AtaiBeckley Inc. Q2 FY2022 Earnings Call

Hi, everyone. Welcome and thanks for joining us for the Atai Second Quarter Earnings Call. I’m Greg Weaver, CFO of Atai Life Sciences. We’re very pleased to have you join us. I’m joined by our CSO, Srini Rao; our CEO, Florian Brand; and Stephen Bardin, our Deputy CFO, who joined our team last month and was most recently from BridgeBio. Today is my last earnings call as Atai’s CFO. I’m very pleased and confident to be handing the CFO role over to Stephen. He’ll be taking on the role as of tomorrow and I’ll remain one of the advisors to the company through the end of the year. Stephen, do you want to jump in and do an introduction?

Yes, of course. And thank you so much, Greg. And I’ll keep this brief. I’m incredibly honored to be selected as the next CFO of Atai. My first month at Atai has been incredible, and I’m thrilled to be joining this fantastic team. I can’t wait to make a huge impact in the field of mental health. Back to you, Greg.

Thanks, Stephen. It’s great to have you on board. But today, the interview format will be led by two of our long-term analysts, Andrew Tsai from Jefferies and Judah Frommer from Credit Suisse. Over the next 30 minutes, Andrew and Judah will be asking us a series of questions about our Q2 activities, pipeline, and a business update. So forgive me for this bit, but as a reminder, our discussion today may include forward-looking statements about Atai’s future results and performance, subject to risks and uncertainties that may cause actual results to differ. Atai does not undertake any obligation to update such statements, which speak only as of today. And with that out of the way and just before kicking off the interview, I’ll briefly comment on the key financial takeaways for the quarter as we reported in today’s earnings release. First, our Q2 operating use of cash was $23 million and was in line with expectations, so no surprise there. Second, let me draw your attention to the other press release from Atai this morning where we importantly announced that we’ve added our Hercules debt facility of up to $175 million. Third and really the critical point is that with the combination of $312 million in total cash and the addition of the debt facility, it’s approaching $0.5 billion. We have a very strong runway, which in combination with the pipeline prioritization and some thoughtful cost tightening, we now forecast runway extending into 2025. That’s a full year beyond the earlier guidance and an important takeaway here. As we continue to exercise disciplined use of cash in this challenging macro environment. So with that, let’s move into the interview section here. I’ll hand the mic over to Judah from Credit Suisse to introduce himself and kick us off. Judah?

Great. Thanks, Atai team for having me and inviting me to participate. Greg, it’s been great working with you, and best of luck in your future endeavors. Stephen, welcome to the team as well. We’re excited to work with you. So maybe just kicking off with a financial question. This has not been an ideal time—maybe outside of the last few days—for mid-cap biotechs to be raising capital. And in light of your recent news, you have reasonable runway and a broad pipeline already in clinic. So how should we think about priorities for capital allocation over the next 18 or so months? And how does your current runway factor into this?

Judah, we are very, very confident in the measures that we’ve taken to extend the runway, as Greg mentioned, by one year into 2025. We believe that the combination of non-dilutive financing, the debt facility of Hercules of up to $175 million, combined with a very intentional strategic and thoughtful way of reprioritizing our pipeline, puts us into a position to now really execute and focus on all the very meaningful POC data inflections that sit in the seven clinical programs and soon eight clinical programs that we are focused on going forward. We believe that this will be appreciated by investors, and we don’t anticipate any additional funding to actually deliver on those POC readouts, and I think that’s an important takeaway for investors.

Okay. That’s really helpful. And then should we read that as an inclination to further focus on later-stage programs, potentially at the expense of earlier ones or business development activities? Or should we continue to think of Atai as in the process of further building a broader neuropsych platform?

