurology sales team will benefit ONGENTYS. As I mentioned earlier, allows us to reach more neurologists to see our highest value customers more frequently. And that will benefit ONGENTYS and, of course, INGREZZA in tardive dyskinesia.

[Operator]

We'll move next to Marc Goodman with SBC Leerink. Please go ahead.

[Marc Goodman, SBC Leerink]

Eiry, can you talk about why you like the selective M4 agonist. Just in the context, we have different companies pursuing M1 or M1, M4. I'm just curious why you like this one? And maybe could you just clarify the comments on the press release just about taxes and just so we understand what will be the tax on the income statement versus the actual cash taxes and when these NOLs are going to runoff and just how we should think about tax rate going forward?

[Dr. Eiry Roberts, Chief Medical Officer]

Yes, certainly. So we're very excited about the opportunity that we have through our in-licensing for the selective M4 agonist. And, yes, you're correct. There are two modules in this space that have at least in part validated clinically the M4 mechanism in the treatment of psychosis and schizophrenia.

The reason we like the molecule that we were able to acquire here is that this is collective direct agonist of M4, and that gives us a benefit in several ways. First of all, because it doesn't -- it's not an asteric modulator, which is one of the competitive small space mechanism is, it doesn't require the substrate acetylcholine to be effective in the brain in treating patients.

And certainly, in many indications that we might be interested in pursuing with our muscular portfolio, this is a deficit of acetylcholine in those patient populations. And so the likelihood of having an effective medication that requires the presence of that substrate is in question, I would say.

And so with the direct agonist approach, we believe we have the potential to be best in the last opportunity against this target. And then we will be starting a clinical study in Phase 2 within schizophrenia to understand that better later this year.

[Matt Abernethy, Chief Financial Officer]

Yes. So on the tax front, it's always noisy when you have low book income, and your permanent items will drive different volatility in your effective tax rate. So I think the midterm guide that I've previously provided is around 24% would be effective tax rate is when everything normalizes.

On a cash tax basis, our expectation is we'll burn through the remainder of the NOLs this year. A big portion of that is just the tax legislation change that causes you to have to capitalize your R&D, and that then gets taken as a deduction over time now. Hopefully, that legislation does change.

But I would just say that, that's going to cause us to burn through the remainder of our NOLs this year that then puts us in a position where we're paying federal cash tax here later this year, but it would be somewhat minimal.

So I would say for this year, the guide gives you a 4% to 5% of income cash tax for state and a little bit on the federal side. And then next year will more than likely be a full cash tax payer that would be somewhat equivalent to our effective tax rate.

[Operator]

And we'll move next to Charles Duncan with Cantor Fitzgerald. Please go ahead.

[Charles Duncan, Cantor Fitzgerald]

Yes. Kevin and team, congrats on weathering, effectively weathering the challenges of '21. I had two quick questions, one for Eric, one for Eiry. Eric, question is related to the new sales force deployment, you said really in the field this month. But I guess for by the end of the quarter. But I guess I'm wondering, if you could give us a sense of the key metrics beyond revenue that you would look to gauge that investment? And then for Eiry, I'm wondering about 104, essential tremor versus CSWS, very different patient populations. And I guess I'm wondering, if you could provide us color on the end points that you're looking at for those proof-of-concept studies? And which ones have perhaps more predictive value for clinical success over time?

[Eric Benevich, Chief Commercial Officer]

With regards to the new sales team members, we are going to be looking at what I'll call leading indicators as we get out of the gate and certainly looking to learn as we go and make adjustments going into the year. The kind of leading indicators that I'm talking about really are related to how quickly the new team members can become effective in their roles. Everyone that we're hiring has considerable experience either in psychiatry and neurology, long-term care average, about 15 years of sales experience.

However, they haven't sold TD medication before they haven't sold INGREZZA. And so there is a little bit of a learning curve. And so some of the things that we look at include how able they are to get in front of their key customers, the ability to leverage resources like peer-to-peer programs, sampling, lunchtime in-service programs, things like that. And ultimately, we will be tracking effectiveness in terms of generating new patient starts as a key component.

