Axsome Therapeutics, Inc. (AXSM) September 2026 Conference Transcript

Good afternoon, everyone. I'm Sean Larman, head of US Mid-Cap Biotech Equity Research here at Morgan Stanley. Welcome to our global healthcare conference. For important disclosures before we commence, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com forward slash research disclosures. And if you have any questions, please reach out to your Morgan Stanley sales representative. For this session, we have Axone Therapeutics with CFO Nick Pizzi and COO Mark Jacobson. Welcome to the both of you.

Thanks, John. Great to be here.

If you can do me a favour, I've got three sort of macro high-level questions to start. First one is, how has the rise of China originated innovation, if at all, changing the competitive positioning and your R&D and BD playbook?

Sure. So for us, state of affairs is mostly status quo on the R&D side. We are seeing more products and earlier stage products that are being identified, discovered, and developed in China that are making their way over to the U.S., either in terms of potential business development efforts. So we are seeing that. And then maybe another element of R&D is just increased number of third-party vendors or non-clinical, pre-clinical laboratories and beyond that are becoming viable options for R&D efforts. So we're seeing, I would say, we're seeing those two elements the most. And maybe one other item is Sol Rehapital is, of course, available, and I'm not sure if that's what you're alluding to, outside the U.S. So there's, you know, that potential impact. But, again, for us, things are status quo. Sure. Thank you.

And, you know, are you implementing AI across the business? and, if so, where are you seeing it have the most effect?

Sure. We are, and it is across the business. And, you know, I think, as you know, and probably behind the question is there are all kinds of ways to implement and deploy AI, and we do that already and on the commercial side of the business. So for data and analytics, how we're modeling, how we're applying those models to sales operations and tactics. And then there's actually tools that we have implemented for the sales team members, so determining next best action or call plans. There are AI engines that we've incorporated into that process. So what does that mean? and that's there as a tool to drive efficiency and productivity for sales representatives. It's also being deployed in other elements of the business, and we haven't talked a lot about it, but there are all kinds of ways where you can use this powerful computing tool to monitor CMC activities or drafting large documents and templating those and having them driving speed to, say, early drafts or QC-ing large bodies of data that you could expedite that process. So it's showing up in all kinds of ways. There are individual efforts for individuals driving this. There are teams of folks thinking about how to drive innovation at the organization. So it's percolating through the organization, but not anything that we've necessarily disclosed AI innovation plans around. It's all just part of the company's normal state of affairs in doing business now.

I'd say probably the one thing you won't necessarily substitute is that face-to-face interaction with the HCP. There is, you know, that's something that the doctors truly value is understanding the product directly from an Axlom or an Axlom representative. And we can just see how AI potentially can support the reps to be even much more efficient and effective.

Sure, thank you. Last question before you, Dean, Axlom specifically. But which policy variable, FDA, Medicare negotiations, MFN, tariffs, or global pricing matters most to your economics? And what have you changed in anything, if anything, because of it?

Yeah, sure. Maybe I can answer that question. Probably the biggest factor there would be the IRA negotiations that if and when they do come about would impact us starting in 2032. And, you know, the team's already preparing for that. and doing the HERR analysis and publications and so forth to prepare in the event that we do have the negotiations. Additionally, we've already priced into our peak sales model of $8 billion, we would say a relatively conservative estimate compared to what some of the outcomes that we've seen thus far.

Maybe just to add to that, but you add in that list just FDA dynamics. And for us, I'm trying to find another phrase besides status quo, but it's generally status quo for us that, look, we have the three approved products of Velody. It was recently approved for Alzheimer's disease agitation, excuse me, And so that's launching, and I'm sure we'll talk about that. The other programs that are in development we've received FDA feedback on, commensurate with those stages of development for any given program. So we feel very good about our dialogue with FDA and what we need to do to submit additional marketing applications. We have another one under review right now, by the way. That's AXS-12 for narcolepsy, cataplexy and narcolepsy. We have a PDUFA data there of May 1st. So, again, status quo on the FDA side, even though we know there are earlier this year and prior, there were a lot of changes, and then there are new guidances that are coming out. But, again, we feel good for that part of the business.

Got a series of questions here now on Avelady and the ADA launch. But, you know, really strong growth in Q2, high teens, 18%, I think it was. But a lot of debate in the market, sort of how much contribution from ADA versus beneficial penetration in MDD from the expanded sales force. How do you balance those two?

