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

Good afternoon, everyone, and welcome to Morgan Stanley Global Healthcare Conference. I'm Sean Laaman, Head of U.S. SMID Cap Biotech Equity Researcher here at the firm. Before we commence, 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 representative. For this session, we have Axsome and COO, Mark Jacobson; and CFO, Nick Pizzie. Welcome, gentlemen, and thank you for your time today. And I thought maybe to commence proceedings, if you want to make some remarks to set the scene before we begin Q&A. But welcome, and thank you for your time today.

Thanks, Sean. Really appreciate it, and it's nice to be here. It's a very busy and productive day for us, which is great. And just by way of intro, Axsome is focused on Frontiers in Brain Health. And what that means is we are focused on areas of unmet need for central nervous system disorders. And we do that through a variety of ways. We have 3 on-market products, which Nick will touch on shortly and a very robust pipeline of a number of late-stage product candidates from Alzheimer's disease agitation to ADHD, narcolepsy, et cetera, and we'd be happy to run through the updates there. But very happy to be here today, and I'll turn it over to Nick who can kind of frame where we are from a business perspective on the commercial side of things.

Sure. Thanks, Mark. As Mark mentioned, we have 3 commercial products. As of the end of Q2, we had $150 million in total net revenue, of which $120 million was related to Auvelity, $30 million for Sunosi, and then we just recently launched our most recent commercial product, SYMBRAVO in migraine. That was in the market for just 2.5 weeks and did just under $0.5 million. So super excited about those 3 products, specifically, Auvelity, 11 quarters in now, tracking towards close to $0.5 billion annually. And one other announcement that we had is that we were able to increase access for Auvelity up to 83% of total covered lives, 28 million additional lives covered with no degradation in net price. So super excited and have a lot of good things to look forward to in the back half of the year.

Wonderful. We've got 3 macro questions. And the first one of those is with China's rise in biotech innovation, how do you think about Axsome's competitive position here? And will this influence your R&D and business development strategy?

Sure. The developments in China and rest of world in terms of increased prowess or presence in R&D, and we've been aware of that and mindful of that. And in terms of our day-to-day, we're doing our thing and it's good to be aware of. Outside the U.S., what we've shared is we plan to -- our general approach is to think about partnering the assets that we have global rights in. And so that's obviously relevant for key markets, potentially including China, depending on what -- to your point, what may be available or development in the space there. It's also interesting in terms of R&D and development that's happening there that may be interesting to explore opportunities in the U.S. So I think that just we fold that into our just general commercial intellectual property considerations and also potential pipeline development and expansion considerations. So it's no big changes to how we go about our day-to-day business as yet.

Wonderful. Wonderful. And how are you currently leveraging AI or the about AI's future disruption potential?

Definitely. So AI is -- we see it and use it across a number of functions of the organization. Very -- first and foremost, we see as driver of efficiencies in some areas. And we have already developed a broad kind of deployment and utilization framework on the commercial side of things. So the team has developed and is utilizing actively an AI engine that helps detailing efforts in terms of engaging with clinicians and ensuring team members have access to data and information, detail aids or components of the core visual aid that is most appropriate for any discussion. In terms of responsiveness and helping to identify what areas to quickly engage with someone on or in terms of driving efficiency and responding to an inbound query, things like that. And all the way through data and analytics, how we're thinking about analyzing commercial and R&D data, it's relevant there. And it's also very interesting and useful in terms of looking at historical data in the industry in terms of R&D that can be data sets or, say, approval histories and things like that. So we find it broadly useful and drive efficiency. But then that comes with also a mindfulness in terms of how these language model works, what gets uploaded to them, what platforms and things like that. So there's a deep -- basically, an AI champion team internally that helps with that.

Wonderful. And what has been the most impactful in Axsome on the regulatory side? Is it FDA, MFN or tariffs?