Yes, I would like to emphasize that we have, over the last few years, built a very, very strong pipeline and platform already with many clinical programs, but also many enabling technologies that, together with the clinical programs, in our perspective, have been proven very, very effective and efficient when it comes to developing those compounds. That puts us in a very strong position to have a great basis to execute on the current trials. To your point, we will focus more on the clinical programs going forward, and we can go into those a little bit further in this call for sure. And on the business development side, M&A is in our DNA. We have built Atai through aggressive M&A and BD. Especially in those depressed valuations that we are seeing, we continue to be very, very active and are on the lookout for assets, companies, and technologies that can accelerate our existing pipeline or can be very complementary to the existing pipeline by adding programs with near-term value inflection points. So that is what we are active in with a focus in the near-term future, definitely on clinical programs.

I was just going to reiterate something that Florian said. So the programs that we selected and prioritized are all going to be in the product by the end of this year. And all of these will generate some meaningful clinical results, proof-of-concept type data within two years. So that’s really the way to think about it. That’s been kind of the model here in terms of prioritization over the next...

Perfect.

And so speaking of like you guys focusing a little bit more on the clinical stage portion. Maybe my question is a more holistic question: as we think about, for instance, industry peers, COMPASS, they are technically pioneering the space in a sense. So as you pursue later-stage studies, should we expect you to kind of follow COMPASS’ footsteps in Phase 2? For example, they did dose ranging, Phase 3—who knows if they do a placebo as a comparator. But could you kind of follow their footsteps in a sense?

Yes, I would say that we’re actually already following in their footsteps in many ways, right. So their first trial was, as you said, basically single-dose dose ranging. And that is exactly what we’re doing with our Perception study, right, single administration and dose ranging. And I can say definitively for Perception, we know that we’re going to meet multiple doses, right. It’s Ketamine Clinics, who know the multiple doses are required. But the idea of that first study was to really get a good handle on duration of efficacy, of course, and magnitude of efficacy. And so that’s the data that we’re going to take forward to help design that next trial. I imagine that COMPASS is doing something very similar.

Understood. And before I turn it over to Judah, they are technically—we learned—leveraging some digital tools in Phase 3 plus psychological support. It’s apparent that the FDA is on board with this; could you incorporate these dynamics within neuro studies even as early as Phase 2, for instance?

Well, we’ve been working on digital technologies for a while now, right? So we actually announced Introspect, which is one of the focus areas within the company, over two years ago. Our digital technologies have matured to the point where they’re in clinical testing now, so we’re gathering all the data we need to really help. We’re testing content as well. We’re actually going to be deploying these very soon in our Phase 1 trial with both Viridia and EmpathBio. Phase 1—of course, these are healthy volunteers—but they still require prep work and they still require some support post-dosing. So digital technologies will be used there, and then, of course, we’ll roll them on in subsequent Phase 2s.

Before Judah jumps in, I would like to remind investors quickly actually why we think digital therapeutics are important. Remember, we are about achieving clinically meaningful behavioral change in mental health patients and are intending to really achieve durable behavioral change. We pursue this through our three-pillar strategy. One is the focus on differentiated and more rapid-acting pharmacological interventions that we believe have strong neuroplastic effects that induce this window of behavioral plasticity that we then want to leverage exactly through those digital therapeutics such as our Introspect to really help foster new habits through company behavioral therapy elements and multiple other content elements that we believe can effectively be delivered through digital means. This is an ongoing psychotherapeutic support element of Pillar two of our strategy and then along the way use and harvest—or harness that data that we’re collecting by digital phenotyping, for example, but also looking at biological biomarkers potentially to move us to a more precision psychiatry approach of thinking about treating patients given the very heterogeneous nature in this patient population. So I’m very, very excited to see the first technologies applied actually in the first clinical study now with our DMT program.

So we technically see we could get some early data over the coming months with the digital tools?

That’s correct.

Great. And maybe just sticking with COMPASS for a second here. It sounds like we’ll get a detail of their Phase 3 trial design around October, I think, is the latest. What would you say you’re looking for in terms of trial design that could carry a read across beyond maybe the digital components for pipeline programs at Atai?

