ACADIA Pharmaceuticals Inc. (ACAD) Earnings Call Transcript & Summary

Welcome to the Morgan Stanley Global Healthcare Conference. I'm Jeff Hung, one of the biotech analysts. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. For this session, we have from ACADIA Pharmaceuticals, CEO, Steve Davis; President, Serge Stankovic; and Interim CFO and Chief Business Officer, Mark Schneyer. Welcome, everyone.

For those who may not be familiar with ACADIA, can you provide a brief introduction?

Yes. Thanks, Jeff. I'll do just a little bit of level setting and then we'll go right to the Q&A. So I'll start with a few comments regarding our commercial business in Parkinson's disease psychosis. So in the second quarter of 2021, NUPLAZID achieved net sales of $115.2 million. This was driven by year-over-year and sequential volume growth. We continue to add new patients, new prescribers and see very high adherence among our PDP patients. Although, we continue to be impacted by COVID-related headwinds our ability to grow despite these headwinds is further reinforced and exhibited by our strong relative performance compared to other branded products in the long-term care channel, for example. As the pandemic conditions for the Parkinson's community improve, we expect these headwinds to become tailwinds that will further accelerate our growth. On 2021, the long-term opportunity for NUPLAZID in PDP alone is significantly growing. As I said many times, I think there's going to be a very large drug just in Parkinson's disease psychosis. Next, regarding our regulatory interactions for dementia-related psychosis or DRP. In April, we announced that the FDA issued a complete response letter, or CRL, regarding our supplemental new drug application for dementia-related psychosis. And on our earnings call last month, we provided an update from our CAPE into review meeting with the FDA. At that meeting, the FDA reiterated their stated position in the CRL that pimavanserin should be studied by individual subgroups of dementia and advised the best path forward is to conduct an additional clinical study in each of the subgroups for which we seek approval. However, and importantly, the FDA also indicated that they are open to having another meeting to discuss additional analyses from the HARMONY and our -019 study, the -019 studies is our Phase II study, in support of a potential resubmission without an additional clinical study. So we plan to conduct this next meeting with the FDA and report on the outcome of that meeting around the end of this year. And finally, just a few highlights from our development pipeline. We have 2 ongoing Phase III programs. We advanced -- we initiated ADVANCE-2, a Phase III study for pimavanserin for the negative symptoms of schizophrenia in the third quarter of last year. And LAVENDER, our pivotal Phase III study for trofinetide for Rett syndrome is on track to deliver top line results by the end of this year. Earlier this year, we initiated a Phase II study evaluating ACP-044 for postoperative pain associated with bunionectomy surgery. We expect top line results from this study by the end of this year. Furthermore, in the second quarter of this year, we initiated a Phase II study evaluating the same drug, 044 for pain associated with osteoarthritis. Business development continues to be a key priority for our strategy to expand our pipeline to fuel long-term growth and bring new therapies to patients with high unmet needs. And with that, I'll turn it back to you, Jeff, for questions.

Great. Thanks, Steve. And maybe first, Mark, for those who may not know you, can you provide a little introduction on your background?

Sure. Thanks, Jeff. Pleasure to speak to you again and to participate in today's conference. I joined ACADIA about 1.5 years ago, as you said, as Head of Business Development and Chief Business Officer. I've spent my 25-year career focused on strategic and corporate finance transactions through my business development roles at ACADIA and Pfizer as well as my investment banking roles at Lazard. I guess in this interim role, I look forward to continuing to partner with Steve, Serge and our executive team and to lead our strong finance organization, and I look forward to engaging with you in the investment. Thanks a lot.

Great. Thanks, Mark. Maybe let's start with NUPLAZID in PDP. So despite multiple headwinds in 2Q, you were able to grow new patient starts. You expect further acceleration of growth as the pandemic conditions improve, as you said, and tailwinds that turn into headwinds. I guess, before we dig into the specific components, overall, are you seeing or hearing anecdotally that conditions are indeed improving?

