AtaiBeckley Inc. (ATAI) Earnings Call Transcript & Summary

Good morning, and welcome to the atai Life Sciences Second Quarter 2021 Financial Results and Corporate Update Conference Call. [Operator Instructions] This call is being webcast live via the News and Events section of the company's website at www.atai.life and is being recorded. For opening remarks, I would like to introduce Greg Weaver, Chief Financial Officer of atai Life Sciences. Please go ahead.

Thank you, and good morning. Welcome to our second quarter 2021 atai Life Sciences financial results and corporate update conference call. The press release reporting our financial results is available on the Investors and Media section of our website at www.atai.life, and our quarterly report on Form 10-Q ended June 30, 2021, we'll file today with the SEC. Joining me today are Florian Brand, our Co-Founder and CEO; and Dr. Srini Rao, our Co-Founder and Chief Scientific Officer; and Christian Angermayer, Founder and Chairman. During today's call, we'll be making certain forward-looking statements that are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. While these statements represent management's current expectations and projections about future results and performance as of today, atai's actual results are subject to many risks and uncertainties that could cause actual results to differ materially from those expectations. In addition to any risks highlighted during the call, these statements are subject to various risks that are described in our filings made with the Securities and Exchange Commission, including our final prospectus filed with the SEC on June 21, 2021. You're cautioned not to place undue reliance on these forward-looking statements, which speak only as of today, August 16, 2021. And except as may be required by applicable law, atai disclaims any obligation to update such statements, even if management's views change. I'd now like to turn the call over to atai's CEO, Florian Brand. Florian?

Good morning, everyone. Thank you all for joining our first earnings call following our successful completed IPO in NASDAQ in June, where we raised $259 million. We are thrilled by the enthusiastic response to our mission from the investor community, and we intend to use these proceeds to continue advancing our decentralized drug development platform in 2 ways. First, by executing on our existing pipeline; and second, by continuing to incubate, acquire, and invest in new programs and enabling technologies. With our unique approach, we aim to become the leading drug development company focused on mental health. We will do so by transforming and advancing the treatment of patients with the ultimate objective of heal mental health disorders so that everyone, everywhere, can live a more fulfilled life. And now it gives me great pleasure to introduce you to my visionary Co-Founder and our Board Chairman, Christian Angermayer. Christian?

Thank you, everyone. With my co-founders and the entire atai team, I share the common aim of transforming the treatment of mental health disorders and exploring solutions offered by unconventional approaches, including psychedelic compounds. I want to take a few moments to discuss atai's origin and my commitment to atai. In this context, it is important to emphasize that I'm not only part of the founding team, but also made a significant investment in atai myself. And as many of you know, everything started with my own first psychedelic experience. This experience was, in short, the single most meaningful experience in my entire life. In addition, my friend and our co-founder, Lars Wilde, who suffered greatly from treatment-resistant depression, found healing in suicidal therapy. Both experiences from the basis for my desire to invest heavily in rigorously researching therapeutic potential of psychedelics for mental health disorders. I hope you leave this call with a real appreciation for both atai's progress to date and what I hope will be an even brighter future to come. While I leave it to Florian and Srini to elaborate on the details of our chief milestones, I want to emphasize what makes me most proud. atai is aiming to help solve one of the biggest problems in health care, mental health disorders. More than 1 billion people globally suffer from depression, addiction, PTSD, anxiety, and other intractable mental health diseases. And that is just the official number. The unofficial one is most likely significant higher as mental health issues are unfortunately still a stigmatized topic. We have built a well-funded company in the young psychedelics industry and have more than USD 400 million to continue advancing our 11 programs. We have a rich business development pipeline and are aiming to add more programs over time. All of our drugs, both the psychedelics ones and the non-psychedelic ones have prior evidence in humans, which helps strengthen the indication for the outcome of our trials. Because of our portfolio approach and our extensive pipeline, we expect continuous news flow with 18 R&D catalysts over the next 18 months. Our partnership with Otsuka illustrates Big Pharma's interest in psychedelics. While we strive to keep control of our assets through Phase III, and we are, as you know, well-funded to achieve that goal, we believe that this is just the first step and more pharma partnerships are possible. In short, I'm very convinced that atai has the potential to become the leading mental health company globally, while building value for our shareholders and other stakeholders. Let me now hand it back to our CEO, Florian, who, together with our CSO, Srinivas, and CFO, Greg will provide additional updates on our business.

