Earnings Call Transcript - CMPS Q1 2021

Operator, Operator

Good day, ladies and gentlemen, and welcome to the COMPASS Pathways First Quarter 2021 Conference Call. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Stephen Schultz, Senior Vice President of Investor Relations. You may begin.

Stephen Schultz, Senior Vice President of Investor Relations

Thank you, operator, and welcome all of you, and thank you for joining us today for our first quarter 2021 results call. Again, my name is Steve Schultz, Senior Vice President of Investor Relations at COMPASS Pathways. And today, I'm joined by George Goldsmith, Chairman and Chief Executive Officer; and Piers Morgan, Chief Financial Officer. George will begin today's call with a business update on our recent progress. And Piers will follow with a review of our financial results. We will then open the call to questions. The call is being recorded and will be available on the COMPASS Pathways Investor Relations website shortly after the conclusion of the call. We hope you've had a chance to review our results press release issued earlier today. Before we begin, let me remind everyone that during the call today, the team will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. The forward-looking statements on this call are neither promises nor guarantees, and you should not place undue reliance on these forward-looking statements, because they involve known and unknown risks and uncertainties, many of which are beyond COMPASS's control. Actual events or results could differ materially from those expressed or implied by any forward-looking statements as a result of various risks, uncertainties and other factors, including those risks and uncertainties described under the heading Risk Factors in our annual report on Form 20-F filed with the U.S. Securities and Exchange Commission on March 9, and in subsequent filings made by COMPASS with the SEC. Additionally, these forward-looking statements represent our views only as of today and should not be relied on as representing our views as of any subsequent date. Except as required by law, we specifically disclaim any obligation to update or revise any forward-looking statement. I will now hand the call over to our Chairman and CEO, George Goldsmith.

George Goldsmith, Chairman and CEO

Thank you, Steve, and welcome, everyone. Over this past quarter, we have continued to make good progress towards our goal of accelerating patient access to evidence-based innovation in mental health care to enable people to live happier and healthier lives. To achieve this mission takes leadership. And to us, this means building and executing in a number of critical areas, which include late-stage clinical development programs, robust IP, a broad pipeline, active discussions with regulators and payers, digital capabilities to enhance the patient experience, and an experienced and expert team. Let me go into more detail on each of these. Our Phase IIb trial of COMP360 psilocybin therapy for treatment-resistant depression, or TRD, for 216 patients is, as far as we know, the largest clinical trial to date in psilocybin therapy. Trial recruitment is approaching completion, and we are on track to report top-line data by the end of the year. We're already working with regulators to design our Phase III plan and expect to move rapidly into that phase pending the results of our Phase IIb trial. Earlier this quarter, we received two further U.S. patent grants covering a composition of matter for the polymorph used in our high-purity crystalline COMP360 psilocybin and methods of treating major depressive disorder, or MDD, with this formulation and oral dosage forms of crystalline psilocybin and methods of treating MDD. Our innovation now has been recognized with six granted patents, including three in the United States, two in the U.K., and one in Germany. We also have a number of active patent applications covering our drug substances and how they are used for the treatment of a range of psychiatric and neurological conditions, including TRD and MDD. Last month, data from an independent investigator-initiated study using COMP360 was published in the New England Journal of Medicine. This is the first of a number of investigator-initiated studies using COMP360 to report data, and was an exploratory study designed and conducted by a research team at Imperial College London. The study aim was to compare the efficacy and mechanisms of action of psilocybin with a six-week course of the SSRI escitalopram for MDD. The study showed signals of positive activity in COMP360 psilocybin when compared with escitalopram, and concluded that psilocybin findings should be explored further in larger studies. The Imperial College study is one of many signal-generating studies that COMPASS is supporting with COMP360 psilocybin in indication areas of unmet need, including anorexia, autism, bipolar type 2 disorder, body dysmorphic disorder, chronic cluster headache, depression in cancer, MDD, severe TRD, and suicidal ideation. These investigator-initiated studies may provide signals that we can explore further and move quickly into our clinical development program. Our preclinical program is also progressing well, with more than 20 studies completed last year and 23 new studies currently underway. Our discovery center, led by Dr. Jason Wallach at the University of the Sciences in Philadelphia, is continuing to expand and is researching new optimized psychedelic compounds targeting the 5-HT2A receptor, a receptor in the brain that has been implicated in mental health illnesses. COMPASS will be the exclusive licensee for all new compounds generated. This work is in its early stages, but we believe it will enable us to broaden our portfolio beyond psilocybin therapy. In late April, we priced a financing. This funding gives us additional resources needed to accelerate and enlarge these research efforts. On behalf of the entire COMPASS Pathways team, I want to thank and welcome our new investors who have joined us on this journey. The COMPASS team continues to grow as we build on our leadership position. We are rapidly building a team of digital experts who are researching and developing technology applications to improve the safety, efficacy, and accessibility of our therapies. We believe these technologies will enable us to deliver therapy at scale, and to provide personalized care pathways in mental health that could help predict and prevent deterioration and relapse. This quarter, we welcomed Dr. Wayne J. Riley to our Board of Directors. A primary care physician and an academic, Wayne has more than 25 years of experience encompassing clinical and academic medicine and has dedicated his career to patients and to improving health care services. Wayne is currently President of the State University of New York Downstate Health Sciences University Brooklyn. He also serves as Chairman of the Board of the New York Academy of Medicine, an elected member of the U.S. National Academy of Medicine, a Commissioner of the U.S. Medicare Payment Advisory Commission and President of the Society of Medical Administrators. He is a President Emeritus of the American College of Physicians and a member of the Board of Directors of HCA Healthcare. We are thrilled to have Wayne on our Board and look forward to benefiting from his breadth of experience. We're also delighted to welcome Anne Benedict as our Chief People Officer. Anne brings more than 25 years of global experience in human resources, talent and organizational development. With that, I will now hand over to Piers, who will give you an update of our financial results for the quarter. Piers?

