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

Good morning, and 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 ACADIA Pharmaceuticals with CEO, Steve Davis; and CFO, Mark Schneyer. Welcome, Steve, Mark.

Thank you.

Thanks, Jeff.

So maybe let's start with NUPLAZID in PDP. With 2Q earnings, you reduced the top end of your net sales guidance range. Is that strictly due to lack of significant improvement in the PD market dynamics? Or are there other factors that we should be thinking about?

Yes. It's really, really due to dynamics in the PD market and maybe just to kind of level set there a little bit. So the Parkinson's disease market has been disproportionately impacted by the pandemic. First of all, it's an elderly frail population. And the, in course, in the early days of the pandemic, we had a lot of higher mortality in that age group. And there's a significant nursing home components well, in particularly in that arena. And so what we've seen, so there's some mortality that we - it's a disease state where the typical lifespan of a Parkinson's disease psychosis patients about 4.5 years. So that means a fairly dynamic population, and so we'll recover from that. But it will take a little bit of time. Probably the bigger impact in Parkinson's has been impact on just occupancy rates in long-term care and new admission rates. And that's really more a function of staffing levels, just a very significant shortage of staff in that arena. And then an office-based practice, which is about 3/4 of our business, the nursing home cares about 1/4 in office-based practices, there too, we've had staffing issues. But the primary impact of the pandemic there has been just patients being more reluctant to see their physician in person. And so that rate of in-person visits is down about 20% as a result of the pandemic. So the point is these are temporal matters. We will recover from this. We'll reach a new normal, and that allow us to go back to more attractive growth rates. But for now, it's having an impact primarily on new patient starts. And new patient starts is how we grow share primarily. We do get some share from switches from off-label antipsychotics, but it's primarily newly diagnosed patients starting new therapy. And that's where the real impact of these conditions have been the greatest. Despite that, we've been able to continue to gain market share during the pandemic, so a larger share of a smaller market. And we continued to outperform basket-top drugs in psychiatry and neurology and long-term care. So we've performed on a relative basis very, very well, but in a smaller market. And so that's resulted in volume growth that's been flat to modest growth. But again, that's a temporal situation. We do see more attractive growth opportunities going forward.

Great. And so then what would you have needed to have seen for the higher end of the net sales guidance range?

So when we begin guiding issue, we had a little bit greater range on guidance than we typically do. And that just reflect -- every time we do guidance, we run a range of scenarios. And that really reflected the uncertainty around just the rate of progress of recovery from these pandemic ones that I just described. To get to the top of the range, we would need to see a recovery on new patient starts that I was referring to earlier in the year. Like all pharmaceuticals that are chronic disease, drugs, the patients you started at the beginning of the year are the ones that produce the most revenue during the course of the year, new patient starts to have later in the year, obviously, don't produce as much for the year. And so we reached a point when we announced earnings last quarter that we felt like we haven't seen that recovery early enough in the year to really impact things and get us to the higher end of the range. So we envision all along that we would narrow the ranges going forward could start with a fairly broad range. And so that's what we do.

And so has the dynamics from the last month or so continue to confirm very slow incremental improvements in the PD market? Or are there evidence that things could improve meaningfully this year?

Yes. So I think the way I'd describe it is, well, first of all, we don't guide mid-quarter. But the way I would describe the conditions is, I would say the same thing we said on the last earnings call that we're still in this kind of low to flat to moderate growth rate on volume. We do see things that may indicate that we're beginning to see some recovery there. But I think it's just, it's premature to call that yet. Hard to know whether that's going to be a trend that continues or just some modest improvement on some of the parameters. But again, I think the important thing is this market is really driven by demographics. The demographics are such that the patient population will recover. Patients will reach a point where they're more comfortable seeing their position in person. We will see staffing shortages. All these things will be resolved. I can't tell you whether it be in the next month or the next quarter or sometime next year. But they will resolve and everything that we see, particularly given that we've continued to gain market share despite the challenges of new patients starts our primary way of doing that. Everything that we see continues to indicate we've got a lot of room to continue to grow the drug.

