Axsome Therapeutics, Inc. Q3 FY2024 Earnings Call

Good morning, and welcome to the Axsome Therapeutics Third Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, there will be a question and answer session and instructions will be given at that time. Please note that today’s call is being recorded. I will now turn the call over to Darren Opland, Director of Corporate Communications. Please go ahead, sir.

Thank you. Good morning, everyone and thank you for joining our third quarter 2024 financial results conference call. I am joined today by Dr. Herriot Tabuteau, Chief Executive Officer; Nick Pizzie, Chief Financial Officer; Mark Jacobson, Chief Operating Officer, and Ari Maizel, Chief Commercial Officer. Earlier this morning, we posted a new corporate presentation complementing today’s call to the Investors Section of our website. Those joining by webcast may also again see the slides at any time during the discussion. As a reminder, we will be making certain forward-looking 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, our commercial plans regarding Sunosi, Auvelity, and our pipeline products, revenue projections, and other financial forecasts if any, and the possible intended use of cash and investments. These forward-looking statements are based on current information, assumptions, and expectations of future events and are subject to certain risks and uncertainties that may cause the company’s actual performance and results to differ materially from those projected. Please refer to today’s press release, presentation, and our SEC filings for additional details on these and important risk factors. You are cautioned not to rely on these forward-looking statements, which are only made as of today's date and the company disclaims any obligation to update or revise these statements. With that, I’ll hand it over to Herriot.

Thank you, Darren, and good morning everyone. Thank you for joining us on today’s financial results and business update conference call. At Axsome, we are focused on developing and delivering novel, innovative medicines that can transform the lives of patients living with serious central nervous system conditions. We are pleased to report on the progress we’ve made in advancing this important mission in the core, particularly our long-term vision, and review potentially value-driving year and intermediate term milestones. The third quarter was another strong quarter; it represented another novel milestone as we delivered quarterly product revenue in excess of $100 million for the first time. This quarterly performance translates to an annual revenue run rate of approximately $420 million, just three quarters into our second full year as a commercial therapy. While this progress is tremendous, even more significant patient growth lies ahead, based on our current portfolio of innovative marketed and late-stage pipeline candidates. In addition to Auvelity and Sunosi, our two FDA approved treatments for major depressive disorder and excessive daytime sleepiness and narcolepsy, respectively, our pipeline features five innovative late-stage product candidates currently in development, and nine indications across psychiatry and neurology. Our late-stage pipeline positions us to continue to deliver important new medicines in therapeutic areas that impact more than 150 million patients in the US. If successfully developed, this portfolio has the potential to provide over $16 billion in peak sales. The diversity and depth of our pipeline also reflects Axsome’s differentiated approach to scientific innovation, which we believe aligns with our patient-centric mission and expands the therapeutic possibilities for CNS conditions. Now, before turning it over to Nick and Ari who will provide detailed information on the strong performance in the quarter for Auvelity and Sunosi, I will provide an update on the pipeline and upcoming milestones. A key development in the quarter was the resubmission of our new drug application for AXS-07, our novel, multi-mechanistic product candidate for the acute treatment of migraine. The resubmission was acknowledged by the FDA and designated as a Class 2 resubmission with a PDUFA action goal date for January 31st, 2025. Launch preparations are underway to ensure timely commercialization if approved. Our ongoing EMERGE Phase 3 trial, evaluating the AXS-07 in patients with a higher inadequate response to oral CGRP antagonists is on track to read out in the fourth quarter of this year. Results from this trial will help inform the potential utility of AXS-07 in different patient subgroups. With respect to AXS-02 for the management of fibromyalgia, we are completing preparations for the NDA submission and expect to submit the NDA to the FDA this month. I'd now like to comment on our other late-stage pipeline products, starting with AXS-05. Our comprehensive development program for AXS-05 in Alzheimer’s disease agitation consists of four pivotal Phase 3 placebo-controlled efficacy trials. The completed positive ADVANCE-1 and ACCORD-1 trials and the ongoing ADVANCE-2 and ACCORD-2 trials. ADVANCE-2 is a parallel group trial while ACCORD-2 uses the randomized control design. Given that target enrollment in both trials has been reached, we are on track to report topline results from both ADVANCE-2 and ACCORD-2 simultaneously this quarter. We look forward to these readouts as we believe that a favorable outcome from one or both of these ongoing pivotal studies, in addition to the positive results from the two completed trials, would provide strong support for an NDA filing for AXS-05 for Alzheimer’s disease agitation. Moving on to AXS-12, we are currently conducting a two-period Phase 3 trial evaluating the long-term efficacy and safety of AXS-12 in narcolepsy called the ENCORE trial for evaluating continued treatment with our opportunistic studies. Enrollment in the trial is complete, and we are on track to report top-line results this quarter. Following completion of the trial, we plan to request a meeting with the FDA to discuss our planned submissions. Continuing on our development pipeline, we continue to advance our four ongoing Phase 3 trials of solriamfetol in ADHD, major depressive disorder, binge eating disorder, and shift work disorder, which represent significant expansion opportunities for solriamfetol. Enrollment in the FOCUS study, our Phase 3 double-blind placebo-controlled trial evaluating the efficacy and safety of solriamfetol in ADHD in adults, is expected to complete in December. As a result, we now expect to see top-line results in the first quarter of 2025. Additionally, the PARADIGM Phase 3 trial in major depressive disorder with recognition of sleep has enrollment also expected to complete this quarter. PARADIGM will examine the effect of solriamfetol in MDD patients with and without excessive daytime sleepiness. We now anticipate top-line results in the trial in the first quarter of 2025. Lastly, the ENGAGE Phase 3 trial in binge eating disorder and a SUSTAIN Phase 3 trial in shift-work disorder continue to enroll with top-line results anticipated in 2025 and 2026, respectively. As we highlighted in previous calls, solriamfetol’s unique pharmacology and strong safety profile, supported by preclinical and clinical evidence, position it as a potential treatment option for a broader range of CNS conditions impacting over 80 million people in the US. With the potential new indications for solriamfetol under study, we have the opportunity to deliver multiple, value-creating catalysts to drive long-term growth for solriamfetol alone. In closing, Axsome's path ahead includes a robust series of clinical, regulatory, and commercial milestones with a strategic focus, operational excellence, and a strong balance sheet. We are confident in our ability to deliver significant near- and long-term value for patients and shareholders. With that, I’ll hand it over to Nick.

