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

Good morning, everyone. Welcome to Morgan Stanley Global Healthcare Conference. I'm Sean Laaman, Head of U.S. Mid-cap Biotech Equity Research here at the firm. For important disclosures, please see Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley sales rep. For this session, we have the pleasure of hosting from ACADIA CEO, Catherine Owen Adams; CFO, Mark Schneyer; and EVP, Head of Research and Development, Elizabeth Thompson. Thank you for the time to you, and welcome.

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We'll get through just some macro questions just at the beginning, as I said I would. But Catherine, with China's rise in biotech innovation, how are you thinking about your competitive position here? And will this influence your R&D or business development strategy?

I think for us, with our focus on neuroscience and rare disease, for now, our focus on China has been, I guess, minimal. But I think what Liz and I recognize that there's a lot of activity going on in China. And part of the strategy of bringing on our new Chief Business Officer, Tina Katcheves, was that she has built up a big in [indiscernible] Asia Pacific, not so much R&D, but sort of BD Group. And so she has experience of looking for innovation in that region, and we are interested and looking forward to becoming more involved in the innovation in China. But for right now, not really.

Not really. And how are you currently leveraging AI or thinking about AI's future disruption potential?

Well, again, back to the C-suite. We've just brought on a new Chief Innovation and Data Officer, Scott Cenci, he came to us from Genmab. We understand the importance of getting ahead in AI. We believe it could be a differential growth driver for ACADIA being the size we are, we can actually possibly leapfrog others in terms of the way we use AI in terms of growing our business. For now, we're looking at the possibilities in R&D and building that up in terms of using AI for all the things that probably other people are saying trial selection, data monitoring, trend analysis, all that good stuff, commercial as well and also then data mining our own internal data. So we're doing probably all the things that others are doing, but bringing Scott on is really going to help us accelerate that.

And last macro question for me, at least for now. What's been the most impact for ACADIA? Has it been Taris, MFN or FDA regulatory?

I'm going to let our CFO answer that.

Yes. I think we're monitoring MFN at the moment. Just with DAYBUE us going for regulatory approval outside the U.S., expectation for potential approval in Europe in the first quarter of next year and then pricing discussions with those countries thereafter, that's the element of these kind of 3 themes that we're kind of most focused on. No decisions really need to be made for more than a year from now. So we'll have some time to see how that evaluates. But that's what we kind of think the most about. I mean I could just touch on the other 2. What Liz is probably best to talk about kind of interactions with the FDA, but I'll mention that at least thus far for our portfolio, we've really seen no changes in our engagement with the FDA for the discussions that we've been having over the past number of months or year. And on the tariff side, that's kind of more just small. I mean we do have inventory in the United States for multiple years for both our commercial products. So at least for the near to medium term, there's really no meaningful impact from tariffs.

Great. Any more color on the FDA part?

I mean, honestly, Mark covered it very well. Look, we're watching the space closely. I mean there's tremendous amounts of activity there, both in terms of overall employee level at the agencies as well as most recently as last week, there was a workshop talking about the potential for new regulatory pathways. So certainly a lot that is in flux there. But honestly, from a day-to-day basis, thus far, our interactions really have been unchanged.

Awesome. Maybe to get down to the central thesis a little bit, but NUPLAZID continues to perform well. And following on from the ruling on the 721 formulation patent exclusivity now out to 2038. Can you talk about the various factors that should influence NUPLAZID's uptake in the medium and the longer term?