And then on the 2Q call, you talked about carefully allocating capital to PDP opportunities with highest ROI. So can you talk more about these opportunities that you see with the highest ROI and that allows you to keep overall SG&A flat next year despite potential launch in Rett?

Yes. Yes, great. Mark, do you want to take that question?

Sure, happy to. So I think it's important just to take a step, as we think about what's the right budget and commercial expenditure for both potential launch of trofinetide and for NUPLAZID. We kind of started with what's right for the individual assets. And then with being conscious of the overall spend of the business. And so that's kind of where we net out on being essentially flat is our expectation for next year. For trofinetide, we'll make sure we'll have the right commercial budget to launch the product properly and be successful there. And then just to kind of come into your question on NUPLAZID, listen, we're a couple of years into the pandemic. We know how to market and become more efficient and tactics change. And so if you think about field force samples, digital marketing, all these things, a mix and the mix changes year-to-year, just making sure we have the right returns. And one thing we've not run this year is kind of an on-air television commercial for NUPLAZID just because we don't see the right returns in this environment. But as we get back to growth, that's something that we could come back to, but we haven't run this year, and we'll be very judicious in making sure we're spending the right dollars to support the franchise.

Great. Well, let's move on to trofinetide. So maybe for those who haven't been following the program as closely, can you just give a brief recap of what you saw in the LAVENDER study?

Yes. I need to take a little bit of a running start there just to make sure we're level set with everyone. So Rett Syndrome is a really, really highly burdensome disease. So mostly girls there are some male patients, but almost all girl patients. They develop normally for the first 18 to 24 months of life, then they begin to deteriorate neurodevelopmental. So it's not a neurodegenerative disease. The neurons are still intact. They're still alive. But the disease is caused by a loss of, or a degradation of communication between neurons. So it's the synaptic communication that's the core of the disease. Our drug trofinetide is designed to increase the synaptic communication. And because you have this loss of communication between neurons, you have a wide array of symptoms with Rett Syndrome. You have some respiratory issues, some easier issues, but the core issues of the disease are really the neurodevelopmental aspects of the disease. So loss of verbal communication in many, many cases, loss of even nonverbal communication. Patients typically can't walk. They can't go to the bathroom by themselves. So it's a very, very high burden disease. I mentioned that the mechanism of action of trofinetide is designed to increase synaptic communication. So what we saw in our Phase III program is positive results on both co-primary endpoints. That's always -- just to start with, that's a high bar on any clinical trial. We have co-primary endpoints. You have to be statistically significant on both of them. So unequivocal data there, strong results against both endpoints. But importantly, on the RSBQ, has 8 domains, measuring various aspects of this neurodevelopmental state, and we saw positive movement across all 8 domains. So again, it's consistent with what we know about the drug. It's also very important because, of course, if you're a parent or a physician treating a recent patient, you don't think in terms of a scale or RSBQ, you just think about the specific symptoms that your patient or your child has. And so seeing movement across all 8 domains is a very important finding in the LAVENDER study and part of what gives us confidence that we'll be able to have a very meaningful impact on this really, really terrible disease.

And yesterday, you announced that the FDA accepted your NDA. Maybe if you can talk a little bit about that? And then if it's approved, you're expecting to receive a pediatric priority for Vouchers. So you can also talk about what your current plans are for that voucher?

Sure. So yes, yesterday, we announced that the FDA has accepted our filing. We received priority review. We expected to receive priority review and did. And they also indicated that they do not currently plan to have an AdCom. And with a new chemical entity, a new mechanism, first dark approved, you would typically think very high likelihood of having an AdCom. But with a rare disease, it's not so automatic. And so learning that TMD does not currently plan to have come, I think it's helpful to us. If they were to change their mind, then we'll be very well prepared, but it's good to get that indication very early on. As it relates to the pediatric review voucher, we should qualify for that. And we haven't made a determination. We have the option of either using it on another of our programs or there's obviously a market for those things. And so we haven't made a determination yet. It's just premature to know how we would use that.

