Axsome Therapeutics, Inc. (AXSM) Earnings Call Transcript & Summary

Okay. Let's go ahead and get started. Welcome, everyone. This is the fireside chat with Axsome Therapeutics. My name is Vikram Purohit. I'm one of the biotech analysts with Morgan Stanley Research. Before we get started, I need to read a brief disclosure statement. For important disclosures, please see the Morgan Stanley Research disclosure website at www.morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley sales representative. With that, happy to have with me, Herriot Tabuteau, CEO of Axsome. Herriot, thanks for joining us.

Thank you. Thanks for having us.

Of course. Herriot, we have quite a few areas in the pipeline and also our ability to talk about, which I'm sure people will be interested in. But before we do all that, maybe you could just take a minute or two and just talk to us about kind of the current state of the business and what you think some of the key milestones have been for the portfolio in 2023.

Okay. Absolutely. Very, very happy to do that. We're in a great position. We've worked really hard to build a company that could grow to become aid from it or if not from your CNS drug company. And currently, we have 2 commercialized products, we also have behind that, a number of product candidates. So 2 commercialized products, 5 products in clinical development across 8 new indications. And if you look at the number of patients that those potential indications target, it's 162 million patients in the U.S. alone. So that's nearly half the population. And we also are very well capitalized. We did our recent capital raise, which provides us a significant amount of capital, which will take us through cash flow positivity. So the business is very strong. The pipeline is just broad and differentiated and the commercialized products, we're really happy with the way that they're launching or being relaunched. If you look at 2023, what some of the key milestones have been, clearly, starting with our commercialized products, the sales for Auvelity. We had our first 2 full quarters of sales for that product, the continued execution with our second product, Sunosi and as well as the progress that we've made to expand the pipeline. So the new indications, for example, that we've announced for Sunosi, which include our solriamfetol, which is the active component of Sunosi, which include ADHD, binge eating disorder and shiftwork and just the general progress that we've made with regards to the rest of the pipeline in terms of advancing our ongoing clinical studies.

Great. I think that's a good overview. And maybe the first best place to start is Auvelity. So there's been a good amount of focus on the launch since that happened late last year. And maybe we can take apart a couple of different facets that people seem very interested in. First, let's talk about reimbursement. So gross to net is a focus for all launches, although it is not an exception. Just remind us, where is gross to net for the product currently stand as of 2Q? And where do you expect it to evolve to? And what do you think is kind of a steady-state for Auvelity?

So the gross to net in the second quarter was in the low 50s, which was somewhat better than what we had expected at this stage of the life cycle of the product. As a reminder, gross to net for mature brands in the antidepressant space, are in the 50% to 60% range. And I think at steady state, that is probably what we might expect with Auvelity, that's not guidance, but just based upon what we're seeing with comps, that seems like a good place to target.

Got it. And are there any nuances thinking about the next couple of quarters to think through on any atypical GTN fluctuation we should all keep in mind?

Right now, there is a lot of fluctuation with regards to our gross to net and what we report. And that is simply a function of the fact that we just launched the product. We only had 2 full quarters of launch. We have not even had a 1-year anniversary yet. So things which could affect sales and prescription growth, whether internal to the product or extrinsic like seasonality and I mean true seasonality, for example, with the summer period more seasonality as it relates to timing of co-pay buydowns around the beginning of the year. We have not yet had enough experience to be able to say, well, here are the factors that are going to affect our ability to think about what you might see in terms of sales. So there is that source of -- natural source of fluctuation from the product being launched. Now what will be the drivers going forward. I think one of the key drivers will be continued experience from clinicians with the product, that's one. To increasing awareness of the product. and not just the product but also the unique mechanism of action of the product and maybe the mechanism of disease, which is relevant to the potential mechanism of action of the product. And then lastly, of course, we want to make sure that access does continue to increase so that if patients asked about the product, if clinicians want to prescribe the product that the patients will have access to it.

Got it. And on the point of physician experience, could you share with us what you heard from the field in terms of feedback on Auvelity from prescribers, both constructive feedback and then also any feedback on -- or pushback from prescribers on why they're not prescribing Auvelity yet or why they're not prescribing as much as the prescribers who are more in support of the product might be?