Yeah, so for Q2, it feels like it's a distance. It's been a while now since Q2, but the vast majority of the scripts in Q2 were related to MDD specifically around the expansion. And I think what we're seeing in Q3 is that a significant piece of the NBRXs, we're starting to see the impact of the additional indication in our NBRXs. And most recently this past Friday, we hit a new all-time high of 3,800 NBRXs per week. So that number is continuing to grow quarter over quarter. We were at 2,400 in Q1 on average on a weekly basis, 3,000 in Q2. and now tracking the last three weeks have been three consecutive weeks of the highest MBRX that we've had for Axlom or for Avelity. So pleased with that growth and we are seeing that specifically the percent within the 65 plus Medicare sector cohort the four weeks prior to the approval they accounted for roughly 19% of our NBRXs. Now we're closer to 31% of our NBRXs. So said another way, what appears to be is the agitation indication is the fastest-growing segment within the NBRXs.

Sure. What a debate in the market, you know, that even though you reported those strong numbers and it continues to go on, just looking at reported scripts, People are using those as a basis to say, you know, growth isn't necessarily what we expected it to be. So there seems to be some difference between what you're reporting and what you're observing versus the script numbers. And maybe just perhaps remind investors why it could be an erroneous thing to just rely on script data for all of these performance.

I think maybe it's how you think about bridging near-term and immediate impact changes to scripts and the overall opportunity for both MDD and AD agitation. So those opportunities are very large. We can talk about them. And, you know, of course, we've guided to our peak sales estimates within each category, and we think they are significant simply due to our, you know, very modest penetration estimates. And, you know, we can talk about how we get there or why we think they're modest and conservative. But there may have been some folks who, to your point or, you know, what you're sharing is there are some folks who are expecting an immediate kind of vacuum-filling effect, which was not our expectation nor our guidance. Instead, what we shared is that we expect growth to start to show up both from the field force expansion and the new label indication for Alzheimer's disease agitation in one to two quarters as the start of growth. And so that's why Nick was talking about NBRX, so the pure new-to-brand scripts. So that's really where we're starting to see continued growth in prescribing in major depressive disorder. and now starting to see or initial prescribing in Alzheimer's disease agitation. So the growth is there, as Nick was touching on, you know, the last few weeks. It's, you know, the growth is ticking up and ticking up and ticking up, and we expect to see that continue and then start to really impact total scripts. So that's all moving along and in line with expectations. We can talk about other metrics in terms of new prescribers and a number of new unique prescribers. That's increasing substantially, and we expect to see that translate also into total scripts over time. And so it's moving along, and we're watching the impact, and we expect it to continue to grow. But we're pleased. What we'll share qualitatively that we're very pleased with is the feedback we've received from prescribers who have tried the product in Alzheimer's disease agitation, that it's working well, the tolerability profile looks good. So that's really good to see because then, of course, that gives us a sense of the product is performing in a real-world setting, similarly to what we saw in a clinical setting, and then that ties to how we're thinking about total opportunity or total utilization through PEAK.

Yeah, and maybe just 20 seconds on the TRXs. So we've been talking about NBRXs and really seeing that nice lift and where are the T's. But actually, even with the most recent data that we had on Friday, this last three-week period was one of the strongest three-week periods, consecutive three-week periods that we've had the entire year. And that's at the, you know, taking into consideration probably the most seasonally worst or negative part of the year being mid to end of August and early September, Remember, very typically, you have a downtick in TRXs or a flattening in TRXs. We've actually seen tremendous growth, and like I said, it was one of our top three-week periods of the full year. Sure, sure.

And beyond, I guess, sort of top line or reporting top line quarter to quarter, just to give investors a bit more on how the launch in ADA is going going forward, do you plan to either split out scripts, give that percentage of scripts going to 65 and older? Or do you plan to deliver anything beyond the top line to give some investors confidence the ADA launch is indeed going observably well?

Yeah, we're going to try to be more helpful. I know the street is eager and thirsty for additional metrics, and this is going to be our first full quarter to be able to announce how the launch is going. So we're mindful of that, and I think we're looking into our team to be able to provide more metrics. Fantastic.

You know, just going back to the sample equation, so samples are roughly three-week community trial packs that don't appear in the syndicated data. So converted scripts first fill around week four. How much of the July script picture is June sampling? And then when does syndicated data become a reliable read?