Yes, absolutely. So NUPLAZID, as you know, we have reported really strong growth this year. And we put that down to the impact of our direct-to-consumer campaign. And why is that important? We have reestablished that this market is highly promotionally sensitive. And that when patients learn about the symptoms of Parkinson's disease that includes hallucinations and delusions, they tend to go to their doctor and ask about treatment, and we are the only branded treatment approved by the FDA, and therefore, NUPLAZID does get its fair share of prescribing and has a relatively high grant rate. And so with that, we have continued to invest in our DTC campaign, and we'll continue to do that. We've also looked at our commercial structure. And I'm pleased to announce actually today that we're going to be expanding our NUPLAZID commercial footprint by about 30%, and we're going to go from roughly 160 reps to around 210. We haven't looked at our commercial footprint for 8 years since launch, and we've learned a lot. Tom coming in, has reexamined it completely, and we're redesigning a lot of how we go to market and where we're going to go and where that growth could come from. But just in a nutshell, we have about a 20% branded share in the market, which with the only branded competitor, one would understand there's a lot of headroom for growth. And so we're looking forward to driving that harder. And we do expect that we'll be able to see more physicians in different parts of the country at a more frequent rate, but also more community physicians. So PCPs and what we've learned through the DTC campaign is more PCPs are prescribing for patients with Parkinson's disease. They don't necessarily go and see a motor specialist. So we're learning a lot about where we should go, how we should activate. And this will probably be in place by Q1 of next year.

Wonderful. It was kind of stealing a little bit from my next question, but I'll still ask it. How do you see NUPLAZID performing in terms of market share between community versus the long-term care setting? And how does that evolve over time as we move further out?

Right. So just a couple of numbers. Long-term care is about 22% of our business right now and we have in the mid-20s market share there. So actually slightly higher than our community, which is more of the low 20s, but obviously much more of our business. So we are looking to really drive harder at the community setting. As I've already sort of stated, going after a broader group of doctors who prescribe for patients with Parkinson's and really trying to also ensure that we're communicating our clinical data set, which has a very strong mortality benefit versus the off-label antipsychotics. And also trying to target patients earlier in their journey with Parkinson's. What we've done with Liz's team has looked at our data a bit more closely. And if you use NUPLAZID earlier in the journey, we tend to see better outcomes for patients. So again, trying to move patients earlier in the journey, treat broader numbers of patients in the community.

Great. And still on NUPLAZID, could you map out the pathway with regulatory -- potential regulatory hurdles in front of us, whether it's IRA and remind us what the split between Part B and Part D is? And how do you think that unfolds?

Yes, I'll start and then Mark.

Yes. I mean the overall Medicare population as a percentage kind of the total book of business to NUPLAZID is kind of in the low 70s percent. So as the IRA has been implemented and what may or may not stick and change over time, certainly will influence our sales and net pricing for NUPLAZID. I think what you -- what kind of between now and the potential kind of next big event would be when would negotiation potentially happen. So we think the -- where kind of our analysis does of NUPLAZID rankings in Medicare sales, we think 2029 is the first year that NUPLAZID will be eligible for negotiation, and we think that's a good estimate to make unless the pill penalty has changed. And if that comes into place, we'd probably add one more year of non-negotiated sales to NUPLAZID just be since the time of launch for NUPLAZID. So that comes into play. And I think when we think about it, there's no analog now for what NUPLAZID, it's the only indication -- only approved drug for its indication. So those that have gone through negotiation, that's not been the fact pattern. So we're still going to have to see how this plays out. But I think you can think for modeling purposes, that we're a small company biotech. So between now and the end of the decade, I think net pricing will be kind of less than inflation for NUPLAZID. And then if we get to 2029 and beyond, we'll be subject to negotiation. So there could be a step down in net price. The first 2 years, whether it's 2029 or some later year, the first 2 years will be subject to protection for small biotechs and then after that could be full negotiation.

Got it. Got it. That's clear. Maybe moving on to DAYBUE. Can you comment on the changes that you've implemented over the past period? We've seen some good patient growth there. And given that, wondering if you can comment on what the issues were and what steps you've taken to address them?

Yes. So when I came in, in September of last year, the focus was very much on DAYBUE and stabilizing the commercial uptake of the brand, bringing Tom Garner in with his expertise. What we focused on originally or initially was execution as well as expanding the field force. So we did expand the DAYBUE field force by about 40%. That went into place at the kind of end of Q2. So we're really just seeing the start of that impact now. The reason for that was we had initially focused our efforts on the centers of excellence, where about 35% of Rett patients treated, which gives you about 65% that are not treated there. They're treated in the community. And our sizing was such that we weren't able to get to those community physicians at the right reach and frequency. So with the new sizing, we're able now to get to those physicians. These physicians on average have 1 or 2 patients. They're less in the know about Rett. So they do need a little bit more education. They need a little bit more understanding. So we have a whole program to support them, starting to feel confident to prescribe DAYBUE. And we believe that inflection in terms of additional new patient growth will start to kick in, in Q4 of this year, which is coming up soon. And so we're looking forward to that. And then beyond that, we've seen a stabilization of the discontinuation rate on DAYBUE. We've really learned a lot since the launch of the product. And we feel very confident now that we're able to talk patients and their families as well as physicians through how to start DAYBUE, what the options are around titration, all the management issues that are important in those first 3 months, and we're just seeing a much more stable patient base now. So we're now building on that compounding growth of stable patients.

