AtaiBeckley Inc. (ATAI) Earnings Call Transcript & Summary

Hello. Welcome to the Cantor Global Healthcare Conference for 2021. My name is Charles Duncan, and I'm a Managing Director and Senior Biotechnology analyst with the firm's equity research department. This is Day #1 for our conference, and I have to say, what a year it has been since we last hosted our clients in the fall of 2020. So it's a pleasure to introduce the next presenting company that is atai Life Sciences. And with me today, I have Dr. Srinivas Rao, one of the company's founders and the Chief Scientific Officer. Srinivas, how are you?

I'm good. Thanks. Thank you for the opportunity to talk to you this morning. Really appreciate it, Charles.

Absolutely, and thank you for joining us, Srini. I want to keep this to about a 30-minute session. But I have to ask you a perspective, and that is on this last year. It has been a real challenge for a lot of people, a lot of things to point to. But also, we've seen some interesting innovation out of biotechnology, obviously, with the COVID vaccine, but also the recent approval of the first potentially disease-modifying agent in Alzheimer's. And I guess when you think about all of those challenges as well as the innovation that you've seen, how do you see that as a source of resilience and inspiration for building your company? How have you kept it all together this year?

Well, certainly talking more broadly, the rollout of the vaccine and everything cannot be understated, right? And the importance of the vaccine rollout and all of the heavy lifting that it took to get there, I mean, really is truly inspiring, right? I mean this is not a technology that about 18 months ago, maybe a little bit longer was really thought to be viable or scalable. And the effort when people put their mind to it to get that out there has been incredible, right? I mean many of us have vaccinated at this point, let's say, a very large percentage of the people on this call are vaccinated. It's just a testament to what one can accomplish when you put your mind and your effort behind something. So very inspirational element right there.

Absolutely, has been interesting to see science move back into the forefront. But it's also been a big challenge for a lot of people. And this brings us to perhaps the raison d'etre for atai Life Sciences and the mental health challenges that people have experienced just this last 1.5 years, but also more perhaps longer term. Can you speak to that?

Absolutely. So there's a lot of things that have been impacting metal health for a longer period of time, of course, it's been exacerbated over the course of the last 18 months. So if you look at some of the epidemiologic data, you certainly see upticks in overall levels of depression and anxiety over the past, again, decade, maybe a little bit longer than that. I think what's particularly disconcerting is the uptick in those rates, particularly in the younger populations over the 18 to 24, and a little bit younger than that as well. Reasons are not clear, but certainly, people do point to social media and things of that nature are driving a lot of that. Obviously, over the last 18 months, things have gotten much worse, right? So there's a large uptick in depressive symptom, self-reported depressive and anxiety symptoms, roughly 4x compared to baseline. So roughly a year prior to that. So really very challenging. There's many factors that are, of course, driving that, the social isolation. Obviously, being an important thing, the uncertainty of what was happening or what is happening being a factor there. Job loss, obviously deaths and the sickness that this has impacted so many people. We emphasize and focus on the roughly 600,000 deaths. But of course, there's been a lot of impact more broadly on each one of those people. Many of those people obviously have a family. They might have -- they certainly have parents, they have children, they have siblings and it's just been a really impactful time. So of course, yes. And I don't think that this is going to be short term, right? I mean COVID is going to be with us for some extended period of time, at least in an endemic kind of fashion and in an impactful fashion. So these impacts are going to continue.

Well, and certainly, the aging of the population doesn't help because of the core morbidity of mood disorders with neurodegenerative diseases.

Absolutely, yes.

So you've been in neuroscience for a long time, virtually your entire career, you're trained in the neurosciences. So I'm kind of wondering why now, why would you join an atai? Why would you help to found an atai Life Sciences?

Yes, so as you point out, my background certainly is in neuroscience MD, PhD there. I did all my training at Yale with someone who's really a visionary in the space of cognitive impairments in schizophrenia, actually. And not surprisingly, this has been an area of passion forming. I actually started out before that in computer engineering, but really wanted to understand the wetware inside one's head to be able to model that back. So yes, obviously, an area of passion, always try to stay in that field. But as you are well aware, CNS kind of fell out of purpose for a long time, right?

Yes.