Thank you, Christian. Allow me now to provide a few introductory comments, then Srini will review highlights from our drug development pipeline, and Greg will provide the quarterly financial report followed by the Q&A. For people not yet familiar with our company, let me briefly give you an overview of atai Life Sciences. We founded atai 3 years ago as a response to a significant unmet need that we witnessed firsthand ourselves with friends, and family members suffering from mental health disorders. As you know, we operate our business in a decentralized model and utilize enabling technologies such as digital therapeutics. This allows us to support and accelerate the development of compounds in our companies. And these are all companies we have either acquired and controlling, or significant interest in or incubated de novo. We have a disciplined program selection process that is focused on differentiated mental health opportunities and aimed at increasing the clinical probability of success. On an asset level, we are focused on developing compounds with prior evidence in humans. Combined with our unique portfolio approach, which is designed to [ avoid binary ] risk, the atai pipeline can be both innovative and diversified. Process also incorporates a milestone-based approach to capital allocation. We have already demonstrated our ability to capture value this year by partnering with other world-class organizations focused on mental health. One example of this is Perception's licensing deal with Otsuka, an industry leader in innovative mental health therapies. This deal represents the first major partnership between a biopharmaceutical company developing psychedelic and large pharma. In only 3 years, we have aggressively built a pipeline of 11 development programs and 6 enabling technologies. We believe that several of our target indications and a potential market opportunity of at least $1 billion in annual sales each once approved. Outside of our current focus indications, we see significant untapped business opportunities around indication expansion with an additional estimated market potential of $18 billion by 2026. We intend to invest in these indications for our most promising compounds to optimize our portfolio and maximize shareholder value. Looking forward, it is important to highlight the density of our news flow. We have 18 R&D catalysts over the next 18 months, the result of our portfolio approach and our extensive pipeline. The 2 most imminent upcoming milestones are, first, COMPASS Pathways that is expected to provide top line results from their Phase IIb study in Q4 of this year. And second, Recognify Life Sciences that has initiated a Phase II trial and expect to have data by the end of the year. In addition, we plan to initiate Perception's Phase II trial for TRD and DemeRx Phase I/II OUD trial still in this quarter. Additionally, we plan to initiate 3 Phase II trials and 4 Phase I trials next year. With a very strong cash position, we are well equipped to maintain our leadership in developing treatments from mental health disorders. I will now turn the call over to Srini for a more detailed update on the atai pipeline.

