Earnings Call Transcript - ACAD Q2 2022

Operator, Operator

Good day, ladies and gentlemen, and welcome to the ACADIA Pharmaceuticals Second Quarter 2022 Financial Results Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Mark Johnson, Vice President of Investor Relations at ACADIA. Please go ahead, sir.

Mark Johnson, Vice President of Investor Relations

Thank you. Good afternoon, and thank you for joining us on today's call of ACADIA's Second Quarter 2020 Financial Results. Joining me on the call today from ACADIA are Steve Davis, our Chief Executive Officer, who will provide an overview of our second quarter performance and a review of our business; Mark Schneyer, our Chief Financial Officer, will discuss our financial results and guidance; Brendan Teehan, our Chief Operating Officer and Head of Commercial, will provide updates on our commercial performance; and Kathie Bishop, our Chief Scientific Officer and Head of Rare Disease, will provide an overview on trofinetide. Srdjan Stankovic, our President, will then discuss our pipeline progress 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 are using supplemental slides, which are available on the Events and Presentations section of our website. Before we proceed, I would first like to remind you that during our call today, we'll 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 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. Our business plan is focused on several priorities: maximize the value of our Parkinson's disease franchise with NUPLAZID, deliver trofinetide to market as our second commercial product and the first FDA-approved treatment for Rett syndrome, complete our second pivotal study in symptoms of schizophrenia, engage in disciplined early-stage development to selectively advance molecules into late-stage development; and finally, position ourselves to leverage an increasingly attractive opportunity set in business development by carefully allocating capital as we fund our current business from our existing balance sheet and move towards cash flow positive. Let me delve into these in greater detail. Let's start with our NUPLAZID PDP performance on Slide 6. In the second quarter of 2022, NUPLAZID achieved $134.6 million in net sales, representing a 17% year-over-year increase. Importantly, NUPLAZID continues to outperform the basket of top branded drugs in the neurology segment, the TD market, and in long-term care facilities. I am proud of our execution as we continue to outperform market competitors and grow market share in a Parkinson's market environment that continues to be negatively impacted by the pandemic. Given the current market dynamics, we have been and continue to be focused on efficiently managing and optimizing our PDP commercial spending. As Mark will describe in a moment, by carefully allocating capital to PDP opportunities with the highest ROI, we expect to keep overall SG&A relatively flat in 2023 while funding the projected launch of trofinetide in Rett syndrome. Longer term, our outperformance against market competitors and our ability to continue to gain share in what is currently a downsized market gives us confidence in our ability to continue to grow the brand while maximizing the value of NUPLAZID PDP. Prior to NUPLAZID, I want to provide some clarity on our patent protection for the franchise. Our composition of matter patent in the Orange Book was recently updated with patent term extensions until the end of April 2030. Additionally, we are conducting clinical work in pediatric autism that should result in a 6-month pediatric extension, bringing our composition of patent protection to the end of October 2030. As a reminder, we have additional method of use and formulation patents that protect the currently marketed tablets and capsules of NUPLAZID until 2037 and 2038, respectively. Let's now move to Slide 7. As announced last month, we submitted our NDA for trofinetide for the treatment of Rett Syndrome in adults and pediatric patients two years of age and older. This submission is based on our pivotal Phase III LAVENDER study, which delivered positive topline results on its co-primary endpoints and on key secondary endpoints. Trofinetide has been granted fast track status and orphan drug designation for Rett Syndrome, and it has also received rare pediatric disease designation by the FDA. As such, we expect this NDA to receive priority review with an action date most likely in the first quarter of 2020. If approved, we would anticipate a pediatric priority review. Our commercial and medical teams are working diligently in preparation for launch, including market development, disease state education, customer profiling, and broader care team identification. Additionally, our patent for trofinetide consists of a method of use patent with an expected patent term extension until early 2036, with additional patents pending. Moving now to pimavanserin for the treatment of negative symptoms of schizophrenia. Pimavanserin has already completed one positive pivotal study, ADVANCE-1. As we previously noted, negative symptoms have been a particularly challenging area for the industry, with many failed studies and no FDA-approved therapies. Our second pivotal study, ADVANCE-2, is ongoing. ADVANCE-2 is virtually identical to ADVANCE-1 with one important difference: In ADVANCE-1, we explored a range of doses and determined that the top dose, 34 milligrams, the same dose approved for PDP, performed meaningfully better than lower doses. Therefore, in ADVANCE-2, we are only using the 34-milligram dose. As Serge will discuss, due to the ongoing Russia/Ukraine war, we are extending our projections for enrollment completion to around the middle of next year. As a reminder, this is a study with a 6-month treatment period. Let's now turn to Slide 8 to discuss the further evolution of our early-stage portfolio. One early-stage program we've not previously discussed is an internally developed new molecule, ACP-204, which is currently in Phase I development. ACP-204 builds on the profile of pimavanserin. At this stage, the compound is looking very promising. If Phase I is successful, we plan to develop it as a potential treatment for neuropsychiatric symptoms, which may include Alzheimer's disease psychosis. We expect ACP-204 to complete Phase I development around year-end. Of course, making disciplined decisions in early development is a threshold requirement for success in late-stage development. We have also decided to discontinue the development of ACP-044 in acute and chronic pain based on an evaluation of the final data set from a previously completed Phase II bunionectomy study. Additionally, we are discontinuing ACP-319 and the PAM modulator based on a profile that does not support advancement to Phase II. Moving to the bottom of the slide, I would like to revert to a point I made when I opened my remarks, which is that we are positioning ourselves to leverage what we believe will be an increasingly attractive business development environment. We are positioning ourselves by being very focused in our investments in PDP, prioritizing investments with ROI. This will enable us to appropriately fund our launch in Rett syndrome while keeping SG&A relatively flat. We will also continue to be very disciplined in allocating capital in our R&D portfolio, as I described above. The market conditions joined us, and it appears they will continue for the foreseeable future; what we have seen in the past during these cycles is that the tables will still dramatically favor companies like ours—companies with strong balance sheets, solid revenues, and established commercial and R&D infrastructure. Additionally, we have established an infrastructure across all quadrants in both psychiatry and neurology, covering broad indications and rare diseases. Trofinetide is a good example of our past success in business development. Our strong financial position and established infrastructure position us extremely well to leverage the evolving development opportunity set for further success. Now I’d like to turn the call over to Mark to discuss our financial position, guidance, and strategy in more detail.