Thank you, Herriot. Today, I will share our third quarter financial results and provide some financial guidance. We delivered yet another robust quarter and recorded total net product revenue of $104.8 million, compared to $57.8 million for the same period in 2023, representing an 81% year-over-year increase. Auvelity’s strong sales momentum continued with net product sales increasing to $80.4 million in the third quarter, representing a 113% growth compared to the prior year period and 24% sequential growth versus Q2 2024. We are also pleased with the continued performance of Sunosi, which delivered net product revenue of $24.4 million in the quarter, a 21% increase compared to the same period in 2023. Gross to net was approximately 50% for Auvelity and in the low 50s for Sunosi. Our R&D expenses for Q3 were $45.4 million, compared to $28.8 million for the same period in 2023. The increase was primarily driven by our ongoing clinical programs for AXS-05 and solriamfetol, as well as increased chemistry, manufacturing, and controls costs associated with our pipeline products and higher personnel costs, including non-cash stock-based compensation associated with organizational growth. SG&A expenses for the third quarter were $95.6 million, compared to $83.2 million for the same period in 2023. The increase was mainly a result of continued investments for the commercialization of Auvelity and Sunosi, along with higher personnel costs, including non-cash stock-based compensation associated with organizational growth. Net loss for the third quarter was $64.6 million or $1.34 per share, compared to $62.2 million or $1.32 per share for the comparable period in 2023. The $64.6 million loss includes $40.9 million in non-cash charges which reflects a fair market value adjustment for contingent consideration this quarter of $16.4 million. Cash and cash equivalents totaled $327.3 million as of September 30th, 2024. As we approach the potential launches of AXS-07 in migraine and other late-stage assets in the coming years, we remain committed to our principal, efficient approach to capital allocation that has yielded substantial returns to date. Thus, we believe that our current cash balance is sufficient to fund anticipated operations into cash flow positivity based on the current operating plan. And with that, I'll turn the call over to Ari, Axsome’s Chief Commercial Officer, to provide details on our commercial performance.