And in all fairness, there were some serious challenges with very interesting pharmacologies that kind of fell to the waste that did not replicate. I'm thinking of the NK1 antagonist or substances we have [ available ] that didn't work, the CCKs before that. So there were a number of attempts at bringing new pharmacology. It's just that it didn't work in the end. And actually the [ D-3 ] antagonist. I think about it as..

Glutamate pharmacology and [indiscernible].

So a lot of different things have been tried and did not work, and there's a number of reasons for that. Of course, the complexity of translational modeling is an important one, right? You can't ask a rodent how they're doing today. And of course, that's the primary endpoint that we're looking for in humans. So there's a lot of reasons for it. The placebo effect is often brought up because of the exact same reason that I just said. I mean how are you doing today, when you're in a clinical study when there's lots of attention being paid to the individual and to the condition, obviously, many people do get to improve. So again, challenging field. It's why people kind of walked away from it. That's what made it a little bit more challenging. As for why a time why joining it and helping to cofound it. Well, it's clear that the need is there, right? So despite many approvals along the way, many of them are me-too. There was -- I mean, with the SSRIs, typical, subtle variations to be sure, and I'm not discounting the incremental benefits, but nothing that really shook things up. And of course, one of the things that really changed things is this [ reciprocal ] approval, [ the same in 19 ] others and really having the vision to bring those things, and bring that asset forward and bring it to the market. And likewise, with Sage with brexanolone, really kind of changing the space pretty significantly and bringing some innovation to the space. So that was roughly contemporaneous with the founding of the time, which was in sort of the 2018 kind of time frame, and I really came on board in the year early, and basically January 2019 to help kind of transition it from -- to really an operating company. And again, the chance to really build something completely new, the chance to take a lot of compounds that have been dismissed, right, including the psychedelics, but also non-psychedelics is compounds that really have been given short shrift along the way was incredibly exciting for me.

It has been an interesting time for neuroscience. And I got to tell you, in the last 5 years or even 5 quarters, it has dramatically changed in terms of institutional investor interest. We've been tracking this space for a long time. And I'm pleased to see the progress. But when you think about all the areas of innovation, some of which you touched on, both pre-clinical models and targets as well as genetic kind of information to better hone in on patients that may respond to drugs and then clinical innovation and regulatory innovation, what is the key source of information that you use when you're thinking about bringing on a new project and a new candidate for atai?

Well, certainly, with the clinical stage assets that we have at this point or the near clinical stage assets, the focus has been on prior evidence in humans, right? That's important from our perspective for derisking. CNS, as I've mentioned, is challenging and there's a number of different -- again, we touched upon the translational limitations there. We're having compounds that we know have some effect, whether it's anecdotal or otherwise or smaller clinical studies, academic studies, certainly is important for derisking. And hence, in the context of Compass with Psilocybin, with DMT with IVGEN other compounds that we're developing, but also non-psychedelic compounds like the deuterated form of etifoxine, the deuterated form of nitrogenase. These all have interesting data behind them, some double-blind, placebo-controlled, others more extensive case series. We have a sense of what the safety is going to be, the tolerability is going to be with all these compounds. So that's been a really important driver. Now going forward, we will expand into earlier-stage compounds and very interested in our pharmacology as well. Now to your point, regarding finding the appropriate patient population, very heavily involved on that. We talk about Introspect, which is our digital therapeutic platform. The flip side of that, in addition to providing therapy, it allows us to better understand the patients. I mean there's other channels that we can incorporate into that, whether it's movement or other sort of wearable technologies, et cetera, and something that we're looking at for future revision, so to speak, of this technology platform. We're also developing hardware with cyber. And that is going to provide what I like to think of as a digital guy, but that basic hardware is going to give us a lot of insights into the person's reactions to the psychedelic, potentially the reaction of the patient prior to the psychedelic and post. So really interesting from a digital biomarker perspective. We also recently announced PsyProtix, which is something that we're working on with some real visionaries and leaders in the space metabolomics. Metabolomics is very interesting. It can be -- the profile that you're seeing in the blood is, of course, partially from the person themselves, right? They're literally they're how they're metabolizing products, but it's also partially from the gut and from the bacteria in the gut. And that's a really fascinating area. I was actually at a company previous to atai, called Axial, which was focused on brain-gut interactions for autism as well as Parkinson's disease. Really interesting space. There are certain moieties. This is to work out of [indiscernible] really fascinating moieties that are known to be taken out by the human body and then have a very direct impact on certain protein expression within the brain. So really fascinating stuff. Maybe has been discounted, but of course, there's more visibility on that space and a lot more interest in that.