There's been a lot of work that's been happening here as we've been hiring and training our new team members to help them get off to a start, warm handoffs of existing customer relationships doing right along in the field and so on. So, we're really excited about having an expanded field sales team. And we're very optimistic about the impact it's going to have, especially in the second half of the year. So stay tuned for more as we get further into it.

[Dr. Eiry Roberts, Chief Medical Officer]

Okay. So on 104, the first one I would say is that these are both Phase 2 trials, one in ET and one CSWS. They're both adequately powered to be able to detect a signal against the primary entities trial. The primary endpoint in each of the trials, whether it's the altitude in the ET trial or the EEG endpoint in CSWS, although they are not the clinical aspect themselves, they are very helpful and informative with respect to the clinical impact that the medication could likely have.

Also for both the ET trial and the CSWS trial, we do have the clinical endpoints themselves into the trial. But obviously, we built relatively short-term treatment trial. So whilst we'll get an indication from these initial Phase 2 trials as to the clinical impact of the medication beyond the primary endpoint. I think it would obviously require so much larger scale registration could to validate that.

[Operator]

And we'll move next to Chris Shibutani with Goldman Sachs. Please go ahead.

[Chris Shibutani, Goldman Sachs]

Two questions. Eiry, if I could press you a little bit further on 104 there. Maybe talk about what your expectations are for the placebo response in the essential tremor study others have observed very large placebo effect. So can you quantify what you think would be the bar to hit in terms of treatment response in terms of either perhaps percent of patients responding or percent decrease in tremor amplitude?

And then a second question for Matt. I appreciate the first time annual guidance. If I think back to 2021 granted an unusual period, you were helping us with fairly specific guidance on the revenue from a quarterly basis. So as you have not provided commentary specifically beyond the general seasonality that this experience with an analyst seems to have, should we interpret this to mean that you're comfortable with where consensus currently is in terms of thinking about INGREZZA revenues as we progress, in particular to the first quarter?

[Dr. Eiry Roberts, Chief Medical Officer]

Okay. The 104 question, I mean, obviously, there are two trials. In CSWS, that is an EEG endpoint in a very severe impacted patient population where we would anticipate the placebo response on EEG to be low. And I think haven't been studying them to any great extent in that population. But for treatments that have looked at that EEG endpoint such as steroid treatment is material treatment, I think the placebo response, we anticipate there is low.

In essential tremors, it's very variable, as you said. We have designed this study in order to try to mitigate against placebo response. It's a single site study. It's a crossover study, which allows us the power to look within a subject. And so I think we have done everything we -- within our power to mitigate that response. And obviously, then midyear as we get the data, we'll be able to take a look at that in the topic what we see.

[Matt Abernethy, Chief Financial Officer]

Yes. As I said earlier, Chris, on the annual guide, we feel comfortable with the ranges that we've provided. And I think when you look back every time, you can see this normal seasonality of sales being on the low 20% type range for Q1, which really reflects somewhat of a pullback from Q4 to Q1. And then like I said earlier, recovery into Q2. I would say the biggest dynamic outside of the environment really comes down to how effective we are at keeping patients on treatment and how quickly they get through that reauthorization process.

And as Kevin and Eric mentioned earlier, we were working very hard in to be on top of that and to improve in that regard. So I know there will be a lot of desire for me to be more specific than what I am on Q1. But I think the dynamics are fairly clear. Hard to predict, I know. On the gross to net front, just a clarification, and I think Anupam have raised it. In Q1, we would expect our net revenue per script to be around, call it, 5,300, and then it will improve throughout the year as the gross to net discount wane coming out of the donut hole. And on average, we would expect our net revenue per script to be around $5,400, which is similar to 2021.

[Operator]

And we'll move next to Evan Seigerman with BMO Capital Markets. Please go ahead.

[Evan Seigerman, BMO Capital Markets]

So this is not the first time you've made the discrete investment in the commercial effort of the organization for INGREZZA. Can you remind us what the ROI was on the prior investment? And what do you hope to drive from this $100 million incremental investment? Are there any specific metrics you're looking at here?