Well, I think we've hit on one, of course, digital and seeing what their perspective is on that and how they want that characterized as a validated test. I think that will be really interesting. The other piece is the one that I alluded to earlier, right? That’s the repeated dosing. How does the agency work upon that? What are the implications potentially for tox testing, right? What are they looking for there? What are they looking for in terms of long-term data? Are they looking for repeat dosing within that? Or do they want to see meaning the ICH guidelines, so 100 subjects approximated at the end of the year. These are the sorts of questions that will obviously impact us over time. There are other considerations; I can’t imagine it’ll be very controversial stuff like placebo versus dose control. There are lots of precedents for both; I can’t imagine that would be much of an issue. But the repeated dosing, etc. would be really interesting and obviously very impactful for our studies.

Okay. That’s helpful. And then just hitting on a couple of changes that have gone on at COMPASS given your minority stake there, any quick thoughts on the anorexia nervosa indication? And have you guys interacted in a significant way with the new CEO?

Yes. In fact, we had a call, I believe, 1.5 weeks ago with Kabir. We believe it’s a great choice, so I applaud the COMPASS board for that decision. I think he’s definitely the right person and has also the right skill set to now move that company through Phase 3 and hopefully to approval. He also has the requisite experience to effectively commercialize drugs. I believe that this is a very great setup for success for COMPASS going forward with him at the helm. George is also staying on board as Chairman, so I believe we have a very, very strong solution here for COMPASS. We also applaud them for going after anorexia nervosa. This is a significant unmet need in psychiatry. There is no approved drug, and we see great potential for COMP360 here given the early signals that we saw based on their open-label trial, and believe that this is very worthwhile to pursue from our perspective.

Just one small follow-up. I was just curious if you guys think maybe the FDA deems their Phase 2b as a pivotal study potentially? I guess, it’s hard to say, but just asking if you have any thoughts.

I mean, clearly, there’s precedence for using Phase 2 data as supportive data, right? If one of the Phase 3 trials is marginal. There’s been certainly precedents where the agency will accept a Phase 2, though it’s much more robust. Will they truly accept it as pivotal? I don’t know. I mean, clearly, during the earnings call, COMPASS did emphasize at least more than one, certainly Phase 3 study. It’s not obvious whether or not they’re including a long-term follow-up study. So we’ll get more clarity over the course of the next little bit. I’m personally a bit skeptical of that, but we’ll have the data soon, so let’s just wait.

All right. Maybe switching gears to PCN-101, if we could. Certainly, the program we get the most inquiries about lately. So with a couple of readouts expected at the end of this year, can you remind us of design, timelines, the bar for success for the Phase 2a and how much clinical expansion into the U.S. has gone along with the drug-drug interaction study in the subcutaneous bridging study? So a lot to unpack there.

That is a lot to unpack. So yes, just to level set with everybody, as I mentioned, the Phase 2 is a placebo-controlled study again following in the footsteps of COMPASS. Single administration is IV, in this case, following the footsteps of Janssen. We are looking at basically two doses of R-ketamine. One is sub-dissociative, the other one is threshold dissociated, which is 30 milligrams and 60 milligrams respectively. And of course, the third arm is placebo, consisting of 31 subjects in each of those arms. The primary outcome measure is the 20 matters in 24 hours; it’s also looked at over the next seven days and 14 days. So that’s the outline of the trial; recruitment is going really well. I'm very excited about that. We’re completely on track for a readout by the end of this year. In terms of U.S. expansion, we did, of course, announce an IND earlier this year. You can actually look on clinicaltrials.gov. It’s going really well. So far, there are 10 sites in the United States that are currently recruiting and three others that are in the process of coming online. So again, going really well. Now, you also mentioned what our threshold and what does success look like? It’s important to go back to what our premise here is, right? Our thoughts on that are pretty straightforward; obviously, it’s about efficacy, and we know what the minimum clinically important differences are, two, we hope to see more than that versus placebo at 24 hours. The other element there is tolerability, specifically regarding dissociation. You guys are probably very well aware that SPRAVATO is quite dissociated at the doses required for efficacy. We hope to be much lower in that regard, if not within the normal realm; that’s really going to be an important factor for us in the decision-making process at the FDA to support at-home use. That’s the big picture there in terms of what we are looking for.

