Axsome Therapeutics, Inc. Q2 FY2022 Earnings Call

Good morning and welcome to the Axsome Therapeutics Conference Call. I would now like to turn the conference over to your host, Mark Jacobson, Chief Operating Officer at Axsome Therapeutics. Mark, please go ahead.

Thank you, operator. Good morning and thank you all for joining us on today's conference call. This morning, we issued our earnings press release, providing a corporate update and details of the company's financial results for the second quarter of 2022. The release crossed the wire a short time ago and is available on our website at axsome.com. During today's call, we will be making certain forward-looking statements. These statements may include statements regarding, among other things, the efficacy, safety and intended utilization of our investigational agents; our clinical and non-clinical plans; our plans to present or report additional data; the anticipated conduct and the source of future clinical trials; regulatory plans; future research and development plans; commercial plans; and possible intended use of cash and investments. These forward-looking statements are based on current information, assumptions, and expectations that are subject to change and involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. These and other risks are described in our periodic filings made with the Securities and Exchange Commission, including our quarterly and annual reports. You are cautioned not to place undue reliance on these forward-looking statements which are only made as of today’s date and the company disclaims any obligation to update such statements. Joining me on the call today are Dr. Herriot Tabuteau, Chief Executive Officer; Nick Pizzie, Chief Financial Officer; and Lori Englebert, Senior Vice President of Commercial and Business Development. Herriot will first provide an overview of the company and then review recent developments and upcoming milestones. Following Herriot, Lori will provide a commercial update and then Nick will review our financial results. We will then open the line for questions. Questions will be taken in the order they are received. And with that, I will turn the call over to Herriot.

Thank you, Mark. Good morning, everyone and thank you all for joining Axsome Therapeutics Second Quarter 2022 Financial Results and Business Update Conference Call. We are proud to report our first commercial sales following the closing of the Sunosi acquisition in the second quarter. This transition to commercial status is a milestone that few developmental stage companies reach. And we are positioned to potentially rapidly grow our commercial portfolio in the near to intermediate term. This should happen with two NDA stage product candidates that we have as well as five additional Phase III stage clinical programs. I will provide an update on our commercial and developmental portfolio before turning it to Lori for a commercial update and to Nick for the financial update. Starting with Sunosi. We generated U.S. net sales of $8.8 million for the roughly two months from the close of the acquisition on May 9 to the end of the second quarter. We continue to be excited by the growth potential for this product. Moving on to our NDA stage products, AXS-05 for MDD and AXS-07 for migraines. With regards to our NDA for AXS-05 in major depressive disorder, or MDD, we announced that we have entered into labeling discussions with the FDA in late June. We have been pleased with the progress of these discussions. Based on the interactions, we anticipate potential FDA action on the NDA in the third quarter and potentially as early as this month. With regards to AXS-07, following the complete response letter, we recently submitted a request for a Type A meeting with the FDA to discuss our planned approach to the resubmission of the NDA. We anticipate that this meeting will occur in the third quarter. The rest of our developmental pipeline continues to progress. Regarding our Alzheimer's disease agitation program, we have amended the relapse criteria for the ACCORD Phase III randomized withdrawal study of AXS-05 in Alzheimer's disease agitation. The change was informed by results of an analysis requested by the FDA of data from the previously completed positive ADVANCE-1 trial. To generate additional data to support the efficacy of AXS-05 in this indication, we're also initiating a new randomized, placebo-controlled parallel group trial, the ADVANCE-2 trial, this quarter. Concurrent with the initiation of ADVANCE-2, we are concluding the ACCORD randomized withdrawal trial and we expect top line results from this study in the fourth quarter of 2022. For AXS-12, our product candidate being developed for the treatment of narcolepsy, enrollment in the SYMPHONY Phase III trial is progressing and top line results are anticipated in the first half of 2023. For AXS-14, our product candidate for the treatment of fibromyalgia, manufacturing and other activities related to the planned submission of the NDA are ongoing and we expect to submit the NDA for this product in 2023. With regards to a new indication for Sunosi, we recently announced our plans to develop solriamfetol for the treatment of ADHD. We anticipate initiating a pivotal trial of solriamfetol in adults with ADHD in the fourth quarter. I will now turn the call over to Lori, who will provide a commercial update.