Yes. Thanks for the question, Jeff. As you know, we don't provide updates on our commercial progress mid quarter, but I'll give you as much color as I can. So what I can say is that the macro factors related to NUPLAZID are: one, in-person patient visits with -- between patients and their physicians; two, new admission rates at long-term care facilities; and then three, in-person detailing with our sales force. In other words, in-person business between our sales force or our representatives and healthcare providers. And so far, all of these factors have remained below pre-pandemic levels. And as we reported in August, we've still grown the franchise on a quarter-over-quarter basis and year-over-year basis despite these headwinds. So essentially, we've continued to do more with less. As these macro factors normalize, which they will do, the pandemic is not going to last forever. But as these factors normalize, particularly as they relate to Parkinson's community. We expect them to revert from headwinds to tailwinds to our business and allow us to return to the same kind of linear growth curve we've observed since launch.

And on the recent earnings call, you indicated that the -- for the office space channel, Parkinson's patient business were down 20% from pre-pandemic levels. What is the significance of this? And have those levels improved in recent months? Or what are you seeing as a result of the Delta variant?

Yes. Yes, thanks for the question. I think the -- maybe just to give a little bit more texture or context. Our -- the growth of our business is primarily reliant on new patient starts. There is some switching in Parkinson's disease psychosis patients, but not nearly as much as there is in other areas that antipsychotics are used, for instance, in schizophrenia. So it mostly comes through new patient starts. And the things that I referred to regarding office visits with -- between patients and healthcare providers being down about 20% in the Parkinson's space and long-term care admissions being about 15% below pre-pandemic levels, new patient admissions being down about 17% from pre-pandemic levels. Those are all things that read directly on to new patient starts. Physicians are much more reticent to start a patient on a new drug if they're not seeing them in person. So as new patients, I mean, those office visits are critical to new patient starts. And of course, in the long-term care facility, if there are just fewer patients being admitted, there are few patients in the long-term care facility, less opportunity to start new patients on NUPLAZID. And so to answer your question, our office-based channel is a little more than 75% of our business. And our long-term care business is a little bit less than 25%.

You reduced net sales guidance as a result of the continued impacts from the pandemic and a higher gross to net. Do you think you've been sufficiently conservative on the potential and continued impact from the pandemic? Or has there than any additional developments in Delta variant or regional COVID spikes that are beyond what you had considered? And I guess if so, just what kind of developments have been surprising to you?

Yes. Thanks again for the question. So the reduction that we took in our guidance was a result of both the lower number of new patients due to the pandemic headwinds that I've previously described as well as about equal part, our gross to net getting larger than our expectations were at the beginning of the year. And the gross to net expectation is primarily -- or the increase, I should say, is primarily driven by increases in 340B. And that's something that's not unique to us. It's obviously something that's impacting our industry more broadly.

And so as we think about the third quarter, can you remind us if there's any seasonal aspects that we should keep in mind? And I guess with inventory still at the high end of the range in 2Q. Is there any reason to believe that, that should come down?

Yes. So let me -- let me take it in 2 parts. So first, regarding seasonal aspects. I think -- The most important thing impacting our business as we go forward are the things we already talked about, impact of the pandemic. And again, as those conditions normalize and we're now seeing infection rates stabilizing again. And as those normalize and specifically in the Parkinson's community, we expect to be able to accelerate our growth. We're still growing the business, but at a lower growth rate than we were pre-pandemic, and we expect to accelerate that going forward. So just on a macro level, that's the most important factor that will drive our nearer-term performance. We did close the second quarter inventory at the high end of the range where we historically see it. It's something that we'll just have to see as we go forward, how -- where that inventory level is, whether that ones are being kind of a new normal or pulls back some, but we don't have any additional guidance on that at this time here.

And then you talked about the gross to net and the 340B in kind of gross to net in the remaining quarters of the year. And is there anything beyond the payer mix shift to 340B institutions that we should be thinking about?