[Eric Benevich, Chief Commercial Officer]

Yes. As you've noted, it's not the first investment. And frankly, it may not be the last as we move forward over the course with a very long life cycle for this product. As a reminder, we launched in 2015 with an initial sales force -- excuse me, 2017 with an initial sales force of about 140 territories. I quickly learned that we needed to expand the field sales force because of the rapid update that we were seeing, and frankly, that exceeded our early expectations.

The team that we've had in place for the last several years has been a little over 200 territories covering both neurology and psychiatry. And as we had disclosed previously, in looking at where we were with the development of the market, the fact that we've made progress in raising the diagnosis rate, the fact that there are much larger number of prescribers of INGREZZA now than they were early in the launch, and frankly, a large number of high potential prescribers, we decided to pull the trigger on reorganizing and expanding our field sales team.

And we think that it's the right thing to do in terms of being able to accelerate growth for the brand, and it's the right thing to do in terms of being able to help people get diagnosed and effectively treated sooner. So our aspiration is to not allow any patient to suffer needelssly with TD. So going forward, we will be able to provide more color in terms of how things are going with this expansion.

Certainly, the psychiatry segment has and will remain the largest portion of our prescription volume. We feel like there's a significant opportunity to improve in neurology. It's only about 20% of our business comes from neurology, and we think that we can grow that with additional resource. And as I mentioned earlier, LTC is essentially an untapped opportunity. So I don't know if we'll get down to providing ROI assessments, but certainly, we'll provide insights how the business has been growing and where the sources of business are coming from in this next phase of growth.

[Operator]

And we'll take our last question from Jeff Hung with Morgan Stanley. Please go ahead.

[Jeff Hung, Morgan Stanley]

For Eiry, if I could ask a little bit more on 104. I know you said that you would look at the totality of the data in central trimmers and you need to look beyond the primary endpoint. But what kind of change in apple to that peak frequency of the postural tremor would be clinically meaningful in this patient population?

[Dr. Eiry Roberts, Chief Medical Officer]

I think I'm not just able to be able to answer that. I don't think there's been a correlation or enough work that if you think about this deal, there's nothing being approved for the treatment since 1970s. And really, now the only effective treatment is off-label medications that are used. So we're doing this study, looking at what we believe is a very well-controlled and appropriate endpoint to assess the tremor frequency.

But in addition to that, we'll obviously be looking at the TETRA ratings, which is a more clinically relevant, ratings in that study that includes activities daily living. And so for this type of proof-of-concept that unit in the totality of the data, not to forget the initial tolerability safety that clearly is going to be critical for a treatment that can be successful [indiscernible].

[Jeff Hung, Morgan Stanley]

And since you mentioned the TETRA, are there specific changes in TETRA or CGIC that would be clinically meaningful?

[Dr. Eiry Roberts, Chief Medical Officer]

I mean this is a 28-patient crossover study with two-week dosing for each element of the crossover. And so, I don't think we'll be very pleased if we see anything in that regard. And obviously, that said, for further discussions and further interactions for a registration program.

[Operator]

And I would now like to turn the call back to Kevin Gorman for any closing remarks.

[Kevin Gorman, Chief Executive Officer and Director]

Thank you very much, and thank you, everyone, for your attention this morning. As you've seen and heard today, we have quite a busy year ahead of us. What I'm looking forward to this year is returning to -- getting the INGREZZA to return to pre-pandemic growth levels. I think that's very important, and I'm confident that we'll be able to do that.

I also look at a very robust pipeline with 12 Phase 2 and Phase 3 programs. And they're going to yield multiple milestones, both this year and next year. And when we look specifically at this year, we've talked about NBI-104, in yielding data in both essential tremor and CS U.S. We're also looking forward to the submitting the Huntington's disease, sNDA.

And then finally, we are committed to finishing enrollment both in the adults and in the pediatric CAH studies and then getting the submission ready for those two NDAs. So a busy year, and as I said, the following year is going to be jammed with even more milestones.

So once again, I thank you very much for your attention today, and we're really looking forward to getting out and meeting with all of you in person throughout the year. Take care.

[Operator]

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

[Dr. Eiry Roberts, Chief Medical Officer]

Goodbye.