Earnings Call Transcript - ACAD Q3 2022

Operator, Operator

Good day, everyone, and welcome to ACADIA Pharmaceuticals Third Quarter 2022 Financial Results Conference Call. My name is Gigi, and I will be your coordinator for today. I would now like to turn the presentation over to Mark Johnson, Vice President of Investor Relations at ACADIA. Please proceed.

Mark Johnson, VP of Investor Relations

Thank you, Gigi. Good afternoon, and thank you for joining us on today's call to discuss ACADIA's third quarter 2022 financial results. Joining me on the call today from ACADIA are Stephen Davis, our Chief Executive Officer, who will provide an overview of our third quarter performance and a review of our business; Brendan Teehan, our Chief Operating Officer, Head of Commercial, will provide updates on our commercial performance; and Kathy Bishop, our Chief Scientific Officer, will provide an overview of trofinetide; Dr. Srdjan Stankovic, our President, will then discuss our pipeline progress; Mark Schneider, our Chief Financial Officer, will discuss our financial results and guidance before turning it back to Steve for final remarks and opening the call up for your questions. I would also like to point out that we're using supplemental slides, which are available on the Events and Presentations section of our website. Before we proceed, I would just like to remind you that during our call today, we will be making a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including goals, expectations, plans, prospects, growth potential, timing of events or future results are based on current information, assumptions, and expectations that are inherently subject to change and involve a number of risks and uncertainties that may cause actual results to differ materially. These factors and other risks associated with our business can be found in our filings made with the SEC. You are cautioned not to place undue reliance on these forward-looking statements, which are made only as of today's date. I'll now turn the call over to Steve.

Stephen Davis, CEO

Thank you, Mark. Good afternoon, everyone, and thank you for joining us today. Please turn to Slide 5. As we presented last quarter to achieve our mission, we're investing our resources to optimize our commercial investment in Parkinson's disease psychosis, preparing to launch trefinipat for Rett syndrome and positioning ourselves for long-term success through internal R&D and strategic business development. With PEP, we are focused on investing in the highest ROI activities that efficiently drive demand for the brand and maximize the value of the NUPLAZID franchise. In addition, we're investing for a successful launch of trufinitat for the treatment of Rett syndrome, our potential second commercial product. We're investing in our pipeline of late and early-stage clinical candidates, most notably our negative symptoms of schizophrenia Phase III program and our ACP 204 Phase I program. And finally, we continue to position ourselves to leverage an increasingly attractive opportunity set for business development in CNS and rare disease. The positive cash flow from our new franchise allows us to invest in our future growth opportunities without the need to raise additional capital. Let’s turn to Slide 6. For the third quarter, NUPLAZID achieved $130.7 million in net sales. This was driven by sequential demand growth of 2% and an acceleration of growth in the long-term care channel. Revenues were offset by a reduction of in-channel inventory impacting net sales by approximately $7 million. I'd like to highlight a couple of items related to the current landscape for NUPLAZID. Recently, we've seen an increase in prescription growth in the LTC channel as this segment is starting to show early signs of improvement. This is driven by an incremental but steady increase in LTC occupancy rates, supported by an increase in new admissions. As Brendan will elaborate, a new admission is a critical time for potential diagnosis of psychosis and potential treatment with NUPLAZID. Our in-office channel continues to be unchanged and is still impacted by fewer in-person patient visits with their doctors as compared to pre-pandemic levels. Here, we have not yet observed the same level of incremental improvements as you have in the LTC channel. As we look forward, we will continue to evaluate and execute on the best ways to optimize and maximize our PDP business, which, as a reminder, has been cash flow positive since 2019. Let me highlight a couple of important dynamics. One, our relative outperformance since the beginning of the dependent on total scripts and new pricing when compared to baskets of the top Parkinson's, neurology and LTC medicines together with our ability to increase share in a constrained environment, give us confidence in our ability to maximize the brand in the long run. And two, the recent publications and presentations of real-world studies comparing the use of NUPLAZID to other antipsychotics highlight and expand on the favorable safety profile of NUPLAZID for use in PDP patients. We will continue to support the dissemination of these important data sets within the treating community. Let's move on to our late-stage programs on Slide 7. We're in prelaunch preparations, while in parallel facilitating the FDA's review of our new drug application for trofinetide in Rett syndrome. We announced in the quarter that the FDA granted priority review for our NDA filing and assigned a PDUFA action date of March 12, 2023. If approved, trofinetide will be the first and only FDA-approved treatment for Rett syndrome. In addition, we would expect to receive a pediatric priority review voucher. Our commercial team is working diligently on preparing for launch, including market development, disease state education, consumer profiling, and broader care team identification. Next, we expect to complete enrollment in our negative symptoms of schizophrenia Phase III study advances around the middle of next year. Today, we estimate that there are over 700,000 schizophrenia patients receiving treatment with antipsychotic therapy in the U.S. who still have persistent and impactful negative symptoms. And as we previously described, there is no FDA-approved drug for the treatment of these negative symptoms. For context, this is about 5 times the size of the PDP market where NUPLAZID is approved. If approved, advancements would be indicated as an adjunct therapy that would not need to replace or compete against first-line generic drugs. Let's now turn to Slide 8 to discuss our early-stage programs. As we mentioned last quarter, we've been working on a new molecule, ACP 204 for the past few years and are currently in Phase I development. ACADIA developed ACP 204 internally and maintains worldwide rights with no economic obligation to any third party. ACP 204 is designed to leverage the learnings from pimavanserin and hit the nice sweet spot. It shares some important similarities to pimavanserin, which provides the potential for reduced development risks and also is designed to explore important opportunities for improvement. In addition, we remain excited about our other early-stage programs, including our collaboration with Therapeutics. And we will continue to develop and invest in our pipeline while evaluating and investing in business development, leveraging our internal commercial and R&D expertise across psychiatry and neurology in both broad and rare disease areas. To discuss our commercial efforts in greater detail, I'll now turn it over to Brendan.