Mark Schneyer, CFO

Thank you, Steve. Let me start by building upon what you just talked about as we turn to Slide 10. As a company, we continue to refocus our expense base to align it with our key strategic priorities. This includes the optimization of our SG&A expenses as well as the prioritization of our R&D expenses. At the same time, we continue to ensure that we're able to fund our existing business without the need for additional capital. Now let me provide some additional detail. First, we expect to invest in the launch of trofinetide while maintaining a relatively flat SG&A expense base in 2023 compared to 2022. This means we will continue to redeploy resources from PDP commercial and G&A to the trofinetide commercial. Second, we have prioritized our R&D portfolio with several programs advancing, continuing, completing, and terminating. Based on our prioritization efforts, we expect R&D expense from program costs to decrease by approximately $50 million. This includes a reduction of $15 million for the remainder of this year and another approximately $35 million next year. Finally, with a current cash balance of $436.4 million, we have more than sufficient resources to fund our business until we turn cash positive, of course subject to the scope of future PD. Now let's turn to our quarterly performance on Slide 11. In the quarter, we recorded $134.6 million in net sales, an increase of approximately 17% compared to $115.2 million of net sales in Q2 of 2021. Year-over-year demand and selling volume were down 1% and 2%, respectively. During the current quarter, our selling volume matched our demand volume. For the first 6 months of 2022, demand growth was up over 1% year-over-year. Our gross to net adjustment for Q2 was 15.4%, down from 18.4% last year. Gross to net for the first half of the year was 20.2%, which is essentially flat compared to 20.4% last year. GAAP R&D expenses increased to $75.6 million in the quarter compared to $56.9 million in Q2 2021. The increase was primarily due to development activities for ACP-044, which has now been discontinued, investment in trofinetide commercial supply that is expensed in advance of approval, and expenses related to early-stage programs. GAAP SG&A expenses decreased to $89.9 million in the second quarter from $96.8 million in the second quarter of last year. Finally, we ended the quarter with a healthy cash balance of $436.4 million. Please see our adjusted guidance ranges on Slide 12 now that we are halfway through the year. At the beginning of the year, we deliberately provided a wide net sales guidance range to reflect various scenarios related to the pandemic. At that time, I mentioned that the top end of the range reflected a significant improvement in PD market, which we have not seen so far this year. As a result, we are reducing the top end of our net sales guidance range. Regarding gross to net, we have slightly reduced our range to 19.5% to 20.5% for the year. On the expense side, we are reducing our R&D guidance by $15 million while maintaining our SG&A guidance. While R&D will decrease in 2022, we expect most of the cost reductions I referred to earlier to be realized next year. We are raising the bottom end of our expected year-end cash balance and are now guiding to the range of $375 million to $405 million. To reiterate, we are confident in our ability to generate sustainable growth with our existing cash resources. Now I'd like to turn the call over to Brendan to discuss our PDP business.