Yes, there's -- so to answer the tail end of your question first. There's nothing in terms of the pandemic. So there's nothing regarding the payer mix that would be a contributor to gross to net or more specifically to our 340B discounts. And I think as we go forward, we, like everyone else in the industry, are just going to have to see how this evolves. As you know, this is an area of variances scrutiny, some litigation in the industry. And we'll have to see as we go forward how this impacts us as an industry, but I don't see us being disproportionately impacted or uniquely impacted as we go forward as it relates to 340B.

Okay. Well, moving on to the DRP. You're planning to meet with the FDA later this year to discuss the additional analyses that could support the resubmission without conducting the additional study. Have you already scheduled that meeting with the FDA? And what kind of additional analyses might you present to the FDA?

Yes. Thanks for the question. So I'll give a high-level response and then I'll have Serge to add some additional color. What we've said on our last earnings calls, we anticipate having the meeting and then being able to report the results of the meeting by the end of the year, and that continues to be the case. Now I want to give one brief caveat here. Obviously, I don't know this would be the case, but we need to more time to ensure that we get all the right people at the meeting, et cetera. That's the thing -- that trade-up we would obviously make. But our expectations are unchanged in terms of the meeting. I'm going to let Serge speak to a couple of -- some of the analyses we did at the last meeting that where we just didn't get to complete the dialogue or the conversation around them and that we'll be picking up in the next meeting. Serge?

Yes. Thanks, Steve. I can give you a couple of examples that we mentioned in the earnings call, but give a little bit more color maybe around it. This analysis just fall into several groups. The first 1 I would mention is related to the cluster analysis of the symptoms as well as the severity of psychosis that we conducted among and between different dementia subtypes. The scale we are using SAPS-H+D, scale for assessment of psychotic symptoms, hallucinations and delusions, subscale has a number of items, and we conducted this cluster analysis, trying to see if the symptom profile of the psychosis between different dementia subtypes, changes between the -- whether that's prior to treatment, in the course of treatment or after withdrawal of treatment. And what we established both when you look at the overall severity and the profile of symptoms that there is really not much difference between the subtypes in terms of the general description of the psychotic symptoms that patients in these different subgroups experience. The second set of analysis is related to the response that we see to treatment, again, to active treatment as well as following withdrawal of treatment. And what we established here is that the relapse rates between different subtypes of dementia or subgroups of dementia are fairly similar once we are looking at a response to active treatment, response to pimavanserin treatment, where we do see some differences in relapse rates for patients who are taken off therapy after randomization on placebo. For example, we observed higher relapse rate for Parkinson's patients on placebo whose symptoms tend to cycle at a faster rate than, say, Alzheimer patients. Another set of analysis is really focused on the meaningful response that we see in different subtypes. And particularly here, we're focused on the largest subgroup in our dementia-related psychosis sample and that's the Alzheimer dies psychosis. And we conducted a number of different approaches, not only from the perspective of the relapse rates and hazard ratio, where we see a quite meaningful -- clinically meaningful response, but also the symptom severity following withdrawal of treatment or continuation of treatment, responder rates. And the other aspect trying to demonstrate consistent meaningful clinical response to this treatment. So we are seeing quite a bit of consistency in the effects, and that's really an important element once we focus on particular subgroups.

Great. And so if the agency maintains their position that you need to run additional studies, are you planning to do so. The reason I ask is that investors that I've spoken with have largely removed DRP from their models. So I guess, in the scenario that you can't resubmit without running additional studies, what are the chances that you discontinue development for DRP?

So again, just to be clear, after the next meeting, I think we'll have -- we should be in a position to have good clarity that is our goal to the community to get solid alignment with the FDA regarding the path forward. If there is a path forward to submitting without a running additional clinical studies, and we think that is a promising path forward, then of course, that's what we'll do. If we determine that we do need to run additional clinical studies, I think we have a pretty good idea now what that would entail. And given that the FDA's view is that we should study individual subtypes and that it would require studies in individual subtypes. We have to make a determination. There's some subtypes that are pretty rare circumstances, it might be difficult to enroll a study in some subtypes. In others, for instance, Alzheimer's, they're very prevalent. It represents about 70% of the population of DRP patients. And so we'll have to make a determination, but what I can tell you today is we've done a lot of contingency planning, a lot of scenario analysis. And certainly, for the most significant subgroups, it absolutely pencils out to run an additional study, if that is what's required to get an approval in individual subtypes. And so we're prepared to today, we've got the balance sheet to do it. We've got the capabilities to do it. And with one obvious caveat that would apply to any company doing development work in our business. And that is if the requirements from the FDA to get across the finish line, after doing additional clinical work, we're so outside of the normal what we would expect today, then, of course, that could change the calculus. But absent that, we've got sufficient patent life, and we've got the balance sheet to do it, and we remain committed to the DRP patient community, although the path to getting this drug to patients who can benefit from it is a little different than we envisioned previously.