Awesome. Thank you, Catherine. How should we be thinking about the overall launch trajectory or trajectory from here given maybe only 20% penetration in the community setting.

Yes. We're definitely in the mid-20s, low 20s for the community. So we're looking to get that up, where compare that to the centers of excellence, we've got about 50% to 60% of penetration. So those are the sort of the 2 ends of the bookend right now. That will be slower to get there because, as I say, it's doctors who treat 1 or 2 patients, but we have a long patent life on DAYBUE out to 2036. So we're steadily going after it. So we'll see that inflection point as the team kicks in. And then on top of that, I think it's important to remember, DAYBUE is -- our mission is to make it a global brand. We have regulatory approval ongoing in Europe right now. We're looking to get it approved in Q1 of next year. We also have initiated a named patient program globally for patients who are interested in countries that have a regulatory framework where they can access the product. And we're now seeing patients from around the world being able to access DAYBUE through our named patient program. So we're on our way to ensuring that more patients around the world can access DAYBUE.

Wonderful. It certainly seems like there's a whole new rigor since you came along. Maybe some pipeline questions and -- sorry, Elizabeth. But ACP-204, can you give us an overview of the molecule and how it's differentiated from NUPLAZID?

Sure. So ACP-204 is our new 5-HT2A inverse agonist. And we built this really to build upon learnings from NUPLAZID from pimavanserin. I've got to say that NUPLAZID is a great drug doing really good things for patients. There were some things that we were looking to optimize with a next-generation molecule. And so the first disease is that NUPLAZID does have some QT prolongation. At the marketed dose is low enough to not be clinically meaningful. But in elderly and frail patients, you need to think about that just in and of itself, and that was going to be the target population we were looking at for 204. And the other important thing about that is that it limited our ability historically to dose range with pimavanserin. So -- and why that matters is that there is within the PIM data set, some suggestion of an exposure response relationship for efficacy, suggesting that we might be able to get more efficacy out of this mechanism with higher exposures. So 204 does not, based on our learnings from both nonclinical and Phase I data so far, doesn't appear to have this risk of QT prolongation. And so that gives us the ability to dose range further. So in our currently running programs, we're looking at a 30-milligram dose and a 60-milligram dose and roughly how to think about that is that the 30 milligrams is roughly the exposure that you see with currently marketing NUPLAZID and the 60 milligrams is twice that. So there's a possibility in this program that we could be looking at higher efficacy. The other thing to think about is that we were looking for faster time to steady state. NUPLAZID takes a while to work, and that has been one of the reasons that has been sort of a challenge with it in some of these urgent cases. Even 204 probably is not going to have an onset of action that's going to be enough to deal with a true urgent situation. But we're looking at a substantially faster time to steady state. So there's at least that potential for faster onset of efficacy. So those are the things we were looking for with 204, and our data thus far are very supportive of them.

Sure. So confidence is reasonably high, it sounds like on 204. And maybe map out for those newer to the ACADIA storage, the opportunity in ADP versus PDP.