Thank you, Nick. Axsome delivered robust commercial performance in the third quarter of 2024. In addition to strong sales performance for Auvelity and Sunosi, Q3 saw continued improvements in market access dynamics for both brands, including an increase in covered lives for Auvelity for the second consecutive quarter, reinforcing the strength and quality of our commercial execution. Auvelity once again outperformed the market and branded competitors with approximately 144,000 prescriptions in the third quarter, representing 108% growth year-over-year and 17% growth sequentially compared to the second quarter. By comparison, the antidepressant market grew 1% year-over-year and sequentially. Nearly 26,000 new patients were prescribed Auvelity this quarter, bringing the total number of new patients started on Auvelity since launch to nearly 140,000. Our sales team successfully activated more than 4,100 new prescribers in the third quarter and continues to penetrate both the psychiatry and primary care markets among MDs, NPs, and PAs who care for the majority of depression patients across the US. On the market access front, our previously announced expansion of covered lives for Auvelity resulted in meaningful increases in new patient starts and covered claims. Coverage continues to evolve and expand and Auvelity now has 63% of commercial lives covered and 78% of total lives from across their channels. Negotiations with payers and pharmacy benefit managers are advancing across the access landscape. To build on the success of the Auvelity launch, we are planning a second expansion of our Auvelity psychiatry sales force to approximately 300 sales representatives, which is expected to complete in the first quarter of 2025. The increase in share of voice combined with strengthened market access, outstanding product attributes, and positive provider and patient experiences with Auvelity will position the brand for further growth as we enter another pivotal year for Axsome. Turning to Sunosi, total prescriptions were approximately 47,000 in the quarter, representing 15% year-over-year growth and 5% sequential growth. By comparison, the weight-promoting agent market grew 3% year-over-year and 4% sequentially. Sunosi had strong performance with new patient prescriptions once again in Q3, with more than 4,100 new patients initiating Sunosi treatment during the quarter as the Sunosi team continues to drive depth with existing prescribers while also activating approximately 400 new prescribers in the quarter. Turning now to AXS-07. As Herriot mentioned in his opening remarks, we are eagerly anticipating the January 31st PDUFA date for this innovative treatment. Migraine is the leading cause of disability among neurological disorders and affects approximately 39 million Americans, 70% of whom report not being fully satisfied with their current treatment due to sub-optimal efficacy. If approved, AXS-07's distinct multi-mechanistic pharmacology has the potential to address this unmet need. Launch preparations are well underway, including the buildout of the AXS-07 sales team. We anticipate a commercial launch in the first half of 2025. In closing, we have made significant progress in 2024, our second full year as a commercial company, and have firmly established Axsome as a trusted partner for providers, patients, and payers, providing a solid foundation for continued commercial performance for Auvelity, and Sunosi, as well as future product launches. I will now turn the call back to Darren for Q&A.

Thanks, Ari. I'll now turn it over to the operator to begin Q&A.

Thank you. Our first question comes from Vikram Purohit with Morgan Stanley. Please go ahead with your question.

Hi, everyone. This is Morgan on for Vikram. Thank you for taking our questions. So, on the Auvelity sales force expansion, how long would you expect this full expansion to take? And how much of a sales lift would you expect from the expansion? And then I have a follow-up after that. Thank you.

Hey, Morgan. This is Ari. Thanks for the question. As we mentioned, we expect the expansion to be completed in the first quarter of next year. In terms of lift, I would suggest that in our last expansion, the guidance we gave was that the ramp would build over the course of the year. I think you saw as we completed our expansion in January of this year, we started to see the impacts straight away and it's been part of the reason why the brand has performed so well over the course of this year. So we would expect a similar impact for the second expansion.

Okay. That's helpful. Thank you. And then, would you say how much of this move would be driven by the desire to expand in MDD versus preparation for a potential ADA launch as well?