Okay. And the other piece of at-home use is subcutaneous?

Yeah. So subcutaneous—that’s still been planned; we’re basically moving that forward towards initiation at this point. But yeah, I mean, basically right now, it’s IV; we have a subcutaneous formulation that we’ll be testing, looking for relative bioavailability of these two different routes of administration, understanding what the dose levels you need for comparability there.

Got it.

Of course, that would be what we take forward in subsequent trials; that’s much more suitable, as you can imagine, for repeat dosing.

Sure.

And you mentioned the drug-drug interaction study as well. So the DDI study is really focused on 3A4 inhibitors and TC19 and looking at the impact of those compounds on the PK of R-ketamine. That trial is—the clinical phase—all the clinical dosing and everything is completed at this point. So it’s under analysis now, and again, expecting top-line certainly by the end—before the end of this year.

Great.

And I’m curious, two points technically is the fundamental, approvable, I guess, delta in a sense. Maybe the market or the Street prefers something more similar to S-ketamine where S-ketamine traditionally shows. Is that fair to think about as we think about the top line data in terms of the Delta drug versus placebo?

Yes. I think it’s a very valid point. So just kind of thinking through what the approvability package for S-ketamine was, I mean, S-ketamine was basically, they had three trials, TRANSFORM-1, 2, and 3, and then they had this long-term bit. Really, the only truly positive trial was TRANSFORM-2, right? TRANSFORM-2 had a four-point delta on the matters, and I think that was a 28-day study. That’s a good bar, but of course, that was a lot of going into the clinic, right? The minimum bar for me is not great, but the minimum bar would certainly be two plus but with a rapid onset, right? That differentiates you completely from an SSRI. SSRIs take weeks, if not a month or months to get efficacy; if you can achieve that same level of efficacy in 24 hours, that’s a win, right? With S-ketamine, you're going there every—you're going there twice a week for four weeks. You're going there once a week for the subsequent four weeks. That’s a lot of travel; it’s a lot of time and commute, right? So if we can do this all at home, I think we obviate a lot of that. That remains a very strong win for this compound.

And how reliable—reliable or translatable do you think this dataset would be assuming it was successful? Because my understanding is that it’s done in an inpatient setting, whereas you eventually want to go at-home. So do you have any color around that—how you think about this?

Yeah. I mean, there are two elements to that. The first is the PK piece, right? There’s a changing route of administration, so there will be an impact on PK. Obviously, we’re generating data with our current administration protocol, which is a 40 minutes continuous infusion. We need to understand what the PK of the subcutaneous formulation is, and we’ve got some parameters that we want to match there, right? CMAX are all things that we want to look at. Of course, that’s where—that’ll be driven by the Phase 1. So that will have some impact on efficacy. And of course, you’re right, in-house may have a different effect. It should impact placebo on drugs sort of similarly; going to a clinic generally drives up your response, but it’s going to drive up your placebo response. We may actually have a better signal on the noise ratio if we’re at home. This is purely speculation; we’ll have to see how this plays out.

And maybe one more question is, I noticed in the press release the bridging study could complete within the next few quarters. So as we think about the next steps afterwards, that technically is the gating step before you move to a subsequent study after this Phase 2.

Well, there are also some additional talks, some other things that are also in the process. So there are a few pieces that have to come together; that’s one of them for sure. But yes, of course, we need those results obviously to support the next trial.

Great. Thanks.

Of course.

Okay. If I could move us over to RL-007 and CIAS. So, there have literally been dozens of compounds in CIAS that have failed, some with similar pathways even to 007. In your view, how much of that can be attributed to chemistry or target selection of those compounds versus trial design?