Yes. So 204, we're looking at it in 2 different areas: ADP as well as Lewy body dementia psychosis. But for now, I'll focus on the ADP and then I can expand as desired. So Alzheimer's disease impacts roughly 7 million patients in the U.S. and about 30% of those have psychosis, which is hallucinations and delusions. So it's a pretty substantial patient population and really a critical unmet need. These aspects of disease are one of the main driving forces that make it difficult for the patients to stay in the home, for example. So clear screening unmet need in this area. NUPLAZID historically was looked at in ADP in a Phase II trial as well as that was a component of a Phase III program that was run. And there were some encouraging data there, but definitely not enough to get over an FDA regulatory hurdle. We think that we have the opportunity here with a study that is designed focusing in specifically on the ADP patient population to demonstrate impact clinically and statistically in that patient population. We have a currently running Phase II study that's part of an overall Phase II, Phase III program. There's seamless enrollment, but statistically, they're separate. And so that means that we're going to be able to analyze and report on data from the Phase II component, and we're currently anticipating that will be roughly middle of next year that we'll be able to do that and then take those learnings to anything that needs to be applied to the Phase III.

Wonderful. And I guess maybe map out the competitive landscape in ADP. What's it look like?

Yes. So I think that Alzheimer's disease broadly is a very dynamic space right now. Certainly, we have the disease-modifying mechanisms, which is potentially a great step. That said, no matter how you look at those data, they slow progression. They don't stop it. And so we do anticipate that psychosis is unfortunately going to continue to be a part of these patients' journeys. There are a number of different mechanisms that are looking at ADP, are looking at agitation or looking at irritability. There's a constellation of different symptoms that are impactful in this patient population. This is -- again, I'm going to go back to, this is a huge number of patients and massive unmet need. I fully anticipate there's going to be room for multiple agents to address multiple facets of the disease.

Wonderful. Thank you. Another asset, there are many, but another asset we're particularly interested in is ACP-101, and we got a lot of investor inbound on that one because of the successes at Soleno and it went from 0 market cap to a lot of market cap, almost approaching your own on one product. And that's really interesting to me from an investment standpoint. But earlier this year, you accelerated the Phase III readout. So that's the hyperphagia and Prader-Willi syndrome to early Q4. Can you help us walk through what this disease is? It's much more serious than what I anticipated from your R&D Day presentation. And how does it manifest? And what are the current standards of care?

Yes. So Prader-Willi, and thank you for the call out to R&D Day. For those of you who aren't able to take part of it, we not only provided our perspective on it, but had one of our key physicians as well as a patient advocate and mom, to talk about what this disease really is like for a family on a day-to-day basis. And it's extraordinary listening to her talk about it. Briefly, Prader-Willi is a rare neurobehavioral genetic disease. It results from abnormalities on chromosome 15. It is complex in its manifestations, but one of the key facets is something called hyperphagia, which is this just driving need to eat. These patients never feel full. And as Susan, who is our mom who talked about it, they feel like they're starving all the time. And this can result in a number of different kinds of behaviors. But as you can imagine, there's a lot of anxiety and food-seeking behaviors. And unfortunately, these kids and these adults, they will eat food out of the trash. They will eat things that are spoiled just because they have this continuous need. So it is hugely impactful, both in terms of just a family's everyday life, they have to have their cabinets locked and their refrigerators locked and take out trash every day. They're not able to go out to eat often. It impacts every aspect of life. And if untreated or if not adequately treated, these patients will eat without ceasing. It can result in obesity. It can result in acute terrible outcomes. So just impactful across the board. I've referred to a lot of how patients are managed right now, and it's by limiting their access to food and then a lot of sort of cognitive behavioral, getting people comfortable with the fact that they're going to be told exactly when they're going to eat and exactly how much food they're going to get so that they can predict to help manage some of the behaviors associated with it. There is a new entrant in this space in terms of an actual FDA-marketed medication. VYKAT is the first. This was a great step for patients because there has been nothing, and this is a patient population that has been questing for something for a very long time. But -- we think that there is, one, 8,000 to 10,000 patients in the U.S. And so there's certainly enough patients that more than one medicine is going to be necessary. And two, we think that it's very -- and Dr. McCandless, one of our KOLs, who spoke at R&D Day, talked about the fact that you're going to want to be able to match the medicine to the patient in front of you and what their needs are as well as the things that you want to minimize the consequences of for them. So we think it's going to be a great thing if we're able to have more than one medicine here. And if we see the kind of results out of this Phase III trial that we're hoping for, we think this will be a great thing for patients.