I don't know that we've seen disproportionate impact from any of those and maybe you would say pleasantly the state of the business is pretty much status quo with respect to all those, and we can touch on them. So regulatory, the way we engage and the different divisions we engage with, that it hasn't manifested in a way such that we've seen any type of differential engagement or type of feedback or dialogue there. So -- but we know it is impacting how they go about their business. But nothing in terms of a material impact to us that we're aware of. And then do you want to touch on the other?

Sure. Maybe on tariffs and MFN, we don't believe there's any material impact. It's a material impact to the organization for most favored nation pricing. The only product that we have that is commercialized ex U.S. is Sunosi that is by our partner, Pharmanovia in Europe. So if there is any specific impact that would relate specifically to the government channel, which is a small portion of the Sunosi business. As it relates to tariffs, the majority of -- well, all of Auvelity and all of Sunosi is manufactured in the U.S. and Canada. Again, the only potential impact would be as it relates to Sunosi, which is manufactured ex U.S. The tariff would be an immaterial impact. If you focus specifically on cost of goods, the material piece -- the cost of goods is made up of royalties, material, labor and so forth. The tariffs only impacts on the material piece, that would be such a small subset of Sunosi that we don't find that's a material impact to the organization as a whole.

Wonderful. Not specific Axsome questions, sort of a series on Auvelity and MDD. And continue to show strong growth in MDD. And remind us what the key drivers are behind this observation and adoption? And how do you see usage evolving in primary care versus psychiatry?

Do you want to touch on some of the tactical things?

Yes. Yes. Thanks, Mark. Maybe I'll speak a little bit about the sales force first. So Axsome's approach has always been a very disciplined approach in investing into the business. We started Auvelity, we launched with Auvelity with 160 reps. We added about 100 reps about 1.5 years ago, and then we added an additional 40 reps this year. So we're seeing each time that we have added field force to the Auvelity to detail. We've seen that return come back pretty significantly. In the first area that you will see the return on and the effectiveness of these investments is with NBRx's. So to kind of give a sense just most recently on the expansion that we did of additional 40 reps, again, we put them into the field sometime in Q1. But in Q4 and Q1, we saw NBRx is in the neighborhood of around 2,000 average NBRx per week. And in Q2 and Q3, once these reps got their, let's say, legs under them, we're now seeing 2,500 NBRxs per week. So basically a 25% inflection up because of those 40 reps, but also more importantly, the 260 reps that we currently have -- that we originally had are being able to be more focused and the geos are smaller and tighter, so you're getting better breadth and depth. So that's the first thing. And then secondly, the payer access, as I mentioned in my introductory comments, has improved significantly over the last couple -- last 2.5 years, roughly. We're at 83% of total covered lives. We are optimistic that, that number can continuously to be improved by the end of the year and at the start of 2026. So we're super excited about that. And then tertiary, we just launched our direct-to-consumer national TV campaign this morning. So that's super exciting for the business. So the first commercial aired this morning. We did do a pilot study in Q2, saw inflections up in NBRxs as well as searches around the Auvelity in those specific pilot areas. So we're super excited starting today going through the end of the year on the campaign. So each one of those results in accelerated growth for Auvelity.

And maybe just to round that out with respect to primary care, right now, we're seeing of the prescriptions, about 1/4 are coming from primary care. And another way to look at that is about half of the prescriptions are in first line or first switch. So first or second line and about 15%, 16% is first one. So that speaks to early utilization, relatively early in the product life cycle. And then if you layer on the potential growth dynamics that Nick is speaking to, we'd expect to see continued improvements or uptake in primary care as we go.

My next question, I think some of the answers you just provided answered some of this, but I'll ask it anyway. So I think in first line, second line versus third line, the mix is around 50-50. But how do you see that mix evolving? And how do you push more of the volume into second line?