And this is really about MDD and the rationale for it; recent market access wins would expand the potential for Auvelity, and of course our second-line treatment. We've also seen promising growth in the primary care market. We expect further improvements in market access moving forward and continued growth in primary care. So this makes sense to capitalize on those dynamics. But to your point, we do see potential synergy after the future if ADA is approved and so we’ll share more updates on that at the appropriate time.

Thank you.

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

Hey guys. Thanks for taking my questions. First is on Auvelity. Curious your thoughts on new atypical antipsychotics that are likely to be approved next year. As adjunctive, I get that these are technically considered different segments of the market. But, is it fair to think that the target patient that might be an option for a new monotherapy with a different mechanism versus considering going on to adjunctive there is sort of a competitive tension there. So, I'm just wondering if these new – I knew atypical CAPLYTA with a better tolerability profile might be somewhat of a competitor to Auvelity? That’s my first question. And then just as a follow-up, on the ADA marketplace, I know in the past you guys have said you feel like you have a differentiated profile. So whatever we're seeing with Rexulti may not be applicable to an eventual Auvelity launch. But I guess the one thing we've heard is the big issue has been high out of pocket cost for patients because it’s a high Medicare SKU. Sponsors aren’t really able to defray those costs through co-pay assistance program. So, how do you overcome that hurdle which seems more intrinsic to the ADA marketplace? That’s my follow-up. Thanks.

Great. Yeah, no, thanks, Jason for the questions. Starting with the atypical question, yeah, obviously adjunctive MDD is slightly different than monotherapy MDD. And although there is use of atypicals in addition to monotherapies, we do see these as distinct marketplaces. As we've stated previously, we firmly believe that Auvelity is the first or second-line treatment; typically, atypicals will come into play in later life; third to fourth lines when the patient has had inadequate response to a monotherapy treatment. Your comment about CAPLYTA’s tolerability profile I believe is related to other atypicals, because safety tolerability profile would say is, is very strong in this marketplace. So while we expect there to be some level of noise, ultimately, we believe our key competitive set is with monotherapy SSRIs and SNRIs and that's how we're commercializing the products. As it relates to ADA, we have been following the Rexulti launch very carefully. And I think for any branded agent on the marketplace, out-of-pocket expense is always a top concern for providers and patients. Part of our strategy is to continue to develop strong working relationships with payers and pharmacy benefit managers across the landscape, as we develop those relationships and expand coverage for Auvelity and Sunosi, we expect there to be a benefit for the ADA launch which should set us up to help mitigate out-of-pocket expenses for patients over time.

Thanks. So you guys wouldn’t expect to have sorted all out-of-pocket kind of co-pay costs borne on these patients?

Jason, it really depends on the coverage and the rebate agreements that we have with the plan. So it's a little premature to comment exactly on the out-of-pocket expense, but our goal is to ensure that there's access for every patient and that out-of-pocket expenses are managed appropriately.

Got it. Thank you guys.

The next question comes from Leonid Timashev with RBC Capital Markets. Please proceed with your question.

Hi guys. It's Leo. Thanks for taking my questions. Congratulations on the quarter. Just a simple one from me I guess. On ADA, did you reach target enrollment in both ADVANCE 2 and ACCORD 2? Can you talk about both how the patients you’ve enrolled in ADVANCE 2 compared to ENHANCE 1 and what your expectations would have been? And then also the event rates for ACCORD 2 compared to your expectations? Thanks.

Thank you for the question. So, as mentioned, we have reached target enrollment and as it relates to the patient population, they're very similar. So, you are increasing the next crucial criteria for the ADVANCE 1 and ADVANCE 2 study are very similar. And I would say the same thing with regards to the ACCORD 1 and ACCORD 2. The goal was to make ADVANCE 2 as well as ACCORD 2 replicative studies. As it relates to the event rates, we are seeing event rates are what we're expecting them to be and that is why we're confident that we will be able to have readout this quarter for both the ACCORD 2 study as well as the ADVANCE 2 study simultaneously.

Our next question comes from Charles Duncan with Cantor Fitzgerald. Please proceed with your question.