Yes. I find the microbiome, and its impact on cognitive function as an example, or even both to be a fascinating area of discovery at least at this point. One last call it, perspective builder question, then we'll ask a few questions about the pipeline. I guess when you think about psychedelics, what is the aha observation or a moment here? Can you provide some contextual framework for why you are intrigued with those candidates in your pipeline that have psychedelic activity as well?

Yes. So there's sort of 2 elements to that. I mean the early work on ketamine, which is psychedelic like, right, the disassociated effects are somewhat similar was this phenomenon a rapid onset of efficacy. And actually John Krystal, who's one of the leaders in this space was actually in my PhD committee way back in. So I was familiar and seen some of these data very early on or at least similar ones when the trials that are being conducted. That is -- I mean, that was really quite remarkable, and people didn't really believe that you could have a compound that you can administer once or administer and then provide an immediate benefit on it, right? That has not been seen before. If you think about all the drugs that have preceded at the SSRIs or tricyclics before that, anticlinopsychotics, et cetera. None of those have that rapidity of onset. So that's the first element, which I think is really intriguing. As for psychedelic themselves, I mean, it's sort of twofold. The first was this rapid answer. But unlike Ketamine, there is this persistence of benefit. And I think that's what really changes things and really explains some of the interest and excitement around this field. I think the administration of a compound causing months, if not even longer remission or significant amelioration of symptoms, again, never been seen before. And it's one of the reasons that we are intrigued by Ibogaine for example. So that's a particularly challenging population as everyone knows, opioid use to sort of population is really challenging. And current therapies really are focused on chronicity, right? It's blocking, craving, it's blocking the ability to get high by an opioid with high potency antagonists and partial agonists. But Ibogaine was one that seems to -- and again, we have to confirm this hypothesis, but it seems to change the relationship that the patient has with their drug of abuse. And that's a totally different paradigm. Single administration having marked and long-term changes is just remarkable. And again, it kind of fits into this entire space with psychedelics.

Well, you mentioned Sage earlier on the call, and we don't cover Sage, but it seems to me that your -- with your candidates and perhaps Sage, ushering in an entirely new paradigm for the treatment of these disorders, which is more intermittent than daily chronic therapy. And that, combined with the differentiated mechanism is really quite exciting, could be a paradigm shift.

That's what we're clearly hoping for, right? So the intermittent therapy, I think, is a really important element along with rapidity of onset of course. But the intermittent therapy allows you to get away from the side effects that are commonly associated with SSRIs or augment therapies, which obviously typically include antipsychotics. So sexual dysfunction is obviously well described, sleep abnormalities are well described. TI disturbances are well described, weight gain or significant weight loss are also potential issues with these compounds. So if you have something that's intermittent, presumably, you're walking away from a lot of those side effects.

Yes. Why don't we talk a little bit about the pipeline because that was a great segue into what your -- I believe, what you're hoping to see out of atai's subsidiary called Perception Neurosciences, which just recently started a clinical trial Phase 2 for R-ketamine or PCN-101. And that's in treatment-resistant depression. You've got some other experience with TRD, which we'll come back to with another candidate. But I guess I'm wondering, when you think about R-ketamine versus, say, S-ketamine or the racemic compound, why do you think it is differentiated? What is it about it that could result in a differentiated clinical profile?