Thanks, Florian. As Florian has highlighted, we have a broad array of exciting assets in or nearing the clinic. On this call, I will focus on the programs with the most near-term visibility and highlight upcoming milestones, starting with Perception Neuroscience. The lead compound for Perception is PCN-101, a formulation of R-ketamine. R-ketamine is a glutamatergic modulator being developed as a rapid acting antidepressant with nonassociated properties and the potential for at-home use. This is in contrast to S-ketamine marketed as SPRAVATO, which must be administered only in the clinic. In preclinical models, R-ketamine has demonstrated higher potency, greater durability, and lower abuse potential compared to S-ketamine. The recently published results of an open-label 7-subject trial in patients with treatment-resistant depression, or TRD, using IV R-ketamine supported the hypothesis that R-ketamine may be efficacious at sub-associated doses in contrast to S-ketamine. As we've mentioned before, we're excited about these potential aspects of differentiation, particularly from the perspective of the scalability and commercial potential for product delivered at home. In February 2021, Perception announced positive Phase I results, demonstrating the safety and tolerability of PCN-101 in 58 subjects treated at doses of up to 150 milligrams IV. The compound was well tolerated, and there were no serious adverse effects reported. Additionally, the pharmacokinetics of PCN-101 in plasma were found to be approximately dose-proportional. Notably, the study demonstrated that PCN-101 required substantially higher doses to induce perceptual changes compared to S-ketamine. Importantly, we anticipate initiating our Phase IIa trial of PCN-101 in Q3 2021. This randomized double-blind placebo-controlled trial testing an IV formulation of R-ketamine will be conducted across 13 sites in Europe and aims to enroll 93 patients diagnosed with TRD. We anticipate the study running through late 2022. In parallel, we intend to conclude a Phase I bioequivalence study to bridge from the IV formulation to a subcutaneous formulation of PCN-101, one that we believe will support at-home use. Next, Recognify Life Sciences is developing RL-007, an orally available, cholinergic glutamatergic and GABA-B receptor modulator. In aggregate, RL-007's complex pharmacology is thought to alter the excitatory inhibitory balance in the brain to produce pro-cognitive effects. We're developing this compound for the treatment of cognitive impairment associated with schizophrenia, or CIAS, which is a challenging indication with significant unmet need as no drug therapies are presently approved for this condition. In April 2021, Recognify initiated a 32-patient Phase IIa proof of mechanism study for RL-007 after receiving IND clearance from the FDA to commence U.S. clinical development for the treatment of CIAS. The exploratory study is designed to evaluate the effects of RL-007 on safety, tolerability, and quantitative electroseflogram, or qEEG-based measures that are viewed as biomarkers for cognition. More specifically, the objective of the trial is to extend the results of a previous study involving a scopolamine challenge in healthy volunteers. In addition to observed improvements in verbal memory, RL-007 administration resulted in a spectral shift on qEEG from a lower frequency beta band to higher-frequency alpha and beta band oscillations. Further, we're investigating the effects of RL-007 on several evoked potential measures, including mismatch negativity and P300, the latter in response to an auditory odd ball task. Ultimately, we're looking for a confluence of data consistent with procognitive effects when all cohorts in the Phase IIa trial are analyzed. Such top line data, which are anticipated by the end of the year, will allow us to progress confidently into the proof-of-concept study. The latter, it will be a double-blind placebo-controlled trial focused on more traditional cognitive endpoints, including subsets of the matrix battery. Next, GABA Therapeutics' primary program is GRX-917, an oral formulation of a duterated version of etifoxine, the lateral compound that has a long history of prescription use in France and other countries for treating anxiety disorders. Mechanistically, etifoxine and GRX-917 have been found to increase the production of neurosteroids, including Allopregnan on an IV formulation of which was approved in the United States in 2019 for the treatment of postpartum depression. This mechanism of action is thought to underlie etifoxine's rapid onset of anxiolytic activity that is similar to that observed with benzodiazepines, but without the sedation, cognitive impairment, or abuse independence risks associated with this class of compounds. Further, etifoxine has an extensive safety database which we believe will greatly derisk the future development of GRX-917. Like etifoxine, we hypothesized the GRX-917 will provide rapid anxiolytic activity with improved tolerability compared to current treatments for anxiety. And the duduration is intended to enable less frequent dosing and/or lower dose with GRX-917 than etifoxine. In June 2021, we initiated a randomized double-blind, placebo-controlled Phase I trial in Australia, which will ultimately enroll approximately 76 healthy adults. The study is a single ascending dose, multiple ascending dose design, looking at safety and tolerability, pharmacokinetics as well as pharmacodynamic using qEEG. Based upon the mechanism of action of GRX-917, we're using the qEEG as a target engagement biomarker looking for increased relative spectral power in the beta band. Such changes have been demonstrated with IVL pregnenolone and related compounds, and were also noted in a 2019 Phase I trial of etifoxine that we conducted. Top line data for the GRX-917 Phase I trial are expected early in 2022. Moving to DemeRx IB, we are developing DMX-1002, an oral formulation of ibogaine, the latter a naturally occurring psychedelic product as a potential disease-modifying treatment for opioid use disorder. We anticipate initiating the Phase I component of an exploratory Phase I/IIa trial of DMX-1002 in recreational drug users and healthy volunteers in the U.K. in the third quarter of 2021. To that end, we recently received approval from the U.K. Medicines and Healthcare Products Regulatory Agency, or MHRA, to commence subject enrollment. The Phase I/IIa trial is designed to assess safety, tolerability, pharmacokinetics and efficacy, and the results will inform future studies in patients with opioid use disorder. We expect to obtain data from the Phase I element of this trial in early 2022. We have an extensive early-stage pipeline that will be entering the clinic in 2022, and we'll provide a deeper update on these programs and associated milestones as we approach next year. Further, it should be noted that the digital therapeutics being developed at Introspect are currently undergoing user acceptability testing a ketamine clinic in San Diego. We anticipate rolling out the Introspect technology in our viridia and revixia Phase I trials and DemeRx Phase II trial starting next year. Finally, a brief mention of COMPASS Pathways and its compound, COMP360, which is a proprietary formulation of synthetic psilocybin, a 5-HT2A receptor agonist being developed as an oral rapid-acting antidepressant is in order. In June 2021, COMPASS announced completion of dosing in the Phase IIb clinical trial of COMP360 in a total of 233 patients diagnosed with TRD. This randomized double-blind dose-ranging study investigating the safety and efficacy of psilocybin is the largest industry-funded clinical trial of psilocybin conducted debate. Getting to this stage in this trial is a major achievement, and the COMPASS team should be commended for their incredible work. We look forward to the top line data of this trial later this year. I will now turn over the call to Greg for an overview of our financial highlights.