Piers Morgan, Chief Financial Officer

Thank you, George. The company continues to maintain a strong financial position, with cash and cash equivalents of $179.5 million at March 31, 2021, compared with $190.3 million at December 31, 2020. We also recently raised an additional $144 million before underwriter fees and expenses. This is expected to fund operations through the end of 2023. I will now recap our financial results for the three months ended March 31, 2021. The loss from operations for the three months ended March 31, 2021 amounted to $13.6 million compared with $8.7 million for the prior year period. The loss from operations included noncash share-based compensation expense of $1.7 million for the three months ended March 31, 2021, compared with $1.8 million noncash share-based compensation in the prior period. Research and development expenses for the first quarter of 2021 amounted to $6.9 million, an increase of $1.7 million compared with the first quarter of 2020. This increase in research and development expenses compared with the prior year period was primarily attributable to, one, an increase of $0.6 million in development expenses, which primarily relates to an increase of $1.0 million in clinical trial expenses, offset by a decrease of $0.4 million in preclinical studies supporting our investigational COMP360 psilocybin therapy development. Two, an increase of $0.8 million in personnel expenses, mainly in digital and clinical activities. Three, a decrease of $0.1 million in noncash share-based compensation. And four, an increase of $0.4 million in other expenses, which was primarily related to increases in consulting and regulatory compliance expenses. General and administrative expenses were $6.7 million for the first quarter of 2021 compared with $3.5 million for the same period in 2020. The increase in general and administrative expenses compared with the prior year was primarily attributable to: firstly, an increase of $1.4 million in personnel costs, primarily additional personnel in general, administrative and commercial functions to support our growth initiatives, including our transition to a public company. Secondly, an increase of $0.1 million in noncash share-based compensation. Thirdly, an increase of $0.6 million in legal and professional fees primarily related to expenses associated with operating as a public company; and fourthly, an increase of $1.1 million in facilities and other expenses, including rent, depreciation, and insurance. Other income for the first quarter of 2021 amounted to $0.9 million compared with other income of $0.1 million for the corresponding period in 2020. The increase in other income amounting to $0.8 million compared with the prior year was primarily attributable to: firstly, a net movement of minus $0.7 million in foreign exchange arising from a loss on foreign exchange of $0.6 million in the first quarter of 2021 compared with a gain on foreign exchange of $0.1 million in the first quarter of 2020. Secondly, a net movement of plus $1.0 million on the fair value of convertible notes, reflecting an amount of no dollars in the first quarter of 2021 compared with a loss of $1.0 million in the corresponding period of 2020. And thirdly, an increase of $0.5 million in other expenses, which was primarily related to an increase in the benefit from R&D tax credit of $0.5 million to $1.6 million compared with $1.1 million in the first quarter of 2020. The net loss was $12.7 million or $0.35 loss per share for the first quarter of 2021 compared with a net loss of $8.6 million or $0.93 loss per share during the same period in 2020. And with that, I hand you back to George.