Brendan Teehan, COO

Thank you, Mark. Please turn to Slide 14. I’m pleased with our team's performance this quarter, delivering net sales of $134.6 million, representing 17% year-over-year growth. Today, I want to address four key themes regarding our commercial organization and performance. First, the PD market dynamics and our relative performance; next, optimizing growth for the NUPLAZID brand; I'll shed some light on exciting new real-world studies on pimavanserin's safety profile, and we'll finish off discussing our preparation for trofinetide. Let's start with the PD market dynamics and our relative performance. Our demand volume grew slightly in the first 6 months of 2022 compared to 2021, which is encouraging given the very slow incremental improvements in the PD market dynamics seen to date. As shown on this slide, we are further encouraged as NUPLAZID's growth outperformed foundational Parkinson's medications, including carbidopa levodopa, as well as a market basket of branded LTC products across multiple therapeutic areas. This performance continues to indicate our strong brand support from our treating audience and has allowed us to continue increasing our market share, which has grown approximately 15% since 2019, despite the pandemic's impacts. Second, as Steve alluded to, we have continued to optimize our PDP commercial spend in the current market environment to evaluate growth opportunities more efficiently and increase cash flow from the business. We will, as always, be opportunistic when the PD market dynamics improve and move closer to prepandemic levels. Third, several real-world studies have recently been published or presented that make important comparisons when treating patients with pimavanserin as opposed to off-label multi-receptor atypical antipsychotics in PDP patients. One of these studies was recently published in the American Journal of Psychiatry. The authors concluded that pimavanserin use was associated with approximately a 23% lower mortality rate than other atypical antipsychotics over 360 days. These are important findings, which Serge will speak to in a moment. Now let's turn to our preparations for the launch of trofinetide for the treatment of Rett syndrome on Slide 15. ACADIA is preparing to reach an important milestone in the company's history by launching a second commercial product and building a rare disease-focused commercial organization. Our teams are working on shaping and developing the market for what will potentially be the first therapy approved to treat Rett Syndrome. Patients with Rett Syndrome generally have a dedicated care team, which includes their caregivers, usually family members, along with health care providers. To achieve our near-term goals, we have several prelaunch activities ongoing, including building best-in-class patient support and educational resources to further generate awareness for trofinetide upon launch and identify and engage the families of Rett patients. We are also continuing to engage the community to build awareness, including leveraging our strong partnerships with Rett advocacy groups to best understand care team needs and perspectives. Lastly, we're increasing our community outreach for disease education and establishing trofinetide's clinical impact through publications, scientific presentations, and KOL engagement. Our ultimate launch objective will be to establish trofinetide as the foundational treatment for Rett Syndrome and ensure access for all patients in need. I'll turn it over now to Kathie to discuss Rett and trofinetide from a clinical perspective.

Kathie Bishop, Chief Scientific Officer

Thank you, Brendan. Let's start on Slide 17. As you know, Rett Syndrome is a serious and debilitating rare disorder for which we estimate there are between 6,000 and 9,000 patients in the United States. There is no FDA-approved treatment for Rett Syndrome in the U.S. The debilitating symptoms of Rett Syndrome include severe neurodevelopmental and motor impairment, including gait abnormalities and loss of the ability to communicate both verbally and nonverbally, as well as gastrointestinal issues, notably severe constipation. Ultimately, Rett Syndrome patients lose their ability to maintain independent functioning on a daily basis and require round-the-clock support. Let's review the LAVENDER results on Slide 18, which formed the basis of our recent NDA submission to the FDA. In the LAVENDER study, positive results were observed for the prespecified co-primary endpoint. At week 12 for the RSBQ, the P value was 0.0175 with an effect size of 0.37. As a reminder, the RSBQ is a validated caregiver-completed rating scale assessing a wide range of neural behavioral and neurodevelopmental core symptoms known to be impaired in Rett Syndrome. Trofinetide patients improved on average by 5.1 points from baseline at week 12 on this scale, which is highly significant. Additionally, at week 12 with the CGII, the P value was 0.003 with an effect size of 0.47. The CGII is a clinician-completed assessment of how much the individual illness has improved or worsened relative to baseline, using a standardized scale specific to clinical Rett Syndrome. This effect size is quite meaningful for these patients and their families. Furthermore, in the study, statistically significant separation from placebo on the key secondary efficacy endpoint was also achieved. This important endpoint assessed the communication skills of the patients. Although initially designed for infants, the skills applied to and have been adapted for older age groups for patients with neurodevelopmental disorders such as Rett Syndrome. The lack of ability to communicate verbally and nonverbally presents significant challenges for Rett patients and their families. On this endpoint, at week 12, the P value was 0.0064 with an effect size of 0.43. The consistency of these results was observed across all age groups and severity of the disease in the study, reinforcing the meaningfulness of trofinetide's potential benefit for all patients with Rett Syndrome. In addition, these results align with what was observed previously in Phase II studies. Now I'll turn it over to Serge for an update on our other pipeline programs.