Thank you, Srini, and hello, everyone. As Florian mentioned, in June, we completed our upsized IPO of 17.25 million shares, raising gross proceeds of $259 million, including the full greenshoe exercise. Cash and equivalents totaled $453.6 million at June 30 compared to $97.2 million as of December 31, 2020. The 6-month increase of $356.4 million is attributable to the IPO net proceeds of $231.6 million plus $168.6 million from Series C and Series D common stock issuances, $20 million of license revenue proceeds, and $4 million proceeds from the sale of investments and conversion of convertible notes. Offsetting were cash payments of $32 million for investments in platform companies and $35.8 million in net operating expenses in the first half of 2021. So our operating use of cash for the 6 months ended June 30, 2021, was $14.6 million, which includes the positive effect of the $20 million in license revenue proceeds received from Perception's license and collaboration agreement with Otsuka Pharmaceuticals. Operating costs and expenses in the first half of '21 were as follows: Research and development expenses of $16 million and $21.6 million for the 3 and 6 months ended June 30, 2021, as compared to $2.9 million and $5 million for the same prior years. The increase of $13.1 million and $16.6 million, respectively, were attributable to personnel costs, including stock-based compensation expense and increased CRO expenses related to advancements in our R&D programs. And we also recorded acquisition of in-process R&D expense of $8 million and $9 million for the 3 and 6 months ended June 30, relating to our investments in Neuronasal and InnarisBio. Moving to G&A expenses. For the 3 and 6 months ended June 30, 2021, were $37.3 million and $46.6 million, as compared to $2.9 million and $4.4 million in the same prior year periods. The increases of $34.4 million and $42.2 million, respectively, were attributable to personnel costs, including stock-based comp expense, professional fees and other costs related to support our platform growth and public company requirements. Total stock-based compensation expense for the 3 and 6 months ended June 30 was $37.5 million and $37.7 million, respectively, as compared to $41,000 and $82,000 for the comparable prior year periods. This reflects the recognition of expense related to the achievement of the IPO performance-based partial vesting conditions. The year-to-date R&D portion was $9 million and G&A portion was $28.7 million for your modeling. I'd like to draw your attention to 2 onetime items in our first half results. First, with COMPASS Pathways, where in the second quarter, we booked a gain of $16.9 million relating to our investment in COMPASS' May follow-on equity round. atai participated and purchased 140,000 shares for $5 million, and we now own 19.4% of COMPASS and the licensing revenue of $19.9 million recorded from Perception's license and collaboration agreement with Otsuka Pharmaceuticals. I'd complement the management team at Perception and everyone involved at atai on this deal. I'd also point out that the strategic intent is to drive additional non-dilutive licensing transactions in the future. I'll now hand the call back to Florian.