Hey, morning Herriot and team. Congrats on a nice quarter and appreciate all the color on the pipeline. Lots going on. I had a couple of questions. One is kind of commercial on AXS-05 and then a follow-up in terms of the pipeline and its upcoming readouts. With regard to Auvelity, are you getting more traction with psychiatrists or PCPs? And is the rapidity of response a driver to that? And do you think that that profile could read on potential differentiation relative to say, Rexulti if the drug shows effects and is approved for ADA? Thanks.

Hey Charles. This is Ari. Thanks so much for the question. To answer your question, we're doing quite well in both the psychiatry and primary care markets. That said, in Q3, primary care clinicians were the fastest growing segment, which is a really great signal. It’s something we talked about historically that we've expected that segment of the market to continue to grow. So we're really pleased with the progress that we're making in the primary care segment. Your comment about rapid acting is spot on. It is one of the top drivers of utilization in the depression market. And yes, based on our early conversations with KOLs in the Alzheimer’s agitation market, that rapidity of response is a very compelling attribute that we think will be a core part of our brand story if launched.

Helpful. Thanks, Ari. Relative to the upcoming AXS-05 readout, it looks like ADVANCE 2 is a slightly smaller sample size than ADVANCE 1. So does that make you at all concerned about what you might observe there in terms of effect size? And then, can you provide us any color on the ongoing open-label extension study in terms of enrollment, our rollover into that, and then persistence?

Great. So with regards to the sample size for ADVANCE 2, Charles, the sample size that you see in our slide presentation are our target enrollment numbers. The numbers always differ slightly; once you actually complete enrollment, you usually it’s plus or minus. So I wouldn't read too much into that except to use that number as a guide to how the study is powered. In terms of the open label extension, we've seen a very high percentage of patients rolling over from the control study into the open label extension sites, or new clinical extension study, and usually that's a positive sign in terms of how patients and caregivers perceive a product. So, we're very happy to see that. Another benefit of a high enrollment rate is the open label safety extension study; that will help us to move towards our target exposure numbers which I alluded to from an ICA’s perspective to enable an NDA filing. On that front, we're very well positioned.

Our next question comes from Cerena Chen with Wells Fargo. Please proceed with your question.

Hi, thanks so much for taking my question and congrats on the strong quarter. I want to ask about solriamfetol in ADHD with the FOCUS study now pushed out to 1Q ‘25. I was just wondering if there was any kind of slowdown or competition in enrollment. And then, what is your thinking on running the pediatric study? Are you still planning to start that prior to or potentially after the adult data readout? Thank you.

Hey Cerena, good morning. This is Mark. So with respect to timing, that’s simply the final screening funnel inside of what we're seeing. The study is already over 95% enrolled. This is just our final estimate of how long the final patient enrollment study takes. So stay tuned and that's all I'm going to be getting along. In terms of the pediatric study, those plans are in the works, and we’re going to watch that as basically as soon as we're able to. So also stay tuned for that. But it's not predicated on the FOCUS study per se.

Our next question comes from David Amsellem with Piper Sandler. Please proceed with your question.

Hey thanks. So, I wanted to ask about the cost structure, broadly speaking. And I know, I'm not asking for any sort of guidance question about 2025. But I did want to drill down on how are you thinking about R&D spend not just for next year but as you think beyond that, particularly with a lot of programs, a lot of studies wrapping up next year. How should we think about that? And then, secondly, regarding promotional spend and I know you have the expansion of the sales force in support of Auvelity. But how are you thinking about say migraine and then Alzheimer's and the extent to which you're going to be adding headcount to support these additional opportunities? Help us understand how SG&A is going to expand next year and beyond? Thank you.

Maybe I'll just give some opening comments and then, let the other members of the team provide more details. But just overall, the way that we thought about spending, whether it's for R&D or for commercialization is to approach it in a very rational way. So, there is an intense focus in the company, culturally on return on invested capital. Everything that we do will be very well thought out and will be done in a rational way. Now, that may differ from what you might have seen with other companies. However, I think that’s the right way to run the business.