Srdjan Stankovic, President

Thank you, Kathie. Good afternoon, everyone. Let's discuss the evolution of our CNS portfolio on Slide 20. First, to reiterate what Steve and Mark said, we believe that the business development opportunity set will continue to get more attractive over the next year, favoring companies like ours that are well-capitalized and have existing infrastructure in place to transact and expand. Therefore, it is important to stay disciplined and make appropriate investment decisions for each program and the portfolio as a whole. As a result of our prioritization efforts, today, we announced that we have discontinued development of ACP-044 in acute and chronic pain and ACP-319, the lead molecule from our M1 PAM program. Conversely, we are investing further in an internally developed molecule, ACP-204. This molecule is being evaluated in Phase I, and we expect to complete Phase I development around the end of this year. ACP-204 builds on the learnings from pimavanserin in the treatment of neuropsychiatric symptoms. We are also investing in our ASO programs through collaboration among the early-stage projects. Now let's discuss pimavanserin in PDP and the negative symptoms of schizophrenia. Building upon what Brendan stated, I would like to discuss a couple of real-world studies on Slide 21 that compare treatment with pimavanserin in patients with PDP to off-label multiple receptor atypical antipsychotics. First, the recent publication in the American Journal of Psychiatry; and second, a recent poster presented at the 2022 American Society of Clinical Psychopharmacology Annual Meeting. Both the publication and the presentation were made public in June of this year. The publication described findings from a retrospective Medicare claims analysis comparing the risk of all-cause mortality associated with pimavanserin versus other atypical antipsychotics in patients with Parkinson's disease to treat psychosis. The conclusions delineated that pimavanserin use was associated with an approximately 23% lower mortality than other atypical antipsychotics over 360 days. The risk of mortality was approximately 35% lower in pimavanserin patients than with other atypical antipsychotics during the first 180 days of treatment, while the risk was similar thereafter. This data is very encouraging, and our team is proud to continue making NUPLAZID available to patients with PDP and their families. Moving on to our second potential indication for pimavanserin, starting on Slide 22, we see there are over 700,000 patients in the United States who are currently treated for schizophrenia, yet still face persistent and potentially debilitating negative symptoms, such as social withdrawal, lack of emotions, and blunted affect. These symptoms lead to low social functioning, long-term disability, and significant burdens, and there are currently no FDA-approved treatments. As part of our advanced program, we have one positive pivotal study where we observed statistical separation on the primary endpoint overall, with even more robust results for patients receiving the 34-milligram dose of pimavanserin. These positive results were published in Lancet Psychiatry. Today, I want to focus on the results of the 34-milligram group, which appears to be optimal dosage and which we are evaluating in our second pivotal study, ADVANCE-2. The graph on Slide 23 shows significant improvement for patients receiving 34-milligrams of pimavanserin. You will see significant separation from placebo was achieved at week 26 with an unadjusted p-value of 0.0065, observing an effect size of 0.34. The separation began as early as week 2 and continues to increase throughout the 6-month treatment period. We look forward to keeping you updated on our progress in these high-unmet need areas. With that, I will turn the call back to Steve for closing remarks.

Stephen Davis, CEO

Thank you, Serge. Please turn to Slide 25. Today, we are executing on our promise to deliver NUPLAZID to patients with PDP where there's an attractive long-term opportunity to continue to grow the brand. In addition, we are preparing for the launch of our second commercial product with trofinetide, advancing our Phase III program for the negative symptoms of schizophrenia, and developing several additional programs while pursuing strategic business development. With a strong balance sheet and the projected launch of our second product early next year, we are well positioned for long-term growth. In closing, I would like to thank our employees for their accomplishments and their ongoing commitment as we continue our mission. I'll now open up the call for questions. Operator?

Operator, Operator

Our first question will come from Charles Duncan with Cantor Fitzgerald.

Charles Duncan, Analyst

Thorough update today. I'll try to ask one question, and it will probably be a multi-parter perhaps for Kathie. I wonder if you could provide any further insight on whether or not you anticipate NDA acceptance given that trofinetide is a first-in-class, first-in-indication drug, and what's happening to prepare for that. The second part is for Brendan; could you share any feedback from payers that you've gotten so far on trofinetide?

Stephen Davis, CEO

Kathie, would you like to take the first part of that question, and Brendan the second one?