So the constructive feedback that we've heard or the positive feedback, I should say, is -- has to do with how the product is performing. So when you initially launch a product, like Auvelity, or any new branded therapy, there is an NDC block. So doctors tend to try the product in patients who had multiple lines of treatment. That usually is not a great thing because obviously, patients who have had multiple lines of treatment, they tend to be more treatment refractory. And it's worked in our favor actually because the feedback has been that even in those really treatment-experienced patients that there has been a response to the treatment, which is consistent with, by the way, what we've seen clinically. So in our clinical trials prior to the product being registered, we did look at patients who had been given various lines of treatment to compare their response to patients who are treated frontline and the results were very consistent. The other positive feedback that we've heard from -- that we received from clinicians who have used the product has to do with how it performs relative to the label and relative to the clinical results in the registration trials. And what they've reported is that the product performs at least as well and maybe even better than what was seen in the clinical trials. So that positive experience is driving adoption. In terms of pushback, I think one of the -- and this is not necessarily a pushback, but it is something which needs to be addressed is that because Auvelity is the first new mechanism of action in over 60 years, there is not as much ready education about the mechanism of action and also about the relevant mechanical disease. So Auvelity the first oral NMDA receptor antagonist to be approved. And NMDA is -- the NMDA receptor is a glutamate receptor and so how does most psychiatrists and then mostly PCP, they're very familiar with serotonin reuptake inhibitors. But in terms of when you step away from monoamine and talk about the glutamatergic system, there is more education that needs to be done there. And then of course, naturally, with any new product access. So right now, doctors do have to write prior authorization in situations where there isn't access, and so that is a natural part of a launch, which is expected, which we are addressing.

Understood. Okay. And what is the profile of a typical patient currently on Auvelity? And how has that evolved since the very early start of the launch?

So if you look at the patients who are on therapy, the majority of patients have received more than 1 line of treatment. So you do have maybe around 1/3 who received 2 prior lines of treatment and then a majority of patients who received more than 2 prior lines of treatment. But what we're also seeing, which is surprising and encouraging this early in the launch given where we are with regards to access is we have seen around 10% of patients receiving the drug frontline. And I'd say, just slightly above 10%, which is a number, which has very slowly but steadily been increasing.

Understood. Now, I wanted to pivot to the script trends, something that a lot of people obviously watch, and there's been some debate recently about some relative flattening of script trends over the past few months. I would just be curious to get your perspective on, how to interpret re-prescript data and what you make of that feedback that scripts have been leveling off a little bit over the past few months.

Well, what's great about script data is you can watch it. And so you can all see it, which is great. And then the other thing that's nice about script data is that it's not just prescription data for Auvelity but prescription data for the rest of the class. So it -- it allows our script trend, to put into context with what might be going on in the broader market. And -- so the -- what we do know is that during the summer months, there is some natural softness, probably overall in terms of pharmaceutical products, but especially for antidepressants. And it kind of makes sense. So biologically, we do know that sunlight does affect depressive symptoms, and we -- there's even an entity, which is called seasonal affective disorder. So -- and then also, we do know that for the factors which contribute to depressive symptoms, such as social isolation, lack of activity or less during the summer months. So that's been happening for sure. And I think those effects have been reflected in the prescription trends for the broader antidepressant market. We have been outperforming the entire depressive market even during this period. Having said that, we are a launch branch. And we want to make sure that we're not affected by this type of seasonality right now. So in terms of the feedback that we've received from clinicians and for rest of the product, it continues to be positive, in terms of the activities, which we're taking from a promotional perspective, that continues to progress. And we're very confident in the long-term potential of the product.

Got it. Okay. Great. Maybe we can pivot now a little bit to physician reach. So you announced with your 2Q earnings update that you're going to be increasing the size of your sales force from roughly 160 to 260, if I recall. Correct?

Correct.

So question one there is what drove the decision to do that? And then secondly, how far along are you in the process of adding all of those new reps?

What drove the decision is our desire to capitalize on the positive receptivity to the product thus far. So when you launch a product, it's really good to have data and information and feedback on how it's performing and what the receptivity and also what the efficiency has been of various promotional activities, the main one being reps, okay? So we've approached the launch, I think, in a very rational way in terms -- from a spend perspective. And the data and the receptivity was positive, and so it made sense for us to increase our reach. The 162 reps that we had at launch, those reps targeted about 26,000 HCPs. And with the additional roughly 100 reps that will bring us to be able to target about 44,000 HCPs, which -- who write more than 80% of the prescriptions for antidepressants. So we're -- we think it makes sense. And in terms of where we are, we have identified and hired the sales leaders for the additional reps. And we are bringing those reps online, and we expect them to be fully hired by the end of the year and to start to be productive in the beginning of next year.

Okay. All right. So sales leaders hired as of now, but you're kind of building it out -- building out the full field force by early next year?

Correct.

Okay. Got it. And is there enough promotional sensitivity based on your experience now with this launch, where you would expect more reps to lead to 1, 2 quarters down the line, just bump in sales? Or is it not that simple?