Yes. So if you go back again a decade or longer, the story around ketamine was focused on a particular pharmacology, namely NMDA antagonism. So it makes -- and it just so happens that ketamine, of course, it's a racemic mixture, so there's S-ketamine and R-Ketamine. S-ketamine is where the NMDA antagonism predominantly lie, it's not exclusively, but predominantly lies. And indeed, S-ketamine is sold in other parts of the world as an anesthetic, R-ketamine is not. It's not particularly great at that. So it made sense with the understanding at the time to pursue S-ketamine, and that, of course, is what change has done and brought it to market. However, you actually mentioned MK-801 as another NMDA antagonist early on, and many NMDA antagonists have failed in subsequent clinical studies or certainly have not replicated and have not had the sort of magnitude of effect that you see with ketamine. So this really does speak to something else going on. And that's what led some investigators to start looking at R-ketamine and obviously, initially in animal models. I mentioned that R-ketamine does not really have much NMDA antagonism. It's about 4-fold or 5-fold less potent compared to S-ketamine. But what you see in the animal models and multiple animal models of depression, is actually greater potency for R-ketamine than S-ketamine. And these effects are being driven or these effects are present at doses that are not associated with NMDA antagonism. That's what's really interesting. That preclinical data is what makes this truly a vast thing, because what we're doing is trying to develop this compound as an at-home therapy. Of course, this will be driven by the data that we generate in this Phase 2 trial and subsequent to that. But that's what we're targeting, that's the promise of this compound. As many of you know, as many of the audience probably knows, the S-ketamine is fantastic, but it's complicated to deliver. It's a 2 hour within doctor office visit or administration, I should say, it's twice a week for 4 weeks and then once a week for the subsequent 4 weeks. It's 12 visits in 8 weeks. You're clearly not driving home after taking this medication. So there's a lot of logistical challenges. With R-ketamine, if we can get it to a non-dissociative compound in other words, a compound with greater therapeutic index, that's not associated, then this trend, then we have this potential for at home use that obviously, is a game changer in this space. So we have a rapid-acting agent. Non-psychedelic, nondisassociative that can be taken at home markedly expensive in the commercial footprint, not surprising in the market, but also the number of patients with TRD that can be treated.

We've also read in the scientific literature that some of the metabolites of the R-isomer are longer lived. And I guess I'm wondering if you think that you could see greater durability and really change the treatment paradigm, not only in terms of where it's administrable, but also how long it adds.

Yes. So that's the other element to preclinical data in addition to this greater therapeutic index is, to your point, durability of response or greater durability of response. So that is absolutely a really interesting element. It's something that we're going to explore. It is complicated. I don't think there's a full appreciation for how the compound is working at the moment. There is a glutamatergic element without a doubt. But whether that's a direct amp effect because they wanted metabolites or it's an indirect effect on some other means of impacting neuroplasticity is not completely clear at this point, but it's really interesting. We're very -- we're focused in our clinical study on the durability of effect as well. Not durability in the silicide type context, but at least more than several days, which is what you typically see with S-ketamine.

Maybe once a week.

Yes, maybe once a week, maybe once every 2 weeks. Many of these will be marked improvements over the current paradigm.

So a lot of candidates to talk about, but I wanted to touch on 2 before the end of this call. So I'll move on to your subsidiary called Recognify, and it's conducting a Phase 2a with a candidate called RL-007. Now as I understand it, this is not a psychedelic compound. So I'm wondering if you can talk a little bit about its mechanism and the potential for its use in cognitive impairment associated with schizophrenia.

