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

Good afternoon, everyone. I'm Sean Laaman, Head of U.S. Mid-cap Biotech Equity Research here at Morgan Stanley. Welcome to our Global Healthcare Conference. For important disclosures before we commence, 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. For this session, we have Axsome Therapeutics with CFO, Nick Pizzie; and COO, Mark Jacobson. Welcome to both of you.

Thanks, Sean. Great to be here.

Yes. If you can do me a favor, I've got 3 sort of macro high-level questions to start. First one is, how is the rise of China originated innovation, if at all, changing the competitive positioning and your R&D and BD playbook?

Sure. The -- so for us, state of affairs is mostly status quo on the R&D side. We are seeing more products and earlier-stage products that are being identified, discovered and developed in China that are making their way over to the U.S. either in terms of potential business development efforts. So we are seeing that. And then maybe another element of R&D is just increased number of third-party vendors or nonclinical, preclinical laboratories and beyond that are becoming viable options for R&D efforts. So we're seeing -- I would say we're seeing those 2 elements the most. And maybe one other item is solriamfetol is, of course, available, and I'm not sure if that's what you're alluding to outside the U.S. So there's that potential impact. But again, for us, things are status quo.

Sure. And are you implementing AI across the business? And if so, where are you seeing it have the most effect?

Sure. We are, and it is across the business. And I think as you know and probably behind the question is there are all kinds of ways to implement and deploy AI, and we do that already and on the commercial side of the business. So for data and analytics, how we're modeling, how we're applying those models to sales operations and tactics. And then there's actually tools that we have implemented for the sales team members, so determining next best action or call plans. There are AI engines that we've incorporated into that process. So we -- what does that mean that's there as a tool to drive efficiency and productivity for sales representatives. It's also being deployed in other elements of the business, and we haven't talked a lot about it. And -- but there are all kinds of ways where you can use this powerful computing tool to monitor CMC activities or drafting large documents and templating those and having them driving speed to, say, early drafts or QC large bodies of data that have -- that you could expedite that process. So it's showing up in all kinds of ways. There are individual efforts or individuals driving this. There are teams of folks thinking about how to drive innovation at the organization. So it's percolating through the organization, but not anything that we've necessarily disclosed AI innovation plans around. It's all just part of the company's kind of normal state of affairs in doing business.

I'd say probably the one thing it won't necessarily substitute that face-to-face interaction with the HCP. There's -- that's something that the doctors truly value is understanding the product directly from an [indiscernible] [ Axsome ] representative. And we could just see how AI potentially can support the reps to be even much more efficient and effective.

Sure. Last question before in Axsome specifically, but which policy variable FDA Medicare negotiations, MFN, tariffs or global pricing matters most to your economics? And what have you changed in anything, if anything, because of it?

Yes, sure. Maybe I can answer that question. Probably the biggest factor there would be the IRA negotiations that if and when they do come about, would impact us starting in 2032, and teams are already preparing for that and doing the HEOR analysis and publications and so forth to prepare in the event that we do have negotiations. And we've already additionally, we've already priced into our peak sales model of $8 billion. We would say, a relatively conservative approach or a conservative estimate compared to what some of the outcomes that we've seen thus far.

Maybe just to add to that, you add in that list just FDA dynamics. And for us, there that's I'm trying to find another phrase beside status quo but it's generally status quo for us that, look, we have the 3 approved products, Auvelity. It was recently approved for Alzheimer's disease -- Alzheimer's disease agitation, excuse me. And so that's launching, and I'm sure we'll talk about that. The other programs that are in development, we've received FDA feedback on commensurate with those stages of development for any given program. So we feel very good about our dialogue with FDA and what we need to do for -- to submit additional marketing applications. We have another one under review right now, by the way, that's AXS-12 for narcolepsy, cataplexy in narcolepsy. We have a PDUFA date there of May 1. So again, status quo on the FDA side, even though we know there are -- earlier this year and prior, there was a lot of -- there were a lot of changes. And then there are new guidances that are coming out. But again, we're -- we feel good for that part of the business.

Awesome. Thank you. I've got a series of questions here now on Auvelity and the ADA launch. But really strong growth in Q2, high teens, 18%, I think it was. But a lot of debate in the market, sort of how much contribution from ADA versus benefit or penetration in MDD from the expanded sales force? How do you balance those 2?

Yes. So for Q2, it feels like it's a distance -- it's been a while now in Q2, but the vast majority of the scripts in Q2 were related to MDD, specifically around the expansion. And I think what we're seeing in Q3 is that a significant piece of the NBRxs, we're starting to see the impact of the additional indication in our NBRxs and -- most recently this past Friday, we hit a new all-time high of 3,800 NBRxs per week. So that number is continuing to be -- continuing to grow quarter-over-quarter. We were at 2,400 in Q1 on average on a weekly basis, 3,000 in Q2. And now tracking the last 3 weeks have been 3 consecutive weeks of the highest NBRx that we've had for Axsome for Auvelity. So pleased with that growth, and we are seeing that specifically the percent within the 65-plus Medicare sector cohort, the 4 weeks prior to the approval, they accounted for roughly 19% of our NBRxs. Now we're closer to 31% of our NBRxs. So said another way, what appears to be is the agitation indication is the fastest-growing segment within the NBRxs.

Sure. A lot of debate in the market that even though you reported those strong numbers and it continues to go on, just looking at reported scripts, people are using those as a basis to say growth isn't necessarily what we expected it to be. So there seems to be some difference between what you're reporting and what you're observing versus the script numbers. And maybe just perhaps remind investors why it could be an erroneous thing to just rely on script data for Auvelity's performance.