Thank you, Herriot and good morning. The U.S. portion of the Sunosi acquisition from Jazz Pharmaceuticals was completed on May 9, and as previously reported, the transition was seamless with no disruption to patients. We are extremely proud of the efforts made by the team in such a short amount of time to achieve this significant milestone for Axsome. At the time of completing the acquisition, Axsome conveyed approximately 75 employees from Jazz, the majority of whom were sales representatives. Axsome's digital-centric commercialization platform plays a significant role in our commercial strategy for Sunosi and is already enabling a highly productive sales force. The Sunosi deal was announced on March 28, and the U.S. portion was completed on May 9. As such, Q2 had the potential to be a highly disruptive quarter. However, new prescription volume during this period was maintained and total prescription volume grew 7% quarter-over-quarter, reflecting effective execution and the underlying strength of the Sunosi business. The EU portion of the closure is scheduled to occur in the second half of the year. As a reminder, Sunosi is the first and only FDA-approved, dual-acting DNRI to treat excessive daytime sleepiness, or EDS, in adults with narcolepsy or OSA. We believe that the clinical benefits of Sunosi provide meaningful differentiation in the marketplace for both OSA and narcolepsy patients who are suffering from EDS. Currently, Sunosi has a 2% patient share in drug-treated OSA patients and a 7% patient share in drug-treated narcolepsy patients. The opportunity for growth remains substantial and I look forward to communicating the results of Axsome's first full quarter with Sunosi during our Q3 earnings call. Regarding AXS-05 launch preparations, the team remains focused in anticipation of a potential launch. We have incorporated learnings from commercializing Sunosi, including utilizing our DCC platform and are prepared and ready to commercialize if approved. I will now turn it over to Nick, who will review the financials.

Thank you, Lori and good morning, everyone. Today, I will discuss our second quarter results and provide some financial guidance. We ended the quarter with approximately $73.4 million in cash compared to roughly $86.4 million at the end of the previous quarter. During and subsequent to Q2, we accessed our existing ATM facility, receiving net proceeds of approximately $41.8 million, resulting in a pro forma cash balance of $102 million. Moving to the P&L, Sunosi net sales for the quarter in the United States were $8.8 million. As a reminder, the completion of the acquisition of Sunosi for the U.S. territory was completed on May 9 and the $8.8 million in net sales relates to the time period of May 9 through June 30. R&D expenses were $15.8 million for the three months ended June 30, 2022 and $14.5 million for the comparable period in 2021. The increase was driven by personnel expense and costs associated with ongoing clinical trials. SG&A expenses were $31.2 million for the three months ended June 30, 2022 and $16.3 million for the comparable period in 2021. The increase was primarily related to commercial activities for Sunosi, pre-commercial activities for our late-stage pipeline assets, personnel expense, and an increase in non-cash stock compensation expense. Net loss was $41.4 million, or $1.06 per share, for the three months ended June 30, 2022, compared to a net loss of $32.3 million, or $0.86 per share, for the comparable period in 2021. The net loss for the current period included $10.2 million of non-cash stock compensation expense compared to $5.5 million in the comparable period. Regarding the Sunosi acquisition, the preliminary accounting of the acquisition of Sunosi is included in our Q2 2022 financial statements. To date, we have performed a preliminary fair value analysis of the business combination. The final determination of these fair values will be completed as soon as possible but no later than one year from the acquisition date. We believe that our current cash balance, along with the remaining committed capital from the $300 million term loan facility with Hercules Capital, is sufficient to fund anticipated operations into 2024 based on our current operating plan which includes the commercialization of Sunosi and the potential launch of AXS-05 in MDD, if approved, along with continued development of our pipeline. That concludes our second quarter 2022 financial review. I will now turn the call back to Mark to lead the Q&A discussion.

Thank you, Nick. Operator, may we please have our first question?

Our first question comes from Charles Duncan with Cantor Fitzgerald.