Wonderful. And why do you have confidence in carbetocin as being an effective treatment for this? And on to the Phase III data. What's the bar for the HQCT9 score that you think you need to demonstrate.

Yes. I'll start with -- there was a prior Phase III that was run, and I can talk a little bit about the details there. But basically, in terms of what would make me happy to see from a data set, I'd be very pleased with something coming out of our currently running study where we expect those results in early Q4 with the magnitude of results that looks similar to what we've seen with the magnitude of results with the 3.2 milligram dose in the prior trial. We believe that this is going to be meaningful, but we also hear it routinely from KOLs as well as the patient advocacy community.

Wonderful. This is a very Michael Riad question, but I think it is. ACP-211, very exciting program, but one I think the Street is yet to wake up to. Can you talk about deuterated non-ketamine? Maybe touch on the history with SPRAVATO and ketamine.

Okay. ACP-211, thank you, is our oral deuterated [indiscernible] ketamine, which is targeted at treating major depressive disorder. It is related to but distinct from SPRAVATO, which is Esketamine and [indiscernible]. That said, I think SPRAVATO has been a great drug for patients who are struggling with depression from an efficacy perspective. From a patient experience perspective, based on the fact that there has been sedation and dissociation seen with it, patients do need to stay in the office for many hours under observation to make sure that they are not having one of these impacts that would get in the way of them being able to go about their daily lives. What we're hoping for, for 211 and what thus far, animal data and our early Phase I data seem to be supportive of is an efficacy profile that is similar to what's seen with SPRAVATO, but avoiding the sedation and dissociation that really limits that patient experience. I think it would be pretty impactful for patients to be able to get that kind of benefit without having to sit around in their physician's office.

Sure, sure. Thank you. Catherine, it seems like on the top line, it's kind of more cemented in for growth, and there seems to be a bit of a confidence from investors around that given the stock price performance. And I think people begin to focus more on the bottom line and what to expect from OpEx and R&D. And what planks can you throw out there for investors to think about how does the cash flow from this business look like? And it seems that the R&D pipeline is a bit of an underappreciated element of the story. So putting that all together.

I'm going to let Mark talk about it.

I mean we have tremendous operating leverage in the company, right? I think for us, you can see sales grow from here. Catherine mentioned an additional investment that we're going to make in expanding our commercial footprint for NUPLAZID, but that's modest in the grand scheme of our total OpEx spend. And then for long-term growth, we're going to be investing in the pipeline and continue to invest in business development to broaden that. If you assume kind of just normal rates of attrition between the total OpEx and the sales growth, as I just kind of started with, there's tremendous operating leverage, and that will bring increased cash flow. If we wind up in the embarrassment of riches where everything in the pipeline is successful, maybe the leverage is different, but the value creation would be phenomenal. That would be a very -- not necessarily predictable or expected, but it's certainly a welcome result.

To sort of build on that, I think what we wanted to do at R&D Day was really sort of put some numbers to the underappreciation of the pipeline and try to describe what we think these drugs could do if they were each successful in their own right. And we believe every drug we talked about at R&D Day could be a blockbuster drug, each of them over $1 billion, some up to $2 billion, $3 billion, $4 billion, depending on how successful. So I think to your point about underappreciation, it's definitely there. But what we haven't done, I think, so much in the past is talk about it more specifically, which is what Liz is now bringing to the equation and really talking about our belief and our trial design and all the things that we're doing differently. And so I think those 2 things together gives us a lot of confidence to the pipeline. Hopefully, a couple of those will be positive shots on goal.

Sure, sure. Awesome. And how much inbound do you get now on the pipeline? I mean we get a bit more from the Soleno angle, but it most...

Mostly. I think since Liz and I joined, which was roughly around the same point last year, we've gone from talking about diarrhea with DAYBUE to actually talking about the business, which we have in front of us, which is our pipeline.

Now that must be a pleasant change.

It is quite pleasant.

I talk much more than I used to...

And the pipeline is bubbling away and you are generating cash. And how do you balance that looking forward, investment in earlier-stage programs, looking at potential business development opportunities. How is that balance?