Brendan Teehan, COO, Head of Commercial

Thank you, Steve. Please turn to Slide 10. Our commercial team continues to perform at a high level and delivered demand growth for NUPLAZID quarter-over-quarter. As Steve mentioned, for the third quarter of 2022, NUPLAZID achieved $130.7 million in net sales. This was driven by sequential demand growth of 2% with particular demand acceleration demonstrated in the long-term care channel. Let's start with LTC. As shown in the graph on Slide 10, we have delivered sustained growth since the bottom of the pandemic, which was the first quarter of 2021. Recall the LTC channel experienced significant declines early in the pandemic. And while things have been improving modestly, you will note that the occupancy rates remain significantly suppressed today from where they were pre-pandemic. The recent improvement in occupancy rates over this period is one contributor to NUPLAZID's growth in LTC. More specifically, the growth occurs in an environment of increased new resident admissions. This is important as new admissions are a critical time for the diagnosis of the symptoms of psychosis and the selection of NUPLAZID. This rise in new admissions, coupled with our proprietary data sources that help our teams focus on facilities with the highest number of PD residents, enable us to target the best opportunities to treat newly diagnosed PDP patients in this key market segment. As you can see, in this environment of modest LTC occupancy growth, NUPLAZID's growth rate has outperformed these improvements. In fact, we are delivering some of the strongest prescription growth we've ever had in this segment. Looking at the office space channel, while our market share has grown over the pandemic, albeit at a slower rate, we're still constrained by a lack of meaningful improvements in in-office patient visits with their physicians. This is a critical time for the diagnosis of the symptoms of psychosis in a prescription for NUPLAZID. Looking ahead, our team is now sharing data from real-world studies with physicians and payers. These studies evaluated the safety of treatment with NUPLAZID in the PDP population versus off-label antipsychotics. For example, starting in the middle of the third quarter, in the LTC channel, we started to share with payers some of the recently presented retrospective study of a PDP Medicare claims database, which concluded the pimavanserin treatment resulted in lower all-cause and psych-related hospitalization, lower all-cause and psych-related emergency room visits, and fewer nursing facilities stays versus off-label atypical antipsychotics. In addition to fewer stays, patients on pimavanserin had shorter stays in hospitals and facilities. More recently, starting in the early fourth quarter, we've been sharing a recent publication with physicians that highlights the safety profile of NUPLAZID compared to treatment with off-label antipsychotics in PDP. These are important data for clinicians to understand when making treatment decisions for patients and residents facing PD psychosis symptoms in the first-line setting. We will continue to thoughtfully invest, mindful of the gradual normalization of the PDP market, optimizing our PDP investments on the highest ROI activities. We're focused on both top line and bottom line growth for the NUPLAZID franchise, which enables us to invest in our newest growth opportunity trofinetide as well as the R&D portfolio. Let's now turn to our prelaunch strategy and activities for trofinetide on Slide 11. As we look ahead to the launch of trofinetide, we see a tremendous opportunity to improve the lives of patients and caregivers suffering from Rett syndrome. Trofinetide is a significant growth opportunity for us, and we are investing appropriately to deliver a successful launch. Today, our efforts are focused on prelaunch market development as well as the build-out of our commercial and medical organizations. Important to every launch, but especially in a rare disease like Rett syndrome with no approved treatment is the focus on disease education and awareness of the unmet need of those living with or caring for someone with Rett. For years, Rett treaters have had very limited options only being able to treat some of the non-core symptoms of Rett syndrome, such as seizure burden or constipation. At the same time, caregivers live with the daily uncertainty of Rett and are often not able to get help with core symptoms that have a profound impact on daily life. Symptoms such as hand wringing, purposeful eye gaze, and communication, which to date cannot be fully addressed in part because there are no treatments available to address these needs. The opportunity exists to establish a shared understanding of Rett and to foster less fragmented seamless communication across the care team and caregivers and ultimately turn the spotlight on the still unmet, untreated core symptoms of the disease that matter to caregivers and that trofinetide may address. That is where we're focused today. As an illustration of these efforts, at the recent Child Neurology Society Conference, which included many of our target pediatric neurologists, providers who treat Rett, we launched rettdialogue.com, a website focused on shedding the light on the current limitations in care and increasing physician awareness of the breadth and depth of needs to address the core symptoms of Rett syndrome. To supplement these educational efforts, our medical team is presenting our clinical data at important medical and market access congresses, highlighting the potential clinical value proposition of trofinetide with KOLs and payers. We are additionally preparing for launch by augmenting our customer-facing team with our rare disease commercial organization. We have made substantial progress in building our seasoned leadership team with breadth and depth of rare disease expertise while leveraging the existing elements of our neurology franchise. Today, we know there are approximately 4,500 Rett patients diagnosed and treated in the United States and are cared for at IRSF-designated Centers of Excellence, non-COE academic institutions, and other targeted neurology practices. We are already mapping our HCP target universe and patient database so our field force will know where best to target our treating audience at launch and beyond. In addition to our targeting work, we recognize how critical it is to provide caregivers and physicians with end-to-end support they need to help patients start and stay on therapy and ensure an optimal treatment experience. This is a key area of investment for our team. Finally, I'd like to mention that October was Rett syndrome awareness month, and we were proud to support disease awareness and educational activities across the United States within the Rett community. Our ultimate launch objective will be to establish trofinetide as the foundational treatment for Rett syndrome and ensure access to all patients in need, and we're well on our way to achieving that goal.