Okay. Good. Maybe moving on to Rett. In the next few months, the Phase III data for trofinetide in Rett syndrome are expected. Maybe can you talk a little bit about the LAVENDER study?

Sure. Serge, do you want to take that?

Yes. Okay. Yes. Thank you. LAVENDER is our single pivotal study. It's a randomized, double-blind, placebo-controlled study in approximately 180 young females, age 5 to 20 with Rett syndrome. Patients are evaluated for 12 weeks. And the co-primary endpoints are Rett syndrome behavioral questioner or RSBQ, that's a caregiver assessment tool and the clinical global impression of improvement CGI-I, which is a physician assessment of the scale. We are currently, as you mentioned, on track to announce top line results by the year-end. And importantly, we have agreement with the FDA that positive results from LAVENDER in addition to supportive efficacy data from previous Phase II study and the safety database, we are collecting, would be sufficient to support a new drug application.

And what do you see on the co-primary endpoints to be clinically meaningful? And can you remind us of what you saw in the Phase II that gives you confidence on these end points?

Well, let me just start by saying there is really nothing approved for the treatment of Rett syndrome, particularly core symptoms of the Rett syndrome. And as such, is not really very clear what would be clinically meaningful effect. For example, it's the research we have and discussions we have with the key opinion leaders and experts in the field would tell us that even a slight improvement on some of the symptoms might make us very significant difference in the ability to care for the patients and for their functioning. So one thing that I would mention, the co-primary measures that we have, one, caregiver parent or caregiver assessment, perspective on the movement of symptoms and the other being a physician assessment, that clinical assessment in some aspect is a validation of whatever seen on the caregiver assessment. So from that perspective, any positive results of the study would give us a movement in terms of the functional and clinical meaningfulness of the results. We are encouraged by the Phase II results, obviously, because these exact measures that we are using as a core primary measure in this study, where a 200-milligram dose in the Phase II study, where actually separated statistically from placebo with a meaningful 15% -- about 15% reduction in symptoms in that. So those exact measures we moved into the Phase II trial. -- into Phase III trial, I'm sorry.

And if trofinetide is ultimately approved, what are your current thoughts on the commercial strategy? And would any changes need to be made to the current sales force?

Well, I'll take that one. So I mean one of the things we really like about this program and liked when we acquired it a couple of years ago, is it fits very neatly within our current footprint. So although Parkinson's disease psychosis is a psychiatric symptom, it's treated almost entirely by neurologists. So we're in neurologist offices today. So of course, with the launch of any product, there are adjustments that you need to make in order to make certain you've got all of the right resources in place, and there would be some here, but it would be a very natural extension of our existing footprint in neurology.

Great. And last week, it was announced that you guys would be conducting the DAFFODIL study in younger patients. Maybe what do you hope to learn from that study? And then are there any differences based on the age of patients that you need to account for in the study?

Serge, you want to pick that?

Yes. Thanks. -- let me just give a little description of DAFFODIL for better understanding. It's a 12-week open-label safety and tolerability study. We are also evaluating pharmacokinetic parameters. And the main really trust of the study because it's a very small study, is to evaluate tolerability, safety, learn about this in this smaller -- in this patient population of younger patients. This is 2- to 5-year-old and also to understand better dosing with the pharmacokinetic parameters that we are evaluating. So the trust of this study is for us, this is not related to our file, but it's more related for us understanding and providing potentially prescribers with additional information that, that may need as it comes to our younger kids.