Yes. So I think as a team, we're excited to invest our pretty strong balance sheet into some more opportunities to enrich our pipeline. We know that to get us to the next level of growth, which we aspire to get to, we need some inorganic growth. I think in terms of putting our money where our mouth is, bringing in a new Chief Business Officer, who has more experience in more complex larger deals as well as global deals should tell you a little bit about the strategy that I have, we have for the company moving forward. We have a lot of early-stage programs as well that Liz hasn't shared yet. She will in the fullness of time. But in terms of our BD approach, we're looking at rare as a totality, not just neuro-rare. And we're looking at enhancing our pipeline with some later-stage molecules. And we're still holding our bar pretty high. We have a first-in-class or best-in-class filter as well as an opportunity to put the product into Liz's team and have their capability to really accelerate its potential as well as the commercial team we're building. So we're looking at it through, I think, some pragmatic lenses of what can ACADIA do for molecules and how can we compete to win in that space, but we're excited to spend the money appropriately and we're keeping our balance sheet steam, which Mark keeps us focused on.

Yes. I mean we let the data speak for the investment. So I think for us, we'll lean in to invest behind strong data, strong commercial opportunities. And then when it's not there, we'll pull back. And it's not a metric of R&D to sales that we're managing towards. It's towards leaning in to invest for growth and value and finding the things externally to add to the pipeline and continuing to rigorously invest behind what's in the pipeline as long as the data supports the next investment.

Sure, sure. And I know we touched on this just before we came up on stage, and we did talk a little bit about China, but I'm not sure how much this is appreciated. If you look at the innovation in China, it's really focused on oncology, immunology, cardiovascular. But where it doesn't overlap in terms of therapeutic indications is not much anyway, is neurology and rare disease, and there's probably reasons for that. But just to reiterate your views on that, are you seeing competition in those areas in China? Or it's still going to remain the hub of U.S. innovation?

No, I think, listen, we're interested in what's going on in China. As I said to you off stage, when I was at Bristol, I ran at Asia Pac, I know the space, and I'm interested to find innovation there that is going on. I think neurology particularly has been a little bit of a lagging place of innovation. Rare, I think actually is sort of bubbling up in terms of opportunity. And we're looking hard at where we can either source innovation and/or expand our ability to do clinical trials outside the U.S. and Europe, again, looking at more global footprints for our clinical trial space. We're looking at everything. And we're a company of 800 people with 4 billion market cap. So again, we have to do that within the bounds of possibility for ACADIA, but I think we are excited to look outside of the U.S. and look at China and Asia and Japan.

Wonderful. We've got a few minutes left. So with that said, is there anything that I should have been asking that I didn't ask?

I think you've been fairly comprehensive. I can't think of any topic that we haven't covered.

I think it's the full gamut.

Okay. Well, maybe one last thing, just give you an opportunity to leave investors with a message.

Yes. I think, listen, we're excited about the opportunity that ACADIA has to drive value inflection points over the next 2 to 3 years, which we think are potentially significant. Liz, I think, showed that at R&D Day. We've got our Q4 results for ACP-101 coming up soon. We have a big readout next year for 204 on our Phase II data. And beyond that, your pin number, 25.

2679...

[ 252679 ]. All the opportunities we have for Phase II and Phase III studies coming up for the next 2 to 3 years. We are a solid now C-suite team of very experienced executives who are here to ensure that we drive and grow the top line for our business, but also really represent those underserved patients who have high unmet medical need in both neurological and rare diseases. And we're excited to bring some new innovation, even more innovation than we've shared already in the coming years.

Well, wonderful. We're 1 or 2 minutes early, but I think that's...

Could I explain my pin really...

That would be great.

Just for anyone who didn't catch that at R&D Day, 2 is the number of currently marketed products that we have. 9 is the number of disclosed programs. There are more undisclosed programs. 7 is the number of Phase II and Phase III starts that we expect to have in the next couple of years, and 6 is the number of Phase II and Phase III readouts we expect between now and 2027.

Nicely done, Liz, well remembered.

All right. Well, thank you team. It's been wonderful to host you, and thanks for attending our conference. Most appreciated.

Thank you, guys. Appreciate the time.