Kathie Bishop, Chief Scientific Officer

Yes, happy to. Thanks for the question, Charles. As we announced, we filed our NDA in July. And as Steve mentioned, given that Rett Syndrome is a severe rare pediatric disease, we are anticipating priority review. At day 60 since the filing, we will be informed about the acceptance of the NDA. So that would be in September, and we anticipate that at that time, we will hear about a PDUFA date officially and where the FDA is leaning on an advisory committee meeting. I would say we are preparing in case they decide to hold an advisory committee meeting. However, in my experience, having worked in this disease area for about 20 years, it is not necessarily the case that for the first drug in a given indication they hold an advisory committee meeting. In our case, I think the data is straightforward, so there is potential that this may not happen.

Brendan Teehan, COO

Great. Thanks, Kathie. And Charles, thanks for your question as well. Yes, we've had a chance to engage payers since the LAVENDER trial result. They are very understanding of this being an area of high unmet medical need. They understand the devastating nature of Rett Syndrome. They have also seen trofinetide's target product profile. They understand the importance of treating across the core symptoms of Rett Syndrome. They have given us favorable feedback on that product profile, expecting that the project would fall in line with other rare diseases in the pediatric space and be treated similarly.

Operator, Operator

Next question will come from the line of Ritu Baral with Cowen.

Ritu Baral, Analyst

I wanted to ask about ACP-204. When you mention building upon the learnings of pimavanserin, does that refer to the mechanism of ACP-204? Is it also an agonist? And is this your forward ADP strategy or Phase II strategy?

Stephen Davis, CEO

Thanks for the question, Ritu. Let me ask Serge to comment on the first part of that question, and then I'll take the second part regarding the ADP cohort strategy.

Srdjan Stankovic, President

Yes, thanks, Ritu. Great question. We are developing ACP-204 as an internally developed compound with similar but differentiated pharmacology from pimavanserin. As a compound in a similar target system to pimavanserin, it has potential advantages stemming from differences in the properties of the molecule. From this perspective, we are optimistic about its development, and if Phase I is successful, we plan to develop it for neuropsychiatric symptoms, including Alzheimer's disease. On the second point, I will just add that the crucial differentiation of this compound is a higher potential efficacy, which is linked to the properties of the molecule and our preclinical findings. Additionally, we are seeing a difference in terms of QT liability which sets it apart from pimavanserin.

Stephen Davis, CEO

Thanks, Serge. Ritu, on my end, the connection was breaking up a little bit. Did you hear his answer?

Ritu Baral, Analyst

I heard about the QT. I wasn't exactly sure about the differentiation in the pharmacodynamic portion.

Stephen Davis, CEO

Okay. Let me sum up. So, ACP-204 is similar but not identical from a biochemical perspective. Its binding profile is very similar, but not identical. Combined with other properties of the compound, we believe it provides meaningful differentiating factors from pimavanserin. Of course, this all needs to be validated in the clinic. We are eager to continue advancing the compound, as it has strong potential given that it's an early-stage compound. Regarding our ADP go-forward strategy, as we've previously stated, we do not plan to conduct another PDP study with pimavanserin. The decision is multifaceted and partly based on the duration it would take to run another study. This population is already affected by the pandemic, which lengthens the timeline compared to where the product is in its lifecycle and other considerations. ACP-204 will have a patent life extending into the early 2030s. Moving forward, we haven’t determined if we will run another study with ACP-204, but it will certainly be a high priority for us once we complete Phase I and acquire a comprehensive profile of the compound.

Operator, Operator

Next question will come from the line of Neena Garg with Citi.

Neena Garg, Analyst

I was just wondering if you could clarify the dynamics on the quarterly pimavanserin gross to net, specifically, what drove the steep drop-off in the gross-to-net discount there. Could you clarify what we should expect for the full year?

Stephen Davis, CEO

Sure. Mark, do you want to take that?

Mark Schneyer, CFO

Yes, sure. Thanks for the question. The decline for the second quarter compared to the second quarter of last year was really a timing difference that occurred in accruals between the first and second quarters of 2021. This is why we noted the gross to net for the full 6 months year-to-date, which essentially remains flat. Looking ahead for the year, we announced that we are bringing our guidance range for gross to net down slightly from 19.5% to 20.5%, primarily due to less growth in 340B dynamics, which has been the main contributor to growth in the last year or so.

Neena Garg, Analyst

Got it. That's helpful. I guess, could you discuss the dynamics and how we should consider the pace of new starts in the second quarter? It appears that most of the sequential growth in sales was driven primarily by the gross to net.

Stephen Davis, CEO

Mark, go ahead.