Okay. Well, in preparation for a potential launch, like what kinds of activities are you conducting, and maybe you can talk about whether you have to adjust your sales force at all for the new indication.

So let me start with the second half of that question. So there's a Parkinson's disease psychosis despite being a psychiatric condition is treated almost exclusively by neurologists. So we're heavily in the neurology space today. Rett Syndrome is a neurodevelopmental disorder is also treated almost exclusively by neurologists, but they're not the same neurologist. So we'll have an independent sales force that will be calling just on Rett treating physicians. It will be significantly smaller than our Parkinson's disease psychosis sales force because there's just a smaller number of smaller patient population, there for a smaller number of physicians that treat Rett. In terms of preparing for the launch, any time you launch in a new indication where nothing has been approved, there's a fairly significant amount of disease education that you want to do on the front end. So we're well into that now and doing a lot of work to try to elevate the precise understanding of the range of symptoms because again, it's a disorder that has a wide range of symptoms. And of course, once a patient has Rett syndrome, they're being diagnosed that they know about the disorder. But we want to make sure that we're doing a good job of underscoring the range of symptoms because they don't all have exactly the same symptom profile or the same severity across each symptom. So we're doing a lot of work on that front. We'll continue that well into the launch. And of course, we've done a lot of work to assess the market opportunity. There is estimated to be between 6,000 and 9,000 Rett patients in the United States. About 4,500 Rett patients are treated and diagnosed. And as we've mentioned, we are very well positioned. We've done a lot of work, and we will continue to work through the launch in identifying specific areas where Rett patients are treated. There's a certain number of them that are treated at 18 centers of excellence. The majority of patients are treated at individual hospitals or academic sensors. And then there are very few very small number of patients that are treated by neurologists in an individual practice. And of course, pediatric neurology is a significant component of the treating population as well. And because these patients have so many health issues, they're really you typically treated or many times treated by a care team. So we're doing a lot of work to make sure we've mapped out that those care team physicians as well.

And maybe you can talk a little bit about patient identification, like do you have a group of patients that you've already identified? Launched? And would you expect the bolus of patients being treated shortly after potential approval?

Yes, it's a great question. So many times in rare disease, the biggest challenge you face once you get an approval and launch a drug is finding the patients because it's rare. And in today's environment, many of these rare diseases have more well-established patient advocacy groups, et cetera, and Rett, in particular, has a very well-established patient advocacy group. So I don't think that will be a significant challenge for us in terms of identifying the patients. So one group in particular has membership list that goes into the thousands. So I think we feel good about that. We don't do that as a significant challenge in the early days of the launch. I think as we think about these patients, again, many of them, as I mentioned, are in established hospitals that we've identified our centers of excellence. And as we go forward in the launch, we'll be, as I mentioned, very cognizant of the care teams and identifying those members as well.

And then you had further recent discussions with payers and what kind of feedback have you been hearing about beyond the favorable feedback on the product profile?

So we've done a lot of payer work. At this stage, all of the payer work we have is -- I think it's been very supportive. They get it. They understand it's a devastating disease, a rare disease. This is not a drug that's likely to have a significant impact on their per member per month financial assessments. There's not enough patients to do that. But they get it. Of course, with any launch, the most important exchange you have with payers happens throughout at the end when you have more of a label that you could be talking about, et cetera. So we'll have those discussions. We'll announce pricing after approval of the drug. But I would say all the discussions and so far have been very supportive.

And then maybe one question on negative symptoms of schizophrenia. So on the 2Q call, you indicated that as a result of what's going on in Ukraine, you're expecting to complete enrollment in the mill next year. Maybe you can just talk about timing, given that it's 6-month treatment, how should we be thinking about the expectations for timing for that study?