Exactly. So early days of new branded entrants kind of regardless of the category, they tend to be later line. There are, of course, a number of reasons for that. Typically, access is one of those. And so we've seen since launch kind of in steady improvements in earlier utilization of the product. And we think that really ties to some of the awareness and access that Nick touched on, but also the product profile. So we see the product -- the feedback we're getting from clinicians is that Auvelity works well in a variety of patient profiles, later line in earlier lines. So that when you think about going further into primary care. I should also point out that it's used approximately 50% in monotherapy or as monotherapy. So that also lines up nicely or advantageously with -- when you think about prescriptions in primary care. So we'd expect that to continue to improve as we go, as awareness increases, as our engagements with clinicians, HCPs and primary care increase, we expect that to continue to pick up steam.

Wonderful. And could you talk about recent expansion of payer coverage for Auvelity? And what are your expectations for prescription volume access improvements in the second half of the year?

Nick touched on our recent development.

Yes. So as I mentioned, we had an additional 28 million lives July 1 against the 83% total covered lives. So pleased with that. Ongoing conversations to get that number even north of that. We feel solid and optimistic about that by the end of the year. Mark, anything else you want to share?

Yes. So that speaks to definitely a number of covered lives. The other work that's underway is quality of coverage. And so ease of writing. So in terms of reductions and improving or reducing barriers for clinicians -- if clinicians see an appropriate patient, we want them to have as few barriers to writing potential script as possible. So we're making headway there, too. That's great. And our expectation is that the overwhelming majority of lives of total lives will be covered at steady state.

Yes. And I think it's actually important to note that even with these additional 20 million lives, again, price, we expect price to be stable or if not, potentially improved related this year. But more importantly, the access that we brought on is either first line or first switch. So it's not -- we're not -- we wouldn't pay for inferior access, which not behind PAs or multistep. We're super excited about the additional lives that we brought on, additional coverage.

Let switch gears to SYMBRAVO and acute migraine. What are the early learnings from the SYMBRAVO launch? And how are you addressing any access sampling and patient conversion challenges?

Yes. So very early, right? So the product became available in the second half of June. And so the team, they have their ears on the ground and are serving kind of all of the functional areas of launch. So engagement from a detailed perspective, there's a targeted consumer effort, there's access wins, which are already coming online. So we're looking for a number of things. One of the key things we're listening for and looking to is just clinician feedback for the clinicians who have tried the product. And to that point, the samples, we do have samples and provide samples. So there's sampling effort to support patients trying the product and HCPs trying the product. And so what we're looking to hear is prospective for how the product does in this real-world setting. Does that line up from an efficacy and tolerability perspective with the clinical data that we've generated. And we -- so far, we like what we're hearing. But that -- we'll continue to monitor that, and that can drive additional potential investment. But right now, the focus is on -- so we have 100 -- approximately 100 reps that are in the field and primarily focused on headache specialists and headache centers. There are about 150 of those that we're focused on. So it's learnings directly from clinicians and obviously, we'll also be pouring over the data in terms of weekly scripts and claims data and things like that. But it's still so early. It's -- there's a lot is still solidifying and crystalizing. So I think we'll have more to say than on the Q3 call. But right now, we -- it's a targeted effort, and we like how we're coming off the launch pad.

It's a very similar playbook what we did with Auvelity, right? We've launched with 160. Some of our peers had north of 700, 800 reps out there. We were very disciplined, focused on high-decile sites. This is more high decile headache centers. And then we'll see how adoption progresses and assess where we are, I would say, in 2026.

Okay. Great. I'll ask the question anyway, but describe your launch expectations over the next 18 months.

So we haven't guided to -- and just as a matter of course, we don't offer quarterly guidance, and so we have peak sales guidance and Nick can share that. I mean, we'd like to see -- this is not meant to be coy, but just continued growth, and we'd like to see healthy signals in terms of continued coverage coming online. That's important. We'd like to see just that the patient savings programs that we have in place for patients with commercial insurance. That's working, and it's easy for -- if a clinician determines someone is an appropriate patient, that's easy for them to get the product. That's really important. What we're aiming for is for a steady state, a gross to net that we think makes sense for the value the product delivers. And we're looking for, again, robust efficacy and with a tolerability profile that that's commensurate or paired to that efficacy. And do you want to comment on that?.