Well, let’s focus on the chemistry bit for the moment. In general, over the last several decades there has been this concept of being really reductionist on the pharmacology, right? Trying to find that piece of pharmacology that’s driving the efficacy and make very clean drugs for it. Certainly that’s true with SSRIs; a good example is with atypical antipsychotics to some degree. But the reality is that dirty drugs tend to work a little bit better in most of these indications. The nice thing or the interesting thing about RL-007 is its polypharmacology; it absolutely has GABA-mediated activity, a GABAB-mediated activity, but it also has additional mechanisms. So that is a point of differentiation compared to some of the other things that are currently in development, which are much more focused. I think that’s an interesting angle. Of course, it’s consistent with our model; we have existing clinical data, albeit in different groups. So we have one in diabetic peripheral neuropathic pain. That is a population that probably in general has some degree of subclinical cognitive impairment, right? Our vascular path, that’s why they have diabetic peripheral neuropathic pain; they presumably have some central vasculature compromise as well. We saw a signal there. We saw it in normal healthy volunteers. We saw some signal in our proof of mechanism-type trial. We saw an inverted U-shaped curve, which was consistent with the hypothesis vis-à-vis cognitive effects. We saw a change on quantitative EEG that mirrored that as well, so again, all consistent with our hypothesis. We have a lot of things going in our favor with this compound; I’m not disputing the fact that it’s a challenging indication, not trying to walk away from that at all. In terms of the clinical trial design, it’s an interesting question; there’s been a lot of development for an extended period of time on endpoints for this. The MCCB is the broad recognition of the unmet medical need in this indication, right? The FDA has been all over this for a very long time. Other industry partners have been involved with this entire thing; academics have been involved. We have a nice consensus battery on what the endpoints should look like. There has been evolution on that in terms of being more focused on some of the endpoints, so that’s something that’s been ongoing. So I think overall though, it’s probably a lot to do with the pharmacology to some degree around the endpoints and particularly the ability to now focus on subsets of those endpoints.

That makes a lot of sense. And then just where do we stand on potentially improving the dosing profile and what’s the latest in terms of next steps on the decision about whether to pursue Phase 2b and go for an end of Phase 2 meeting or do an additional Phase 2a? And what could be preferred endpoint selection? You touched on it there.

Okay. Well, let me take that last bit first. So we are indeed prepping for a Phase 2b at this point, and the endpoint is going to be the MCCB. You may recall in the last study, we saw simple coding which was very positive in that trial. Simple coding has a very good overall correlation with the MCCB. So we take comfort in that in terms of some degree of proof of concept. In fact, simple coding is part of the MCCB, so happy that’s why we’ve decided to move forward with that. The trial will be robust, and it’ll certainly support an end of Phase 2 meeting assuming, of course, positive results. Now, in terms of posology, this is one where we’d love to improve on. We’ve got some angles there. Right now, we’re dosing TID. There is a good argument to be made that you can make it BID. We could, of course, use formulation technology to make it QD. That would be great, particularly keeping in mind this patient population. So that’s the only thing that we’re looking at; we could bridge to that at a later point.

That’s helpful. Thanks.

And with that, we are unfortunately already out of time. I would really like to thank you, Andrew and Judah, for dialing in today. I found this very, very insightful and interactive. Thank you so much for asking these inquisitive questions today. I would also like to express my gratitude to Greg for your service as CFO of Atai and for driving forward our mission with so much passion. I’m really, really thankful for your service. You have been an instrumental part of our leadership team, and I’m also grateful that you’re staying another couple of months until the end of the year to ensure a smooth transition when you’re handing over your CFO job to Stephen. And Stephen, I’m really thrilled to have you here. You bring with you a lot of expertise and experience with the model that we are pursuing. This decentralized way of developing drugs—I couldn’t be more happy to have you on board. A warm welcome to you, and I’m looking very much forward to working with you going forward. Ultimately, I would like to reemphasize the key takeaways from my perspective to our investors: we have taken very strong and thoughtful measures to extend our runway by one year into 2025. We believe this has been the right strategic decision by adding non-dilutive debt financing of up to $175 million and the very intentional and thoughtful reprioritization of our pipeline. From our perspective, this puts us in a position to really focus on the key value inflection points in our programs. Seven out of eight are in the clinic right now; we assume to have eight in the clinic by the end of this year. There’s a lot of proof of concept data sitting in there that we intend to report out over the next two years. With that, I thank everyone for dialing in and wish everyone a very great day. Thank you.