Kathy Bishop, CSO

Thank you, Brendan. Please turn to Slide 13. As you know, Rett syndrome is a serious and debilitating rare disorder for which there is no FDA-approved treatment. We estimate there are between 6,000 and 9,000 patients in the United States with Rett syndrome, and we have data indicating there are approximately 4,500 patients currently diagnosed and being treated. As Brendan briefly mentioned, we continue to present clinical data for trofinetide at important medical congresses for the Rett community, including at the recent American Academy and Pediatric and Child Neurology Society meeting. This includes the positive Phase III IV or FEI results, where we hit both co-primary endpoints and our key secondary endpoint. We also presented interim data from our DasADiL study in younger Rett syndrome girls aged 2 to 4. As you may recall from the Phase III LIDAR study, we observed consistent results across age group and severity of disease. These additional data have been submitted to the FDA in support of our NDA for trofinetide. In addition, we are pleased with the positive feedback and enthusiasm we are receiving from both the medical community and the caregivers at these events as we approach a potential trofinetide approval. During the quarter, the FDA accepted our application for filing and granted us priority review. Our PDUFA action date is March 12, 2023. And the FDA continues to indicate that they are not planning to hold an advisory committee meeting. And I'll now turn it over to Srdjan for an update on our other pipeline programs.

Srdjan Stankovic, President

Thank you, Kathy. Good afternoon, everyone. Let's move on to our second potential indication for pimavanserin, starting on Slide 15. Persistent negative symptoms of schizophrenia remain one of the largest unmet needs in CNS. As of today, there are still no approved treatments for these symptoms which can lead to low social functioning, long-term disability, and significant caregiver burden. We are evaluating pimavanserin for those patients whose positive symptoms are controlled on currently available treatments but continue to experience predominant negative symptoms. We believe pimavanserin can be effective as an adjunctive treatment to help close that gap. As part of our development program, we have one positive pivotal study Advance 1, where we observed statistical separation on the primary endpoint overall and even more robust results in patients receiving 34 milligrams of pimavanserin compared to the lower doses. To maximize the probability of success in our ongoing Phase III study, Advance 2, we have optimized the dosing using only the 34-milligram dose of pimavanserin compared to placebo. We remain on track for enrollment completion around the middle of next year. As a reminder, this is a 6-month study duration. We look forward to keeping you updated on our progress. Now let's discuss our ACP 204 program on Slide 16. ACP-204 is a new molecule, which is designed to leverage the learnings from pimavanserin. For several years, we have sought to build upon our pimavanserin franchise by investigating and developing other molecules focused on the serotonergic system. Remember, virtually all of the antipsychotics on the market today are thought to work predominantly through blocking dopamine, and in particular, the dopamine D2 receptor. Pimavanserin is starting to work entirely through serotonin, which can provide a very different and favorable safety and tolerability profile.