It should be -- that is what should happen. That's what we're doing. So representatives are very important to communicate the clinical data and to provide clinicians the information that they need to decide whether or not the product would be helpful to their patients. So our reps, thus far, have been very productive. And we -- with the new reps, we would look to make sure that we have the same productivity and potentially even increase it.

Got it. Okay. I wanted to follow up on one question you mentioned. One point you mentioned on use across lines of therapy. So you mentioned that roughly 1/10 of patients currently are receiving Auvelity frontline. Do you have a current view on where usage stands across like second line, third line and then later?

So roughly around 1/3 of the patients are receiving the product a second-line treatment and then another 1/3 or more are receiving it after second month.

Got it. Okay. That's helpful. And are you able to track how patients are using the therapy? Has it mostly been monotherapy? Is it in combination?

So if it's being used frontline, then it's monotherapy, sure, that's for sure. And then -- but a lot of patients do -- a lot of patients currently are on some other antidepressants. And then they're switched off. So you hardly ever -- if you have a patient start a new therapy, and they would be totally washed out. So I think that from a practical perspective, depending on the antidepressant of the agents is currently on, which is not working, then the clinicians would switch the patients slowly to Auvelity.

Got it. Okay. Great. Maybe we can pivot then from Auvelity to another program of a good amount of investor focus, Alzheimer's disease agitation AXS-05, just versus a level set for us. Where exactly does the program stand right now? Which key data sets have you generated? What engagement have you had with regulators? And what have you decided with the FDA on what the filing path here could be?

So where we are right now is we are -- we have completed 2 Phase III trials. So the ADVANCE-1 trial, which was positive. And that was a parallel group study and the ACCORD Study, which was a randomized with study design and that was also a positive trial. We are currently conducting the ADVANCE-2 trial, which is another parallel group trial. And in addition to that, we have an open-label safety extension trial, which is enrolling patients to roll over from the ADVANCE-2 trial. So the -- all of those studies, so all those 4 studies, 3 randomized trials and 1 open-label study will be included in the package for the NDA submission.

Got it. Okay. And then for the ADVANCE-2 data expected in the first half of next year, just frame expectations for us. What can we expect to learn? What are you looking to -- hoping to see? And -- what are the different scenarios of data that we could end up receiving?

So the ADVANCE-2 trial, as you mentioned, we are expecting to have a readout for that in the first half of next year, the first half of 2024. In terms of the -- in terms of what we would like to see, we would like to see consistency with the prior trials, so far, we have seen that. In terms of efficacy, we've seen in both of the Phase III trials that have been completed that Auvelity or AXS-05 significantly and rapidly reduces the symptoms of agitation. So we'd love to see consistency of results. We will also be looking at safety. This is a really important point in this overall population. So it's good to have not just open label safety but very importantly, to have controlled safety data. So those are the things that we would be looking to see. And in terms of scenarios, I mean, there could be just a number of different scenarios. But obviously, we would not be running the study if we didn't feel that there was a good rationale and a very good signal or signals in the initial trials.

Understood. Okay. And just from any research that you've done on this indication internally, how do you think an initial launch trajectory in ADA would compare or contrast versus what you've seen with MDD? Just would be great to get a sense of -- your sense of what this market looks like. And like what are the key levers that determine in your opinion, a successful product for these kinds of patients?

It's very hard to predict what a launch get -- will look like, especially for an indication for which there's very little precedent. So up until very recently, there had not been any product that was approved for this indication. So I think it's very hard to know. But the levers that you think about are, one, education. So when you're dealing with a brand-new indication, there does have to be a lot of work with regards to educating clinicians about the product and also -- and then also about the disease, frankly. So sometimes conditions are ignored because there is an effective way to treat them. So education, certainly, first and foremost, and then the other lever, of course, over the intermediate term and long term would be access.

Got it. Okay. And what's your sense of the commercial opportunity for a drug Auvelity with an -- or AXS-05 with an ADA?

With an ADA, we think that the opportunity is very significant. So if you look at the number of patients who have Alzheimer's disease, roughly 6 million, 70% of whom over a 5-year period will have agitation. So that's a very significant market. And then you add to that the fact that the treatment options are limited. So currently, there's one drug which has been approved for the indication. So there's a high unmet need. And so based upon all of those factors, we think that the peak sales potential in this indication could be between $1.5 billion and $3 billion.

Understood. Okay. And how much commercial infrastructure would you need to put in place to be able to serve this market? How large of a sales force would you need? And overall, how much spend do you think this would be versus what you've had to put into building out your organization for MDD?