Mark Schneyer, CFO

Yes, as we continue in this flat to modest growth period—which won’t last forever—we remain confident that as the PD market dynamics improve and turn back to more favorable conditions, we’ll see growth resume. For this year, we’ve lowered the top end of our guidance range, reflecting that we haven’t yet seen significant improvement in the PD market dynamics. As such, we currently project demand growth to be slightly negative to slightly positive, while we expect selling to be slightly lower than last year. A bit of sell-in growth exceeded demand growth, but we’re not predicting that will continue this year. We'll review where we stand at the end of this year and are excited to pursue brand growth over time.

Stephen Davis, CEO

Moreover, I want to emphasize that the current PD market environment is smaller than it was before the pandemic. This can be seen with slow growth rates for carbidopa levodopa prescriptions. Even with the smaller market today, we have gained about 15% market share since the pandemic began, which gives us confidence that as market conditions improve, we can continue to grow our market share and return to long-term growth rates historically seen.

Operator, Operator

Our next question will come from the line of Chris Howerton with Jefferies.

Unidentified Analyst, Analyst

This is A.J. on for Chris Howerton. Are you rethinking negative symptoms schizophrenia (NSS) in light of the recent data? Do you see atypical antipsychotics as a holdover if physicians are willing to secure preauthorizations for that?

Stephen Davis, CEO

Sure. Serge, do you want to take that?

Srdjan Stankovic, President

Yes, absolutely. Thanks for the question. Although my response may not cover every aspect of obtaining authorizations, scientifically speaking, the indication we are pursuing is drastically different than the one being targeted with atypical antipsychotics for acute symptoms. This program involves long-term treatment for negative schizophrenia symptoms, requiring that acute symptoms be under control. The focus remains on the long-term treatment of ongoing negative manifestations, while there are other approved treatments for acute schizophrenia symptoms. I'll also point out that movements observed on the negative symptom subscale PAM in other acute treatment contexts are common since reducing acute symptoms often coincides with some movement in other areas. However, the evidence needed for efficacy in negative symptoms of schizophrenia necessitates an enduring study with the aforementioned conditions.

Operator, Operator

Our next question will come from the line of Greg Renza with RBC Capital.

Gregory Renza, Analyst

I wanted to finalize our thoughts on the recent CRL with pimavanserin. It's been communicated as disappointing from your team over time. Can you provide a final comment on what it means for the company as you make meaningful changes across the pipeline?

Stephen Davis, CEO

Thanks very much for the question, Greg. It's true; there’s no drug approved for Alzheimer's disease psychosis, which reflects a massive unmet need. Disappointment certainly accompanies our inability to achieve a positive outcome with the resubmission in ADP. Nonetheless, moving forward, we haven't abandoned this indication. It remains an unmet need that we are keenly aware of. A critical element of ADP success involves recognizing that this population is fragile and typically on multiple medications. An ideal treatment for them would need to alleviate psychosis while minimizing side effects. We've always aimed to develop such a therapeutic landscape. We are dedicated to helping the 600,000 patients and their families currently on atypical antipsychotics burdened with side effects. We'll continue to press forward.

Operator, Operator

Our next question will come from Marc Goodman with SVB Leerink.

Marc Goodman, Analyst

Steve, can you outline your strategy for Europe? Are we still contemplating bringing NUPLAZID to Europe? And regarding the pain product, why discontinue it before we see chronic pain data?

Stephen Davis, CEO

Sure. Let me take the first part of your question. Our strategy has not changed. The pricing environment outside the U.S. is quite different for drugs like NUPLAZID, making it challenging to achieve profitability or even break-even. This situation remains complex for many drugs, including NUPLAZID. We will consider advancing NUPLAZID with additional indications beyond PDP, evaluating our results for negative symptoms of schizophrenia. In terms of Europe, we have 10 years of data exclusivity to explore collaboration on efficacy. However, the current environment makes it difficult to launch in with just one indication. On ACP-044, I would emphasize that early-stage small molecule development carries a high attrition rate. We maintain a high threshold for further investment in data. In this instance, the overall data profile for ACP-044 did not justify continued investment.

Srdjan Stankovic, President

Regarding the ACP-044 discontinuation, early-stage trials are known for high failure rates, so making disciplined decisions is crucial. The decision to discontinue ACP-044 was based more on the efficacy data from the bunionectomy study alongside the safety and tolerability profile than on a single factor. Even though we have multiple compounds available with this mechanism, we will focus our attention on earlier-stage molecules moving forward.

Operator, Operator

Our next question will come from the line of Danielle Brill with Raymond James.