Mark Schneider, CFO

Thank you, Srdjan. Let's start by reviewing our quarterly financial performance. In the third quarter, we recorded $130.7 million in net sales, driven by 2% sequential demand growth in the second quarter. While our inventory levels remain within historical averages, we experienced a reduction of in-channel inventory during the quarter, impacting net sales by about $7 million. Our gross to net adjustment rose to 18.6% during the quarter compared to 15.2% in the third quarter of last year. The increase in gross to net is primarily due to two factors: an increase in 340B volumes and a higher gross to net adjustment to account for in-channel inventory rebates related to the Inflation Reduction Act, which I will discuss shortly. GAAP R&D expenses increased to $81.3 million in the quarter from $58.6 million in Q3 2021. This increase was mainly driven by a $10 million milestone payment related to the acceptance of the trepinatide NDA filing and an increased cost of our commercial supply for tripinotide, which is approximately $8 million and classified as R&D expenses before approval. GAAP SG&A expenses decreased to $78.1 million in the third quarter from $81.7 million in the same quarter of last year. Year-to-date, compared to 2021, net sales were up 8%, and SG&A expenses were down 9% as we continue to optimize our commercial PDP spend. R&D expenses exceeded 2021, mainly due to the $60 million upfront for the collaboration, the $10 million milestone, and about $18 million for the tripinotide commercial supply build. Finally, we ended the quarter with a cash balance of $436.6 million, almost unchanged from the $436.4 million cash balance at the end of the previous quarter. Our balance sheet remains strong, and we are confident in our ability to generate sustainable growth with our existing cash resources, depending on the size and scope of future business development. Before I provide an update on guidance, let's discuss the recently passed Inflation Reduction Act. As a reminder, the IRA is focused on Medicare beneficiaries, and NUPLAZID has a payer mix that includes approximately 75% Medicare patients, while we expect our payer mix to have a Medicare population of less than 10%. We have evaluated various aspects of the legislation, including potential impacts of the inflation-adjusted pricing mechanism and the redesign of Medicare Part D, including small manufacturer phasing.

Stephen Davis, CEO

Thanks so much, Mark. Please turn to Slide 22. Today, we are executing on our promise to deliver NUPLAZID to patients with PDP with a focus on long-term growth and maximizing the value of the franchise. In addition, we are preparing for our second commercial product launch, which is trofinetide. We're advancing our Phase III program for the negative symptoms of schizophrenia and developing several additional programs, including ACP-204, and while pursuing attractive business development opportunities. With a strong balance sheet and a focus on top and bottom line growth, we are well positioned to create sustainable long-term value. As always, I would like to thank our employees for their accomplishments and their ongoing commitment and passion as we continue our mission to elevate lives. Before moving to Q&A, I'd like to mention that ACADIA has recently appointed Dr. Adora Indo to its Board of Directors. Adora is a biopharma executive with significant regulatory and clinical experience. Combined with our extensive background in rare disease, her skill set nicely complements those of our current board membership and will be a real asset to us as we further commercialize and expand our pipeline. And finally, as you may have seen in our announcement last week, Srdjan, our President, will be retiring at the end of the year. Over the past 7 years, Srdjan has been a great partner as we have fundamentally transformed ACADIA into what it is today, a commercial stage biopharmaceutical company with proven capabilities and an exciting portfolio of late and early-stage programs in CNS and rare disease. Personally, it's been a great pleasure to work alongside Srdjan, and I hope you will join me in thanking him for his distinguished service to ACADIA, the scientific community, and, most importantly, to patients and their families. Going forward, Srdjan will transition to an advisory role and will continue to provide insights and vast experience. I'll now open up the call for questions.

Operator, Operator

Our first question comes from Charles Duncan at Cantor Fitzgerald.

Charles Duncan, Analyst

Appreciate all the detail, particularly on pimavanserin or NUPLAZID, but I'll limit my one question to a multipart question on Rett and trofinetide. I guess I'm wondering with the PDUFA date, do you anticipate that manufacturing inspections are yet to be done? Or have they been done? And then secondarily, I think Kathie mentioned additional data from was submitted. Was that submitted before or was it submitted with the package? Or was it submitted after the package? And then finally, with regard to the PRV, and you may not be able to answer this right now, but would you anticipate using that internally or monetizing that?

Stephen Davis, CEO

Thanks so much, Charles. Let me take the first one and the third one, and then I'll ask Kathie to respond to the middle question. Actually, just starting with the third, it's just premature for us to say what we would do with the pediatric review voucher. I think in terms of your question regarding the manufacturing inspections. As we've said previously, our policy is just not to comment on day-to-day interactions or back and forth during a review period. What I will say though is from all indicators that we have, the review appears to be exactly on track and we're eager to get to the PDUFA date.

Kathy Bishop, CSO

And Charles, I would like to clarify your second question about the interim data from the long-term extension studies and the study involving younger girls aged 2 to 4. This interim data was submitted as part of the original NDA filing.

Neena Bitritto-Garg, Analyst

I just want to ask about NUPLAZID. And if you can comment on the proportion of sales now coming from the long-term care channel. I know you've said historically it's been about 25%, if that's changed at all? And then what do you think it will take to get patients coming back into the in-office channel and why you think admission rates are going up in LTC, but in-office visits are still lagging?