Congrats on the progress with Sunosi this quarter. I wanted to ask you about Sunosi but I need to ask you about AXS-05, because I’m wondering what’s taking so long. But first of all, before I get to that, regarding AXS-05, I wonder if there are any terms within the Hercules facility that you can talk about and suggest that, that is negotiable should the, call it, black swan happen and there’s a CRL that is granted or given for AXS-05. Can you renegotiate that term loan and, therefore, access to capital?

Thank you for the question, Charles. Regarding the term loan facility for Hercules, it stands at $300 million, and some of those tranches are based on sales, which means we might still have access to additional funds. There's also a significant portion of the loan that is under Hercules' discretion. Our financial guidance takes all these scenarios into account. I'll let Nick provide more context, but in the unlikely event you're referring to, I believe that description is accurate. We are very confident in the efficacy and safety of the package we've prepared for AXS-05. Nonetheless, we are preparing for all eventualities. If that situation were to occur, a lot of the expenses we've planned for the launch of AXS-05 would likely be reduced, leading to lower operating cash needs. Now, I'll pass it to Nick for further comments.

Yes. Herriot, you commented on the majority of it. Just to give some baseline to everybody, $100 million is available upon AXS-05 approval. Additionally, there's another tranche, a $50 million tranche that is tied to performance measures, as Herriot stated, and it's a measure of debt to trailing three months sales. That would still be available to us in the black swan event you're referring to, Charles. Just to restate what Herriot mentioned as well, in the event of a CRL, our spend will decrease. As you're aware, there's significant launch spend that would be required for AXS-05. That spend would go away and we would not have access to the $100 million tranche right away. However, we still believe our cash runway will take us into 2024.

Okay. I’m generally not a black swan guy. So forgetting about that, even considering the alternative which is AXS-05 is approved here in the near term, would you be able to launch it within a reasonable period of time, let’s say, by the end of this year or early next year? And then could you give us a sense of how many of the reps that are currently marketing Sunosi would overlap and be able to market AXS-05 as well?

Yes. I think those are questions for Lori.

Charles, thanks for the questions. So we will provide guidance upon potential approval that we'll launch within a quarter of approval. Regarding the reps, we currently have 75 territories for Sunosi. Those 75 reps are covering about 12,000 healthcare providers who are high-potential prescribers for both OSA and narcolepsy in patients suffering from EDS due to those conditions. I am adamant about keeping our sales force separate at launch so that the AXS-05 sales force can focus and drive product adoption at launch. However, there is high overlap and a lot of synergy, as we've mentioned before. So when the time is right, we will start overlapping, considering overlapping the two sales forces in terms of call points. But I really want everyone focused on driving Sunosi sales up with a focused sales force and the same for AXS-05.

Last quick question on Alzheimer’s agitation, regarding potential data yet this year. Can you give us a sense of the number of patients that might be included in that? And will it be a milestone analysis, say, a look at data at a certain time point? What would really drive that additional data that you could present later on this year?

With regards to the milestone analysis for the randomized withdrawal study, it would not be milestone-driven from the perspective of a time point. We will look at the difference in relapse rates or the time to relapse between the two groups, AXS-05 and placebo. For the number of patients who will be in that analysis, we will disclose that at the time we announce the results.

Our next question is from Marc Goodman with SVB Securities.

This is Rudy on the line for Marc. I have a couple of questions for AXS-05. First, I want to ask about the NDA in depression. Just wondering how much back and forth has there been on the proposed label since labeling and post-marketing proposal discussions have been ongoing for six weeks and more than three months, respectively? I mean, all this typically takes two to four weeks. Specifically, what are the FDA’s continued issues and pushback now with the application and the label?

So the guideline of four to six weeks you provided for labeling discussions I think is an average. We don't have any control over the FDA's process. The part that we can control, which is to make sure that we're responsive and collaborative, we have done. As I said, we're very pleased with the way that these negotiations have been ongoing and we look forward to an FDA action in the near term.

Can I have one follow-up here? Rudy, you asked about the post-marketing commitments and requirements that are ongoing for three months. Those are not ongoing. As we previously mentioned, we reached agreement on the PMCs and PMRs with the FDA. I just wanted to clarify that.