Unidentified Analyst, Analyst

This is Alex on for Danielle. I want to delve into trofinetide and the open-label studies happening. During the LAVENDER top line announcement, you mentioned diarrhea management strategies, specifically the discontinuation of anti-constipation medications, which could be done in an unblinded fashion. Can you share what percent of patients withdrew anti-constipation meds during the LILAC studies and the rates of diarrhea in those not on those medications?

Stephen Davis, CEO

Thanks for the question, Alex. Kathie, could you provide that information?

Kathie Bishop, Chief Scientific Officer

Sure, Alex, and thank you for your question. During the LILAC-1 and LILAC-2 open-label extension studies, we instituted a diarrhea management plan to mitigate issues. It's critical to mention that these patients experience severe GI issues due to Rett Syndrome—with severe constipation present in about 80% of cases. Managing constipation can be challenging for both caregivers and physicians when the patients cannot communicate effectively. Because of this, patients are prescribed multiple anti-constipation medications. Our strategy suggests that upon commencing trofinetide, families should stop these medications, recognizing that concurrent use with trofinetide could contribute to diarrhea. Additionally, we have encouraged them to manage diarrhea using over-the-counter medications and fiber supplements. We have seen a decrease in both the severity and incidence of diarrhea with this management plan, and some patients have remained on trofinetide for an extended period. Unfortunately, we didn’t specify proportions in terms of patients withdrawing from anti-constipation therapy, but we are optimistically preparing for a successful commercial launch with effective disease management strategies. Diarrhea is relatively mild to moderate and does not lead to dehydration or hospitalization, an improvement compared to their pre-existing constipation symptoms, which can be severe.

Operator, Operator

One moment for our next question. That will come from the line of Sumant Kulkarni with Canaccord Genuity.

Sumant Kulkarni, Analyst

Regarding the business development environment, you mentioned an advantageous situation for your company. How quickly do you expect to act upon that? What is the ideal stage for a product in terms of pipeline stage? How would you balance this against the foreseeable recovery in the Parkinson's disease market?

Mark Schneyer, CFO

Thanks for the question. To reflect on past cycles, it’s been a while since we've had a significant downturn in the biotech industry. Historically, when the market experiences prolonged closures or challenges, companies become increasingly motivated to partner, as independent fundings become more complex. We're beginning to notice signs of this happening, as companies that weren't previously open to discussions are now engaging. Yet for noticeable shifts in business prospects arising from capital markets’ closures, this shift may require time—potentially two to three quarters—before we see meaningful changes. While this current situation poses challenges, it can result in favorable conditions for firms like ours, with strong resources and infrastructure. Companies within our sector will begin to see a significant distinction moving forward. Capital markets have historically been our greatest obstacle in business development for the past several years; this dynamic is notably different at present.

Operator, Operator

Next question will come from the line of Paul Matteis with Stifel.

Unidentified Analyst, Analyst

This is James on for Paul. You mentioned ADP as a potential indication for ACP-204. Have you received any specific guidance from the FDA on what development should look like, for example, should you run acute versus relapse prevention studies or any learnings that you can apply moving forward?

Stephen Davis, CEO

Thanks for the question, James. Serge, feel free to add your insights. Firstly, let me clarify that with ACP-204, we haven’t yet engaged in discussions about advanced development with the FDA; however, that will certainly be part of our process moving forward. We learned an immense amount about Alzheimer's disease psychosis during the development of pimavanserin, and we aim to use these learnings. Our understanding of what the safety and tolerability profile should be and how to effectively run studies is intimately connected with our institutional experience. This positions us favorably to develop ACP-204 for ADP should we pursue that indication.

Srdjan Stankovic, President

Interjecting here is worth noting that the circumstances surrounding the development of pimavanserin are unlike any new chemical entity that is introduced to the approval process. At the time, we contemplated a randomized withdrawal trial, given our established efficacy in acute treatment with psychotic symptoms associated with neurodegenerative diseases. This provides a solid background for understanding how to create an effective clinical outcome for any new molecule. A well-defined context will focus on its safety and efficacy in managing a population already stabilized on their primary treatment.

Operator, Operator

Our next question will come from the line of Yatin Suneja with Guggenheim.

Eddie Hickman, Analyst

This is Eddie on for Yatin. Regarding trofinetide, given the absence of approved therapies, do you anticipate a rapid influx of patients post-launch? Or should we expect some education or sales outreach effort to moderate that ramp? Relatedly, how many of the identified 6,000 to 9,000 U.S. patients have you recognized so far? Additionally, could you provide further context on why you terminated the M1 program?