Stephen Davis, CEO

Thanks much for the question. Brendan, do you want to address that?

Brendan Teehan, COO, Head of Commercial

Thank you for the question. I'm positive about what we're observing in the long-term care channel. We've experienced growth in prescriptions from one quarter to the next, which suggests early signs of improvement. This appears to be linked to the gradual increase in occupancy rates over recent quarters. The most significant factor for us is the arrival of new residents. This contrasts with the in-office channel. When new residents arrive, a clinical evaluation occurs, providing an ideal opportunity to identify symptoms of Parkinson's disease psychosis and initiate treatment with NUPLAZID. We've noted that the growth rate of NUPLAZID is surpassing that of carbidopa-levodopa and is also outpacing the leading 15 neuro brands in the long-term care sector. This indicates that both the clinical advantages of NUPLAZID and the market dynamics are favorable for us. In contrast, the in-office channel saw a decrease in the number of Parkinson's disease patients visiting doctors at the start of the pandemic. However, what’s encouraging is that this has stabilized at a lower level rather than continuing to decline. There are two positive aspects here: first, the incidence rate for Parkinson's disease suggests patients will likely return to the office more readily, and secondly, in this market, we will continue to strive for first-line usage. As I mentioned earlier, we have real-world evidence that differentiates NUPLAZID from other off-label atypical antipsychotics in ways we believe clinicians haven't encountered before. Our focus will be on gaining market share and increasing first-line use of NUPLAZID in that context. I can also confirm that long-term care accounts for approximately 25% of our overall bottlenecks.

Ritu Baral, Analyst

And Srdjan, wishing you all the best in your next stage. It's been great working with you for almost 10 years from this side. I guess the question is for you and Steve. And Steve, I know you won't comment on day-to-day interactions with the agency, but just given the next-to-last review cycle that you guys had with the different division, but with DRP, I guess, investors that I'm speaking to just want some level of comfort that this review cycle is going differently than the original DRP where you had pretty much no communications during that period. I guess, can you give us any color or compare and contrast on things like mid-cycle review meetings or any request for information that may have come and passed and just something to show us that the track is different from what has happened with neuropsych in the past.

Stephen Davis, CEO

Yes, thank you for the question. I can provide some insights. Firstly, this is an NDA, and with DRP/ADP, it was an sNDA. The sNDA process tends to have less structured milestones, making it a bit more flexible. One advantage of the NDA process is that it comes with more defined milestones. From what we see, it seems that the FDA is on track. Secondly, because sNDAs lack many structured milestones, there can be a reduction in dialogue and communication during the review cycle. In our case, while we did not have much dialogue with that application, we have engaged in a significantly greater level of communication with the current application compared to the last one, and we’ve maintained a productive and appropriate dialogue throughout the review.

Ritu Baral, Analyst

Got it. That's very helpful. I'm going to ask one last question. For Srdjan, you mentioned 204. Can you provide an update on when you might officially announce additional indications for 204 and when those studies could commence?

Srdjan Stankovic, President

Thank you, Ritu. I appreciate your kind words. It has been a pleasure to work with you and this broader group. Your thoughtful and thought-provoking questions have made it a great experience for me to periodically update you on our program's progress. I will miss this as we move into a slower period. Regarding HCP-204, it's a bit early to discuss indications. However, we have several potential indications, with Alzheimer's disease psychosis being a top priority. We still have some work to finish in Phase I, but the good news is that our completed work allows us to consider higher exposure ranges than our initial target doses based on preclinical data, which is encouraging. In neuropsychiatric indications, it's beneficial to define a wider range. We have yet to establish a minimum tolerated dose, so there is a great opportunity for us to expand that range. We intend to take more time to finalize this work. Once completed, we will be more open to discussing potential indications and our development plan.

Daniel, Analyst

This is Daniel on for Tazeen. We just had a quick question on 204 and the opportunity for ADP. We're just wondering what you're thinking about in terms of the competitive landscape on the line with M1 and M4 also moving into that space. And maybe any comments on how the different mechanisms of action might play into that indication.

Stephen Davis, CEO

Thank you for the question. I want to differentiate between the profile of ad deals for antipsychotic drugs intended for treating schizophrenia and those meant for an older demographic with conditions like Parkinson's disease psychosis or Alzheimer's disease psychosis. The antipsychotics we currently use for schizophrenia are not ideal; they are associated with significant side effects but are still utilized because the medical need is great and there are no better options available. This is why these drugs are not approved for treating Alzheimer's or Parkinson's psychosis, or dementia-related psychosis. For these frail elderly patients, it’s crucial to have an effective drug that is also very safe and well-tolerated, as the standards for tolerability are much stricter. I’m very optimistic about the promising research in the muscarinic area, which could lead to better antipsychotics. The greatest potential seems to lie in schizophrenia, and we will need to observe how the profiles of these drugs develop to determine their suitability for older populations. We know that pimavanserin and our work with 204 show a mechanism involving serotonin that is very well tolerated, differing significantly from current antipsychotic drugs. Therefore, both efficacy and safety will be critical. Srdjan, do you have anything to add?