Yes, maybe just on the peak sales of $0.5 billion to $1 billion is what we anticipate for peak sales for SYMBRAVO. I think that's probably the main thing. And just again, trial adoption. One of the things that we did do with market access for Auvelity is we did not give up -- I'll say, give up the farm early on to be able to get access. We wanted to show utilization. And early anecdotal feedback has been that SYMBRAVO is in line with the clinical trial data that we shared. So super positive from that perspective. And standby, we'll share more in Q3.

Wonderful. Thank you. Moving forward to AXS-05, ADAA. Can you discuss the clinical commercial rationale for 05 in Alzheimer's disease agitation, how you expect it to differentiate from Rexulti and off-label antipsychotic?

Definitely. And we're really excited about this program. In terms of what's next, we've guided to sNDA submission third quarter. That's on track. And then -- so stay tuned for next updates would potentially be a potential filing acceptance. So that's all moving along on the development side of things on the regulatory side of things. So that's good. And then what's the rationale? This is an oral NMDA receptor antagonist and highly differentiated, dramatic area of unmet medical need. There's only one approved product, very different mechanism. So that's an atypical antipsychotic. And as mentioned, Auvelity or AXS-05 in this case,is an oral NMDA receptor antagonist. So what that leads to is a differential risk-benefit profile. Efficacy, we saw both short-term longitudinal data where we see separation, numerical separation from placebo as early as week 2 that become statistically significant at week 3. And then we have data -- maintenance of effect data that shows the efficacy is durable. And then, of course, we have long-term open-label data that gives us insights into both continued efficacy and tolerability profile, which is distinct from how the class is currently managed with atypical antipsychotic. So we did not see a mortality signal. We did not see a fall signal. So we're very pleased with the efficacy and tolerability profile that we've generated and more to come, but that's the distilled rationale for the product in that indication.

Wonderful. And what's the ideal patient profile for 05 and ADAA? And how do you see adoption in the long term versus outpatient?

Exactly. Yes. So given the unmet need patient profiling is maybe those just with the dementia of the Alzheimer's type with agitation and either in a community developing setting or even potentially in the long-term care setting. So one thing that's interesting is agitation is the primary symptom of dimension that leads to placement in long-term care facilities. So if you're able to positively impact that dynamic where individuals can stay with at home with their family or caretakers that high value to individual families and health care overall and clinicians overall. So we didn't -- in the clinical data we generated, there wasn't like a very specific or precise patient profile. We saw if we enrolled just overall patients with dementia, the Alzheimer's type and of course, the associated agitation. So we'll see if the product is approved and then clinicians are writing it, we may be able to comment on that with a bit more accuracy, but we're excited about the potential of the product.

Awesome. And can you discuss your confidence in the sNDA filing and just some descriptions around that.

Sure. So the package is going to include all the clinical data that we've generated to date, which includes 3 positive trials. That's ADVANCE-1, ACCORD-1 and ACCORD-2 and then there's supported data. So we had to do a stand-alone long-term safety database. And then we also have additional controlled data from the ADVANCE-2 trial, which provides important controlled safety data. And so the -- I touched on some of the considerations or some of the elements or questions that could come up in terms of longitudinal effect, separation from placebo and then also the maintenance of effect. And the feedback we've received from FDA from the very early days, we ran ADVANCE-1. We received Breakthrough Therapy designation for that. We maintained Breakthrough Therapy designation for AXS-05 in Alzheimer's disease agitation. There's been very consistent feedback from the psychiatry division, which is that they'd like to see 2 adequately well-controlled trials. And so we'll be showing up with 3 positive adequate and well-controlled trials. So we feel good about that, and we feel good about the complementary safety data that we'll have. And we don't have to speculate all that much longer, right? And we'll be able to be providing tangible updates in the not-too-distant future.