One of the things that we've thought about from the very beginning is operational leverage. So that's why -- that's one of the -- that's one of the benefits of therapeutic area of focus. So Alzheimer's disease agitation is treated primarily by psychiatrists. And so you do have a very good overlap with the prescribers for Auvelity and major depressive disorder. So we would intend to obviously leverage those relationships, potentially the sales force. And then we would make a determination on whether or not we might want to expand or have a dedicated rep for that indication, but there is clear overlap from a prescriber base perspective.

Okay. Understood. And you previously mentioned that if you were to look at ex U.S. commercialization for Auvelity, it would be to grow an out-licensing agreement. Is that still your preference?

Yes, that is the corporate strategy, which is to -- for ex U.S markets to out-license our products.

So that's for all markets, not just MDD. So even if ADA were to be approved and then the path forward in the EU even for that opportunity, you would look for a partner?

Yes, that is our corporate strategy, and it is our preference. So we want to make sure that we're focused on the U.S. market. And then ex U.S. we intend to seek partners.

Understood. Any sense currently on timing for a potential partner for ex U.S. commercialization? Or if not that, even parameters that you use to filter out who could or may not be a good partner?

In terms of timing, we have not given any guidance with regards to timing. But one thing that we've talked about is -- this is an area of focus for us right now. And frankly, we've had so many things to attempt to from driving the business forward perspective, U.S. commercialization, regulatory activity is advancing the pipeline that we've been trying to manage our growth in all of these different opportunities. And so now we are turning our focus to make sure that we continue those activities, which will allow us to make sure that we get value for these ex U.S. assets.

Got it. Okay. Great. We have roughly 3 minutes left. Maybe we can then pivot to the earlier-stage programs to AXS-12 for narcolepsy. You've mentioned that the Phase III SYMPHONY data set is going to be reported out by the end of this year. Just frame expectations for us and provide us some background on this study. What gave you confidence to move forward with the Phase III program? And what do you hope to see with this readout?

Yes. So the SYMPHONY trial is in patients who have narcolepsy and similarly narcolepsy type 1. It's a great patient population to study in terms of narcolepsy because they have all of the symptoms that you see in narcolepsy. So cataplexy, which is the primary endpoint of the SYMPHONY trial as well as excessive daytime sleepiness, cognitive dysfunction, hypnagogic hallucinations, so the full spectrum of symptoms. And what gave us confidence to move forward into a Phase III trial were the results of our Phase II trial, so the CONCERT study. So the CONCERT study was a small crossover trial. And what that showed was that patients who were treated with AXS-12 had a pretty rapid and profound improvement in cataplexy symptoms. And they also experienced an improvement in except the daytime sleepiness and then also an improvement in cognition. So that give us the signal that we needed to move into the pivotal trial. So that's the SYMPHONY trial and the SYMPHONY trial, it's a very similar patient population as the CONCERT study, the difference -- the main difference being that it is a straight parallel group study, whereas the CONCERT trial is a crossover study design. And we've -- the study is enrolling. We're still targeting the fourth quarter in order to have results. Now enrollment in -- with an orphan indication does tend to be lumpy and not predictable. And what we tried to do is along the way to give folks a sense of exactly where we are. And so we do intend to announce once we have completed enrollment in that trial to get folks for the granularity on data readout.

Understood Okay. In our final minute area since we didn't have a chance to touch on the entire pipeline, do you want to just mention other milestones and key developments you're looking for in the business in the next 6 to 12 months that we didn't get a chance to talk about?

Yes, sure. So starting with AXS-05. So Auvelity is commercialized. And we do have Alzheimer's disease agitation with AXS-05. And so an important milestone next year will be the conclusion and the results of the ADVANCE-2 trial, okay? And that's going to be in the first half of 2024. Moving on to Sunosi, I think it's important to highlight 3 new indications for that molecule for solriamfetol, which is ADHD, for which we initiated a Phase III trial, binge eating disorder, which we intend to initiate a Phase III trial in the fourth quarter. Shift work disorder for which we intend to initiate a Phase III trial in the first quarter. And there is the possibility that within 12 to 18 months of initiating those studies, there could be data. So next year, from a clinical data perspective would be really impactful potentially for a lot of our different products. And then in addition to that, AXS-07, we -- which is our migraine product, and we are on track to refile the NDA for that product in the first half of next year and then the AXS-14 for fibromyalgia, we are on track to file an NDA for that in the fourth quarter of this year or the first quarter of next year.

Great. And with that, we're actually out of time. So we'll call up there. Herriot, thank you so much for joining us. Appreciate your time. Thanks, everyone, for joining.

Thank you, Vikram.