Thank you, Greg and Srini. I would like to thank the entire atai team as well as our supportive investors and their contributions to all we've achieved this year. Looking ahead, we are energized to drive an important and catalyst-rich 2021 and 2022 with additional clinical readouts, trial initiations, and business development. This is an incredibly exciting time for atai, and we will continue to provide updates on our program as they advance. Before we will take questions, I would like to highlight the following 5 key takeaways on our progress to date and road map forward. Number one, with our strong balance sheet and broad portfolio, we have solidified our leadership position as an innovative drug developer within mental health. Number two, by design, our company is structured to maximize the probability of success in drug development through a combination of basically 3 elements: The unique portfolio approach, the focus on developing compounds with prior evidence in humans, and a milestone-based approach to capital allocation. Number three, our differentiated model has been validated by our attraction to date, where we are the only biopharma company developing psychedelics that has entered into a drug development collaboration with large pharma. Number four, atai has accelerating momentum with 18 near-term catalysts, including Phase II data readouts by year-end from Recognify and COMPASS Pathways. Number five, we continue to drive our business development activities by incubating, acquiring, and investing in complementary compounds and enabling technologies. With that, we are happy to take questions.

[Operator Instructions] Our first question comes from the line of Charles Duncan with Cantor Fitzgerald.

Thanks for all the details, outlining the 12 and 18, call it, week and month plan. So had a quick question on RL-007 Phase IIa in CIAS. I guess, I'm wondering if you could provide a little bit more detail on the enrollment criteria regarding, call it, symptom presentation as well as concomitant medications, and perhaps frame a useful result for informing the next steps out of that study with regard to dosing and duration?

Absolutely, Charles, and thanks for the question. Generally speaking, of course, they have to meet the criteria of schizophrenia with a cognitive impairment that is, I believe, one sigma below normal. And in terms of concomitant meds, I mean, they're allowed to have that. We are limiting it to Aripiprazole and one other related compound, and that's really about it just to keep the population as homogeneous as possible. In terms of a meaningful outcome, I mean, as you'll recall, what we're trying to do here is extend the results of the previous Phase I study, which was a scopolamine challenge study. And in that trial, they found 2 things. First, they found improvements in verbal memory. And they also found concomitantly with the changes on quantitative EEG. Specifically, they found alterations in the spectral profile pre and post drug. And it was really shifting from lower frequencies to higher frequencies and generally speaking, such higher frequencies are associated with improved cognition. Folks with schizophrenia, particularly those with prominent cognitive impairments, do have some degree of suppression of higher frequencies. They tend to run at lower frequencies. So the very first thing that we're looking at is a replication of the quantitative EEG spectral shift. So that's going to be the first thing. And then we'd like to extend from there to some of the evoked potential measures that we're looking at mismatched negativity and P300. I mean -- but broadly speaking, a win with would be around sort of the spectral shift. That's kind of the key here. Obviously, concomitant improvements in evoked potentials would be great. And we are doing cognitive assessments as well. Obviously, this is a very small study. We aren't expecting much, but if we find some proportionality of concordance with the EEG shifts, then that, of course, would be a big win as well.

Okay. One additional pipeline question, and then a quick follow-up for Greg. Regarding the COMP360 results that could come towards the end of this year, clearly, we've spoken to COMPASS management about this, but we'd like to hear your perspective on what you'd like to see out of the trial in terms of call it, 3-week effect sizes and response rates as well as longer-term durability given that this is the largest controlled trial of psilocybin to date and given that it represents a new paradigm relative to the current standard of care?

Okay. Charles, I think you said, Greg, but I'm willing to take that. Of course, Greg, if you want to chime in, please do so. With respect to the psilocybin study, I mean, clearly, one of the things that we're looking at -- the key, of course, is their primary endpoint of 3 weeks. That certainly shows a rapidity of onset as well as some degree of durability. Of course, with the promise, I mean -- part of the promise of psilocybin is an extended duration of efficacy of driving someone into remission. As such, we're certainly going to be watching the data from there on out, right? This trial does go out to 12 weeks post dose. And so we'll be obviously looking at that. It's powered certainly to -- for the primary endpoint of 3 weeks. And obviously, these data will, of course, inform subsequent studies. I mean, clearly, responder data -- responder remission data over the subsequent weeks will be really quite key for understanding and interpreting the results from this trial. Does that answer your question?

Yes. Yes, it does. And it was for you. My follow-up for Greg was relative to OpEx. Over the course of, say, the 6 to 12 months, not looking really for guidance, but, say, just a range, how do you see the income statement over the course of the next year or so?