Okay. Great. And then maybe moving on to ACP-044. You're also planning to report Phase II data for acute pain in the coming months. Can you talk about that product candidate and the opportunities in acute and chronic pain?

Steve, I'll take the first part and maybe an opportunity, you can jump in on that. ACP-044 is first in class, really novel orally administered nonopioid analgesics that acts peripherally and has the ability to deliver efficacy without the safety concern that we saw with some other treatments. It does interrupt the multiple pain pathways and sensitization of neurons to pain by accelerating the composition of peroxynitride, nitro oxidative agent elevated following tissue injury. We have observed very exciting results in animal models of both postsurgical pain, inflammatory pain, neuropathic pain, traumatic nerve pain, osteoarthritis pain. So all of these animal models that cover both acute pain and the chronic pain, we are doing both clinical models that. And in the bunionectomy study, this is our acute pain study that we will be reporting by the end of the year that we are doing acute pain. And then we did start osteoarthritis model, and that study we'll be reporting sometimes next year. As you know, there is a significant unmet need, and I'll turn it over to Steve to maybe talk a little bit about the opportunity.

All right, just getting myself on muted. So I think the starting place is really what where Serge just ended, and that is one of the things we like about this program and the reason we acquired CerSci Therapeutics is to gain this program is -- it has a very promising potential in both acute and chronic pain. And the profiles for drugs in those two applications are similar in many respects and -- but also different in others. And this compound, primarily driven by the mechanism of action, I think, gives us a really promising opportunity in each of those. As Serge mentioned, the mechanism of action for this drug works upstream of several pain signaling pathways. It's another thing we like about, another thing that translates into the potential for this, both in terms of being acute and chronic, but also the efficacy potential. Pain, there are -- as I just mentioned, there are many redundant pain signaling pathways, probably all through evolution because the ability to sense pain is such an important component of our survival. And so having the ability to interact upstream of these -- several of these simultaneously is very exciting. Many times with a new mechanism, we think in terms in terms of, okay, we see efficacy in animal models and as Serge mentioned is very consistent and intriguing and compelling evidence in animal models, but we also have to ask the question, will the drug be well tolerated and have a safe profile and everything we've seen so far supports that as well. So we think the potential here is very dramatic, particularly given the opioid situation we're in, really globally, but particularly here in the United States and the need for new non-opioid pain medications.

Great. And maybe one last question. What aspects of the ACADIA story do you think TheStreet under-appreciates? Or are there any aspects of the story that you think that TheStreet should spend additional focus on?

Well, I mean, I think every CEO probably, most of the time, if not all done feels like the stock's undervalued and certainly the way today. I think the -- I would just answer that and close with a reminder regarding the multiple shots on goal that we have in the multiple the very strong revenue stream that we have in PDP and the multiple additional revenue streams we are going forward. So again, we're continuing to grow the drug at albeit lower growth rates, but as pandemic conditions improve, we fully expect those growth rates to return to pre-pandemic levels. And DRP will be focused on clarifying the path forward there. We should have that clarity around the end of the year. And there's still very significant potential there, irrespective of the path of getting there, whether we can submit without additional clinical work or we need to do some additional clinical work. Our negative symptoms in schizophrenia Phase III study is continuing to enroll and on track. We should have results from that sometime around the end of next year or early the following. And of course, our Rett syndrome Phase III program will be reading out around the end of this year as well. We just talked about the 2 pain programs. We also -- in Phase II. We also have a very exciting M1 PAM program in Phase I. That's an area that's been a very intense interest in the industry recently, and we're really excited about the prospects there. And then the last thing I'll say is we don't talk a whole lot about it, but we do have other molecules that we're bringing forward that are meant to leverage the learnings we have with pimavanserin and the unique biochemistry of that molecule. And as those things reach the clinic, we'll talk more about them, but we believe there's an opportunity to continue to build upon the franchise we have around pimavanserin.

Great. It looks like we'll have to leave it there. Thanks so much for your time.

Thank you, Jeff. Great catching up.

Thank you.