George Goldsmith, Chairman and CEO

Thank you, Piers. We believe that our progress over the last few months reflects our leadership position in advancing evidence-based therapies for mental health care. We have the resources to move even faster, and we intend to accelerate our preclinical research programs of novel psychedelic compounds to expand our clinical development program for COMP360 psilocybin therapy into new indications and to continue to develop our digital solutions to improve patient experience. We look forward to reporting on these and other initiatives in the months ahead. Thank you for your time today and for your interest in COMPASS. With that, we will now open the line for questions. Operator?

Operator, Operator

Our first question comes from Josh Schimmer with Evercore ISI.

Joshua Schimmer, Analyst

Starting to see a number of other psychedelic drug development companies emerging, and I think it's maybe a good time to come back and maybe refresh for us, what makes COMPASS unique in this field? And how do you plan on retaining your first-mover advantage?

George Goldsmith, Chairman and CEO

Thanks, Josh. I appreciate it. I think our key differentiators are the things that we started today's discussion with. We have a late-stage program. We have robust IP. We have team expertise across all the disciplines required not only to develop this as a medicine, but also to make it available and accessible to patients regardless of their ability to pay. We have strong relationships with regulators and have been working with them since actually before the beginning of the company as well as payers, to make sure that our research was generating the evidence because we are an evidence-based company. And I think really looking strongly at innovative care delivery models and centers of excellence, and we've announced those in the past, and we'll continue to make progress in that area. And that includes the integration of therapy technology in medicine because we are a 21st century company. Additionally, we have pipeline now with additional indications and additional substances that are in the discovery center. And I think most importantly, given the financial fundraising we did, we're very well funded. And I think that gives us the ability to execute, as we've demonstrated we can, on all of those items I just mentioned. I hope that's helpful.

Joshua Schimmer, Analyst

It is. Do you ultimately expect psychedelic centers to be a fragmented group or a more consolidated group of entities, like we might see in the dialysis setting?

George Goldsmith, Chairman and CEO

I think given the scope of the unmet need relative to dialysis, we'd expect to see it as a more diverse group. And our goal is to work with many different types of those in the future.

Operator, Operator

Our next question comes from Charles Duncan with Cantor Fitzgerald.

Charles Duncan, Analyst

George and team, congratulations on your progress. I have a question regarding a potential builder. You mentioned the Imperial College research and the recent article in the New England Journal of Medicine. I would like to know if you could share more insights on the key takeaways related to trial conduct and design, as well as the data from that trial, and whether it influences your strategy. What lessons did you learn?

George Goldsmith, Chairman and CEO

Thank you, Chaz. First, this was an independent investigator-initiated trial, so we weren't involved in the design, but we have a lot of confidence in the team and their approach. We found the data to be encouraging, as it aligns with trends we've observed in other investigator-initiated studies involving patients with depression. The results show promising signals for psilocybin compared to the leading SSRI, escitalopram. However, the trial wasn't fully powered to confirm that, so we need to consider several factors, including the differences between this trial and our Phase II trial, such as the patient population. Our trial focuses on patients referred by physicians who have experienced two to four medication failures, which results in different endpoints. They utilized QIDS while we use MADRS. What stood out from this trial is the immediate and sustained reduction in depression symptoms for participants receiving a 25-milligram dose, consistent with previous findings. This trial involved two doses, whereas our Phase IIb trial tests a single dose. Nevertheless, we noted a lasting impact right before the second dose after three weeks. This gives us confidence in the design. We remain committed to addressing treatment-resistant depression as our starting point, but we're also open to exploring other challenging forms of depression in the future. That's the essence of our perspective, and I'm happy to take any follow-up questions if you have them.

Charles Duncan, Analyst

No. No, that's very good, helpful, George. So a signal-seeking study that provided a good signal. I guess I'm wondering then, as you think about the Phase IIb you actually mentioned working to design a Phase III, and I know this is a little premature to ask about what that design would be. But I guess I'm wondering if you think you'll be in a position to operationalize a Phase III within a reasonable time frame in '22, say, by midyear or around that time, assuming that the data are clear out of the Phase IIb.