So it's a 6-month treatment period. So if we complete enrollment in the middle of next year, that would give us results possibly at the tail end of 2023, but more likely in the early 2024 time frame.

Okay. You started talking about ACP-204. Can you talk about this program? And how is it built on the learnings of pimavanserin?

Yes. So we've been active in this space seeking to build out our franchise by bringing other molecules forward for the last few years. We have been talking about it a while. We began on our last earnings call talking about ACP-204, which is our most advanced molecule, we'd have some other molecules behind it as well. And the objective is to, as you mentioned, and as we've said, leverage the learnings for pimavanserin and the rationale behind that, of course, is that pimavanserin is unlike any other antipsychotic on the market. Most or, I should say, I think virtually all of the antipsychotics on the market today work in predominantly through blocking dopamine and in particular, the dopamine D2 receptor. We work entirely through serotonin. And so we just have this very different safety and tolerability profile with pimavanserin than you typically see with antipsychotics. So in order to - and we also recognized early on, we'll never get to all the indications that you could pursue with pimavanserin. And so we began early on working on drugs that could leverage the learnings in this mechanistic space and bring forward as follow-on compounds after pimavanserin or NUPLAZID as one about trading. 204 hits a really nice sweet spot, I would say. It's closely enough related to pimavanserin to have a reduced risk profile. Small molecules, early in development have high attrition rates. So we're want to be cognizant of that. But when you're working in a known mechanism as we are with pimavanserin and in the chemical space that is -- we have a good understanding of where to go and where not to go in the chemical space. It just gives us a different risk profile. So as I said on our last earnings call, we're not done with Phase I yet. So let's finish Phase I and then we'll talk more about the development plan for this molecule. But so far, everything looks really good. If it continues to look good, we may want to move pretty aggressively with this molecule. And today, we know that NUPLAZID it's approved for PDP. It could be approved for negative symptoms of schizophrenia. We're not pursuing it any further for Alzheimer's disease psychosis or other indications that would be, could be very attractive for 204. And of course, Alzheimer's disease psychosis, as we mentioned, is at the top of the list of indications that we'll be considering there. But there are a number of indications that, that molecule or other molecules in our portfolio could be very attractive candidates for.

And so as you finish up the Phase I profile of the compound, are there specific characteristics that you would look for that might shift your thinking towards different indications?

In indications like Alzheimer's disease psychosis, -- these are frail elderly patients. So you need a different profile than you might be looking at if you're treating schizophrenia patients, for example. And so the key here is having -- of course, you start with a drug that's efficacious and provides a benefit. But beyond that, it's really the safety and tolerability profile that is super critical. So that's why I say let's finish Phase I. We're exploring a wide dose range in Phase I. Let's see what the results there are. But if we continue to have results that look like the results we've seen so far, it will give us a wide dose range to explore. And that really opens up a lot more opportunities on the more frail elderly type of population. There are other indications that we may want to pursue as well based upon the profile of the drug and what we know about this mechanism at this point.

You discontinued ACP-044 for both acute and chronic pain. You've only reported on the acute pain study. So what about the data led you to also discontinue for chronic pain?

So I'm going to go back to something I said a second ago. Small molecules, early development, high attrition rates. So to be successful in that arena, you need to do 2 things. You need to take a lot of shots on goal, as we call it, and you need to be disciplined. And so our discontinuation of ACP-044 is really a result of us looking at the entirety of the data, both the efficacy data in the bunionectomy study where we saw a signal, but it wasn't as strong a signal as we would have hoped for. as well as just you were generating a body of data around safety and tolerability as well. And we begin to see some things that, in the entirety, we felt like it just didn't give us the risk profile -- risk reward profile, I should say, that justified further investing in the molecule. There's nothing definitive in that, but you have to make decisions on capital allocation based upon risk profile. And we reached a point we've gathered sufficient information that we felt like it was appropriate to discontinue development. So again, it's important to be disciplined, and that's the decision we made and that's where we stand.