Yes, absolutely. So cognitive impairment associated with schizophrenia, cognitive impairments are essentially ubiquitous in schizophrenia. There's always an impact on IQ if nothing else, right? It's been noted across multiple studies at this point. So it's really difficult to treat. When you think about schizophrenia, you're normally focused on the so-called positive symptoms, right, the hallucinations, whether they're verbal, auditory or visual. Those are what people tend to focus on. In many cases, you can sort of handle those. You can certainly suppress them, and you can give the individual insight, so that they know that this is originating within their head and so they can sort of deal with them. That's not what keeps people institutionalized. That's not what impacts their ability to go get a job. It's really the cognitive impairments as well as negative symptoms. The abolition, the lack of effects and everything else. These are the elements that really impact the individuals' lives and, of course, then have a -- marks a silent impact as well. They're very difficult to treat. There's nothing indicated for cognitive impairment in schizophrenia at this point. And so that makes it really intriguing. The compound that we are developing is a unique one. It's got a very complex pharmacology. And it certainly hits the glutamatergic system, it hits GABA, it hits the cholinergic system as well. People are familiar with acetylcholine in the context of Alzheimer's disease and other forms of dementia as the citicoline esterase inhibitors are widely used there. So this compound is incredibly well tolerated. I mean animal data is what has driven -- there's really 2 elements of this compound's efficacy. One is now [ GSEC ] and the other one is a [ procognition ]. There have been 9 studies that have been conducted to date. And for the most part, they've been focused on the analgesic profile of the compound. But there's always been an interest in exploring the side effects of the compound, the cognitive benefits. And indeed, one of the Phase 1 trials, a healthy volunteer trial was actually focused on a particular model of cognitive impairment, the so-called scopolamine challenge. So you give a normal healthy volunteer scopolamine, which is the cholinergic agonist, and you get a marked cognitive impairment. This compound actually reverses that cognitive impairment, in particular domains. So this thing, drug is really ubiquitous. But verbal memory was improved and certain elements of attention were also improved. And this improvement was associated with shifts in EEG, shifts in the power spectrum of EEG. So when you get scopolamine, you got a slowing of brain frequencies. When you give this compound, it actually causes a shift to higher frequency. So really interesting. A large Phase 2 study was also conducted. And this was in diabetic peripheral neuropathic pain. Diabetics, particularly those that have peripheral involvement has some level of cognitive impairment, that may be subclinical. In this particular case, what was found was that at lower doses, there was actually an improvement once again in verbal memory. So really intriguing, and that's a 180 subject trial. So these are the data that really intrigued us. And of course, they're not in patient populations who were, of course, extending this to this schizophrenic population. It's a Phase 2a, as you point out, it's really mechanism focused. So I mentioned the spectral shifts that we're seeing in individuals who are on this scopolamine challenge. We want to replicate that in this population. So schizophrenics, many of them normally have a slowing of frequency. So we're looking for increases in -- we're looking for spectral shifts, data beta ratios and things of that nature. That's the first thing we want to see. We're also looking at growth potentials, mismatch negativity, P300. These are things that in the literature are associated with cognition, basically normalizing these parameters. They're abnormal in schizophrenics, normalizing these parameters is associated with the pro-cognitive effect, so that's what we're really looking for in this trial.

So this is really a signal-seeking study, and it isn't about statistical significance. It's about seeing these brain physiology changes or brain activity changes, and that will help you design and conduct another study?

Yes, that's exactly right. I mean we want to see effect size. We want to confirm that there's a benefit. I mean in the absence of these changes, it would be very challenging to move this asset forward, let's put it that way. And that, of course, is an important element going back to atai, it's an important element of our model. We have a lot of different things that are in our pipeline. One of the luxuries that affords us is the ability to be truly truth-seeking as opposed to [ seeking ]. So if we don't restructure our trials to be done on those decisions, this is absolutely within that paradigm.

Okay. That makes a lot of sense. We only have a couple of minutes left, but I wanted to recognize that atai is also an investor in COMP, Compass Pathways. And COMP360 is meant to read out by the end of this year. As a neuroscientist, would you be more focused on needs? Or would you be focused on, I'll call it, response rates? What would you like to see out of that Phase 2 study in treatment-resistant depression? How will you judge success?

Yes. So this trial is obviously largely forward from existing data sets, right? They're all academic studies at most a handful of sites. This is a large multicenter trial, well powered, 222 subjects, 22 sites. It's a really -- it's a massive undertaking and very well conducted by the team over at Compass. So there's going to be a lot of learnings from this study. I mean what I am personally focused on are in fact response and remission rates. We recognize the heterogeneity of treatment-resistant depression. And I've said it multiple times, not everyone is going to respond to silicide any more than not everyone responds to an SSRI or R-ketamine, S-ketamine. And then there's another subset of this population that undoubtedly is going to have a very long-term remission. Most people are going to fall somewhere in between. So really, I'm focused on the effect size that one is seeing, and the durability of effect. But really, the best way to assess that is with response and remission rates from my perspective.

Well, and at least they're conducting a very large rigorous study relative to what's been done in the past. And the neat thing is that you have a lot of candidates to prosecute. So you're going to be a busy person over the course of next year. And I hope that we are together in a year at the Cantor '22 Healthcare Conference. We're talking about some of this progress, but I appreciate you taking time today, Srini, and sharing your perspectives on atai with us.

Absolutely, Charles. Thank you so much once again for the opportunity.

Thank you.