George Goldsmith, Chairman and CEO

I think that's a really great question. So as you know, our mission is to accelerate patient access to evidence-based innovation. So that accelerate means a lot to us, and we tend to do things concurrently and do a lot of forward planning. So we have already discussed Phase III programs with contingencies, obviously, depending on what we would see with regulators. Our goal is very much to be in Phase III as quickly as possible. And part of that means our whole team is very focused on all the bits required for an end of Phase II meeting with the FDA, and then similar approaches in other countries. So I think that we're all about moving as quickly as possible. Obviously, the results from our Phase IIb trial are critically important to inform the design, but we've tried to anticipate those and have a variety of scenarios ready to go when the time is right. So I think we just continue with our ability to execute more closely with regulators and do that as early as possible. By the way, we also include payers in that because, as you know, we feel strongly that our regulatory approval is simply seeing the starting line, that we really need to be understanding how to make this accessible to patients in the best way possible. And so even looking at the health economic requirements in our Phase III trial, as we have in Phase II, is really a critical differentiator for us. It may touch back on Josh's question as well.

Charles Duncan, Analyst

Very good. I like it. Accelerators. Thanks for the added color, George.

Operator, Operator

Our next question comes from Ritu Baral with Cowen.

Ritu Baral, Analyst

I wanted to just start by asking about the ongoing conduct of the Phase IIb. Can you talk about how dropouts have been going and the interim safety looks? And if there's any safety observations that you've seen to date? And I've got a follow-up.

George Goldsmith, Chairman and CEO

Sure. We do not disclose dropout rates or similar information, but the study has been progressing beyond our expectations. We are pleased with the progress we’ve made and remain committed to our end-of-year reporting timeline. Regarding the top-line data on serious unexpected adverse reactions in this trial, the incidents we have observed in this population are unfortunately expected and well within our projections. There has not been any requirement from our Data Safety Monitoring Board or regulators to amend our protocol. Addressing the significant unmet needs of this population is a fundamental reason for conducting this work. We have not encountered any unexpected safety issues in our reviews as we move forward. Did that address your first question, Ritu?

Ritu Baral, Analyst

Yes. So I wanted to also ask about some of the digital health management initiatives that you're developing as wraparound, I guess, measures and care for TRD and potentially MDD. Are there any that have been implemented in the Phase IIb that we will hear about when you top line data? Or is this something that's going to be reserved for Phase III?

George Goldsmith, Chairman and CEO

As we've mentioned before, we have a partnership with Mindstrong, and a small group of our patients in English-speaking regions using Android have shared data. This will be included in our exploratory package for Phase IIb. Additionally, some team members from that project have joined our company, and we will continue to explore these types of endpoints. As you are aware, many of the current endpoints are traditional paper-and-pencil methods developed in the 1970s and 1980s. There is a significant opportunity to create new measures suited for the 21st century. We are focusing on this and will provide more updates as we progress.

Ritu Baral, Analyst

Got it. And one last question if I can fit it in. You mentioned a lot of the patent filings as well as issued patents. You outlined polymorph, composition related to polymorph, method of use for the polymorph, and then other methods. Can you provide us with a bit more detail about the strategy behind those other methods?

George Goldsmith, Chairman and CEO

When you say other methods, do you have specific things that you are inquiring about?

Ritu Baral, Analyst

Specifically, potentially, I guess, disease states, whether it's TRD, MDD, and beyond for the polymorph or the strategy around, I guess, the wraparound psychological support.

George Goldsmith, Chairman and CEO

Sure. There are a few key points I'd like to highlight. First, we are conducting a strong series of Phase I studies and preclinical work, moving into Phase I. Our goal is to address areas of high unmet need beyond Treatment-Resistant Depression and Major Depressive Disorder, as we have previously mentioned. We aim to advance in a manner that instills confidence in investors regarding these areas. Regarding our focus on the specific polymorph and its applications, we are dedicated to safeguarding what we have developed. This has been a crucial element of our efforts. Additionally, when we discuss therapeutic wraparound, we recognize the significant work that has been done over the years to show its importance. This must remain a central focus to ensure integration of patient support with the molecule. As we progress and our life cycle evolves, it's essential that these aspects consistently connect for patient safety and outcomes. I also want to clarify that we've received some comments that are misleading. We are not trying to patent room decor, soft furniture, music, or any individual items that have been misrepresented in our patent applications and on social media. This is similar to how a syringe would be discussed in a chemotherapy patent. I wanted to be explicit about that, and I appreciate your question allowing me to clarify this. Did that address your concerns?

Ritu Baral, Analyst

Got it. Yes.

Operator, Operator

Our next question comes from Sumant Kulkarni with Canaccord.