Srdjan Stankovic, President

Yes. I second everything Steve said. I would just add one other element, and that is we have, on our side, quite a bit of experience with this mechanism in this patient population. And we intend to use that experience and knowledge to our competitive advantage as we are designing the trials and moving through development of ACP-204.

Jeff Hung, Analyst

And sir, my congratulations too on your upcoming retirement. Can you just talk about what drove the reduction of the in-channel inventory? And is this something that might happen again in Q4? Or should we expect inventory to go back to prior levels? I appreciate any color you can provide?

Stephen Davis, CEO

Yes. Thanks, Mitch, for the question, Jeff. Mark, do you want to take that?

Mark Schneider, CFO

Sure. Thanks for the question. As we speak to our channel partners, I think there are a number of factors influencing the overall reduction in inventory levels. First, there is a need to become more predictable as NUPLAZID volumes remain in the stable to moderate growth period. The cost of capital has also increased due to recent increases in interest rates and continued inflationary pressures. And third, kind of with the IRA, future price increases may become more predictable for our partners for Medicare-related drugs, and this could influence the timing of their inventory purchase decisions. Going forward, inventory always fluctuates from quarter to quarter, and over the long term, we expect our sell-in to match demand with respect to new channel inventory purchases.

Marc Goodman, Analyst

With respect to SG&A, can you just give us a sense of what is going on? It appears that you were taking down some spending, and then it's kind of popped back again this next quarter given your guidance. And so just give us a sense of what you're doing out there with NUPLAZID? And are you doing any more DTC? Are there plans for that? How should we think about SG&A into next year? Just give us a sense of the ebbs and flows because it looks very strange.

Stephen Davis, CEO

Mark, do you want to take that?

Mark Schneider, CFO

Thanks for the question. Over the past year, we have reduced our SG&A spending, mainly by cutting back on selling and marketing expenses. We haven't conducted a DTC campaign this year, but we may consider that in the future if we see it as a worthwhile investment. To date, we haven't moved forward with it, and we will keep you updated if we decide to change our approach. Our expenses do vary from quarter to quarter due to some seasonality, which explains the fluctuations. We remain aligned with our expectations for total SG&A spending for the year, which is why we have narrowed our guidance range and maintained it at the midpoint. We will provide more guidance during our fourth-quarter earnings call for next year. As mentioned in our second-quarter call, we anticipate our overall net SG&A spending will be roughly the same next year as it is this year. We will have a budget in place to ensure a successful launch for trofinetide and continue to find efficiencies in our spending on PDP.

Marc Goodman, Analyst

Will R&D also be flattish for next year? Or do you think that will be a step up?

Mark Schneider, CFO

So I think, again, I'd just share what we did last quarter. And R&D is a little bit different just because of the impact of business development payments. So if you take that out, which can fluctuate from year to year. And as a reminder, kind of within year-to-date expenses for R&D for about almost $80 million of PD payments, the largest of which is still upfront payment of $60 million. So taking that aside, we do have an expectation just with kind of the ongoing kind of new and continuing programs that are spent based on the portfolio that we have today will reduce approximately $35 million in R&D spend next year.

James, Analyst

This is James on for Paul. Maybe just a quick one on ACP-204. I guess given your experience with pimavanserin and kind of anything you've learned in your interactions with the FDA as it relates to ADP, I guess, how are you thinking about clinical development going forward? Of course, you're in Phase I now. But I guess as you think about future trials, have you kind of thought about or gotten any sort of, I guess, guidance on a kind of design and path forward that would be most productive for, I guess, kind of a rapid development path in ADP? Any color there would be great.

Stephen Davis, CEO

Thank you for the question. I'll expand a bit and focus on your specific inquiry. Regarding ACP-204, we plan to explore several indications for development once we complete Phase 1. The primary focus will be on ADP. Currently, we understand that pimavanserin is likely to receive approval only for Parkinson's disease psychosis, and possibly for negative symptoms of schizophrenia and autism, where we are conducting pediatric studies. This means there are many indications where NUPLAZID won't have approval, which is an important factor as we consider our direction with 204. Specifically for ADP, we have substantial knowledge about this mechanism and the chemical environment we're involved with, which lowers our risk as we progress. This knowledge positions us to move more vigorously in this area. Additionally, we have a solid understanding of how patients typically respond to antipsychotic treatments. Together, these elements indicate that we have prioritized ADP as our first indication to pursue, putting us in a strong position to advance rapidly in this indication. Srdjan, do you have anything else to add?

Srdjan Stankovic, President

Just a little bit of additional color our experience in conducting trials in this patient population and working with the sites worldwide also provide us with valuable experience and lessons in terms of selecting the right patients and selecting the right sites for these trials, not only from a perspective of the speed of recruitment but also quality of patients and quality of data that we can generate.