Sure. Sure. And maybe just to remind everyone, like how do you size the market opportunity for 05 and ADAA?

Yes, sure. So there's, I believe, 7 million individuals that have Alzheimer's, and we believe 75% or north of 5 million have agitation. So a very sizable market.

Yes. And we model for peak sales that we share, we model very modest and conservative uptake and potential penetration in the market. So there's a lot of need, and it's rare where you have unmet needs that touch a lot of lives or with prevalence along the lines of what we see here.

Yes. Peak sales for ADAA, we're modeling $1.5 billion to $3 billion. That's an addition to the MDD indication of $1 billion to $3 billion.

All right. Got you. I do have some pipeline questions, but just given the time, I really want to ask a series of questions on sort of corporate strategy. And so if I look at the stock price has been pretty mild. I'm not alone when I sort of put it out there. I think the stock is worth a lot more than where it's trading, but you've had a number of announcements with pretty good earnings, but it kind of doesn't seem to budge. So one question I would have, what do you think it's going to take for the market to realize what you might think is fair value in the stock? But the other piece, which I find quite interesting, and maybe my modeling is just poor, but when I look at -- you've got pretty good top line growth out to 2030 and I kind of struggle to keep up with the OpEx. And so the cash flow looks pretty strong and without modeling you doing anything in 2030, there's a fair amount of cash sitting there. And so how do you play all that off? Is It more investment in the pipeline? How do you think about that strategically? And is my modeling bad, in saying?

No. All good things, I think, that as we shared, I think we feel similar sentiment. So maybe taking a step back, there's a lot there. As it relates to stock price, we just try to do our thing, right? We're just trying to execute, and we can't manage that. I think there's probably an overhang a little bit as it relates to the filing. So once that gets out of the way, I think people can be honest about their modeling about additional assets as well. It's such a binary event and in investors' minds. As it relates to our cash and cash on hand currently, we're just north of $300 million. We are trending in the right direction. If you take a look at our net loss for Q2 of $48 million and you take out noncash charges as well as the onetime charge as it relates to refinancing to Blackstone, our long-term debt, the net loss was around $19 million on a cash basis and extrapolating it out for the first half of the year was around $50 million. Total net loss on a cash basis compared to previous year of north of $100 million. So trending in the right direction from a cash perspective, and we anticipate that to continue in the back half of the year and into 2026 with or without an approval from ADAA. So we feel like we're in a really good spot.

Maybe I'd round that out with just if you zoom out and look at the chart on some longer time scales, it's doing what it's supposed to, right, in terms of reflecting the fundamentals of the company, which are just better and better and have frankly, never been better since the company was founded, which is great. And so there's the filing which all eyes are on, which is great. And I think simultaneously, we've kind of also been charting the historical Bermuda triangle of biotech, which is launching into a large market for MDD, right? And so we now -- Nick mentioned how we started with a targeted launch in depression, and there are a lot of eyes then watching. And I think we've have -- or building a track record that reflects our level of execution, our discipline with respect to capital deployment and how that ties to keeping shareholders in mind in terms of our dilution sensitivity. So we like that, but that takes time, right? That takes time to show the strategy and tactics of the organization that they lead to value creation for patients, clinicians and shareholders. So I think we're doing that layer on the filing and then that it's kind of -- for this year, definitely agree. We think people are watching. But in the meantime, as Nick said, we're doing our thing and both on the commercial side and on the development side. And there's obviously -- we only have a couple of minutes left, but we're not even touching on the rest of development pipeline. It's just that we have so much going on. It's great. We've been mindful of not to tie our shoe laces together on the development side of things. There's another NDA coming up for AXS-12 in narcolepsy, which is that submission is -- that scheduled for the fourth quarter. And then there's a bunch on the clinical development side. So we think it's just continued execution and that's our focus, commercial and regulatory and clinical execution and layer in medical and all the other functions that are that are in that effort. So we're really pleased with the state of affairs at the moment.