Sumant Kulkarni, Analyst

I have a few here. So first one, you mentioned that you've already engaged with regulators and potential next steps. Does this include the FDA? And could you share any early findings on anything that's specifically new, interesting or different in the way these regulators might be thinking about COMP360's trial designs relative to your ongoing Phase IIb?

George Goldsmith, Chairman and CEO

We have breakthrough therapy designation and are actively engaging with regulators to enhance our program. These discussions are ongoing, and until we have results, there isn't much more to share. The dialogues we are having with payers and regulators are productive, as they recognize the significant unmet need and are looking for ways to expedite patient access to potential solutions in these areas.

Sumant Kulkarni, Analyst

Got it. Given the potentially long duration of action of psilocybin, is there some sort of statutory limitations beyond which adverse events may not be considered product-related? And on that note, as the COMP360 program evolves, what are your latest thoughts on forward integration into the clinics to have more control over the way that COMP360 may be administered?

George Goldsmith, Chairman and CEO

Regarding the first question, I find it quite intriguing. It's a topic we grapple with and will discuss with regulators, particularly considering long-term durability. We've observed this in some of our trials where participants' life circumstances may affect outcomes after a few weeks. The question arises whether that can be attributed to COMP360 or to psilocybin itself. This is a new area we're exploring, especially given the long durability observed from a single trial, and it's something we will certainly bring up in discussions. However, I can't provide a definitive answer at this time. As for your second question, I apologize, Sumant.

Sumant Kulkarni, Analyst

So it was on forward integration into clinic.

George Goldsmith, Chairman and CEO

We are actively exploring how to ensure proper reimbursement. This work is ongoing, and as we get closer to our Phase III infrastructure and sites, it’s important that we create a smooth transition to widespread implementation.

Sumant Kulkarni, Analyst

Okay. And my last question is a specific one on chemistry and intellectual property. Is it even possible to synthesize any formulations of psilocybin that do not include your polymorph? And would they have pharmaceutical activity?

George Goldsmith, Chairman and CEO

I can't answer that question. It would be speculative on my part, and I'm not a chemist. We're confident in the work we've done to protect our polymorph, but I can't comment on what others might do or be able to do.

Operator, Operator

Our next question comes from Esther Hong with Berenberg.

Esther Hong, Analyst

I've got two questions. So first, I wanted to dig deeper into the number of doses administered in the ongoing Phase IIb study, versus academic studies. So can you provide more details on the decision to move forward with a single dose versus two doses, which are administered in some of the IIS studies, and understanding that COMPASS did not design those academic studies? And then I've got a follow-up.

George Goldsmith, Chairman and CEO

Thank you, Esther, for breaking down the questions. The first question ties back to our mission of speeding up evidence-based innovation and collaborating with regulators and payers to bring solutions to patients. There are critical unresolved questions that must be addressed to focus on delivering this to patients. One of these is determining the appropriate dose, and another is assessing how our group performs. In previous studies, we observed significant variability; some individuals report benefits lasting for months or longer from a single dose, while others do not respond at all, and some show intermediate responses. It is our duty to conduct socially responsible development by understanding who benefits and for how long. Without administering a single dose and monitoring patients over time, we cannot answer this essential question and ensure we use health resources wisely. Therefore, we opted for this approach. The investigators are exploring this in ways that will benefit our future and that of other companies in the field. It is important for us to explore responsibly as we work towards bringing this to patients.

Esther Hong, Analyst

Great. Got it. And then the next question is also on patents. So the company has now six granted patents in the U.S. including a recently granted one on an oral dosage form of psilocybin. So I was wondering what indication this form could best be used?

George Goldsmith, Chairman and CEO

Sure. We are exploring a variety of different indications and ways of administering psilocybin. And so this is just to protect that area of investigation as we go into other indications that we've disclosed in our plans, things that we're looking at in terms of difficult-to-treat MDD, PTSD, etc. So this just helps protect those areas for us.

Operator, Operator

And there's no other questions in the queue. I'd like to turn the call back to management for closing remarks.

George Goldsmith, Chairman and CEO

Thank you very much. We're really grateful for the support among our investors and our analysts. We are working hard to bring this to patients as soon as possible. It's very clear that post-COVID, these issues are becoming, in mental health and mental health suffering, even more pronounced. And we retain our commitment to accelerate patient access to evidence-based innovation in order to help people live happier and healthier lives. Thank you.

Operator, Operator

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.