Jay Olson, Analyst

I want to add my congrats to Serge and all the best to you for your retirement. Based on the preclinical profile of ACP-204, can you talk about your expectations for the potential clinical advantages of 204 that could be demonstrated when compared to pimavanserin and how you plan to leverage those advantages.

Stephen Davis, CEO

Yes, Serge, do you want to go ahead?

Srdjan Stankovic, President

Yes. Thanks, Jay. Thanks for the good wishes. What I would say is that the principal advantage that we are seeing with ACP-204 is in a favorable tolerability profile that so far, we have been seeing through the clinical development. And that's important on several levels. One, QT liability and potential to eliminate the mild signal that we have with pimavanserin provides us with the opportunity to expand those range that we can evaluate and by that potential to actually evaluate a better efficacy and identify the more efficacious doses, which we had certain limitations with pimavanserin. In addition, overall to, as I said, overall tolerability provides us with a good opportunity to evaluate efficacy in the context with Steve earlier mentioned, and that is the safety, which is very important for this patient population.

Salveen Richter, Analyst

Just wanted to get a sense of how you're thinking about the trajectory for PDP in 2023 and beyond, just given the channel dynamics that you've noted?

Stephen Davis, CEO

Thanks much for the question, Salveen. Brendan, do you want to take that?

Brendan Teehan, COO, Head of Commercial

Sure. Thanks, Salveen. There’s the current environment in which we operate and then the future environment that we envision. So for me, I think we're seeing the early indicators of improvement in long-term care. If those continue, I like the trajectory we're seeing for NUPLAZID both in terms of the market itself and our individual performance. As I said in my prepared remarks, our quarter-over-quarter growth has outpaced carbidopa-levodopa and the top 15 LTC brands, which gives me confidence both that we have a favorable market environment but also that we have the right message that we're delivering to clinicians there. Similarly, in the inpatient community setting, I think what we see is stability. And my hope is, pending continuing improvement in the environment around us, that PDP patients will begin returning to the in-office setting. Regardless of that, you see the way we're approaching the business on the community side, which is leveraging real-world evidence to go after share in the first-line setting. So for us, I think you should expect to see a posture of putting material in front of these physicians that have the deepest pools of patients and demonstrating the real-world outcome differences that should suggest a higher use of NUPLAZID in the first-line setting. So for us, I think in the community, you'll see us more and more competing for share in the community.

Stephen Davis, CEO

Brendan, do you want to just remind everyone what the real-world evidence publications are that you're referring to and kind of the timing of those?

Brendan Teehan, COO, Head of Commercial

Thank you for the question. The key differences being highlighted represent an emerging body of evidence supporting the use of NUPLAZID compared to off-label multi-receptor antipsychotics. In the middle of the third quarter, we had our first chance to share data regarding all-cause hospitalizations, emergency room visits, spike visits, and nursing home stays, all of which show significant benefits for NUPLAZID relative to other atypical antipsychotics. This is appealing for two reasons. Clinically, it aids in making the best choices for residents in long-term care facilities. Economically, it helps avoid rehospitalization, an area where facilities seek appropriate reimbursement. This information is starting to resonate, although we are still in the early stages of discussing it, which began in the middle of the third quarter. The second compelling data set was shared earlier in the fourth quarter and was published in the American Journal of Psychiatry. This is crucial because neurologists typically do not access this journal, so they might not have encountered this information otherwise. The analysis is based on retrospective Medicare claims comparing the risk of all-cause mortality associated with NUPLAZID against all other atypical antipsychotics used off-label in patients with Parkinson's disease psychosis. A significant subset was receiving low-dose quetiapine, which is often an alternative therapy to NUPLAZID. The authors concluded that pimavanserin was linked to an approximately 23% lower mortality rate than the other atypical antipsychotics over 360 days. This information is very compelling and informative for healthcare professionals as they decide how to treat their patients and residents. We're still in the early phases of sharing this data but are encouraged by the community's response.

Yatin Suneja, Analyst

I have a couple on Rett, given that I think it's going to be a focus next year. So can you maybe frame for us how should we think about a ramp or a launch there? We understand there are about 4,000 or 4,500 patients diagnosed. How many you might have a line of sight on? How should we think about the label and the pricing? I understand early, but maybe give us some comp to think about.

Stephen Davis, CEO

Sure. I'll begin, and then I'll have Brendan provide additional insights. As we consider the progression of the launch in Rett syndrome, we expect it to follow a linear trajectory. In rare diseases, there are instances where expanded access programs lead to a sudden influx of patients transitioning to commercial pay patients. However, we chose not to pursue that route here for valid reasons. As we move forward with drug approval and its launch, it will take some time to get on formularies and navigate the access process. Initially, many prescriptions will rely on letters of medical necessity, which means we need to establish everything before we can start ramping up. Due to these factors, we foresee an appealing but linear growth pattern in the early stages of the launch. Looking ahead, we have a substantial existing patient population, along with a new patient population, that will continue to offer significant growth opportunities as we progress.