Brendan Teehan, COO

Thanks, Eddie, for your question. There is substantial demand for trofinetide among healthcare professionals and families. All research indicates a strong enthusiasm in this regard. However, we can look at other rare disease pediatric product launches, which typically demonstrate a brief initial period, followed by a more sustained steady ramp. Certainly, we expect patients who participated in our studies to transition more easily to commercial therapy. Our teams are strongly engaged with centers of excellence and high-value institutions to ensure comprehensive awareness of the diagnosed patient population. Furthermore, we are meticulously collaborating with payers to ensure accessibility as seamlessly as possible. We do predict that initial timeliness will necessitate effort to ensure every patient seeking treatment can access it. As for your second question about the identified patient population, we’ve leveraged numerous databases to confirm the existing diagnosed Rett demographic. Approximately two-thirds of the estimated 6,000 to 9,000 patients are currently diagnosed. Historically, analogous product launches in rare diseases result in higher diagnosis rates upon availability of effective therapies; however, we do not expect this increase to happen instantaneously.

Srdjan Stankovic, President

On your question about the M1 program, I want to clarify that we did not choose to discontinue the M1 PAM program; we decided to halt the development of ACP-319. Similar to what I described previously regarding ACP-044, we maintain a high internal threshold for future investment potential in new candidates. Sadly, ACP-319 did not meet this requirement. I want to remind you, however, that we have a range of other molecules pertaining to this mechanism and will evaluate these further as we progress.

Operator, Operator

Our next question will come from the line of Ami with Needham.

Unidentified Analyst, Analyst

Do you have visibility on expected trends for the net sales of NUPLAZID in light of the increasing 340B mix?

Stephen Davis, CEO

Got it. Mark, do you want to take that?

Mark Schneyer, CFO

Yes, sure. Thanks for that question. While we don’t forecast out into the following year at this point, we will provide guidance when we release our fourth-quarter results. So far this year, the growth seen in the volume of the 340B is moderating, which directly impacts why we've revised guidance this year concerning gross to net.

Operator, Operator

Our next question will come from the line of Jay Olson with Oppenheimer.

Jay Olson, Analyst

With two programs for Rett Syndrome underway, achieving trofinetide and a collaboration with Stoke Therapeutics, can you elaborate on how these two programs might complement one another and potentially be used in tandem?

Stephen Davis, CEO

Absolutely, Jay. Kathie, do you want to take that question?

Kathie Bishop, Chief Scientific Officer

Sure, Jay. We envision that the two programs, given their different mechanisms, will complement rather than compete with each other. Trofinetide, if approvd, could serve as a foundational treatment, while the Stoke program offers a very different approach aimed at increasing MECP2 protein levels. Thus, it is possible for patients on trofinetide to also pursue additional therapies provided by the Stoke program, which could lead to combined or additive effects. Additionally, all the foundational work that Brendan and his team are planning for the commercial launch of trofinetide will help establish our leadership in this domain, thus benefiting any follow-on program as we build upon the insights we've gained to further develop and commercialize second therapies.

Ritu Baral, Analyst

I wanted to ask about the SG&A you indicated should stay relatively flat despite the launch. You mentioned reallocating some capital from PDP to Rett. Can you specify where you're pulling the Rett Syndrome funds from, and how does this impact stability in the PDP franchise?

Stephen Davis, CEO

Sure. Mark, do you want to start?

Mark Schneyer, CFO

Absolutely. Thanks, Steve, and Ritu, thanks for the question. Looking forward to next year and making investments in both PDP and trofinetide, we independently assessed resource allocation for each product. This assessment led to the conclusion to keep SG&A flat not out of a specific target but due to our evaluation of the right resources for both programs. With trofinetide, we want to ensure adequate resources and budgets are in place for launch. Meanwhile, the PDP remains in a modest growth period, hence our concentration on maximizing return on investment effectively, balance of spending, and optimizing our future growth.

Stephen Davis, CEO

Additionally, to echo Mark's point, it is worth noting that with the PDP currently in a smaller market, non-effective investments such as DTC advertising may not yield favorable returns in these conditions. On the contrary, digital marketing continues to show success in nurturing leads. We have established a comprehensive understanding of which elements can aid growth, surgeon engagement, and market share acquisition. Therefore, SG&A resource allocation is tied to the efficacy of different marketing strategies rather than a strict budget overall. We're pursuing the right investment opportunities while ensuring stability within the PDP franchise.

Operator, Operator

Thank you. I would now like to turn the call back over to Mr. Steve Davis for any closing remarks.

Stephen Davis, CEO

Thank you, operator. Thank you once more to everyone for joining us today. We look forward to updating you on our progress next quarter.

Operator, Operator

Ladies and gentlemen, thank you for participating in today's conference call. This concludes the presentation. You may now disconnect. Good day.