Yes, got it. Thanks for clarifying. I have a follow-up for Alzheimer's agitation. It sounds like we're starting another pivotal trial, ADVANCE-2. Did the FDA ask for that study? Is that trial required for filing? Can you provide more color on the timeline for that trial?

Starting that trial reflects our desire to ensure that we have as strong a data package as possible when we submit the NDA for Alzheimer's disease agitation. As you know, no product has been approved yet for this indication. So we want to incorporate learnings where we can get them. While this new study technically would not be required for an NDA filing in Alzheimer's disease agitation, assuming that the randomized withdrawal study is positive, we think it’s prudent to have more than one shot on goal and to have two studies, both of which are parallel group that would replicate each other.

So let’s say the ACCORD study is positive, then we’re going to file. We won’t wait for ADVANCE-2, right?

Assuming that we have a data package that we think is adequate, we would then have a pre-NDA meeting with the FDA. After that meeting, we’d be able to tell you whether or not the FDA believes we should go ahead and file.

Our next question comes from Joon Lee with Truist Securities.

This is Ausom on for Joon. Our first question is, given known drug-drug interactions with bupropion, do you think patients currently on antidepressants will need to be washed out of existing drugs before they can be on AXS-05? How do you envision patients on standard antidepressants would transition to AXS-05? I have a follow-up.

Thank you for the question. Drug-drug interactions are not unique to AXS-05. We're leveraging a particular drug-drug interaction to improve the pharmacokinetics of the NMDA receptor antagonism of AXS-05. Many drugs do have interactions and there are sections in every package insert with regards to those interactions advising clinicians how to navigate them. It’s typical to ensure that patients are washed out of one treatment before starting another. Clinicians, especially psychiatrists, are very familiar with this process.

Okay. And then, just on the labeling discussions for AXS-05, have you had any more interaction with the FDA since you first disclosed labeling discussions? If so, were items such as REMS part of that discussion?

We have had additional interactions. We have been in labeling discussions with the FDA, and with regards to other aspects of what has been discussed as part of those negotiations, we will not comment on that. It would be inappropriate at this stage.

Our next question comes from Yatin Suneja with Guggenheim Partners.

Two for me. Could you give a little more color on the Sunosi launch in terms of how to think about the performance in Q3? Are you in a position to provide some sort of guidance going forward, and at what point might you be able to provide that? The other question is on the abuse liability for AXS-05. Could you talk about whether the FDA is comfortable with your lack of abuse liability data? The guidance for CNS drugs definitely requires some sort of abuse liability work, so just trying to get a sense there.

I'll answer the abuse liability question. You are correct that all CNS active drugs are required to assess the potential of those drugs for abuse liability. However, how that's done really depends on the compound and if any signals have been seen in clinical trials. As part of our NDA, we did have to do that assessment. That has been done. I'll turn it over to Nick and Lori to answer your questions regarding Sunosi.

I'll provide some data points concerning performance following the Sunosi acquisition. We're still learning and assessing the market post the transition. We've aligned the 75 territories. The reps are very high-caliber and generating productivity levels of sales forces 1.5x to 2x the size they are now. This has a lot to do with the underlying momentum from Sunosi as well as effective execution through DCC. I'm proud of what the team has accomplished during this potentially disruptive quarter. As I mentioned in the prepared remarks, prescription volume grew 7% quarter-over-quarter, which is impressive given the circumstances. I’ll toss it over to Nick for guidance.

Thanks, Lori. The quarter could have been extremely disruptive. As I stated earlier, we had $8.8 million in net sales, which is a 22% year-over-year growth in scripts. We're highly satisfied with how the transition has taken place so far. As a reminder, we believe the EDS market in OSA and narcolepsy has the potential for peak sales in the $300 million to $500 million range. At this point, we won't be able to provide guidance for the rest of the year as we're still learning, but it's a very positive transition thus far.

Our next question comes from Jason Gerberry with Bank of America.

I just wanted to come back to the cash question. I am little confused. It seems like you’re unlikely at a point where some sort of Sunosi sales threshold might trigger more access to the Hercules facility. I’m trying to understand how you work through the end of the year on the existing cash dynamics. And then on the AD agitation update, I’m curious why not start my new trial sometime in the fourth quarter after the randomized withdrawal update, presuming that the update could facilitate approval and cash is dire for you guys? Why not wait to see if that could facilitate approval before starting another study?