Mark Schneider, CFO

To Steve's point, the feedback from payers has been that they treat rare diseases largely similarly, and their feedback to us does suggest that they will go through their normal processes with trofinetide. So I think Steve is absolutely right when it comes to sort of a normal early trajectory you'd expect in a drug like that in a rare disease setting. As you mentioned, I would say it's premature for us to discuss price, but I think you know how ACADIA has viewed price in the past. We match price with the value we think the product is imparting. And we absolutely want to make sure we ensure access to the trofinetide community. I would view trofinetide as having unequivocal efficacy and a tolerability profile that is very well received. We know we're treating the core symptoms of a devastating disease, and we know that we're looking to make a meaningful difference in the lives of patients and their families. As a function of that, I would expect that we'll price the product in the range of other rare pediatric disease products to give you just some sense of direction.

Alex Nackenoff, Analyst

This is Alex on for Danielle. Forgive me for asking the same question basically two quarters in a row. But I know you mentioned you presented LAVENDER and Daffodil at some medical conferences. Did those presentations include the open-label LILAC studies? And if not, when do you expect to present those data?

Stephen Davis, CEO

Kathie, you want to take that?

Kathy Bishop, CSO

Yes. So for the first self-enable study, LILAC-1 will be completing that study near the end of this year. As I mentioned, we submitted an interim data cut as part of the NDA, but the study completion is at the end of this year. And then we anticipate submitting that for presentation at medical processes, most likely in the spring.

Sumant Kulkarni, Analyst

And I'll add my best wishes to Serge on his upcoming retirement. So on the Parkinson's disease market, do you think ACADIA is optimally resourced to capitalize on a potential return to normal or the issue outside of the company's control and has the pandemic simply amplified a larger issue related to a positive innovation or excitement in terms of other novel products for Parkinson's that's driving fewer office visits, for example.

Stephen Davis, CEO

Brendan, do you want to take that?

Brendan Teehan, COO, Head of Commercial

Yes, sure. Thanks for the question. I think what we've seen is and has somewhat continued to be temporal, but the early indications that we're seeing in the long-term care channel have been favorable. And they are demonstrating a differential preference for NUPLAZID over a competitive set. So for me, I find that very encouraging. When I look at the real-world evidence that is now available to us, that really hasn't existed for the treating community to have previously pimavanserin was approved versus placebo in a placebo-controlled study. There are clinicians out there that think that it is every bit as logical to use some of these off-label atypical antipsychotics because they really haven't seen any contrast between those 2 therapies. Now I think we have a growing body of evidence that states that there really is a meaningful real-world difference, and I am enthusiastic about our opportunities moving forward in the quarters ahead. Again, it's early on, but with our market share at or around 20% on there's plenty of room for us to continue to grow the brand and I think a nice scientific platform that provides that differentiation for us.

Gregory Renza, Analyst

Steve, also let me add my well wishes to Serge as well. Just a quick one on business development. Steve, I was wondering if you could update us on any of the latest catalyzing or even gating factors to accelerating those external investments and efforts? And just curious, if at all IRA and inflation reduction has an input to you on how you're thinking about the evolving pipeline and looking externally.

Stephen Davis, CEO

Yes, thank you for the question, Greg. As we mentioned earlier, we've made significant strides in business development, with Trefinitide being a prime example. However, for the past 5 to 7 years, we have faced considerable competition from the capital markets. As these markets become less stable and supportive, it will impact business development. We've observed similar patterns during previous cycles, although it typically takes about 3 or 4 quarters for the full impact to be felt. We want to stress that we do not need to raise capital at this time. In a way, the capital markets being less competitive is beneficial for us. We are starting to notice that some companies in business development are losing confidence, especially those without strong balance sheets, revenues, or cash flow that rely on financing. If the capital markets remain volatile, these companies may feel increased pressure to pursue aggressive business development. We believe we are well positioned to take advantage of this situation. Looking ahead, in psychiatry, neurology, rare disease, and broad applications, we see increasingly attractive opportunities to leverage our capabilities through business development. Thanks. Yes, Greg made the point. I believe the answer is that it will have a significant impact on our industry over time. We are starting to see some evidence of this in the past week. Over time, people will become more aware of modality, the differences between small molecules and large molecules, and they will be more sensitive to payer mix. This will affect our industry and, consequently, it will also influence business development assessments.

Operator, Operator

Thank you. I am sorry that we are out of time. Mr. Davis, please proceed to closing remarks.

Stephen Davis, CEO

Great. Thanks so much, operator. Well, thanks so much for all of you for listening, and we look forward to updating you next quarter.

Operator, Operator

Thank you for your participation in today's conference call. This concludes the presentation. You may now disconnect. Good day.