So speaking of capital allocation, you're positioning ACADIA for additional business development opportunities. How are you thinking about these opportunities? Like what is the ideal profile of assets or platform that you'd be interested in? And is there a particular stage of development that you're more likely to target?

Yes. I've been talking a little bit. I'll let Mark on that. Mark also runs business development.

Thanks a lot. So I think for us, what we have is we have a foothold in neurology and psychiatry and rare disease and chronic broad treatments. And so we'll continue to invest across all of those, probably likely, more likely just to skew more towards neurology and rare disease just because there's a greater opportunity set there. That's where -- the science has gone and where BCs and earlier stage companies have made investments. And so we'll follow that, but we'll continue to look and look across all of those. I think really, our first screen is really medical innovation and bringing meaningful therapies to patients. So that's kind of the 1 and then kind of across where things are and whether at their clinical stage, preclinical or even commercial, and we're open to all of those. I think the more natural sweet spot would be or would be clinical, but we've done clinical deals. We've done preclinical deals. It's really the science and the opportunity and actionability that drives our decision-making.

I would echo everything Mark said and just add. Look, I think trufinitide is a good example of the kind of success we can have and how we're positioned to take advantage of these kinds of opportunities. We acquired rights to that compound a few years ago, funded the Phase III development of the molecule in exchange for getting North American routes and of course, the economics associated with it. And those are the kinds of opportunities that we really love to fund. I said at the time, if we could identify 10 more of those, we'll do 10 more of them. The thing that's been most challenging for us and other companies in the space over the last 5 to 7 years is just the state of the capital markets. That's been our biggest competitor. We operate in a therapeutic area where we're not -- it's not like oncology, where we would be bumping up against GSK and Pfizer and Merck on every opportunity. don't have that. But what we've had is a very, very abundant access to capital. Of course, that's changed in the last few months. And so as we go forward, we'll continue to monitor that. But if it continues to be disjointed or choppy, that just bodes really well. It's obviously a 2-ish sort. But in the long run, an intermediate to long run, that's really good for our business. And so we'll continue to be eager to leverage the capabilities we have in that environment.

Maybe one last question in the last couple of minutes. You've indicated that you've got more sufficient resources to fund your business until you turn cash flow positive. How important is to be cash flow positive versus expanding your mid- to late-stage pipeline?

Yes, it's a great question. it's obviously a judgment call that every CEO and CFO that you talk to in this business makes in terms of how to allocate capital. And a lot of it depends on what the opportunities that you have in front of you is. And so for us, we've got a lot of really interesting opportunities. trofinetide. We want to make sure, as Mark mentioned, that we're funding the -- preparing for and funding the launch of that appropriately. In PDP, we're being judicious about the SG&A spend that we have on that in the current capital environment, but we'll be poised as that change to take advantage of that as well. We've got a really interesting opportunity in negative symptoms of schizophrenia, which again will have something very rare in that space and that's a positive pivotal study. We're now running a second study that's almost a carbon copy of the first study with a couple of enhancements that should improve the probability of success even further. We've got 204, which again, let's see what extend on Phase I results and see, but we may want to move very aggressively with that molecule. And then we've got the business, we've got some other early-stage assets, some of them disclosed and some are not. And then we've got the business development opportunity. So there's a lot calling for capital, I guess, I would say, at ACADIA. And one of the things that I think we do really well is I do think we do a good job of allocating capital based upon those investments. Now having said all of that, on a stand-alone basis, or NUPLAZID in PDP has been profitable for the last few years and has produced cash flow. Not enough cash flow to cover the entire company, but we do see that changing. So just independently, we should get to a point of being cash flow positive just based on PDP revenues well before we would exhaust our $400 million plus balance sheet. So we're in a really good position right now to not need to go to the capital markets to sustain our business. But we also want to make certain that despite that, that we're being very careful and judicious about the funds that we do spend.

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

Thank you, Jeff.

Thank you.