Thanks, Charles. Greg here. So a good question because inside the first half numbers, you've got some in-process R&D and some -- a spike in the noncash stock comp. But if you strip it out, the OpEx in the first half is running about $18 million a quarter. And I think we're going to see personnel costs growing as we continue to support the platform companies and build out the capabilities internally. And as the pipeline moves to more clinical stage, we'll have additional R&D spend likely to grow there to support that activity as well. As a range, it'll be north of where we are now, maybe $25 million to $30 million range per quarter as we go forward, would be directionally okay.

That makes sense.

Our next question comes from the line of Ritu Baral with Cowen.

I have a -- my first question is on Perception and 101. Can you review for us the dose and the dosing paradigm and treatment duration that you're using in the upcoming Phase IIa that you plan to start in Q3? And when we do get the data in 2022, I guess, what are the most important scales that we should be looking to for depression efficacy, but as well as the degree of disassociation versus S-ketamine? And then I've got a follow-up.

No problem. I'll start with that one then. So in terms of dosing, we haven't really guided on that at this point. What I can say is that based on the Phase I, we have some latitude on dosing. And we are certainly going with doses that are sub-associated based on the Phase I results. So that's essentially what we're doing there. In terms of end points, obviously, the MADRS is going to be kind of key here. You also talked about dosing frequency. So this trial is a single dose. It's a single IV administration of the compound. And clearly, the results of the -- we're following the present symptomatology out to 14 days of primary is at 24 hours, consistent with other ketamine studies. The results of this trial will give us some indication of the dosing frequency, or the redosing frequency, which we do anticipate will be required here not unlike S-ketamine or ketamine proper. There's preclinical data suggesting greater durability of effect. So that's really what's driving this hypothesis that we might be able to dose less frequently than S-ketamine, which of course, is twice a week for 4 weeks. So that's kind of the long and short of it in terms of the dosing. In terms of endpoints, MADRS obviously is a key endpoint here. In terms of the associated/psychedelic effects, there's really kind of -- there's really 2 things that we're focused on. Obviously, CADS is something that's widely used in the industry. And we certainly are including that. I'd say that CADS is perhaps not the best suited for this. We are also doing the 5D-ASC here. And that will give us a lot more granularity on the sort of psychodelic-type effects that one may -- that we're seeing with the compound.

Got it. And then my next question is on the DemeRx Phase I/II study that you're planning on starting in Q3. Srini, you mentioned the safety and PK. Are you doing any special cardiovascular monitoring around the IV study? And then again, since this is recreational drug users, what sort of efficacy data could you glean out of it and when?

Yes. So in terms of cardiovascular safety, of course, there is a signal depending on the publication for QT prolongation in this population. I mean, I think, there are some confounds of existing data. There are certainly multiple dosing experiments that had been done. The concentration of ibogaine wasn't necessarily clear. So that's something that we're looking at very closely. We are doing [ Holter ]. We're doing repeated ECG endpoints as well in sort of standard fashion here. We would like to see, of course, that there's a dose range that we can get to that is relatively devoid of QT prolongation. So that's really the focus here. In terms of efficacy in the Phase I element, I mean, we're -- the focus on the efficacy endpoints are really in the Phase II piece, which is those individuals that are undergoing medically assisted detox. So looking at their withdrawal and then looking at long-term remission, if you will, is really what we're focusing on there rather than be within the Phase I component of the trial.

Our next question comes from the line of Brian Abrahams with RBC Capital Markets.

Congrats on all the progress. Maybe just starting with the PCN-101. I was wondering if you could talk about the status of the subcutaneous formulation you mentioned that would be moving into a bridging study in your opening comments. Just wondering, I guess, where that stands, what if any gating factors there are to starting that study, and what your target volume would be for that administration?

I think a lot of that -- the details here are not public. I mean, the long and short of it is that the formulation is under development. And of course, there's the formulation itself and then compatibility with the device, the subcutaneous injector. So all that work is ongoing. The BE study, as you're familiar, is relatively straightforward and very quick, right? I mean, it's basically comparative IV versus subcutaneous. And as we mentioned in the opening remarks, we are looking to get the data from that contemporaneously, roughly with the Phase II results. So that's ongoing currently. In terms of volume, the standard volume here for subcutaneous is keeping it under 2 milliliters. And obviously, we'd like to keep it significantly under 2 milliliters, and that's obviously what we're pursuing with our formulation.