Sure. Yeah. And maybe just – hey Dave, this is Nick. And just to add on to Herriot, I think he made the key points, but we are, as of right now at the end of Q3, in the strongest capital position that I’d say we've ever been since inception. As a reminder, with our current cash on hand, we have the ability to get to cash flow positivity and execute on all of our priorities that are in our operating plans, including further investing in Auvelity, Sunosi, the launch of AXS-07 and just furthering our pipeline. And then, just maybe specifically on this quarter, in Q4 and how we should think OpEx in Q4. We saw Q3 we had a decrease in R&D and SG&A in the previous quarter. We would expect a slight increase in Q4 as relates to R&D spend, mainly due to the PDUFA for AXS-014 upcoming shortly, and then SG&A. Again, potentially slightly increasing just as we prepare for the migraine launch.

Okay. Thanks for that.

Our next question comes from Marc Goodman with Leerink. Please proceed with your question.

Yes. Good morning. First of all on Auvelity, can you just give us a sense of how the product is being used and how that's evolving? Second question is, that expansion in the sales force, is that just for Auvelity? And how are the reps going to be used for the migraine launch? I know the question has been asked a few times, but just I'll ask it again, like, are we going to have another expansion for the migraine when it's approved? Or are we going to leverage these reps that you're about to add? And then just lastly on Reboxetine, can you just give us an update on what you need to file this product? You're running another study. You have the positive study. So, do you need this study? Is it positive to file or are we looking for more patients for long-term safety? Just curious about what the gating issue there is. Thanks.

Hey Mark, it's Ari. I'll start with the Auvelity utilization. So we again saw an incremental increase in first and second line use. It remains around 50% of first or second line use in Q3. So pleased with sort of the incremental growth and we expect that to continue to build particularly as we bring more market access online for the product. In addition, when you think about monotherapy or adjunctive use, again we saw an increase in monotherapy use, but it remains around 50% monotherapy adjunctive. So, overall, the trends are in line with our expectations, and we expect that to continue to improve over time.

As it relates to the Reboxetine question, so Marc, I think what you are referring to is our ENCORE trial. This is a Phase 3 trial in patients with narcolepsy. So, we do not need this study to be positive in order to file an NDA. We already have our studies which will support the efficacy plans that we want to make with regards to Reboxetine AXS-12. However, the Phase 3 trial - the long-term, the Phase 3 long-term safety extension trial, does incorporate a three-week randomized withdrawal period. So, that's always been the design of the study from the very beginning. And it's just that there has not been much focus on it. So, every year, the readout for that study we didn't want to point out that this is in fact a controlled study and it should provide additional efficacy data, and if it's positive, that’s fantastic; it will make for a stronger package.

But you are filing anyway with or without a positive study?

Correct. The ENCORE study has two periods. One is the open label period. That is six months, say, open label with an extension file. So that is the original reason for running the study. So, we do need that part of the study in order to file. And then using our strategy that we used in the past, which is to make sure that that more efficient and everything that we do when we design a study we did include a double-blind Phase which is AXS-12 plus placebo.

Great. And if I could add just one last one, if you had any data of background on how Sanofi is doing outside of the US?

Sure, yeah, Sanofi continues to perform well outside the US; we do outline the royalty revenue that we receive from Pharmanovia, and you'll be able to see that that's been increasing over the last couple quarters as it’s been further prioritized at Pharmanovia in the European countries.

Our last question today comes from Matt Kaplan with Ladenburg Thalmann. Please proceed with your question.

Hey, good morning guys. Thanks for taking the question. Just with the ADA data readout in the near term, what are your current – what’s your current thinking in terms of the launch plans with respect to filing AXS-05 as Auvelity or as a new brand in the ADA market?

Thanks, Matt, for the question. So, the nice thing about the AXS-05 and Auvelity changes is we do have the ability to file it as an NDA under various forms, and there is an SNDA as its own freestanding NDA. There are benefits to each approach. We are still exploring the approach that we will take. Stay tuned for that. However, what we can tell you is that it would be a very well thought out decision.

We have reached the end of our Q&A session, and I would now like to turn the floor back over to Herriot Tabuteau for closing comments.

Well, thank you again for joining us in the conference call today. Axsome has built a singular innovative, late-stage neuroscience portfolio, spanning multiple indications in both psychiatry and neurology, which has the potential to deliver differentiated outcomes for millions of patients and compelling returns to shareholders. We are committed to keeping you posted on our progress.

This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.