So we haven't shared conversion rates or timelines. So, you know, the three-week sample titration pack for Alzheimer's disease agitation, of course, that's according to the labeled instructions, and clinicians are, you know, the team is giving out samples, and it's a robust sampling program. So the sales reps are able to sample, there's an allocation, and then prescribers are able to request or receive a certain number of samples on a weekly or monthly basis, and that's all moving along in line with expectations. The conversion rate we're monitoring, and that changes pretty dramatically in early days. And so I think you touched on how it's labeled for utilization, What we can see is there are different types of prescribing or feedback anecdotes that if someone's being switched, they may go slower, or perhaps they're also given a maintenance dose sample. So all of that, it's not to say there's anything out of the ordinary or unusual happening, and it's very much in line with expectations, but that makes for a fluctuating conversion rate. We haven't shared that. We've never commented on sampling from launch, specific numbers, and most sponsors don't because, of course, that ties to sales operations strategy and tactics, and there's a lot of competitive intelligence around that. but right now what we're seeing looks good and the distillation of all that is we are starting to see conversion of sampling to scripts and of course we can see that in the new to brand script numbers Nick talked about we can see that in new prescribers and then that flows into total scripts so we'll continue to sample we continue to sample in MDD and we'll monitor that but that's probably not an area where we'll have a lot of commentary. And your final question is, when does it kind of get into steady state or how much time? I think that's probably when we report again for the first full quarter of launch in the indication when we report Q3. And, you know, maybe beyond, I think that'll be helpful. We know there's a lot of interest in sampling right now, and that's probably just a window into what's the best way to model what's coming and how quickly and how big it might convert or inflect for a script. So we know there's a lot of interest there. Again, it's moving according to expectations. We're happy with that, and I think Q3 will help folks, and then we'll see additional, Nick alluded to what commentary we can provide in addition to what we have, and we'll look to be helpful.

Sure, sure. You mentioned that you're perhaps conservative on the availability outlook, and you've got an $8 billion long-term run rate or guide out there. Maybe just talk a little bit about, if you can, sort of what penetration price assumptions sort of go into that metric, and why you think it might be conservative and what you're observing today that underpins that view.

So specifically for EDA, or are you speaking for availability? Overall, $8 billion. Yeah, so maybe I'll start with MDD, and I've shared this previously, and the numbers continue to grow, but we're just at 26 bps of the total antidepressant market, and this was as of the end of Q2. We were tracking towards, you know, roughly three-quarters of a billion dollars. So if you get to 1% of the total market, you're already north of $3 billion, and that's a market. The branded market is also continuing to grow. So that kind of gives you a sense of how we're thinking about it and how we get to the peak sales. It doesn't require a huge piece of the market to be able to get to that $4 billion. And then ADA alone, we mentioned there's north of 20 million scripts. Again, that number continues to grow. I think the prevalence of Alzheimer's is expected to double by 2050. So that 20 million scripts as well is with just that one, previous to us getting out there, one other branded agent that wasn't atypical. So roughly 99% of the market was generic and being written off-label. So we feel that being able to achieve a decent-sized market share of the ADA market is very attainable.

And just to touch on persistence and other assumptions that go into that modeling, for MDD, we now have about four years of data for persistence, and so that goes into the MDD model. And for AD agitation, we tend to actually dial that persistence number back based on how products are, availability aside, persistence rates for products in Alzheimer's disease agitation, which are lower. So we use those lower numbers. However, clinically, what we saw is very, very durable to a year and beyond responses and reductions in agitation symptoms, and very tolerable, incredibly low discontinuation rates. So if what we see in the real world matches clinical settings, then that's an area for potentially significant upside in the model. But, you know, as always, we like to go with kind of the low-tide or low-water mark estimates, and that's what we started with. How are we going to add?

Yeah, I'm just going to add, you know, all this, you know, the numbers that I shared earlier with a 0.25%, 0.26% market share, that doesn't even take into consideration the expansion that we've done, right? That's pretty much where we were prior to the expansion or the implementation of the expansion. So as a reminder to everyone, we've doubled, more than doubled the size of the team. We have LTC team out there now, too, that's just getting started. And we also have the advantage of the market axis that we've built, the payer axis, where we have 89% of total covered lives covered, Medicare 100% total covered lives, and also first line or first switch in the majority of them. And one of the things that our team has done in expanding is not only are we able to have better depth within the high-decile doctors, but breadth specifically around primary care, because that's really where the focus is. That was one of the main reasons why we decided to expand the team and more than double the team, is to drive adoption in primary care where you see both MDD as well as ADA.

Sure. Thank you. Moving on to the pipeline for a minute, so Solrium Fatal, multiple indications, phase three engaged study due to readout. How would you rank the commercial opportunity in those indications?

From an opportunity perspective for Solrium Fatal, I think size, you probably start with ADHD. It's a large market. There's a high demand and need for new treatment options. And, you know, right now we have two trials underway. They're in, you know, it's in children and adolescents. And we need both of those studies to read out in order to, you know, if they are positive, that would enable us to file an NDA or SNDA. We have the adult study completed. That was positive and very substantial treatment effect. and a tolerability profile that's in line with the established safety and tolerability profile for their approved indication. So that would be next, or I'd say first, and then I think it could depend on the data, but you think about major depressive disorder with symptoms of excessive sleepiness. We have one proof-of-concept study in depression that's been completed. We're conducting another, so we'll see what it shows, and that could be substantial as well for depression, and obviously we're very comfortable with commercial operations and infrastructure in depression. ADHD, I didn't touch on that, but that's also very similar from a commercial operations and strategy and tactics perspective. Then you have binge eating disorder and shift work disorder. Binge eating disorder is exciting. We have a readout coming up in the fourth quarter, and that's an area of unmet need. It's the largest eating disorder, and there's only one product approved for it. So there is a need there. We'd expect to need two studies. an additional study if the ENGAGE trial reads out positively and their shift work which is probably from an opportunity perspective the smallest but not insignificant what's nice about that program though is we expect to only need one trial if it's positive to file an SNDA or NDA due to the relatedness of that condition to the currently approved indications Sure.