Related to the Sunosi comment, we expect a small loss in the sub period this year, Jason, and for Sunosi to be accretive next year. We're excited about our performance for Q2. Additionally, as it relates to Hercules and the tranche, we’re approaching where we would be able to utilize the $50 million tranche, based on our anticipated sales. Our average cash burn has actually been closer to $30 million, not $40 million, as you mentioned.

Regarding your question about starting the Alzheimer’s agitation trial, we want to continue our history of rapidly developing our product candidates. It makes sense for us to start the study sooner rather than later. We made that determination, and we're on track to start that study this quarter. We're proud of that. Remember, the study we are launching, which is a parallel-group trial, benefits from data we’ve gathered to guide its design.

Our next question comes from Ram Selvaraju with H.C. Wainwright.

This is Boobalan dialing in for Ram Selvaraju. We have a couple of questions. Firstly, could you provide any insight on AXS-05 with respect to a sustainable competitive advantage versus other antidepressants currently in later clinical stages of development?

It's essential to compare AXS-05 data in our clinical trials against actual Phase III data from other product candidates. AXS-05 has demonstrated a rapid antidepressant effect, highly statistically significant in week one with the GEMINI trial, along with symptom improvement and enhanced quality of life. This rapid effect hasn't been seen before with any oral antidepressant. The treatment difference increases over time, with more than a two-fold rise in remission rates at week six compared to placebo. Therefore, the drug exhibits exceptional efficacy and durability while being well tolerated. It has a novel mechanism that translates into clinical benefit, which is important considering almost 70% of patients don't respond well to current treatments.

Thanks for the detailed context. Could you provide an update on ex-U.S. commercialization activities? What's your plan to optimize asset value?

Our stated corporate objective remains to out-license our product candidates for ex-U.S. markets while we focus on the U.S. With the acquisition of Sunosi, we have become a global biopharmaceutical company, and there are sales of Sunosi ex-U.S. which are growing. We didn't comment on that this quarter as we have not yet closed on the ex-U.S. portion. That may inform our strategy going forward since we now have some infrastructure outside the U.S.

You're stepping into ADHD, which is a crowded indication. What is your value proposition, and what unmet needs are you planning to address with Sunosi?

We’re very excited by the clinical profile of Sunosi related to its potential effect in ADHD. However, we want to ensure we run the clinical trial to see the results. There's a significant unmet need in ADHD; most available drugs are highly scheduled, and those that aren't do not demonstrate a large treatment effect. Sunosi's large effect size in EDS could offer similar results in the ADHD trial. We look forward to initiating that study in the fourth quarter.

Our next question comes from Joseph Thome with Cowen.

First one on the depression review and then I’ll have a follow-up on Alzheimer’s agitation. On the current review, you mentioned being encouraged with the labeling discussions. Can you provide context on what inspires that encouragement? Are you currently waiting for the FDA, or are they waiting for analysis or any data from you? What would constitute a disclosable release to investors from the review?

We've been pleased with the progress of the negotiations. We are pleased that we entered into labeling negotiations and have had interactions with the FDA regarding the label. The next disclosable event we anticipate would be an FDA action.

And then on Alzheimer's agitation, it does mention you amended relapse criteria for the ACCORD study. Can you provide context about how that changed? Was the parallel control group trial suggested by the FDA or proposed by your team?

We thought it would be helpful to strengthen our data package with insights gained from the development of drugs in neighboring indications. With regards to the relapse criteria, at the FDA's suggestion, we analyzed results from the ADVANCE trial, which provided a lot of valuable data for refining clinical meaningfulness with different scales. This informed the change in the criteria to align with the ADVANCE-1 trial results.

Our next question comes from Graig Suvannavejh with Mizuho Securities.

As I’m relatively new to the name, could you remind me what the TPP is for AXS-12 for narcolepsy and how you expect to position that relative to Sunosi? Also, regarding Sunosi and ADHD, could you remind me about the dosing compared to EDS and OSA and narcolepsy? If different, is there potential for an alternative prescription branding strategy?