I appreciate there's a lot going on in R&D at your R&D Day. And I guess the question I have is sort of given what we see as the forecast cash flow in the business with commercialized products. Do you think that the R&D programs will be sucking up a lot of the cash? Or do you think there's going to be the access to capital returns or further business development?

As it relates to R&D, I think we've always done -- one of the core competence for Axsome is to be able to complete clinical trials very cost effectively and with a disciplined approach in everything that we do. We've done that since the inception with the trials for MDD. From a commercialization perspective, we've been very disciplined in our approach. I don't anticipate seeing a significant inflection up in R&D into 2026. And we've been sharing for the rest of this year is that we'll be right around that $50 million range is where we've been over the last couple of quarters. So yes, I think from an investment, we will make those investments as needed, but we don't anticipate doubling in R&D over the next couple of years.

Great. Great. I do have a -- I've got a bunch of pipeline questions. We're conscious of the time, so I'll go to those. So how do you see AXS-12 fitting into narcolepsy treatment landscape if approved, especially with the emergence of the orexin 2 agonist and polypharmacy trends?

We like the profile. I mean we think it checks a number of boxes in terms of -- when you think about the total product profile or the holistic product profile, daytime dosing, we don't expect it to be scheduled. The efficacy, we focused on in terms of primary endpoints on reductions in cataplexy. We saw improvements in sleep. We saw improvements in cognition. And then all of that taken together with a differentiated tolerability profile with respect to what's already approved and other things in development as additional data comes in for other programs in development. So in our mind, we're excited about 12 and both with respect to what's available and other programs, too, which is great, right? It's an area of unmet need for patients, and it can be debilitating narcolepsy. So we're excited about the potential fit of AXS-12 and other programs, too.

And maybe just one quick comment on the synergistic nature of 12. We already have an infrastructure for sleep, right? We have 70-some reps that are detailing Sunosis. That's just a simple ad of the bag. So very minimal additional SG&A.

Wonderful. And I guess in terms of the equity story, so you've got 05 and ADAA sort of coming up and beyond that and apart from quarterly -- delivery of quarterly earnings expectations. So what are some of the other key catalysts over the next 12 to 18 months?

So just recapping, so continued commercial execution, AXS-05 and ADAA agitation, AXS-12 and narcolepsy, that NDA submission. And then when we think about other programs, clinical development programs, there's Sunosi, we're working on 4 different indications for solriamfetol. That's ADHD. So we have 1 positive trial in adults that's already completed Phase III. We need to launch a trial in [indiscernible] adolescent. That's on track to happen in the fourth quarter. And then there's -- we're looking at major depressive disorder, kind of a precision focus of individuals with MDD who have excessive daytime sleepiness. So we did one proof-of-concept study there, so we need to launch another study. Then it's ongoing studies in shift work disorder and binge-eating disorder. We expect top line results there in 2026 for both studies. And then it goes from there.

And then we also have smoking cessation that we'll be commencing in Q4 as well as the fibromyalgia Phase III trial.

Yes. And smoking cessation for AXS-05, we see that as a really interesting area of focus. So those are the current areas of focus. And yes, there's -- as mentioned, it's just a ton going on even after AXS-05 and ADAA agitation.

Sure. We're just on time, but is there anything that I didn't ask that I should have?

I think that was a pretty good review. Just as mentioned, we're pleased with the state of affairs right now at the business and we're really looking forward to the balance of the year and the year ahead. And then we'll keep everyone apprised of updates in the meantime.

Wonderful. We'll call it close proceedings there, but wonderful gentleman to host you, and thank you for attending.

Thanks, Sean.

Thank you.