Thanks, Nick. Still on the pipeline, ASX-12, Purdue for date, May next year. What's the commercial opportunity alongside OxyBates and the emerging Erexan agonists?

So what we've shared is we think the opportunity there is half a billion to a billion dollars, and we like that from a product profile perspective. You mentioned other agents. So those are agents that are approved, have been approved for some time, or are new entrants or others in development. And we are really excited about AXS-12 because it's differentiated kind of regardless of your point of reference. There's differentiation. So you have daytime dosing. You have a very distinct adverse reaction or safety and tolerability profile, which is compelling. The efficacy profile, we focused on cataplexy as the primary endpoint in the clinical program. We also showed benefit in sleep, in excessive daytime sleepiness, and cognition. So, you know, we don't have a final label, so it's a little bit early to say exactly how we'll differentiate or, you know, patient profile, you know, the most obvious patient profile. However, if you just look at the totality of data we have in hand, it would be a total, you know, and, of course, where does that come from? It comes from mechanistic differentiation. So differentiated mechanistically, and so then that would be a distinct treatment option. And, you know, it is orphan. It is an orphan indication, but it's not ultra-orphan. And so there's, you know, there's plenty of room for a meaningful, you know, distinct treatment option, which we're excited about.

And a reminder that PDUFA date, again, is May 1st of 2027. And we have the sleep expertise team already embedded into the company between the marketing, market access, and the sales team. So this is essentially a plug-and-play where we can just add this to the bag if we choose to of the sleep team, and it should be accretive very quickly.

Last quarter we saw quite a decent bump in SG&A, but looking forward, how would you characterize that?

Yeah, SG&A and R&D, we feel like we're at, will essentially plateau in the back half of the year as compared to the Q2 numbers. SG&A in Q2 included pretty much the entire expansion, so it included pretty much the entire expansion and part of the LTC team, but there were some additional expenses that we had in Q2 that we wouldn't expect to see for the rest of the year. So we feel like that, you know, where we landed, 208 is a reasonable number as we go into the back half of the year. And then R&D, we would anticipate that number to continue to grow. We were at $46 million in Q2. We have five ongoing Phase III trials, if I'm counting correctly, currently, and we would anticipate that number to grow marginally. But importantly, the top-line revenue should grow significantly faster than what we're seeing on the OPEX, which will show operating leverage in the P&O.

Sure. Thank you. And I think you've got cash, about $320 million, burning $25 a quarter. You say you've got enough to get you through to cash flow positivity. Which quarter is that?

I think it's a fair question or an unfair question. We haven't given any sort of guidance on specifically which quarter we get to, but I think if you take a look at the back half of last year, if you back out non-cash costs and one-time charges, for the last six months of the year, we were a total of around $10 million of a net loss on a cash basis. And I think this year we're even in a better situation I think with the indication approval, with the expansion and costs already embedded in the Q2 numbers. I think you'll see operating leverage and I think we're on a very clear path to cash flow positivity and surely thereafter profitability. So very, very exciting time to be able to talk about that.

Okay, fantastic. Thanks, Mark. The Teva settlement pushes Ovality Generics back. So with that runway secured, does the strategy tilt towards margin or toward further pipeline investment?

So with respect to Ovality and the overall pipeline, the answer to that is yes. So we have a lot going on right now, And, you know, much of it is not as lopsided to the late stage as it was, but obviously there's a ton that's late stage, either in NDA review, nearing NDA review, or has just started phase three development. And then we have earlier stage programs now with AXS-17 and epilepsy, AXS-20 and schizophrenia, and potentially Tourette syndrome. So for Avality and, frankly, the two other on-market brands, We'll think about additional investment there for new potential, you know, label expansion efforts, and that work is underway. You know, we had touched on that for Avelity that, you know, we've just started the trial in smoking cessation, the summit trial, phase three trial, that was just started. But we're exploring other potential indications there, and we'll continue to do that for the rest of the pipeline, as long as it makes sense from an investment and mechanistic perspective, we'll do that, and I think that really ties to Nick's immediately prior commentary about just how we're managing the business and how we're investing, but it's a great time for commercial execution and also the pipeline. We're just on time, but is there anything I didn't ask that I should have? I don't know. I think that was good. I think we covered commercial execution and growth, and then what we're doing behind that to drive continued growth and we'll keep everyone posted. But that was a pretty well-rounded discussion.

Thank you. Thank you, Sean.

I appreciate it.