Regarding AXS-12, our CONCERT trial demonstrated that AXS-12 had a significant effect on cataplexy and excessive daytime sleepiness. Additionally, rapid improvements in cognition were shown. The TPP for AXS-12 is impressive. With Sunosi, while it treats narcolepsy, it specifically targets EDS, with no impact on cataplexy. Regarding the dosing for Sunosi in ADHD, we haven't disclosed specifics for the Phase III trial yet, but we'll provide that information once we announce the study's initiation.

Our next question comes from Chris Howerton with Jefferies.

I have two questions for AXS-05. Regarding the potential label and approval, what are the company's thoughts on the likelihood of a REMS? Additionally, considering potential drug-drug interactions, do you anticipate any restrictions or warnings in the label?

Those questions around the label are reasonable. However, we will refrain from answering given the current stages of discussions with the FDA.

Related to the Alzheimer’s disease relapse, one concern raised was with respect to autocorrelation in within-subjects designs. Can you provide insight on the clinical meaningfulness of the randomized withdrawal data versus the parallel design you just announced?

That's a good question. The randomized withdrawal design is effective in demonstrating that the drug works; it's a control design. However, that particular question is best answered with a parallel group design. While we have parallel group data from ADVANCE-1, the FDA typically prefers to see two studies. We're not launching this new trial because it is absolutely needed, but we want to ensure we approach NDA filing with the utmost strength, especially since this indication has no approved product.

Our next question comes from Matt Kaplan with Ladenburg Thalmann.

I wanted to dig into AXS-07 a little bit. Where are you with addressing the CMC questions detailed in the CRL? When do you think you could resubmit the NDA?

As you can imagine, the team is working behind the scenes. The CMC team is addressing the CRL. We've requested a Type A meeting with the FDA, and we expect to hold that meeting this quarter. Post-meeting, we’ll be in a position to clarify our timing expectations for the resubmission and any nuances around the package. For now, it’s status quo, and we believe everything is addressable.

Just a quick follow-up on your plans in ADHD for Sunosi. Do you expect that a single Phase III pivotal study could suffice for filing a supplemental NDA?

We anticipate that two studies will be needed. The first will be in adults, and assuming that is positive, we will then conduct a pediatric study.

Our next question comes from Vikram Purohit with Morgan Stanley. At this time, there is no response. We will move on to the next question. Our next question comes from Myles Minter with William Blair.

First one on AXS-05. When you announced the agreement on post-marketing commitments, you guided that you expected a decision in the second quarter. Now you mention a potential decision could come this month. Has there been an 'aha' moment that gets you back on a regulatory timeline, or is it simply that you're pleased with the overall discussions?

It’s Mark. We did comment that we're pleased with the overall status, and we're providing this estimate based on our read of the information available to us. Just to clarify, the FDA has not told us they plan to take action on a specific date.

So, there wasn't a specific event prompting this? It’s more about the totality of how the discussions are going?

Yes. There's a choreography, and this is our holistic read on our position.

Regarding the ADVANCE-1 additional analysis requested by the FDA, they had granted you breakthrough therapy designation back in 2020. What additional information did they request from that trial post-designation?

No product has been approved for Alzheimer's disease agitation, and there’s limited data on many scales used in the assessment. The ADVANCE-1 trial provides unique data, and that’s what the FDA is interested in. We've found these analyses to be useful, and you're correct that the breakthrough therapy designation allows for enhanced communication with the FDA, which is beneficial in our pioneering work.

Is ADVANCE-2 going to include the CMAI as the endpoint, the Cohen Mansfield Agitation Inventory?

Yes, it will.

This concludes today's conference and you may disconnect. Thank you for your participation and have a wonderful day.

Thank you again for joining us on the call today. This is an exciting time for Axsome as we have transitioned to a commercial stage and are looking forward to continuing this momentum with our two NDA stage product candidates and five Phase III stage clinical programs. We are committed to bringing potentially life-changing medicines to people living with serious CNS conditions. We look forward to updating you over the coming months on our continued pipeline and commercial progress. Have a great day.