Sure. The -- I think maybe it's the -- how you think about bridging near-term and immediate impact changes to scripts. -- and the overall opportunity for both MDD and AD agitation. So those opportunities are very large. We can talk about them. And of course, we've guided to our peak sales estimates within each category, and we think they are significant simply due to our very modest penetration estimates. And we can talk about how we get there, why we think they're modest and conservative. But there may have been some folks who -- to your point or what you're sharing is there are some folks were expecting an immediate kind of vacuum filling effect, which was not our expectation nor our guidance. Instead, what we shared is that we expect growth to start to show up both from the field force expansion and the new label indication for Alzheimer's disease agitation in 1 to 2 quarters as the start of growth. And so we're -- that's why Nick was talking about NBRx, so the pure new-to-brand scripts. So that's really where we're starting to see continued growth in prescribing in major depressive disorder and now starting to see our initial prescribing in Alzheimer's disease agitation. So the growth is there, as Nick was touching on the last few weeks, the growth is ticking up and ticking up and ticking up, and we expect to see that continue and then start to really impact total scripts. So that's all moving along and in line with expectations. We can talk about other metrics in terms of new prescribers and number of new unique prescribers that's increasing substantially, and we expect to see that translate also into total scripts over time. And so it's moving along, and we're watching the impact, and we expect it to continue to grow. But we're pleased. What we'll share qualitatively that we're very pleased with is the feedback we've received from prescribers who have tried the product in Alzheimer's disease agitation that it's working well. The tolerability profile looks good. So that's really good to see because then, of course, that gives us a sense of the product is performing in a real-world setting, similarly to what we saw in a clinical setting and then that ties to how we're thinking about total opportunity or total utilization through peak.

Yes. And maybe just 20 seconds on the TRxs. So we've been talking about NBRxs and really seeing that nice lift in where the Ts. But if you actually -- even with the most recent data that we had on Friday, this last 3-week period was one of the strongest 3-week periods, consecutive 3-week periods that we've had the entire year. And that's at the -- taking into consideration probably the most seasonally worse or negative part of the year being mid- to end of August, early -- mid- to end of August and early September, where typically you have a downtick in TRxs or a flattening in TRxs, we've actually seen tremendous growth. And like I said, it was one of our top 3-week periods of the full year.

Sure, sure. And beyond that, I guess, sort of top line or reporting top line quarter-to-quarter, just to give investors a bit more on how the launch in ADA is going, going forward. Do you plan to either split out scripts, give that percentage of scripts going to 65 and older? Do you plan to deliver anything beyond the top line to give some investors confidence the ADA launch is indeed going observably well?

Yes, we're going to try to be more helpful. I know the Street is eager and thirsty for additional metrics. And this is going to be our first full quarter to be able to announce how the launch is going. So we're mindful of that. And I think we're looking into our team to be able to provide more metrics.

Fantastic. Just going back to the sample equation. So sample is roughly 3-week community trial packs that don't appear in the syndicated data. So converted scripts first fill around week 4. How much of the July script picture is June sampling? And then when does syndicated data become a reliable read?

The -- so we haven't shared conversion rates or time lines. So the 3-week sample titration pack for Alzheimer's disease agitation, of course, that's according to the labeled instructions and clinicians are -- the team is giving out samples and it's a robust sampling program. So the sales reps are able to sample. They have -- there's an allocation and then prescribers are able to request or receive a certain number of samples on a weekly or monthly basis. And that's all moving along in line with expectations. The conversion rate, we're monitoring, and that changes pretty dramatically in early days. And so I think you touched on how it's labeled for utilization. What we can see is there are different types of prescribing that -- or feedback anecdotes that if someone is being switched, they may go slower or perhaps they're also given a maintenance dose sample. So all of that -- it's not to say there's anything out of the ordinary or unusual happening, and it's very much in line with expectations, but that makes for a fluctuating conversion rate. So we haven't shared that. We've never commented on sampling from launch, specific numbers. And most sponsors don't because, of course, that ties to sales operations strategy and tactics, and there's a lot of competitive intelligence around that. But right now, what we're seeing looks good. So -- and the distillation of all that is we are starting to see conversion of sampling to scripts. And of course, we can see that in the new-to-brand script numbers Nick talked about. We can see that in new prescribers and then that flows into total scripts. So we'll continue to sample. We continue to sample in MDD, and we'll monitor that, but that's probably not an area where we'll have a lot of commentary. And your final question is when does it kind of get into steady state or how much time? I think that's probably when we report again for the first full quarter of launch in the indication when we report Q3 and maybe beyond, I think that will be helpful. We know there's a lot of interest in sampling right now, and that's probably just a window into what's the best way to model what's coming and how quickly and how big it might convert or inflect for scripts. So we know there's a lot of interest there. Again, it's moving according to expectations. We're happy with that. And I think Q3 will help folks, and then we'll see additional -- what Nick alluded to what commentary we can provide in addition to what we have, and we'll look to be helpful.

Sure, sure. You mentioned that you're perhaps conservative on the Auvelity outlook, and you've got an $8 billion long-term run rate or guide out there. Maybe just talk a little bit about, if you can, sort of what penetration price assumptions sort of go into that metric and what -- why you think it might be conservative and what you're observing today that underpins that view.

So for -- specifically for ADA or are you speaking for Auvelity?

Overall, I believe.